##### 



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-K
 (Mark One)
 þ
    
    ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2007
 Commission file number 0-49814
 MONARCH COMMUNITY BANCORP, INC.
  Maryland
(State or other jurisdiction of 
incorporation or organization)
    
    04-3627031
(I.R.S. Employer
Identification No.)375 North Willowbrook Road, Coldwater, Michigan
(Address of principal executive offices)
    
    49036
(Zip Code)
 : (517) 278-4566   Common Stock, par value $.01 per share registered on NASDAQ Capital Market
 o þ
 Yes o   No þ
 þ o
 þ
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company þ
 o þ
   DOCUMENTS INCORPORATED BY REFERENCE




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##### 



PART I
 ITEM 1. Business
 General
         2




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##### 



Forward-Looking Statements
  Employees
  Market Area
   Lending Activities
 General.
  3




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##### 



Loan Portfolio Composition .
 December 31,2007
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003(Dollars in thousands)Real Estate Loans:One-to-four family
    
    $
    126,780
    
    
    $
    140,374
    
    
    $
    139,636
    
    
    $
    141,251
    
    
    $
    93,056Multi-family
    
    
    5,594
    
    
    
    7,511
    
    
    
    3,534
    
    
    
    4,042
    
    
    
    485Commercial
    
    
    56,714
    
    
    
    41,079
    
    
    
    34,721
    
    
    
    42,746
    
    
    
    22,728Construction or development
    
    
    6,409
    
    
    
    9,529
    
    
    
    5,415
    
    
    
    8,853
    
    
    
    9,451Total real estate loans
    
    
    195,497
    
    
    
    198,493
    
    
    
    183,306
    
    
    
    196,892
    
    
    
    125,720Other Loans:Consumer loans:Home equity
    
    
    20,430
    
    
    
    19,077
    
    
    
    16,170
    
    
    
    14,234
    
    
    
    9,613Other
    
    
    7,014
    
    
    
    9,087
    
    
    
    10,822
    
    
    
    10,151
    
    
    
    6,271Total consumer loans
    
    
    27,444
    
    
    
    28,164
    
    
    
    26,992
    
    
    
    24,385
    
    
    
    15,884Commercial Business Loans
    
    
    4,228
    
    
    
    6,205
    
    
    
    6,364
    
    
    
    5,330
    
    
    
    2,695Total other loans
    
    
    31,672
    
    
    
    34,369
    
    
    
    33,356
    
    
    
    29,715
    
    
    
    18,579Total loans
    
    
    227,169
    
    
    
    232,862
    
    
    
    216,662
    
    
    
    226,607
    
    
    
    144,299Less:Allowance for loan losses
    
    
    1,824
    
    
    
    2,024
    
    
    
    2,925
    
    
    
    6,420
    
    
    
    2,618Net deferred loan fees
    
    
    548
    
    
    
    591
    
    
    
    640
    
    
    
    808
    
    
    
    454Loans in process
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6
    
    
    
    2Total loans, net
    
    $
    224,797
    
    
    $
    230,247
    
    
    $
    213,097
    
    
    $
    219,373
    
    
    $
    141,225
 4




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##### 



December 31, 2007
    
    
    December 31, 2006
    
    
    December 31, 2005Amount
    
    
    Percent
    
    
    Amount
    
    
    Percent
    
    
    Amount
    
    
    Percent(Dollars in thousands)Fixed-Rate LoansReal Estate Loans:One-to-four family
    
    $
    83,386
    
    
    
    36.7
    %
    
    $
    87,568
    
    
    
    37.6
    %
    
    $
    79,858
    
    
    
    36.9
    %Multi-family
    
    
    5,397
    
    
    
    2.4
    %
    
    
    5,578
    
    
    
    2.4
    %
    
    
    1,906
    
    
    
    0.9
    %Commercial
    
    
    36,723
    
    
    
    16.2
    %
    
    
    21,081
    
    
    
    9.1
    %
    
    
    11,946
    
    
    
    5.5
    %Construction or development
    
    
    5,537
    
    
    
    2.4
    %
    
    
    4,908
    
    
    
    2.1
    %
    
    
    3,579
    
    
    
    1.7
    %Total real estate loans
    
    
    131,043
    
    
    
    57.7
    %
    
    
    119,135
    
    
    
    51.2
    %
    
    
    97,289
    
    
    
    45.0
    %Consumer
    
    
    21,354
    
    
    
    9.4
    %
    
    
    20,687
    
    
    
    8.9
    %
    
    
    16,940
    
    
    
    7.7
    %Commercial Business
    
    
    2,932
    
    
    
    1.3
    %
    
    
    4,544
    
    
    
    1.9
    %
    
    
    4,357
    
    
    
    2.0
    %Total fixed-rate loans
    
    
    155,329
    
    
    
    68.4
    %
    
    
    144,366
    
    
    
    62.0
    %
    
    
    118,586
    
    
    
    54.7
    %Adjustable-Rate LoansReal Estate Loans:One-to-four family
    
    $
    43,394
    
    
    
    18.3
    %
    
    $
    52,805
    
    
    
    22.7
    %
    
    $
    58,615
    
    
    
    27.1
    %Multi-family
    
    
    197
    
    
    
    0.1
    %
    
    
    1,932
    
    
    
    0.8
    %
    
    
    1,628
    
    
    
    0.7
    %Commercial
    
    
    19,991
    
    
    
    8.8
    %
    
    
    19,999
    
    
    
    8.6
    %
    
    
    21,216
    
    
    
    9.8
    %Construction or development
    
    
    872
    
    
    
    0.3
    %
    
    
    4,622
    
    
    
    2.0
    %
    
    
    1,836
    
    
    
    0.8
    %Total real estate loans
    
    
    64,454
    
    
    
    27.5
    %
    
    
    79,358
    
    
    
    34.1
    %
    
    
    83,295
    
    
    
    38.4
    %Consumer
    
    
    6,090
    
    
    
    2.7
    %
    
    
    7,477
    
    
    
    3.2
    %
    
    
    10,052
    
    
    
    4.6
    %Commercial Business
    
    
    1,296
    
    
    
    0.6
    %
    
    
    1,661
    
    
    
    0.7
    %
    
    
    4,729
    
    
    
    2.3
    %Total adjustable-rate loans
    
    
    71,840
    
    
    
    31.6
    %
    
    
    88,496
    
    
    
    38.0
    %
    
    
    98,076
    
    
    
    45.3
    %Total loans
    
    
    227,169
    
    
    
    100.0
    %
    
    
    232,862
    
    
    
    100.0
    %
    
    
    216,662
    
    
    
    100.0
    %Less:Allowance for loan losses
    
    
    1,824
    
    
    
    
    
    
    
    2,024
    
    
    
    
    
    
    
    2,925Net deferred loan fees
    
    
    548
    
    
    
    
    
    
    
    591
    
    
    
    
    
    
    
    640Loans in process
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total Loans, net
    
    $
    224,797
    
    
    
    
    
    
    $
    230,247
    
    
    
    
    
    
    $
    213,097
 5




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##### 



Real EstateMulti-family and
    
    Construction orOne-to-Four Family
    
    Commercial
    
    Development
    
    Consumer
    
    Commercial Business
    
    TotalWeighted
    
    
    
    
    
    Weighted
    
    
    
    
    
    Weighted
    
    
    
    
    
    Weighted
    
    
    
    
    
    Weighted
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    Average
    
    
    
    
    
    Average
    
    
    
    
    
    Average
    
    
    
    
    
    Average
    
    
    
    
    
    AverageAmount
    
    Rate
    
    Amount
    
    Rate
    
    Amount
    
    Rate
    
    Amount
    
    Rate
    
    Amount
    
    Rate
    
    Amount
    
    Rate(Dollars in Thousands)Due to Mature:One year or less (1)
    
    
    5,793
    
    
    
    6.79
    %
    
    
    2,396
    
    
    
    7.37
    %
    
    
    5,465
    
    
    
    6.96
    %
    
    
    1,644
    
    
    
    7.90
    %
    
    
    741
    
    
    
    7.71
    %
    
    
    16,039
    
    
    
    7.09
    %After one year
through five years
    
    
    22,702
    
    
    
    6.93
    %
    
    
    37,547
    
    
    
    7.10
    %
    
    
    49
    
    
    
    7.40
    %
    
    
    15,270
    
    
    
    8.08
    %
    
    
    892
    
    
    
    8.80
    %
    
    
    76,460
    
    
    
    7.27
    %After five years
    
    
    98,285
    
    
    
    6.94
    %
    
    
    22,365
    
    
    
    7.41
    %
    
    
    895
    
    
    
    7.31
    %
    
    
    10,530
    
    
    
    7.38
    %
    
    
    2,595
    
    
    
    7.79
    %
    
    
    134,670
    
    
    
    7.07
    %
 
 (1)
    
    Includes demand loans.  6




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##### 



One-to-Four Family Residential Real Estate Lending.
       7




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##### 



Multi-family and Commercial Real Estate Lending
     Construction and Land Development Lending
 8




---



##### 



Consumer and Other Lending
   Commercial Business Lending
   9




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##### 



Loan Originations, Purchases, Sales and Repayments
   10




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##### 



Years EndedDecember 31,2007
    
    
    2006(Dollars in thousands)Originations by type:Real Estate:One-to-four family
    
    $
    44,652
    
    
    $
    53,645Multi-family
    
    
    608
    
    
    
    4,112Commercial
    
    
    26,840
    
    
    
    9,174Construction or development
    
    
    11,617
    
    
    
    16,312Total real estate loans
    
    
    83,717
    
    
    
    83,243Consumer Loans:Home Equity
    
    
    7,407
    
    
    
    12,603Other
    
    
    831
    
    
    
    2,481Commercial business
    
    
    2,168
    
    
    
    6,169Total loans originated
    
    
    94,123
    
    
    
    104,496Sales and Repayments:One-to-four family loans sold
    
    
    28,739
    
    
    
    16,191Commercial real estate loans sold
    
    
    1,200
    
    
    
    899Principal repayments
    
    
    69,906
    
    
    
    68,310Total reductions
    
    
    99,845
    
    
    
    85,400Increase (decrease) in other items, net
    
    
    243
    
    
    
    1,946Net increase (decrease)
    
    $
    (5,965
    )
    
    $
    17,150
 Asset Quality
  11




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##### 



Delinquent Loans.
 December 31, 2007Loans Delinquent For:60-89 Days
    
    
    90 Days and Over
    
    
    Total Delinquent LoansPercent of
    
    
    
    
    
    
    
    
    
    
    Percent of
    
    
    
    
    
    
    
    
    
    
    Percent ofLoan
    
    
    
    
    
    
    
    
    
    
    Loan
    
    
    
    
    
    
    
    
    
    
    LoanNumber
    
    
    Amount
    
    
    Category
    
    
    Number
    
    
    Amount
    
    
    Category
    
    
    Number
    
    
    Amount
    
    
    Category(Dollars in Thousands)Real EstateOne-to-four family
    
    
    31
    
    
    $
    1,457
    
    
    
    1.15
    %
    
    
    12
    
    
    $
    607
    
    
    
    0.48
    %
    
    
    43
    
    
    $
    2,064
    
    
    
    1.63
    %Multi-family
    
    
    
    
    
    
    
    
    
    
    0.00
    %
    
    
    
    
    
    
    
    
    
    
    0.00
    %
    
    
    
    
    
    
    
    
    
    
    0.00
    %Commercial
    
    
    1
    
    
    
    40
    
    
    
    0.07
    %
    
    
    1
    
    
    
    87
    
    
    
    0.15
    %
    
    
    2
    
    
    
    127
    
    
    
    0.22
    %Construction or development
    
    
    
    
    
    
    
    
    
    
    0.00
    %
    
    
    1
    
    
    
    153
    
    
    
    2.39
    %
    
    
    1
    
    
    
    153
    
    
    
    2.39
    %Total real estate loans
    
    
    32
    
    
    $
    1,497
    
    
    
    0.77
    %
    
    
    14
    
    
    $
    847
    
    
    
    0.43
    %
    
    
    46
    
    
    $
    2,344
    
    
    
    1.20
    %Consumer
    
    
    7
    
    
    
    87
    
    
    
    0.32
    %
    
    
    
    
    
    
    
    
    
    
    0.00
    %
    
    
    7
    
    
    
    87
    
    
    
    0.32
    %Commercial Business
    
    
    
    
    
    
    
    
    
    
    0.00
    %
    
    
    1
    
    
    
    18
    
    
    
    0.43
    %
    
    
    1
    
    
    
    18
    
    
    
    0.43
    %Total
    
    
    39
    
    
    $
    1,584
    
    
    
    0.70
    %
    
    
    15
    
    
    $
    865
    
    
    
    0.38
    %
    
    
    54
    
    
    $
    2,449
    
    
    
    1.08
    %
 December 31, 2006Loans Delinquent For:60-89 Days
    
    
    90 Days and Over
    
    
    Total Delinquent LoansPercent of
    
    
    
    
    
    
    
    
    
    
    Percent of
    
    
    
    
    
    
    
    
    
    
    Percent ofLoan
    
    
    
    
    
    
    
    
    
    
    Loan
    
    
    
    
    
    
    
    
    
    
    LoanNumber
    
    
    Amount
    
    
    Category
    
    
    Number
    
    
    Amount
    
    
    Category
    
    
    Number
    
    
    Amount
    
    
    Category(Dollars in Thousands)Real EstateOne-to-four family
    
    
    27
    
    
    $
    1,740
    
    
    
