Table of Contents

** **

 

** **

**UnitedStates**

**Securitiesand Exchange Commission**

**Washington, D. C. 20549**

 

# **FORM 10-Q**

#  

| **x****QUARTERLY REPORT  UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|-------------------------------------------------------------------------------------------------------|
|                                                                                                  |
| **For the  quarterly period ended June 30, 2008**                                                |
|                                                                                                  |
| o**TRANSITION  REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT**                       |

 

**For the transition period from                      to**

 

**Commission File Number 333-140448**

 

**MANHATTANBANCORP**

(Exact name of smaller reporting company as specified in its charter)

 

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

 

**2141 Rosecrans Avenue, Suite 1160**

**El Segundo, California  90245**

(Address of principal executive offices) (Zip Code)

 

Issuer’s telephone number: **(310) 606-8000**

 

Indicate by a check mark whether the registrant (1) filed allreports required to be filed by Section 13 or 15(d) of the ExchangeAct during the past 12 months (or for such shorter period that the registrantwas required to file such reports), and (2) has been subject to suchfiling requirements for the past 90 days.  Yes x  No o

 

Indicate by check mark whether the registrant is a large acceleratedfiler, an accelerated filer, a non-accelerated filer, or a smaller reportingcompany. See the definition of “large accelerated filer,” “accelerated filer”and “smaller reporting company” in Rule 12b-2 of the Exchange Act

 
| Large  accelerated filer o                                                          |   | Accelerated filer o         |
|-------------------------------------------------------------------------------------|--------|-----------------------------|
| Non-accelerated  filer  o  (Do  not check if a smaller reporting company) |   | Smaller reporting company x |

 

Indicate by check mark whether the registrant is a shell company (asdefined in Rule 12b-2 of the Exchange Act).    oYes  x No

 

As of August 8, 2008, there were 2,615,806 shares of the issuer’scommon stock outstanding.

 

 

 

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Table of Contents

 

**Manhattan Bancorp**

**QUARTERLY REPORT ON FORM 10-Q**

**FOR**

**THE QUARTER ENDED JUNE 30, 2008**

 

**TABLE OF CONTENTS**

 
|                                 | **PAGE**                                                                                    |
|--------------------------------------|---------------------------------------------------------------------------------------------|
|                                 | ** **                                                                                  |
| PART I - FINANCIAL  INFORMATION | ** **                                                                                  |
|                                 | ** **                                                                                  |
| Item 1.                              | FINANCIAL STATEMENTS (Unaudited,  except for Balance Sheet as of 12/31/2007)                |   |
|                                 |                                                                                        |   |
|                                 | CONSOLIDATED  BALANCE SHEETS                                                                | **3** |
|                                 |                                                                                        | ** ** |
|                                 | CONSOLIDATED  STATEMENTS OF OPERATIONS                                                      | **4** |
|                                 |                                                                                        | ** ** |
|                                 | CONSOLIDATED  STATEMENTS OF STOCKHOLDERS’ EQUITY                                       | **5** |
|                                 |                                                                                        | ** ** |
|                                 | CONSOLIDATED  STATEMENTS OF CASH FLOWS                                                      | **6** |
|                                 |                                                                                        | ** ** |
|                                 | NOTES TO FINANCIAL  STATEMENTS                                                              | **7** |
|                                 |                                                                                        | ** ** |
| Item 2.                              | MANAGEMENT’S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | **14** |
| ** **                           | ** **                                                                                  | ** ** |
| Item 3.                              | QUANTITATIVE  AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                 | **27** |
|                                 |                                                                                        | ** ** |
| Item 4T.                             | CONTROLS AND  PROCEDURES                                                                    | **28** |
|                                 |                                                                                        | ** ** |
| PART II  - OTHER INFORMATION    |                                                                                        |
|                                 |                                                                                        |
| Item 1.                              | LEGAL PROCEEDINGS                                                                           | **30** |
|                                 |                                                                                        | ** ** |
| Item 1A.                             | RISK FACTORS                                                                                | **30** |
|                                 |                                                                                        | ** ** |
| Item 2.                              | UNREGISTERED  SALES OF EQUITY SECURITIES AND USE OF PROCEEDS                                | **30** |
|                                 |                                                                                        | ** ** |
| Item 3.                              | DEFAULTS ON  SENIOR SECURITIES                                                              | **30** |
|                                 |                                                                                        | ** ** |
| Item 4.                              | SUBMISSION  OF MATTERS TO A VOTE OF SECURITY HOLDERS                                        | **30** |
|                                 |                                                                                        | ** ** |
| Item 5.                              | OTHER INFORMATION                                                                           | **31** |
|                                 |                                                                                        | ** ** |
| Item 6.                              | EXHIBITS                                                                                    | **31** |
|                                 | ** **                                                                                  |
| SIGNATURES                           | **32**                                                                                      |

 

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Table of Contents

 

***PART I – FINANCIAL INFORMATION***

 

***Item 1 – Financial Information***

*** ***

**Manhattan Bancorp and Subsidiary**

**ConsolidatedBalance Sheets**

*** ***
| ** **                                                                                                                                              | ** ** | **June 30, 2008** | ** ** | **December 31, 2007** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------|------------|----------------------------|------------|
| ** **                                                                                                                                              | ** ** | **(Unaudited)**        | ** ** | ** **                 | ** ** |
| **Assets**                                                                                                                                              | ** ** | ** **             | ** ** | ** **                 | ** ** |
| Cash and due from banks                                                                                                                                 |       | $                      | 1,431,827  |                       | $          | 398,333 |   |
| Federal funds sold                                                                                                                                      |       | 6,315,000              |       | 8,565,000                  |       |
| Total cash and cash equivalents                                                                                                                         |       | 7,746,827              |       | 8,963,333                  |       |
| Time deposits-other financial institutions                                                                                                              |       | 792,000                |       | 2,386,000                  |       |
| Investments securities-available for sale                                                                                                               |       | 5,664,355              |       | 6,148,695                  |       |
| Investments securities-held to maturity                                                                                                                 |       | 988,886                |       | 987,275                    |       |
|                                                                                                                                                    |       |                   |       |                       |       |
| Loans                                                                                                                                                   |       | 42,367,358             |       | 18,198,570                 |       |
| Allowance for loan losses                                                                                                                               |       | (598,000               | )          | (269,000                   | )          |
| Net loans                                                                                                                                               |       | 41,769,358             |       | 17,929,570                 |       |
|                                                                                                                                                    |       |                   |       |                       |       |
| Property and equipment, net                                                                                                                             |       | 1,481,252              |       | 1,581,811                  |       |
| Stock in other financial institutions                                                                                                                   |       | 1,231,150              |       | 1,048,500                  |       |
| Accrued interest receivable and other  assets                                                                                                           |       | 393,460                |       | 321,550                    |       |
|                                                                                                                                                    |       |                   |       |                       |       |
| Total assets                                                                                                                                            |       | $                      | 60,067,288 |                       | $          | 39,366,734 |   |
|                                                                                                                                                    |       |                   |       |                       |       |
| **Liabilities and Stockholders’ Equity**                                                                                                           | ** ** | ** **             | ** ** | ** **                 | ** ** |
| Deposits:                                                                                                                                               |       |                   |       |                       |       |
| Non-interest bearing demand                                                                                                                             |       | $                      | 12,290,087 |                       | $          | 5,395,028 |   |
| Interest bearing:                                                                                                                                       |       |                   |       |                       |       |
| Demand                                                                                                                                                  |       | 1,394,510              |       | 1,143,269                  |       |
| Savings and money market                                                                                                                                |       | 6,143,902              |       | 4,244,393                  |       |
| Certificates of deposit equal to or greater  than $100,000                                                                                              |       | 10,799,408             |       | 6,190,200                  |       |
| Certificates of deposit less than $100,000                                                                                                              |       | 4,098,941              |       | 889,429                    |       |
| Total deposits                                                                                                                                          |       | 34,726,848             |       | 17,862,319                 |       |
| FHLB advances                                                                                                                                           |       | 4,500,000              |       | —                     |       |
| Accrued interest payable and other  liabilities                                                                                                         |       | 447,611                |       | 315,481                    |       |
| Total liabilities                                                                                                                                       |       | 39,674,459             |       | 18,177,800                 |       |
|                                                                                                                                                    |       |                   |       |                       |       |
| Commitments and contingencies                                                                                                                           |       | —                 |       | —                     |       |
|                                                                                                                                                    |       |                   |       |                       |       |
| Stockholders’ equity                                                                                                                               |       |                   |       |                       |       |
| Serial preferred stock-no par value;  10,000,000 shares authorized; none outstanding in 2008 or 2007                                                    |       | —                 |       | —                     |       |
| Common stock-no par value; 10,000,000 shares  authorized; issued and outstanding, 2,615,806 at June 30, 2008 and  2,487,631 December 31, 2007 |       | 25,347,203             |       | 24,078,828                 |       |
| Additional paid in capital                                                                                                                              |       | 602,649                |       | 266,908                    |       |
| Unrealized (loss) gain on  available-for-sale securities                                                                                                |       | (22,340                | )          | 58,158                     |       |
| Accumulated deficit                                                                                                                                     |       | (5,534,683             | )          | (3,214,960                 | )          |
|                                                                                                                                                    |       |                   |       |                       |       |
| Total stockholders’ equity                                                                                                                         |       | 20,392,829             |       | 21,188,934                 |       |
|                                                                                                                                                    |       |                   |       |                       |       |
| Total liabilities and stockholders’ equity                                                                                                         |       | $                      | 60,067,288 |                       | $          | 39,366,734 |   |

 

The accompanying notes are an integral partof this financial statement.

 

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**Manhattan Bancorp and Subsidiary**

**ConsolidatedStatements of Operations**

**(Unaudited)**

 
| ** **                                                         | ** ** | ** **             | ** ** | ** **              | ** ** | ** **             | ** ** | **(Development**               | ** ** |
|--------------------------------------------------------------------|------------|------------------------|------------|-------------------------|------------|------------------------|------------|--------------------------------|------------|
| ** **                                                         | ** ** | ** **             | ** ** | ** **              | ** ** | ** **             | ** ** | **Stage Company)**             | ** ** |
| ** **                                                         | ** ** | ** **             | ** ** | ** **              | ** ** | ** **             | ** ** | **The period**                 | ** ** |
| ** **                                                         | ** ** | **For the**            | ** ** | **For the**             | ** ** | **For the**            | ** ** | **June 19, 2006**         | ** ** |
| ** **                                                         | ** ** | **three-month**        | ** ** | **three-month**         | ** ** | **six-month**          | ** ** | **(Date of Inception)**        | ** ** |
| ** **                                                         | ** ** | **period ended**       | ** ** | **period ended**        | ** ** | **period ended**       | ** ** | **through**                    | ** ** |
| ** **                                                         | ** ** | **June 30, 2008** | ** ** | **March 31, 2008** | ** ** | **June 30, 2008** | ** ** | **June 30, 2007**         | ** ** |
| ** **                                                         | ** ** | ** **             | ** ** | ** **              | ** ** | ** **             | ** ** | **(organizational  expenses)** | ** ** |
| **Interest income**                                                |       |                   |       |                    |       |                   |       |                           |       |
| Interest and fees on loans                                         |       | $                      | 543,551    |                    | $          | 386,655                |       | $                              | 930,206    |   |   |   |
| Interest on investment securities                                  |       | 120,485                |       | 89,438                  |       | 209,923                |       |                           |       |
| Interest on federal funds sold                                     |       | 20,319                 |       | 58,378                  |       | 78,697                 |       |                           |       |
| Interest on time deposits-other financial  institutions            |       | 11,544                 |       | 25,539                  |       | 37,083                 |       |                           |       |
|                                                               |       |                   |       |                    |       |                   |       |                           |       |
| Total interest income                                              |       | 695,899                |       | 560,010                 |       | 1,255,909              |       |                           |       |
|                                                               |       |                   |       |                    |       |                   |       |                           |       |
| **Interest expense**                                               | ** ** | ** **             | ** ** | ** **              | ** ** | ** **             | ** ** | ** **                     | ** ** |
| NOW, money market and savings                                      |       | 24,212                 |       | 26,097                  |       | 50,309                 |       |                           |       |
| Time deposits                                                      |       | 113,246                |       | 103,868                 |       | 217,114                |       |                           |       |
| FHLB advances                                                      |       | 2,190                  |       | —                  |       | 2,190                  |       |                           |       |
|                                                               |       |                   |       |                    |       |                   |       |                           |       |
| Total interest expense                                             |       | 139,648                |       | 129,965                 |       | 269,613                |       |                           |       |
|                                                               |       |                   |       |                    |       |                   |       |                           |       |
| Net interest income                                                |       | 556,251                |       | 430,045                 |       | 986,296                |       |                           |       |
|                                                               |       |                   |       |                    |       |                   |       |                           |       |
| Provision for loan losses                                          |       | 163,000                |       | 166,000                 |       | 329,000                |       |                           |       |
|                                                               |       |                   |       |                    |       |                   |       |                           |       |
| Net interest income after provision for  loan losses               |       | 393,251                |       | 264,045                 |       | 657,296                |       |                           |       |
| ** **                                                         | ** ** | ** **             | ** ** | ** **              | ** ** | ** **             | ** ** | ** **                     | ** ** |
| **Non-interest income**                                            |       | 10,648                 |       | 12,901                  |       | 23,549                 |       |                           |       |
|                                                               |       |                   |       |                    |       |                   |       |                           |       |
| **Non-interest expense**                                           | ** ** | ** **             | ** ** | ** **              | ** ** | ** **             | ** ** | ** **                     | ** ** |
| Compensation and benefits                                          |       | 969,914                |       | 948,033                 |       | 1,917,947              |       | $                              | 382,478    |   |
| Occupancy and equipment                                            |       | 163,491                |       | 157,675                 |       | 321,166                |       | 41,729                         |       |
| Technology and communication                                       |       | 125,111                |       | 124,831                 |       | 249,942                |       | —                         |       |
| Professional and administrative expenses                           |       | 158,172                |       | 106,033                 |       | 264,205                |       | 487,281                        |       |
| Other non-interest expenses                                        |       | 138,573                |       | 107,135                 |       | 245,708                |       | —                         |       |
|                                                               |       |                   |       |                    |       |                   |       |                           |       |
| Total non-interest expenses                                        |       | 1,555,261              |       | 1,443,707               |       | 2,998,968              |       | 911,488                        |       |
|                                                               |       |                   |       |                    |       |                   |       |                           |       |
| Loss before income taxes                                           |       | (1,151,362             | )          | (1,166,761              | )          | (2,318,123             | )          | (911,488                       | )          |
|                                                               |       |                   |       |                    |       |                   |       |                           |       |
| Provision for income taxes                                         |       | 1,600                  |       | —                  |       | 1,600                  |       | —                         |       |
|                                                               |       |                   |       |                    |       | —                 |       |                           |       |
| Net loss                                                           |       | $                      | (1,152,962 | )                       | $          | (1,166,761             | )          | $                              | (2,319,723 | ) | $ | (911,488 | ) |
|                                                               |       |                   |       |                    |       |                   |       |                           |       |
| Weighted average number of shares  outstanding (basic and diluted) |       | 2,517,210              |       | 2,487,631               |       | 2,502,420              |       | N/A                            |       |
|                                                               |       |                   |       |                    |       |                   |       |                           |       |
| Basic and diluted loss per share                                   |       | $                      | (0.46      | )                       | $          | (0.47                  | )          | $                              | (0.93      | ) | N/A |   |

