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U.S. Securities and Exchange CommissionWashington, D. C. 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2010


Commission File Number 000-54116

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

CaliforniaState or other jurisdiction of
incorporation of organization

20-5344927I.R.S. Employer
Identification No.




2141 Rosecrans Avenue, Suite 1160
El Segundo, California 90245(Address of principal executive offices) (Zip Code)



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

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

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

Common Stock(Title of class)

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

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

Indicate by check mark whether the registrant (1) 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 o    No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this
chapter) 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 definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o

Accelerated filer o

Non-accelerated filer o (Do not check if a
smaller reporting company)

Smaller Reporting Company ý


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

The aggregate market value of common equity held by non-affiliates computed by reference to the average bid and asked price of such common equity, as
of June 30, 2010 was approximately $9,868,985.

As
of March 24, 2011, there were 3,987,631 shares of the issuer's common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions
of the issuer's definitive proxy statement for the 2011 annual meeting of shareholders are incorporated by reference in Part III of this Annual Report.



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Manhattan Bancorp
December 31, 2010
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PagePART IItem 1

Business


3Item 1A

Risk Factors


17Item 1B

Unresolved Staff Comments


22Item 2

Properties


22Item 3

Legal Proceedings


22Item 4

Removed and Reserved


23PART IIItem 5

Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities


23Item 6

Selected Financial Data


25Item 7

Management's Discussion and Analysis of Financial Condition and Results of Operation


26Item 7A

Quantitative and Qualitative Disclosures About Market Risk


44Item 8

Financial Statements and Supplementary Data


45Item 9

Changes in and Disagreements With Accountants on Accounting and Financial Disclosure


82Item 9A

Controls and Procedures


82Item 9B

Other Information


82PART IIIItem 10

Directors, Executive Officers and Corporate Governance


83Item 11

Executive Compensation


83Item 12

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters


83Item 13

Certain Relationships and Related Transactions, and Director Independence


83Item 14

Principal Accountant Fees and Services


83PART IVItem 15

Exhibits and Financial Statement Schedules


84Signatures


85


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FORWARD-LOOKING STATEMENTS

This Annual Report on 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. 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; 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; and management's ability to manage the Company's operations. For further discussion of these and other risk factors,
see "Item 1A. Risk Factors."

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

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PART I

ITEM 1.    BUSINESS

General

Manhattan Bancorp, a California corporation ("Bancorp") was incorporated in August 2006. Bancorp has one banking subsidiary, Bank of
Manhattan, N.A. (the "Bank"). The Bank is a nationally-chartered banking association organized under the laws of the United States, which commenced its banking operations on August 15, 2007.
Bancorp operates primarily through the Bank, and the investment in the Bank is its principal asset. The Bank is located in El Segundo, California and at December 31, 2010 had
$151 million in assets, $91 million in net loans receivable and $124 million in deposits.

On
October 1, 2009, Bancorp, through its wholly-owned subsidiary, MBFS Holdings, Inc. ("MBFS"), acquired a 70% interest in BOM Capital, LLC (formerly Bodi
Capital LLC) ("BOMC"), a full-service mortgage-centric broker/dealer. On November 30, 2010, a recapitalization and restructuring was completed whereby a newly-formed limited
liability company, Manhattan Capital Markets LLC ("MCM"), acquired 100% of BOMC in a multi-step transaction. MBFS holds a 70% interest in MCM. MCM is located in Calabasas,
California and at December 31, 2010 had $2 million in assets primarily in cash or cash equivalent balances. References throughout the remainder of this Annual Report on
Form 10-K to MCM shall be deemed to include BOMC and MCM's other direct and indirect subsidiaries.

Bancorp
is registered as a bank holding company under the Bank Holding Company Act of 1956, as amended, and is subject to examination and regulation by the Federal Reserve Board (the
"FRB"). The Bank is subject to supervision, examination and regulation by the Office of the Comptroller of Currency ("the "OCC"). As a nationally chartered financial institution, the Bank is a Federal
Reserve Bank member. The Bank's deposits are insured by the Federal Deposit Insurance Corporation (the "FDIC") up to the maximum limits thereof.

Unless
the context requires otherwise, references in this Annual Report on Form 10-K to the "Company," "we" or "us" refers to Bancorp and its consolidated
subsidiaries, the Bank and MBFS, and its subsidiary, MCM.

Banking Services

The Bank's primary goal is to operate and grow into a profitable community-oriented financial institution serving primarily
entrepreneurs, small and medium-sized businesses, business service professionals and owners/owner-users of commercial, industrial, and multi-family properties in the Los Angeles County market area.

The
Bank promotes relationship-based products and services to meet the banking 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 does offer both secured and
unsecured commercial term loans and lines of credit, and construction loans for individual and commercial properties. To a much lesser extent, the Bank has made home equity and other consumer loans.
In October 2010, the Bank began to originate consumer mortgages with the intent to resell the majority of such loans to qualified investors. The Bank has not, nor does it intend, to originate loans
that are deemed sub-prime credits.

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

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electronically.
It also offers qualified customers the ability to process deposits through remote item capture from their place of business.

Capital Market Services

The Company offers mortgage related advisory and broker/dealer services through its indirect subsidiary MCM. MCM provides both fee and
incentive based consulting services to banks, mortgage bankers and institutional investors. MCM's subsidiary, BOMC, trades mortgage loans and mortgage backed securities with institutional investors.
BOMC is subject to regulatory supervision by the Financial Industry Regulatory Authority ("FINRA") and the U.S. Securities and Exchange Commission ("SEC"). Further, the Federal banking agencies expect
banking organizations in their oversight role over functionally regulated subsidiaries, such as registered investment advisors, to assure appropriate controls are maintained that include establishing
alternative sources of emergency support from the parent holding company, non-bank affiliates or external third parties, prior to seeking support from the bank; instituting effective
policies and procedures for identifying potential circumstances triggering the need for financial support and the process for obtaining such support; implementing effective controls, including stress
testing and compliance reviews; implementing policies and procedures to ensure compliance with disclosure and advertising requirements to clearly differentiate the investments in advised funds from
obligations of the bank or insured deposits; and ensuring proper management, regulatory and financial reporting of contingent liabilities arising out of
its investment advisory activities. The Company believes it has taken appropriate action to implement and audit compliance with these requirements.

Incentive
based investment advisory services are provided through Manhattan Investment Management Services Inc. ("MIMS") an indirect wholly-owned subsidiary of MCM. MIMS currently
has an application pending with the State of California to be a registered Investment Adviser and will be regulated by the State of California, if approved.

MCM
also provides consulting services to others through its two other indirect wholly-owned subsidiaries Manhattan Advisor Services Inc, ("MASI"), which provides general consulting, and
Manhattan Mortgage Warehouse Inc. ("MMW"), which specializes in mortgage warehouse lending consulting.

Competition and Geographic Market Area

The relevant geographical market for the Bank is Los Angeles County. Utilizing the El Segundo headquarters as the hub, the Bank's
business development officers serve existing and solicit prospective customers from outlying areas, such as the South Bay, Westside, downtown Los Angeles, South Los Angeles and other surrounding
communities. As a business-oriented bank, most of the day-to-day banking activity is conducted through the use of in branch banking services and remote deposit capture devices.

The
banking business in California generally, and specifically in the market area which we serve, 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, as well as with 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, the business 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

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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 has also 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.

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 management sophistication not universally found at local community banks.

As
noted above, our primary service area consists of the County of Los Angeles, with a particular emphasis on the Westside, South Bay and Los Angeles airport areas. As in most major U.S.
cities, large banks dominate the banking industry in Los Angeles County. However, rather than these large financial institutions, 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.

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, 2010 there were nine relationships representing approximately 42.5% of all Bank deposits.

Employees

As of December 31, 2010, the Company had 73 full-time employees. None of our employees are represented by a union or
covered by a collective-bargaining agreement.

Economic Conditions and Legislative and Regulatory Developments

The Company's profitability, like most financial institutions, is primarily dependent on interest rate differentials. These rates are
highly sensitive to many factors that are beyond the Company's control and cannot be predicted, such as inflation, recession and unemployment, and the impact that future changes in domestic and
foreign economic conditions might have on the Company cannot be predicted.

The
Company's business is also influenced by the monetary and fiscal policies of the Federal government and the policies of regulatory agencies. The FRB implements national monetary
policies (with objectives such as maintaining price stability and reducing unemployment) through its open-market operations in U.S. Government securities, by adjusting the required level
of reserves for depository institutions subject to its reserve requirements, and by varying the target Federal funds and discount rates applicable to borrowings by depository institutions. The actions
of the FRB in these areas influence the

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growth
of bank loans, investments, and deposits and also affect interest earned on interest-earning assets and interest paid on interest-bearing liabilities. The nature and impact of any future
changes in 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 economic downturn and financial industry instability, legislative and regulatory initiatives
were, and are expected to continue to be, introduced and 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, and this has resulted in the increased issuance and continuation of
enforcement actions to financial institutions requiring action to address credit quality, liquidity and risk management and capital adequacy, as well as other safety and soundness concerns.

The Dodd-Frank Wall Street Reform and Consumer Protection Act ("Dodd-Frank")

Dodd-Frank represents landmark legislation, which followed other legislative and regulatory initiatives in 2008 and 2009 in
response to the recent economic downturn and financial industry instability. 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. Dodd-Frank includes, among other things, the following: (i) the creation of a Financial Services Oversight Counsel
to identify emerging systemic risks and improve interagency cooperation; (ii) expanded FDIC resolution authority to conduct the orderly liquidation of certain systemically significant
non-bank financial companies in addition to depository institutions; (iii) the establishment of strengthened capital and liquidity requirements for banks and bank holding companies,
including minimum leverage and risk-based capital requirements no less than the strictest requirements in effect for depository institutions as of the date of enactment;
(iv) enhanced regulation of financial markets, including the derivative and securitization markets, and the elimination of certain proprietary trading activities by banks;
(v) requirement by statute that bank holding companies serve as a source of financial strength for their depository institution subsidiaries; (vi) the elimination and phase out of trust
preferred securities from Tier 1 capital with certain exceptions; (vii) a permanent increase of the previously implemented temporary increase of
FDIC deposit insurance to $250 thousand and an extension of Federal deposit coverage until January 1, 2013 for the full net amount held by depositors in non-interesting
bearing transaction accounts; (viii) authorization for financial institutions to pay interest on business checking accounts; (ix) changes in the calculation of FDIC deposit insurance
assessments, such that the assessment base will no longer be the institution's deposit base, but instead, will be its average consolidated total assets less its average tangible equity and increase
the minimum reserve ratio for the Deposit Insurance Fund (the "DFI") from 1.15% to 1.35%; (x) the elimination of remaining barriers to de novo interstate branching by banks;
(xi) expanded restrictions on transactions with affiliates and insiders and lending limits for derivative transactions, repurchase agreements and securities lending and borrowing transactions;
(xii) the transfer of oversight of Federally chartered thrift institutions to the OCC and state-chartered savings banks to the FDIC, and the elimination of the Office of Thrift Supervision;
(xiii) provisions that affect corporate governance and executive compensation at most United States publicly traded companies, including (1) stockholder advisory votes on executive
compensation, (2) executive compensation "clawback" requirements for companies listed on national securities exchanges in the event of materially inaccurate statements of earnings, revenues,
gains or other criteria, (3) enhanced independence requirements for compensation committee members, and (4) authority for the SEC to adopt proxy access rules which would permit
stockholders of publicly traded companies to nominate candidates for election as director and have those nominees included in a company's proxy statement; and (xiv) the creation of a Consumer
Financial Protection Bureau, which is authorized to promulgate and enforce consumer protection regulations relating to bank and non-bank financial products and examine and enforce these
regulations on banks with more than $10 billion in assets.

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The Company cannot predict the extent to which the interpretations and implementation of this wide-ranging Federal legislation may affect it. Many of
the requirements of Dodd-Frank will be implemented over time and most will be subject to regulations implemented over the course of several years. There can be no assurance that these or
future reforms (such as possible new standards for commercial real estate lending or new stress testing guidance for all banks) arising out of studies and reports required by Dodd-Frank
will not significantly increase the Company's compliance or other operating costs and earnings or otherwise have a significant impact on its business, financial condition and results of operations.
Dodd-Frank is likely to impose more stringent capital, liquidity and leverage requirements or otherwise adversely affect the Company's business. As a result of the changes required by
Dodd-Frank, the profitability of the Company's business activities may be impacted and it may be required to make changes to certain of its business practices. These changes may also
require the Company to invest significant management attention and resources to evaluate and make any changes necessary to comply with new statutory and regulatory requirements.

EESA and ARRA

Previous legislation enacted in response to the recent economic downturn and financial industry instability included the Emergency
Economic Stabilization Act of 2008 ("EESA"), enacted on October 3, 2008, and the American Recovery and Reinvestment Act of 2009 ("ARRA"), enacted on February 17, 2009. Pursuant to EESA,
the United States Department of the Treasury ("U.S. Treasury") was authorized to create the $700 billion Troubled Assets Relief Program ("TARP") to purchase, insure, hold and sell a wide
variety of financial instruments, and, as implemented under the Capital Purchase Program ("CPP"), included authorization for up to $250 billion in senior preferred stock of qualifying United
States banks and savings associations or their holding companies.

In
order to participate in the CPP, financial institutions were required to adopt certain standards for executive compensation and corporate governance imposed by EESA. These standards
generally applied to the Chief Executive Officer, Chief Financial Officer and the three next most highly compensated senior executive officers. The standards included (1) ensuring that
incentive compensation for senior executives did not encourage unnecessary and excessive risks that threaten the value of the financial institution; (2) required clawback of any bonus or
incentive compensation paid to a senior executive based on statements of earnings, gains or other criteria that were later proven to be materially inaccurate; (3) prohibition on making golden
parachute payments to senior executives; and (4) agreement not to deduct for tax purposes executive compensation in excess of $500 thousand for each senior executive.

ARRA
amended EESA and imposed certain new, more stringent executive compensation and corporate expenditure limits on all current and future TARP recipients. The executive compensation
standards under ARRA include, but are not limited to, (i) prohibitions on bonuses, retention awards and other incentive compensation, other than restricted stock grants which do not fully vest
during the TARP period up to one-third of an employee's total annual compensation, (ii) prohibitions on golden parachute payments for departure from a company, (iii) an
expanded clawback of bonuses, retention awards, and incentive compensation if payment is based on materially inaccurate statements of earnings, revenues, gains or other criteria,
(iv) prohibitions on compensation plans that encourage manipulation of reported earnings, (v) retroactive review of bonuses, retention awards and other compensation previously provided
by TARP recipients if found by the U.S. Treasury to be inconsistent with the purposes of TARP or otherwise contrary to the public interest, (vi) required establishment of a companywide policy
regarding "excessive or luxury expenditures," and (vii) inclusion in a participant's proxy statements for annual stockholder meetings of a non-binding "Say on Pay" stockholder vote
on the compensation of executives.

The
Company elected to participate in the CPP and in December 2008 issued $1.7 million worth of preferred stock to the Treasury Department pursuant to this program. Following the
receipt of additional capital from a private placement, the Company sought and received permission to repurchase the $1.7 million worth of preferred stock form the Treasury Department in
September 2009. Shortly thereafter,

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the
Company reached an agreement regarding the value of the warrant issued in conjunction with the CPP with the redemption completed in October 2009. Certain reporting requirements associated with the
Company's participation continued into 2010. The Company complied with all such requirements through August 31, 2010, the date on which it ceased being subject to such requirements.

International Capital and Liquidity Initiatives

The international Basel Committee on Banking Supervision (the "Basel Committee") is 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.
In December 2009, the Basel Committee released two consultative documents proposing significant changes to bank capital, leverage and liquidity requirements, commonly referred to as "Basel III." The
Group of Twenty Finance Ministers and Central Bank Governors (commonly referred to as the G-20), including the United States, endorsed the Basel III reform package and their proposed phase
in timelines in November, 2010. 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 (i) a "capital conservation buffer" on top of the minimum requirement designed to absorb losses in periods of financial and economic distress, and (ii) 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 at the
end of 2011.

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 implementing 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.

Dodd-Frank
also includes provisions related to increased capital and liquidity requirements. Such provisions would establish minimum leverage and risk-based
capital requirements on a consolidated basis for all depository institution holding companies and insured depository institutions that cannot be less than the strictest requirements in effect for
depository institutions as of the date of enactment, July 21, 2010.

Federal Banking Agency Compensation Guidelines

Guidelines adopted by the Federal banking agencies pursuant to the Federal Deposit Insurance Act ("FDI Act") prohibit excessive
compensation as an unsafe and unsound practice and describe compensation as excessive when the amounts paid are unreasonable or disproportionate to the services performed by an executive officer,
employee, director or principal stockholder. In June 2010, the Federal bank regulatory agencies jointly issued additional comprehensive guidance on incentive compensation policies (the "Incentive
Compensation Guidance") intended to ensure that the incentive compensation policies of banking organizations do not undermine the safety and soundness of such organizations by encouraging excessive
risk-taking. The Incentive Compensation Guidance, which covers all employees that have the ability to materially affect the risk profile of an organization, either individually or as part
of a

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group,
is based upon the key principles that a banking organization's incentive compensation arrangements should (i) provide incentives that do not encourage risk-taking beyond the
organization's ability to effectively identify and manage risks, (ii) be compatible with effective internal controls and risk management, and (iii) be supported by strong corporate
governance, including active and effective oversight by the organization's board of directors. Any deficiencies in compensation practices that are identified may be incorporated into the
organization's supervisory ratings, which can affect its ability to make acquisitions or perform other actions. The Incentive Compensation Guidance provides that enforcement actions may be taken
against a banking organization if its incentive compensation arrangements or related risk-management control or governance processes pose a risk to the organization's safety and soundness
and the organization is not taking prompt and effective measures to correct the deficiencies.

On
February 7, 2011, the Board of Directors of the FDIC approved a joint proposed rulemaking to implement Section 956 of Dodd-Frank for banks with
$1 billion or more in assets. Section 956 prohibits incentive-based compensation arrangements that encourage inappropriate risk taking by covered financial institutions and are deemed to
be excessive, or that may lead to material
losses. The proposed rule would move the U.S. closer to aspects of international compensation standards by 1) requiring deferral of a substantial portion of incentive compensation for executive
officers of particularly large institutions described above; 2) prohibiting incentive-based compensation arrangements for covered persons that would encourage inappropriate risks by providing
excessive compensation; 3) prohibiting incentive-based compensation arrangements for covered persons that would expose the institution to inappropriate risks by providing compensation that
could lead to a material financial loss; 4) requiring policies and procedures for incentive-based compensation arrangements that are commensurate with the size and complexity of the
institution; and 5) requiring annual reports on incentive compensation structures to the institution's appropriate Federal regulator. A joint rule making proposal will be published for comment
by all of the banking agencies and the SEC, among other agencies.

The
scope, content and application of the U.S. banking regulators' policies on incentive compensation continue to evolve in the aftermath of the economic downturn. It cannot be
determined at this time whether compliance with such policies will adversely affect the ability of the Company and the Bank to hire, retain and motivate key employees.

Supervision and Regulation

General

The Company, the Bank, MBFS and its subsidiary, MCM, are extensively regulated under both Federal and state law. Set forth below is a
summary description of certain laws that relate to the regulation of the Company and the various affiliated companies. The description does not purport to be complete and is qualified in its entirety
by reference to the applicable laws and regulations.

