##### 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 September 30, 2009
 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 
of incorporation or organization)
    
    (I.R.S. employer
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




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##### 



Monarch Community Bancorp, Inc.
 PART I  FINANCIAL INFORMATIONItem 1  Condensed Financial Statements:Condensed Consolidated Balance Sheets  September 30, 2009 and
December 31, 2008Condensed
Consolidated Statements of Income  Three and Nine Months
Ended September 30, 2009 and 2008
    
    
    2Condensed Consolidated Statements of Changes in Stockholders Equity 
Nine Months Ended September 30, 2009 and 2008
    
    
    3Condensed Consolidated Statements of Cash Flows  Nine Months Ended
September 30, 2009 and 2008
    
    
    4Notes to Condensed Consolidated Financial Statements
    
    
    5-9Item 2  Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    9-16Item 3  Quantitative and Qualitative Disclosures about Market Risk
    
    
    16Item 4T Controls and Procedures
    
    
    16PART II  OTHER INFORMATIONItem 1  Legal Proceedings
    
    
    17Item 1A  Risk Factors
    
    
    17Item 2  Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    17Item 3  Defaults Upon Senior Securities
    
    
    17Item 4  Submission of Matters to a Vote of Security Holders
    
    
    17Item 5  Other Information
    
    
    17Item 6  Exhibits
    
    
    17SIGNATURES
    
    
    18CERTIFICATIONS
    
    
    19-22




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##### Table of Contents



PART IFINANCIAL INFORMATION
 
 Item 1. CONDENSED FINANCIAL STATEMENTS
 
 Condensed Consolidated Balance Sheets
 (Unaudited)September 30,
    
    
    December 31,2009
    
    
    2008(Dollars in thousands,except per share data)AssetsCash and due from banks
    
    
    23,830
    
    
    
    5,595Federal Home Loan Bank overnight time and
other interest bearing deposits
    
    
    2,290
    
    
    
    677Total cash and cash equivalents
    
    
    26,120
    
    
    
    6,272Securities  Available for sale
    
    
    18,360
    
    
    
    8,916Securities  Held to maturity
    
    
    23
    
    
    
    37Other securities
    
    
    4,237
    
    
    
    4,237Loans held for sale
    
    
    787
    
    
    
    860Loans, net
    
    
    230,476
    
    
    
    247,542Foreclosed assets, net
    
    
    4,187
    
    
    
    2,076Premises and equipment
    
    
    4,345
    
    
    
    4,456Goodwill
    
    
    9,606
    
    
    
    9,606Core deposit intangible
    
    
    567
    
    
    
    681Other assets
    
    
    8,608
    
    
    
    7,124Total assets
    
    $
    307,316
    
    
    $
    291,807Liabilities and Stockholders EquityLiabilitiesDeposits:Non-interest bearing
    
    $
    14,047
    
    
    $
    13,883Interest bearing
    
    
    201,657
    
    
    
    178,273Total deposits
    
    
    215,704
    
    
    
    192,156Federal Home Loan Bank advances
    
    
    49,678
    
    
    
    60,178Fed Funds Purchased
    
    
    
    
    
    
    1,000Accrued expenses and other liabilities
    
    
    1,318
    
    
    
    2,203Total liabilities
    
    
    266,700
    
    
    
    255,537Stockholders 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 September 30, 2009
    
    
    6,737
    
    
    
    Common stock  $0.01 par value, 20,000,000 shares authorized, 2,045,006
shares issued and outstanding at September 30, 2009 and September 30, 2008
    
    
    20
    
    
    
    20Common stock warrants issued and outstanding 260,962 as of September 30, 2009
    
    
    56
    
    
    
    Additional paid-in capital
    
    
    21,196
    
    
    
    21,152Retained earnings
    
    
    13,175
    
    
    
    15,867Accumulated other comprehensive income
    
    
    210
    
    
    
    69Unearned compensation
    
    
    (778
    )
    
    
    (838
    )Total stockholders equity
    
    
    40,616
    
    
    