 

The accompanying notes are an integral partof this financial statement.

 

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**Manhattan Bancorp and Subsidiary**

**ConsolidatedStatements of Stockholders’ Equity**

**June 30,2008 and 2007**

(Unaudited)

 
| ** **                                     | ** ** | **Common Stock** | ** ** | **Additional** | ** ** | ** **  | ** ** | ** **        | ** ** | **Accumlagted  Other** | ** ** | ** **        | ** ** |
|------------------------------------------------|------------|------------------|------------|----------------|------------|-------------|------------|-------------------|------------|------------------------|------------|-------------------|------------|
| ** **                                     | ** ** | **Number of**    | ** ** | ** **     | ** ** | **Paid-in** | ** ** | **Comprehensive** | ** ** | **Accumulated**        | ** ** | **Comprehensive** | ** ** | ** ** | ** ** |
| **(Unaudited)**                                | ** ** | **Shares**       | ** ** | **Amount**     | ** ** | **Capital** | ** ** | **Loss**          | ** ** | **Deficit**            | ** ** | **Loss**          | ** ** | **Total** | ** ** |
| **Balance  at June 19, 2006 (Inception)**      |       | —           |       | $              | —     |        | $          | —            |       | $                      | —     |              | $          | — |   | $ | — |   | $ | — |   |
| Issuance of  common stock to founders          |       | 42,500           |       | 425,000        |       |        |       |              |       |                   |       |              |       | 425,000 |   |
|                                           |       |             |       |           |       |        |       |              |       |                   |       |              |       |   |   |
| Organizational  expenses                       |       |             |       |           |       |        |       |              |       | (269,392               | )          |              |       | (269,392 | ) |
| Balance , December 31,  2006                   |       | 42,500           |       | 425,000        |       | —      |       |              |       | (269,392               | )          | —            |       | 155,608 |   |
| Issuance of  common stock to founders          |       | 2,500            |       | 25,000         |       |        |       |              |       |                   |       |              |       | 25,000 |   |
| Organizational  expenses                       |       |             |       |           |       |        |       | —            |       | (642,096               | )          |              |       | (642,096 | ) |
| Net loss                                       |       |             |       |           |       |        |       | —            |       | —                 |       |              |       | — |   |
| Total  comprehensive loss                      |       |             |       |           |       |        |       | $                 | —     |                   |       |              |       |   |   |   |
| **Balance  at June 30, 2007**                  |       | 45,000           |       | $              | 450,000    |        | $          | —            |       |                   |       | $                 | (911,488   | ) | $ | — |   | $ | (461,488 | ) |
|                                           |       |             |       |           |       |        |       |              |       |                   |       |              |       |   |   |
| **Balance  at December 31, 2007**              |       | 2,487,631        |       | $              | 24,078,828 |        | $          | 266,908           |       | $                      | —     |              | $          | (3,214,960 | ) | $ | 58,158 |   | $ | 21,188,934 |   |
| Issuance of  common stock in private placement |       | 128,175          |       | $              | 1,268,375  |        |       |              |       |                   |       |              |       |   | $ | 1,268,375 |   |
| Share-based  compensation expense              |       |             |       |           |       | 335,741     |       |              |       |                   |       |              |       | 335,741 |   |
| Unrealized loss  on investment securities      |       |             |       |           |       |        |       | (80,498           | )          | —                 |       | (80,498           | )          | (80,498 | ) |
| Net loss                                       |       |             |       |           |       |        |       | (2,319,723        | )          | (2,319,723             | )          |              |       | (2,319,723 | ) |
| Total  comprehensive loss                      |       |             |       |           |       |        |       | $                 | (2,400,221 | )                      |       |              |       |   |   |   |
| **Balance  at June 30, 2008**                  |       | 2,615,806        |       | $              | 25,347,203 |        | $          | 602,649           |       |                   |       | $                 | (5,534,683 | ) | $ | (22,340 | ) | $ | 20,392,829 |   |

 

The accompanying notes are an integral partof this financial statement.

 

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**Manhattan Bancorp and Subsidiary**

**Consolidated Statements of CashFlows**

**(Unaudited)**

 
| *** ***                                                                              | *** *** | **For the**       | ** ** | **June 19, 2006**       | *** *** |
|-------------------------------------------------------------------------------------------|--------------|-------------------|------------|-------------------------|--------------|
| ** **                                                                                | ** **   | **six-month**     | ** ** | **(date of inception)** | ** **   |
| ** **                                                                                | ** **   | **period ended**  | ** ** | **through**             | ** **   |
| ** **                                                                                | ** **   | **June 30, 2008** | ** ** | **June 30, 2007**       | ** **   |
| **Cash flows from operating activities**                                                  | ** **   | ** **        | ** ** | ** **              | ** **   |
| Net loss including organizational expenses  in ‘date of inception’ presentation |         | $                 | (2,319,723 | )                       | $            | (911,488 | ) |
| Adjustments to reconcile net loss to net  cash used in operating activities:              |         |              |       |                    |         |
| Net change in:                                                                            |         |              |       |                    |         |
| Depreciation and amortization                                                             |         | 145,731           |       | 11,915                  |         |
| Provision for loan losses                                                                 |         | 329,000           |       | —                  |         |
| Share-based compensation                                                                  |         | 335,741           |       | —                  |         |
| (Increase) in accrued interest receivable  and other assets                               |         | (81,942           | )          | (198,370                | )            |
| Increase in accrued interest payable and  other liabilities                               |         | 132,130           |       | 828,784                 |         |
|                                                                                      |         |              |       |                    |         |
| Net cash used in operating activities                                                     |         | (1,459,063        | )          | (269,159                | )            |
|                                                                                      |         |              |       |                    |         |
| **Cash flows from investing activities**                                                  | ** **   | ** **        | ** ** | ** **              | ** **   |
| Net (increase) in loans                                                                   |         | (24,168,788       | )          | —                  |         |
| Decrease in time deposits – other financial  institutions                            |         | 1,594,000         |       | —                  |         |
| Proceeds from repayment and maturities from  investment securities                        |         | 412,263           |       | —                  |         |
| Purchase of stock in Federal Home Loan Bank                                               |         | (182,650          | )          | —                  |         |
| Purchase of premises and equipment                                                        |         | (45,172           | )          | (877,058                | )            |
|                                                                                      |         |              |       |                    |         |
| Net cash used in investing activities                                                     |         | (22,390,347       | )          | (877,058                | )            |
|                                                                                      |         |              |       |                    |         |
| **Cash flows from financing activities**                                                  | ** **   | ** **        | ** ** | ** **              | ** **   |
| Net increase (decrease) in:                                                               |         |              |       |                    |         |
| Demand deposits                                                                           |         | 6,895,059         |       | —                  |         |
| Interest bearing demand deposits                                                          |         | 251,241           |       | —                  |         |
| Savings and money market deposits                                                         |         | 1,899,509         |       | —                  |         |
| Certificates of deposit equal to or greater  than $100,000                                |         | 4,609,208         |       | —                  |         |
| Certificates of deposit less than $100,000                                                |         | 3,209,512         |       | —                  |         |
| Increase from borrowings                                                                  |         | 4,500,000         |       | 737,230                 |         |
| Net proceeds from issuance of common stock                                                |         | 1,268,375         |       | 450,000                 |         |
|                                                                                      |         |              |       |                    |         |
| Net cash provided by financing activities                                                 |         | 22,632,904        |       | 1,187,230               |         |
|                                                                                      |         |              |       |                    |         |
| Net (decrease) increase in cash and cash  equivalents                                     |         | (1,216,506        | )          | 41,013                  |         |
|                                                                                      |         |              |       |                    |         |
| **Cash and cash equivalents at beginning of  period**                                     |         | 8,963,333         |       | —                  |         |
|                                                                                      |         |              |       |                    |         |
| **Cash and cash equivalents at end of period**                                            |         | $                 | 7,746,827  |                    | $            | 41,013 |   |
|                                                                                      |         |              |       |                    |         |
| **Supplementary information**                                                             |         |              |       |                    |         |
|                                                                                      |         |              |       |                    |         |
| Interest paid on deposits                                                                 |         | $                 | 260,127    |                    | $            | — |   |
|                                                                                      |         |              |       |                    |         |
| Income taxes paid                                                                         |         | $                 | 1,600      |                    | $            | 800 |   |

 

Theaccompanying notes are an integral part of this financial statement.

 

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**MANHATTAN BANCORP**

**NOTESTO FINANCIAL STATEMENTS**

**JUNE 30, 2008**

 

**Note 1.     CONSOLIDATED FINANCIAL STATEMENTS**

 

Theaccompanying unaudited condensed consolidated financial statements of ManhattanBancorp (the “Bancorp”) and its wholly-owned subsidiary, Bank of Manhattan,N.A. (the “Bank”), together referred to as the “Company” have been prepared inaccordance with the instructions to Form 10-Q and Article 8 of RegulationS-X.  Accordingly, certain informationand notes required by accounting principles generally accepted in the UnitedStates of America, for annual financial statements are not included herein.  In the opinion of Management, all adjustmentsconsidered necessary for a fair presentation of results for the interim periodspresented have been included.  Theseinterim condensed consolidated financial statements should be read inconjunction with the financial statements and related notes contained in theCompany’s 2007 Annual Report on Form 10-K as amended.

 

Thecondensed consolidated financial statements include accounts of the Bancorp andits wholly-owned financial subsidiary, Bank of Manhattan, N.A. (the “Bank”).For the period from June 19, 2006 (inception) to August 15, 2007, theBancorp was in a development state, engaging in the preparation of applicationsfor regulatory approvals, raising capital, financial planning, systemsdevelopment, acquisition of equipment and facilities, as well as recruiting activities.  When the Bank commenced its operations, theBancorp officially became a bank holding company.  All net expenses, which were incurred duringthe period from June 19, 2006 through August 15, 2007, werepre-opening expenses and are reported in the statement of stockholders’ equityincluded to facilitate the financial presentation of the Company.  The Consolidated Statement of Operationsincluded in the report provides no comparable statement for the three-monthperiod ended March 31, 2008, the three-month period ended June 30,2008, or the six-month period ended June 30, 2008, as the Company’soperations did not commence until August 15, 2007.   However, a development stage statement ofoperations has been included covering the period from June 19, 2006through the end of June 30, 2007. All expenses recorded during this period were related to theorganization phase of the Company.

 

Thepreparation of condensed consolidated financial statements in conformity withthe accounting principles generally accepted in the United States of Americarequires Management to make estimates and assumptions.  These estimates and assumptions affect thereported amounts of assets and liabilities, the disclosure of contingent assetsand liabilities at the date of the consolidated financial statements and thereported amounts of revenues and expenses during the reporting period.   Actual results could differ from theseestimates. All material intercompany accounts and transactions have beeneliminated.

 

Certainamounts in prior presentations have been reclassified to conform to the currentpresentation.  These reclassificationshad no effect on shareholders’ equity, net loss or loss per share amounts.

