##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, DC 20549
 FORM 10-Q
 þ
    
    Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the quarterly period ended June 30, 2010
 or
 o
    
    Transition report under Section 13 or 15(d) of the Exchange Act
 For the transition period from  to
 Commission file number: 000-49814
 MONARCH COMMUNITY BANCORP, INC.
 (Exact name of registrant as specified in its charter)
 Maryland
    
    04-3627031(State or other jurisdiction
    
    (I.R.S. employerof incorporation or organization)
    
    identification no.)
 (Address of principal executive offices)
 (Registrants telephone number)
 þ o
 o o
  Large Accelerated Filer o
Accelerated Filer o
Non-Accelerated Filer o(Do not check if a smaller reporting company)
Smaller reporting company þ o þ




---



##### 



Monarch Community Bancorp, Inc.
 PART I  FINANCIAL INFORMATIONItem 1  Condensed Financial Statements:Condensed Consolidated Balance Sheets  June 30, 2010 and
December 31, 2009
    
    
    1Condensed Consolidated Statements of Income  Three and Six Months
Ended June 30, 2010 and 2009
    
    
    2Condensed Consolidated Statements of Cash Flows  Six Months Ended
June 30, 2010 and 2010
    
    
    3Notes to Condensed Consolidated Financial Statements
    
    
    4 - 10Item 2  Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    
    10 - 19Item 3  Quantitative and Qualitative Disclosures about Market Risk
    
    
    20Item 4T Controls and Procedures
    
    
    20PART II  OTHER INFORMATIONItem 1  Legal Proceedings
    
    
    21Item 1A  Risk Factors
    
    
    21Item 2  Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    21Item 3  Defaults Upon Senior Securities
    
    
    21Item 4  [Reserved]
    
    
    21Item 5  Other Information
    
    
    21Item 6  Exhibits
    
    
    21SIGNATURES
    
    
    22CERTIFICATIONSEX-31.1EX-31.2EX-32




---



##### Table of Contents



PART IFINANCIAL INFORMATION
 
 Item 1. CONDENSED FINANCIAL STATEMENTS
 
 Condensed Consolidated Balance Sheets
 (Unaudited)June 30,
    
    
    December 31,2010
    
    
    2009(Dollars in thousands,except per share data)AssetsCash and due from banks
    
    $
    12,174
    
    
    $
    12,631Federal Home Loan Bank overnight time and
other interest bearing deposits
    
    
    7,097
    
    
    
    10,723Total cash and cash equivalents
    
    
    19,271
    
    
    
    23,354Securities  Available for sale
    
    
    16,538
    
    
    
    16,063Securities  Held to maturity
    
    
    10
    
    
    
    23Other securities
    
    
    4,237
    
    
    
    4,237Loans held for sale
    
    
    755
    
    
    
    809Loans, net
    
    
    204,324
    
    
    
    220,875Foreclosed assets, net
    
    
    3,659
    
    
    
    2,839Premises and equipment
    
    
    4,309
    
    
    
    4,467Core deposit intangible
    
    
    462
    
    
    
    532Other assets
    
    
    10,018
    
    
    
    10,005Total assets
    
    $
    263,583
    
    
    $
    283,204Liabilities and Stockholders EquityLiabilitiesDeposits:Non-interest bearing
    
    $
    15,836
    
    
    $
    14,422Interest bearing
    
    
    185,649
    
    
    
    198,946Total deposits
    
    
    201,485
    
    
    
    213,368Federal Home Loan Bank advances
    
    
    44,518
    
    
    
    44,518Accrued expenses and other liabilities
    
    
    2,527
    
    
    
    2,155Total liabilities
    
    
    248,530
    
    
    
    260,041Stockholders EquityPreferred stock-$.01 par value, 5,000,000 shares authorized, and 6,785
shares, fixed
rate cumulative perpetual preferred stock, series A, $1,000 per share
liquidation preference, issued and outstanding as of June 30, 2010
    
    
    6,745
    
    
    
    6,739Common stock  $0.01 par value, 20,000,000 shares authorized, 2,044,606
shares issued and outstanding at June 30, 2010 and December 31, 2009
    
    
    20
    
    
    
    20Additional paid-in capital
    
    
    21,221
    
    
    
    21,216Accumulated deficit
    
    
    (12,583
    )
    
    
    (4,355
    )Accumulated other comprehensive income
    
    
    330
    
    
    
    223Unearned compensation
    
    
    (680
    )
    
    
    (680
    )Total stockholders equity
    
    
    15,053
    
    
    