    36,270Total liabilities and stockholders equity
    
    $
    307,316
    
    
    $
    291,807




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##### Table of Contents



Three Months
    
    
    Three Months
    
    
    Nine Months
    
    
    Nine MonthsEnded
    
    
    Ended
    
    
    Ended
    
    
    EndedSeptember 30
    
    
    September 30,
    
    
    September 30
    
    
    September 302009
    
    
    2008
    
    
    2009
    
    
    2008(Dollars in thousands, except per share data)Interest IncomeLoans, including fees
    
    $
    3,770
    
    
    $
    4,136
    
    
    $
    11,598
    
    
    $
    12,283Investment securities
    
    
    199
    
    
    
    146
    
    
    
    479
    
    
    
    484Federal funds sold and overnight deposits
    
    
    1
    
    
    
    14
    
    
    
    4
    
    
    
    100Total interest income
    
    
    3,970
    
    
    
    4,296
    
    
    
    12,081
    
    
    
    12,867Interest ExpenseDeposits
    
    
    1,218
    
    
    
    1,421
    
    
    
    3,811
    
    
    
    4,458Federal Home Loan Bank advances
    
    
    582
    
    
    
    691
    
    
    
    1,882
    
    
    
    1,992Total interest expense
    
    
    1,800
    
    
    
    2,112
    
    
    
    5,693
    
    
    
    6,450Net Interest Income
    
    
    2,170
    
    
    
    2,184
    
    
    
    6,388
    
    
    
    6,417Provision for Loan Losses
    
    
    1,250
    
    
    
    731
    
    
    
    5,413
    
    
    
    1,488Net Interest Income After Provision for Loan Losses
    
    
    920
    
    
    
    1,453
    
    
    
    975
    
    
    
    4,929Non-interest IncomeFees and service charges
    
    
    579
    
    
    
    598
    
    
    
    1,643
    
    
    
    1,741Loan servicing fees
    
    
    116
    
    
    
    110
    
    
    
    333
    
    
    
    330Net gain on sale of loans
    
    
    370
    
    
    
    101
    
    
    
    1,828
    
    
    
    563Net gain (loss) on sale of securities
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    2Other income
    
    
    27
    
    
    
    89
    
    
    
    127
    
    
    
    204Total non-interest income
    
    
    1,092
    
    
    
    898
    
    
    
    3,933
    
    
    
    2,840Non-interest ExpenseSalaries and employee benefits
    
    
    1,190
    
    
    
    1,063
    
    
    
    3,468
    
    
    
    3,330Occupancy and equipment
    
    
    286
    
    
    
    262
    
    
    
    797
    
    
    
    779Data processing
    
    
    93
    
    
    
    185
    
    
    
    501
    
    
    
    575Amortization of mortgage servicing rights
    
    
    110
    
    
    
    91
    
    
    
    446
    
    
    
    321Professional services
    
    
    152
    
    
    
    108
    
    
    
    404
    
    
    
    301Amortization of core deposit intangible
    
    
    35
    
    
    
    43
    
    
    
    113
    
    
    
    139NOW account processing
    
    
    39
    
    
    
    40
    
    
    
    119
    
    
    
    129ATM/Debit card processing
    
    
    57
    
    
    
    52
    
    
    
    175
    
    
    
    149Foreclosed property expense
    
    
    144
    
    
    
    84
    
    
    
    253
    
    
    
    169Other general and administrative
    
    
    379
    
    
    
    330
    
    
    
    1,296
    
    
    
    1,008Total non-interest expense
    
    
    2,485
    
    
    
    2,258
    
    
    
    7,572
    
    
    
    6,900Income  Before income taxes
    
    
    (473
    )
    
    
    93
    
    
    
    (2,664
    )
    
    
    869Income Taxes
    
    
    (121
    )
    
    
    36
    
    
    
    (669
    )
    
    
    232Net Income
    
    $
    (352
    )
    
    $
    57
    
    
    $
    (1,995
    )
    
    $
    637Dividends and amortization of discount on
preferred stock
    
    $
    88
    
    
    $
    
    
    
    $
    227
    
    
    $
    Net Income available to common stock
    
    $
    (440
    )
    
    $
    57
    
    
    $
    (2,222
    )
    
    $
    637Earnings Per ShareBasic
    
    $
    (0.22
    )
    
    $
    0.03
    
    
    $
    (1.13
    )
    
    $
    0.30Diluted
    
    $
    (0.22
    )
    