 

**Note 2.     RECENT ACCOUNTING PRONOUNCEMENTS**

 

ACCOUNTINGFOR UNCERTAINTY IN INCOME TAXES: In July 2006, the Financial AccountingStandards Board (“FASB”) issued *FASBInterpretation (“FIN”) No. 48, “Accounting for Uncertainty in IncomeTaxes, an interpretation of FASB Statement 109.”*FIN No. 48prescribes a recognition threshold

 

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anda measurement attribute for the financial statement recognition and measurementof a tax position taken or expected to be taken in a tax return. Benefits fromtax positions should be recognized in the financial statements only when it ismore likely than not that the tax position will be sustained upon examinationby the appropriate taxing authority that would have full knowledge of allrelevant information. A tax position that meets the more-likely-than-notrecognition threshold is measured at the largest amount of benefit that isgreater than fifty percent likely of being realized upon ultimate settlement.Tax positions that previously failed to meet the more-likely-than-notrecognition threshold should be recognized in the first subsequent financialreporting period in which that threshold is met. Previously recognized taxpositions that no longer meet the more-likely-than-not recognition thresholdshould be de-recognized in the first subsequent financial reporting period inwhich that threshold is no longer met. FIN No. 48 also provides guidanceon the accounting for and disclosure of unrecognized tax benefits, interest andpenalties. The adoption of FIN No. 48 as of January 1, 2007 did notsignificantly impact on the Company’s financial statements.

 

InJuly, 2006, FASB issued FASB Staff Position (“FSP”) No. 48-1 “*Definition of Settlement in FIN No. 48.”  *FSP 48-1 provides guidance on howto determine whether a tax position is effectively settled for the purpose ofrecognizing previously unrecognized tax benefits.  FSP 48-1 was effective retroactively as of January 1,2007 and did not impact the Company’s financial statements.

 

FAIRVALUE MEASUREMENTS: In September 2006, the FASB issued SFAS No. 157*, “Fair Value Measurements.” *SFAS No. 157 defines fairvalue, establishes a framework for measuring fair value under accountingprinciples generally accepted in the United States of America, and expandsdisclosures about fair value measurements. SFAS No. 157 is effective forthe Company as of January 1, 2008 and is not expected to have asignificant impact on the Company’s financial statements.

 

InFebruary 2007, the FASB issued SFAS No. 159, “*The Fair Value Option for Financial Assets andFinancial Liabilities-Including an Amendment of SFAS 115.” *SFAS No. 159 permits**an entity to choose to measure financialinstruments and certain other items at fair value.  Most of the provisions of SFAS No. 159are elective; however the amendment of SFAS No. 115, “*Accounting for Certain Investments in Debt and EquitySecurities,”*applies to all entities with available for sale ortrading securities.  For financialinstruments elected to be accounted for at fair value, an entity will reportthe unrealized gains and losses in earnings. SFAS No. 159 is effective as of the beginning of an entity’s firstfiscal year that begins after November 15, 2007.  The Company does not expect the adoption ofSFAS No. 159 to have a material effect on the Company’s consolidatedfinancial statements.

 

InFebruary 2008, the FASB issued FASB Staff Position (“FSP’) FAS 157-1, “*Application of FASB Statement No. 17 and OtherAccounting Pronouncements That Address Fair Value Measurements for Purposes ofLease Classification or Measurement Under Statement 13,*” and FSP FAS157-2, “*Effective Date of FASB Statement No. 157.”*  FSP FAS 157-1 removes leasing from the scopeof SFAS No. 157, “*Fair Value Measurements*.”FSP FAS 157-2 delays the effective date of SFAS No. 157 from 2008 to 2009for all non-financial assets and liabilities, except those that are recognizedor disclosed at fair value in the financial statements on a recurring basis (atleast annually).  The Company does notexcept the implementation of FSP-157-1 to have a material impact on itsfinancial position, results of operations, or cash flows.  Additionally, in accordance with FSP 157-2the Company will delay the application of SFAS No. 157 for non-financialassets and non-financial liabilities until January 1, 2009 and does notexpect the application to have a material effect on the Company’s financialposition, results of operations, or cash flows.

 

GENERALLYACCEPTED ACCOUNTING PRINCIPLES:  In May 2008,the FASB issued SFAS 162, “*The Hierarchy ofGenerally Accepted Accounting Principles.” *SFAS No. 162**identifiesthe sources of accounting principles and the framework for selecting theprincipals to be used in the preparation of the

 

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financialstatements of nongovernmental entities that are presented in conformity withgenerally accepted accounting principles (“GAAP”) in the United States.  The FASB issued SFAS No. 162, becausethe current GAAP hierarchy, as set forth in the American Institute of CertifiedPublic Accountants (“AICPA”) Statement of Auditing Standards No. 69, “*The Meaning of Present Fairly in Conformity WithGenerally Accepted Accounting Principles,”*is directed to theauditor and not the entity, it is complex, and it ranks FASB Statements ofFinancial Concepts below industry practices that are widely recognized asgenerally accepted but that are not subject to due process.  This statement is effective 60 days followingthe SEC’s approval of the Public Company Accounting Oversight Board (“PCAOB”)amendment to AU Section 411, “*TheMeaning of Present Fairly in Conformity With Generally Accepted AccountingPrinciples.”* The Company doesnot anticipate the adoption of SFAS No. 162 to have a material impact ofits financial position, results of operations, or cash flows.

 

**Note3.  INTEREST-EARNING ASSETS WITH OTHER**

**FINANCIALINSTITUTIONS**

 

TheCompany had interest-earning deposits with other financial institutions of$792,000 at June 30, 2008, with a weighted average yield of 5.18% and anaverage weighted remaining life of approximately five months.

 

**Note4.     INVESTMENT SECURITIES**

 

Investmentsecurities have been classified in the balance sheet according to management’sintent. The following table sets forth the investment securities at theiramortized cost and estimated fair value with gross unrealized gains and lossesas of June 30, 2008 and December 31, 2007.

 
| ** **                              | ** ** | ** **         | ** ** | **Gross**      | ** ** | **Gross**      | ** ** | ** ** | ** ** |
|-----------------------------------------|------------|--------------------|------------|----------------|------------|----------------|------------|------------|------------|
| ** **                              | ** ** | **Amortized**      | ** ** | **Unrealized** | ** ** | **Unrealized** | ** ** | **Fair**   | ** ** |
| ** **                              | ** ** | **Cost**           | ** ** | **Gains**      | ** ** | **Losses**     | ** ** | **Value**  | ** ** |
| **June 30, 2008**                  | ** ** | **(in thousands)** | ** ** |
| **Available-for-sale securities:**      | ** ** | ** **         | ** ** | ** **     | ** ** | ** **     | ** ** | ** ** | ** ** |
| U.S. government and agency securities   |       | $                  | 1,230      |           | $          | 12             |       | $          | —     |   | $ | 1,242 |   |
| Mortgage-backed securities              |       | 4,456              |       | 1              |       | 35             |       | 4,422      |       |
| **Total available-for-sale securities** |       | $                  | 5,686      |           | $          | 13             |       | $          | 35         |   | $ | 5,664 |   |
|                                    |       |               |       |           |       |           |       |       |       |
| **Held-to-maturity securities:**        | ** ** | ** **         | ** ** | ** **     | ** ** | ** **     | ** ** | ** ** | ** ** |
| State and municipal securities          |       | $                  | 989        |           | $          | 3              |       | $          | 8          |   | $ | 984 |   |
|                                    |       |               |       |           |       |           |       |       |       |
| **December 31, 2007**              |       |               |       |           |       |           |       |       |       |
| **Available-for-sale securities:**      | ** ** | ** **         | ** ** | ** **     | ** ** | ** **     | ** ** | ** ** | ** ** |
| U.S. government and agency securities   |       | $                  | 1,230      |           | $          | 19             |       | $          | —     |   | $ | 1,249 |   |
| Mortgage-backed securities              |       | 4,861              |       | 39             |       | —         |       | 4,900      |       |
| **Total available-for-sale securities** |       | $                  | 6,091      |           | $          | 58             |       | $          | —     |   | $ | 6,149 |   |
|                                    |       |               |       |           |       |           |       |       |       |
| **Held-to-maturity securities:**        | ** ** | ** **         | ** ** | ** **     | ** ** | ** **     | ** ** | ** ** | ** ** |
| State and municipal securities          |       | $                  | 987        |           | $          | 4              |       | $          | 2          |   | $ | 989 |   |

 

The fair value of these securities is based uponquoted market prices, unless otherwise indicated in Note 7, “*Fair Value – Adoption of SFAS No. 157”.*  There were no realized gains or losses forthe six-month period ended June 30, 2008.  Included in the table above are six securities with unrealized losses asof June 30, 2007.  The netunrealized loss on available-for-sale securities included in

 

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accumulated other comprehensive income wasapproximately $80,000 for the six-month period ended June 30, 2008. Thereis no comparable figure for the first half of 2007.  No securities were pledged as of December 31,2007.  However, available-for-salesecurities with an amortized cost of approximately $5.2 million (fair value ofapproximately $5.2 million) were pledged as collateral for Federal Home LoanBank advances as of June 30, 2008.

 

Management does not believe that any of the Company’sinvestment securities are impaired due to reasons of credit quality.  Declines in the fair value ofavailable-for-sale securities below their cost, that are deemed to beother-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 theextent to which the fair value has been less than cost, (ii) the financialcondition and near-term prospects of the issuer and (iii) the intent andability of the Company to retain its investment in the issuer for a period oftime sufficient to allow for any anticipated recovery in fair value.

 

 At June 30,2008, the Company had no securities with unrealized losses that were in acontinual loss position for greater than 12 months.  The following summarizes temporarily impairedinvestment securities at June 30, 2008:

 
| ** **                            | ** ** | **Less than 12 Months** | ** ** |
|---------------------------------------|------------|-------------------------|------------|
| **(In  thousands)**                   | ** ** | **Fair Value**          | ** ** | **Unrealized  Losses** | ** ** |
| *Securities available for sale:*      | * *   | * *                | * *   | * * | * * |
| U.S. Government and agency securities |       | $                       | —     |   | $ | — |   |
| Mortgage-backed securities            |       | 3,568                   |       | 35 |   |
| *Securities held to maturity*         | * *   | * *                | * *   | * * | * * |
| State and municipal securities        |       | 480                     |       | 8 |   |
| Total imparied securities             |       | $                       | 4,048      |   | $ | 43 |   |

 

Because the decline in market value is attributableto changes in market rates of interest rather than credit quality, and becausethe Company has the ability and intent to hold these investments until arecovery of the fair value, which may be at maturity, the Company considersthese investments to be temporarily impaired at June 30, 2008.

 

**Note 5.    LOANS AND ALLOWANCE FOR LOAN LOSSES**

 

Loans are summarized as follows:

 
| ** **                            | ** ** | **June 30, 2008** | ** ** | **December 31, 2007** | ** ** |
|---------------------------------------|------------|------------------------|------------|----------------------------|------------|
| ** **                            | ** ** | **Amount**             | ** ** | **Percentage of**          | ** ** | **Amount** | ** ** | **Percentage of** | ** ** |
| **(dollars in thousands)**            | ** ** | **Outstanding**        | ** ** | **Total**                  | ** ** | **Outstanding** | ** ** | **Total** | ** ** |
| Commercial loans                      |       | $                      | 16,412     |                       | 38.7       | % | $ | 7,876 |   | 43.3 | % |
| Real estate loans                     |       | 23,023                 |       | 54.4                       | %          | 9,293 |   | 51.1 | % |
| Other loans                           |       | 2,932                  |       | 6.9                        | %          | 1,030 |   | 5.6 | % |
| Total loans, including net loan costs |       | 42,367                 |       | 100.0                      | %          | 18,199 |   | 100.0 | % |
| Less : allowance for loan losses      |       | (598                   | )          |                       |       | (269 | ) |   |   |
| Net loans                             |       | $                      | 41,769     |                       |       |   | $ | 17,930 |   |   |   |

 

The Company has had no impaired or non-accrual loanssince it commenced business.  There wereno loans past due 90 days or more in either interest or principal as of either June 30,2008 or December 31, 2007.

 

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The following table presents an analysis of changesin the allowance for loan losses during the periods indicated:

 
| ** **                                     | ** ** | **For the Three**  | ** ** | **For the Three**  | ** ** | **For the Three**     | ** ** |
|------------------------------------------------|------------|--------------------|------------|--------------------|------------|-----------------------|------------|
| ** **                                     | ** ** | **Month Period**   | ** ** | **Month Period**   | ** ** | **Month Period**      | ** ** |
| ** **                                     | ** ** | **June 30,**  | ** ** | **March 31,** | ** ** | **December 31,** | ** ** |
| ** **                                     | ** ** | **2008**           | ** ** | **2008**           | ** ** | **2007**              | ** ** |
| ** **                                     | ** ** | **(in thousands)** | ** ** | **(in thousands)** | ** ** | **(in thousands)**    | ** ** |
| Allowance balance at beginning of period       |       | $                  | 435        |               | $          | 269                   |       | $ | 102 |   |
| Additions to the allowance charged to  expense |       | 163                |       | 166                |       | 167                   |       |
| Recoveries                                     |       | —             |       | —             |       | —                |       |
|                                           |       | 598                |       | 435                |       | 269                   |       |
| Less loans charged-off                         |       | —             |       | —             |       | —                |       |
|                                           |       |               |       |               |       |                  |       |
| Allowance balance at end of period             |       | $                  | 598        |               | $          | 435                   |       | $ | 269 |   |

 

**Note 6.    STOCK-BASED COMPENSATION**

 

Duringthe six-month period ended June 30, 2008, the Company recordedapproximately $336,000 of stock-based compensation expense.  At June 30, 2008, unrecordedcompensation expense related to non-vested stock option grants totaledapproximately $1.5 million and is expected to be recognized as follows:

 
| ** **        | ** ** | **Stock Option**   | ** ** |
|-------------------|------------|--------------------|------------|
| ** **        | ** ** | **Compensation**   | ** ** |
| ** **        | ** ** | **Expense**        | ** ** |
| ** **        | ** ** | **(in thousands)** | ** ** |
| Remainder of 2008 |       | $                  | 346        |   |
| 2009              |       | 692                |       |
| 2010              |       | 445                |       |
| 2011              |       | 22                 |       |
| Total             |       | $                  | 1,505      |   |

 

TheCompany uses the Black-Scholes option valuation model to determine the fairvalue of options.  The Company utilizesassumptions on expected life, risk-free rate, expected volatility and dividendyield to determine such values.  If grantswere to occur, the Company would estimate the life of the options bycalculating the average of the vesting period and the contractual life.   The risk-free rate would be based upontreasury instruments in effect at the time of the grant whose terms areconsistent with the expected life of the Company’s stock options.  Expected volatility would be based onhistorical volatility of other financial institutions within the Company’soperating area, as the Company has limited market history.