    1.24
    %
    
    
    2
    
    
    $
    143
    
    
    
    0.10
    %
    
    
    29
    
    
    $
    1,883
    
    
    
    1.34
    %Multi-family
    
    
    
    
    
    
    
    
    
    
    0.00
    %
    
    
    
    
    
    
    
    
    
    
    0.00
    %
    
    
    
    
    
    
    
    
    
    
    0.00
    %Commercial
    
    
    3
    
    
    
    658
    
    
    
    1.60
    %
    
    
    
    
    
    
    
    
    
    
    0.00
    %
    
    
    3
    
    
    
    658
    
    
    
    1.60
    %Construction or development
    
    
    1
    
    
    
    32
    
    
    
    0.34
    %
    
    
    
    
    
    
    
    
    
    
    0.00
    %
    
    
    1
    
    
    
    32
    
    
    
    0.34
    %Total real estate loans
    
    
    31
    
    
    $
    2,430
    
    
    
    1.22
    %
    
    
    2
    
    
    $
    143
    
    
    
    0.07
    %
    
    
    33
    
    
    $
    2,573
    
    
    
    1.29
    %Consumer
    
    
    13
    
    
    
    151
    
    
    
    0.54
    %
    
    
    2
    
    
    
    15
    
    
    
    0.05
    %
    
    
    15
    
    
    
    166
    
    
    
    0.59
    %Commercial Business
    
    
    1
    
    
    
    5
    
    
    
    0.08
    %
    
    
    
    
    
    
    
    
    
    
    0.00
    %
    
    
    1
    
    
    
    5
    
    
    
    0.08
    %Total
    
    
    45
    
    
    $
    2,586
    
    
    
    1.11
    %
    
    
    4
    
    
    $
    158
    
    
    
    0.07
    %
    
    
    49
    
    
    $
    2,744
    
    
    
    1.18
    %
 12




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##### 



Non-performing Assets.
 December 31,2007
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003(Dollars in Thousands)Non-accruing loans:One-to-four family
    
    
    607
    
    
    $
    408
    
    
    $
    406
    
    
    $
    1,866
    
    
    $
    908Multi-family
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    318Commercial real estate
    
    
    
    
    
    
    
    
    
    
    397
    
    
    
    1,708
    
    
    
    1,558Construction or development
    
    
    153
    
    
    
    
    
    
    
    
    
    
    
    220
    
    
    
    645Consumer
    
    
    
    
    
    
    60
    
    
    
    8
    
    
    
    93
    
    
    
    101Commercial business
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    344
    
    
    
    89Total
    
    
    760
    
    
    
    468
    
    
    
    811
    
    
    
    4,231
    
    
    
    3,619Accruing loans delinquent 90 days or more:One-to-four family
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Multi-family
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Commercial real estate
    
    
    87
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Construction or development
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Consumer
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    127Commercial business
    
    
    18
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    105
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    127Foreclosed assets:One-to-four family (1)
    
    
    1,453
    
    
    
    1,580
    
    
    
    2,239
    
    
    
    1,560
    
    
    
    2,177Multi-family
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Commercial real estate
    
    
    62
    
    
    
    
    
    
    
    480
    
    
    
    400
    
    
    
    Construction or development
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Consumer
    
    
    
    
    
    
    100
    
    
    
    22
    
    
    
    9
    
    
    
    47Commercial business
    
    
    
    
    
    
    
    
    
    
    70
    
    
    
    
    
    
    
    Total
    
    
    1,515
    
    
    
    1,680
    
    
    
    2,811
    
    
    
    1,969
    
    
    
    2,224Total non-performing assets
    
    $
    2,380
    
    
    $
    2,148
    
    
    $
    3,622
    
    
    $
    6,200
    
    
    $
    5,970Total as a percentage of total assets
    
    
    0.85
    %
    
    
    0.74
    %
    
    
    1.31
    %
    
    
    2.23
    %
    
    
    2.94
    %
 
 (1)
    
    Includes $630,000, $895,000, $1.3 million, $726,000 and $1.1 million
in real estate in judgment and subject to redemption at December 31,
2007, 2006, 2005, 2004 and 2003 respectively.  Classified Assets.
 13




---



##### 



Provision for Loan Losses
 Allowance for Loan Losses
    14




---



##### 



15




---



##### 



December 31,2007
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003Balance at beginning of year
    
    $
    2,024
    
    
    $
    2,925
    
    
    $
    6,420
    
    
    $
    2,618
    
    
    $
    1,735Charge-offs:One-to-four family
    
    
    774
    
    
    
    223
    
    
    
    754
    
    
    
    375
    
    
    
    436Multi-family
    
    
    28
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Commercial real estate
    
    
    197
    
    
    
    15
    
    
    
    1,904
    
    
    
    1,306
    
    
    
    Construction or development
    
    
    
    
    
    
    340
    
    
    
    6
    
    
    
    
    
    
    
    15Consumer
    
    
    386
    
    
    
    494
    
    
    
    393
    
    
    
    181
    
    
    
    122Commercial business
    
    
    17
    
    
    
    113
    
    
    
    386
    
    
    
    
    
    
    
    Total
    
    
    1,402
    
    
    
    1,185
    
    
    
    3,443
    
    
    
    1,862
    
    
    
    573Recoveries:One-to-four family
    
    
    16
    
    
    
    4
    
    
    
    78
    
    
    
    105
    
    
    
    157Multi-family
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Commercial real estate
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    28
    
    
    
    Construction or development
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Consumer
    
    
    175
    
    
    
    275
    
    
    
    230
    
    
    
    143
    
    
    
    32Commercial business
    
    
    40
    
    
    
    5
    
    
    
    24
    
    
    
    
    
    
    
    Total
    
    
    231
    
    
    
    284
    
    
    
    333
    
    
    
    276
    
    
    
    189Net charge-offs:
    
    
    1,171
    
    
    
    901
    
    
    
    3,110
    
    
    
    1,586
    
    
    
    384Allowance acquired in acquisition
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    513
    
    
    
    Additions charged to operations
    
    
    971
    
    
    
    
    
    
    
    
    
    
    
    4,875
    
    
    
    1,267Provision recovered from operations
    
    
    
    
    
    
    
    
    
    
    (385
    )
    
    
    
    
    
    
    Balance at end of year
    
    $
    1,824
    
    
    $
    2,024
    
    
    $
    2,925
    
    
    $
    6,420
    
    
    $
    2,618Ratio of net charge-offs during the year to average loans
outstanding during the year
    
    
    0.51
    %
    
    
    0.39
    %
    
    
    1.42
    %
    
    
    0.82
    %
    
    
    0.26
    %Allowance as a percentage of non-performing loans
    
    
    210.87
    %
    
    
    432.48
    %
    
    
    360.67
    %
    
    
    151.74
    %
    
    
    69.89
    %Allowance as a percentage of total loans (end of year)
    
    
    0.81
    %
    
    
    0.93
    %
    
    
    1.37
    %
    
    
    2.84
    %
    
    
    1.81
    %
 16




---



##### 



December 31,2007
    
    
    2006
    
    
    2005Amount of
    
    
    Percentage
    
    
    Amount of
    
    
    Percentage
    
    
    Amount of
    
    
    PercentageLoan Loss
    
    
    of
    
    
    Loan Loss
    
    
    of
    
    
    Loan Loss
    
    
    ofAllowance
    
    
    Allowance
    
    
    Allowance
    
    
    Allowance
    
    
    Allowance
    
    
    AllowanceOne-to-four family
    
    $
    979
    
    
    
    53.7
    %
    
    $
    783
    
    
    
    60.3
    %
    
    $
    1,378
    
    
    
    64.4
    %Multi-family and non-residential
real estate
    
    
    351
    
    
    
    19.2
    %
    
    
    809
    
    
    
    20.8
    %
    
    
    1,091
    
    
    
    17.7
    %Construction or development
    
    
    154
    
    
    
    8.4
    %
    
    
    7
    
    
    
    4.1
    %
    
    
    17
    
    
    
    2.5
    %Consumer
    
    
    287
    
    
    
    15.7
    %
    
    
    302
    
    
    
    12.1
    %
    
    
    284
    
    
    
    12.5
    %Commercial business
    
    
    53
    
    
    
    2.9
    %
    
    
    123
    
    
    
    2.7
    %
    
    
    155
    
    
    
    2.9
    %Total
    
    $
    1,824
    
    
    
    100.0
    %
    
    $
    2,024
    
    
    
    100.0
    %
    
    $
    2,925
    
    
    
    100.0
    %
 2004
    
    
    2003Amount of
    
    
    Percentage
    
    
    Amount of
    
    
    PercentageLoan Loss
    
    
    of
    
    
    Loan Loss
    
    
    ofAllowance
    
    
    Allowance
    
    
    Allowance
    
    
    AllowanceOne-to-four family
    
    $
    1,516
    
    
    
    62.3
    %
    
    $
    624
    
    
    
    64.5
    %Multi-family and non-residential
real estate
    
    
    4,513
    
    
    
    20.7
    %
    
    
    1,239
    
    
    
    16.1
    %Construction or development
    
    
    27
    
    
    
    3.9
    %
    
    
    507
    
    
    
    6.5
    %Consumer
    
    
    296
    
    
    
    10.7
    %
    
    
    173
    
    
    
    11.0
    %Commercial business
    
    
    68
    
    
    
    2.4
    %
    
    
    75
    
    
    
    1.9
    %$
    6,420
    
    
    
    100.0
    %
    
    $
    2,618
    
    
    
    100.0
    %
 Investment Activities
    17




---



##### 



December 31, 2007
    
    
    December 31, 2006Percent of
    
    
    
    
    
    
    
    
    
    
    Percent ofFair
    
    
    Total
    
    
    
    
    
    
    Fair
    
    
    TotalAmortized
    
    
    Market
    
    
    Fair Market
    
    
    Amortized
    
    
    Market
    
    
    Fair MarketCost
    
    
    Value
    
    
    Value
    
    
    Cost
    
    
    Value
    
    
    ValueAvailable-for-sale securities:U.S. government agency obligations
    
    $
    7,692
    
    
    $
    7,730
    
    
    
    68.3
    %
    
    $
    10,730
    
    
    $
    10,626
    
    
    
    76.3
    %Mortgage-backed securities
    
    
    932
    
    
    
    918
    
    
    
    8.1
    %
    
    
    1,108
    
    
    
    1,082
    
    
    
    7.8
    %Obligations of states and
political subdivisions
    
    
    2,381
    
    
    
    2,436
    
    
    
    21.5
    %
    
    
    1,964
    
    
    
    1,998
    
    
    
    14.3
    %Total available-for-sale securities
    
    $
    11,005
    
    
    $
    11,084
    
    
    
    97.9
    %
    
    $
    13,802
    
    
    $
    13,706
    
    
    
    98.4
    %Held-to-maturity securities:Municipal security
    
    $
    238
    
    
    $
    234
    
    
    
    2.1
    %
    
    $
    228
    
    
    $
    228
    
    
    
    1.6
    %Total investment securities
    
    $
    11,243
    
    
    $
    11,318
    
    
    
    100.0
    %
    
    $
    14,030
    
    
    $
    13,934
    
    
    
    100.0
    %
 December 31, 2005Percent ofFair
    
    
    TotalAmortized
    
    
    Market
    
    
    Fair MarketCost
    
    
    Value
    
    
    ValueAvailable-for-sale securities:U.S. government agency obligations
    
    $
    11,961
    
    
    $
    11,773
    
    
    
    80.8
    %Mortgage-backed securities
    
    
    1,317
    
    
    
    1,278
    
    
    
    8.8
    %Obligations of states and
political subdivisions
    
    
    1,293
    
    
    
    1,286
    
    
    
    8.8
    %Total available-for-sale securities
    
    $
    14,571
    
    
    $
    14,337
    
    
    
    98.4
    %Held-to-maturity securities:Municipal security
    
    
    247
    
    
    
    236
    
    
    
    1.6
    %Total investment securities
    
    $
    14,818
    
    
    $
    14,573
    
    
    
    100.0
    %
 18




---



##### 



Less than 1 year
    
    
    1 to 5 years
    
    
    5 to 10 years
    
    
    Over 10 years
    
    
    Total SecuritiesWgt
    
    
    
    
    
    
    Wgt
    
    
    
    
    
    
    Wgt
    
    
    
    
    
    
    Wgt
    
    
    
    
    
    
    WgtAmortized
    
    
    Ave
    
    
    Amortized
    
    
    Ave
    
    
    Amortized
    
    
    Ave
    
    
    Amortized
    
    
    Ave
    
    
    Amortized
    
    
    AveCost
    
    
    Yield
    
    
    Cost
    
    
    Yield
    
    
    Cost
    
    
    Yield
    
    
    Cost
    
    
    Yield
    
    
    Cost
    
    
    Yield(Dollars in Thousands)Available-for-sale securities:U.S. government agency obligations
    
    $
    2,000
    
    
    
    4.03
    %
    
    $
    5,242
    
    
    
    4.94
    %
    
    $
    450
    
    
    
    5.35
    %
    
    $
    
    
    
    
    0.00
    %
    
    $
    7,692
    
    
    
    4.73
    %Mortgage-backed securities
    
    
    338
    
    
    