    $
    0.03
    
    
    $
    (1.13
    )
    
    $
    0.30
  2




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##### Table of Contents



Preferred Stock
    
    
    Common Stock
    
    
    
    
    
    
    
    
    
    
    AccumulatedAdditional
    
    
    
    
    
    
    OtherNumber of

    
    
    
    
    
    

    Number of
    
    
    
    
    
    
    Paid in
    
    
    Retained
    
    
    Comprehensive
    
    
    UnearnedShares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    Capital
    
    
    Earnings
    
    
    Income (Loss)
    
    
    Compensation
    
    
    TotalBalance January 1 , 2008
    
    
    
    
    
    
    
    
    
    
    2,322
    
    
    
    23
    
    
    
    23,828
    
    
    
    16,341
    
    
    
    52
    
    
    
    (1,158
    )
    
    
    39,086Vesting of restricted shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    220
    
    
    
    220259,733 shares repurchased at an average
price $9.91/share
    
    
    
    
    
    
    
    
    
    
    (260
    )
    
    
    (3
    )
    
    
    (2,596
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,599
    )Stock option expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8Net Income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    637
    
    
    
    
    
    
    
    
    
    
    
    637Change in unrealized loss onsecurities available-for-sale, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2
    )
    
    
    
    
    
    
    (2
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    635Dividends paid ($0.27/share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (587
    )
    
    
    
    
    
    
    
    
    
    
    (587
    )Balance
September 30, 2008
    
    
    
    
    
    
    
    
    
    
    2,062
    
    
    
    20
    
    
    
    21,240
    
    
    
    16,391
    
    
    
    50
    
    
    
    (938
    )
    
    
    36,763Balance  January 1, 2009
    
    
    
    
    
    
    
    
    
    
    2,047
    
    
    $
    20
    
    
    $
    21,152
    
    
    $
    15,867
    
    
    $
    69
    
    
    $
    (838
    )
    
    $
    36,270Vesting of restricted shares
    
    
    
    
    
    
    
    
    
    
    (1
    )
    
    
    
    
    
    $
    (4
    )
    
    
    
    
    
    
    
    
    
    
    60
    
    
    
    56Issuance of preferred stock
    
    
    6785
    
    
    
    6785
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,785Discount on preferred stock
    
    
    
    
    
    
    (56
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (56
    )Common stock warrants
    
    
    261
    
    
    
    56
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    56Stock option expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    48
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    48Accretion of preferred stock disocunt
    
    
    
    
    
    
    8
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8
    )
    
    
    
    
    
    
    
    
    
    
    Comprehensive Income:Net Income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,995
    )
    
    
    
    
    
    
    
    
    
    
    (1,995
    )Change in unrealized loss on
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    141
    
    
    
    
    
    
    
    141securities available-for-sale, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,854
    )Dividends on preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (178
    )
    
    
    
    
    
    
    
    
    
    
    (178
    )Dividends paid ($0.25/share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (511
    )
    
    
    
    
    
    
    
    
    
    
    (511
    )Balance  September 30, 2009
    
    
    7,046
    
    
    
    6,793
    
    
    
    2,046
    
    
    
    20
    
    
    
    21,196
    
    
    
    13,175
    
    
    
    210
    
    
    
    (778
    )
    
    $
    40,616
 3




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##### Table of Contents



Nine Months EndedSeptember, 302009
    
    
    2008(Dollars in thousands)Cash Flows From Operating ActivitiesNet Income
    
    
    (1,995
    )
    
    $
    637Adjustments to reconcile net income to net cash from operating activitiesDepreciation and amortization
    
    
    1,006
    
    
    
    834Provision for loan losses
    
    
    5,413
    
    
    
    1,488Stock option expense
    
    
    48
    
    
    
    8Gain on sale of foreclosed assets
    
    
    47
    
    
    
    (9
    )Mortgage loans originated for sale
    
    
    (80,110
    )
    
    
    (25,617
    )Proceeds from sale of mortgage loans
    
    
    82,011
    
    
    
    25,832Gain on sale of mortgage loans
    
    
    (1,828
    )
    
    
    (563
    )(Gain) Loss on sale of available for sale securities
    
    
    (2
    )
    