 

Thefollowing table summarizes the weighted average assumptions utilized for stockoptions granted for the period presented:

 
| ** **              | ** ** | **Six Months**         | ** ** |
|-------------------------|------------|------------------------|------------|
| ** **              | ** ** | **Ended**              | ** ** |
| ** **              | ** ** | **June 30, 2008** | ** ** |
| Risk-free rate          |       | 3.32                   | %          |
| Expected Dividend Yield |       | 0.00                   | %          |
| Expected term           |       | 6 years                |       |
| Expected volatility     |       | 36.26                  | %          |

 

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Thefollowing table summarizes the stock option activity under the plan for thequarterly period ended June 30, 2008, there being no comparable period in2007:

 
| ** **                                | ** ** | ** ** | ** ** | ** **           | ** ** | **Weighted Average** | ** ** | **Aggregate** | ** ** |
|-------------------------------------------|------------|------------|------------|----------------------|------------|----------------------|------------|---------------|------------|
| ** **                                | ** ** | ** ** | ** ** | **Weighted Average** | ** ** | **Remaining**        | ** ** | **Intrinsic** | ** ** |
| ** **                                | ** ** | **Shares** | ** ** | **Exercise Price**   | ** ** | **Contractual Life** | ** ** | **Value**     | ** ** |
| **2008**                                  | ** ** | ** ** | ** ** | ** **           | ** ** | ** **           | ** ** | ** **    | ** ** |
| Outstanding at December 31, 2007     |       | 531,770    |       | $                    | 9.99       |                 |       |          |       |   |
| Granted                                   |       | 53,300     |       | $                    | 8.68       |                 |       |          |       |   |
| Exercised                                 |       | —     |       | —               |       |                 |       |          |       |
| Expired                                   |       | —     |       | —               |       |                 |       |          |       |
| Forfeited                                 |       | 38,314     |       | $                    | 10.00      |                 |       |          |       |   |
| Outstanding at June 30, 2008         |       | 546,756    |       | $                    | 9.85       |                 | 9.23       |          | $          | 0 |   |
| Options exercisable at June 30, 2008 |       | —     |       | —               |       | —               |       | —        |       |
|                                           |            |            |            |                      |            |                      |            |               |            |  |  |

 

Asno options were exercisable as of June 30, 2008, there were no optionsexercised during the six-month period ended June 30, 2008.  All options have been granted for a period often years with vesting occurring over the initial three-year period.  As of June 30, 2008, there were 186,033options included in the Company stock option plan which were available forfuture grants.

 

**Note 7.     FAIRVALUE MEASUREMENTS**

 

EffectiveJanuary 1, 2008, the Company adopted Statement of Financial AccountingStandards (“SFAS”) No. 157, “Fair Value Measurements”.  SFAS No. 157 clarifies the definition offair value, describes methods used to appropriately measure fair value inaccordance with generally accepted accounting principles in the United Statesof America, and expands fair value disclosure requirements.  This statement applies whenever otheraccounting pronouncements require or permit fair value measurements.  The fair value hierarchy under SFAS No. 157prioritizes the inputs to valuation techniques used to measure fair value intothree broad levels (Level 1, Level 2, and Level 3).  Level 1 inputs are unadjusted quoted pricesin active markets (as defined) for identical assets or liabilities that thereporting entity has the ability to access at the measurement date.  Level 2 inputs are inputs, other than quotedprices included within Level 1, which are observable for the asset orliability, either directly or indirectly. Level 3 inputs are observable inputs for the asset or liability, andreflect the reporting entity’s own assumptions about the assumptions thatmarket participants would use in pricing the asset or liability (includingassumptions about risk).

 

TheCompany performs fair value measurements on certain assets and liabilities asthe result of the application of accounting guidelines and pronouncements thatwere relevant prior to the adoption of SFAS No. 157.  Some fair value measurements, such as foravailable-for-sale securities, are performed on a recurring basis.

 

Thefollowing table summarizes the Company’s assets and liabilities, if any, whichwere measured at fair value on a recurring basis during the period, withdollars reported in thousands:

 

| ** **                            | ** ** | ** **        | ** ** | **Quoted Price in** | ** ** | **Significant** | ** ** | ** **       | ** ** |
|---------------------------------------|------------|-------------------|------------|---------------------|------------|-----------------|------------|------------------|------------|
| ** **                            | ** ** | ** **        | ** ** | **Active Markets**  | ** ** | **Other**       | ** ** | **Significant**  | ** ** |
| ** **                            | ** ** | ** **        | ** ** | **for Identical**   | ** ** | **Observable**  | ** ** | **Unobservable** | ** ** |
| ** **                            | ** ** | **June 30,** | ** ** | **Assets**          | ** ** | **Inputs**      | ** ** | **Inputs**       | ** ** |
| **Description  of Assets/Liabiltity** | ** ** | **2008**          | ** ** | **(Level 1)**       | ** ** | **(Level 2)**   | ** ** | **(Level 3)**    | ** ** |
| Available-for-sale securities         |       | $                 | 5,664      |                | $          | —          |       | $                | 5,664      |   | $ | — |   |
|                                       |            |                   |            |                     |            |                 |            |                  |            |  |  |  |  |

 

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Available-for-salesecurities are valued based upon inputs derived principally from observablemarket data.  Changes in fair marketvalue are recorded in other comprehensive income as the securities are availablefor sale.

 

**Note 8.    OTHER BORROWINGS**

 

AtJune 30, 2008, the Company had a collateralized line of credit with theFederal Home Loan Bank (“FHLB”) totaling $4.9 million in borrowing capacityagainst which it had outstanding $4.5 million consisting of the a FHLBfive-year fixed rate advance at 4.38% maturing on June 27, 2013.

 

**Note 9.    PRIVATE STOCK PLACEMENT**

 

Duringthe second quarter of 2008, the Company entered into a Stock Purchase Agreementwith Carpenter Fund Manager GP, LLC, the General Partner of the CarpenterCommunity BancFund, pursuant to which the Fund agreed to purchase 1,500,000shares of Manhattan Bancorp’s common stock at $10.00 per share for an aggregatepurchase of $15 million.  The agreementspecifies that the purchase will occur in two separate closings.  The first closing, which occurred in June,2008 and was equivalent to 4.9% of the Company’s post closing outstandingstock, resulted in the infusion of $1,281,750. Funds totaling $1.0 million were subsequently transferred to theBank.  The second and final close isanticipated to occur prior to the end of the year, subject to receipt of allrequired regulatory approvals and certain other conditions precedent toclosing.

 

**Note 10.    EARNINGS (LOSS) PER SHARE**

 

TheCompany follows SFAS No. 128, “*Earningsper Share”*.  Basic earnings(loss) per share represents income available (loss reported) to common stockdivided by the weighted average number of common shares outstanding during theperiod reported on the Statement of Operations. Diluted earnings (loss) pershare reflect additional common shares that would have been outstanding ifdilutive potential common shares had been issued, as well as any adjustment toincome that would result from the assumed conversion. There were no dilutivepotential common shares outstanding as of any the periods reported on theStatement of Operations.

 

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***Item 2 – Management’s Discussion and Analysis of Financial Conditionand Results of Operations***

 

***Forward-Looking Statements***

 

**The statements contained in this Quarterly Report on Form 10-Q,that are not historical facts, are forward-looking statements within themeaning of the Private Securities Litigation Reform Act of 1995, and are basedupon management’s current expectations and beliefs concerning further developmentsand their potential effects on Manhattan Bancorp and its subsidiary.  The Company’s forward-looking statementsinvolve risks and uncertainties, including the risks and uncertaintiesdescribed under the caption “Factors Which May Affect Future OperatingResults” found in the Company’s December 31, 2007 10-K/A, ITEM 1A. RiskFactors.  There can be no assurance thatfuture developments affecting Manhattan Bancorp will be the same as thoseanticipated by management, and actual results may differ from those projectedin the forward-looking statements. Statements regarding policies and procedures are not intended, andshould not be interpreted to mean, that such policies and procedures will notbe amended, modified, or repealed at any time in the future.**

 

***The Company***

 

ManhattanBancorp (“Bancorp”) is a bank holding company, which was incorporated in August 2006,in order to acquire Bank of Manhattan, N.A. (the “Bank”), a de novo bank whichwas acquired on August 14, 2007. The Bank is a nationally-chartered banking association which was grantedits charter and commenced on August 15, 2007.  The Bancorp operates exclusively through theBank, and the capital stock of the Bank is its principal asset.  The Bank is located in El Segundo, Californiaand as of June 30, 2008 had $60 million in assets, $42 million in netloans receivable and $35 million in deposits. Unless the context requires otherwise, references in this Form 10-Qto the “Company,” “we” or “us” refer to the Bancorp and its consolidatedsubsidiary, the Bank.

 

***Earnings and Financial Condition Overview***

 

Itis customary to compare current quarter and year-to-date results with thecorresponding periods in the prior year for earnings presentations.  As the Company did not commence businessuntil August 15, 2007, there are no corresponding figures for the firsttwo quarters of 2007.  To facilitate abetter understanding of the Company’s position and the results of itsoperations, comparisons are being made to the prior three-month period ended March 31,2008, where appropriate.

 

Forthe three-months ended June 30, 2008, the Company recorded a loss of$1.153 million or $0.46 per basic share.  Comparing the Company’s first quarter loss of $1.167 million or $0.47per basic share with the current operating quarter reflects an approximate 1.2%reduction in the reported quarterly losses. While loan growth continued toremain strong, the requirement to maintain the allowance for loan losses atacceptable levels, the declining general interest rate environment, coupledwith costs associated with regulatory compliance weaken the benefit from thereported improvement in the Company’s revenues.

 

Netinterest income after provision for loan losses for the three-month periodended June 30, 2008 was $393,000, an increase of $129,000 over the priorthree-month period.  This 49% improvementin net interest income was primarily due to an increase in interest income, up$136,000 for the three-month period ended June 30, 2008 over the previousthree-month period.  In comparison, interestexpense increased by only $10,000.  Theprovision for loan loss was essentially the same for both periods atapproximately $165,000.

 

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Non-interestexpense increased approximately $112,000 from approximately $1.444 million inthe three-month period ended March 31, 2008 to approximately $1.555million in the three-month period ended June 30, 2008.

 

Asof June 30, 2008, total assets were $60.1 million.  This represents an increase of approximately$20.7 million or 52.6% over the number reported as of December 31,2007.  The growth in total assets can beattributed to an increase of approximately $24.2 million in gross loan balancesor 132.8% from $18.2 million reported as of December 31, 2007.

 

Fundingfor the significant loan growth was obtained primarily from strong depositgrowth, coupled with reductions in federal funds sold and investments in timedeposits with other financial institutions. At June 30, 2008, total deposits were $34.7 million compared withthe balance of $17.9 million as of December 31, 2007.  This represents an approximate $16.9 millionincrease or 94.4%.  Reductions in federalfunds sold and investments in time deposits of approximately $3.8 millionprovided the other source of loan funding.