    3.22
    %
    
    
    594
    
    
    
    4.30
    %
    
    
    
    
    
    
    0.00
    %
    
    
    
    
    
    
    0.00
    %
    
    
    932
    
    
    
    3.91
    %Obligations of states and
political subdivisions
    
    
    
    
    
    
    
    
    
    
    397
    
    
    
    3.94
    %
    
    
    1,983
    
    
    
    3.99
    %
    
    
    
    
    
    
    0.00
    %
    
    
    2,380
    
    
    
    3.98
    %Total available-for-sale securities
    
    
    2,338
    
    
    
    3.91
    %
    
    
    6,233
    
    
    
    4.82
    %
    
    
    2,433
    
    
    
    4.24
    %
    
    
    
    
    
    
    0.00
    %
    
    
    11,004
    
    
    
    4.50
    %Held-to-maturity securities:Municipal security
    
    
    
    
    
    
    0.00
    %
    
    
    30
    
    
    
    4.45
    %
    
    
    208
    
    
    
    4.30
    %
    
    
    
    
    
    
    0.00
    %
    
    
    238
    
    
    
    4.32
    %Total investment securities
    
    $
    2,338
    
    
    
    3.48
    %
    
    $
    6,263
    
    
    
    4.57
    %
    
    $
    2,641
    
    
    
    5.78
    %
    
    $
    
    
    
    
    0.00
    %
    
    $
    11,242
    
    
    
    4.63
    %
 Sources of Funds
 General.
 Deposits .
  19




---



##### 



Year EndedDecember 31,2007
    
    
    2006(Dollars in Thousands)Opening balance
    
    $
    192,572
    
    
    $
    174,715Net deposits (withdrawals)
    
    
    (20,743
    )
    
    
    12,355Interest credited
    
    
    6,107
    
    
    
    5,502Ending balance
    
    $
    177,936
    
    
    $
    192,572Net increase
    
    $
    (14,636
    )
    
    $
    17,857Percent increase (decrease)
    
    
    -7.60
    %
    
    
    10.22
    %
  Year Ended December 31,2007
    
    
    2006Percent
    
    
    
    
    
    
    PercentAmount
    
    
    of Total
    
    
    Amount
    
    
    of Total(Dollars in Thousands)Transaction and Savings Deposits:Non-interest bearing accounts
    
    $
    13,609
    
    
    
    7.6
    %
    
    $
    15,733
    
    
    
    8.2
    %Savings accounts
    
    
    19,426
    
    
    
    10.9
    %
    
    
    22,822
    
    
    
    11.8
    %Checking & NOW accounts
    
    
    17,927
    
    
    
    10.1
    %
    
    
    18,583
    
    
    
    9.6
    %Money market accounts
    
    
    26,014
    
    
    
    14.6
    %
    
    
    22,630
    
    
    
    11.8
    %Total transaction and savings
    
    $
    76,976
    
    
    
    43.3
    %
    
    $
    79,768
    
    
    
    41.4
    %Certificates:0.00-1.99%
    
    
    
    
    
    
    0.0
    %
    
    
    12
    
    
    
    0.0
    %2.00-3.99%
    
    
    5,712
    
    
    
    3.2
    %
    
    
    11,535
    
    
    
    6.0
    %4.00-5.99%
    
    
    95,248
    
    
    
    53.5
    %
    
    
    101,257
    
    
    
    52.6
    %Total certificates
    
    
    100,960
    
    
    
    56.7
    %
    
    
    112,804
    
    
    
    58.6
    %Total deposits
    
    $
    177,936
    
    
    
    100.0
    %
    
    $
    192,572
    
    
    
    100.0
    %
 20




---



##### 



MaturityOver
    
    
    Over
    
    
    Over3 Months
    
    
    3 to 6
    
    
    6 to 12
    
    
    12or less
    
    
    Months
    
    
    Months
    
    
    Months
    
    
    Total(Dollars in Thousands)Certificates of deposit less than $100,000
    
    $
    11,703
    
    
    $
    9,237
    
    
    $
    16,772
    
    
    $
    17,225
    
    
    $
    54,937Certificates of deposit of $100,000 or more
    
    
    9,963
    
    
    
    6,151
    
    
    
    10,178
    
    
    
    19,731
    
    
    
    46,023Total certificates of deposit
    
    $
    21,666
    
    
    $
    15,388
    
    
    $
    26,950
    
    
    $
    36,956
    
    
    $
    100,960
  Percent0.00-1.99%
    
    
    2.00-3.99%
    
    
    4.00-5.99%
    
    
    6.00-7.99%
    
    
    Total
    
    
    of Total(Dollars in Thousands)Certificate accounts
maturing in quarter ending:March 31, 2008
    
    $
    
    
    
    $
    2,377
    
    
    $
    19,289
    
    
    $
    
    
    
    $
    21,666
    
    
    
    21.5
    %June 30, 2008
    
    
    
    
    
    
    1,316
    
    
    
    14,071
    
    
    
    
    
    
    
    15,387
    
    
    
    15.2
    %September 30, 2008
    
    
    
    
    
    
    410
    
    
    
    16,320
    
    
    
    
    
    
    
    16,730
    
    
    
    16.6
    %December 31, 2008
    
    
    
    
    
    
    375
    
    
    
    9,843
    
    
    
    
    
    
    
    10,218
    
    
    
    10.1
    %March 31, 2009
    
    
    
    
    
    
    485
    
    
    
    1,162
    
    
    
    
    
    
    
    1,647
    
    
    
    1.6
    %June 30, 2009
    
    
    
    
    
    
    298
    
    
    
    6,356
    
    
    
    
    
    
    
    6,654
    
    
    
    6.6
    %September 30, 2009
    
    
    
    
    
    
    230
    
    
    
    4,262
    
    
    
    
    
    
    
    4,492
    
    
    
    4.4
    %December 31, 2009
    
    
    
    
    
    
    221
    
    
    
    6,929
    
    
    
    
    
    
    
    7,150
    
    
    
    7.1
    %March 31, 2010
    
    
    
    
    
    
    
    
    
    
    1,066
    
    
    
    
    
    
    
    1,066
    
    
    
    1.1
    %June 30, 2010
    
    
    
    
    
    
    
    
    
    
    2,047
    
    
    
    
    
    
    
    2,047
    
    
    
    2.0
    %September 30, 2010
    
    
    
    
    
    
    
    
    
    
    4,331
    
    
    
    
    
    
    
    4,331
    
    
    
    4.3
    %December 31, 2010
    
    
    
    
    
    
    
    
    
    
    972
    
    
    
    
    
    
    
    972
    
    
    
    1.0
    %Thereafter
    
    
    
    
    
    
    
    
    
    
    8,600
    
    
    
    
    
    
    
    8,600
    
    
    
    8.5
    %Total
    
    $
    
    
    
    $
    5,712
    
    
    $
    95,248
    
    
    $
    
    
    
    $
    100,960
    
    
    
    100.0
    %Percent of total
    
    
    0.00
    %
    
    
    5.66
    %
    
    
    94.34
    %
    
    
    0.00
    %
 Borrowings .
  21




---



##### 



Year EndedDecember 31,2007
    
    
    2006(Dollars in Thousands)Maximum Balance:FHLB advances
    
    $
    62,476
    
    
    $
    64,592Average Balance:FHLB advances
    
    $
    57,859
    
    
    $
    58,107
  December 31,2007
    
    
    2006(Dollars in Thousands)FHLB advances
    
    $
    59,330
    
    
    $
    54,476Weighted average interest rate of FHLB advances
FHLB advances
    
    
    5.10
    %
    
    
    5.47
    %
 Competition
  Employees
  22




---



##### 



Federal and State Taxation
 Federal Taxation
 General.
 Method of Accounting.
 Bad Debt Reserves.
 Taxable Distributions and Recapture.
 Minimum Tax.
 Corporate Dividends-Received Deduction.
 State Taxation
  23




---



##### 



Regulation and Supervision
 General
      The Company
 General.
 Investments and Activities.
 24




---



##### 



Capital Requirements.
   The Bank
 General.
 25




---



##### 



Business Activities.
  Branching.
  Loans to One Borrower.
 Enforcement.
  Assessments and Fees.
 26




---



##### 



Regulatory Capital Requirements.
     Prompt Corrective Regulatory Action.
   27




---



##### 



Deposit Insurance.
 Payment of Dividends by the Bank.
  Loans to Directors, Executive Officers, and Principal Shareholders.
 Certain Transactions With Related Parties.
  28




---



##### 



Standards for Safety and Soundness.
 Reserve Requirement.
 
    
    for transaction accounts totaling $9.3 million or less, a reserve of 0%; and
    
    for transaction accounts in excess of $9.3 million up to and including $43.9 million, a
reserve of 3%; and
    
    for transaction accounts totaling in excess of $43.9 million, a reserve requirement of
$1.038 million plus 10% against that portion of the total transaction accounts greater than
$43.9 million.
  ITEM 1A. Risk Factors
  Our future profits may be affected by our inability to grow core deposits
  We are making commercial real estate loans outside of our normal market area
  We are dependent on the strength of our local economy for our growth and profitability
  Our loan portfolio possesses increased risk due to our subprime residential lending
  29




---



##### 



ITEM 1A. Risk Factors, continued
 If we lose our executive officers, it could adversely affect our operations
  The amount of common stock controlled by insiders, our articles of incorporation and bylaws and
state and federal statutory and regulatory provisions could discourage hostile acquisitions of
control
  
    
    the staggered terms of the members of the Board of Directors;
    
    an 80% shareholder vote requirement for the approval of any merger or consolidation
of Monarch Community Bancorp into any entity that directly or indirectly owns 10% or
more of Monarch Community Bancorp voting stock if the transaction is not approved in
advance by at least a majority of the disinterested members of Monarch Community
Bancorps Board of Directors;
    
    supermajority shareholder vote requirements for the approval of certain amendments
to Monarch Community Bancorps articles of incorporation and bylaws;
    
    a prohibition of any holder of common stock voting more than 10% of the outstanding
common stock;
    
    elimination of cumulative voting by shareholders in the election of directors;
    
    restrictions on the acquisition of our equity securities;
    
    the authorization of five million shares of preferred stock that could be issued
without shareholder approval on terms or in circumstances that could deter a future
takeover attempt; and
    
    the increase in the number of authorized shares and the reclassification of shares
without stockholder approval.
  The low trading volume in our common stock may make the value of the stock volatile and may make it
difficult for shareholders to sell their shares when they desire.
  30




---



##### 



ITEM 1B. Unresolved Staff Comments  None
 ITEM 2.  Properties
   Owned/Location
    
    County
    
    LeasedMain Office375 North Willowbrook Road
    
    Branch
    
    OwnedColdwater, Michigan 49036Branch Offices87 Marshall Street
    
    Branch
    
    OwnedColdwater, Michigan 49036365 N. Broadway
    
    Branch
    
    OwnedUnion City, Michigan 490941 West Carleton Road
    
    Hillsdale
    
    OwnedHillsdale, Michigan 4924215975 West Michigan Avenue
    
    Calhoun
    
    OwnedMarshall, Michigan 49068107 North Park
    
    Calhoun
    
    OwnedMarshall, Michigan 49068Other Facilities34 Grand Street (Garage)
    
    Branch
    
    OwnedColdwater, Michigan 4903624 Grand Street (Drive through)
    
    Branch
    
    OwnedColdwater, Michigan 49036
  ITEM 3.  Legal Proceedings
  ITEM 4.  Submission of Matters to a Vote of Security Holders
   31




---



##### 



PART II
 ITEM 5.  Market for the Companys Common Equity, Related Stockholder Matters and Issuer Purchases
of Equity Securities
  Year
    
    Quarter ending
    
    High
    
    Low2006
    
    March 31
    
    $
    12.80
    
    
    $
    11.02June 30
    
    $
    13.00
    
    
    $
    11.07September 30
    
    $
    12.63
    
    
    $
    10.90December 31
    
    $
    11.25
    
    
    $
    10.032007
    
    March 31
    
    $
    12.50
    
    
    $
    10.05June 30
    
    $
    12.16
    
    
    $
    11.23September 30
    
    $
    12.86
    
    
    $
    11.70December 31
    
    $
    12.50
    
    
    $
    11.10
   
 32




---



##### 



ITEM 5.  Market for the Companys Common Equity, Related Stockholder Matters and Issuer Purchases
of Equity Securities, continued
  (a)
    
    
    (b)
    
    
    (c)
    
    
    (d)Total Number of Shares
    
    
    Maximum Number (or(or Unit) Purchased as
    
    
    Approximate Dollar Value) ofTotal Number of
    
    
    
    
    
    
    Part of Publicly
    
    
    Shares (or Units) that may yetShares (or Units)
    
    
    Average Price paid
    
    
    Anounced Plans or
    
    
    Be Purchased Under thePeriod
    
    Purchased
    
    
    per Share (or Unit)
    
    
    Programs
    
    
    Plans or Program10/01/07-10/31/07
    
    
    19,800
    
    
    $
    11.80
    
    
    
    19,800
    
    
    
    233,20011/01/07-11/30/07
    
    
    123,870
    
    
    $
    11.76
    
    
    
    123,870
    
    
    
    109,33012/01/07-12/31/07
    
    
    64,900
    
    
    $
    11.80
    
    
    
    64,900
    
    
    