    
    (2
    )Earned stock compensation
    
    
    60
    
    
    
    220Net change in:Deferred loan fees
    
    
    80
    
    
    
    (34
    )Accrued interest receivable
    
    
    (61
    )
    
    
    76Other assets
    
    
    (1,871
    )
    
    
    483Accrued expenses and other liabilities
    
    
    (956
    )
    
    
    (194
    )Net cash provided by operating activities
    
    
    1,842
    
    
    
    3,159Cash Flows From Investing ActivitiesActivity in available-for-sale securities:Purchases
    
    
    (17,816
    )
    
    
    (2,268
    )Proceeds from maturities of securities
    
    
    8,489
    
    
    
    4,401Activity in held-to-maturity securities:Purchases
    
    
    
    
    
    
    (7
    )Proceeds from maturities of securities
    
    
    14
    
    
    
    208Loan originations and principal collections, net
    
    
    8,856
    
    
    
    (20,036
    )Proceeds from sale of foreclosed assets
    
    
    559
    
    
    
    1,619Proceeds from sale of premises and equipment
    
    
    
    
    
    
    Purchase of premises and equipment
    
    
    (238
    )
    
    
    (212
    )Net cash provided by (used in) investing activities
    
    
    (136
    )
    
    
    (16,295
    )Cash Flows From Financing ActivitiesNet increase in deposits
    
    
    23,548
    
    
    
    13,257Repurchase of common stock
    
    
    
    
    
    
    (2,599
    )Issuance of preferred stock, net
    
    
    6,734
    
    
    
    Issuance of Warrants
    
    
    56
    
    
    
    Cash Dividends-preferred stock
    
    
    (178
    )
    
    
    Cash Dividends-common stock
    
    
    (511
    )
    
    
    (587
    )Amortization of common stock warrants
    
    
    (7
    )
    
    
    Proceeds from FHLB advances
    
    
    
    
    
    
    38,500Repayment of FHLB advances
    
    
    (10,500
    )
    
    
    (40,500
    )Repayment of Fed Funds purchased
    
    
    (1,000
    )
    
    
    Net cash provided by financing activities
    
    
    18,142
    
    
    
    8,071Net Increase (Decrease) in Cash and Cash Equivalents
    
    
    19,848
    
    
    
    (5,065
    )Cash and Cash Equivalents  Beginning
    
    
    6,272
    
    
    
    13,842Cash and Cash Equivalents End
    
    $
    26,120
    
    
    $
    8,777Supplemental Cash Flow Information:Cash paid for:Interest
    
    
    5,757
    
    
    
    6,492Income taxes
    
    
    236
    
    
    
    385Noncash investing activities:Loans transferred to foreclosed assets
    
    
    2,717
    
    
    
    1,801
  4




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##### 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
    5




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##### Table of Contents



RECLASSIFICATIONS
  EARNINGS PER SHARE
  Three Months
    
    
    Three Months
    
    
    Nine Months
    
    
    Nine MonthsEnded
    
    
    Ended
    
    
    Ended
    
    
    EndedSeptember 30, 2009
    
    
    September 30, 2008
    
    
    September 30, 2009
    
    
    September 30, 2008Basic earnings per shareNumerator:Net income
    
    $
    (352
    )
    
    $
    57
    
    
    $
    (1,995
    )
    
    $
    637Dividends and amortization of discount on preferred stock
    
    $
    88
    
    
    $
    
    
    
    $
    227
    
    
    $
    Net Income available to common stock
    
    $
    (440
    )
    
    $
    57
    
    
    $
    (2,222
    )
    
    $
    637Denominator:Weighted average common shares outstanding
    
    
    2,046
    
    
    
    2,097
    
    
    
    2,046
    
    
    
    2,196Less: Average unallocated ESOP shares
    
    
    (74
    )
    
    
    (83
    )
    
    
    (74
    )
    
    
    (83
    )Less: Average non-vested RRP shares
    
    
    (6
    )
    
    
    (11
    )
    
    
    (7
    )
    
    
    (14
    )Weighted average common shares outstanding
for basic earnings per share
    
    
    1,966
    
    
    
    2,003
    
    
    
    1,965
    
    
    
    2,099Basic earnings per share
    
    $
    (0.22
    )
    