The Company

Bank Holding Company Regulation

As a bank holding company, Bancorp is subject to regulation and examination by the FRB under the Bank Holding Company Act of 1956, as
amended ("BHCA"). Accordingly, Bancorp is subject to the FRB's regulations and its authority to:



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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 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. Bancorp has not elected financial holding company status and neither Bancorp 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.

Securities Exchange Act of 1934

Bancorp is subject to the public reporting requirements of the Securities and Exchange Act of 1934, as amended, generally applicable to
publicly held companies. Its securities are registered with the SEC under Section 12(g) of the Exchange Act, which requires the filing of periodic reports and proxy statements, as well as
certain other reporting obligation.

Sarbanes-Oxley Act of 2002

Bancorp is subject to the Sarbanes-Oxley Act of 2002, which implements a broad range of corporate governance and accounting measures
for public companies designed to promote honesty and transparency in corporate America and better protect investors from corporate wrongdoing. The Sarbanes-Oxley Act's

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principal
legislation and the derivative regulation and rule-making promulgated by the Securities and Exchange Commission include:



The Bank

The Bank, as a nationally chartered bank, is subject to primary supervision, periodic examination, and regulation by the OCC. To a
lesser extent, the Bank is also subject to certain regulations promulgated by the FRB and the FDIC, as administrator of the 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.

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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 residual authority to:



Dividends

The ability of the Bank to pay dividends is subject to certain legal limitations. No national bank may pay dividends from its capital;
all dividends must be paid out of net profits then on hand, after deducting for expenses including losses and bad debts. The payment of dividends out of net profits of a national bank is further
limited by a limitation, which prohibits a bank from declaring a dividend on its shares of common stock until the surplus fund equals the amount of capital stock, or if the surplus fund does not equal
the amount of capital stock, until one-tenth of the bank's net profits of the preceding half-year, in the case of quarterly or semi-annual dividends, or the
preceding two consecutive half-year periods, in the case of annual dividends, are transferred to the surplus fund before each dividend is declared.

The
approval of the OCC is required, if the total of all dividends declared by a national bank in any calendar year shall exceed the total of its net profits for that year combined with
its net profits for the two preceding years, less any required transfers to surplus or a fund for the retirement of any preferred stock. The OCC has adopted guidelines, which set forth factors which
are to be considered by a national bank in determining the payment of dividends. A national bank, in assessing the payment of dividends, is to evaluate the bank's capital position, its maintenance of
an adequate allowance for loan and lease losses, and the need to review or develop a comprehensive capital plan, complete with financial projections, budgets and dividend guidelines. Therefore, the
payment of dividends by a national bank is also governed by its ability to maintain minimum required capital levels and an adequate allowance for loan and lease losses. Additionally, the OCC may
prohibit the payment of any dividend that would constitute an unsafe and unsound banking practice.

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The ability of Bancorp and any non-bank subsidiary to pay dividends may also be limited by applicable state law. For example, the California General
Corporation Law prohibits Bancorp 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 Bancorp's assets (exclusive of goodwill and deferred charges) would be at least equal to 125% of its liabilities and
the current assets of Bancorp would be at least equal to its current liabilities, or, if the average of its earnings before taxes on income and before interest expense of the two preceding fiscal
years was less than the average of its interest expense of the two preceding fiscal years, at least equal to 125% of its current liabilities.

Shareholders
are entitled to receive dividends only when and if declared by Bancorp's Board of Directors. Bancorp presently intends to follow a policy of retaining earnings, if any, for
the purpose of increasing its net worth and reserves. Accordingly, it is anticipated that no cash dividends will be declared in the foreseeable future, and no assurance can be given that Bancorp's
earnings will permit the payment of dividends of any kind in the future. The future dividend policy of Bancorp 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.

Capital Adequacy Requirements

Bank holding companies and banks are subject to various regulatory capital requirements administered by state and Federal banking
agencies. Increased capital requirements are expected as a result of expanded authority set forth in Dodd-Frank and the Basel III international supervisory developments discussed above.
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, 2010, Bancorp'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,
2009 and December 31, 2010, the Bank's Total Risk-Based Capital Ratio was 27.0% and 22.4% respectively, and its Tier 1 Risked-Based Capital Ratio was 25.8% and 21.2%
respectively.

Qualifying
capital is classified depending on the type of capital:



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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.

Bancorp
and the Bank are also 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%. All other institutions are required to maintain a leverage ratio of at least 100 to 200 basis points above the 3% minimum, for
a minimum of 4% to 5%. 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, 2010, the Bank's leverage capital ratio was 16.6%, and
the Company's leverage capital ratio was 18.1%, both ratios exceeding regulatory minimums.

Prompt Corrective Action Provisions

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

A
depository institution's capital tier under the prompt corrective action regulations will depend upon how its capital levels compare with various relevant capital measures and the
other factors established by the regulations. A bank will be: (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

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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 not treat a significantly undercapitalized institution as critically undercapitalized) based on supervisory
information other than the capital levels of the institution.

Deposit Insurance

The FDIC is an independent Federal agency that insures deposits, up to prescribed statutory limits, of Federally insured banks and
savings institutions and safeguards the safety and soundness of the banking and savings industries. The FDIC insures our customer 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 FDIC's
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 percent (from the former minimum of 1.15 percent) and removes

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the
upper limit on the designated reserve ratio (which was formerly capped at 1.5 percent) and consequently on the size of the fund; (2) requires that the fund reserve ratio reach
1.35 percent by 2020; (3) eliminates the requirement that the FDIC provide dividends from the fund when the reserve ratio is between 1.35 percent and 1.5 percent; 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 percent, but grants the FDIC sole discretion in determining
whether to suspend or limit the declaration or payment of dividends. The FDI Act continues to require that the FDIC's Board of Directors consider the appropriate level for the designated reserve ratio
annually and, if changing the designated reserve ratio, engage in notice-and-comment rulemaking before the beginning of the calendar year. The FDIC has set a
long-term goal of getting its reserve ratio up to 2% of insured deposits by 2027. In connection with these changes, the Company expects its FDIC deposit insurance premiums to increase.

On
February 7, 2011, the FDIC approved a final rule, 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 percent, 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 pay an additional premium equal to 50 basis points on every dollar of long-term, unsecured debt held as an asset
that was issued by another insured depository institution, excluding debt guaranteed under the Temporary Liquidity Guarantee Program (the "TLGP"), to the extent that all such debt exceeds
3 percent of the other insured depository institution's Tier 1 capital. The new rule is expected to take effect for the quarter beginning April 1, 2011.

The
Bank's FDIC insurance expense totaled $190 thousand for 2010. 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 totaled $10 thousand for 2010.

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 affect on the Company's earnings and could have a material adverse effect on the value of, or market for, Bancorp'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.

Interstate Banking and Branching

Under the Riegle-Neal Interstate Banking and Branch Efficiency Act of 1994, as amended by Dodd-Frank, bank
holding companies and banks generally have the ability to acquire or merge with banks in other states, and banks may also acquire or establish new branches to the same extent as banks established in
any other state and provided they satisfy supervisory requirements for such expansion. Interstate branches are subject to certain laws of the states in which they are located. The Bank presently has
no interstate branches.

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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 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 Bancorp 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 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.

ITEM 1A.    RISK FACTORS

In addition to the other information on the risks the Company faces and our management of risk contained in this annual report 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 Report on Form 10-K.

WE DO NOT HAVE A HISTORY OF PROFITABILITY.

The Company has incurred net losses of $4.7 million, $5.0 million, $4.4 million and $2.2 million for the
years ended December 31, 2010, 2009, 2008 and 2007, respectively. The losses that occurred during the current year were, to some degree, the results of anticipated costs associated with
developing our operating infrastructure. There were also unanticipated costs associated with executive management transitions. The effects of the current economic downturn may continue to adversely
impact the Company's overall financial performance and results of operations. There can be no assurance that the Company will achieve profitability in the future.

DIFFICULT MARKET CONDITIONS HAVE ADVERSELY AFFECTED OUR INDUSTRY.

Declines in the housing market over the past several years, with falling home prices and increasing foreclosures, unemployment and
under-employment, have negatively impacted the credit performance of mortgage loans and resulted in significant write-downs of asset values by many financial institutions. These write-downs have
caused many financial institutions to seek additional capital, to merge with larger and stronger institutions and, in some cases, to fail. Reflecting concern about the stability of the financial
markets generally and the strength of counterparties, many lenders and institutional investors have significantly reduced or ceased providing funding to borrowers, including to other financial
institutions. This market turmoil and tightening of credit have led to an increased level of commercial and consumer

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delinquencies,
lack of consumer confidence, increased market volatility and widespread reduction of business activity generally.

A
worsening of these conditions would likely exacerbate the adverse effects of these difficult market conditions on the Company and others in the banking industry. In particular, the
Company may face the following risks in connection with these events:



Overall,
during the past several years, the general business environment has had an adverse effect on business in our market area and there is no assurance that the environment will
improve in the near future. Until conditions improve, we expect that our business, financial condition and results of operations will be negatively impacted.

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.

A substantial majority of our assets and deposits have been and will be generated in Southern California, and at December 31,
2010, approximately 59% of the Company's loans were real estate loans, most of which are secured by real property in Southern California. During 2010, the real estate market in Southern California
continued to deteriorate significantly, as evidenced by declining prices, reduced transaction volume, and increased foreclosure rates, and this deterioration may be expected to result in an increase
in the level of the Company's nonperforming loans, particularly commercial real estate loans. When real estate prices decline, the value of real estate collateral securing the Company's loans is
reduced. As a result, the Company may experience greater charge-offs and, similarly, its ability to recover on defaulted loans by foreclosing and selling the real estate collateral may be
diminished and as a result the Company is more likely to suffer losses on defaulted loans. If this real estate trend in the Company's 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 the Company's financial condition and results of operations.

WE MAY SUFFER LOSSES IN OUR LOAN PORTFOLIO DESPITE STRICT ADHERENCE TO UNDERWRITING PRACTICES.

The Company attempts 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

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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 make, 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 the Company's underwriting practices
prove to be ineffective, the Company may incur losses in its 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. This is also the practice of the Company's independent
auditors. A review of the Bank's loans was completed as recently as October 2010 by a third party loan review, where all recommendations regarding the risk weighting of bank credits 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, the Company faces intense competition for loans, deposits, and other financial products and
services. Increased competition within the Company's pricing market may result in reduced loan originations and deposits. Ultimately, the Company may not be able to compete successfully against
current and future competitors.

Many
competitors offer the types of loans and banking services that the Company offers. These competitors include national banks, regional banks and other independent banks. The Company
also faces competition from many other types of financial institutions, including finance companies, brokerage firms, insurance companies, mortgage banks and other financial intermediaries. In
particular, the Company's 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 the Company offers at more competitive rates and prices.

If
the Company is unable to attract and retain banking customers, it may be unable to maintain its loan portfolio and deposit levels, and its 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. The Company's success depends to a significant degree upon its 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 the Company's inception and there is no guarantee that
other changes may not occur. If the Company fails to attract and retain the necessary personnel, the Company's financial condition and results of operations may be materially and adversely affected.

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WE FACE LIMITS ON OUR ABILITY TO LEND.

The Bank's legal lending limit as of December 31, 2010 was approximately $3.4 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. The Bank's 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 the Company incurs losses and does not obtain additional capital, the Company's lending limit, which
depends upon the amount of its capital, will decrease, which could have a material and adverse effect on the Company's 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,"
i.e., 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 Board of Governors of the Federal Reserve System. Changes in monetary policy, including changes in interest rates, will influence not only the interest the
Company receives on its loans and investment securities and the amount of interest it pays on deposits, it will also affect the Company's ability to originate loans and obtain deposits and its 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 the Company pays on its deposits and other borrowings increases more than the rate of interest it earns on its loans and other investments, the Company's net interest income, and therefore
its financial condition and results of operations, could be materially and adversely affected. Similarly, the Company's financial condition and results of operations could be materially and adversely
affected if the rates on its loans and other investments fall more quickly than those on its deposits and other borrowings.

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 our Company, such as a result of adverse regulatory actions against us, or a deterioration of the confidence of customers and potential customers
in the ability of our Company to meet their financial needs.

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FINANCIAL SERVICES LEGISLATION AND REGULATORY REFORMS MAY HAVE A SIGNIFICANT IMPACT ON OUR BUSINESSES AND RESULTS OF OPERATIONS.

The Dodd-Frank Act was signed into law on July 21, 2010, and many of its provisions have extended implementation
periods and delayed effective dates and will require extensive rulemaking by regulatory authorities as well as require multiple studies to be conducted. The Dodd-Frank Act, including
future rules implementing its provisions and the interpretation of those rules, could limit our ability to pursue business opportunities we might otherwise consider engaging in, impose additional
costs on us, result in significant loss of revenue, impact the value of assets we hold, or otherwise significantly adversely affect our businesses. In particular, the potential impact of the
Dodd-Frank Act on our operations and activities, both currently and prospectively, include, among others:



Further,
we may be required to invest significant management attention and resources to evaluate and make any changes necessary to comply with new statutory and regulatory requirements
under the Dodd-Frank Act, which may have a material and adverse impact results of operations and financial condition.

UNPRECEDENTED MARKET VOLATILITY

The capital and credit markets have been experiencing volatility and disruption for more than two years. In some cases, the markets
have produced downward pressure on stock prices and credit availability for certain issuers seemingly without regard to those issuers' underlying financial strength. If current levels of market
disruption and volatility continue or worsen, there can be no assurance that the Company will not experience an adverse effect, which may be material, on the Company's ability to access capital and on
its financial condition and results of operations.

Several
factors could cause the price of Bancorp's common stock to fluctuate substantially in the future, including:



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WE MAY NOT HAVE THE ABILITY TO ATTRACT CAPITAL NECESSARY TO MAINTAIN REGULATORY RATIOS AND FUND GROWTH.

The Company may need to raise additional capital in the future to provide it with sufficient capital resources and liquidity to meet
its commitments and business needs, particularly if its asset quality or earnings were to deteriorate significantly. The Company's ability to raise additional capital, if needed, will depend on, among
other things, conditions in the capital markets at that time, which are outside of its control, and its financial performance. Economic conditions and the loss of confidence in financial institutions
may increase the Company's cost of funding and limit access to certain customary sources of capital.

The
Company cannot assure that such capital will be available on acceptable terms or at all. Any occurrence that may limit the Company's 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 the Company's capital costs and its ability to raise capital
and, in turn, its
liquidity. Moreover, if the Company needs to raise capital in the future, it may have to do so when many other financial institutions are also seeking to raise capital and would have to compete with
those institutions for investors. An inability to raise additional capital on acceptable terms when needed could have a materially adverse effect on the Company's financial condition and results of
operations.

ITEM 1B.    UNRESOLVED STAFF COMMENTS

None

ITEM 2.    PROPERTIES

The Company has entered into a lease, which commenced on July 1, 2007, for the Company's main office and our corporate
headquarters located at 2141 Rosecrans Avenue, Suite 1160, in the city of El Segundo, California. The lease is for a term of seven years, with one option to renew for five years. Under the
lease, we occupy approximately 7,600 square feet on the ground floor of a six-story multi-tenant building complex known as The Plaza at Continental Park. The current base rent is $20,996
per month, with annual increases of 3% per year as of July 1 each year.

The
Company has also entered into a lease agreement for satellite office of its mortgage division, which commenced on November 1, 2010. The property is located at 11975 El Camino
Real Suite 103, in the city of San Diego, California. The lease is for a term of 26 months, with one option to renew for three years. Under the lease, the company occupy's 2,511 square
feet on the ground floor of the three story building. The current base rent is $6,403.05 per month, with an increase of approximately 3% at the beginning of the 13th and
25th month respectively.

For
the use of MCM and its subsidiaries the Company entered into a lease on June 1, 2010, with a term of 24 months. The lease provides the Company with the option to
terminate the lease at the end of
twelve months. If the Company exercises this option to terminate the lease early, a fee in the amount of $6,996 must be paid by the Company to the lessor. The property is located at 5023 Parkway
Calabasas, in the city of Calabasas, California. The current rent is $14,513 per month.

The
Company has two other month-to-month leases for temporary locations in El Segundo ($3,000 per month) and New York ($5,361 per month). Total occupancy expense
for the year ended December 31, 2010 was $733 thousand compared to $459 thousand for the year ended December 31, 2009.

ITEM 3.    LEGAL PROCEEDINGS

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

22

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Table of Contents

ITEM 4.    REMOVED AND RESERVED

PART II

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

On September 4, 2007, shares of Bancorp's common stock began quotations on the Over the Counter Bulletin Board ("OTCBB") under
the symbol "MNHN.OB." Bancorp stock is not listed on any exchange. The OTCBB is a regulated quotation service that displays real-time bid and ask prices and volume information in
over-the-counter equity securities. Unlike the NASDAQ however, the OTCBB does not impose listing standards and does not provide automated trade executions. Any investment in
Bancorp common stock should be considered a long-term investment as there is currently no active trading market for the Company's stock.

The
information in the following table indicates the highest and lowest trade and volume of trading for Bancorp's common stock for each calendar quarter during each of the two most
recent fiscal years, and is based upon information provided by the OTCBB. The information does not include transactions for which no public records are available. These prices are based upon the
actual prices of stock transactions.

Period/Calender Quarter Ended

High

Low

Approximate
Trading VolumeMarch 31, 2009

$
8.00

$
3.95


207,500June 30, 2009

$
7.25

$
4.75


137,300September 30, 2009

$
7.00

$
6.00


22,900December 31, 2009

$
7.00

$
5.50


54,200March 31, 2010

$
7.00

$
5.45


47,100June 30, 2010

$
6.50

$
4.75


37,600September 30, 2010

$
4.95

$
4.25


85,300December 31, 2010

$
5.50

$
4.55


138,900


Shareholders

As of March 10, 2011, we have approximately 177 shareholders of record. There are no other classes of equity securities
outstanding.

Dividends

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

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

Please
see Item 1, "BusinessSupervision and RegulationDividends" for additional discussion of dividends and the statutes and regulations that restrict
the Company's ability to pay dividends.

23

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Table of Contents

Securities Authorized for Issuance under Equity Compensation Plans

The following table provides information as of December 31, 2010 with respect to the shares of our common stock that may be
issued under existing equity compensation plans.

Plan Category

Number of
Securities
to be Issued
Upon Exercise of
Outstanding
Options

Weighted-Average
Exercise Price of
Outstanding
Options

Number of
Securities Remaining
Available for Future
Issuance Under Equity
Compensation Plans
(Excluding Securities
Reflected in
the Second Column)Equity compensation approved by security holders


564,491

$
8.81


318,117Equity compensation not approved by security holders








Total


564,491

$
8.81


318,117


24

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Table of Contents

ITEM 6.    SELECTED FINANCIAL DATA

The following table sets forth our statistical information as of and for the years ended December 31, 2010, December 31,
2009 and December 31, 2008. Also included is statistical information as of December 31, 2007 and for the period from August 15, 2007 (the date the Bank commenced operations) until
December 31, 2007. The data should be read in conjunction with the Company's audited statements and related notes included in Item 8 of this Annual Report on
Form 10-K. All averages for 2007 are calculated based upon the initial operating period noted above. Amounts are in thousands, except for per share figures.