    44,030Total
    
    
    208,570
    
    
    $
    11.78
    
    
    
    208,570
    
    
    
    44,030
  33




---



##### 



ITEM 6.  Selected Financial Data
 SELECTED FINANCIAL AND OTHER DATA
  December 31,2007
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003(In Thousands)Selected Operations Data:Total interest income
    
    $
    17,545
    
    
    $
    17,287
    
    
    $
    15,231
    
    
    $
    13,818
    
    
    $
    12,053Total interest expense
    
    
    9,222
    
    
    
    8,607
    
    
    
    6,567
    
    
    
    6,173
    
    
    
    6,060Net interest income
    
    
    8,323
    
    
    
    8,680
    
    
    
    8,664
    
    
    
    7,645
    
    
    
    5,993Provision for loan losses
    
    
    971
    
    
    
    
    
    
    
    (385
    )
    
    
    4,875
    
    
    
    1,266Net interest income after provision for loan losses
    
    
    7,352
    
    
    
    8,680
    
    
    
    9,049
    
    
    
    2,770
    
    
    
    4,727Fees and service charges
    
    
    2,921
    
    
    
    2,642
    
    
    
    2,496
    
    
    
    2,333
    
    
    
    1,167Gains on sales of loans, mortgage-backed
securities and investment securities
    
    
    651
    
    
    
    342
    
    
    
    562
    
    
    
    805
    
    
    
    1,672Other non-interest income
    
    
    374
    
    
    
    138
    
    
    
    341
    
    
    
    287
    
    
    
    86Total non-interest income
    
    
    3,946
    
    
    
    3,122
    
    
    
    3,399
    
    
    
    3,425
    
    
    
    2,925Total non-interest expense
    
    
    8,992
    
    
    
    9,710
    
    
    
    10,503
    
    
    
    9,978
    
    
    
    6,737Income before taxes
    
    
    2,306
    
    
    
    2,092
    
    
    
    1,945
    
    
    
    (3,783
    )
    
    
    915Income tax provision
    
    
    561
    
    
    
    544
    
    
    
    505
    
    
    
    (1,272
    )
    
    
    251Net income (loss)
    
    $
    1,745
    
    
    $
    1,548
    
    
    $
    1,440
    
    
    $
    (2,511
    )
    
    $
    664
 34




---



##### 



ITEM 6.  Selected Financial Data, continued
 December 31,2007
    
    2006
    
    2005
    
    2004
    
    2003Selected Financial Ratios and Other Data:Performance Ratios:Return on assets (ratio of net income to average total assets)
    
    
    0.61
    %
    
    
    0.54
    %
    
    
    0.52
    %
    
    
    -0.97
    %
    
    
    0.32
    %Return on Equity (ratio of net income to average equity)
    
    
    4.30
    %
    
    
    3.85
    %
    
    
    3.59
    %
    
    
    -6.53
    %
    
    
    1.80
    %Interest rate spread information:Average during period
    
    
    3.05
    %
    
    
    3.26
    %
    
    
    3.41
    %
    
    
    3.15
    %
    
    
    2.69
    %Net interest margin
    
    
    3.27
    %
    
    
    3.42
    %
    
    
    3.56
    %
    
    
    3.33
    %
    
    
    3.11
    %Ratio of operating expense to average total assets
    
    
    3.17
    %
    
    
    3.41
    %
    
    
    3.80
    %
    
    
    3.85
    %
    
    
    3.22
    %Ratio of average interest-earning assets to average
interest-bearing liabilities
    
    
    1.06
    
    
    
    1.05
    
    
    
    1.05
    
    
    
    1.07
    
    
    
    1.13Efficiency ratio
    
    
    72.62
    %
    
    
    80.44
    %
    
    
    85.39
    %
    
    
    88.18
    %
    
    
    74.14
    %Asset Quality Ratios:Non-performing assets to total assets at end of period (1)
    
    
    0.81
    %
    
    
    0.74
    %
    
    
    1.31
    %
    
    
    2.23
    %
    
    
    2.94
    %Non-performing loans to total loans (1)
    
    
    0.33
    %
    
    
    0.20
    %
    
    
    0.37
    %
    
    
    1.87
    %
    
    
    2.60
    %Allowance for loan losses to non-performing loans (1)

    
    240.00
    %
    
    
    432.48
    %
    
    
    360.67
    %
    
    
    151.74
    %
    
    
    69.89
    %Allowance for loan losses to loans receivable, net
    
    
    0.81
    %
    
    
    0.88
    %
    
    
    1.37
    %
    
    
    2.84
    %
    
    
    1.81
    %Capital ratios:Equity to total assets at end of period
    
    
    14.00
    %
    
    
    13.79
    %
    
    
    14.64
    %
    
    
    14.31
    %
    
    
    18.43
    %Other data:Number of full-service offices
    
    
    6
    
    
    
    6
    
    
    
    6
    
    
    
    7
    
    
    
    5
 
 (1)
    
    Does not include $105,000 in loans that were past due, greater than 90 days and still
accruing at December 31, 2007. The loans were paid off January 4, 2008. 35




---



##### 



ITEM 7.  Managements Discussion and Analysis of Financial Condition and Results of Operations
 Managements Discussion and Analysis of Financial Condition and Results of Operations
 General
   Critical Accounting Policies
  Management Strategy
   Changes in Financial Condition from December 31, 2006 to December 31, 2007
 General.
 Loans.
 Securities.
 Liabilities.
 36




---



##### 



Equity
 37




---



##### 



Average Balances, Net Interest Income, Yields Earned and Rates Paid
  Year Ended December 31,2007
    
    
    2006Average
    
    
    Interest
    
    
    
    
    
    
    Average
    
    
    InterestOutstanding
    
    
    Earned/
    
    
    Yield/
    
    
    Outstanding
    
    
    Earned/
    
    
    Yield/Balance
    
    
    Paid
    
    
    Rate
    
    
    Balance
    
    
    Paid
    
    
    Rate(dollars in thousands)Fed Funds and overnight deposits
    
    $
    7,373
    
    
    $
    389
    
    
    
    5.28
    %
    
    $
    6,913
    
    
    $
    380
    
    
    
    5.50
    %Investment securities
    
    
    13,445
    
    
    
    599
    
    
    
    4.46
    
    
    
    14,038
    
    
    
    574
    
    
    
    4.09Other securities
    
    
    4,174
    
    
    
    188
    
    
    
    4.50
    
    
    
    4,583
    
    
    
    226
    
    
    
    4.93Loans receivable (1)
    
    
    229,451
    
    
    
    16,369
    
    
    
    7.13
    
    
    
    228,613
    
    
    
    16,107
    
    
    
    7.05Total earning assets
    
    $
    254,443
    
    
    $
    17,545
    
    
    
    6.90
    
    
    $
    254,147
    
    
    $
    17,287
    
    
    
    6.80Demand and NOW accounts
    
    $
    32,619
    
    
    $
    78
    
    
    
    0.24
    
    
    $
    32,055
    
    
    $
    70
    
    
    
    0.22Money market accounts
    
    
    24,451
    
    
    
    902
    
    
    
    3.69
    
    
    
    19,304
    
    
    
    617
    
    
    
    3.20Savings accounts
    
    
    21,502
    
    
    
    90
    
    
    
    0.42
    
    
    
    25,230
    
    
    
    105
    
    
    
    0.42Certificates of deposit
    
    
    103,970
    
    
    
    5,037
    
    
    
    4.84
    
    
    
    105,179
    
    
    
    4,626
    
    
    
    4.40Federal Home Loan Bank advances
    
    
    57,268
    
    
    
    3,115
    
    
    
    5.44
    
    
    
    58,105
    
    
    
    3,189
    
    
    
    5.49Total interest bearing liabilities
    
    $
    239,810
    
    
    
    9,222
    
    
    
    3.85
    
    
    $
    239,873
    
    
    
    8,607
    
    
    
    3.59Net interest income
    
    
    
    
    
    $
    8,323
    
    
    
    
    
    
    
    
    
    
    $
    8,680Net interest spread
    
    
    
    
    
    
    
    
    
    
    3.05
    %
    
    
    
    
    
    
    
    
    
    
    3.21
    %Net interest margin
    
    
    
    
    
    
    
    
    
    
    3.27
    %
    
    
    
    
    
    
    
    
    
    
    3.42
    %
 2005Average
    
    
    InterestOutstanding
    
    
    Earned/
    
    
    Yield/Balance
    
    
    Paid
    
    
    RateFed Funds and overnight deposits
    
    $
    6,834
    
    
    $
    269
    
    
    
    3.94
    %Investment securities
    
    
    13,494
    
    
    
    500
    
    
    
    3.71Other securities
    
    
    4,753
    
    
    
    204
    
    
    
    4.29Loans receivable (1)
    
    
    218,632
    
    
    
    14,258
    
    
    
    6.52Total earning assets
    
    $
    243,713
    
    
    $
    15,231
    
    
    
    6.25Demand and NOW accounts
    
    $
    33,811
    
    
    $
    78
    
    
    
    0.23Money market accounts
    
    
    16,731
    
    
    
    211
    
    
    
    1.26Savings accounts
    
    
    28,535
    
    
    
    119
    
    
    
    0.42Certificates of deposit
    
    
    90,397
    
    
    
    2,929
    
    
    
    3.24Federal Home Loan Bank advances
    
    
    61,842
    
    
    
    3,230
    
    
    
    5.22Total interest bearing liabilities
    
    $
    231,316
    
    
    
    6,567
    
    
    
    2.84Net interest income
    
    
    
    
    
    $
    8,664Net interest spread
    
    
    
    
    
    
    
    
    
    
    3.41
    %Net interest margin
    
    
    
    
    
    
    
    
    
    
    3.56
    %
 
 (1)
    
    Calculated net of deferred loan fees, loan discounts and loans in
process. Nonaccrual loans are included in the average outstanding
balance. 38




---



##### 



Rate/Volume Analysis
  Year Ended December 31,
    
    Year Ended December 31,2007 vs. 2006
    
    2006 vs. 2005Total
    
    
    
    
    
    
    
    
    
    
    
    
    
    TotalIncrease (Decrease) Due to
    
    Increase
    
    Increase (Decrease) Due to
    
    IncreaseRate
    
    Volume
    
    Mix
    
    (Decrease)
    
    Rate
    
    Volume
    
    Mix
    
    (Decrease)(in thousands)Interest-earning assetsFed funds and overnight deposits
    
    $
    (15
    )
    
    $
    25
    
    
    
    (1
    )
    
    
    9
    
    
    $
    134
    
    
    $
    (15
    )
    
    
    (8
    )
    
    $
    111Investment securities
    
    
    51
    
    
    
    (24
    )
    
    
    (2
    )
    
    
    25
    
    
    
    61
    
    
    
    11
    
    
    
    1
    
    
    
    73Other securities
    
    
    (20
    )
    
    
    (20
    )
    
    
    2
    
    
    
    (38
    )
    
    
    30
    
    
    
    (7
    )
    
    
    
    
    
    
    23Loans receivable
    
    
    202
    
    
    
    654
    
    
    
    (594
    )
    
    
    262
    
    
    
    1,144
    
    
    
    654
    
    
    
    51
    
    
    
    1,849Total interest-earning assets
    
    $
    219
    
    
    $
    635
    
    
    $
    (595
    )
    
    $
    258
    
    
    $
    1,370
    
    
    $
    642
    
    
    $
    44
    
    
    $
    2,056Interest-bearing liabilitiesDemand and NOW accounts
    
    $
    7
    
    
    $
    1
    
    
    
    0
    
    
    $
    8
    
    
    $
    (9
    )
    
    $
    1
    
    
    
    0
    
    
    $
    (8
    )Money market accounts
    
    
    95
    
    
    
    165
    
    
    
    25
    
    
    
    285
    
    
    
    323
    
    
    
    33
    
    
    
    50
    
    
    
    406Savings accounts
    
    
    0
    
    
    
    (15
    )
    
    
    0
    
    
    
    (15
    )
    
    
    0
    
    
    
    (14
    )
    
    
    0
    
    
    
    (14
    )Certificates of deposit
    
    
    469
    
    
    
    (53
    )
    
    
    (5
    )
    
    
    411
    
    
    
    1,047
    
    
    
    479
    
    
    
    171
    
    
    
    1,697Federal Home Loan Bank advances
    
    
    (28
    )
    
    
    (46
    )
    
    
    0
    
    
    
    (74
    )
    
    
    164
    
    
    
    (195
    )
    
    
    (10
    )
    
    
    (41
    )Total interest-bearing liabilities
    
    $
    542
    
    
    $
    52
    
    
    $
    21
    
    
    $
    615
    
    
    $
    1,525
    
    
    $
    304
    
    
    $
    211
    
    
    $
    2,040Net interest income
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (357
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    16
 Comparison of Results of Operations for the Years Ended December 31, 2007, 2006, and 2005
 General
 Net Interest Income.
 Interest Income.
 Interest Expense.
 39




---



##### 



Provision for Loan Losses.
   Non-interest Income.
     Non-interest Expense.
 40




---



##### 



Federal Income Taxes.
 Liquidity and Commitments
    41




---



##### 



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
    
    $
    100,960
    
    
    $
    63,951
    
    
    $
    28,409
    
    
    $
    8,600
    
    
    $
    FHLB advances
    
    
    59,330
    
    
    
    20,153
    
    
    
    20,827
    
    
    