    23,163Total liabilities and stockholders equity
    
    $
    263,583
    
    
    $
    283,204
  1




---



##### Table of Contents



Three Months
    
    
    Three Months
    
    
    Six Months
    
    
    Six MonthsEnded
    
    
    Ended
    
    
    Ended
    
    
    EndedJune 30,
    
    
    June 30,
    
    
    June 30,
    
    
    June 30,2010
    
    
    2009
    
    
    2010
    
    
    2009(Dollars in thousands, except per share data)Interest IncomeLoans, including fees
    
    $
    3,092
    
    
    $
    3,873
    
    
    $
    6,428
    
    
    $
    7,827Investment securities
    
    
    143
    
    
    
    162
    
    
    
    294
    
    
    
    280Federal funds sold and overnight deposits
    
    
    
    
    
    
    1
    
    
    
    1
    
    
    
    3Total interest income
    
    
    3,235
    
    
    
    4,036
    
    
    
    6,723
    
    
    
    8,110Interest ExpenseDeposits
    
    
    886
    
    
    
    1,274
    
    
    
    1,851
    
    
    
    2,593Federal Home Loan Bank advances
    
    
    499
    
    
    
    643
    
    
    
    992
    
    
    
    1,302Total interest expense
    
    
    1,385
    
    
    
    1,917
    
    
    
    2,843
    
    
    
    3,895Net Interest Income
    
    
    1,850
    
    
    
    2,119
    
    
    
    3,880
    
    
    
    4,215Provision for Loan Losses
    
    
    7,040
    
    
    
    3,441
    
    
    
    8,884
    
    
    
    4,163Net Interest Income After Provision for Loan Losses
    
    
    (5,190
    )
    
    
    (1,322
    )
    
    
    (5,004
    )
    
    
    52Non-interest IncomeFees and service charges
    
    
    563
    
    
    
    549
    
    
    
    1,108
    
    
    
    1,064Loan servicing fees
    
    
    122
    
    
    
    111
    
    
    
    239
    
    
    
    217Net gain on sale of loans
    
    
    149
    
    
    
    748
    
    
    
    349
    
    
    
    1,457Net gain (loss) on sale of securities
    
    
    
    
    
    
    2
    
    
    
    37
    
    
    
    2Other income
    
    
    20
    
    
    
    58
    
    
    
    193
    
    
    
    102Total non-interest income
    
    
    854
    
    
    
    1,468
    
    
    
    1,926
    
    
    
    2,842Non-interest ExpenseSalaries and employee benefits
    
    
    1,099
    
    
    
    1,129
    
    
    
    2,205
    
    
    
    2,278Occupancy and equipment
    
    
    224
    
    
    
    239
    
    
    
    465
    
    
    
    511Data processing
    
    
    199
    
    
    
    200
    
    
    
    407
    
    
    
    407Amortization of mortgage servicing rights
    
    
    81
    
    
    
    136
    
    
    
    169
    
    
    
    335Professional services
    
    
    245
    
    
    
    123
    
    
    
    396
    
    
    
    252Amortization of core deposit intangible
    
    
    35
    
    
    
    35
    
    
    
    71
    
    
    
    78NOW account processing
    
    
    53
    
    
    
    40
    
    
    
    104
    
    
    
    79ATM/Debit card processing
    
    
    60
    
    
    
    57
    
    
    
    117
    
    
    
    118Foreclosed property expense
    
    
    59
    
    
    
    77
    
    
    
    265
    
    
    
    110Other general and administrative
    
    
    425
    
    
    
    540
    
    
    
    775
    
    
    
    917Total non-interest expense
    
    
    2,480
    
    
    
    2,576
    
    
    
    4,974
    
    
    
    5,085Loss  Before income taxes
    
    
    (6,816
    )
    
    
    (2,430
    )
    
    
    (8,052
    )
    
    
    (2,191
    )Income Taxes
    
    
    
    
    
    
    (607
    )
    
    
    
    
    
    
    (547
    )Net Loss
    
    $
    (6,816
    )
    
    $
    (1,823
    )
    
    $
    (8,052
    )
    
    $
    (1,644
    )Dividends and amortization of discount on preferred stock
    
    $
    88
    
    
    $
    87
    
    
    $
    176
    
    
    $
    138Net Income (loss) available to common stock
    
    $
    (6,904
    )
    
    $
    (1,910
    )
    
    $
    (8,228
    )
    
    $
    (1,782
    )Loss Per ShareBasic
    
    $
    (3.49
    )
    
    $
    (0.97
    )
    
    $
    (4.16
    )
    