As of or for the period ended December 31,2010

2009

2008

2007(Audited)

(Audited)

(Audited)

(Audited)Statements of Operations:Interest income

$
6,518

$
4,601

$
3,074

$
611Interest expense


1,002


846


828


102Net interest income


5,516


3,755


2,246


509Provision for loan losses


727


1,180


706


269Net interest income after provision


4,789


2,575


1,540


240Non-interest income


7,749


1,019


53


1Non-interest expense


17,231


8,639


6,010


2,454Net loss from operations, excluding minority interest

$
(4,693
)
$
(5,045
)
$
(4,419
)
$
(2,213
)Per Share and Other Data:Basic and diluted loss per share

$
(1.16
)
$
(1.26
)
$
(1.72
)
$
(0.91
)Book value per common share- period end

$
6.05

$
7.05

$
8.60

$
8.52Weighted average shares outstanding basic and diluted


3,988


3,988


2,567


2,425Balance Sheet Data:Investments and fed funds sold

$
55,491

$
67,558

$
12,602

$
18,087Loans, net

$
87,359

$
78,914

$
56,467

$
17,930Assets

$
152,948

$
152,315

$
92,040

$
39,367Deposits

$
122,245

$
110,920

$
47,991

$
17,862Shareholders' equity

$
24,127

$
28,111

$
34,288

$
21,189Selected Financial RatiosNet loss as a percentage of average assets


(3.51
)%

(5.10
)%

(7.16
)%

(16.86
)%Net loss as a percentage of average equity


(17.43
)%

(15.87
)%

(21.81
)%

(24.62
)%Dividend payout ratio











Equity to asset ratio


15.91
%

18.65
%

37.25
%

53.82
%Net interest margin


4.46
%

4.00
%

3.89
%

4.28
%Credit QualityAllowance for loan losses

$
1,877

$
1,202

$
975

$
269Allowance /total loans


2.02
%

1.50
%

1.70
%

1.48
%Non-performing loans

$


$


$


$
Net (recoveries) charge-offs

$
52

$
952

$


$



25

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Table of Contents

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

Management's discussion and analysis of financial condition and results of operation is intended to provide a
better understanding of the significant changes in trends relating to the Company's financial condition, results of operation, liquidity and interest rate sensitivity. The following discussion and
analysis should be read in conjunction with the audited financial statements contained within this report 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 Report.

OVERVIEW

The Company recorded a net loss of $4.7 million ($1.16 basic and fully-diluted loss per share) for the year ended
December 31, 2010 as compared to a net loss of $5.0 million ($1.26 basic and fully diluted loss per share) for the year ended December 31, 2009, a 7.9% decrease. The decrease in
the net loss between these two full-year operating periods is primarily due to:



These
benefits were offset by the following:



The
improvement in the net interest income after provisions for loan losses was sufficient to diminish much of the effect of the increase in net non-interest in expense
between annual periods.

The
following provides a summary of operating results for the year ended December 31, 2010:



26

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Table of Contents



The
following provides a summary of significant annual changes in the financial condition of the Company as of December 31, 2010 compared to December 31,
2009:



27

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Table of Contents

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Critical accounting policies are defined as those that are reflective of significant judgments and uncertainties, and could potentially
result in materially different results under different assumptions and conditions. We believe that 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:

Allowance for loan losses

The Company maintains an allowance for loan losses ("ALL") to provide for potential losses in its loan portfolio.
Additions to the allowance are made by charges to operating expense in the form of a provision for loan losses. All loans that are judged to be uncollectible will be charged against the allowance
while recoveries would be credited to the allowance. We have instituted loan policies, designed primarily for internal use, to adequately evaluate and assess the analysis of the risk factors
associated with the Bank's loan portfolio and to enable us to assess such risk factors prior to granting new loans and to assess the sufficiency of the allowance. We conduct an evaluation on the loan
portfolio monthly.

The
calculation of the adequacy of the ALL necessarily includes estimates by management applied to known loan portfolio elements. We employ a 10-point loan grading system in
an effort to more accurately track the inherent quality of the loan portfolio. The 10-point system assigns a value of "1" or "2" to loans that are substantially risk free. Modest, average
and acceptable risk loans are assigned point values of "3", "4", and "5", respectively. Loans on the watch list are assigned a point value of "6." Point values of "7," "8," "9" and "10" are assigned
respectively to loans classified as special mention, substandard, doubtful and loss. Using these risk factors, management continues the analysis of the general reserves by applying quantitative
factors based upon different risk scenarios. In addition, management considers other trends that are qualitative relative to our marketplace, demographic trends, the risk rating of the loan portfolios
as discussed above, amounts and trends in non-performing assets and concentration factors.

Investment Securities

The Company has both investment securities classified as held-to-maturity and
available-for-sale. The held-to-maturity classification requires that securities be recorded at cost, adjusted for amortization of premiums and
accretion of discounts over the estimated period to maturity, or to an earlier call date, if appropriate, on an effective interest yield basis. These securities would include those that management has
the intent and the ability to hold into the foreseeable future.

Under
the available-for-sale classification, securities can be sold in response to certain conditions, such as changes in interest rates, fluctuations in deposit
levels or loan demand or need to restructure the portfolio to better match the maturity of 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 and reported as
an amount net of taxes as a separate component of accumulated other comprehensive income (or loss) included in shareholders' equity.

At
each reporting date, investment securities are assessed to determine whether there is other-than-temporary impairment. If it is probable that the Company will
be unable to collect all amounts due to the contractual terms of a debt security not impaired at acquisition, other-than-temporary impairment shall be considered to have
occurred. Such impairment, if any, is required to be recognized in current earnings rather than as a separate component of shareholders' equity. Realized gains and losses on sales are determined on a
specific-identification basis. Purchase premiums and discounts are recognized in interest income using the interest method over the terms of the securities. For mortgage-backed securities, the
amortization or accretion is based upon estimated average lives of the securities. The lives of the securities can fluctuate based upon the amount of prepayments received on the assets.

28

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Table of Contents

Goodwill

When the Company acquired its interest in MCM, the business had been in operation prior to the date when the acquisition occurred. The
Company paid a premium on this acquisition, and said premium is recorded as an intangible asset in the form of goodwill.

Goodwill
represents the excess of the purchase price over the estimated fair value of the net assets acquired. In accordance with current accounting practice, goodwill is not amortized
whereas identifiable intangible assets with finite lives are amortized over their useful lives. On an annual basis, the Company tests goodwill for impairment. The assessment of the impairment occurred
on August 31, 2010 and reflected no impairment at that time. Accordingly, the carrying value of the Goodwill was $297,391 as of both December 31, 2010 and December 31, 2009.

Intangible
assets with definite useful lives are amortized over their estimated useful lives to the estimated residual values. Goodwill is the only intangible asset with an indefinite
life on the Company's balance sheet.

Deferred Tax Assets

As discussed in Note 12 of the Consolidated Financial Statements, the realization of any benefit from the deferred tax asset is
dependent on an estimation of future earnings. Due to the Company's net loss position, all tax benefits that apply to this operating loss, as well as losses from pre-opening expenses, have
been offset with a tax valuation allowance of equal amount. The ability to recognize any benefit from operating losses is directly related to the Company's demonstrated ability to record profits
within the foreseeable future. While we believe that we will become profitable, it is more likely than not that we will not generate sufficient taxable income in the near future to significantly or
fully use the tax benefits currently available. In this case, we are required to establish a valuation reserve to cover the potential loss of these benefits. As noted, at present the valuation
allowance fully offsets any potential benefit. If future income should prove to be nonexistent or less than the amount of the deferred tax assets within the tax years to which it applies, the asset
many not be realized and no benefit will result.

RESULTS OF OPERATIONS

Net Loss

The Company reported a net loss of $4.7 million for the year ended December 31, 2010 compared to a net loss of
$5.0 million for the year ended December 31, 2009. The Company's net loss for the year ended December 31, 2010 was primarily due to costs associated with the expansion of
Company's infrastructure to better position itself to expand its products and services, coupled with costs associated with the executive management transitions. Since its inception, the Company's
earnings have been largely dependent on net interest income, although the benefits from the Company's diversification into fee-based non-interest income was evident in 2010 and
is discussed in detail in the Non-Interest Income section below. Certain costs associated with the generation of the fee income have initial fixed components that must be bridged by levels
of production before the benefit from the fee income has a positive effect on the Company's net income. Please see "Business Segment Results" in this Management's Discussion and Analysis of Financial
Condition and Results of Operation.

In
addition to the initial challenge of building the Company's interest-bearing assets to a level which would support ongoing profitability, the financial industry in general, and the
Bank specifically, was negatively affected by the decline in credit-worthy customers, reducing the traditional primary source of
income for a community bank, the loan portfolio. The alternatives in the investment area were also negatively impacted with historically low returns on interest-bearing assets. The cost of funding
assets has decreased since the Bank's inception but the fluctuations in both asset and liability mixes have resulted in an inconsistent pattern in net interest margins over the eight
(8) quarters covered by this discussion.

29

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Table of Contents

Net Interest Income

The Company's ability to produce earnings is directly tied to the net interest income, which is the difference between what we earn on
loans and other interest-earning assets and the interest we pay on deposits and borrowed funds. Total interest income can fluctuate based upon the mix of earning assets among loans, investments and
Federal funds sold and the related rates associated with their balances. Some of the funding sources for these assets also have an interest cost which can fluctuate based upon the mix of
interest-bearing and non-interest bearing liabilities and the related rates associated with their balances. The net number between the interest income and the interest expense is called
net interest income and is often expressed as interest rate spread and net interest margin.

The
interest rate spread represents the difference between the weighted average yield on interest earning assets and the weighted average rate paid on interest-bearing liabilities.

Net
interest margin is net interest income expressed as a percentage of average total interest-earning assets. Net interest margin is affected by changes in the yields earned on assets
and rates paid on liabilities, referred to as rate changes, and changes in the relative amounts of interest-earning assets and interest-bearing liabilities, referred to as volume changes. Interest
rates earned and paid are affected principally by our competition, general economic conditions and other factors beyond the Company's control such as Federal economic policies, the general supply of
money in the economy, legislative tax policies, governmental budgetary matters and the actions of the FRB.

The
following table sets forth interest income, interest expense, net interest income before provision for loan losses and net interest margin for the periods presented:

Year EndedDecember 31,Dollar
Change

Percent
Change2010

2009(Dollars in Thousands)Interest income

$
6,518

$
4,601

$
1,917


41.66
%Interest expense


1,002


846


156


18.44
%Net interest income before provision for loan losses

$
5,516

$
3,755

$
1,761


46.90
%Net interest margin


4.46
%

4.00
%




11.50
%


The
reported net interest margin for each of the annual periods ended December 31, 2010 and December 31, 2009 was 4.46% and 4.00% respectively. However, the quarterly net
interest margin during 2009 and 2010 has fluctuated between a low of 3.60% in the first quarter of 2009 and a high of 4.84% for the second quarter of 2010. The significant quarterly fluctuations were
primarily the result of the rapid changes in the asset and liability mix.

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

30

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Table of Contents

ANALYSIS OF NET INTEREST INCOME

Year ended December 31, 2010

Year ended December 31, 2009Average
Balance

Interest
Income/
Expense

Weighted
Average
Rate
Earned/Paid

Average
Balance

Interest
Income/
Expense

Weighted
Average
Rate
Earned/Paid(Dollars in Thousands)

(Dollars in Thousands)Interest-earning assets:Federal funds sold/Interest-bearing demand funds

$
16,532

$
39


0.24
%
$
14,223

$
38


0.27
%Deposits with other financial institutions


3,420


52


1.52
%

5,161


108


2.09
%Investments(1)


20,054


1,168


5.82
%

8,033


457


5.69
%Loans(2)


83,734


5,260


6.28
%

66,432


3,998


6.02
%Total interest-earning assets


123,740


6,518


5.27
%

93,849


4,601


4.90
%Non-interest-earning assets


7,799








4,959Total assets

$
131,539







$
98,808Interest-bearing liabilities:Demand

$
3,018

$
3


0.10
%
$
2,334

$
2


0.10
%Savings and money market


25,271


225


0.89
%

14,001


161


1.15
%Certificates of deposit


40,010


574


1.43
%

26,610


483


1.82
%FHLB advances


4,563


200


4.32
%

4,592


200


4.30
%Total interest-bearing liabilities


72,862


1,002


1.38
%

47,537


846


1.78
%Non-interest-bearing demand deposits


24,641








18,669Total funding sources


97,503





1.03
%

66,206





1.28
%Non-interest-bearing liabilities


8,238








863Shareholders' equity


25,798








31,739Total liabilities and shareholders' equity

$
131,539







$
98,808Excess of interest-earning assets over funding sources

$
26,237







$
27,643Net interest income




$
5,516







$
3,755Net interest rate spread








3.89
%







3.12
%Net interest margin








4.46
%







4.00
%


(1)Dividend
income from the Bank's investment in Non-Marketable Stocks of approximately $42 thousand for the period ended
December 31, 2010 and $55 thousand for the period ended December 31, 2009 is included in the investment income, although the corresponding average balance is included in other
assets.(2)The
average balance of loans is calculated net of deferred loan fees/costs but would include non-accrual loans, if any, with a zero yield. Loan
fees net of amortized costs included in total net income were approximately $81 thousand in 2010. Loan costs net of amortized fees included in total net income were approximately
$61 thousand in 2009.


31

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Table of Contents




The
table below sets forth changes for the comparable annual periods ended December 31, 2010 and December 31, 2009 for average earning assets, average interest-bearing
liabilities, and their respective rates:

VARIANCE IN BALANCES AND RATES
(Dollars in Thousands)Average Balance
for the year ended





Average Yield/Rate
for the year endedVarianceDecember 31,
2010

December 31,
2009

December 31,
2010

December 31,
2009dollar

percent

VarianceInterest-earning assets:Federal funds sold/Interest-bearing demand funds

$
16,532

$
14,223

$
2,309


16.23
%

0.24
%

0.27
%

(0.03
)%Deposits with other financial institutions


3,420

$
5,161


(1,741
)

(33.73
)%

1.52
%

2.09
%

(0.57
)%Investments


20,054

$
8,033


12,021


149.65
%

5.82
%

5.69
%

0.13
%Loans


83,734

$
66,432


17,302


26.04
%

6.28
%

6.02
%

0.26
%Total interest-earning assets

$
123,740

$
93,849

$
29,891


31.85
%

5.27
%

4.90
%

0.37
%Interest-bearing liabilities:Interest-bearing demand

$
3,018

$
2,334

$
684


29.31
%

0.10
%

0.10
%

0.00
%Savings and money market


25,271


14,001


11,270


80.49
%

0.89
%

1.15
%

(0.26
)%Certificates of deposit


40,010


26,610


13,400


50.36
%

1.43
%

1.82
%

(0.39
)%FHLB advances


4,563


4,592


(29
)

(0.63
)%

4.32
%

4.30
%

0.02
%Total interest-bearing liabilities

$
72,862

$
47,537

$
25,325


53.27
%

1.38
%

1.78
%

(0.40
)%


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

For the year ended
December 31, 2010 over
December 31, 2009Volume

Rate

Total(Dollars in Thousands)Interest income:Federal funds sold/Interest-bearing demand funds

$
6

$
(5
)
$
1Deposits with other financial instituions


(36
)

(20
)

(56
)Investments


684


27


711Loans


1,040


221


1,261Net increase (decrease)


1,694


223


1,917Interest expense:Interest bearing demand


1





1Savings and money market


130


(66
)

64Certificates of deposit


243


(152
)

91FHLB advances


(1
)

1


Net increase (decrease)


373


(217
)

156Total net increase

$
1,321

$
440

$
1,761


32

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Table of Contents

A
review of the above tables shows that the overall increase in net interest income of approximately $1.7 million between the two consecutive years ending at December 31,
2010 is the result of several factors.

Among
the most significant factors was the overall increase in earning assets, up approximately $29.9 million or 31.9% between December 31, 2010 and December 31,
2009. The primary source of the growth noted in earning assets stems from the growth in non-brokered wholesale funding, which averaged approximately $14.9 for the year 2010 but only
approximately $2.2 million for the year 2009. This source was augmented by increases in both average savings and money market funds of $11.3 million and average interest-free
deposits of $6.0 million.

The
Company benefitted from the growth of earning assets with substantially all that growth in the higher-yielding categories. This resulted in a positive volume variance of
$1.7 million. This positive volume variance was augmented by an overall positive rate variance of $233 thousand bringing the total interest income variance to 1.9 million, or
31.9% between comparable annual periods.

Interest
expense increased by a modest $156 thousand from the year ended December 31, 2010 compared to the year ended December 31, 2009, with the reduction in
effective interest rates significantly countering the effects of the volume variance due to the increase in average outstanding interest-bearing liabilities.

Provision for Loan Losses

The Company made provisions for loan losses of $727 thousand for the year ended December 31, 2010 compared to
$1.2 million for the year ended December 31, 2009, a decrease of 38.4%. However, the growth of loans outstanding between the end of 2010 and the end of 2009 of approximately
$9.1 million would have required an increase to maintain the allowance at a similar level as of December 31, 2009. The amount that would have been required due solely to the increase in
outstanding loans would approximate $137 thousand. Any additional provisions would relate to the inherent credit risk in the Company's loan portfolio as determined by the periodic review of the
adequacy of the loan loss allowance by management and by the need to replenish the allowance for net charge-offs.

The
allowance is reduced by net charge-offs. For the year ended December 31, 2009, the net charge-offs were approximately $952 thousand. For the
year ending in December 31, 2010, the net charge-offs declined to only $52 thousand, a reduction of $900 thousand. Accordingly, the percentage of the allowance for
loan losses to loans outstanding increased between the two comparable annual periods at a level determined to cover the inherent credit risks while the actual provision between the two comparable
annual periods decreased by $453 thousand.

Non-Interest Income

The following table reflects the major components of the Company's non-interest income (dollars in thousands):

For the
Year
Ended

For the
Year
EndedDecember 31,2010

2009Trading income

$
4,972

$
133Whole-loan trading income


1,652


745Advisory fees


732


Bank-related fees


239


141Mortgage-related fees


154


Total non-interest income

$
7,749

$
1,019


33

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Table of Contents

Non-interest income for the year ended December 31, 2010 includes fee-based income from the Bank of $239 thousand, an
increase of 69.6% resulting primarily from fee income associated with deposit account activity. The income from the initial three months of mortgage related activity was approximately
$154 thousand for which there is no comparative amount for 2009.

Also
included is the income related to activity of MCM since October of 2009, when the Company acquired a majority interest in MCM. The recorded gross income of approximately
$878 thousand for this three-month period was almost sufficient to offset the operating expenses for the three months of operations, leaving a combined loss of approximately $30 thousand
for 2009. For the full year of 2010, MCM generated approximately $7.4 million, which covered most of MCM's operating expenses of $7.7 million. Please see "Business Segment Results" in
this Management's Discussion and Analysis of Financial Condition and Results of Operation.