 

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Thefollowing table provides selected financial data that highlights the Company’sfinancial performance for each of the three full quarters that it has been inoperation:

 

| ** **                                             | ** ** | **For the three months ended** | ** ** |
|--------------------------------------------------------|------------|--------------------------------|------------|
| ** **                                             | ** ** | **6/30/2008**                  | ** ** | **3/31/2008** | ** ** | **12/31/2007** | ** ** |
| ** **                                             | ** ** | ** **                     | ** ** | **(Unaudited)** | ** ** | ** ** | ** ** |
| **Statements of Operations:**                          | ** ** | ** **                     | ** ** | ** ** | ** ** | ** ** | ** ** |
| Interest income                                        |       | $                              | 696        |   | $ | 560 |   | $ | 453 |   |
| Interest expense                                       |       | 140                            |       | 130 |   | 86 |   |
|                                                   |       |                           |       |   |   |   |   |
| Net interest income                                    |       | 556                            |       | 430 |   | 367 |   |
| Provision for loan losses                              |       | 163                            |       | 166 |   | 167 |   |
|                                                   |       |                           |       |   |   |   |   |
| Net interest income after provision for  loan losses   |       | 393                            |       | 264 |   | 200 |   |
|                                                   |       |                           |       |   |   |   |   |
| Non-interest income                                    |       | 11                             |       | 13 |   | 1 |   |
| Non-interest expense                                   |       | 1,557                          |       | 1,444 |   | 1,484 |   |
|                                                   |       |                           |       |   |   |   |   |
| Net loss from operations                               |       | $                              | (1,153     | ) | $ | (1,167 | ) | $ | (1,283 | ) |
|                                                   |       |                           |       |   |   |   |   |
| **Per Share and Other Data:**                          | ** ** | ** **                     | ** ** | ** ** | ** ** | ** ** | ** ** |
| Basic and diluted loss per share                       |       | $                              | (0.46      | ) | $ | (0.47 | ) | $ | (0.52 | ) |
| Book value as of period end                            |       | $                              | 7.80       |   | $ | 8.17 |   | $ | 8.52 |   |
| Weighted average shares outstanding-basic  and diluted |       | 2,517                          |       | 2,487 |   | 2,487 |   |
|                                                   |       |                           |       |   |   |   |   |
| **Balance Sheet Data:**                                | ** ** | ** **                     | ** ** | ** ** | ** ** | ** ** | ** ** |
| Investments and fed funds sold                         |       | $                              | 13,760     |   | $ | 12,915 |   | $ | 18,087 |   |
| Loans, net                                             |       | $                              | 41,769     |   | $ | 31,758 |   | $ | 17,930 |   |
| Assets                                                 |       | $                              | 60,067     |   | $ | 48,526 |   | $ | 39,367 |   |
| Deposits                                               |       | $                              | 34,727     |   | $ | 27,861 |   | $ | 17,862 |   |
| Shareholders’ equity                              |       | $                              | 20,393     |   | $ | 20,314 |   | $ | 21,189 |   |
|                                                   |       |                           |       |   |   |   |   |
| **Selected Financial Ratios**                          | ** ** | ** **                     | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net loss as a percentage of average earning  assets    |       | -8.92                          | %          | -10.73 | % | -14.46 | % |
| Net loss as a percentage of average equity             |       | -22.84                         | %          | -22.54 | % | -23.39 | % |
| Dividend payout ratio                                  |       | —                         |       | — |   | — |   |
| Equity to asset ratio                                  |       | 33.95                          | %          | 41.86 | % | 53.82 | % |
| Net interest margin                                    |       | 4.71                           | %          | 4.34 | % | 4.56 | % |
|                                                   |       |                           |       |   |   |   |   |
| **Credit Quality**                                     |       |                           |       |   |   |   |   |
| Allowance for loan losses                              |       | $                              | 598        |   | $ | 435 |   | $ | 269 |   |
| Allowance /total loans                                 |       | 1.41                           | %          | 1.35 | % | 1.48 | % |
| Non-performing loans                                   |       | $                              | —     |   | $ | — |   | $ | — |   |
| Net (recoveries)/ charge-offs                          |       | $                              | —     |   | $ | — |   | $ | — |   |

 

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***RESULTS OF OPERATIONS***

 

***Net Interest Income***

 

Tofacilitate a better understanding of the Company’s financial position and theresults of its operations, comparisons are being made to the prior three-monthperiod ended March 31, 2008.

 

TheCompany’s earnings depend largely upon our net interest income, which is thedifference between the income we earned on interest-bearing assets, such asloans, and the interest we pay on deposits and borrowed funds.  Net interest income is related to (i) therelative amounts of interest earning assets and liabilities and (ii) theinterest rates earned and paid upon these balances.  Total interest income can fluctuate basedupon the mix of earning assets between loans, investments and federal fundssold and the related rates associated with their balances.  Some of the funding sources for these assetsalso have an interest cost which can fluctuate based upon the mix ofinterest-bearing liabilities and the related rates associated with theirbalances.

 

Theinterest rate spread represents the difference between the weighted averageyield on interest earning assets and the weighted average rate paid on interestbearing liabilities.

 

Netinterest margin is net interest income expressed as a percentage of averagetotal interest earning assets.  Netinterest margin is affected by changes in the yields earned on assets and ratespaid on liabilities, referred to as rate changes, and changes in the relativeamounts of interest earning assets and interest bearing liabilities, referredto as volume changes.  Interest ratesearned and paid are affected principally by our competition, general economicconditions and other factors beyond the Company’s control, such as federaleconomic policies, the general supply of money in the economy, legislative taxpolicies, governmental budgetary matters and the actions of the Federal ReserveBoard.

 

Thefollowing table sets forth interest income, interest expense, net interestincome before provision for loan losses and net interest margin for the periodspresented:

 

| ** **                                            | ** ** | **Three Months Ended**     | ** ** |
|-------------------------------------------------------|------------|----------------------------|------------|
| ** **                                            | ** ** | **June 30,**          | ** ** | **March 31,** | ** ** | **Percent** | ** ** |
| ** **                                            | ** ** | **2008**                   | ** ** | **2008** | ** ** | **Change** | ** ** |
| ** **                                            | ** ** | **(Unaudited)**            | ** ** |
| ** **                                            | ** ** | **(Dollars in thousands)** | ** ** |
| Interest income                                       |       | $                          | 696        |   | $ | 560 |   | 24.29 | % |
| Interest expense                                      |       | 140                        |       | 130 |   | 7.69 | % |
| Net interest income before provision for  loan losses |       | $                          | 556        |   | $ | 430 |   | 29.30 | % |
| Net interest margin                                   |       | 4.71                       | %          | 4.34 | % | 8.49 | % |

 

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Thefollowing table presents the weighted average yield on each specified categoryof interest earning assets, the weighted average rate paid on each specifiedcategory of interest bearing liabilities, the resulting interest rate spread,and the net interest margin for the two consecutive three month periodsindicated:

 

**ANALYSIS OF NET INTEREST INCOME**

 
| ** **                                              | ** ** | **(Unaudited)**                           | ** ** |
|---------------------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                              | ** ** | **(Dollars in thousands)**                | ** ** |
| ** **                                              | ** ** | **Three months ended June 30, 2008** | ** ** | **Three months ended March 31, 2008** | ** ** |
| ** **                                              | ** ** | ** **                                | ** ** | ** ** | ** ** | **Weighted** | ** ** | ** ** | ** ** | ** ** | ** ** | **Weighted** | ** ** |
| ** **                                              | ** ** | ** **                                | ** ** | **Interest** | ** ** | **Average** | ** ** | ** ** | ** ** | **Interest** | ** ** | **Average** | ** ** |
| ** **                                              | ** ** | **Average**                               | ** ** | **Income/** | ** ** | **Rate** | ** ** | **Average** | ** ** | **Income/** | ** ** | **Rate** | ** ** |
|                                                    |       | **Balance**                               | ** ** | **Expense** | ** ** | **Earned/Paid** |   | **Balance** | ** ** | **Expense** | ** ** | **Earned/Paid** | ** ** |
| **Interest-earning assets:**                            |       |                                      |       |   |   |   |   |   |   |   |   |   |   |
| Federal funds sold                                      |       | $                                         | 4,013      |   | $ | 20 |   | 2.00 | % | $ | 7,208 |   | $ | 58 |   | 3.24 | % |
| Deposits with other financial instituions               |       | 868                                       |       | 12 |   | 5.56 | % | 2,177 |   | 26 |   | 4.80 | % |
| Investments                                             |       | 6,888                                     |       | 120 |   | 7.01 | % | 7,115 |   | 89 |   | 5.03 | % |
| Loans(1)                                                |       | 35,745                                    |       | 544 |   | 6.12 | % | 23,364 |   | 387 |   | 6.66 | % |
| Total interest-earning assets                           |       | 47,514                                    |       | 696 |   | 5.89 | % | 39,864 |   | 560 |   | 5.65 | % |
| Non-interest-earning assets                             |       | 3,892                                     |       |   |   |   |   | 3,856 |   |   |   |   |   |
| Total assets                                            |       | $                                         | 51,406     |   |   |   |   |   | $ | 43,720 |   |   |   |   |   |
|                                                    |       |                                      |       |   |   |   |   |   |   |   |   |   |   |
| **Interest-bearing liabilities:**                       |       |                                      |       |   |   |   |   |   |   |   |   |   |   |
| Demand                                                  |       | $                                         | 1,499      |   | $ | 0 |   | 0.10 | % | $ | 430 |   | $ | — |   | 0.25 | % |
| Savings and money market                                |       | 5,154                                     |       | 24 |   | 1.87 | % | 3,525 |   | 26 |   | 2.97 | % |
| Certificates of deposit                                 |       | 13,679                                    |       | 113 |   | 3.32 | % | 10,703 |   | 104 |   | 3.91 | % |
| FHLB advances                                           |       | 198                                       |       | 2 |   | 4.38 | % | — |   | — |   |   |   |
| Total interest-bearing liabilities                      |       | 20,530                                    |       | 140 |   | 2.73 | % | 14,658 |   | 130 |   | 3.57 | % |
| Non-interest-bearing demand deposits                    |       | 10,394                                    |       |   |   |   |   | 7,957 |   |   |   |   |   |
| Total funding sources                                   |       | 30,924                                    |       |   |   | 1.82 | % | 22,615 |   |   |   | 2.31 | % |
| Non-interest-bearing liabilities                        |       | 400                                       |       |   |   |   |   | 285 |   |   |   |   |   |
| Shareholders’ equity                               |       | 20,082                                    |       |   |   |   |   | 20,820 |   |   |   |   |   |
| Total liabilities and shareholders’ equity         |       | $                                         | 51,406     |   |   |   |   |   | $ | 43,720 |   |   |   |   |   |
|                                                    |       |                                      |       |   |   |   |   |   |   |   |   |   |   |
| Excess of interest-earning assets over  funding sources |       | $                                         | 16,590     |   |   |   |   |   | $ | 17,249 |   |   |   |   |   |
| Net interest income                                     |       |                                      |       | $ | 556 |   |   |   |   |   | $ | 430 |   |   |   |
| Net interest rate spread                                |       |                                      |       |   |   | 3.16 | % |   |   |   |   | 2.08 | % |
| Net interest margin                                     |       |                                      |       |   |   | 4.71 | % |   |   |   |   | 4.34 | % |

 

----

(1)          The average balance of loans is calculated netof deferred loan fees/cost, but would include non-accrual loans, if any, with azero yield.  Loan costs net of amortizedfees included in total net income were approximately $15,000 for thethree-month period ended June 30, 2008 and $10,000 for the three-monthperiod ended March 31, 2008.

 

Includedin the $120,000 of investment income reported above for the second quarter of2008 is approximately $34,000 of dividend income from various banks in which theBank holds stock.  As the payment ofdividends may not be regularly scheduled and is dependent upon the affirmativeaction of the boards of these other financial institutions, the unpredictablereceipt of such funds is reflected in a higher effective yield during thesecond quarter.

 

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Thetable below sets forth changes for the consecutive three-month periods ended June 30,2008 and March 31, 2008 for average earning assets, average interestbearing liabilities, and their respective rates:

 
| **VARIANCE IN BALANCES AND RATES****** |
|----------------------------------------|

 
| ** **                                | ** ** | **(Unaudited)**                | ** ** |
|-------------------------------------------|------------|--------------------------------|------------|
| ** **                                | ** ** | **(dollars  in thousands)**    | ** ** |
| ** **                                | ** ** | **Average Balance**            | ** ** | ** ** | ** ** | ** ** | ** ** | **Average Yield/Rate** | ** ** | ** ** | ** ** |
| ** **                                | ** ** | **for the three months ended** | ** ** | ** ** | ** ** | ** ** | ** ** | **for the three months ended** | ** ** | ** ** | ** ** |
| ** **                                | ** ** | **June 30,**              | ** ** | **March 31,** | ** ** | **Variance** | ** ** | **June 30,** | ** ** | **March 31,** | ** ** | ** ** | ** ** |
| ** **                                | ** ** | **2008**                       | ** ** | **2008** | ** ** | **dollar** | ** ** | **percent** | ** ** | **2008** | ** ** | **2008** | ** ** | **Variance** | ** ** |
|                                      |       |                           |       |   |   |   |   |   |   |   |   |   |   |   |   |
| **Interest-earning assets:**              | ** ** | ** **                     | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Federal funds sold                        |       | $                              | 4,013      |   | $ | 7,208 |   | $ | (3,195 | ) | -44.33 | % | 2.00 | % | 3.24 | % | -1.23 | % |
| Deposits with other financial instituions |       | 868                            |       | 2,177 |   | (1,309 | ) | -60.13 | % | 5.56 | % | 4.80 | % | 0.76 | % |
| Investments                               |       | 6,888                          |       | 7,115 |   | (227 | ) | -3.19 | % | 7.01 | % | 5.03 | % | 1.98 | % |
| Loans                                     |       | 35,745                         |       | 23,364 |   | 12,381 |   | 52.99 | % | 6.12 | % | 6.66 | % | -0.54 | % |
| Total interest-earning assets             |       | $                              | 47,514     |   | $ | 39,864 |   | $ | 7,650 |   | 19.19 | % | 5.89 | % | 5.65 | % | 0.24 | % |
|                                      |       |                           |       |   |   |   |   |   |   |   |   |   |   |   |   |
| **Interest-bearing liabilities:**         | ** ** | ** **                     | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Interest-bearing demand                   |       | $                              | 1,499      |   | $ | 430 |   | $ | 1,069 |   | 248.60 | % | 0.10 | % | 0.25 | % | -0.15 | % |
| Savings and money market                  |       | 5,154                          |       | 3,525 |   | 1,629 |   | 46.21 | % | 1.87 | % | 2.97 | % | -1.09 | % |
| Certificates of deposit                   |       | 13,679                         |       | 10,703 |   | 2,976 |   | 27.81 | % | 3.32 | % | 3.91 | % | -0.59 | % |
| FHLB advances                             |       | 198                            |       | — |   | 198 |   | 0.00 | % | 4.38 | % | 0.00 | % | 4.38 | % |
| Total interest-bearing liabilities        |       | $                              | 20,530     |   | $ | 14,658 |   | $ | 5,872 |   | 40.06 | % | 2.73 | % | 3.57 | % | -0.83 | % |