    $
    (0.91
    )Diluted
    
    $
    (3.49
    )
    
    $
    (0.97
    )
    
    $
    (4.16
    )
    
    $
    (0.91
    )
  2




---



##### Table of Contents



Six Months EndedJune, 302010
    
    
    2009(Dollars in thousands)Cash Flows From Operating ActivitiesNet Loss
    
    $
    (8,052
    )
    
    $
    (1,644
    )Adjustments to reconcile net income (loss) to net cash from operating activitiesDepreciation and amortization
    
    
    542
    
    
    
    693Provision for loan losses
    
    
    8,884
    
    
    
    4,163Stock option expense
    
    
    5
    
    
    
    4Gain (loss) on sale of foreclosed assets
    
    
    (105
    )
    
    
    24Mortgage loans originated for sale
    
    
    (10,868
    )
    
    
    (65,280
    )Proceeds from sale of mortgage loans
    
    
    10,923
    
    
    
    66,370Gain on sale of mortgage loans
    
    
    (349
    )
    
    
    (1,458
    )Gain on sale of available for sale securities
    
    
    (37
    )
    
    
    (2
    )Earned stock compensation
    
    
    
    
    
    
    9Net change in:Deferred loan fees
    
    
    49
    
    
    
    62Accrued interest receivable
    
    
    (53
    )
    
    
    (50
    )Other assets
    
    
    (129
    )
    
    
    (1,980
    )Accrued expenses and other liabilities
    
    
    316
    
    
    
    (416
    )Net cash provided by (used in) operating activities
    
    
    1,126
    
    
    
    495Cash Flows From Investing ActivitiesActivity in available-for-sale securities:Purchases
    
    
    (4,216
    )
    
    
    (17,814
    )Proceeds from maturities of securities
    
    
    2,288
    
    
    
    6,141Proceeds from sale of securities
    
    
    1,566
    
    
    
    Activity in held-to-maturity securities:Proceeds from maturities of securities
    
    
    13
    
    
    
    14Loan originations and principal collections, net
    
    
    5,408
    
    
    
    5,370Proceeds from sale of foreclosed assets
    
    
    1,850
    
    
    
    508Purchase of premises and equipment
    
    
    (59
    )
    
    
    (133
    )Net cash provided by investing activities
    
    
    6,850
    
    
    
    (5,914
    )Cash Flows From Financing ActivitiesNet increase in deposits
    
    
    (11,883
    )
    
    
    10,226Issuance of Preferred Stock
    
    
    
    
    
    
    6,734Issuance of Warrants
    
    
    
    
    
    
    56Dividends paid
    
    
    (176
    )
    
    
    (465
    )Repayment of FHLB advances
    
    
    
    
    
    
    (3,500
    )Repayment of Fed Funds purchased
    
    
    
    
    
    
    (1,000
    )Net cash provided by financing activities
    
    
    (12,059
    )
    
    
    12,051Net Increase (Decrease) in Cash and Cash Equivalents
    
    
    (4,083
    )
    
    
    6,632Cash and Cash Equivalents Beginning
    
    
    23,354
    
    
    
    6,272Cash and Cash Equivalents End
    
    $
    19,271
    
    
    $
    12,904Supplemental Cash Flow Information:Cash paid for:Interest
    
    
    2,886
    
    
    
    3,932Income taxes
    
    
    
    
    
    
    215Noncash investing activities:Loans transferred to foreclosed assets
    
    
    2,558
    
    
    
    1,800
  3




---



##### Table of Contents



MONARCH COMMUNITY BANCORP, INC.  NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 ORGANIZATION
   BASIS OF PRESENTATION
     ALLOWANCE FOR LOAN LOSSES
    4




---



##### Table of Contents



RECLASSIFICATIONS
  SECURITIES
  Gross
    
    
    GrossUnrealized
    
    
    Unrealized
    
    
    EstimatedJune 30, 2010
    
    Amortized Cost
    
    
    Gains
    
    
    Losses
    
    
    Market ValueAvailable-for-sale securities:U.S. Treasury
    
    $
    3,184
    
    
    $
    31
    
    
    $
    
    
    
    $
    3,215U.S. government agency obligations
    
    
    2,631
    
    
    
    69
    
    
    
    
    
    
    
    2,700Mortgage-backed securities
    
    
    4,673
    
    
    
    171
    
    
    
    
    
    
    
    4,844Obligations of states and
political subdivisions
    
    
    5,550
    
    
    
    229
    
    
    
    
    
    
    