Non-Interest Expense

The following table lists the major components of the Company's non-interest expense (dollars in thousands):

VariancesFor the
Year Ended
December 31, 2010

For the
Year Ended
December 31, 2009dollars

percentageCompensation and benefits

$
11,770

$
5,223

$
6,547


125.3
%Data processing


1,122


611


511


83.6
%Occupancy and equipment


1,110


776


334


43.0
%Legal services


473


434


39


9.0
%Marketing and business development


365


301


64


21.3
%Regulatory assessments


314


235


79


33.6
%Communication


295


105


190


181.0
%Audits and examination


271


207


64


30.9
%Recruiting fees


271





271


0.0
%Education and Dues


211


77


134


174.0
%Consulting fees


207


151


56


37.1
%Administrative expenses


206


43


163


379.1
%Director fees


202





202


0.0
%Other professional services


198


267


(69
)

(25.8
)%Postage and Supplies


115


72


43


59.7
%Other non-interest expenses


101


137


(36
)

(26.3
)%Total non-interest expenses

$
17,231

$
8,639

$
8,592


99.5
%


Compensation and Benefits

Compensation and Benefits represent the largest of the Company's non-interest expense categories, totaling
$11.8 million for the year ended December 31, 2010 and represent approximately 68% of the $17.2 million of total non-interest expense. Expenses in this category were
significantly affected by the growth in the Company-wide employee base, which grew from 48 at the end of December 31, 2009 to 73 at the end of December 31, 2010, a 52.1%
increase.

The
compensation expense related to MCM and its subsidiaries for the year 2009 reflects just the amount for the three-month period that this subsidiary was a part of the Company. The
expense from MCM for the initial three-month period in 2009 was approximately $580 thousand compared to the expense from MCM for the full year ended December 31, 2010, which was
approximately $5.8 million, ten times larger than the prior period.

34

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Table of Contents

The
compensation expense related to Bancorp for the full year ended December 31, 2009 was approximately $739 thousand compared $1.9 million for the full year ended
December 31, 2010, an increase of approximately 165.8%. The increase is the result of several factors explained in detail under Segment Reporting.

The
compensation expense related to the Bank for the full year ended December 31, 2009 was approximately $3.9 million, essentially the same for the full year ended
December 31, 2010. Certain non-recurring fee compensation expenses associated with management transition were fully offset by cancelled incentive expenses associated with the
departure of certain Bank employees. Temporary costs associated with key Bank positions were filled by consultants and are not reflected in Compensation and Benefits.

Data Processing

Expenses related to the Data Processing needs of the Company increased from approximately $611 thousand for the year ended
December 31, 2009 to approximately $1.1 million for the year ended December 31, 2010, an increase of 83.6%.

The
increase noted in Data Processing is related primarily to the difference in reporting periods for MCM, whose operations were reported only from the acquisition date of
October 1, 2009 for 2009. The amount for the shortened period compared to the amount for the full year ended December 31, 2010 accounts for essentially all of the total increase noted
above.

Occupancy and Equipment

Occupancy and Equipment expenses increased by approximately $334 thousand, or 43% between the years ended December 31,
2009 and December 31, 2010. In October of 2009, in conjunction with the acquisition of MCM and the employment of Bancorp's Executive Director, the Company expanded the number of locations from
one to three. Two additional locations were added during 2010. That expansion increased the occupancy cost of Bancorp from approximately
$84 thousand for the full year ended December 31, 2009 to approximately $154 thousand for 2010, or an 82.6% increase. Similarly the occupancy expense for MCM, which began in
October of 2009, was approximately $73 thousand for 2009 and increased to approximately $284 thousand, or 290.4% for the year ended December 31, 2010. The combined increase from
Bancorp and MCM accounts for 84.3% of the total increase of approximately $334 thousand in Occupancy and Equipment.

Recruiting Fees

During the year ended December 31, 2010, the Company engaged professional recruiting firms to assist in the selection of people
for key positions within the organization. The total expense for such services was approximately $271 thousand. There was no corresponding expenditure during the year ended December 31,
2009.

Directors Fees

During the year ended December 31, 2010, the Company elected to compensate the Company's directors for the time and effort spent
providing oversight and establishing directions for the various companies under their fiduciary responsibility. Director Fees for the year ended December 31, 2010 was $202 thousand.
There was no corresponding expenditure during the year ended December 31, 2009.

Segment Information

There are current accounting rules which require additional financial disclosure when operating business segments exceed certain
thresholds. During the year ended December 31, 2010, MCM revenue

35

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Table of Contents

exceeded
10% of the total revenue of the Company, one of the criteria for segment reporting. Accordingly, we are providing the following discussion.

The
Company segregates its operations into three primary segments: The Banking Operations (Bank of Manhattan, N.A.), the Non-Bank Financial Operations (MCM and its
subsidiaries) and Other Operations, which includes Manhattan Bancorp and MBFS and eliminates intercompany transactions. Operating segment information is presented in the following discussion and in
Note 18 of the Notes to the Consolidated Financial Statements. The accounting policies of the individual segments are the same as those of the Company. The Company allocates centrally-provided
services and costs to the business segments based upon estimated or actual usage of those services and costs.

The Banking Operation

The Bank, as described more fully in Part I of this Annual Report on Form 10-K, presently operates at one
location in El Segundo, California as a full-service bank. As of November 2010, the Bank established a Loan/Deposit Productions Office in San Diego to facilitate the generation of
single-family mortgages. The Bank had 46 employees as of December 31, 2010.



Year Ended
December 31,(Dollars in Thousands)

2010

2009CONDENSED INCOME STATEMENTNet interest income, including loan fees

$
5,486


3,755Less: Provision for loan losses


727


1,180Non-interest income


394


141Net revenue (expense)


5,153


2,716Non-interest expense


6,818


6,017Income (loss) before income taxes

$
(1,665
)
$
(3,301
)YEAR-END BALANCE SHEET DATATotal assets

$
150,923

$
151,506Total securities

$
55,491

$
67,587Net loans, including loans held for sale

$
90,872

$
78,914Allowance for loan losses

$
1,877

$
1,202Other assets

$
6,437

$
6,207Non-interest bearing demand funds

$
54,997

$
34,883Total deposits

$
124,349

$
116,156Borrowed funds

$
4,500

$
12,000Other liabilities

$
768

$
700Equity

$
21,306

$
22,650


Substantially
all of the components of net interest income and the provision for loan losses for the Company are related to the Bank only. Please see "Results of Operation" above in this
Management's Discussion and Analysis of Financial Condition and Results of Operation for a more detailed discussion of these components.

The
increase in non-interest income of approximately $253 thousand is primarily the results of the mortgage division fees generated since the division began operations
in the last months of the year, accounting for 61% of the increase.

36

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Table of Contents

The
increase in non-interest expense of approximately $801 thousand is primarily the result of professional expenses such as recruiting and consulting fees associated
with transitions in executive management, approximately 59% of the increase. Other areas reflecting increases year over year were, in order of significance, directors' fees, occupancy costs and
regulatory assessments.

The
decline in the net loss was approximately $1.6 million or approximately 49.6%.

The
assets of the Bank as reported at December 31, 2010 and December 31, 2009 were essentially flat.

Non-Bank Financial Operations

MCM and its subsidiaries, as described more fully in Part I of this Annual Report on Form 10-K, presently
operate primarily at one location in Calabasas, California. As of October 2010, MCM established a satellite office in New York, New York to facilitate its access to the east-coast
financial markets. MCM had 22 employees as of December 31, 2010.



Year Ended
December 31,

Acquisition to
December 31,(Dollars in Thousands)

2010

2009CONDENSED INCOME STATEMENTNet interest income, including loan fees

$
30


Less: Provision for loan losses





Non-interest income


7,397


893Net revenue (expense)


7,427


893Non-interest expense


7,717


923Income (loss) before income taxes

$
(290
)
$
(30
)YEAR-END BALANCE SHEET DATATotal assets

$
2,225

$
1,340Total securities

$


$
Net loans, including loans held for sale

$


$
Allowance for loan losses

$


$
Other assets

$
2,225

$
1,340Non-interest bearing demand funds

$


$
Total deposits

$


$
Borrowed funds

$


$
210Other liabilities

$
1,071

$
160Equity

$
1,154

$
970


MCM's
total gross revenues of approximately $7.4 million (after elimination of intercompany transactions) represent approximately 51.8% of the approximately $14.3 total gross
revenues of the Company. As reported elsewhere in this report, the Company acquired its interest in MCM on October 1, 2009. Accordingly the comparability of the results of the two unequal
operating periods is limited at best. The most significant source of such revenue for the year ended December 31, 2010 was from riskless trading in securities, accounting for approximately
$5.0 million or 67.6% of the total revenue generated by MCM.

There
were two other primary sources of revenue for the year 2010. Income from riskless trading in whole loans generated approximately $1.7 million and fees for providing advisory
services to other
financial institutions accounted for approximately $732 thousand. Once again, the comparability is limited due to the short operating period during 2009.

37

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Table of Contents

The
most significant component of non-interest expense for MCM isCompensation and Benefitswhich, at approximately
$5.9 million, represented approximately 76.2% of total non-interest expenses of the Company. Approximately 53.2% of the total compensation is related to commissions and incentives.

Two
other categories reflect significant costs for the year 2010. The first isTechnology and Communications, approximately
$779 thousand centered in programs required to conduct daily business, and secondarilyProfessional Expense, approximately $454 thousand
centered in accounting resources.

The
nature of MCM's current businesses does not require a significant investment in assets. As of December 31, 2009, the assets were approximately $1.3 million centered in
cash or cash-equivalent assets, which were partially funded by a loan from the Bancorp of $210 thousand. As of December 31, 2010, the assets increased to approximately
$2.2 million as of December 31, 2010, again centered in cash or cash-equivalent assets. MCM equity was augmented by $500 thousand with the issuance of preferred
membership units to MBFS. The liabilities noted reflect current operating payables and pending year-end commissions.

Other Operations

The OTHER segment includes MBFS, BANCORP and the intercompany elimination entries. Accordingly the presentation is best understood in
relationship to the other operating entities.



Year Ended
December 31,(Dollars in Thousands)

2010

2009CONDENSED INCOME STATEMENTNet interest income, including loan fees

$



Less: Provision for loan losses





Non-interest income


(42
)

(15
)Net revenue (expense)


(42
)

(15
)Non-interest expense


2,696


1,700Income (loss) before income taxes

$
(2,738
)
$
(1,715
)YEAR-END BALANCE SHEET DATATotal assets

$
(200
)
$
(531
)Total securities

$


$
Net loans, including loans held for sale

$


$
Allowance for loan losses

$


$
Other assets

$
(200
)
$
(531
)Non-interest bearing demand funds

$
(2,104
)
$
(5,236
)Total deposits

$


$
Borrowed funds

$


$
(210
)Other liabilities

$
34

$
133Equity

$
(1,870
)
$
(4,782
)


As
neither MBFS nor Bancorp have material independent income sources or are eliminated for the most part in the consolidation process, the entries in the table above related to
eliminations between the Bank and one of the other operating entities.

The
non-interest expense of approximately $2.7 million in the year ended December 31, 2010 reflect an increase of approximate $1.0 million over the
amount reflected for the year ended
December 31, 2009, or 58.6%. These expenses are substantially those of the Bancorp and therefore, a comparison can be made between both years.

38

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Table of Contents

The most significant component of the Bancorp non-interest expense wasCompensation and Benefits,which increased from approximately $739 thousand for the year ended December 31, 2009 to approximately $1.9 million for the year ended December 31, 2010, or 165.8%. While
the actual number of employees did increase from an average of just over one full time employee for 2009 to approximately six for 2010, there were significant transition costs associated with the
change in executive management positions, (approximately $225 thousand assumed by the Bancorp), stock option expenses recorded in 2010 over those recorded in 2009 (approximately
$118 thousand), and intercompany transfers to recognize where the costs where related to where the benefit might occur in the future. One of the most significant of these transfers related to
the evaluation and implementation of the mortgage process now incorporated with the bank since August, but where the costs to develop the mortgage process were incurred by the Bancorp and approximated
$319 thousand.

Another
significant increase in non-interest expenses for the year ended December 31, 2010 was the payment of directors' fees which approximate $118 thousand
and for which there was no comparable amount in the year ended December 31, 2009.

Other
notable increases between the year ended December 31, 2010 and the year ended December 31, 2009 were reported in expenditures for meals and travel, up approximately
$79 thousand between periods and primarily associated with increased activity in the pre-bank mortgage division executive and director travel and housing costs.

FINANCIAL CONDITION

Time Deposits and Investment Securities

The Bank invests in time deposits with other financial institutions and investment securities principally to (1) generate
interest income pending the ability to deploy those funds in loans meeting our lending strategies; (2) increase net interest income where the rates earned on such investments exceed the related
cost of funds, consistent with the management of interest rate risk; and (3) provide sufficient liquidity in order to maintain cash flow adequate to fund the Bank's operations and meet
obligations and other commitments on a timely and cost efficient basis.

Our
time deposit investments generally have terms of less than two years and are placed with financial institutions in amounts that provide full coverage from the FDIC. As of
December 31, 2010, the weighted average yield for the time deposits was 1.4% with an average weighted remaining life of approximately six months. As of December 31, 2009, the weighted
average yield for the time deposits was 1.8% with the weighted average life of approximately three months.

The
Bank's current investment portfolio consists of U.S. Government Agencies securities, mortgage-backed securities, taxable-municipal bonds and asset-backed securities with an expected
weighted average life of approximately less than 7 years.

The
present strategy is to stagger the maturities of our time deposits and investment securities to meet our overall liquidity requirements. Additional information regarding the
composition, maturities and yields of the security portfolios as of December 31, 2010 is found in Note 3 to the Company's financial statement in Item 8 of this document.

Loans

The loan portfolio reflects growth in all categories when comparing the end of period amounts as of December 31, 2010 and
December 31, 2009. Loan growth is attributable primarily to marketing efforts with credit extended primarily in the Bank's defined market area.

39

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Table of Contents

The
following table sets forth the composition of the Bank's loan portfolio at the following dates:

December 31, 2010

December 31, 2009Amount
Outstanding

Percentage of
Total

Amount
Outstanding

Percentage of
Total(Dollars in Thousands)

(Dollars in Thousands)Commercial loans

$
28,662


32.0
%
$
26,520


33.0
%Real estate loans


43,682


48.8
%

40,566


50.5
%Real estateconstruction


8,753


9.8
%

5,656


7.0
%Other loans


8,333


9.3
%

7,516


9.4
%Total Loans


89,430


100.0
%

80,258


100.0
%Add: Purchase Premium


19





30Add: Unamortized Costs


96





81Less: Purchase Discount


(127
)




Less: Deferred Fees


(182
)




(253
)LessAllowance for loan losses


(1,877
)




(1,202
)Net loans


87,359





78,914


Of
the Bank's total loans outstanding at December 31, 2010, 33.2% were due in one year or less, 25.4% were due in 1 to 5 years and 41.4% were due after 5 years. As
is customary in the banking industry, loans can be renewed by mutual agreement between borrower and the Bank. Because we are unable to accurately estimate the extent to which our borrowers will renew
their loans, the following table is based on contractual maturities, reflecting gross outstanding loans without consideration of purchase premium, deferred fees or deferred costs.

Loan Maturity Schedule as of December 31, 2010

Within One
Year

Maturing
One to Five
Years

After Five
Year

Total(Dollars in Thousands)Commercial

$
20,079

$
6,475

$
2,108

$
28,662Real Estate





14,706


28,976


43,682Real EstateConstruction


8,753








8,753Other Loans


853


1,575


5,905


8,333Total

$
29,685

$
22,756

$
36,989

$
89,430Loans with pre-determined interest rates

$
1,777

$
8,822

$
5,487

$
16,086Loans with floating or adjustable rates


27,908


13,934


31,502


73,344Total

$
29,685

$
22,756

$
36,989

$
89,430


Of
the gross loans outstanding as of December 31, 2010, approximately 82% of the outstanding loan dollars had adjustable rates. The adjustable-rate loans generally
have interest rates tied to the prime rate and would adjust with changes in the rate on a daily basis.

Commercial Loans.The Bank offers a variety of commercial loans, including secured and unsecured term and revolving lines of credit,
equipment loans,
accounts receivable loans and SBA loans. Approximately 86% of the outstanding loan dollars of the commercial loans have adjustable rates. The Bank underwrites secured term loans and revolving lines of
credit primarily on the basis of a borrower's cash flow and the ability to service the debt, although we rely on the liquidation of the underlying collateral

40

---



Table of Contents

as
a secondary payment source, where applicable. Should the borrower default and the Bank forecloses on the assets, we may not be able to recover the full amount of the loan.

Real Estate Loans.The Bank's real estate loans are secured primarily by commercial property. Approximately 76% of the loan dollars
outstanding are
adjustable during the term of the loan. Approximately 55% of the total real estate loans have a remaining maturity between five and ten years. As of December 31, 2010, the weighted average
ratio of the current loan extension to the underlying
value of the property was approximately 45%. No individual loan-to-value ratio exceeded 79%.

Other Loans.The Bank offers other types of loans, including home equity lines of credit. Home equity lines of credit have adjustable
rates and
provide the borrower with a line of credit in an amount which does not exceed 76% of the appraised value of the borrower's property at the time of origination.

Off-Balance Sheet Credit Commitments and Contingent Obligations

We enter into or may issue financial instruments with off-balance sheet credit risk in the normal course of business to
meet the financial needs of our customers. In both 2010 and 2009, these were essentially limited to undisbursed commitments to extend credit to both businesses and individuals. These commitments were
associated with loans and were therefore subject to the same credit underwriting policies and practices as other on-balance sheet obligations. When deemed advisable, the Bank obtains
collateral to support such commitments.

Commitments
to extend credit are agreements to lend up to a specific amount to a customer as long as there is no violation of any condition in the commitments. Commitments generally have
fixed expiration dates or other termination clauses which may require payment of a fee. Since we expect some commitments to expire without being drawn upon, the total commitment amounts do not
necessarily represent future loans. There were $26.2 million and $26.0 million in undisbursed loan commitments as of December 31, 2010 and 2009 respectively.

Non-Performing Assets

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 restructures. OREO is comprised
of real estate acquired in satisfaction of a loan either through foreclosure or deed in lieu of foreclosure.

The
Bank had no non-performing assets at December 31, 2010 or December 31, 2009.

Allowance for Loan Losses

The analysis of the allowance for loan losses is comprised of three components: specific credit allocations, general portfolio
allocations, and subjective risk factors which are applied to determined allocations. The Bank accounts for problem loans in accordance with ASCTopic 310 "Receivables." These
pronouncements provide that when it is probable that a creditor will be unable to collect all amounts due in accordance with the terms of the loan that such loan is deemed impaired. Impaired loans are
accounted for differently in that the amount of the impairment is measured and reflected in the records of the creditor. The allowance for credit losses related to loans that are identified for
evaluation in accordance with SFAS No. 114 is based on the discounted cash flows using the loan's initial effective interest rate or the fair value of the collateral for certain collateral
dependent loans. The general portfolio allocation consists of an assigned reserve percentage based upon the credit rating of the loan. The subjective portion is determined based upon the Bank's
evaluation of various factors including current

41

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Table of Contents

economic
conditions and trends in the portfolios including delinquencies and impairment, as well as changes in the composition of the portfolio and economic market trends.

The
allowance for loan losses is based on estimates, and ultimately losses will vary from current estimates. These estimates are reviewed monthly by the Board of Directors of the Bank,
and reflect the adjustments, either positive or negative, from management or from the Bank Board's Loan Committee with the corresponding increase or decrease in the provision for loan losses. The
methodology used to determine the adequacy of the allowance for possible loan losses has been applied consistently and has been evaluated during the year 2010 by regulators and external auditing firms
for appropriateness.

During
the year ended December 31, 2010, the Bank recognized net charge-offs of approximately $52 thousand, representing approximately .06% of the Bank's
average gross loan portfolio for 2010.