    13,291
    
    
    
    5,059Total
    
    $
    160,290
    
    
    $
    84,104
    
    
    $
    49,236
    
    
    $
    21,891
    
    
    $
    5,059
 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
    
    $
    9,568
    
    
    $
    9,568
    
    
    $
    
    
    
    $
    
    
    
    $
    Unfunded commitments under HELOCs
    
    
    15,828
    
    
    
    1,639
    
    
    
    3,703
    
    
    
    3,987
    
    
    
    6,499Unfunded commitments under Contruction loans
    
    
    1,778
    
    
    
    1,589
    
    
    
    84
    
    
    
    105Unfunded commitments under
Commercial LOCs
    
    
    2,690
    
    
    
    929
    
    
    
    853
    
    
    
    908
    
    
    
    Letters of credit
    
    
    16
    
    
    
    16
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    29,880
    
    
    $
    13,741
    
    
    $
    4,640
    
    
    $
    5,000
    
    
    $
    6,499
  42




---



##### 



Capital
  Impact of Inflation
    43




---



##### 



Item 7A. Quantitative and Qualitative Disclosures About Market Risk
 Asset and Liability Management and Market Risk
 Our Risk When Interest Rates Change.
 How We Measure Our Risk of Interest Rate Changes.
  44




---



##### 




    
    originating shorter-term commercial real estate loans for retention in
our portfolio;
    
    selling a significant portion of the long-term, fixed rate residential
mortgage loans we make;
    
    managing our deposits to establish stable deposit relationships with an
emphasis on core, non-certificate deposits, supplementing these with
brokered deposits, as appropriate; and
    
    maintaining longer-term borrowings at fixed interest rates to offset the
negative impact of longer-term fixed rate loans in our loan portfolio.
Future borrowings are expected to be short-term to reduce the average
maturity of our borrowings.
   Change in Interest RatesBasis Points (bp)
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net Portfolio Value as %(Rate Shock in Rates) (1)
    
    Net Portfolio Value
    
    of Present Value of Assets$ Amount
    
    $ Change
    
    % Change
    
    NPV Ratio
    
    Change+ 300 bp
    
    
    29,790
    
    
    
    9,440
    
    
    
    -24
    %
    
    
    11.25
    %
    
    -271bp+ 200 bp
    
    
    32,746
    
    
    
    7,375
    
    
    
    -17
    %
    
    
    12.13
    %
    
    -183bp+100 bp
    
    
    36,320
    
    
    
    3,067
    
    
    
    -7
    %
    
    
    13.16
    %
    
    -80bp0 bp
    
    
    39,230
    
    
    
    0
    
    
    
    
    
    
    
    13.96
    %
    
    
    0-100 bp
    
    
    39,785
    
    
    
    555
    
    
    
    +1
    %
    
    
    14.03
    %
    
    +7bp-200 bp
    
    
    40,712
    
    
    
    927
    
    
    
    +4
    %
    
    
    14.21
    %
    
    +25bp
 
 (1)
    
    Assumes an instantaneous uniform change in interest rates at all maturities.  45




---



##### 



Principal Amount Maturing In:2013 and
    
    
    
    
    
    Fair Value2008
    
    2009
    
    2010
    
    2011
    
    2012
    
    beyond
    
    Total
    
    12/31/2007Rate-sensitive assetsFed funds and overnight deposits
    
    $
    6,151
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    6,151
    
    
    $
    6,151Average interest rate
    
    
    5.28
    %Securities
    
    $
    2,338
    
    
    $
    2,994
    
    
    $
    1,595
    
    
    $
    1,248
    
    
    $
    397
    
    
    $
    2,433
    
    
    $
    11,005
    
    
    $
    11,318Average interest rate
    
    
    3.91
    %
    
    
    4.47
    %
    
    
    4.93
    %
    
    
    5.80
    %
    
    
    3.94
    %
    
    
    4.20
    %Gross loans
    
    $
    15,920
    
    
    $
    10,222
    
    
    $
    15,932
    
    
    $
    25,705
    
    
    $
    24,600
    
    
    $
    134,790
    
    
    $
    227,169
    
    
    
    226,760Average interest rate
    
    
    7.08
    %
    
    
    7.04
    %
    
    
    7.10
    %
    
    
    7.32
    %
    
    
    7.40
    %
    
    
    7.07
    %Rate-sensitive liabilitiesSavings & interest-bearing
demand deposits
    
    $
    63,367
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    63,367
    
    
    $
    63,367Average interest rate
    
    
    1.45
    %Certificates of deposit
    
    $
    64,001
    
    
    $
    19,941
    
    
    $
    8,416
    
    
    $
    5,245
    
    
    $
    3,357
    
    
    $
    
    
    
    $
    100,960
    
    
    $
    101,038Average interest rate
    
    
    4.68
    %
    
    
    4.84
    %
    
    
    4.95
    %
    
    
    5.11
    %
    
    
    4.84
    %FHLB advances
    
    $
    20,152
    
    
    $
    14,660
    
    
    $
    6,167
    
    
    $
    175
    
    
    $
    13,117
    
    
    $
    5,059
    
    
    $
    59,330
    
    
    $
    60,409Average interest rate
    
    
    5.67
    %
    
    
    4.77
    %
    
    
    8.76
    %
    
    
    5.64
    %
    
    
    4.74
    %
    
    
    3.37
    %
 46




---



##### 



ITEM 8. Financial Statements and Supplementary Data
 Monarch Community Bancorp, Inc. and
Subsidiaries
 
 Consolidated Financial Report
December 31, 2007
 47




---



##### 



Monarch Community Bancorp, Inc. and Subsidiaries
 ContentsReport Letter
    
    
    3Consolidated Financial StatementsBalance Sheet
    
    
    4Statement of Income
    
    
    5Statement of Stockholders Equity
    
    
    6Statement of Cash Flows
    
    
    7Notes to Consolidated Financial Statements
    
    
    8-35




---



##### 



(PLANTE & MORAN LOGO)Plante & Moran, PLLCBridgewater PlaceSuit 600333 Bridge St. N.WGrand Rapids, MI 49504Tel: 616.774.8221Fax: 616.774.0702plantemoran.com
  
    
 
 
 3




---



##### 



Monarch Community Bancorp, Inc. and Subsidiaries
 Consolidated Balance Sheet
(000s omitted, except per share data)
 December 31,2007
    
    
    2006AssetsCash and due from banks
    
    $
    7,691
    
    
    $
    7,433Federal Home Loan Bank overnight time and
other interest bearing deposits
    
    
    6,151
    
    
    
    7,864Total cash and cash equivalents
    
    
    13,842
    
    
    
    15,297Securities  Available for sale (Note 3)
    
    
    11,084
    
    
    
    13,706Securities  Held to maturity (Note 3)
    
    
    238
    
    
    
    228Other securities (Note 3)
    
    
    4,237
    
    
    
    4,237Loans held for sale
    
    
    422
    
    
    
    937Loans, net (Note 4)
    
    
    224,797
    
    
    
    230,247Foreclosed assets, net (Note 6)
    
    
    1,515
    
    
    
    1,680Premises and equipment (Note 7)
    
    
    4,675
    
    
    
    5,261Goodwill (Note 2)
    
    
    9,606
    
    
    
    9,606Core deposit (Note 2)
    
    
    862
    
    
    
    1,092Other assets (Notes 5 and 10)
    
    
    7,930
    
    
    
    7,696Total assets
    
    $
    279,208
    
    
    $
    289,987Liabilities and Stockholders EquityLiabilitiesDepositsNoninterest-bearing
    
    $
    13,609
    
    
    $
    15,733Interest-bearing (Note 8):
    
    
    164,327
    
    
    
    176,839Total deposits
    
    
    177,936
    
    
    
    192,572Federal Home Loan Bank advances (Note 9)
    
    
    59,330
    
    
    
    54,476Accrued expenses and other liabilities (Note 14)
    
    
    2,856
    
    
    
    2,953Total liabilities
    
    
    240,122
    
    
    
    250,001Commitments and Contingencies(Note 11)
    
    
    
    
    
    
    Stockholders Equity(Notes 12 ,13 and 17)Common stock  $0.01 par value
20,000,000 shares authorized, 2,321,585 shares issued and
outstanding at December 31, 2007 and 2,533,781 shares issued
and outstanding at December 31, 2006
    
    
    23
    
    
    
    25Additional paid-in capital
    
    
    23,828
    
    
    
    26,191Retained earnings
    
    
    16,341
    
    
    
    15,319Accumulated other comprehensive income (loss)
    
    
    52
    
    
    
    (63
    )Unearned compensation (Notes 17 and 18)
    
    
    (1,158
    )
    
    
    (1,486
    )Total stockholders equity
    
    
    39,086
    
    
    
    39,986Total liabilities and
stockholders equity
    
    $
    279,208
    
    
    $
    289,987
  4




---



##### 



Monarch Community Bancorp, Inc. and Subsidiaries
 Consolidated Statement of Income
(000s omitted, except per share data)
 Year Ended December 31,2007
    
    
    2006
    
    
    2005Interest IncomeLoans, including fees
    
    $
    16,369
    
    
    $
    16,107
    
    
    $
    14,258Investment securities
    
    
    787
    
    
    
    800
    
    
    
    704Federal funds sold and overnight deposits
    
    
    389
    
    
    
    380
    
    
    
    269Total interest income
    
    
    17,545
    
    
    
    17,287
    
    
    
    15,231Interest ExpenseDeposits
    
    
    6,107
    
    
    
    5,418
    
    
    
    3,337Federal Home Loan Bank advances
    
    
    3,115
    
    
    
    3,189
    
    
    
    3,230Total interest expense
    
    
    9,222
    
    
    
    8,607
    
    
    
    6,567Net Interest Income
    
    
    8,323
    
    
    
    8,680
    
    
    
    8,664Provision for Loan Losses(Note 4)
    
    
    971
    
    
    
    
    
    
    
    (385
    )Net Interest Income After Provision for Loan Losses
    
    
    7,352
    
    
    
    8,680
    
    
    
    9,049Noninterest IncomeFees and service charges
    
    
    2,477
    
    
    
    2,195
    
    
    
    2,034Loan servicing fees
    
    
    444
    
    
    
    447
    
    
    
    462Net gain on sale of loans
    
    
    668
    
    
    
    362
    
    
    
    562Net loss on sale of investment securities (Note 3)
    
    
    (17
    )
    
    
    (20
    )
    
    
    Net gain on sale of premises and equipment
    
    
    49
    
    
    
    
    
    
    
    39Other income (Note 6)
    
    
    325
    
    
    
    138
    
    
    
    302Total noninterest income
    
    
    3,946
    
    
    
    3,122
    
    
    
    3,399Noninterest ExpenseSalaries and employee benefits (Note 14, 17 and 18)
    
    
    4,522
    
    
    
    4,967
    
    
    
    5,103Occupancy and equipment (Note 7)
    
    
    1,008
    
    
    
    1,020
    
    
    
    1,081Data processing
    
    
    731
    
    
    
    704
    
    
    
    689Mortgage banking
    
    
    359
    
    
    
    382
    
    
    
    438Professional services
    
    
    591
    
    
    
    441
    
    
    
    602Amortization of intangible assets (Note 2)
    
    
    230
    
    
    
    291
    
    
    
    369NOW account processing
    
    
    180
    
    
    
    171
    
    
    
    182ATM/Debit card processing
    
    
    192
    
    
    
    233
    
    
    
    221Repossessed property expense (Note 6)
    
    
    207
    
    
    
    346
    
    
    
    521Other general and administrative
    
    
    972
    
    
    
    1,155
    
    
    
    1,297Total noninterest expense
    
    
    8,992
    
    
    
    9,710
    
    
    
    10,503Income- Before income taxes
    
    
    2,306
    
    
    
    2,092
    
    
    
    1,945Income Taxes(Note 10)
    
    
    561
    
    
    
    544
    
    
    
    505Net Income
    
    $
    1,745
    
    
    $
    1,548
    
    
    $
    1,440Earnings Per Share (Note 1)Basic
    
    $
    0.73
    
    
    $
    0.63
    
    
    $
    0.57Diluted
    
    $
    0.73
    
    
    $
    0.63
    
    
    $
    0.57
  5




---



##### 



Monarch Community Bancorp, Inc. and Subsidiaries
 Consolidated Statement of Stockholders Equity
(000s omitted, except per share data)
 Common Stock
    
    
    
    
    
    
    
    
    
    
    AccumulatedOtherNumber of
    
    
    
    
    
    
    Additional Paid
    
    
    Retained
    
    
    Comprehensive
    
    
    UnearnedShares
    
    
    Amount
    
    
    in Capital
    
    
    Earnings
    
    
    Income (Loss)
    
    
    Compensation
    
    
    TotalBalance  January 1, 2005
    
    
    2,709
    
    
    $
    27
    
    
    $
    28,059
    
    
    $
    13,529
    
    
    $
    2
    
    
    $
    (2,198
    )
    
    $
    39,419Issuance of 4,000 shares of common stock at
an average price of $11.57/share in
connection with Restricted Stock Plan
    
    
    4
    
    
    
    
    
    
    
    46
    
    
    
    
    
    
    
    
    
    
    
    (46
    )
    
    
    2,624 shares repurchased at average price of
$12.27/share
    
    
    (3
    )
    
    
    
    
    
    
    (32
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (32
    )Vesting of 16,018 restricted shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    212
    