    5,779Total available-for-sale securities
    
    $
    16,038
    
    
    $
    500
    
    
    $
    
    
    
    $
    16,538Held-to-maturity securities:Municipal securities
    
    $
    10
    
    
    $
    
    
    
    $
    
    
    
    
    10
 Gross
    
    
    GrossUnrealized
    
    
    Unrealized
    
    
    EstimatedDecember 31, 2009
    
    Amortized Cost
    
    
    Gains
    
    
    Losses
    
    
    Market ValueAvailable-for-sale securities:U.S. Treasury
    
    $
    1,055
    
    
    $
    16
    
    
    $
    
    
    
    $
    1,071U.S. government agency obligations
    
    
    3,155
    
    
    
    41
    
    
    
    
    
    
    
    3,196Mortgage-backed securities
    
    
    5,454
    
    
    
    82
    
    
    
    
    
    
    
    5,536Obligations of states and
political subdivisions
    
    
    6,061
    
    
    
    199
    
    
    
    
    
    
    
    6,260Total available-for-sale securities
    
    $
    15,725
    
    
    $
    338
    
    
    $
    
    
    
    $
    16,063Held-to-maturity securities:Municipal securities
    
    $
    23
    
    
    $
    
    
    
    $
    
    
    
    
    23
  5




---



##### Table of Contents



.
 Held to Maturity Securities
    
    
    Available for Sale SecuritiesAmortized
    
    
    Fair
    
    
    Amortized
    
    
    FairCost
    
    
    Value
    
    
    Cost
    
    
    Value(Dollars in Thousands)Due in one year or less
    
    $
    10
    
    
    $
    10
    
    
    $
    1,236
    
    
    $
    1,246Due from one to five years
    
    
    
    
    
    
    
    
    
    
    12,381
    
    
    
    12,757Due from five to ten years
    
    
    
    
    
    
    
    
    
    
    2,421
    
    
    
    2,535Due after ten yearsTotal securities
    
    $
    10
    
    
    $
    10
    
    
    $
    16,038
    
    
    $
    16,538
  Other-Than Temporary-Impairment
   6




---



##### Table of Contents



EARNINGS PER SHARE
  Three Months
    
    
    Three Months
    
    
    Six Months
    
    
    Six MonthsEnded
    
    
    Ended
    
    
    Ended
    
    
    EndedJune 30, 2010
    
    
    June 30, 2009
    
    
    June 30, 2010
    
    
    June 30, 2009Basic earnings per shareNumerator:Net income
    
    $
    (6,816
    )
    
    $
    (1,823
    )
    
    $
    (8,052
    )
    
    $
    (1,644
    )Dividends and amortization of discount on
preferred stock
    
    $
    88
    
    
    $
    87
    
    
    $
    176
    
    
    $
    138Net Income (Loss) available to common stock
    
    $
    (6,904
    )
    
    $
    (1,910
    )
    
    $
    (8,228
    )
    
    $
    (1,782
    )Denominator:Weighted average common shares outstanding
    
    
    2,045
    
    
    
    2,046
    
    
    
    2,045
    
    
    
    2,046Less: Average unallocated ESOP shares
    
    
    (65
    )
    
    
    (74
    )
    
    
    (65
    )
    
    
    (74
    )Less: Average non-vested RRP shares
    
    
    (2
    )
    
    
    (7
    )
    
    
    (2
    )
    
    
    (7
    )Weighted average common shares outstanding
for basic earnings (loss) per share
    
    
    1,978
    
    
    
    1,965
    
    
    
    1,978
    
    
    
    1,965Basic earnings (loss) per share
    
    $
    (3.49
    )
    
    $
    (0.97
    )
    
    $
    (4.16
    )
    
    $
    (0.91
    )Diluted earnings per shareNumerator:Net Income (Loss) available to common stock
    
    $
    (6,904
    )
    
    $
    (1,910
    )
    
    $
    (8,228
    )
    
    $
    (1,782
    )Denominator:Weighted average common shares outstanding
for basic earnings per share
    
    
    1,978
    
    
    
    1,965
    
    
    
    1,978
    
    
    
    1,965Add: Dilutive effects of restricted stock,
stock options and warrants
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Weighted average common shares and dilutive
potential common shares outstanding
    
    
    1,978
    
    
    
    1,965
    
    
    
    1,978
    
    
    
    1,965Diluted earnings (loss) per share
    
    $
    (3.49
    )
    
    $
    (0.97
    )
    
    $
    (4.16
    )
    