During
the year ended December 31, 2009, the Bank recognized net charge-offs of approximately $952 thousand, representing approximately 1.41% of the Bank's
average gross loan portfolio for 2009.

The
allowance for loan losses as a percentage of total gross loans at December 31, 2010 and 2009 was 2.10% and 1.50% respectively.

Deposits and Borrowed Funds

Deposits are the Bank's primary source of funds. We offer a number of deposit products. Deposits increased by approximately
$11.3 million, 10% over the balance as of December 31, 2009 of approximately $110.9 million ending the year of 2010 at approximately $122.2 million. As of
December 31, 2010, 43% of the Company's deposits were non-interest bearing demand deposits up from 26.7% as of December 31, 2009. The non-interest bearing demand
deposits were favorably affected by large year-end deposits which were short-term in nature. Average non-interest bearing demand deposits, however, while reflecting
a growth of approximately $6.0 million year over year, experienced a decline in the percentage of total non-interest earning funds to total funding from all sources, from 43% to
36%. At December 31, 2009, the Company had $16.5 million in short-term CDARS deposits, or 15% of total deposits. At December 31, 2010, the Company had no brokered
deposits, but held other wholesaling funds in the amount of approximately $18.6 million.

The
following table shows the remaining maturity of the Bank's time deposits as of December 31, 2010:

Maturities of Time Deposits of $100,000 or More

Amount(Dollars in Thousands)Three months or less

$
6,544Over three and through six months


4,760Over six and through twelve months


13,822Over twelve months


8,808Total

$
33,934


The
Bank has established borrowing lines with the FHLB during 2009 and 2010. At December 31, 2010, the Bank had borrowed from the FHLB $4.5 million that was collateralized
by securities. At December 31, 2009, the Bank had borrowed from the FHLB $12.0 million that was collateralized by both loans and securities. The average rate that was paid on FHLB
borrowings for the years ended December 31, 2010 and December 31, 2009 was 4.32% and 4.30%, respectively. See Note 8 of the Consolidated Financial Statements filed on this
Form 10-K for additional information related to the Bank's borrowing from the FHLB.

42

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Table of Contents

Regulatory Capital

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 14 to the 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.

Liquidity and Liquidity Management

Liquidity management for banks requires that funds always be available to pay anticipated deposit withdrawals, fund loan commitments,
and to meet other commitments on a timely and cost effective basis. The acquisition of deposits is our primary source of funds. This relatively stable and low-cost source of funds has,
along with the initial balances in stockholders' equity, provided 100% of the funding for the initial operating period in 2007.

During
2008, the Company's funding sources were expanded to included advances from the FHLB. Under the line of credit, the Bank may borrow against certain percentages of eligible
collateral as established by agreement but not more than 15% of the Bank's total assets. As of December 31, 2009, the line of credit was approximately $16.5 million and was fully
advanced. As of December 31, 2010 the line of credit was $21.5 million against which the Bank had borrowed $4.5 million.

During
2009, the Company accessed available short-term funds from the CDARS' one-way buy program to augment Company's asset totals as needed. During 2010, the
Company discontinued the active use of the CDARS' one-way buy program, having readily available other wholesale funding sources, including advances from the FHLB and deposits placed
directly with the Company by other financial institutions.

The
Company's liquidity is reflected in its position as a net seller of overnight Federal funds sold, including interest-bearing non-reserve balances held at the FRB, at a
level that would cushion any unexpected increase in demand for funds or decrease in funds deposited. During 2010, we had an average balance of $16.5 million in such funds representing 13% of
our average assets. During 2009, we had an average balance of approximately $14.2 million in such available funds representing 14% of our average assets. Both ratios were far above the minimum
of 3% established in the Company's liquidity policy.

To
meet liquidity needs, the Company maintains a portion of its funds in cash deposits in other banks, Federal funds and investment securities. As of December 31, 2010 and 2009,
liquid assets (cash, Federal funds sold, interest-bearing deposits in other financial institutions and
available-for-sale investment securities that have not been pledged as collateral) as a percentage of Company's deposits were 42% and 57%, respectively.

43

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While
liquidity has not been a major concern in either 2010 or 2009, management has established secondary sources of liquidity. At present, the Bank maintains a line of credit totaling
$3 million with a correspondent bank for the purchase of overnight Federal funds. The line is subject to availability of funds and has restrictions as to the number of days used during the
month. Another method that the Bank currently has available for acquiring additional deposits is through the acceptance of "brokered deposits" (defined to include not only deposits acquired with
deposit brokers but also deposits bearing interest rates far above the local market rates), typically attracting large certificates of deposit at high interest rates. The Company has no amount of
"reciprocal brokered deposits" through the CDARS program as of December 31, 2010 or December 31, 2009. As noted, the Bank elected to augment its year-end asset total as of
December 31, 2009 by the purchase of short-term one-way funds totaling $16.5 million at rates between 21 and 25 basis points. There was no similar purchase as of
December 31, 2010.

ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

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Table of Contents

ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA



PageReport of Independent Registered Public Accounting Firm


46Financial Statements:Consolidated Balance Sheets


47Consolidated Statements of Operations


48Consolidated Statements of changes in Stockholders' Equity


49Consolidated Statements of Cash Flows


50Notes to Consolidated Statements


51


45

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Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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

We
have audited the accompanying consolidated balance sheets of Manhattan Bancorp and Subsidiaries (the "Company") as of December 31, 2010 and 2009, and the related consolidated
statements of
operations, changes in stockholders' equity, and cash flows for the years ended December 31, 2010 and 2009. 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 audits to
obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.

In
our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Manhattan Bancorp and Subsidiaries as of
December 31, 2010 and 2009, and the results of its operations and its cash flows for the years ended December 31, 2010 and 2009, in conformity with U.S. generally accepted accounting
principles.

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

46

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Table of Contents

Manhattan Bancorp and Subsidiaries        Consolidated Balance Sheets

December 31, 2010

December 31, 2009AssetsCash and due from banks

$
1,845,808

$
1,213,837Federal funds sold/interest-bearing demand funds


37,249,872


50,241,455Total cash and cash equivalents


39,095,680


51,455,292Time deposits-other financial institutions


2,868,000


3,462,000Investments securities-available for sale


14,875,814


13,360,750Investments securities-held to maturity


497,521


493,942Loans held for sale


3,512,417


Loans


89,236,265


80,116,019Allowance for loan losses


(1,877,133
)

(1,202,494
)Net loans


87,359,132


78,913,525Premises and equipment, net


1,259,457


1,281,940Nonmarketable securities


1,580,600


1,699,650Accrued interest receivable and other assets including goodwill


1,899,602


1,647,744Total assets

$
152,948,223

$
152,314,843Liabilities and Stockholders' EquityDeposits:Non-interest bearing demand

$
52,893,770

$
29,647,199Interest bearing:Demand


3,165,267


4,026,157Savings and money market


28,556,155


17,899,434Certificates of deposit equal to or greater than $100,000


33,934,109


54,351,901Certificates of deposit less than $100,000


3,696,069


4,995,301Total deposits


122,245,370


110,919,992FHLB advances


4,500,000


12,000,000Accrued interest payable and other liabilities


1,872,820


992,648Total liabilities


128,618,190


123,912,640Commitments and contingenciesnote 13





Stockholders' equityManhattan Bancorp stockholders' equity:Serial preferred stock-no par value; 10,000,000 shares authorized: issued and outstanding, none in 2010 and 2009





Common stock-no par value; 10,000,000 shares authorized;
30,000,000 shares authorized at December 31, 2010
10,000,000 shares authorized at December 31, 2009
issued and outstanding, 3,987,631 in 2010 and 2009


38,977,282


38,977,282Additional paid in capital


2,162,124


1,566,396Unrealized gain on available-for-sale securities


334,773


305,152Accumulated deficit


(17,347,612
)

(12,737,537
)Total Manhattan Bancorp stockholders' equity


24,126,567


28,111,293Noncontrolling interest


203,466


290,910Total equity


24,330,033


28,402,203Total liabilities and stockholders' equity

$
152,948,223

$
152,314,843


The accompanying notes are an integral part of this financial statement.

47

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Table of Contents

Manhattan Bancorp and Subsidiaries        Consolidated Statements of Operations

Year Ended
December 31, 2010

Year Ended
December 31, 2009Interest incomeInterest and fees on loans

$
5,259,952

$
3,998,578Interest on investment securities


1,167,534


456,725Interest on time deposits-other financial institutions


51,992


107,691Interest on federal funds sold/interest-bearing demand balances


38,606


38,153Total interest income


6,518,084


4,601,147Interest expenseInterest on NOW, money market and savings


228,626


163,579Interest on time deposits


573,714


482,340Interest on FHLB advances


199,873


199,933Total interest expense


1,002,213


845,852Net interest income


5,515,871


3,755,295Provision for loan losses


727,230


1,179,788Net interest income after provision for loan losses


4,788,641


2,575,507Other incomeTrading income


4,972,413


132,500Whole loan trading income


1,652,186


745,493Advisory fees


731,902


Bank-related service charges


238,929


140,877Mortgage-related income


153,984


Non-interest Income


7,749,414


1,018,870Non-interest expenseCompensation and benefits


11,770,519


5,223,358Professional expenses


1,420,780


1,059,042Technology and communication


1,417,203


715,752Occupancy and equipment


1,109,607


776,289Administrative expenses


721,844


277,615Other non-interest expenses


791,493


586,997Total non-interest expenses


17,231,446


8,639,053Loss before income taxes


(4,693,391
)

(5,044,676
)Provision for income taxes


4,128


1,600Net loss


(4,697,519
)

(5,046,276
)Less: Net loss attributatble to the noncontrolling interest.


(87,444
)

(9,090
)Net loss attributable to Manhattan Bancorp


(4,610,075
)

(5,037,186
)Weighted average number of shares outstanding (basic and diluted)


3,987,631


3,987,631Basic and diluted loss per share attributable to Manhattan Bancorp common stockholders

$
(1.16
)
$
(1.26
)


The
accompanying notes are an integral part of this financial statement.

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Table of Contents

Manhattan Bancorp and Subsidiaries        Consolidated Statements of Changes in Stockholders' Equity

Common Stock









Accumulated
Other
Comprehensive
Income (Loss)Preferred
Stock

Common
Stock
Warrant

Additional
Paid-in
Capital

Comprehensive
Income (Loss)

Accumulated
Deficit

Noncontrolling
InterestShares

Amount

TotalBalance at December 31, 2008

$
1,558,517


3,987,631

$
38,977,282

$
120,417

$
957,825




$
(7,634,001
)
$
307,488




$
34,287,528Accretion of preferred stock discount


18,063








(18,063
)
















Reduction due to repurchase of preferred stock


(1,576,580
)







(102,354
)

(21,066
)













(1,700,000
)Dividend on preferred stock




















(66,349
)







(66,349
)Reduction due to redemption of warrant














(63,364
)













(63,364
)Capital contribution by minority interest


























210,000


210,000Capital contribution to minority interest by parent














(90,000
)










90,000


Share-based compensation expense














783,001














783,001Unrealized loss on investment securities
















$
(2,336
)




(2,336
)




(2,336
)Net loss

















(5,037,187
)

(5,037,187
)




(9,090
)

(5,046,277
)Total comprehensive loss
















$
(5,039,523
)Balance at December 31, 2009





3,987,631


38,977,282





1,566,396





(12,737,537
)

305,152


290,910


28,402,203Share-based compensation expense














595,728














595,728Unrealized gain on investment securities
















$
29,621





29,621





29,621Net loss

















(4,610,075
)
$
(4,610,075
)



$
(87,444
)

(4,697,519
)Total comprehensive loss
















$
(4,580,454
)Balance at December 31, 2010

$



3,987,631

$
38,977,282

$


$
2,162,124




$
(17,347,612
)
$
334,773

$
203,466

$
24,330,033


The accompanying notes are an integral part of this financial statement.

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Table of Contents

Manhattan Bancorp and Subsidiaries        Consolidated Statements of Cash Flows

For the
Year Ended
December 31, 2010

For the
Year Ended
December 31, 2009Cash Flows from Operating ActivitiesNet loss

$
(4,697,519
)
$
(5,046,276
)Adjustments to reconcile net loss to net cash used in operating activities:Net amortization of discounts and premiums on securities


(388,953
)

(31,996
)Depreciation and amortization


393,841


336,462Provision for loan losses


727,230


1,179,788Share-based compensation


595,728


783,001(Increase) in accrued interest receivable and other assets


(251,858
)

(1,189,903
)(Decrease) increase in accrued interest payable and other liabilities


880,172


731,331Net cash used in operating activities


(2,741,359
)

(3,237,593
)Cash Flows from Investing ActivitiesNet (increase) in loans


(12,733,378
)

(23,664,378
)Allowance for loan and lease loss recoveries


48,124


38,002Net (increase) decrease in time deposits-other financial institutions


594,000


736,000Proceeds from repayment and maturities from investments securities


14,214,729


3,141,664Purchase of available-for-sale securities


(15,314,798
)

(8,562,341
)Purchase of premises and equipment


(371,358
)

(261,126
)Capital contribution to minority interest





(90,000
)Redemption of stock in other financial institutions


119,050


(254,600
)Net cash used in investing activities


(13,443,631
)

(28,916,779
)Cash Flows from Financing ActivitiesNet increase(decrease) in:Demand deposits


23,246,571


14,267,941NOW, savings and money market


9,795,831


11,964,192Certificates of deposits equal to or greater than $100,000


(20,417,792
)

36,207,546Certificates of deposits less than $100,000


(1,299,232
)

489,463Increase (decrease) in borrowings


(7,500,000
)

2,500,000Net cash provided by financing activities


3,825,378


63,899,429Net (decrease) increase in cash and cash equivalents


(12,359,612
)

31,745,057Cash and Cash Equivalents at Beginning of Period


51,455,292


19,710,235Cash and Cash Equivalents at End of Period

$
39,095,680

$
51,455,292Supplementary Information: Cash Paid during the Year on:Interest

$
1,013,453

$
841,250Income taxes

$
4,128

$
1,600


The
accompanying notes are an integral part of this financial statement.

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MANHATTAN BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2010

Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accompanying 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 the instructions to Form 10-K and Article 8 of
Regulation S-X. On July 30, 2010, while maintaining its 70% interest in Banc of Manhattan Capital ("BOMC"), MBFS acquired a 70% interest in a newly-formed LLC,
Manhattan Capital Markets ("MCM"). In the anticipated complete reorganization, the existing 70% partnership interests of MBFS in BOMC was transferred to MCM, which then acquired 100% of the
partnership interest in BOMC. This occurred on November 30, 2010.

Nature of Operations

Manhattan Bancorp (the "Company") is a California corporation incorporated on August 8, 2006 for the purpose of becoming a bank
holding company and owning all of the stock of the Bank which is located in El Segundo, California. The Bank operates as a community bank, offering general commercial banking services to small and
medium-sized businesses and professionals in the South Bay, the Westside and the Los Angeles airport areas of Los Angeles County. The Bank commenced its operations on August 15, 2007 after
receiving approval from the Office of the Comptroller of the Currency ("OCC") and the Federal Deposit Insurance Corporation (FDIC).

On
October 1, 2009, the Company, through its wholly-owned subsidiary, MFBS acquired a 70% interest in BOM Capital LLC, a full-service mortgage centric
broker/dealer ("BOMC"). On November 30, 2010, through a re-organization the Company's 70% interest was transferred to Manhattan Capital Markets LLC, ("MCM"). MCM is a holding
company for multiple wholly-owned subsidiaries, including BOMC.

Basis of Financial Statement Presentation

The consolidated financial statements include the accounts of the Company and its subsidiaries. In the opinion of Management, all
adjustments considered necessary for a fair presentation of results for the interim periods presented have been included.

Use of Estimates

The preparation of consolidated financial statements in conformity with the accounting principles generally accepted in the United
States of America 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. All
material intercompany accounts and transactions have been eliminated in consolidation.

Reclassifications

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

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MANHATTAN BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2010

Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Cash and Cash Equivalents

For the purpose 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 in behalf of the Bank. Cash on hand or on deposit with the Federal Reserve Bank are used to
the regulatory reserve and clearing requirements.

Cash and Due from Banks

Banking regulations require that all banks maintain a percentage of their deposits as reserves in cash or on deposit with the Federal
Reserve Bank. The reserve required to be maintained at the Federal Reserve Bank was $665 thousand and $510 thousand at December 31, 2010 and 2009, respectively. The Bank maintains
deposits with other financial institutions in amounts that exceed Federal deposit insurance coverage. Federal funds sold are similar to uncollateralized loans. Management regularly evaluates the
credit risk of these transactions and believes that the Company is not exposed to any significant credit risk on cash or cash equivalents.

Interest-earning Deposits at Other Financial Institutions

Interest-earning deposits in other financial institutions represent short term deposits that mature over a period of no more than
12 months and earn a higher rate of interest over that Bank's investment in Federal funds sold. Investment balances are maintained under the Federal deposit insurance level.

Investment Securities

Bonds, notes and debentures for which the Company has the positive intent and ability to hold to maturity are reported at cost,
adjusted for premiums and discounts that are recognized in interest income using the interest method over the period to maturity.

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 certain conditions, such as changes in interest rates, fluctuations in deposit levels or loan demand,
or 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 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 or losses on sales of held-to-maturity and available-for-sale
securities are recorded using the specific
identification method. For mortgage-backed securities, the amortization or accretion is based on the estimated average lives of the securities. The lives of these securities can fluctuate based upon
the amount of prepayments received on the underlying collateral of the securities.

At
each reporting date, investment securities are assessed to determine whether there is anything other-than-temporary impairment. Prior to January 1,
2009, any declines in the fair value of individual held-to-maturity and available-for-sale securities below their cost that were
other-than-temporary, would have resulted in write-downs of the individual securities to their fair value and included in earnings as

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MANHATTAN BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2010

Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

realized
losses. The Company did not record any such write-downs in 2008. In estimating other-than-temporary impairment losses, management considers the length of time and the
extent to which the fair value has been less than cost, the financial condition and near-term prospects of the issuer and 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.

In
April 2009, accounting standards were revised to provide expanded guidance concerning the recognition and measurement of other-than-temporary impairments of
debt securities classified as available for sale or held to maturity to make the guidance more operational and to improve the presentation of other-than-temporary impairments
in the financial statements. These rules require an entity to recognize the credit component of any other-than-temporary impairment of a debt security in earnings and the
noncredit component in other comprehensive income when the entity does not intend to sell the security and it is more likely than not that the entity will not be required to sell the security prior to
recovery. These new rules also require expanded disclosures. The guidance does not change the recognition of other-than-temporary impairment for equity securities.

Loans Held for Sale

Mortgage loans originated and intended for sale in the secondary market are carried at the lower of aggregate cost or fair value, as
determined by outstanding commitments from investors. Net unrealized losses, if any, are recorded as a valuation allowance and charged to earnings. Gains and losses on sales of mortgage loans are
based on the difference between the selling price and the carrying value of the related loan sold.

Loans and Interest on Loans

The Company currently extends credit to its customers in the form of commercial, commercial and residential real estate and consumer
loans. Loans are reported at the principal amount outstanding, net of unearned income. Unearned income, which includes deferred fees and deferred loan origination costs, is amortized and included in
interest income over the life of the loan using the interest method whenever possible.

Interest
income is recognized on an accrual basis daily and credited to income based upon the principal amount outstanding.