 

Avolume and rate variance table is provided below which sets forth the dollardifferences in interest earned and paid for each major category ofinterest-earning assets and interest-bearing liabilities for the consecutivethree-month periods ended June 30, 2008 and March 31, 2008:

 
| ** **                                | ** ** | **For the three months ended**                   | ** ** |
|-------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                | ** ** | **June 30, 2008 over March  31, 2008** | ** ** |
| ** **                                | ** ** | **Volume**                                       | ** ** | **Rate** | ** ** | **Total** | ** ** |
| ** **                                | ** ** | **(Unaudited)**                                  | ** ** |
| **Interest income:**                      | ** ** | ** **                                       | ** ** | ** ** | ** ** | ** ** | ** ** |
| Federal funds sold                        |       | $                                                | (26        | ) | $ | (12 | ) | $ | (38 | ) |
| Deposits with other financial instituions |       | (16                                              | )          | 2 |   | (14 | ) |
| Investments                               |       | (3                                               | )          | 34 |   | 31 |   |
| Loans                                     |       | 206                                              |       | (49 | ) | 157 |   |
| Net increase (decrease)                   |       | 161                                              |       | (25 | ) | 136 |   |
|                                      |       |                                             |       |   |   |   |   |
| **Interest expense:**                     | ** ** | ** **                                       | ** ** | ** ** | ** ** | ** ** | ** ** |
| Interest bearing demand                   |       | 1                                                |       | (1 | ) | — |   |
| Savings and money market                  |       | 12                                               |       | (14 | ) | (2 | ) |
| Certificates of deposit                   |       | 29                                               |       | (19 | ) | 10 |   |
| FHLB advances                             |       | —                                           |       | 2 |   | 2 |   |
| Net increase (decrease)                   |       | 42                                               |       | (32 | ) | 10 |   |
| Total net increase (decrease)             |       | $                                                | 119        |   | $ | 7 |   | $ | 126 |   |

 

Areview of the above tables shows that the overall increase in net interestincome of approximately $126,000 between the two consecutive quarters ending atJune 30, 2008 is the result of several factors.

 

Amongthe most significant factors is the overall growth in average earning assets,up approximately $7.7 million or 19.2% between March 31, 2008 and June 30,2008, coupled with the change in the mix of interest-earning assets fromfederal funds sold to loans.  Thepercentage of average loan dollars outstanding, as a percentage ofinterest-earning assets grew from 28.9% percent as of December 31, 2007 to58.6% as of March 31, 2008, and to 75.2% as of June 30, 2008.   This movement in the utilization of funds,coupled with the overall growth in assets, resulted in the increase of interestincome due to volume increases of approximately $161,000, more than fullyoffsetting the result of the general market interest

 

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ratedecline of approximately $25,000, leaving the total interest income increase at$136,000.  While general interest ratesdeclined only 25 basis points during the second quarter of 2008, the shifttoward higher yielding loans from lower yielding assets (although softened bythe lower initial interest rates on new loans) resulted in a 24 basis pointincrease in average weighted yield on average interest-bearing assets.  The average weighted yield onaverage-interest bearing assets also benefited from aforementioned dividendincome.

 

Interestexpenses increased by only $10,000, with the increase in balances outstandingon interest-bearing liabilities being significantly offset by the savingsavailable on repricing due to overall declining rates.

 

Thefollowing table presents the weighted average yield on each specified categoryof interest earning assets, the weighted average rate paid on each specifiedcategory of interest bearing liabilities, the resulting interest rate spreadand the net interest margin for the six months periods indicated:

 

**ANALYSIS OF NET INTEREST INCOME**

 

| ** **                                              | ** ** | **(Unaudited)**                         | ** ** |
|---------------------------------------------------------|------------|-----------------------------------------|------------|
| ** **                                              | ** ** | **(Dollars in thousands)**              | ** ** |
| ** **                                              | ** ** | **Six months ended June 30, 2008** | ** ** |
| ** **                                              | ** ** | ** **                              | ** ** | ** ** | ** ** | **Weighted** | ** ** |
| ** **                                              | ** ** | ** **                              | ** ** | **Interest** | ** ** | **Average** | ** ** |
| ** **                                              | ** ** | **Average**                             | ** ** | **Income/** | ** ** | **Rate** | ** ** |
| ** **                                              | ** ** | **Balance**                             | ** ** | **Expense** | ** ** | **Earned/Paid** | ** ** |
| **Interest-earning assests**                            | ** ** | ** **                              | ** ** | ** ** | ** ** | ** ** | ** ** |
| Federal funds sold                                      | ** ** | ** **                              | ** ** | ** ** | ** ** | ** ** | ** ** |
| Deposits with other financial instituions               |       | $                                       | 5,611      |   | $ | 79 |   | 2.83 | % |
| Investments                                             |       | 1,523                                   |       | 37 |   | 4.89 | % |
| Loans(1)                                                |       | 7,001                                   |       | 210 |   | 6.03 | % |
| Total interest-earning assets                           |       | 29,554                                  |       | 930 |   | 6.33 | % |
| Non-interest-earning assets                             |       | 43,689                                  |       | 1,256 |   | 5.78 | % |
| Total assets                                            |       | 3,874                                   |       |   |   |   |   |
|                                                    |       | $                                       | 47,563     |   |   |   |   |   |
|                                                    |       |                                    |       |   |   |   |   |
| **Interest-bearing liabilities:**                       | ** ** | ** **                              | ** ** | ** ** | ** ** | ** ** | ** ** |
| Demand                                                  |       | $                                       | 965        |   | $ | 1 |   | 0.13 | % |
| Savings and money market                                |       | 4,339                                   |       | 50 |   | 2.32 | % |
| Certificates of deposit                                 |       | 12,191                                  |       | 217 |   | 3.58 | % |
| FHLB advances                                           |       | 99                                      |       | 2 |   | 4.38 | % |
| Total interest-bearing liabilities                      |       | 17,594                                  |       | 270 |   | 3.08 | % |
| Non-interest-bearing demand deposits                    |       | 9,175                                   |       |   |   |   |   |
| Total funding sources                                   |       | 26,769                                  |       |   |   | 2.03 | % |
| Non-interest-bearing liabilities                        |       | 343                                     |       |   |   |   |   |
| Shareholders’ equity                               |       | 20,451                                  |       |   |   |   |   |
| Total liabilities and shareholders’ equity         |       | $                                       | 47,563     |   |   |   |   |   |
|                                                    |       |                                    |       |   |   |   |   |
| Excess of interest-earning assets over  funding sources |       | $                                       | 16,920     |   |   |   |   |   |
| Net interest income                                     |       |                                    |       | $ | 986 |   |   |   |
| Net interest rate spread                                |       |                                    |       |   |   | 2.70 | % |
| Net interest margin                                     |       |                                    |       |   |   | 4.54 | % |

 

----

(1)          The average balance of loans is calculated netof deferred loan fees/cost, but would include non-accrual loans, if any, with azero yield.  Loan costs net of amortizedfees included in total net income were approximately $25,000 for the six-monthperiod ended June 30, 2008.

 

Nocomparison can be made to a corresponding or consecutive six-month period asnone presently exists.

 

***Provision for Loan Losses***

 

TheCompany made provisions for loan losses of $163,000 for the three-month periodended June 30, 2008, compared to $166,000 for the previous three-monthperiod ended March 31, 2008.  Theseprovisions were determined based upon the periodic credit review of the loanportfolio, consideration of past loan loss experience, current and predictedeconomic conditions, and other pertinent factors.  For

 

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furtheranalysis of the adequacy of the loan loss reserve, see *Asset Quality and Allowance for Loan Losses.*

 

***Non-Interest Income***

 

Non-interestincome for the three-month period ended June 30, 2008 and March 31,2008 was negligible.

 

***Non-Interest Expense***

 

Thefollowing table sets forth changes for the two consecutive three-month periodsending June 30, 2008 and March 31, 2008, allowing comparisons betweenthese two initial quarters:

 
| ** **                                     | ** ** | **For the three months ended** | ** ** | ** **         | ** ** | ** **  | ** ** |
|------------------------------------------------|------------|--------------------------------|------------|--------------------|------------|-------------|------------|
| ** **                                     | ** ** | **June, 30,**                  | ** ** | **March 31,** | ** ** | ** **  | ** ** | ** ** | ** ** |
| ** **                                     | ** ** | **2008**                       | ** ** | **2008**           | ** ** | ** **  | ** ** | ** ** | ** ** |
| ** **                                     | ** ** | **(dollars in thousands)**     | ** ** | **Variance**       | ** ** |
|                                           |       | **(Unaudited)**                | ** ** | **Dollars**        |       | **Percent** |       |
|  Compensation and benefits                |       | $                              | 970        |               | $          | 948         |       | $ | 22 |   | 2.3 | % |
|  Occupancy and equipment                  |       | 163                            |       | 158                |       | 5           |       | 3.2 | % |
|  Technology and communication             |       | 125                            |       | 125                |       | —      |       | 0.0 | % |
|  Professional and administrative expenses |       | 158                            |       | 106                |       | 52          |       | 49.1 | % |
|  Other non-interest expenses              |       | 139                            |       | 107                |       | 32          |       | 29.9 | % |
| Total non-interest expenses                    |       | $                              | 1,555      |               | $          | 1,444       |       | $ | 111 |   | 7.7 | % |

 

Theincrease in expense between the first and second quarters of 2008 can beprimarily attributed to the following:

 

·                  Cost associated with annual reporting toshareholders and regulators of approximately $40,000

 

·                  Discretionary marketing expenditures forbusiness development purposes of approximately $36,000

 

·                  Increases in cost associated with workers’compensation insurance and accruals to reflect certain employee benefitprograms, each accounting for about $15,000, but offset by savings from delaysin planned staff expansion

 

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***FINANCIAL CONDITION***

 

TheCompany’s increase in total assets level to $60.1 million as of June 30,2008 represents over a 53% increase, or approximately $20.7 million, from thetotal assets level of $39.4 million as of December 31, 2007.  The growth is centered in loans, which werefunded primarily by locally generated deposits.

 

***Loans***

 

Totalgross loans as of June 30, 2008 increased by approximately $24.2 millionover December 31, 2007.   Althoughoutstanding loan balances increased in all categories, most of the monetarygrowth occurred in real estate loans, where the total grew by more than $13.8million or 149%.

 

Thetable below sets forth the changes from December 31, 2007 to June 30,2008 in the composition of the loan portfolio:

 

**Loan Classifications:**

 
| **(dollars in thousands)**       | ** ** | **June 30,** | ** ** | **December 31,** | ** ** | **Variance** | ** ** |
|----------------------------------|------------|-------------------|------------|-----------------------|------------|--------------|------------|
| **(unaudited)**                  | ** ** | **2008**          | ** ** | **2007**              | ** ** | **Dollars**  | ** ** | **Percent** | ** ** |
| Commercial loans                 |       | $                 | 16,376     |                  | $          | 7,855        |       | $ | 8,521 |   | 108.48 | % |
| Real estate loans                |       | 23,044            |       | 9,243                 |       | 13,801       |       | 149.31 | % |
| Other loans                      |       | 2,921             |       | 1,024                 |       | 1,897        |       | 185.25 | % |
| Total loans                      |       | 42,341            |       | 18,122                |       | 24,219       |       | 133.64 | % |
| Add: purchase premium            |       | 45                |       | 50                    |       | (5           | )          |   |   |
| Add: Unamortized costs           |       | 65                |       | 40                    |       | 25           |       |   |   |
| Less: Deferred fees              |       | (84               | )          | (13                   | )          | (71          | )          |   |   |
| Less = Allowance for loan losses |       | (598              | )          | (269                  | )          | (329         | )          |   |   |
| Net loans                        |       | $                 | 41,769     |                  | $          | 17,930       |       | $ | 23,839 |   | 132.96 | % |

 

Ofthe Bank’s total loans outstanding as of June 30, 2008, 21.6% were due inone year or less, 37.1% were due in one to five years, and 41.3% were due afterfive years.  As is customary in thebanking industry, loans can be renewed by mutual agreement between the borrowerand the Bank.  Because we are unable toaccurately estimate the extent to which our borrowers will renew their loans,the following table is based on contractual maturities, reflecting grossoutstanding loans without consideration of purchase premium, deferred fees ordeferred costs.