    $
    (0.91
    )
 RECENT ACCOUNTING PRONOUNCEMENTS
  FAIR VALUE MEASUREMENTS
    7




---



##### Table of Contents



SignificantQuoted Prices in Active
    
    Other
    
    SignificantMarkets for Identical
    
    Observable
    
    Unobservable
    
    Balance at June 30,Assets (Level 1)
    
    Inputs (Level 2)
    
    Inputs (Level 3)
    
    2010Assets:June 30, 2010U.S. Treasury
    
    $
    3,215
    
    
    $
    
    
    
    $
    
    
    
    $
    3,215U.S. government agency obligations
    
    
    
    
    
    
    2,700
    
    
    
    
    
    
    
    2,700Mortgage-backed securities
    
    
    
    
    
    
    4,844
    
    
    
    
    
    
    
    4,844Obligations of states and
political subdivisions
    
    
    
    
    
    
    5,779
    
    
    
    
    
    
    
    5,779
 SignificantQuoted Prices in Active
    
    Other
    
    SignificantMarkets for Identical
    
    Observable
    
    Unobservable
    
    Balance at June 30,Assets (Level 1)
    
    Inputs (Level 2)
    
    Inputs (Level 3)
    
    2010Assets:December 31, 2009U.S. Treasury
    
    $
    1,071
    
    
    $
    
    
    
    $
    
    
    
    $
    1,071U.S. government agency obligations
    
    
    
    
    
    
    3,196
    
    
    
    
    
    
    
    3,196Mortgage-backed securities
    
    
    
    
    
    
    5,536
    
    
    
    
    
    
    
    5,536Obligations of states and
political subdivisions
    
    
    
    
    
    
    6,260
    
    
    
    
    
    
    
    6,260
 8




---



##### Table of Contents



Assets Measured at Fair Value on a Nonrecurring BasisBalance at
    
    Quoted Prices in Active
    
    Significant Other
    
    Significant
    
    Change in Fair Value for theJune 30,
    
    Markets for Identical
    
    Observable Inputs
    
    Unobservable Inputs
    
    six months ended June 30,2010
    
    Assets (Level 1)
    
    (Level 2)
    
    (Level 3)
    
    2010Impaired Loans
accounted for under
FASB ASC 310
    
    $
    19,199
    
    
    $
    
    
    
    $
    
    
    
    $
    19,199
    
    
    $
    (4,684
    )Foreclosed Assets
    
    $
    3,659
    
    
    $
    
    
    
    $
    
    
    
    $
    3,659
    
    
    $
    (885
    )
 Assets Measured at Fair Value on a Nonrecurring BasisBalance at
    
    Quoted Prices in Active
    
    Significant Other
    
    Significant
    
    Change in Fair Value forDecember
    
    Markets for Identical
    
    Observable Inputs
    
    Unobservable Inputs
    
    the year ended December 31,31, 2010
    
    Assets (Level 1)
    
    (Level 2)
    
    (Level 3)
    
    2010Impaired Loans
accounted for under
FASB ASC 310
    
    $
    18,653
    
    
    $
    
    
    
    $
    
    
    
    $
    18,653
    
    
    $
    (7,895
    )Foreclosed Assets
    
    $
    2,839
    
    
    $
    
    
    
    $
    
    
    
    $
    2,839
    
    
    $
    (1,819
    )
 Fair Value of Financial Instruments
   Securities
 Loans Held for Sale
 Loans Receivable
 9




---



##### Table of Contents



Deposit Liabilities
 Federal Home Loan Bank Advances
  June 30,
    
    December 31,2010
    
    2009Carrying Amount
    
    Fair Value
    
    Carrying Amount
    
    Fair ValueAssets:Cash and cash equivalents
    
    $
    19,271
    
    
    $
    19,271
    
    
    $
    23,354
    
    
    $
    23,354Securities  Held to maturity
    
    
    10
    
    
    
    10
    
    
    
    23
    
    
    
    23Securities  Available for sale
    
    
    16,538
    
    
    
    16,538
    
    
    
    16,063
    
    
    
    16,063Other securities
    
    
    4,237
    
    
    
    4,237
    
    
    
    4,237
    
    
    
    4,237Loans held for sale
    
    
    755
    
    
    
    771
    
    
    
    809
    
    
    
    827Net loans
    
    
    204,324
    
    
    
    207,208
    
    
    
    220,875
    
    
    
    230,866Accrued interest
and late charges receivable
    
    
    933
    
    
    
    933
    
    
    
    1,154
    
    
    
    1,154Liabilities:Deposits
    
    
    201,485
    
    
    
    200,393
    
    
    
    213,368
    
    
    