The
accrual of interest on loans is discontinued at the time the loan becomes 90-days delinquent unless the credit is well-secured and in the process of
collection. In some cases, loans can be placed on a 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, interest income is recognized only to the extent of cash payments received.

The
Company considers a loan to be impaired when it is probable that the Company will be unable to collect all amounts due (principal and interest) according to the contractual terms of
the loan agreement. Measurement of impairment is based on the expected future cash flows of an impaired loan, which are to

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MANHATTAN BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2010

Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

be
discounted at the loan's effective interest rate, or measured by reference to an observable market value, if one exists, or the fair value of the collateral for a collateral-dependent loan. The
Company selects the measurement method on a loan-by-loan basis except that collateral-dependent loans for which foreclosure is probable are measured at the fair value of
collateral. The entire change in the present value of expected cash flows is reported as either a provision for credit losses in the same manner in which impairment initially was recognized, or as a
reduction in the amount of provision for credit losses that otherwise would be reported. The Company recognizes interest income on impaired loans based on its existing methods of recognizing interest
income on nonaccrual loans.

Concentration of Credit Risk

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

Allowance for Loan Losses

The allowance for loan losses is based upon estimates and ultimate losses may vary from current estimates. These 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
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.

Management
performs periodic credit reviews of the loan portfolio and considers current economic conditions, historical credit loss experiences and other factors in determining the
adequacy of the allowance. Although management uses the best information available to make these estimates, future adjustments to the allowance may be necessary due to economic, operating, regulatory
and other conditions that may be 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.

The
allowance consists of specific and general components. The specific component relates to loans that are individually classified as impaired.

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. Loans for which the terms have been modified resulting in a concession, and for which the borrower is experiencing financial difficulties, are considered troubled debt restructurings and
classified as impaired.

Factors
considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due.
Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on
case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the
borrower's prior payment record, and the amount of the shortfall in relation to the principal and interest owed.

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MANHATTAN BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2010

Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

The
general component covers non-impaired loans and 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 over the most recent three years. This actual loss experience is supplemented with other economic factors based on
the risks present for each portfolio segment. These economic factors include consideration of the following: levels of and trends in delinquencies and impaired loans; levels of and trends in
charge-offs and recoveries; trends in volume and terms of loans; effects of any changes in risk selection and underwriting standards; other 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
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.

Transfers of Financial Assets

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

Premises and Equipment

Furniture and equipment are stated at cost less accumulated depreciation. Depreciation is provided for in amounts sufficient to relate
the cost of depreciable assets to operations over their estimated service lives, which ranges from three to seven years for furniture and equipment. Leasehold improvements are amortized over the
estimated useful lives of the improvements but not more than the remaining lease term with extensions, 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 purposes. Expenditures for improvements and major repairs are capitalized and
those for ordinary repairs and maintenance are charged to operations as incurred.

Nonmarketable Securities

Regulatory requirements may require that the Company invest in the stock of certain organizations. Such stocks are considered
restricted equity securities. Other investments, such as stock in bankers' banks, may offer cash and non-cash benefits to its shareholders although no market quotations exist. Such
holdings have been recorded at cost in the Company's balance sheets. Both cash and stock dividends are recorded as income.

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MANHATTAN BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2010

Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Goodwill

When the Company acquired its interest in MCM, the business had been in operation prior to the date when the acquisition occurred. The
Company paid a premium on this acquisition, and said premium is recorded as an intangible asset in the form of goodwill.

Goodwill
represents the excess of the purchase price over the estimated fair value of the net assets acquired. In accordance with current accounting practice, goodwill is not amortized
whereas identifiable intangible assets with finite lives are amortized over their useful lives. On an annual basis, the
Company tests goodwill for impairment. The assessment of the impairment occurred on August 31, 2010 and reflected no impairment at that time. Accordingly, the carrying value of the Goodwill was
$279,391 as of both December 31, 2010 and December 31, 2009.

Intangible
assets with definite useful lives are amortized over their estimated useful lives to the estimated residual values. Goodwill is the only intangible asset with an indefinite
life on the Company's balance sheet.

Other Real Estate Owned

It is the Company's policy that all real estate properties that would be acquired through, or in lieu of, loan foreclosure would be
initially recorded at the lower of fair value or cost, less estimated costs to sell, at the date of foreclosure, establishing a new cost basis. 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. Revenue and expenses from operations and additions to the valuation allowance would
be included in other expenses. The Company does not have any Other Real Estate Owned at December 31, 2010 or December 31, 2009.

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 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.

Income Taxes

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2010

Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

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.

Advertising Costs

Advertising costs are expensed as incurred.

Other Comprehensive Income (Loss)

The Company has adopted current accounting guidance which requires the disclosure of comprehensive income (loss) and its components.
Changes in unrealized gain (loss) on available-for-sale securities are the only component of Accumulated Other Comprehensive Income (Loss) for the Company.

Loss Contingencies

Loss contingencies, 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 now are such matters that will have a material effect on the financial statements.

Earnings (Loss) Per Share

Basic earnings (loss) per share represents income available (loss reported) to common stock divided by the weighted average number of
common shares outstanding during the period reported on the Statements of Operations. Diluted earnings (loss) per share reflect additional common shares that would have been outstanding if dilutive
potential common shares had been issued, as well as any adjustment to income that would result from the assumed conversion. There were no dilutive potential common shares outstanding at
December 31, 2010 or December 31, 2009. The weighted average number of shares used to calculate loss per share for the years ended December 31, 2010 and December 31, 2009
was 3,987,631.

Equity Compensation Plans/Share-Based Compensation

The Company's 2007 Stock Option Plan ("2007 Plan") provided for the issuance of up to 732,789 shares of the Company's common stock upon
the exercise of incentive and non-qualified options. The Plan was approved on August 10, 2007 by the Company's Board of Directors and the then existing shareholders and was
terminated when the Company's Board of Directors approved the Manhattan Bancorp 2010 Equity Incentive Plan ("2010 Plan") on March 25, 2010, subject to the approval of the Company's
shareholders. Options granted and still outstanding as of December 31, 2010 were 438,260.

The
2010 Plan provides for the issuance of up to 444,348 shares of the Company's authorized and unissued common stock upon the exercise of incentive and non-qualified options
and expires on March 25, 2020.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2010

Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

The
Company has adopted the current accounting practice that generally requires entities to recognize the cost of recipient service received in exchange for awards of stock options, or
other equity instruments in the statements of income based upon the grant date's fair values for the award.

The
Plan provides 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 can vest
as determined by the Board of Directors of the Company. The cost is recognized over the period which the recipient is required to provide services in exchange for the award, generally the vesting
period. A Black-Scholes model is utilized to estimate the fair value of stock options, while the market price of the Company's common stock at the date of grant is used for restricted stock awards.

Fair Value of Financial Instruments

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.

Operating Segments

The Company has currently three operating segments, the Bank, the Bancorp and the operations of MCM. Internal financial information is
available to report the position and operating results of each of these entities and is disclosed in a separate footnote.

New Accounting Pronouncements

EXPANDED DISCLOSURE ON CREDIT QUALITY:In July 2010, the Financial Accounting Standards Board (the "FASB") issued Accounting Standards
Update
("ASU") No. 2010-20,Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses.ASU
2010-20 is intended to provide additional information to assist financial statement users in assessing an entity's credit risk exposures and evaluating the adequacy of its allowance for
credit losses. To achieve those objectives, ASU 2010-20 requires additional disclosures that
facilitate the evaluation of the nature of credit risk inherent in the entity's portfolio of financing receivables, enhance the understanding of how that risk is analyzed and assessed in arriving at
the allowance for credit losses, and discuss the changes and reasons for those changes in the allowance for credit losses. A reporting entity should provide disclosures on a disaggregated basis,
including portfolio segment and class of financing receivable. A portfolio segment is defined as the level at which an entity develops and documents a systematic method for determining its allowance
for credit losses. Classes of financing receivables generally are a disaggregation of portfolio segment. For public entities, including the Company, the disclosures as of the end of a reporting period
are effective for interim and annual reporting periods ending on or after December 15, 2010. The disclosures about activity that occurs during a reporting period are effective for interim and
annual reporting periods beginning on or after December 15, 2010. Since ASU 2010-20 affects only disclosure requirements for credit quality and the allowance for loan and lease
losses, the adoption of this update is not expected to have a material impact on the Company's results of operations or financial position.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2010

Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

LOAN MODIFICATION-EFFECT ON SINGLE ASSET POOLS:In April 2010, the FASB issued ASU No. 2010-18,Effect of
a Loan Modification When the Loan Is Part of a Pool That Is Accounted for as a Single Asset. ASU No. 2010-18 provides guidance on the accounting for loan
modifications when the loan is part of a pool of loans accounted for as a single asset, such as acquired loans that have evidence of credit deterioration upon acquisition and are accounted for under
the guidance in The FASB Accounting Standards Codification  ("ASC") 310-30. ASU No. 2010-18 addresses diversity in practice on whether a loan that is part
of a pool of loans accounted for as a single asset should be removed from that pool upon a modification that would constitute a troubled debt restructuring, or should remain in the pool after
modification. ASU No. 2010-18 clarifies that modifications of loans that are accounted for within a pool under ASC 310-30 do not result in the removal of those loans
from the pool even if the modification of those loans would otherwise be considered a troubled debt restructuring. An entity will continue to be required to consider whether the pool of assets in
which the loan is included is impaired if the expected cash flows for the pool change. The amendments in this update do not require any additional disclosures and are effective for modifications of
loans accounted for within pools under ASC 310-30 occurring in the first interim or annual period ending on or after July 15, 2010. The adoption of ASU 2010-18 for the
third quarter of 2010 did not have a material impact on the Company's results of operations, financial position or disclosures.

SUBSEQUENT EVENTSAMENDMENT:In February 2010, the FASB issued ASU No. 2010-09,Subsequent
Events (Topic 855): Amendments to Certain Recognition and Disclosure Requirements. The amendments remove the requirement for an SEC registrant to disclose the date through
which subsequent events were evaluated as this requirement would have potentially conflicted with SEC reporting requirements. Removal of the disclosure requirement is not expected to affect the nature
or timing of subsequent events evaluations performed by the Company. This ASU became effective upon issuance.

FAIR VALUE MEASUREMENTS:In January 2010, the FASB issued ASU No. 2010-06,Fair Value Measurements and
Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements. This update added disclosure requirements for significant transfers into and out of
Levels 1 and 2, clarified existing fair value disclosure requirements about the appropriate level of disaggregation, and clarified that a description of the valuation techniques was required
for recurring and nonrecurring Level 2 and 3 fair value measurements. The Company adopted these provisions of the ASU in preparing the Consolidated Financial Statements for the period ended
March 31, 2010. The adoption of these provisions only affected the disclosure requirements for fair value measurements and as a result had no impact on the Company's statements of income and
condition. An additional requirement of this ASU is that activity within Level 3, including purchases, sales, issuances, and settlements, be presented on a gross basis rather than as a net
number as currently permitted. This provision of the ASU is effective for the Company's reporting period ending March 31, 2011. As this
provision amends only the disclosure requirements for fair value measurements, the adoption will have no impact on the Company's statements of income and condition.

GENERALLY ACCEPTED ACCOUNTING PRINCIPLES:In June 2009, the Financial Accounting Standards Board ("FASB") issued an accounting standard
regarding The
FASB Accounting Standards Codification  ("Codification" or "ASC") that will become the source of authoritative U.S. generally accepted accounting principles ("GAAP") recognized by the
FASB to be applied by nongovernmental entities. Rules and interpretive releases of the Securities and Exchange Commission ("SEC") under authority of Federal securities laws are also sources of
authoritative GAAP for SEC registrants. On the

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2010

Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

effective
date of this standard, all interim and annual reporting periods ending after September 15, 2009, the Codification will supersede all then-existing non-SEC
accounting and reporting standards. All other non-grandfathered non-SEC accounting literature not included in the Codification will become non-authoritative. The
adoption of this standard did not have a material impact on the Company's financial statements.

CONSOLIDATION-VARIABLE INTEREST ENTITIES:In June 2009, the FASB issued an accounting standard, incorporated into ASC topic 810
"Consolidation," that
seeks to improve financial reporting by companies involved with variable interest entities. Also addressed under this standard are concerns about the application of certain key provisions, including
those in which the accounting and disclosures do not always provide timely and useful information about a company's involvement in a variable interest entity. The standard requires a company to
perform analyses to determine if its variable interest(s) give it a controlling financial interest in a variable interest entity. These analyses identify the primary beneficiary of the a variable
interest entity as the company that has both of the following characteristics: (a) the power to direct the activities of a variable interest entity that most significantly impact the company's
economic performance; and (b) the obligation to absorb losses of the entity that could potentially be significant to the variable interest entity or the right to receive benefits from the
entity that could potentially be significant to the variable interest entity. This standard is effective for all annual and interim reporting periods beginning after November 15, 2009 with
earlier application prohibited. The adoption of this standard is not expected to have a material impact on the Company's financial statements.

SUBSEQUENT EVENTS:In May 2009, the FASB issued an accounting standard which was incorporated into ASC topic 855 "Subsequent Events."
This standard
sets forth principles and requirements for disclosing and recognizing subsequent events in the financial statements. This standard also outlines circumstances under which an entity shall recognize
those events or transactions occurring
after the balance sheet date. The Company is required to adopt this standard for all interim and annual reporting periods after June 15, 2009, prospectively. The Company's adoption of this
standard did not have a material impact on its financial statements.

BUSINESS COMBINATIONS:Effective January 1, 2009, the Company adopted the new accounting guidance that applies to all transactions
and other
events in which one entity obtains control over one or more other businesses. The guidance requires an acquirer, upon initially obtaining control of another entity, to recognize the assets,
liabilities and any non-controlling interest in the acquiree at fair value as of the acquisition date. Contingent consideration is required to be recognized and measured at fair value on
the date of acquisition rather than at a later date when the amount of that consideration may be determinable beyond a reasonable doubt. This fair value approach replaces the
cost-allocation process required under old accounting literature whereby the cost of an acquisition was allocated to the individual assets acquired and liabilities assumed based on their
estimated fair value. The new guidance requires acquirers to expense acquisition-related costs as incurred rather than allocating such costs to the assets acquired and liabilities assumed, as was
previously the case. Accounting for costs associated with exit or disposal activities would have to be met in order to accrue for a restructuring plan in purchase accounting.
Pre-acquisition contingencies are to be recognized at fair value, unless it is a non-contractual contingency that is not likely to materialize, in which case, nothing should be
recognized in purchase accounting and, instead, that contingency would be subject to the probable and estimable recognition criteria delineated in the FASB statement related to accounting for
contingencies. Subsequent accounting literature released

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2010

Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

during
2009 amends the new accounting guidance to require that assets acquired and liabilities assumed in a business combination that arise from contingencies be recognized at fair value if fair value
can be reasonably estimated, removes subsequent accounting guidance for assets and liabilities arising from contingencies and requires entities to develop a systematic and rational basis for
subsequently measuring and accounting for assets and liabilities arising from contingencies. It also eliminates the requirement to disclose an estimate of the range of outcomes of recognized
contingencies at the acquisition date.

OTHER-THAN-TEMORARY IMPAIRMENT:In April 2009, the FASB amended existing guidance for determining whether impairment is
other-than-temporary for debt securities. The guidance requires an entity to assess whether it intends to sell, or it is more likely than not that it will be required to sell,
a security in an unrealized loss position before recovery of its amortized cost basis. If either of these criteria is met, the entire difference between amortized cost and fair value is recognized as
impairment through earnings. For securities that do not meet the aforementioned criteria, the amount of impairment is split into two components as follows:
1) other-than-temporary impairment (OTTI) related to other factors, which is recognized in other comprehensive income and 2) OTTI related to credit loss, which
must be recognized in the income statement. The credit loss is defined as the difference between the present
value of the cash flows expected to be collected and the amortized cost basis. Additionally, disclosures about other-than-temporary impairments for debt and equity securities
were expanded. This guidance was effective for interim and annual reporting periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. The
Company elected to early-adopt this guidance as of January 1, 2009. The adoption of this guidance had no affect on previously reported financial results of the Company.

Note 2. Interest-Earning Assets with Other Financial Institutions

At December 31, 2010, the Company had interest-earning deposits with other financial institutions of $2.9 million with a weighted average yield of 1.36%, and an average
weighted remaining life of approximately 5.2 months. At December 31, 2009, the Company had interest-earning deposits with other financial institutions of $3.5 million with a
weighted average yield of 1.81%, and an average weighted remaining life of approximately 3.4 months.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2010

Note 3. Investment Securities

Investment securities have been classified in the balance sheet according to management's intent. 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, 2010 and 2009:

Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Fair
Value(Dollars in Thousands)December 31, 2010Available-for-sale securities:U.S. government and agency securities

$
1,500

$


$
51

$
1,449Mortgage-backed securities


4,317


268





4,585Asset-backed securities


8,724


195


77


8,842Total available-for-sale securities

$
14,541

$
463

$
128

$
14,876Held-to-maturity securities:State and municipal securities

$
498

$
6

$


$
504




Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Fair
Value(Dollars in Thousands)December 31, 2009Available-for-sale securities:U.S. government and agency securities

$
2,647

$


$
21

$
2,626Mortgage-backed securities


7,009


320


1


7,328Asset-backed securities


3,399


8


54


3,353Total available-for-sale securities

$
13,055

$
328

$
76

$
13,307Held-to-maturity securities:State and municipal securities

$
494

$
4

$


$
498


The
fair value of these securities is based upon quoted market prices. At December 31, 2010 and December 31, 2009, there were no holdings of securities of any one issuer in
an amount greater than 10% of shareholders' equity.

The
realized gains for the year ended December 31, 2010 were $19,528 and there were no realized losses. There were no realized gains or losses for the year ended
December 31, 2009.

The
net unrealized gain on available-for sale as of December 31, 2010 was $334,773 with the net increase of $29,621 included in accumulated other comprehensive income
for the year ended December 31, 2010. The net unrealized gain on available-for-sale securities included in accumulated other comprehensive income for the year ended
December 31, 2009 was $305,152, after reflecting a reduction in the aggregate gain by $2,336.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2010

Note 3. Investment Securities (Continued)

Securities
with a fair market value of $4,996,000 at December 31, 2010 were pledged to secure borrowings from the Federal Home Loan Bank ("FHLB"). Securities with a fair market
value of $5,109,000 at December 31, 2009 were pledged to secure borrowings from the FHLB.

Management
does not believe that any of the Company's investment securities are impaired due to reasons of credit quality. Declines in the fair value of
available-for-sale securities below their cost that are deemed to be other-than-temporary are reflected in earnings as realized losses. In estimating
other-than-temporary 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. Accordingly, as of December 31, 2010 and 2009, 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 Statement of Operations.

At
December 31, 2010 and 2009, the Company had no securities with unrealized losses which were in a continual loss position for greater than 12 months.

Unrealized
losses and fair value, aggregated by investment categories that individual securities have been in an unrealized loss position for a period of less than 12 months are
summaries as follows:

At December 31,2010

2009Less than 12 Months

Less than 12 MonthsFair Value

Unrealized Losses

Fair Value

Unrealized Losses(Dollars in Thousands)Securities available for sale:U.S. Government and agency securities

$
1,500

$
51

$
2,627

$
21Mortgage-backed securities








198


1Other securities


4,348


77


1,775


54Securities held to maturityState and municipal securities











Total impaired securities

$
5,848

$
128

$
4,600

$
76


The
amortized cost, estimated fair value and average yield of debt securities at December 31, 2010 are shown below. In the case of securities available for sale, the average
yields are based on effective rates of book balances at year end. Yields are derived by dividing interest income, adjusted for amortization of premiums and accretion of discounts, by total amortized
cost. Mortgage-backed securities are classified in

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2010

Note 3. Investment Securities (Continued)

accordance
with estimated lives. Expected maturities may differ from contractual maturities because borrowers may have the right to prepay obligations.