 

**Loan Maturity Schedule as of June 30, 2008**

**(Unaudited)**

 
| ** **                               | ** ** | **Maturing**               | ** ** | ** **      | ** ** |
|------------------------------------------|------------|----------------------------|------------|-----------------|------------|
| ** **                               | ** ** | **Within One**             | ** ** | **One to Five** | ** ** | **After Five** | ** ** | ** ** | ** ** |
| ** **                               | ** ** | **Year**                   | ** ** | **Years**       | ** ** | **Year** | ** ** | **Total** | ** ** |
| ** **                               | ** ** | **(dollars in thousands)** | ** ** | ** **      | ** ** |
| ** **                               | ** ** | ** **                 | ** ** | ** **      | ** ** |
| Commercial                               |       | $                          | 8,827      |            | $          | 5,549 |   | $ | 2,000 |   | $ | 16,376 |   |
| Real estate                              |       | —                     |       | 9,219           |       | 13,825 |   | 23,044 |   |
| Other loans                              |       | 301                        |       | 927             |       | 1,693 |   | 2,921 |   |
| Total                                    |       | $                          | 9,128      |            | $          | 15,695 |   | $ | 17,518 |   | $ | 42,341 |   |
|                                     |       |                       |       |            |       |   |   |   |   |
| Loans with pre-determined interest rates |       | $                          | 300        |            | $          | 9,338 |   | $ | 2,481 |   | $ | 12,119 |   |
| Loans with floating or adjustable rates  |       | 8,828                      |       | 6,357           |       | 15,037 |   | 30,222 |   |
| Total                                    |       | $                          | 9,128      |            | $          | 15,695 |   | $ | 17,518 |   | $ | 42,341 |   |

 

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Ofthe gross loan dollars outstanding as of June 30, 2008, approximately 71%had adjustable rates.  Most of theadjustable rate loans generally have interest rates tied to the prime rate (56%of the total adjustable rate loan dollars outstanding) and would adjust withchanges in the rate on a daily basis. The balance of the adjustable rate loansare tied to other indices subject to periodic adjustment prior to the contractmaturity.

 

*Commercial Loans. *The Bankoffers a variety of commercial loans, including secured and unsecured term andrevolving lines of credit, equipment loans and accounts receivable loans.  As of June 30, 2008, approximately 87%of the commercial loans had adjustable rates. The Bank underwrites secured term loans and revolving lines of creditprimarily on the basis of a borrower’s cash flow and the ability to service thedebt, although we rely on the liquidation of the underlying collateral as asecondary payment source, where applicable. Should the borrower default and the Bank forecloses on the assets, wemay not be able to recover the full amount of the loan.

 

*Real Estate Loans. *The Bank’sreal estate loans are secured primarily by commercial property, including asignificant percentage in multi-family complexes.   Approximately 77% of the real estate loansare adjustable periodically during the term of the loan.  Approximately 60% of the real estate loanshave a remaining maturity between five and ten years.  As of June 30, 2008, the weightedaverage ratio of the original loan extension to the underlying value of theproperty was approximately 49% with weighted average debt service coverage of1.36.  No individual loan to value ratioexceeded 70%.

 

*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 theborrower with a line of credit in an amount which does not exceed 80% of theappraised value of the borrower’s property at the time of origination.

 

***Off-Balance Sheet Credit Commitments and Contingent Obligations***

 

Weenter into or may issue financial instruments with off-balance sheet creditrisk in the normal course of business to meet the financial needs of ourcustomers.  Since inception through March 31,2008, these have been limited to undisbursed commitments to extend credit to bothbusinesses and individuals.  During thesecond quarter of 2008, the Bank issued several letters of credit for the firsttime, totaling $70,000.  All commitmentsnoted above were associated with loans and were therefore subject to the samecredit underwriting policies and practices as other on-balance sheetobligations.  When deemed advisable, theBank obtains collateral to support such commitments.

 

Commitmentsto extend credit are agreements to lend up to a specific amount to a customeras long as there is no violation of any condition in the contract.  Commitments generally have fixed expirationdates or other termination clauses, which may require payment of a fee.  Since we expect some commitments to expirewithout being drawn upon, the total commitment amounts do not necessarilyrepresent future loans. There was $11.9 million in undisbursed loan commitmentsas of June 30, 2008, an increase of $4.6 million or 62.7% from the December 31,2007 figure of $7.3 million.

 

***Non-Performing Assets***

 

Non-performingassets consist of non-performing loans and other real estate owned (“OREO”).  Non-performing loans are (i) loans whichhave been placed on non-accrual status; (ii) loans which are contractuallypast due 90 days or more with respect to principal or interest, have not beenrestructured or placed on non-accrual status, and are accruing interest; and (iii) troubleddebt restructures ( “TDRs”).  OREO iscomprised of real estate acquired in satisfaction of the loan either throughforeclosure or deed in lieu of foreclosure.

 

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TheBank had no non-performing assets as of June 30, 2008 or as of December 31,2007.

 

***Deposits***

 

Depositsare the Bank’s primary source of funds. The following table sets forth the amount of deposits outstanding bycategory at June 30, 2008 and December 31, 2007, and the net changesbetween the two periods.

 
| **(dollars in thousands)**                | ** ** | **June 30,** | ** ** | **December 31,** | ** ** | **Variance** | ** ** |
|-------------------------------------------|------------|-------------------|------------|-----------------------|------------|--------------|------------|
| **(unaudited)**                           | ** ** | **2008**          | ** ** | **2007**              | ** ** | **Dollars**  | ** ** | **Percent** | ** ** |
| **Deposit Classifications:**              | ** ** | ** **        | ** ** | ** **            | ** ** | ** **   | ** ** | ** ** | ** ** |
| Noninterest bearing deposits              |       | $                 | 12,290     |                  | $          | 5,395        |       | $ | 6,895 |   | 127.80 | % |
| Interest bearing demand                   |       | 1,395             |       | 1,143                 |       | 252          |       | 22.05 | % |
| Savings and money market                  |       | 6,144             |       | 4,244                 |       | 1,900        |       | 44.77 | % |
| Certificate of deposit $100,000 and over  |       | 10,799            |       | 6,190                 |       | 4,609        |       | 74.46 | % |
| Certificate of deposit less than $100,000 |       | 4,099             |       | 890                   |       | 3,209        |       | 360.56 | % |
| Total deposits                            |       | $                 | 34,727     |                  | $          | 17,862       |       | $ | 16,865 |   | 94.42 | % |

 

Asof June 30, 2008, 35.4% of the Company’s deposits werenon-interest-bearing demand deposits, a slight increase from December 31,2007 at 30.2%.  At December 31,2007, we had no brokered funds on deposit. At June 30, 2008, the Bank held approximately $1.0 million inbrokered funds. All other funds have been placed with the Bank by localdepositors at competitive rates within the Bank’s marketing area.

 

The*Analysis of Net Interest Income,*foundwithin this document, summarizes the distribution of the average depositbalances and the average rates paid on deposits during the Bank’s twoconsecutive full quarters ended June 30, 2008 and for the six-month periodended June 30, 2008.

 

Thefollowing table shows the maturity of all of the Bank’s time deposits as of June 30,2008:

 

| **Maturities**                       | ** ** | **Amounts**        | ** ** |
|--------------------------------------|------------|--------------------|------------|
| **(unaudited)**                      | ** ** | **(in thousands)** | ** ** |
| Three months or less                 |       | $                  | 6,690      |   |
| Over three and through twelve months |       | 8,208              |       |
| Over twelve months                   |       | —             |       |
| Total                                |       | $                  | 14,898     |   |

 

***Asset Quality and Allowance for Loan Losses***

 

TheCompany maintains an allowance for loan losses (“ALL”) to provide for potentiallosses in its loan portfolio.  Additionsto the allowance are made by charges to operating expense in the form of aprovision for loan losses.  All loansthat are judged to be uncollectible will be charged against the allowance,while recoveries would be credited to the allowance.  We have instituted loan policies designedprimarily for internal use, to adequately evaluate and assess the analysis ofthe risk factors associated with the Bank’s loan portfolio, to enable us toassess such risk factors prior to granting new loans and to assess thesufficiency of the allowance.  We conductan evaluation on the loan portfolio monthly.

 

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Thecalculation of the adequacy of the ALLL necessarily includes estimates bymanagement applied to known loan portfolio elements.  We employ a 10-point loan grading system inan effort to more accurately track the inherent quality of the loanportfolio.  The 10-point system assigns avalue of “1” or “2” to loans that are substantially risk free.  Modest, average and acceptable risk loans areassigned point values of “3”, “4”, and “5”, respectively.  Loans on the watch list are assigned a pointvalue of “6.”   Point values of “7,” “8,”“9” and “10” are assigned, respectively, to loans classified as specialmention, substandard, doubtful and loss. Using these risk factors, managementcontinues the analysis of the general reserves applying quantitative factorsbased upon different risk scenarios. As of December 31, 2007, the weightedaverage risk rating for the Bank’s loan portfolio was 4.56, indicating anoverall risk rating midway between average and acceptable.  As of June 30, 2008, the weightedaverage risk rating for the Bank’s loan portfolio was 4.43, once againindicating an overall risk rating midway between average and acceptable.

 

Inaddition, management considers other trends that are qualitative relative toour marketplace, demographic trends, the risk rating of the loan portfolios asdiscussed above, amounts and trends in non-performing assets and concentrationfactors.

 

***Regulatory Capital***

 

Duringthe second quarter of 2008, the Company entered into a Stock Purchase Agreementwith Carpenter Fund Manager GP, LLC, the General Partner of the CarpenterCommunity BancFund, pursuant to which the Fund agreed to purchase 1,500,000shares of Manhattan Bancorp’s common stock at $10.00 per share for an aggregatepurchase of $15 million.  The agreementspecifies that the purchase will occur in two separate closings.  The first closing, which occurred in June,2008 and was equivalent to 4.9% of the Company’s post closing outstandingstock, resulted in the infusion of $1,281,750.  Funds totaling $1.0 million was subsequently transferred to theBank.  The second and final close isanticipated to occur prior to the end of 2008, subject to receipt of allrequired regulatory approvals and certain other conditions precedent toclosing.

 

TheBank is subject to various regulatory capital requirements administered by thefederal banking agencies.  Failure tomeet minimum capital requirements can trigger mandatory and possibly additionaldiscretionary actions by the regulators that, if undertaken, could have amaterial effect on the Bank’s financial statements and operations.  Under capital adequacy guidelines andregulatory framework for prompt corrective action, the Bank must meet specificcapital guidelines that involve quantitative measures of the Bank’s assets,liabilities, and certain off-balance sheet items as calculated under regulatoryaccepted accounting practices.  The Bank’scapital amounts and classifications are also subject to qualitative judgmentsby the regulators such as components, risk-weightings, and other factors.

 

Quantitativemeasures established by regulation to ensure capital adequacy require both theCompany and the Bank to maintain the following minimum amounts and ratios (setforth in the table below) of total and Tier 1 Capital to risk-weighted assetsand Tier 1 Capital to average assets. As of June 30, 2008, the Company andthe Bank exceeded all applicable capital adequacy requirements.

 

Underthe Federal Reserve Board’s guidelines, Manhattan Bancorp is a “small bankholding company,” and thus qualifies for an exemption from the consolidatedrisk-based and leverage capital adequacy guidelines applicable to bank holdingcompanies with assets of $500 million or more. However, while not required to do so under the Federal Reserve Board’scapital adequacy guidelines, the Company still maintains levels of capital on aconsolidated basis which qualifies it as “well capitalized.”

 

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Thefollowing table sets forth the Company’s and the Bank’s regulatory capitalratios as of June 30, 2008:

 

| ** **                            | ** ** | ** **         | ** ** | **To Be Adequately** | ** ** | **To Be Well**  | ** ** |
|---------------------------------------|------------|--------------------|------------|----------------------|------------|-----------------|------------|
| ** **                            | ** ** | **Actual**         | ** ** | **Capitalized**      | ** ** | **Capitalized** | ** ** |
| **(unaudited)**                       | ** ** | **Amount**         | ** ** | **Ratio**            | ** ** | **Amount**      | ** ** | **Ratio** | ** ** | **Amount** | ** ** | **Ratio** | ** ** |
| ** **                            | ** ** | **(in thousands)** | ** ** |
| **Company**                           | ** ** | ** **         | ** ** | ** **           | ** ** | ** **      | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Total Capital (risk-weighted assets)  |       | $                  | 21,041     |                 | 42.4       | %               | $          | 3,970 |   | 8 | % | $ | 4,962 |   | 10 | % |
| Tier 1 Capital (risk-weighted assets) |       | $                  | 20,415     |                 | 41.1       | %               | $          | 1,985 |   | 4 | % | $ | 2,977 |   | 6 | % |
| Tier 1 Capital (average assets)       |       | $                  | 20,415     |                 | 39.7       | %               | $          | 2,056 |   | 4 | % | $ | 2,570 |   | 5 | % |
|                                  |       |               |       |                 |       |            |       |   |   |   |   |   |   |
| **Bank**                              | ** ** | ** **         | ** ** | ** **           | ** ** | ** **      | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Total Capital (risk-weighted assets)  |       | $                  | 20,409     |                 | 41.1       | %               | $          | 3,970 |   | 8 | % | $ | 4,962 |   | 10 | % |
| Tier 1 Capital (risk-weighted assets) |       | $                  | 19,783     |                 | 39.9       | %               | $          | 1,985 |   | 4 | % | $ | 2,977 |   | 6 | % |
| Tier 1 Capital (average assets)       |       | $                  | 19,783     |                 | 38.5       | %               | $          | 2,056 |   | 4 | % | $ | 2,570 |   | 5 | % |

 

***Liquidity and Liquidity Management***

 

Liquiditymanagement for banks requires that funds always be available to pay anticipateddeposit withdrawals, fund loan commitments, and to meet other commitments on atimely and cost effective basis.  Theacquisition of deposits is our primary source of funds.  This relatively stable and low-cost source offunds has, along with the initial balances in stockholder’s equity, providedsubstantially all of the funding since the Bank’s inception.