    214,581Federal Home Loan Bank
advances
    
    
    44,518
    
    
    
    47,439
    
    
    
    44,518
    
    
    
    48,260Accrued interest payable
    
    
    354
    
    
    
    354
    
    
    
    397
    
    
    
    397
 
 ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  FORWARD-LOOKING STATEMENTS
   10




---



##### Table of Contents



CRITICAL ACCOUNTING POLICIES
  Allowance for Loan Losses
 Foreclosed Assets .
 Income Taxes 
 OVERVIEW
   1)
    
    Hiring a new President & CEO.2)
    
    Hiring a new Chief Lending Officer.3)
    
    The development and initial execution of plans to reduce classified assets and
concentrations of credit. This includes the completion of a loan review by an outside
consulting firm. The firm reviewed approximately 79% of the total loan portfolio and made
no recommendations for charge-offs or special reserves on the loans they reviewed. In
addition, they reviewed the methodology and adequacy of the Allowance for Loan and Lease
Losses and found them to be reasonable.4)
    
    The completion of a management review by an outside consultant. The results of this
review determined that management staffing and skills were adequate for the ongoing
operation of the bank.5)
    
    The enhancement of loan policies and procedures.
 11




---



##### Table of Contents



FINANCIAL CONDITION
 Assets
  Securities
  Loans
  June 30, 2010
    
    
    December 31, 2009Amount
    
    
    Percent
    
    
    Amount
    
    
    Percent(Dollars in thousands)Real Estate Loans:One-to-four family
    
    $
    101,968
    
    
    
    47.5
    
    
    $
    108,354
    
    
    
    47.7Multi-family
    
    
    5,074
    
    
    
    2.4
    
    
    
    5,421
    
    
    
    2.2Commercial
    
    
    68,991
    
    
    
    32.2
    
    
    
    72,689
    
    
    
    32.0Construction or development
    
    
    8,556
    
    
    
    4.0
    
    
    
    9,528
    
    
    
    4.2Total real estate loans
    
    
    184,589
    
    
    
    86.0
    
    
    
    195,992
    
    
    
    86.3Other loans:Consumer loans:Home equity
    
    
    17,286
    
    
    
    8.1
    
    
    
    18,174
    
    
    
    8.0Other
    
    
    4,036
    
    
    
    2.0
    
    
    
    4,706
    
    
    
    2.1Total consumer loans
    
    
    21,322
    
    
    
    10.0
    
    
    
    22,880
    
    
    
    10.1Commercial Business Loans
    
    
    8,627
    
    
    
    4.0
    
    
    
    8,266
    
    
    
    3.5Total other loans
    
    
    29,949
    
    
    
    14.0
    
    
    
    31,146
    
    
    
    13.6Total Loans
    
    
    214,538
    
    
    
    100.0
    %
    
    
    227,138
    
    
    
    100.0
    %Allowance for loan losses
    
    
    9,782
    
    
    
    
    
    
    
    5,783Less: Net deferred loan fees
    
    
    432
    
    
    
    
    
    
    
    480Total Loans, net
    
    $
    204,324
    
    
    
    
    
    
    $
    220,875
  12




---



##### Table of Contents



Three Months Ended
    
    
    Six Months EndedJune 30
    
    
    June 302010
    
    
    2009
    
    
    2010
    
    
    2009Beginning Balance
    
    $
    6,269
    
    
    $
    3,210
    
    
    $
    5,783
    
    
    $
    2,719Loans Charged off
    
    
    (3,575
    )
    
    
    (1,148
    )
    
    
    (5,011
    )
    
    
    (1,467
    )Recoveries
    
    
    49
    
    
    
    47
    
    
    
    126
    
    
    
    135Provision for loan losses
    
    
    7,040
    
    
    
    3,441
    
    
    
    8,885
    
    
    
    4,163Ending Balance
    
    $
    9,783
    
    
    $
    5,550
    
    
    $
    9,783
    
    
    $
    5,550
   Deposits
   Federal Home Loan Bank Advances
  13




---



##### Table of Contents



Equity
  RESULTS OF OPERATIONS
 Net Interest Income
     14




---



##### Table of Contents



Six Months Ended June 30,
    
    
    Six Months Ended June 30,2010
    
    
    2009Average
    
    
    Interest
    
    
    
    
    
    
    Average
    
    
    InterestOutstanding
    
    
    Earned/
    
    
    Yield/
    
    
    Outstanding
    
    
    Earned/
    
    
    Yield/Balance
    
    
    Paid
    
    
    Rate
    
    
    Balance
    
    
    Paid
    
    
    Rate(dollars in thousands)Fed Funds and overnight deposits
    
    $
    18,429
    
    
    $
    1
    
    
    