    $
    0.03
    
    
    $
    (1.13
    )
    
    $
    0.30Diluted earnings per shareNumerator:Net Income available to common stock
    
    $
    (440
    )
    
    $
    57
    
    
    $
    (2,222
    )
    
    $
    637Denominator:Weighted average common shares outstanding
for basic earnings per share
    
    
    1,966
    
    
    
    2,003
    
    
    
    1,965
    
    
    
    2,099Add: Dilutive effects of restricted stock,
stock options and warrants
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Weighted average common shares and dilutive
potential common shares outstanding
    
    
    1,966
    
    
    
    2,003
    
    
    
    1,965
    
    
    
    2,099Diluted earnings per share
    
    $
    (0.22
    )
    
    $
    0.03
    
    
    $
    (1.13
    )
    
    $
    0.30
 RECENT ACCOUNTING PRONOUNCEMENTS
   6




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FAIR VALUE MEASUREMENTS
      SignificantOtherQuoted Prices in Active
    
    Observable
    
    SignificantMarkets for Identical
    
    Inputs (Level
    
    Unobservable
    
    Balance atAssets (Level 1)
    
    2)
    
    Inputs (Level 3)
    
    September 30, 2009AssetsInvestment securities- available  for  sale
    
    $
    6,352
    
    
    $
    12,008
    
    
    $
    
    
    
    $
    18,360
   Balance at
    
    Quoted Prices in Active
    
    Significant Other
    
    Significant
    
    Change in Fair Value for theSeptember
    
    Markets for Identical
    
    Observable Inputs
    
    Unobservable Inputs
    
    quarter ended September 30,30, 2009
    
    Assets (Level 1)
    
    (Level 2)
    
    (Level 3)
    
    2009Impaired Loans
accounted for under
FASB ASC 310
    
    
    11,290
    
    
    
    
    
    
    
    
    
    
    
    9,455
    
    
    
    2,487Foreclosed Assets
    
    
    1,615
    
    
    
    
    
    
    
    
    
    
    
    1,615
    
    
    
    953
 7




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##### Table of Contents



Fair Value of Financial Instruments
   Securities
 Mortgage Loans Held for Sale
 Loans Receivable
 Deposit Liabilities
 Federal Home Loan Bank Advances
  8




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##### Table of Contents



September
    
    December 31,2009
    
    2008Carrying Amount
    
    Fair Value
    
    Carrying Amount
    
    Fair ValueAssets:Cash and cash equivalents
    
    $
    26,120
    
    
    $
    26,120
    
    
    $
    6,272
    
    
    $
    6,272Securities  Held to maturity
    
    
    23
    
    
    
    23
    
    
    
    37
    
    
    
    37Securities  Available for sale
    
    
    18,360
    
    
    
    18,360
    
    
    
    8,916
    
    
    
    8,916Other securities
    
    
    4,237
    
    
    
    4,237
    
    
    
    4,237
    
    
    
    4,237Loans held for sale
    
    
    787
    
    
    
    1,237
    
    
    
    860
    
    
    
    864Net loans
    
    
    230,476
    
    
    
    239,342
    
    
    
    247,542
    
    
    
    250,068Accrued interest
and late charges receivable
    
    
    1,361
    
    
    
    1,361
    
    
    
    1,300
    
    
    
    1,300Liabilities:Federal Home Loan Bank
advances
    
    
    49,678
    
    
    
    53,802
    
    
    
    60,178
    
    
    
    63,252Fed funds purchased
    
    
    
    
    
    
    
    
    
    
    1,000
    
    
    
    1,000Deposits
    
    
    215,704
    
    
    
    217,773
    
    
    
    192,156
    
    
    
    192,045Accrued interest payable
    
    
    426
    
    
    
    426
    
    
    
    526
    
    
    
    526
 
 ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
   FORWARD-LOOKING STATEMENTS
   CRITICAL ACCOUNTING POLICIES
  Allowance for Loan Losses
 9




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##### Table of Contents



Foreclosed Assets .
 Goodwill and Other Intangible Assets
  Income Taxes 
 FINANCIAL CONDITION
 Assets
  Securities
  Loans
  10