    
    
    212Allocation of ESOP shares (Note 17)
    
    
    
    
    
    
    
    
    
    
    77
    
    
    
    
    
    
    
    
    
    
    
    185
    
    
    
    262Comprehensive income:Net Loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,440
    
    
    
    
    
    
    
    
    
    
    
    1,440Change in unrealized gain on
securities available-for-sale, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (157
    )
    
    
    
    
    
    
    (157
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,283Dividends paid ($0.21/share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (568
    )
    
    
    
    
    
    
    
    
    
    
    (568
    )Balance  December 31, 2005
    
    
    2,710
    
    
    $
    27
    
    
    $
    28,150
    
    
    $
    14,401
    
    
    $
    (155
    )
    
    $
    (1,847
    )
    
    $
    40,576Issuance of 3,884 shares of common stock at
an average price of $12.03/share in
connection with Restricted Stock Plan
    
    
    4
    
    
    
    
    
    
    
    47
    
    
    
    
    
    
    
    
    
    
    
    (47
    )
    
    
    3,399 shares repurchased at average price of
$11.42/share
    
    
    (3
    )
    
    
    
    
    
    
    (39
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (39
    )Vesting of 16,811 restricted shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    223
    
    
    
    223Allocation of ESOP shares (Note 17)
    
    
    
    
    
    
    
    
    
    
    56
    
    
    
    
    
    
    
    
    
    
    
    185
    
    
    
    241Repurchase of 177,300 shares
    
    
    (177
    )
    
    
    (2
    )
    
    
    (2,108
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,110
    )Stock option expenses
    
    
    
    
    
    
    
    
    
    
    85
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    85Comprehensive Income:Net Income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,548
    
    
    
    
    
    
    
    
    
    
    
    1,548Change in unrealized gain on
securities available-for-sale, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    92
    
    
    
    
    
    
    
    92Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,640Dividends paid ($0.24/share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (630
    )
    
    
    
    
    
    
    
    
    
    
    (630
    )Balance  December 31, 2006
    
    
    2,534
    
    
    $
    25
    
    
    $
    26,191
    
    
    $
    15,319
    
    
    $
    (63
    )
    
    $
    (1,486
    )
    
    $
    39,9863,326 shares repurchased at average price
of $11.95/share
    
    
    (3
    )
    
    
    
    
    
    
    (40
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (40
    )Vesting of 17,589 restricted shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    235
    
    
    
    235Allocation of ESOP shares (Note 17)
    
    
    
    
    
    
    
    
    
    
    43
    
    
    
    
    
    
    
    
    
    
    
    93
    
    
    
    136Repurchase of 208,570 shares at average
price of $11.78/share
    
    
    (209
    )
    
    
    (2
    )
    
    
    (2,454
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,456
    )Stock option expenses
    
    
    
    
    
    
    
    
    
    
    88
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    88Comprehensive Income:Net Income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,745
    
    
    
    
    
    
    
    
    
    
    
    1,745Change in unrealized loss on
securities available-for-sale, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    115
    
    
    
    
    
    
    
    115Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,860Dividends paid ($0.29/share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (723
    )
    
    
    
    
    
    
    
    
    
    
    (723
    )Balance  December 31, 2007
    
    
    2,322
    
    
    $
    23
    
    
    $
    23,828
    
    
    $
    16,341
    
    
    $
    52
    
    
    $
    (1,158
    )
    
    $
    39,086
  6




---



##### 



Monarch Community Bancorp, Inc. and Subsidiaries
 Consolidated Statement of Cash Flows
(000s omitted)
 Year Ended December 31,2007
    
    
    2006
    
    
    2005Cash Flows From Operating ActivitiesNet income
    
    $
    1,745
    
    
    $
    1,548
    
    
    $
    1,440Adjustments to reconcile net income to net cash provided by
operating activities:Depreciation and amortization
    
    
    1,100
    
    
    
    1,271
    
    
    
    1,028Provision for loan loss
    
    
    971
    
    
    
    
    
    
    
    (385
    )Stock dividends on other securities
    
    
    
    
    
    
    
    
    
    
    (100
    )Stock option expense
    
    
    88
    
    
    
    85
    
    
    
    (Gain) loss on sale of foreclosed assets
    
    
    (138
    )
    
    
    67
    
    
    
    (53
    )Deferred income taxes
    
    
    (394
    )
    
    
    264
    
    
    
    323Mortgage loans originated for sale
    
    
    (28,224
    )
    
    
    (16,969
    )
    
    
    (25,217
    )Proceeds from sale of mortgage loans
    
    
    29,407
    
    
    
    16,563
    
    
    
    25,973Gain on sale of mortgage loans
    
    
    (668
    )
    
    
    (362
    )
    
    
    (562
    )Loss on sale of available for sale securities
    
    
    17
    
    
    
    20
    
    
    
    Gain on sale of premises and equipment
    
    
    (49
    )
    
    
    
    
    
    
    (39
    )Earned stock compensation
    
    
    371
    
    
    
    464
    
    
    
    474Net change in:Accrued interest receivable
    
    
    (63
    )
    
    
    (164
    )
    
    
    79Other assets
    
    
    (226
    )
    
    
    337
    
    
    
    (2,091
    )Accrued expenses and other liabilities
    
    
    (109
    )
    
    
    925
    
    
    
    1,714Net cash provided by operating activities
    
    
    3,828
    
    
    
    4,049
    
    
    
    2,584Cash Flows From Investing ActivitiesActivity in available-for-sale securities:Purchases
    
    
    (3,819
    )
    
    
    (4,755
    )
    
    
    (8,408
    )Proceeds from sale of securities
    
    
    4,428
    
    
    
    2,543
    
    
    
    Proceeds from maturities of securities
    
    
    2,173
    
    
    
    2,994
    
    
    
    1,909Activity in held-to-maturity securities:Purchases
    
    
    (30
    )
    
    
    (7
    )
    
    
    (17
    )Proceeds from maturities of securities
    
    
    20
    
    
    
    
    
    
    
    Activity in other securities:Redemption of other securities, at par
    
    
    
    
    
    
    600
    
    
    
    Loan originations and principal collections, net
    
    
    3,001
    
    
    
    (19,248
    )
    
    
    3,052Proceeds from sale of foreclosed assets
    
    
    1,793
    
    
    
    3,196
    
    
    
    2,810Proceeds on sale of premises and equipment
    
    
    283
    
    
    
    30
    
    
    
    345Purchase of premises and equipment
    
    
    (131
    )
    
    
    (113
    )
    
    
    (129
    )Net cash provided by (used in) investing activities
    
    
    7,718
    
    
    
    (14,760
    )
    
    
    (438
    )Cash Flows From Financing ActivitiesNet increase (decrease) in deposits
    
    
    (14,636
    )
    
    
    17,587
    
    
    
    5,316Repurchases of common stock
    
    
    (2,496
    )
    
    
    (2,149
    )
    
    
    (32
    )Dividends paid
    
    
    (723
    )
    
    
    (630
    )
    
    
    (568
    )Proceeds from FHLB advances
    
    
    41,500
    
    
    
    27,000
    
    
    
    4,000Repayment of FHLB advances
    
    
    (36,646
    )
    
    
    (32,086
    )
    
    
    (10,225
    )Net cash provided by (used in) financing activities
    
    
    (13,001
    )
    
    
    9,722
    
    
    
    (1,509
    )Net Increase (Decrease) in Cash and Cash Equivalents
    
    
    (1,455
    )
    
    
    (989
    )
    
    
    637Cash and Cash Equivalents- Beginning
    
    
    15,297
    
    
    
    16,286
    
    
    
    15,649Cash and Cash Equivalents End
    
    $
    13,842
    
    
    $
    15,297
    
    
    $
    16,286
  7




---



##### 



Monarch Community Bancorp, Inc. and Subsidiaries
 Notes to Consolidated Financial Statements
(000s omitted, except per share data)
 Note 1  Summary of Significant Accounting Policies
 Organization
    Basis of Presentation and Consolidation
 Use of Estimates 
 Significant Group Concentrations of Credit Risk
 Cash and Cash Equivalents
 8




---



##### 



Monarch Community Bancorp, Inc. and Subsidiaries
 Notes to Consolidated Financial Statements
(000s omitted, except per share data)
 Note 1  Summary of Significant Accounting Policies (Continued)
 Securities
  Loans Held for Sale
 Loans 
   Allowance for Loan Losses
  9




---



##### 



Monarch Community Bancorp, Inc. and Subsidiaries
 Notes to Consolidated Financial Statements
(000s omitted, except per share data)
 Note 1  Summary of Significant Accounting Policies (Continued)
    Servicing
  Credit Related Financial Instruments
 10




---



##### 



Monarch Community Bancorp, Inc. and Subsidiaries
 Notes to Consolidated Financial Statements
(000s omitted, except per share data)
 Note 1  Summary of Significant Accounting Policies (Continued)
 Foreclosed Assets
 Premises and Equipment
 Goodwill and Other Intangible Assets
  Income Taxes 
 Comprehensive Income
  2007
    
    
    2006
    
    
    2005Change in unrealized holding gain (loss)
on available-for-sale securities
    
    $
    158
    
    
    $
    118
    
    
    $
    (236
    )Reclassification adjustment for losses
realized in income
    
    
    17
    
    
    
    20
    
    
    
    Net unrealized gains (losses)
    
    $
    175
    
    
    $
    138
    
    
    $
    (236
    )Tax effect
    
    
    (60
    )
    
    
    (46
    )
    
    
    79Net-of-tax amount
    
    $
    115
    
    
    $
    92
    
    
    $
    (157
    )
 11




---



##### 



Monarch Community Bancorp, Inc. and Subsidiaries
 Notes to Consolidated Financial Statements
(000s omitted, except per share data)
 Note 1  Summary of Significant Accounting Policies (Continued)
 Earnings (Loss) Per Common Share
  2007
    
    
    2006
    
    
    2005Basic earnings per shareNumerator:Net income
    
    $
    1,745
    
    
    $
    1,548
    
    
    $
    1,440Denominator:Weighted average common shares outstanding
    
    
    2,508
    
    
    
    2,626
    
    
    
    2,709Less: Average unallocated ESOP shares
    
    
    (93
    )
    
    
    (111
    )
    
    
    (130
    )Less: Average non-vested RRP shares
    
    
    (32
    )
    
    
    (49
    )
    
    
    (59
    )Weighted average common shares outstanding
for basic earnings per share
    
    
    2,383
    
    
    
    2,466
    
    
    
    2,520Basic earnings per share
    
    $
    0.73
    
    
    $
    0.63
    
    
    $
    0.57Diluted earnings per shareNumerator:Net income
    
    $
    1,745
    
    
    $
    1,548
    
    
    $
    1,440Denominator:Weighted average common shares outstanding
for basic earnings per share
    
    
    2,383
    
    
    
    2,466
    
    
    
    2,520Add: Dilutive effects of assumed exercises of stock options
    
    
    
    
    
    
    
    
    
    
    Add: Dilutive effects of average non-vested RRP shares
    
    
    
    
    
    
    
    
    
    
    Weighted average common shares and dilutive
potential common shares outstanding
    
    
    2,383
    
    
    
    2,466
    
    
    
    2,520Diluted earnings per share
    
    $
    0.73
    
    
    $
    0.63
    
    
    $
    0.57
  12




---



##### 



Monarch Community Bancorp, Inc. and Subsidiaries
 Notes to Consolidated Financial Statements
(000s omitted, except per share data)
 Note 1  Summary of Significant Accounting Policies (Continued)
 Employee Stock Ownership Plan (ESOP)
 Stock Based Compensation 
  2005As reported net income (loss)
    
    $
    1,440Stock option expenses
    
    
    Less: additional stock-based compensation
determined under the fair value method, net of tax
    
    
    (85
    )$
    1,355As reported earnings (loss) per share
    
    $
    0.57Proforma earnings (loss) per share
    
    $
    0.54As reported earnings (loss) per diluted share
    
    $
    0.57Proforma earnings (loss) per diluted share
    
    $
    0.54
 13




---



##### 



Monarch Community Bancorp, Inc. and Subsidiaries
 Notes to Consolidated Financial Statements
(000s omitted, except per share data)
 Note 1  Summary of Significant Accounting Policies (Continued)
 Stock Based Compensation, continued 
 Recent Accounting Pronouncements
   Supplemental Cash Flow Information (000s omitted)
 December 31,2007
    
    2006
    
    2005Cash paid (received) for:Interest
    
    $
    9,218
    
    
    $
    8,491
    
    
    $
    6,470Income taxes
    
    $
    500
    
    
    $
    (1,122
    )
    
    $
    (63
    )Noncash investing activities -Loans transferred to real estate owned
    
    $
    1,478
    
    
    $
    2,097
    
    
    $
    3,608Issuance of common stock in connection with
the 2003 Recognition and Retention Plan
    
    $
    
    
    
    $
    47
    
    
    $
    46
 Reclassifications 
 14




---



##### 



Monarch Community Bancorp, Inc. and Subsidiaries
 Notes to Consolidated Financial Statements
(000s omitted, except per share data)
 Note 2  Goodwill and Intangible Assets
  (In thousands of Dollars)Gross
    
    
    Accumulated
    
    
    NetAmount
    
    
    Amortization
    
    
    Carrying2007Amortized intangible assets:Core deposit premium resulting from
bank and branch acquistionsTotal
    