    0.01
    %
    
    $
    9,779
    
    
    $
    3
    
    
    
    0.06
    %Investment securities
    
    $
    16,886
    
    
    $
    252
    
    
    
    3.01
    
    
    
    14,654
    
    
    $
    261
    
    
    
    3.59Other securities
    
    $
    4,174
    
    
    $
    42
    
    
    
    2.03
    
    
    
    4,174
    
    
    $
    19
    
    
    
    0.92Loans receivable
    
    $
    223,174
    
    
    $
    6,428
    
    
    
    5.81
    
    
    
    246,448
    
    
    $
    7,827
    
    
    
    6.40Total earning assets
    
    $
    262,663
    
    
    $
    6,723
    
    
    
    5.16
    
    
    $
    275,055
    
    
    $
    8,110
    
    
    
    5.95Demand and NOW Accounts
    
    $
    39,843
    
    
    $
    57
    
    
    
    0.29
    
    
    $
    32,788
    
    
    $
    43
    
    
    
    0.26Money market accounts
    
    $
    55,668
    
    
    $
    262
    
    
    
    0.95
    
    
    $
    42,290
    
    
    $
    417
    
    
    
    1.99Savings accounts
    
    $
    21,285
    
    
    $
    28
    
    
    
    0.27
    
    
    $
    18,914
    
    
    $
    37
    
    
    
    0.39Certificates of deposit
    
    $
    96,213
    
    
    $
    1,503
    
    
    
    3.15
    
    
    $
    105,506
    
    
    $
    2,097
    
    
    
    4.01Federal Home Loan Bank Advances
    
    $
    44,518
    
    
    $
    992
    
    
    
    4.49
    
    
    $
    57,672
    
    
    $
    1,301
    
    
    
    4.55Fed Funds Purchased
    
    $
    5
    
    
    $
    
    
    
    
    0.00
    
    
    $
    
    
    
    $
    
    
    
    
    0.00Total interest bearing liabilities
    
    $
    257,532
    
    
    $
    2,842
    
    
    
    2.23
    
    
    $
    257,170
    
    
    $
    3,895
    
    
    
    3.05Net interest income
    
    
    
    
    
    $
    3,881
    
    
    
    
    
    
    
    
    
    
    $
    4,215Net interest spread
    
    
    
    
    
    
    
    
    
    
    2.94
    %
    
    
    
    
    
    
    
    
    
    
    2.89
    %Net interest margin
    
    
    
    
    
    
    
    
    
    
    2.96
    %
    
    
    
    
    
    
    
    
    
    
    3.06
    %
 Provision for Loan Losses
   15




---



##### Table of Contents



June 30, 2010
    
    

December 31, 2009(In thousands)Non-performing loans
    
    $
    23,620
    
    
    $
    15,570Real estate in judgement
    
    
    2,425
    
    
    
    1,126Foreclosed and repossessed assets
    
    
    1,233
    
    
    
    1,713Total non-performing assets
    
    $
    27,278
    
    
    $
    18,409Non-performing loans to total loans
    
    
    11.56
    %
    
    
    6.85
    %Non-performing assets to total assets
    
    
    10.35
    %
    
    
    6.50
    %Allowance for loan losses to non-performing loans
    
    
    41.40
    %
    
    
    37.14
    %Allowance for loan losses to net loans receivable
    
    
    4.79
    %
    
    
    2.54
    %
 Non-interest Income
     Non-interest Expense
   16




---



##### Table of Contents



Federal Income Tax Expense
  LIQUIDITY
       17




---



##### Table of Contents



CONTRACTUAL OBLIGATIONS AND OFF BALANCE SHEET ARRANGEMENTS
  Payments Due by PeriodLess than
    
    
    1-3
    
    
    3-5
    
    
    AfterTotal
    
    
    1 year
    
    
    years
    
    
    years
    
    
    5 years(Dollars in Thousands)Certificates of deposit
    
    $
    90,045
    
    
    $
    46,248
    
    
    $
    31,979
    
    
    $
    11,818
    
    
    $
    FHLB advances
    
    
    44,518
    
    
    
    19,168
    
    
    
    18,291
    
    
    
    7,059
    
    
    