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##### Table of Contents



September 30, 2009
    
    
    December 31, 2008Amount
    
    
    Percent
    
    
    Amount
    
    
    Percent(Dollars in thousands)Real Estate Loans:One-to-four family
    
    $
    111,102
    
    
    
    46.9
    
    
    $
    124,855
    
    
    
    49.8Multi-family
    
    
    5,455
    
    
    
    2.3
    
    
    
    5,728
    
    
    
    2.2Commercial
    
    
    79,667
    
    
    
    33.6
    
    
    
    75,730
    
    
    
    30.2Construction or development
    
    
    8,421
    
    
    
    3.6
    
    
    
    9,499
    
    
    
    3.8Total real estate loans
    
    
    204,645
    
    
    
    86.4
    
    
    
    215,812
    
    
    
    86.0Other loans:Consumer loans:Home equity
    
    
    18,717
    
    
    
    7.9
    
    
    
    20,677
    
    
    
    8.2Other
    
    
    4,862
    
    
    
    2.0
    
    
    
    5,737
    
    
    
    2.3Total consumer loans
    
    
    23,579
    
    
    
    10.0
    
    
    
    26,414
    
    
    
    10.5Commercial Business Loans
    
    
    8,731
    
    
    
    3.7
    
    
    
    8,609
    
    
    
    3.5Total other loans
    
    
    32,310
    
    
    
    13.7
    
    
    
    35,023
    
    
    
    14.0Total Loans
    
    
    236,955
    
    
    
    100.0
    %
    
    
    250,835
    
    
    
    100.0
    %Allowance for loan losses
    
    
    5,986
    
    
    
    
    
    
    
    2,719Less: Net deferred loan fees
    
    
    493
    
    
    
    
    
    
    
    574Total Loans, net
    
    $
    230,476
    
    
    
    
    
    
    $
    247,542
   Deposits
  Federal Home Loan Bank Advances
  11




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Equity
  RESULTS OF OPERATIONS
 Net Interest Income
     12




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##### Table of Contents



Nine Months Ended September 30,
    
    
    Nine Months Ended September 30,2009
    
    
    2008Average
    
    
    Interest
    
    
    
    
    
    
    Average
    
    
    InterestOutstanding
    
    
    Earned/
    
    
    Yield/
    
    
    Outstanding
    
    
    Earned/
    
    
    Yield/Balance
    
    
    Paid
    
    
    Rate
    
    
    Balance
    
    
    Paid
    
    
    Rate(dollars in thousands)
    
    
    (dollars in thousands)Fed Funds and overnight deposits
    
    $
    9,805
    
    
    $
    4
    
    
    
    0.05
    %
    
    $
    8,905
    
    
    $
    100
    
    
    
    1.50
    %Investment securities
    
    
    16,485
    
    
    
    426
    
    
    
    3.46
    
    
    
    10,373
    
    
    
    334
    
    
    
    4.29Other securities
    
    
    4,174
    
    
    
    53
    
    
    
    1.70
    
    
    
    4,174
    
    
    
    150
    
    
    
    4.79Loans receivable
    
    
    244,355
    
    
    
    11,598
    
    
    
    6.35
    
    
    
    236,314
    
    
    
    12,283
    
    
    
    6.92Total earning assets
    
    $
    274,819
    
    
    $
    12,081
    
    
    
    5.88
    
    
    $
    259,766
    
    
    $
    12,867
    
    
    
    6.60Demand and NOW Accounts
    
    $
    33,297
    
    
    $
    68
    
    
    
    0.27
    
    
    $
    32,270
    
    
    $
    72
    
    
    
    0.30Money market accounts
    
    
    44,999
    
    
    
    610
    
    
    
    1.81
    
    
    
    34,175
    
    
    
    774
    
    
    
    3.02Savings accounts
    
    
    19,011
    
    
    
    53
    
    
    
    0.37
    
    
    
    19,267
    
    
    
    61
    
    
    
    0.42Certificates of deposit
    
    
    105,314
    
    
    
    3,080
    
    
    
    3.91
    
    
    
    104,036
    
    
    
    3,551
    
    
    
    4.55Fed Funds Purchased
    
    
    
    
    
    
    
    
    
    
    0.00
    
    
    
    
    
    
    
    
    
    
    