 

Wealso have liquidity as a net seller of overnight federal funds at a level thatwould cushion in part any unexpected increase in demand for loans or decreasein funds deposited.  During thethree-month period ended March 31, 2008, we had an average balance of $7.2million in overnight federal funds sold representing approximately 16% of ouraverage assets. During the three-month period ended June 30, 2008, we hadan average balance of $4.0 million in overnight federal funds sold representingapproximately 8% of our average assets. Both ratios are far above the minimum guideline of 3% established in theBank’s liquidity policy.

 

Tomeet liquidity needs, the Company maintains a portion of its funds in cashdeposits in other banks, federal funds and investment securities.  As of December 31, 2007, liquid assets(including cash, federal funds sold, interest-bearing deposits in otherfinancial institutions and available-for-sale investment securities that havenot been pledged as collateral), as a percentage of the Company’s deposits, was98.0%.  As of June 30, 2008, liquidassets as a percentage of the Company’s deposits, although declining, remainacceptable at 27.3%.

 

Whileliquidity was not a major concern in 2007, management has established and isseeking to establish secondary sources of liquidity.  As of June 30, 2008, the Bank maintainslines of credit totaling $5 million with two correspondent banks for thepurchase of overnight federal funds.  Thelines are subject to availability of funds and have restrictions as to thenumber of days used during defined periods of time.  Another method that the Bank currently hasavailable for acquiring additional deposits is through the acceptance of “brokereddeposits” (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 deposits at high interestrates.  The Bank has not utilized itsovernight federal funds facilities since it began operations. The Bank had anominal amount of “brokered deposits” as of June 30, 2008 of approximately$1.0 million or about 3% of total deposits.

 

TheBank has established a credit line with the Federal Home Loan Bank of SanFrancisco and has outstanding as of June 30, 2008 a five-year fixed rateadvance of $4.5 million at 4.38%.

 

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***Item 3 – Quantitative and Qualitative Disclosures about Market Risk***

 

TheCompany’s market risk results primarily from two sources, credit risk andinterest rate risk.  Risk management isan important part of our operations and a key element of our overall financialresults.  Banking regulators, in recentyears, have emphasized appropriate risk management, prompting banks to haveadequate systems to identify, monitor and manage risks.  The Bank has both board and managementcommittees who meet on a regular basis to oversee risk functions.  The Company’s Audit Committee is responsiblefor overseeing internal auditing functions and for interfacing with the Company’sexternal auditors.  The Bank’s LoanCommittee establishes Loan Policy, reviews loans made by management andapproves loans in excess of management’s lending authority.  This committee is also responsible for thereview of any problem credits and assessing the adequacy of our allowance forloan losses.  The Asset/Liability Committeereviews investments made by management, and monitors compliance withinvestment, interest rate risk and liquidity policies.

 

***Credit Risk***

 

Creditrisk generally arises as a result of the Bank’s lending activities, but mayalso be present in the Bank’s investment functions.  To manage the credit risk inherent in ourlending activities, we rely on the adherence to underwriting standards and loanpolicies as well as our allowance for loan losses.  The Bank employs frequent monitoringprocedures and takes prompt corrective action when necessary.  Additionally, the Bank’s loan portfolio andthe ALL methodology are expected to be examined on a regular basis by bothregulatory agencies and independent loan review professionals.

 

***Interest Rate Risk***

 

Interestrate risk is the exposure of a bank’s financial condition and the results ofoperations to adverse movements in interest rates.  Movements in interest rates affect both thegeneration of earnings as well as the market value of assets and liabilities.   Interest rate risk results from more thanjust the differences in the maturity or repricing opportunities ofinterest-earning assets and interest-bearing liabilities.  Other factors that affect the interest raterisk include changes in the slope of the yield curves over time, imperfectcorrelation in the adjustment of rates earned and paid on different instrumentswith similar characteristics, interest-rate-related embedded options such asloan floors, ceilings, and prepayments, as well as callable investmentsecurities and early withdrawal of time deposits.

 

Thepotential impact of interest rate risk is significant because of the liquidityand capital adequacy consequences that reduced earnings or losses mayimply.  While we recognize and acceptthat interest rate risk is a routine part of banking operations, the objectiveof interest rate risk management is to measure, monitor and control exposure ofnet interest income to excessive risks associated with interest rate movements.

 

Understandingthe inherent weakness in traditional gap analysis to properly measure interestrate risk, the Bank employs modeling techniques which measure the affect ofinterest rate shocks on the net interest income and the market value of equityon the Bank’s existing mix of assets and liabilities.

 

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Theresults of the model’s simulations on the potential loss of net interest incomeas of June 30, 2008 reflect the following:

 

| **Earnings at Risk**  | ** ** |
|-----------------------|------------|
| **Rate**              | ** ** | **Maximum** | ** ** | **% (Loss) Gain** | ** ** |
| **Shock**             | ** ** | **Policy** | ** ** | **in Net Interest** | ** ** |
| **(in basis points)** | ** ** | **Guideline** | ** ** | **Income** |   |
| -300                  |       | -15 | % | -8.5 | % |
| -200                  |       | -10 | % | -5.6 | % |
| -100                  |       | -5 | % | -2.7 | % |
| +100                  |       | -5 | % | 2.5 | % |
| +200                  |       | -10 | % | 5.1 | % |
| +300                  |       | -15 | % | 7.6 | % |

 

Themethod employed in rate shocking the earnings at risk was “ramping”, (i.e.changing the indicated rate movement gradually over a 12 month horizon).  Based upon the model simulation as of June 30,2008, the Bank’s interest rate risk exposure as measured by rate movement onnet interest income is within policy guidelines.

 

Theresults of the model’s simulations on the potential loss of the Company’sequity as of June 30, 2008 reflect the following:

 

| **Market Value of Equity** | ** ** |
|----------------------------|------------|
| **Rate**                   | ** ** | **Maximum** | ** ** | **% (Loss) Gain** | ** ** |
| **Shock**                  | ** ** | **Policy** | ** ** | **in Market** | ** ** |
| **(in basis points)**      | ** ** | **Guideline** | ** ** | **Value of Equity** | ** ** |
| -300                       |       | -30 | % | 7.0 | % |
| -200                       |       | -20 | % | 6.4 | % |
| -100                       |       | -10 | % | 3.1 | % |
| +100                       |       | -10 | % | -3.0 | % |
| +200                       |       | -20 | % | -6.0 | % |
| +300                       |       | -30 | % | -8.7 | % |

 

Themethod employed in rate shocking the market value of equity is referred to as “regulatoryshock” i.e. changing the indicated rates instantaneously.  Based upon the model simulation as of June 30,2008, the Bank interest rate exposure as measured by rate movement on themarket value of the Bank’s equity is within policy guidelines.

 

***Item 4T – Controls and Procedures***

 

TheCompany maintains disclosure controls and procedures (as defined in theExchange Act Rule 13a-15(e)) that are designed to assure that informationrequired to be disclosed in our Securities Exchange Act of 1934 reports isrecorded, processed, summarized and reported within the time periods specifiedin the Securities and Exchange Commission’s rules and forms, and that suchinformation is accumulated and communicated to management, including the ChiefExecutive Officer and Chief Financial Officer, as appropriate, to allow timelydecisions regarding required disclosures.

 

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Indesigning and evaluating the disclosure controls and procedures, managementrecognizes that any controls and procedures, no matter how well designed andoperated, can provide reasonable assurance only of achieving the desiredcontrol objectives, and management necessarily is required to apply itsjudgment in weighing the costs and benefits of possible new or differentcontrols and procedures.  Limitations areinherent in all control systems, so no evaluation of controls can provideabsolute assurance that all control issues and any fraud within the Companyhave been detected.

 

Asrequired by Exchange Act Rule 13a-15(b), as of the end of the periodcovered by this report the Company, under the supervision and withparticipation of the Chief Executive Officer and Chief Financial Officer,evaluated the effectiveness of our disclosure controls and procedures.  Based upon this evaluation, the ChiefExecutive Officer and Chief Financial Officer concluded that our disclosurecontrols and procedures were effective as of that date.

 

Duringthe quarter ended June 30, 2008, there were no significant changes in ourinternal controls over financial reporting (as defined in Rule 13a-15(f) ofthe Securities Exchange Act of 1934, as amended) that have materially affected,or are reasonably likely to materially affect, the Company’s internal controlover financial reporting.

 

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**PART II – OTHER INFORMATION**

 

***Item 1. – Legal Proceedings***

 

TheCompany is not a party to any legal proceedings.

 

***Item 1A. – Risk Factors***

 

Asa smaller reporting company, the Company is not required to provide theinformation required by this item as a part of the Form 10-Q.

 

***Item 2 –Unregistered Sale of EquitySecurities and Use of Proceeds***

 

None

 

***Item 3 – Defaults upon SeniorSecurities***

 

NotApplicable.

 

***Item 4 – Submission of Matters tothe Vote of Security Holders***

 

Thefollowing items were submitted to the security holders for approval at theannual meeting held April 22, 2008:

 

1.**              ****Election of Directors. **The election of eight (8) persons to the Board of Directors toserve until the 2009 Annual Meeting of Shareholders and until their successorsare elected or have qualified.  Thefollowing persons were elected on the following votes:

 

**Directors**

** **
| **Name**                 | ** ** | **Votes For** | ** ** | **Votes Withheld** | ** ** | **% Voted For** | ** ** |
|--------------------------|------------|---------------|------------|--------------------|------------|-----------------|------------|
| Chris W. Caras, Jr. |       | 1,869,488     |       | 7,500              |       | 99.60           | %          |
| Harry W. Chenoweth       |       | 1,869,488     |       | 7,500              |       | 99.60           | %          |
| Patrick E. Greene        |       | 1,869,488     |       | 7,500              |       | 99.60           | %          |
| Christopher J. Growney   |       | 1,869,488     |       | 7,500              |       | 99.60           | %          |
| Larry S. Murphy          |       | 1,869,488     |       | 7,500              |       | 99.60           | %          |
| Kyle A. Ransford         |       | 1,869,488     |       | 7,500              |       | 99.60           | %          |
| Jeffrey M. Watson        |       | 1,869,488     |       | 7,500              |       | 99.60           | %          |
| Stephen P. Yost          |       | 1,869,488     |       | 7,500              |       | 99.60           | %          |

 

2.**              ****Ratification of IndependentAccountant. **The ratification of Vavrinek, Trine, Day &Co. LLP as the Company’s independent accountants for the 2009 fiscal year:

 
| **Votes For** | ** ** | **Votes Against** | ** ** | **Votes Abstaining** | ** ** | **% Voted For** | ** ** | **Broker Non-Votes** | ** ** |
|---------------|------------|-------------------|------------|----------------------|------------|-----------------|------------|----------------------|------------|
| 1,859,488     |       | 0                 |       | 10,000               |       | 99.47           | %          | 0                    |       |

 

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***Item 5 – Other Information***

 

None

 

***Item 6 – Exhibits***

 
| **Exhibit   Number** | ** ** | **Index to Exhibits**                                                                                                                                                           | ** ** | **Page** |
|---------------------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------|
| 11                        |       | Statement Regarding Computation of Net Income (Loss) per Share                                                                                                                  |       | (1)      |
|                      |       |                                                                                                                                                                            |       |     |
| 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                        |       | 32       |
|                      |       |                                                                                                                                                                            |       |     |
| 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                        |       | 33       |
|                      |       |                                                                                                                                                                            |       |     |
| 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 |       | 34       |
|                      |       |                                                                                                                                                                            |       |     |
| 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               |       | 35       |

 

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(1)      The information required by this exhibit is incorporated by referenceto Note 10 to the Company’s financial statements included herein.

 

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### **SIGNATURES**

###  

Pursuantto the requirement of the Securities and Exchange Act of 1934, the registranthas duly caused this report to be signed on its behalf by the undersignedthereunto duly authorized.

 
|   |                  | **MANHATTAN BANCORP**          |
|--------|-----------------------|--------------------------------|
|   |                  | ** **                     |
|   |                  |                           |
| Date:  | August 13,  2008 | /s/  Jeffrey M. Watson         |
|   |                  | Jeffrey  M. Watson             |
|   |                  | President  and                 |
|   |                  | Chief  Executive Officer       |
|   |                  | (Principal  Executive Officer) |
|   |                  |                           |
|   |                  |                           |
| Date:  | August 13,  2008 | /s/  Dean Fletcher             |
|   |                  | Dean  Fletcher                 |
|   |                  | Executive  Vice President and  |
|   |                  | Chief  Financial Officer       |
|   |                  | (Principal  Financial and      |
|   |                  | Accounting  Officer)           |

 

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