    Total
    
    $
    134,563
    
    
    $
    65,416
    
    
    $
    50,270
    
    
    $
    18,877
    
    
    $
    
 Amount of commitment expiration per periodLess than
    
    
    1-3
    
    
    3-5
    
    
    AfterTotal
    
    
    1 year
    
    
    years
    
    
    years
    
    
    5 years(Dollars in Thousands)Commitments to grant loans
    
    $
    1,945
    
    
    $
    1,945
    
    
    $
    
    
    
    $
    
    
    
    $
    Unfunded commitments under HELOCs
    
    
    13,753
    
    
    
    1,461
    
    
    
    3,878
    
    
    
    2,671
    
    
    
    5,743Unfunded commitments under Contruction loans
    
    
    1,275
    
    
    
    665
    
    
    
    59
    
    
    
    
    
    
    
    551Unfunded commitments under
Commercial LOCs
    
    
    1,987
    
    
    
    1,216
    
    
    
    758
    
    
    
    
    
    
    
    13Letters of credit
    
    
    150
    
    
    
    150
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    19,110
    
    
    $
    5,437
    
    
    $
    4,695
    
    
    $
    2,671
    
    
    $
    6,307
  CAPITAL RESOURCES
    18




---



##### Table of Contents



RECENT DEVELOPMENTS
  
    
    The Bank is required to have and retain qualified management.
 
    
    The Bank is required to retain an independent third party to develop an analysis and
assessment of the Banks management needs for the purpose of providing qualified management
for the Bank.
 
    
    The board of directors is required to assume responsibility for the supervision of all
of the Banks activities.
 
    
    The Bank must increase the Banks level of Tier 1 capital as a percentage of total
assets to at least nine percent and its total capital as a percentage of risk-weighted
assets at a minimum of eleven percent.
 
    
    The Bank is required to charge off any loans classified as loss.
 
    
    The Bank may not extend credit to borrowers that have had loans with the Bank that were
classified substandard, doubtful or special mention without prior board approval.
 
    
    The Bank may not extend credit to borrowers that have had loans charged off or
classified as loss.
 
    
    The Bank is required to adopt a plan to reduce the Banks risk position in each asset in
excess of $250,000 which is more than sixty days delinquent or classified substandard or
doubtful.
 
    
    The Bank may not declare or pay any cash dividend without prior written consent of the
FDIC and OFIR.
 
    
    Prior to submission or publication of all Reports of Condition, the board is required to
review the adequacy of the Banks allowance for loan and lease losses.
 
    
    The Bank is required to adopt written lending and collection policies to provide
effective guidance and control over the Banks lending function.
 
    
    The Bank is required to implement revised comprehensive loan grading review procedures.
 
    
    Within sixty days of the Consent Order, the Bank is required to adopt a written profit
plan and comprehensive budget.
 
    
    Within sixty days of the Consent Order, the Bank is required to adopt a written plan to
manage concentrations of credit in a safe and sound manner.
 
    
    Within sixty days of the Consent Order, the Bank is required to formulate a written plan
to reduce the Banks reliance on brokered deposits.
 
    
    While the Consent Order is in effect, the Bank is required to prepare and submit
quarterly progress reports the FDIC and OFIR.
  19




---



##### Table of Contents



ITEM 3.
    
    QUANTITATIVE AND QUALITIVE DISCLOSURES ABOUT MARKET RISK
   
 ITEM 4T.
    
    CONTROLS AND PROCEDURES
   20




---



##### Table of Contents



PART II-OTHER INFORMATION
 
 Item 1.
    
    LEGAL PROCEEDINGS
  
 Item 1A.
    
    RISK FACTORS
  
 Item 2.
    
    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  
 Item 3.
    
    DEFAULTS UPON SENIOR SECURITIES
  
 Item 4.
    
    [RESERVED]
 
 Item 5.
    
    OTHER INFORMATION
  
 Item 6.
    
    EXHIBITS
  21




---



##### Table of Contents



SIGNATURES
  MONARCH COMMUNITY BANCORP, INC.Date: August 16, 2010
    By:
    /s/ Richard J. DeVriesRichard J. DeVriesPresident and Chief Executive OfficerDate: August 16, 2010
    And:
    /s/ Rebecca S. CrabillRebecca S. CrabillSenior Vice President, Chief Financial Officer 22




---



##### Table of Contents



INDEX TO EXHIBITS
 Exhibit No.
    
    Description of Exhibit10.1
    
    Consent Order (Incorporated by
reference from the Form 8-K filed on May 12, 2010).31.1
    
    Rule 13a-14(a) Certification of the Corporations President and Chief Executive Officer.31.2
    
    Rule 13a-14(a) Certification of the Corporations Chief Financial Officer.32
    
    Section 1350 Certification.
 23