    0.00Federal Home Loan Bank Advances
    
    
    55,763
    
    
    
    1,882
    
    
    
    4.51
    
    
    
    54,246
    
    
    
    1,992
    
    
    
    4.89Total interest bearing liabilities
    
    $
    258,384
    
    
    
    5,693
    
    
    
    2.95
    
    
    $
    243,994
    
    
    
    6,450
    
    
    
    3.52Net interest income
    
    
    
    
    
    $
    6,388
    
    
    
    
    
    
    
    
    
    
    $
    6,417Net interest spread
    
    
    
    
    
    
    
    
    
    
    2.93
    %
    
    
    
    
    
    
    
    
    
    
    3.08
    %Net interest margin
    
    
    
    
    
    
    
    
    
    
    3.10
    %
    
    
    
    
    
    
    
    
    
    
    3.29
    %
 Provision for Loan Losses
    September 30, 2009
    
    
    December 31, 2008(In thousands)Non-performing loans
    
    $
    9,445
    
    
    $
    2,571Real estate in judgement
    
    
    2,571
    
    
    
    1,327Foreclosed and repossessed assets
    
    
    1,615
    
    
    
    749Total non-performing assets
    
    $
    13,631
    
    
    $
    4,647Non-performing loans to total loans
    
    
    3.98
    %
    
    
    1.04
    %Non-performing assets to total assets
    
    
    4.44
    %
    
    
    1.59
    %Allowance for loan losses to non-performing loans
    
    
    63.40
    %
    
    
    105.76
    %Allowance for loan losses to net loans receivable
    
    
    2.52
    %
    
    
    1.10
    %
  Non-interest Income
  13




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##### Table of Contents



Non-interest Expense
   Federal Income Tax Expense
   LIQUIDITY
  14




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##### Table of Contents



CONTRACTUAL OBLIGATIONS AND OFF BALANCE SHEET ARRANGEMENTS
  Contractual Obligations
 Payments Due by PeriodLess than
    
    
    1-3
    
    
    3-5
    
    
    AfterTotal
    
    
    1 year
    
    
    years
    
    
    years
    
    
    5 years(Dollars in Thousands)Certificates of deposit
    
    $
    104,693
    
    
    $
    57,604
    
    
    $
    29,846
    
    
    $
    16,677
    
    
    $
    566FHLB advances
    
    
    49,678
    
    
    
    5,000
    
    
    
    37,000
    
    
    
    7,678
    
    
    
    Total
    
    $
    154,371
    
    
    $
    62,604
    
    
    $
    66,846
    
    
    $
    24,355
    
    
    $
    566
 Other Commitments
 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
    
    $
    2,494
    
    
    $
    2,494
    
    
    $
    
    
    
    $
    
    
    
    $
    Unfunded commitments under HELOCs
    
    
    14,882
    
    
    
    1,572
    
    
    
    3,712
    
    
    
    2,665
    
    
    
    6,933Unfunded commitments under Commercial LOCs
    
    
    1,954
    
    
    
    546
    
    
    
    896
    
    
    
    490
    
    
    
    22Letters of credit
    
    
    172
    
    
    
    172
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    19,502
    
    
    $
    4,784
    
    
    $
    4,608
    
    
    $
    3,155
    
    
    $
    6,955
  15




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##### Table of Contents



CAPITAL RESOURCES
  
 ITEM 3. QUANTITATIVE AND QUALITIVE DISCLOSURES ABOUT MARKET RISK
   
 ITEM 4T. CONTROLS AND PROCEDURES
   16




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##### 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. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  
 Item 5. OTHER INFORMATION
  
 Item 6. EXHIBITS
  17




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##### Table of Contents



SIGNATURES
  MONARCH COMMUNITY BANCORP, INC.Date: November 14, 2009
    By:
    /s/ Donald L. DenneyDonald L. DenneyPresident and Chief Executive OfficerDate: November 14, 2009
    And:
    /s/ Rebecca S. CrabillRebecca S. CrabillSenior Vice President, Chief Financial Officer 18




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##### Table of Contents



INDEX TO EXHIBITS
 Exhibit No.
    
    Description of Exhibit10.1
    
    Amendment No. 2 to Donald L. Denny Employment Agreement31.1
    
    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.
 19