Available-for-Sale Securities

Held-to Maturity SecuritiesAmortized
Cost

Fair
Value

Weighted
Average
Yield

Amortized
Cost

Fair
Value

Weighted
Average
Yield(Dollars in Thousands)Due in One Year or Less

$
4,103

$
4,179


3.85
%
$


$



Due from One Year to Five Years


4,646


4,715


3.84
%

498


504


4.55
%Due from Five Years to Ten Years


1,785


1,886


7.10
%







Due after Ten Years


4,007


4,096


4.35
%







$
14,541

$
14,876


4.38
%
$
498

$
504


4.55
%


Note 4. Loans and Allowance for Loan Losses

Loans are summarized as follows

December 31, 2010

December 31, 2009(Dollars in Thousands)

(Dollars in Thousands)Amount
Outstanding

Percentage of
Total

Amount
Outstanding

Percentage of
TotalCommercial loans

$
28,697


32.2
%
$
26,531


33.1
%Real estate loans


52,184


58.5
%

46,055


57.5
%Other loans


8,355


9.4
%

7,530


9.4
%Total Loans, including net loan costs


89,236


100.0
%

80,116


100.0
%LessAllowance for loan losses


(1,877
)




(1,202
)Net loans

$
87,359




$
78,914


The
Company's lending strategy is to attract entrepreneurs and small to mid-sized business borrowers by offering a variety of commercial and real estate loan products and a
full range of other banking services coupled with highly personalized services. The Company offers secured and unsecured commercial term loans and lines of credit, construction loans for individual
homes and commercial and multifamily properties, accounts receivable and equipment loans, and home equity lines of credit. The amount of collateral, if deemed necessary, is determined in accordance
with the Company's underwriting criteria. The Company's primary lending occurs within the Greater Los Angeles area.

At
December 31, 2010, qualified loans with an outstanding balance of $40.9 million were pledged to secure advances at the FHLB. At December 31, 2009, qualified loans
with an outstanding balance of $37.9 million were pledged to secure advances at the FHLB.

As
of December 31, 2010, the Company had no impaired or non-accrual loans and there was a single loan which was 30 days past due in the amount of approximately
$1.4 million. The loan was paid-in-full by the end of the following month.

The
Company had no impaired or non-accrual loans and there were no loans past due 30 days or more in either interest or principal at December 31, 2009.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2010

Note 4. Loans and Allowance for Loan Losses (Continued)

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical
payment experience, credit documentation, public information, and current economic trends, among other factors. The Company analyzes loans individually by classifying the loans as to credit risk. This
analysis is performed on a monthly basis. The Company uses the following definitions for risk ratings:



Loans
not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass rated loans. As of December 31, 2010, and
based on the most recent analysis performed, the risk category of loans by class of loans is as follows:

(Dollars in Thousands)

Pass

Special
Mention

Substandard

DoubtfulCommercial loans

$
25,065

$
2,000

$
1,632

$
Commericial real estate


41,547


1,884





Construction


8,753








Other loans


8,110





245


Total Loans

$
83,475

$
3,884

$
1,877

$



The
following table presents an analysis of changes in the allowance for loan losses during the period indicated:

Year Ended
December 31,
2010

Year Ended
December 31,
2009(Dollars in Thousands)Allowance balance at beginning of period

$
1,202

$
975Additions to the allowance charged to expense


727


1,179Recoveries


48


381,977


2,192Less: loans charged-off


100


990Allowance balance at end of period

$
1,877

$
1,202


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MANHATTAN BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2010

Note 4. Loans and Allowance for Loan Losses (Continued)

The
following table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based upon impairment method as of
December 31, 2010:

(Dollars in Thousands)

General
AllowanceCommercial loans

$
553Commericial real estate


1,059Construction


131Other loans


134Total Loans

$
1,877


Note 5. Fair Value of Financial Instruments

Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability
in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may be used to measure fair values:



The
Company used the following methods and significant assumptions to estimate fair value:

Investment Securities:The fair values for investment securities are determined by quoted market prices, if available (Level 1).
For
securities where quoted prices are not available, fair values are calculated based on market prices of similar securities (Level 2). For securities where quoted prices or market prices of
similar securities are not available, fair values are calculated using discounted cash flows or other market indicators (Level 3). Discounted cash flows are calculated using spread to swap and
LIBOR curves that are updated to incorporate loss severities, volatility, credit spread and optionality. During times when trading is more liquid, broker quotes are used (if available) to validate the
model. Rating agency and industry research reports as well as defaults and deferrals on individual securities are reviewed and incorporated into the calculations.

Loans Held For Sale:Loans held for sale are carried at the lower of cost or fair value, as determined by outstanding commitments, from
third party
investors.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2010

Note 5. Fair Value of Financial Instruments (Continued)

Assets
and liabilities measured at fair value on a recurring basis, including financial assets and liabilities for which the Company has elected the fair value option, are summarized
below:

Description of Assets/Liabiltity

December 31,
2010

Quoted Price in
Active Markets
for Identical
Assets
(Level 1)

Significant
Other
Observable
Inputs
(Dollars in Thousands)
(Level 2)

Significant
Unobservable
Inputs
(Level 3)Available-for-sale securities

$
14,876

$


$
14,876

$



December 31,
2009Available-for-sale securities

$
13,361

$


$
13,361

$



Assets
measured at fair value on a non-recurring basis are summarized below:

Description of Assets/Liabiltity

December 31,
2010

Quoted Price in
Active Markets
for Identical
Assets
(Level 1)

Significant
Other
Observable
Inputs
(Dollars in Thousands)
(Level 2)

Significant
Unobservable
Inputs
(Level 3)Loans held for sale

$
3,512

$
3,512

$


$



Current
account practice defines the fair value of a financial instrument as the amount at which the asset or obligation could be exchanged in a current transaction between willing
parties, other than in a forced or liquidation sale. Fair value estimates are made at a specific point in time based upon relevant market information and information about the financial instrument.
These estimates do not reflect any premium or discount that could result from offering for sale at one time the entire holdings of a particular financial instrument. Because no market value exists for
a significant portion of the financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various
financial instruments, and other factors. These estimates are subjective in nature, involve uncertainties and matters of judgment and, therefore cannot be determined with precision. Changes in
assumptions could significantly affect the estimates.

Fair
value estimates are based on financial instruments both on and off the balance sheet without attempting to estimate the value of anticipated future business and the value of assets
and liabilities that are not considered financial instruments. Additionally, tax consequences related to the realization of the unrealized gains and losses can have a potential effect on fair value
estimates and have not been
considered in many of the estimates. The following methods and assumptions were used to estimate the fair value of significant financial instruments:

Financial Assets

The carrying amount of cash and short-term investments are considered to approximate fair value. Short-term
investments include Federal funds sold and interest bearing deposits with other financial institutions. The fair value of investment securities are generally based upon quoted market prices. The

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2010

Note 5. Fair Value of Financial Instruments (Continued)

fair
value of loans are estimated using a combination of techniques, including discounting estimated future cash flows and quoted market prices of similar instruments where available.

Financial Liabilities

The carrying amount of deposit liabilities payable on demand are considered to approximate fair value. For fixed maturity deposits,
fair value is estimated by discounting estimated future cash flows using currently offered rates for deposits of similar remaining maturities. The fair value of long-term debt is based
upon rates currently available to the Company for debt with similar terms and remaining maturities.

Off-Balance Sheet Financial Instruments

The fair value of commitments to extend credit and standby letters of credit is estimated using the fees currently charged to enter
into similar agreements. The fair value of these financial instruments is not material.

The
estimated fair value of financial instruments at December 31, 2010 and 2009 is summarized as follows (dollar amount in thousands):

December 31,2010

2009Carrying
Value

Estimated Fair
Value

Carrying
Value

Estimated Fair
ValueFinancial Assets:Cash and due from banks

$
1,846

$
1,846

$
1,214

$
1,214Federal funds sold


37,250


37,250


50,241


50,241Time deposits-other financial institutions


2,868


2,868


3,462


3,642Investment Securities


15,373


14,876


13,855


13,859Loans, net


87,359


92,023


78,914


84,389Non-marketable securities


1,581


1,581


1,700


1,700Accrued interest receivable


419


419


398


398Financial Liabilities:Non-interest bearing deposits


52,894


52,894


29,647


29,647Interest-bearing deposits


69,352


69,200


81,273


80,759Accrued interest payable


30


30


41


41FHLB advances


4,500


4,492


12,000


11,965


68

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Table of Contents

MANHATTAN BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2010

Note 6. Premises and Equipment

Premises and equipment consisted of the following:

December 31,2010

2009(Dollars in Thousands)Leasehold improvements

$
884

$
866Furniture, fixtures and equipment


1,537


1,1552,421


2,021Less: accumulated depreciation & amortization


(1,162
)

(739
)$
1,259

$
1,282


Total
depreciation and amortization expense for the year ended December 31, 2010 was $393,841 compared to $336,462 for the year ended December 31, 2009.

The
Company has entered into a lease for an office facility for the banking operation. The lease agreement is for a term of seven (7) years commencing on July 1, 2007 with
one renewal option of five years. The Company has entered into a lease for an office facility of the MCM group of companies. The lease agreement is for a term of two (2) years commencing on
June 1, 2011. The following is a schedule of the minimum lease payment associated with these two (2) term leases before considering renewal options that generally are present:

Year

(Dollars in Thousands)2011

$
4572012


3642013


2792014


142$
1,242


The
Company had several month-to-month leases covering spaces in both California and New York.

Total
occupancy expense for the year ended December 31, 2010 was $733 thousand compared to $459 thousand for the year ended December 31, 2009.

Note 7. Deposits

As of December 31, 2010 the scheduled maturities of the Company time deposits (in thousands) were as follows:

2011

$
28,6122012


6,5462013


2,2222014


2502015


$
37,630


69

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Table of Contents

MANHATTAN BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2010

Note 8. Borrowing Arrangements

Overnight borrowing:The Bank has an established borrowing line totaling $3,000,000 on an unsecured basis from one of its correspondent
banks. As of
December 31, 2010, no amounts were outstanding under this arrangement.

Federal Home Loan Bank Line of Credit:Since 2008, the Bank has maintained a line of credit with FHLB. The maximum amount the Bank my
borrow under
this agreement is limited to the lesser of a percentage of eligible collateral as established by agreement or 15% of the Bank's total assets. At December 31, 2010 remaining financing
availability from the FHLB was $ 15.4 million. FHLB advances are collateralized by loans and securities with a remaining borrowing capacity with existing collateral of approximately $
18.3 million secured by loans and securities. The Bank has pledged approximately $5.0 million in securities and $40.9 million in loans to the FHLB as of December 31, 2010.

At
December 31, 2010, the scheduled maturity of FHLB advance is as follows:

InterestAmount

Rate

Type

Maturity Date(Dollars in Thousands)$
4,500


4.38
%
Fixed


6/27/2013$
4,500


Note 9. Employee Benefits Plans

The Company has a 401(k) Profit Sharing Plan for all employees and permits voluntary contributions of their compensation on a pre-tax basis. The Company's Board of Directors
made a contribution for both 2010 and 2009 matching 100% of the employee's contribution up to the first 3% of the employee's total compensation and matching 50% of the employee's contribution up to
the next 2% of the employee's total compensation. The Company's expense relating to the contributions made to the 401(k) was approximately $295 thousand for the year ended December 31,
2010 and approximately $122 thousand for the year ended December 31, 2009.

Participants
are 100% vested in their own voluntary contributions. The Company's matching contribution was made using "Safe Harbor" guidelines. "Safe Harbor" contributions are
immediately vested.

Note 10. Stock-Based Compensation

At December 31, 2010, the Company had shares-based compensation awards outstanding under two share-based compensation plans, which are described below.

The "2007 Stock Option Plan".

The 2007 Plan of the Company authorized the granting of both 'nonqualified" and "incentive" stock options to the employees of the
Company and its subsidiaries and "nonqualified" stock options to the Company's directors. The Plan provided for options to purchase 732,789 shares of common stock at a price not less than 100% of the
fair market value of the stock on the date of grant. The Plan provided for accelerated vesting if there is a change of control, as defined by the Plan. The plan was terminated during

70

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Table of Contents

MANHATTAN BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2010

Note 10. Stock-Based Compensation (Continued)

2010
in conjunction with the establishment of the 2010 plan described below. The termination of the 2007 Plan did not cancel options grants outstanding as of the termination date, but cancel all
unissued options and disallowed any future grants. At the date of the 2007 Plan termination, there were 726,942 shares outstanding and no options had been exercised.

The "2010 Equity Incentive Plan".

On March 25, 2010, the Board of Directors approved and adopted the Manhattan Bancorp 2010 Equity Incentive Plan (the "2010
Plan"), subject to the approval of the Company's shareholders. The 2010 Plan provides for the issuance of both "incentive" and "nonqualified" stock options to officers and employees, and of
"nonqualified" stock options to non-employee directors, of the Company and its subsidiaries. The tax consequences of both types of options are described below. The 2010 Plan also provides
for the issuance of restricted stock awards and other types of equity-based compensation awards to these same classes of eligible participants, which awards may be granted on such terms and conditions
as are established by the Board of Directors in its discretion, or by a committee designated by the Board.

During
the year ended December 31, 2010, the Company recorded $596 thousand of stock-based compensation expense. During the year ended December 31, 2009, the Company
recorded $783 thousand of stock-based compensation expense. At December 31, 2010, unrecorded compensation expense related to non-vested stock option grants totaled
$192 thousand and is expected to be recognized as follows:

Year

Share-Based
Compensation Expense(Dollars in Thousands)2011

$
1342012


392013


19Total

$
192


The
Company uses the Black-Scholes option valuation model to determine the fair value of options. The Company utilizes assumptions on expected life, risk-free rate, expected
volatility and dividend yield to determine such values. If grants were to occur, the Company would estimate the life of the options by calculating the average of the vesting period and the contractual
life. The risk-free rate would be based upon treasury instruments in effect at the time of the grant whose terms are consistent with the expected life of the Company's stock options.
Expected volatility would be based on historical volatility of other financial institutions within the Company's operating area as the Company has limited market history.

71

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Table of Contents

MANHATTAN BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2010

Note 10. Stock-Based Compensation (Continued)

The
following table summarizes the weighted average assumptions utilized for stock options granted for the periods presented:

Period Ended
December 31,2010

2009Risk-free rate

2.31%

2.24%Expected term

6 years

6 yearsExpected volatility

28.08%

26.16%Dividend yield

0.00%

0.00%Fair value per share

$1.25

$0.74


The
following table summarizes the stock option activity under both plans for the years ended December 31:

Shares

Weighted Average
Exercise Price

Weighted Average
Remaining
Contractual Life

Aggregate
Intrinsic
Value2009Outstanding at December 31, 2008


657,480

$
9.99Granted


42,250

$
8.25Exercised





Expired





Forfeited


12,788

$
9.96Outstanding at December 31, 2009


686,942

$
9.42


8.06

$
Options exercisable at December 31, 2009


366,898

$
9.69


7.84

$
Options unvested at December 31, 2009


302,044

$
9.10


8.27

$
2010Outstanding at December 31, 2009


686,942

$
9.42Granted


303,681

$
6.60Exercised





Expired





Forfeited


426,132

$
8.22Outstanding at December 31, 2010


564,491

$
8.81


7.56

$
Options exercisable at December 31, 2010


411,522

$
9.45


7.02

$
Options unvested at December 31, 2010


152,969

$
7.07


9.00

$



There
have been no options exercised since the plan was approved.

72

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Table of Contents

MANHATTAN BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2010

Note 11. Stockholders' Equity

The Company had authorized 10,000,000 shares of common stock and 10,000,000 shares of serial preferred stock as of December 31, 2009. The shareholders of the Company approved an
amendment to the Articles of Incorporation authorizing an increase of the number of authorized shares of common stock from 10,000,000 to 30,000,000 shares.

The
Company elected to participate in the U.S. Treasury's Capital Purchase Program ("CPP"). On December 5, 2008 the Treasury purchased 1,700 shares of the Company's Fixed Rate
Cumulative Perpetual Preferred Stock, Series A ("Preferred Stock") at a liquidation amount of $1,000 per share providing the Company with $1,678,934 net of related expenses of $21,066. The
Preferred Stock paid a cumulative dividend at a rate of 5% per year for the first five years and thereafter at a rate of 9% per year.

In
conjunction with this purchase, the Company granted the Treasury a warrant (the "Warrant") to purchase 29,480 additional shares of the Company's common stock at $8.65 per share
subject to the standard terms and conditions of CPP. The warrant was immediately exercisable and would have expired on December 5, 2018.

With
the receipt of funds from the private placement in late December 2008, and with the increasing requirements associated with the funds associated with the CPP, the Company sought
permission to repurchase the 1,700 shares of the Company's Preferred Stock. Following necessary regulatory approval, the Company paid $1,707,319 to redeem the Preferred Stock, which included the final
accrued dividend of $7,319 on September 16, 2009.

On
October 9, 2009, the Company was notified by the United States Department of the Treasury of its acceptance of the Company's offer to redeem the outstanding Warrant for the
29,480 additional shares of the Company's common stock at a total price of $63,364. The redemption of the Warrant occurred on October 14, 2009.

Note 12. Income Taxes

For the year ended December 31, 2010, the Company and its subsidiaries recorded tax expense of $4,128, which consists of penalties of $128 and the state franchise minimum tax of
$800 for five corporations. Other than the minimum state franchise tax of $800 per organization, the Company and its subsidiaries had no other income tax expense or benefit for the year ended
December 31, 2010. This was the result of net operating losses, with net deferred tax assets remaining unrecognized, since their realization is dependent on probable future taxable income. The
Company has established a 100% valuation allowance against the deferred tax assets. Deferred taxes are a result of differences between income tax accounting and generally accepted accounting
principles with respect to income and expense recognition. At December 31, 2010, the Bank had Federal net operating loss carry-forward of approximately $12.3 million that begin expiring
in 2026 and a state net operating loss carry-forward of approximately $12.0 million that begin expiring in 2017.

73

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Table of Contents

MANHATTAN BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2010

Note 12. Income Taxes (Continued)

The
following is a summary of the components of the net deferred tax asset account at December 31:

2010

2009Deferred tax assets:Organizational costs

$
292,000

$
343,000Start-up costs


47,000


55,000Operating loss carryforward


5,055,000


3,725,000Non-employee stock-based compensation


672,000


500,000Allowance for loan losses due to tax differences


631,000


356,000Depreciation differences


112,000


33,000Conversion of accrual basis to reporting


63,000


97,000Other


48,000


19,0006,920,000


5,128,000Valuation allowance


(6,881,000
)

(5,094,000
)Deferred tax liability:Conversion of accrual basis to reporting





Deferred loan costs


(39,000
)

(34,000
)Net deferred tax assets

$


$



Note 13. Commitments and Contingencies

As of December 31, 2010 and 2009, the Company had the following outstanding financial commitments whose contractual amount represents credit risk:

2010

2009(Dollars in Thousands)

(Dollars in Thousands)Commitment to extend credit

$
26,150

$
25,835Standby letters of credit


88


120$
26,238

$
25,955


Commitments
to extend credit are agreements to lend to a customer as long as there is not a violation of any condition in the loan contract. Commitments generally have fixed expiration
dates or other termination clauses and may require payment of a fee. Since the Company expects some commitments to expire without being drawn upon, the total commitment amount does not necessarily
represent future loans.