    $
    2,081
    
    
    $
    1,219
    
    
    $
    8622006Amortized intangible assets:Core deposit premium resulting from
bank and branch acquistionsTotal
    
    $
    2,081
    
    
    $
    989
    
    
    $
    1,092
  Year EndingDecember 312008
    
    $
    1812009
    
    
    1492010
    
    
    1422011
    
    
    1422012
    
    
    142Thereafter
    
    
    106Total
    
    $
    862
 15




---



##### 



Monarch Community Bancorp, Inc. and Subsidiaries
 Notes to Consolidated Financial Statements
(000s omitted, except per share data)
 Note 3  Securities
  Gross
    
    
    Gross
    
    
    EstimatedAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    MarketCost
    
    
    Gains
    
    
    Losses
    
    
    Value2007Available-for-sale securities:U.S. government agency obligations
    
    $
    7,692
    
    
    $
    42
    
    
    $
    (4
    )
    
    $
    7,730Mortgage-backed securities
    
    
    932
    
    
    
    
    
    
    
    (14
    )
    
    
    918Obligations of states and
political subdivisions
    
    
    2,381
    
    
    
    55
    
    
    
    
    
    
    
    2,436Total available-for-sale securities
    
    $
    11,005
    
    
    $
    97
    
    
    $
    (18
    )
    
    $
    11,084Held-to-maturity securities:Municipal securities
    
    $
    238
    
    
    $
    1
    
    
    $
    (5
    )
    
    $
    2342006Available-for-sale securities:U.S. government agency obligations
    
    $
    10,730
    
    
    $
    12
    
    
    $
    (116
    )
    
    $
    10,626Mortgage-backed securities
    
    
    1,108
    
    
    
    
    
    
    
    (26
    )
    
    
    1,082Obligations of states and
political subdivisions
    
    
    1,964
    
    
    
    39
    
    
    
    (5
    )
    
    
    1,998Total available-for-sale securities
    
    $
    13,802
    
    
    $
    51
    
    
    $
    (147
    )
    
    $
    13,706Held-to-maturity securities:Municipal securities
    
    $
    228
    
    
    $
    
    
    
    $
    
    
    
    $
    228
  Held to Maturity
    
    
    Available for SaleAmortized
    
    
    Market
    
    
    Amortized
    
    
    MarketCost
    
    
    Value
    
    
    Cost
    
    
    ValueDue in one year or less
    
    $
    
    
    
    $
    
    
    
    $
    2,000
    
    
    $
    1,996Due in one through five years
    
    
    30
    
    
    
    31
    
    
    
    6,146
    
    
    
    6,209Due after five years through ten years
    
    
    
    
    
    
    
    
    
    
    1,927
    
    
    
    1,961Due after ten years
    
    
    208
    
    
    
    203
    
    
    
    
    
    
    
    Total
    
    $
    238
    
    
    $
    234
    
    
    
    10,073
    
    
    
    10,166Mortgage-backed securities
    
    
    
    
    
    
    
    
    
    
    932
    
    
    
    918Total available-for-sale securities
    
    
    
    
    
    
    
    
    
    $
    11,005
    
    
    $
    11,084
 16




---



##### 



Monarch Community Bancorp, Inc. and Subsidiaries
 Notes to Consolidated Financial Statements
(000s omitted, except per share data)
 Note 3  Securities (Continued)
   Less than Twelve Months
    
    
    Twelve Months and OverGross
    
    
    
    
    
    
    GrossUnrealized
    
    
    Estimated
    
    
    Unrealized
    
    
    EstimatedLosses
    
    
    Market Value
    
    
    Losses
    
    
    Market Value2007Available-for-sale securities:U.S. government agency obligations
    
    $
    
    
    
    $
    
    
    
    $
    4
    
    
    $
    1,996Mortgage-backed securities
    
    
    
    
    
    
    
    
    
    
    14
    
    
    
    918Total available-for-sale securities
    
    $
    
    
    
    $
    
    
    
    $
    18
    
    
    $
    2,914Held-to-maturity securities:Municipal securities
    
    $
    5
    
    
    $
    203
    
    
    $
    
    
    
    $
    2006Available-for-sale securities:U.S. government agency obligations
    
    $
    
    
    
    $
    
    
    
    $
    116
    
    
    $
    8,370Mortgage-backed securities
    
    
    
    
    
    
    
    
    
    
    26
    
    
    
    1,082Obligations of states and
political subdivisions
    
    
    
    
    
    
    
    
    
    
    5
    
    
    
    446Total available-for-sale securities
    
    $
    
    
    
    $
    
    
    
    $
    147
    
    
    $
    9,898Held-to-maturity securities:Municipal securities
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
   17




---



##### 



Monarch Community Bancorp, Inc. and Subsidiaries
 Notes to Consolidated Financial Statements
(000s omitted, except per share data)
 Note 4  Loans
  December 31,2007
    
    
    2006Mortgage loans on real estate:One-to-four family
    
    $
    126,780
    
    
    $
    140,374Multi-family
    
    
    5,594
    
    
    
    7,511Commercial
    
    
    56,714
    
    
    
    41,079Construction or land development
    
    
    6,409
    
    
    
    9,529Total real estate loans
    
    
    195,497
    
    
    
    198,493Consumer loans:Home equity
    
    
    20,430
    
    
    
    19,077Other
    
    
    7,014
    
    
    
    9,087Total consumer loans
    
    
    27,444
    
    
    
    28,164Commercial business loans
    
    
    4,228
    
    
    
    6,205Subtotal
    
    
    227,169
    
    
    
    232,862Less: Allowance for loan losses
    
    
    1,824
    
    
    
    2,024Net deferred loan fees
    
    
    548
    
    
    
    591Loans, net
    
    $
    224,797
    
    
    $
    230,247
 18




---



##### 



Monarch Community Bancorp, Inc. and Subsidiaries
 Notes to Consolidated Financial Statements
(000s omitted, except per share data)
 Note 4  Loans (Continued)
  December 31,2007
    
    
    2006
    
    
    2005Balance  Beginning
    
    $
    2,024
    
    
    $
    2,925
    
    
    $
    6,420Provision for loan losses
    
    
    971
    
    
    
    
    
    
    
    (385
    )Loans charged-off
    
    
    (1,402
    )
    
    
    (1,185
    )
    
    
    (3,443
    )Recoveries of loans previously charged off
    
    
    231
    
    
    
    284
    
    
    
    333Balance  Ending
    
    $
    1,824
    
    
    $
    2,024
    
    
    $
    2,925
  December 31,2007
    
    
    2006Impaired loans with a valuation allowance
    
    $
    424
    
    
    $
    1,668Valuation allowance related to impaired loans
    
    $
    90
    
    
    $
    342Total non-accrual loans
    
    $
    760
    
    
    $
    468Total loans past-due ninety days or more and still accruing
    
    $
    105
    
    
    $
    
  December 31,2007
    
    
    2006
    
    
    2005Average investment in impaired loans
    
    $
    1,748
    
    
    $
    2,709
    
    
    $
    4,177
  19




---



##### 



Monarch Community Bancorp, Inc. and Subsidiaries
 Notes to Consolidated Financial Statements
(000s omitted, except per share data)
 Note 5  Servicing
    December 31,2007
    
    
    2006
    
    
    2005Mortgage servicing rights  Beginning
    
    $
    1,129
    
    
    $
    1,358
    
    
    $
    1,539Mortgage servicing rights capitalized
    
    
    246
    
    
    
    153
    
    
    
    257Mortgage servicing rights scheduled amortization
and direct writedown for loan payoffs
    
    
    (359
    )
    
    
    (382
    )
    
    
    (438
    )Mortgage servicing rights  Ending
    
    $
    1,016
    
    
    $
    1,129
    
    
    $
    1,358
 Note 6  Foreclosed Assets
  December 31,2007
    
    
    2006Real estate owned
    
    $
    885
    
    
    $
    785Real estate in judgment and
subject to redemption
    
    
    630
    
    
    
    895Total
    
    $
    1,515
    
    
    $
    1,680
  December 31,2007
    
    
    2006
    
    
    2005Net loss (gain) on sales of real estate
    
    $
    (138
    )
    
    $
    67
    
    
    $
    (53
    )Operating expenses
    
    
    207
    
    
    
    346
    
    
    
    521Total
    
    $
    69
    
    
    $
    413
    
    
    $
    468
 20




---



##### 



Monarch Community Bancorp, Inc. and Subsidiaries
 Notes to Consolidated Financial Statements
(000s omitted, except per share data)
 Note 7  Premises and Equipment
  DepreciableDecember 31,
    
    
    Life2007
    
    
    2006
    
    
    (in Years)Land
    
    $
    566
    
    
    $
    598Buildings and improvements
    
    
    5,494
    
    
    
    5,921
    
    
    
    5-40Furniture, fixtures and equipment
    
    
    2,581
    
    
    
    2,701
    
    
    
    2-15Total bank premises and equipment
    
    
    8,641
    
    
    
    9,220Less accumulated depreciation
and amortization
    
    
    3,966
    
    
    
    3,959Net carrying amount
    
    $
    4,675
    
    
    $
    5,261
  Note 8  Deposits
  December 31,2007
    
    
    2006Balances by account type:Demand and NOW accounts
    
    $
    17,927
    
    
    $
    18,583Money market
    
    
    26,014
    
    
    
    22,630Passbook and statement savings
    
    
    19,426
    
    
    
    22,822Total transactional accounts
    
    
    63,367
    
    
    
    64,035Certificates of deposit:$100,000 and over
    
    
    46,023
    
    
    
    54,095Under $100,000
    
    
    54,937
    
    
    
    58,709Total certificates of deposit
    
    
    100,960
    
    
    
    112,804Total
    
    $
    164,327
    
    
    $
    176,839
  21




---



##### 



Monarch Community Bancorp, Inc. and Subsidiaries
 Notes to Consolidated Financial Statements
(000s omitted, except per share data)
 Note 8  Deposits (Continued)
  December 31, 2007Less than
    
    
    $100,000 &$100,000
    
    
    greater;Less than one year
    
    $
    37,659
    
    
    $
    26,292One to two years
    
    
    7,515
    
    
    
    12,479Two to three years
    
    
    3,927
    
    
    
    4,488Three to four years
    
    
    3,597
    
    
    
    1,648Four to five years
    
    
    2,239
    
    
    
    1,116Total
    
    $
    54,937
    
    
    $
    46,023
 Note 9  Federal Home Loan Bank Advances
     22




---



##### 



Monarch Community Bancorp, Inc. and Subsidiaries
 Notes to Consolidated Financial Statements
(000s omitted, except per share data)
 Note 9  Federal Home Loan Bank Advances (continued)
  Year EndingDecember 312008
    
    $
    20,1532009
    
    
    14,6602010
    
    
    6,1672011
    
    
    1752012
    
    
    13,116Thereafter
    
    
    5,059Total
    
    $
    59,330
 Note 10  Income Taxes
  December 31,2007
    
    
    2006
    
    
    2005Current expense
    
    $
    955
    
    
    $
    280
    
    
    $
    182Deferred expense (recovery)
    
    
    (394
    )
    
    
    264
    
    
    
    323Total tax expense
    
    $
    561
    
    
    $
    544
    
    
    $
    505
  Percent of Pretax Income (Loss)December 31,2007
    
    
    2006
    
    
    2005Statutory federal tax rate
    
    
    34.00
    %
    
    
    34.00
    %
    
    
    34.00
    %Increase (decrease) resulting from:Nondeductible expenses
    
    
    0.84
    %
    
    
    1.30
    %
    
    
    0.20
    %Tax exempt income
    
    
    -3.49
    %
    
    
    -2.73
    %
    
    
    -1.90
    %Low income housing credit
    
    
    -5.93
    %
    
    
    -4.18
    %
    
    
    -9.80
    %Other
    
    
    -1.09
    %
    
    
    -2.39
    %
    
    
    3.50
    %Reported tax expense
    
    
    24.33
    %
    
    
    26.00
    %
    
    
    26.00
    %
 23




---



##### 



Monarch Community Bancorp, Inc. and Subsidiaries
 Notes to Consolidated Financial Statements
(000s omitted, except per share data)
 Note 10  Income Taxes (Continued)
  December 31,2007
    
    
    2006Deferred tax assets:Provision for loan losses
    
    $
    120
    
    
    $
    224Net deferred loan fees
    
    
    186
    
    
    
    201Deferred compensation
    
    
    345
    
    
    
    355Unrealized loss on available for sale securities
    
    
    
    
    
    
    33General business tax credit carryforward
    
    
    525
    
    
    
    653Other
    
    
    432
    
    
    
    117Total deferred tax assets
    
    
    1,608
    
    
    
    1,583Deferred tax liabilities:Mortgage servicing rights
    
    $
    323
    
    
    
    356Original issue discount
    
    
    61
    
    
    
    105Net purchase premiums
    
    
    769
    
    
    
    885Unrealized gain on available for sale securities
    
    
    27
    
    
    
    Other
    
    
    36
    
    
    
    179Total deferred tax liabilities
    
    
    1,216
    
    
    
    1,525Net deferred tax asset
    
    $
    392
    
    
    $
    58
   24




---



##### 



Monarch Community Bancorp, Inc. and Subsidiaries
 Notes to Consolidated Financial Statements
(000s omitted, except per share data)
 Note 11  Off-Balance Sheet Activities
 Credit Related Financial Instruments
   Contract AmountDecember 31,2007
    