The
Company is currently not involved in any legal proceeding.

74

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Table of Contents

MANHATTAN BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2010

Note 14. Regulatory Capital

The Bank is subject to various regulatory capital requirements administered by the Federal banking agencies. Failure to meet minimum capital requirements can trigger mandatory and
possibly additional discretionary actions by the regulators that, if undertaken, could have a material effect on the Bank's financial statements and operations. Under capital adequacy guidelines and
regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank's assets, liabilities, and certain off balance sheet
items as calculated under regulatory accepted accounting practices. The Bank's capital amounts and classification are also subject to qualitative judgments by the regulators about components,
risk-weightings, and other factors.

Quantitative
measures established by regulation to ensure capital adequacy require both the Company and the Bank to maintain the following minimum amounts and ratios (set forth in the
table below) of total and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined) and Tier 1 capital to average assets (as defined). As of
December 31, 2010, the Company and the Bank exceeded all applicable capital adequacy requirements.

Under
the Federal Reserve Board's guidelines, Manhattan Bancorp is a "small bank holding company," and thus qualifies for an exemption from the consolidated risk-based and
leverage capital adequacy guidelines applicable to bank holding companies with assets of $500 million or more. However, while not required to do so under the Federal Reserve Board's capital
adequacy guidelines, the Company still maintains levels of capital on a consolidated basis which qualify it as "well capitalized."

The
following table sets forth the Company's and the Bank's regulatory capital ratios as of December 31, 2010 and 2009:

Actual

To Be
Adequately
Capitalized

To Be
Well
Capitalized2010

Amount

Ratio

Amount

Ratio

Amount

Ratio(Dollars in Thousands)CompanyTotal Capital (risk-weighted assets)

$
25,254


25.3
%
$
8,001


8
%
$
10,001


10
%Tier 1 Capital (risk-weighted assets)

$
23,995


24.0
%
$
4,000


4
%
$
6,001


6
%Tier 1 Capital (average assets)

$
23,995


18.1
%
$
5,291


4
%
$
6,613


5
%BankTotal Capital (risk-weighted assets)

$
22,218


22.4
%
$
7,922


8
%
$
9,903


10
%Tier 1 Capital (risk-weighted assets)

$
20,971


21.2
%
$
3,961


4
%
$
5,942


6
%Tier 1 Capital (average assets)

$
20,971


16.6
%
$
5,053


4
%
$
6,317


5
%


75

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Table of Contents

MANHATTAN BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2010

Note 14. Regulatory Capital (Continued)



Actual

To Be
Adequately
Capitalized

To Be
Well
Capitalized2009

Amount

Ratio

Amount

Ratio

Amount

Ratio(Dollars in Thousands)CompanyTotal Capital (risk-weighted assets)

$
29,182


33.7
%
$
6,931


8
%
$
8,664


10
%Tier 1 Capital (risk-weighted assets)

$
28,097


32.4
%
$
3,465


4
%
$
5,198


6
%Tier 1 Capital (average assets)

$
28,097


23.5
%
$
4,788


4
%
$
5,985


5
%BankTotal Capital (risk-weighted assets)

$
22,430


27.0
%
$
6,931


8
%
$
8,664


10
%Tier 1 Capital (risk-weighted assets)

$
22,345


25.8
%
$
3,465


4
%
$
5,198


6
%Tier 1 Capital (average assets)

$
22,345


18.9
%
$
4,731


4
%
$
5,913


5
%


Note 15. Related Party Transactions

In the ordinary course of business, the Bank may grant loans to certain officers and directors and the companies with which they are associated. Management believes that all loans and
loan commitments to such parties will be made on substantially the same terms, including interest rates and collateral, as those prevailing at the time of comparable transaction with other persons.

A
summary of the activity in these loans follows:

2010

2009Balance at beginning of the year

$
1,879,115

$
2,236,115Credit granted including renewals


755,800


294,000Repayments


1,365,000


651,000Balance at end of year

$
1,269,915

$
1,879,115


Deposits
from related parties held by the Bank at December 31, 2010 and 2009 amounted to $3,042 thousand and $1,471 thousand respectively.

76

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Table of Contents

MANHATTAN BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2010

Note 16. Parent Company Only Condensed Financial Statements

The condensed parent company financial statements of Manhattan Bancorp follow:

Condensed Balance Sheets

December 31,2010

2009Assets:Cash

$
1,831,164

$
4,608,715Investment in subsidiary


21,306,338


22,650,490Investment in MBFS Holdings Inc


1,248,850


1,055,080Loan to affiliate





210,000Prepaid expenses & other assets


25,781


41,664Total assets

$
24,412,133

$
28,565,949Liabilities and Stockholders' Equity:Accrued expenses

$
82,100

$
163,746Stockholders' equity-Manhattan Bancorp


24,126,567


28,111,293Noncontrolling interest


203,466


290,910Total equity


24,330,033


28,402,203Total liabilities and stockholders' equity

$
24,412,133

$
28,565,949


77

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Table of Contents

MANHATTAN BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2010

Note 16. Parent Company Only Condensed Financial Statements (Continued)

Condensed Statements of Operations

For the
Year ended
December 31, 2010

For the
Year ended
December 31, 2009Interest incomeInterest from loan to affiliate

$
2,256

$
2,397Total interest income


2,256


2,397Non-interest expensesCompensation and benefits


1,964,138


739,082Legal and professional fees


315,366


815,077General and administrative including taxes


293,448


64,061Occupancy and equipment


154,315


84,492Total non-interest expenses


2,727,267


1,702,712Loss before equity in undistributed loss of subsidiary


(2,725,011
)

(1,700,315
)Loss in equityBank of Manhattan


(1,666,277
)

(3,301,041
)Loss in equityBMFS Holdings, Inc


(306,231
)

(44,920
)Net loss


(4,697,519
)

(5,046,276
)Less: Net gain (loss) attributable to noncontrolling interest


(87,444
)

(9,090
)Net loss attributable to Manhattan Bancorp

$
(4,610,075
)
$
(5,037,186
)


78

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Table of Contents

MANHATTAN BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2010

Note 16. Parent Company Only Condensed Financial Statements (Continued)

Condensed Statements of Cash Flows

For the
Year Ended
December 31, 2010

For the
Year Ended
December 31, 2009Cash Flows from Operating ActivitiesNet loss

$
(4,697,519
)
$
(5,046,278
)Adjustments to reconcile net loss to net cash provided by/ (used in) used in operating activities:Net change in:Equity in undistributed loss of subsidiary


1,373,773


2,703,230Investment in MBFS Holdings Inc


306,230


44,920Share-based compensation expense


595,728


783,001(Increase) decrease in accrued interest receivable and other assets


15,883


(41,663
)Increase (decrease) in accrued interest payable and other liabilities


(81,646
)

158,233Net cash used in operating activities


(2,487,551
)

(1,398,557
)Cash Flows from Investing ActivitiesNet decrease (increase) in loans


210,000


(210,000
)Investment in Subsidiary


(500,000
)

(1,100,000
)Capital contribution to minority interest





(90,000
)Net cash used in investing activities


(290,000
)

(1,400,000
)Cash Flows from Financing ActivitiesCash dividend paid on preferred stock





(66,349
)Proceeds from issuance of common stock, net of selling costs





Repurchase of preferred stock





(1,700,000
)Redemption of stock





(63,364
)Capital contribution from minority interest





300,000Proceeds from issuance of preferred stock, net of selling costs and discount





Issuance of common stock warrants





Net cash provided by financing activities





(1,529,713
)Net increase in cash and cash equivalents


(2,777,551
)

(4,328,270
)Cash and Cash Equivalents at Beginning of Period


4,608,715


8,936,985Cash and Cash Equivalents at End of Year

$
1,831,164

$
4,608,715


79

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Table of Contents

MANHATTAN BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2010

Note 17. Business Combinations

On October 1, 2009, Manhattan Bancorp, through its wholly owned subsidiary, MBFS Holdings, Inc., acquired a 70% interest in Banc of Manhattan Capital, LLC, a
full-service mortgage-centric broker/dealer through a purchase of 700 thousand membership units for a price of $790 thousand. The excess of the purchase price over the
estimated fair value of the net assets acquired resulting in the recording of $279,391 in goodwill. During 2010, the Company, through its wholly owned subsidiary, MBFS Holdings, Inc.,
transferred its majority interest from Banc of Manhattan Capital, LLC to Manhattan Capital Markets LLC. Manhattan Capital Markets LLC is a holding company for multiple
wholly-owned subsidiaries, including BOM Capital LLC, a full service mortgage-centric broker/dealer.

The
following table provides a summary of the assets acquired and liabilities as of the date of the acquisition of Banc of Manhattan Capital, LLC in 2009.

October 1, 2009AssetsCash & due from bank

$
840,064Accounts Receivable


728,268Leasehold improvements


18,664Furniture, fixtures & equipment


178,735Prepaid expenses & other assets


53,653Goodwill


279,391Total assets

$
2,098,774Liabilities and EquityLiabilitiesUnearned Income

$
75,000Accrued expensesthird parties


127,206Accrued expensesprincipals


151,674Deferred compensation


405,045Loan from principals


30,000Loan from Bodi Advisors, LLC


59,849Loan from Manhattan Bancorp


250,000Total liabilities


1,098,774EquityBOM Capital membership equityMembership Units 1,000,000


1,000,000Accumulated deficit


Total equity


1,000,000Total liabilities and equity

$
2,098,774


80

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Table of Contents

MANHATTAN BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2010

Note 18. Segment Information

The Company segregates its operations into three primary segments: The Banking Operation (Bank of Manhattan, N.A.), the Non-Bank Financial Operations (MCM LLC and
Other, which includes the Parent Company, MBFS Financial Holding, Inc. along with the eliminations between segments. The Company determines the operating results of each segment based upon
internal management systems.

Accounting
policies for segments are the same as those described in Note 1. Segment performance is evaluated using operating income. Transactions among segments are made at fair
value. Information reported internally for performance assessment follows:

Condensed Statements of OperationYear ended December 31, 2010

Bank

MCM

Other

Consolidated
Company(Dollars in Thousands)Net interest Income, including loan fees

$
5,486

$
30

$


$
5,516Less: Provision for loan losses


727








727Non-interest income


394


7,397


(42
)

7,749Net revenue


5,153


7,427


(42
)

12,538Non-interest expense


6,818


7,717


2,696


17,231loss before taxes

$
(1,665
)
$
(290
)
$
(2,738
)
$
(4,693
)Total assets

$
150,923

$
2,225

$
(200
)
$
152,948


Condensed Statements of OperationYear ended December 31, 2009

Bank

MCM(1)

Other

Consolidated
Company(Dollars in Thousands)Net interest Income, including loan fees

$
3,755

$


$


$
3,755Less: Provision for loan losses


1,180








1,180Non-interest income


141


893


(15
)

1,019Net revenue


2,716


893


(15
)

3,594Non-interest expense


6,017


923


1,700


8,640loss before taxes

$
(3,301
)
$
(30
)
$
(1,715
)
$
(5,046
)Total assets

$
151,506

$
1,340

$
(531
)
$
152,315


(1)The
Company acquired its interest in MCM in October of 2009. Accordingly the results for 2009 reflect only three months of activity.


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ITEM 9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

There were no disagreements with the Company's accountants on accounting and financial disclosures.

ITEM 9A.    CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

The Company maintains disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and
15d-15(e) under the Exchange Act), designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed,
summarized and reported on a timely basis.

The
Company's management, with the participation of our Principal Executive Officer and Principal Financial Officer, has evaluated the effectiveness of our disclosure controls and
procedures as of the end of the period covered by this Annual Report on Form 10-K. Based on such evaluation, our Principal Executive Officer and Principal Financial Officer have
concluded that, as of the end of such period, our disclosure controls and procedures are effective.

Management's Report on Internal Control over Financial Reporting

Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting. The
Company's internal control over financial reporting is a process designed under the supervision of the Company's principal executive and principal financial officers to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of the Company's financial statements for external reporting purposes in accordance with U.S. generally accepted accounting
principles.

As
of December 31, 2010, management conducted an assessment of the effectiveness of the Company's internal control over financial reporting based on the framework established in
Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO"). Based on this assessment, management has determined that the
Company's internal control over financial reporting as of December 31, 2010 is effective.

Changes in Internal Control

There were no changes in the Company's internal control over financial reporting in the fourth quarter of 2010 that have materially
affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

ITEM 9B.    OTHER INFORMATION

None.

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PART III

ITEM 10.    DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE

The information required under this Item will be found in the Company's Proxy Statement for the 2011 Annual Meeting of Shareholders to
be filed pursuant to Regulation 14A with the Securities and Exchange Commission within 120 days of December 31, 2010 and is incorporated herein by reference.

ITEM 11.    EXECUTIVE COMPENSATION

The information required under this Item will be found in the Company's Proxy Statement for the 2011 Annual Meeting of Shareholders to
be filed pursuant to Regulation 14A with the Securities and Exchange Commission within 120 days of December 31, 2010 and is incorporated herein by reference.

ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCK HOLDER MATTERS

The information required under this Item will be found in the Company's Proxy Statement for the 2011 Annual Meeting of Shareholders to
be filed pursuant to Regulation 14A with the Securities and Exchange Commission within 120 days of December 31, 2010 and is incorporated herein by reference.

ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The information required under this Item will be found in the Company's Proxy Statement for the 2011 Annual Meeting of Shareholders to
be filed pursuant to Regulation 14A with the Securities and Exchange Commission within 120 days of December 31, 2010 and is incorporated herein by reference.

ITEM 14.    PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information required under this Item will be found in the Company's Proxy Statement for the 2011 Annual Meeting of Shareholders to
be filed pursuant to Regulation 14A
with the Securities and Exchange Commission within 120 days of December 31, 2010 and is incorporated herein by reference.

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PART IV

ITEM 15.    EXHIBITS AND FINANCIAL STATEMENT SCHEDULES









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SIGNATURES

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

MANHATTAN BANCORPDate: March 30, 2011

/s/ TERRY ROBINSON Terry Robinson President and Chief Executive Officer
(Principal Executive Officer)


Pursuant
to the requirement of the Securities and Exchange Act of 1934, the Report has been signed below by the following persons on behalf of the registrant and in the capacities and on
the dates indicated.

Members of the Company's
Board of DirectorsDated: March 30, 2011

/s/ J. GRANT COUCH, JR. J. Grant Couch Jr. Chairman of the BoardDated: March 30, 2011

/s/ CHRIS W. CARAS JR. Chris W. Caras, Jr.Dated: March 30, 2011

/s/ HARRY W. CHENOWETH Harry W. ChenowethDated: March 30, 2011

/s/ JOHN D. FLEMMING John D. FlemmingDated: March 30, 2011

/s/ DEAN FLETCHER Dean Fletcher Chief Financial Officer
(Principal Financial and Accounting Officer)Dated:

Patrick E. Greene


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Members of the Company's
Board of DirectorsDated: March 30, 2011

/s/ CHRISTOPHER J. GROWNEY Christopher J. GrowneyDated: March 30, 2011

/s/ GREG JACOBSON Greg JacobsonDated:

Kyle A. RansfordDated: March 30, 2011

/s/ TERRY ROBINSON Terry Robinson Chief Executive Officer
(Principal Executive Officer)Dated: March 30, 2011

/s/ LARRY S. MURPHY Larry S. MurphyDated: March 30, 2011

/s/ STEPHEN P. YOST Stephen P. Yost


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Exhibit Number3.1

Articles of Incorporation of Manhattan Bancorp, as amended, incorporated by reference to Form SB-2 Registration Statement filed with the Securities and Exchange Commission ("SEC") on February 5,
2007.3.2

By-laws of Manhattan Bancorp, incorporated by reference to Form SB-2 Registration Statement filed with the Securities and Exchange Commission ("SEC") on February 5, 2007.4.1

Specimen Common Stock Certificate, incorporated by reference to Form SB-2 Registration Statement Registration Statement filed with the Securities and Exchange Commission ("SEC") on February 5,
2007.10.1

Lease for Main office of Bank of Manhattan, incorporated by reference to Form SB-2 Registration Statement filed with the Securities and Exchange Commission ("SEC") on February 5, 2007.10.2

Form of Stock Option Plan, incorporated by reference to Form SB-2 Registration Statement filed with the Securities and Exchange Commission ("SEC") on February 5, 2007.(x)10.3

Stock Purchase Agreement dated May 14, 2008 between Manhattan Bancorp and Carpenter Fund Manager GP, LLC incorporated by reference to Form 8-K filed with the SEC on May 16, 2008.10.4

First Amended and Restated Employment Agreement dated March 26, 2009 between Manhattan Bancorp, Bank of Manhattan, N.A. and Dean Fletcher, incorporated by reference to Form 8-K filed with the SEC on
March 16, 2009.(x)10.5

Amendment to First Amended and Restated Employment Agreement dated September 8, 2010 between Manhattan Bancorp, Bank of Manhattan, N.A. and Dean Fletcher, incorporated by reference to Form 8-K filed with the
SEC on September 8, 2010.(x)10.6

Employment Agreement dated March 26, 2009 between Bank of Manhattan and Rick Sowers, incorporated by reference to Form 8-K filed with the SEC on March 16, 2009.(x)10.7

Operating Agreement of Manhattan Capital Markets LLC, dated as of July 30, 2010, by and between MBFS Holdings, Inc and Bodi Advisors, Inc.10.8

Amendment No. 1 to Operating Agreement of Manhattan Capital Markets LLC, dated as of November 30, 2010, by and between MBFS Holdings, Inc. and Bodi Advisors, Inc.10.9

Employment Agreement dated October 1, 2009 by and between BOM Capital, LLC and Harold Hermelee, incorporated by reference to Form 8-K filed with the SEC on October 7, 2009.(x)10.10

Employment Agreement dated October 1, 2009 by and between BOM Capital, LLC and Tad Dahlke, incorporated by reference to Form 8-K filed with the SEC on October 7, 2009.(x)10.11

Employment Agreement dated October 1, 2009 by and between BOM Capital, LLC and Greg Jacobson, incorporated by reference to Form 8-K filed with the SEC on October 7, 2009.(x)10.12

Employment Agreement dated December 8, 2009 by and between Manhattan Bancorp and Kyle A. Ransford, incorporated by reference to Form 8-K filed with the SEC on December 14, 2009.(x)10.13

Employment Agreement dated March 1, 2010 by and between Manhattan Bancorp, Bank of Manhattan, N.A. and Deepak Kumar, incorporated by reference to Form 8-K filed with the SEC on March 5, 2010.(x)


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Exhibit Number10.14

Employment Agreement dated November 23, 2010 by and between Manhattan Bancorp, Bank of Manhattan, N.A. and Terry L. Robinson, incorporated by reference to Form 8-K files with the SEC on November 23,
2010.(x)21

Subsidiaries of the registrant.23.1

Consent of Vavrinek, Trine, Day & Co, LLP.31.1

Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as amended.31.2

Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as amended.32.1

Certification of the President and Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as amended pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32.2

Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as amended pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


(x)Indicates
management contract or compensatory plan or arrangement


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