    2006Commitments to grant loans
    
    $
    9,568
    
    
    $
    1,648Unfunded commitments under lines of credit
    
    $
    20,296
    
    
    $
    19,314Unfunded commitments under letters of credit
    
    $
    16
    
    
    $
    10
    Collateral Requirements
 25




---



##### 



Monarch Community Bancorp, Inc. and Subsidiaries
 Notes to Consolidated Financial Statements
(000s omitted, except per share data)
 Note 12- Regulatory Matters
     December 31,2007
    
    
    2006Equity per consolidated bank balance sheet
    
    $
    38,309
    
    
    $
    39,262Less: intangible and disallowed assets
    
    
    (11,207
    )
    
    
    (11,393
    )Tier 1 Capital
    
    
    27,102
    
    
    
    27,869Plus: Allowance for loan losses **
    
    
    1,824
    
    
    
    2,024Total Capital
    
    $
    28,926
    
    
    $
    29,893
 
 **
    
    Limited to 1.25% of risk weighted assets 26




---



##### 



Monarch Community Bancorp, Inc. and Subsidiaries
 Notes to Consolidated Financial Statements
(000s omitted, except per share data)
 Note 12  Regulatory Matters (Continued)
  To be Well CapitalizedTo Comply With
    
    Under PromptMinimum Capital
    
    Corrective ActionActual
    
    Requirements
    
    ProvisionsAmount
    
    Ratio
    
    Amount
    
    Ratio
    
    Amount
    
    RatioAs of December 31, 2007:Total Capital
(to Risk-Weighted Assets)
    
    $
    28,926
    
    
    
    14.17
    %
    
    $
    16,326
    
    
    
    8.00
    %
    
    $
    20,408
    
    
    
    10.00
    %Tier 1 Capital
(to Risk-Weighted Assets)
    
    $
    27,102
    
    
    
    13.28
    %
    
    $
    8,163
    
    
    
    4.00
    %
    
    $
    12,245
    
    
    
    6.00
    %Tier 1 Capital
(to Average Assets)
    
    $
    27,102
    
    
    
    10.20
    %
    
    $
    13,291
    
    
    
    5.00
    %
    
    $
    13,291
    
    
    
    5.00
    %As of December 31, 2006:Total Capital
(to Risk-Weighted Assets)
    
    $
    29,893
    
    
    
    14.44
    %
    
    $
    16,562
    
    
    
    8.00
    %
    
    $
    20,702
    
    
    
    10.00
    %Tier 1 Capital
(to Risk-Weighted Assets)
    
    $
    27,869
    
    
    
    13.46
    %
    
    $
    8,281
    
    
    
    4.00
    %
    
    $
    12,421
    
    
    
    6.00
    %Tier 1 Capital
(to Average Assets)
    
    $
    27,869
    
    
    
    9.97
    %
    
    $
    13,977
    
    
    
    5.00
    %
    
    $
    13,977
    
    
    
    5.00
    %
 Note 13  Restrictions on Dividends, Loans and Advances
    27




---



##### 



Monarch Community Bancorp, Inc. and Subsidiaries
 Notes to Consolidated Financial Statements
(000s omitted, except per share data)
 Note 14  Retirement Plans
     Note 15  Related Party Transactions
  28




---



##### 



Monarch Community Bancorp, Inc. and Subsidiaries
 Notes to Consolidated Financial Statements
(000s omitted, except per share data)
 Note 16  Fair Value of Financial Instruments
   Cash and Cash Equivalents
 Securities
 Mortgage Loans Held for Sale
 Loans Receivable
 Deposit Liabilities
 29




---



##### 



Monarch Community Bancorp, Inc. and Subsidiaries
 Notes to Consolidated Financial Statements
(000s omitted, except per share data)
 Note 16  Fair Value of Financial Instruments (Continued)
 Federal Home Loan Bank Advances
 Accrued Interest
  December 31,2007
    
    2006Carrying
    
    
    
    
    
    CarryingAmount
    
    Fair Value
    
    Amount
    
    Fair ValueAssets:Cash and cash equivalents
    
    $
    13,842
    
    
    $
    13,842
    
    
    $
    15,297
    
    
    $
    15,297Securities  Held to maturity
    
    
    238
    
    
    
    234
    
    
    
    228
    
    
    
    228Securities  Available for
sale
    
    
    11,084
    
    
    
    11,084
    
    
    
    13,706
    
    
    
    13,706Other securities
    
    
    4,237
    
    
    
    4,237
    
    
    
    4,237
    
    
    
    4,237Loans held for sale
    
    
    422
    
    
    
    428
    
    
    
    937
    
    
    
    952Net loans
    
    
    224,797
    
    
    
    226,760
    
    
    
    230,247
    
    
    
    229,897Accrued interest
and late charges receivable
    
    
    1,364
    
    
    
    1,364
    
    
    
    1,381
    
    
    
    1,381Liabilities:Federal Home Loan Bank
advances
    
    
    59,330
    
    
    
    60,409
    
    
    
    54,476
    
    
    
    54,403Deposits
    
    
    177,936
    
    
    
    177,754
    
    
    
    192,572
    
    
    
    192,428Accrued interest payable
    
    
    544
    
    
    
    544
    
    
    
    546
    
    
    
    546
 Note 17  Employee Stock Ownership Plan (ESOP)
  30




---



##### 



Monarch Community Bancorp, Inc. and Subsidiaries
 Notes to Consolidated Financial Statements
(000s omitted, except per share data)
 Note 17  Employee Stock Ownership Plan (ESOP) (Continued)
  Year EndingDecember 312008
    
    $
    852009
    
    
    892010
    
    
    942011
    
    
    982012
    
    
    103Thereafter
    
    
    464Total
    
    $
    933
   2007
    
    
    2006Allocated shares
    
    
    92,575
    
    
    
    74,060Shares released for allocation
    
    
    9,258
    
    
    
    18,515Shares distributed
    
    
    (27,810
    )
    
    
    (18,785
    )Unreleased shares
    
    
    83,317
    
    
    
    92,575Total ESOP shares
    
    
    157,340
    
    
    
    166,365Fair value of unallocated shares
    
    $
    942
    
    
    $
    1,133
  31




---



##### 



Monarch Community Bancorp, Inc. and Subsidiaries
 Notes to Consolidated Financial Statements
(000s omitted, except per share data)
 Note 18  Stock Compensation Plans
     2007
    
    2006Dividend yield
    
    
    1.8%
    
    
    
    1.6%Expected life
    
    5 years
    
    5 yearsExpected volatility
    
    
    22.3%
    
    
    
    23.0%Risk-free interest rate
    
    
    3.02%-4.80%
    
    
    
    3.02%-4.80%
 32




---



##### 



Monarch Community Bancorp, Inc. and Subsidiaries
 Notes to Consolidated Financial Statements
(000s omitted, except per share data)
 Note 18  Stock Compensation Plans (continued)
  2007
    
    
    2006Weighted
    
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    
    AverageExercise
    
    
    
    
    
    
    ExerciseShares
    
    
    Price
    
    
    Shares
    
    
    PriceOutstanding at beginning of year
    
    
    192
    
    
    $
    13.09
    
    
    
    185
    
    
    $
    13.22Granted
    
    
    1
    
    
    
    10.12
    
    
    
    12
    
    
    
    11.11Exercised
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Forfeited/expired
    
    
    18
    
    
    
    11.49
    
    
    
    5
    
    
    
    13.00Outstanding at end of year
    
    
    175
    
    
    $
    12.82
    
    
    
    192
    
    
    $
    13.09Exercisable at year-end
    
    
    129
    
    
    $
    12.88
    
    
    
    101
    
    
    $
    13.15
  2007
    
    2006Beginning of year
    
    
    101
    
    
    
    65Newly vested
    
    
    28
    
    
    
    36Exercised
    
    
    
    
    
    
    End of year
    
    
    129
    
    
    
    101
  Outstanding
    
    ExercisableExercise Price
    
    Number
    
    Remaining
    
    NumberPer share
    
    Outstanding
    
    Life (in Months)
    
    Exercisable$14.00
    
    39,836
    
    81
    
    23,904$13.10
    
    5,000
    
    84
    
    2,000$13.00
    
    127,921
    
    64
    
    102,348$11.15
    
    1,500
    
    96
    
    600$10.12
    
    500
    
    109
    
    112
 33




---



##### 



Monarch Community Bancorp, Inc. and Subsidiaries
 Notes to Consolidated Financial Statements
(000s omitted, except per share data)
 Note 19  Condensed Financial Statements of Parent Company
  Condensed Balance Sheet (000s omitted)
 December 31,
    
    
    December 31,2007
    
    
    2006Assets
Cash
    
    $
    758
    
    
    $
    523Investments
    
    
    323
    
    
    
    313Investment in Monarch Community Bank
    
    
    38,309
    
    
    
    39,262Other assets
    
    
    28
    
    
    
    167Total assets
    
    $
    39,418
    
    
    $
    40,265Liabilities and Stockholders EquityAccrued expenses
    
    $
    332
    
    
    $
    279Stockholders equity
    
    
    39,086
    
    
    
    39,986Total liabilities and stockholders equity
    
    $
    39,418
    
    
    $
    40,265
 Condensed Income Statement (000s omitted)
 December 31,
    
    
    December 31,
    
    
    December 31,2007
    
    
    2006
    
    
    2005Income  Interest on investments
    
    $
    23
    
    
    $
    83
    
    
    $
    84Dividends from Monarch Community Bank
    
    
    3,261
    
    
    
    
    
    
    
    Operating expense
    
    
    385
    
    
    
    204
    
    
    
    170Income (loss)  Before equity in undistributed
net income of subsidiary
    
    
    2,899
    
    
    
    (121
    )
    
    
    (86
    )Equity in undistributed net income of subsidiary
    
    
    (1,154
    )
    
    
    1,669
    
    
    
    1,526Net income
    
    $
    1,745
    
    
    $
    1,548
    
    
    $
    1,440
 34




---



##### 



Monarch Community Bancorp, Inc. and Subsidiaries
 Notes to Consolidated Financial Statements
(000s omitted, except per share data)
 Note 19  Condensed Financial Statements of Parent Company (Continued)
 Condensed Statement of Cash Flows (000s omitted)
 December 31,
    
    
    December 31,
    
    
    December 31,2007
    
    
    2006
    
    
    2005Cash flows from operating activities:Net income
    
    $
    1,745
    
    
    $
    1,548
    
    
    $
    1,440Adjustments to reconcile net income to net
cash provided by operating activities:Amortization
    
    
    1
    
    
    
    2
    
    
    
    7Allocation of ESOP and RRP
    
    
    371
    
    
    
    464
    
    
    
    474(Increase) decrease in other assets
    
    
    139
    
    
    
    (10
    )
    
    
    1,230Decrease in accrued expenses
    
    
    54
    
    
    
    (3
    )
    
    
    (24
    )Undistributed net income of subsidiary
    
    
    1,154
    
    
    
    (1,669
    )
    
    
    (1,526
    )Net cash provided by operating activities
    
    
    3,464
    
    
    
    332
    
    
    
    1,601Cash flows from investing activities:Purchase of securities
    
    
    (30
    )
    
    
    (83
    )
    
    
    Proceeds from sales and maturities of securities
    
    
    20
    
    
    
    439
    
    
    
    606Net cash (used in) provided by investing activities
    
    
    (10
    )
    
    
    356
    
    
    
    606Cash flows from financing activities:Repurchase of common stock
    
    
    (2,496
    )
    
    
    (2,149
    )
    
    
    (32
    )Dividends received
    
    
    
    
    
    
    
    
    
    
    Dividends paid
    
    
    (723
    )
    
    
    (630
    )
    
    
    (568
    )Net cash (used in) provided by financing activities
    
    
    (3,219
    )
    
    
    (2,779
    )
    
    
    (600
    )Net increase (decrease) in cash
    
    
    235
    
    
    
    (2,091
    )
    
    
    1,607Cash at beginning of year
    
    
    523
    
    
    
    2,614
    
    
    
    1,007Cash at end of year
    
    $
    758
    
    
    $
    523
    
    
    $
    2,614
 35




---



##### 



QUARTERLY RESULTS OF OPERATIONS
  Year Ended December 31, 20071st Qtr
    
    
    2nd Qtr
    
    
    3rd Qtr
    
    
    4th Qtr(Dollars in thousands, except per share data)Interest income
    
    $
    4,427
    
    
    $
    4,396
    
    
    $
    4,377
    
    
    $
    4,345Interest expense
    
    
    2,353
    
    
    
    2,308
    
    
    
    2,304
    
    
    
    2,257Net interest income
    
    
    2,074
    
    
    
    2,088
    
    
    
    2,073
    
    
    
    2,088Provision for loan losses
    
    
    225
    
    
    
    245
    
    
    
    219
    
    
    
    282Net interest income after
provision for loan losses
    
    
    1,849
    
    
    
    1,843
    
    
    
    1,854
    
    
    
    1,806Noninterest income
    
    
    1,000
    
    
    
    969
    
    
    
    1,040
    
    
    
    937Noninterest expense
    
    
    2,191
    
    
    
    2,192
    
    
    
    2,266
    
    
    
    2,343Income before income taxes
    
    
    658
    
    
    
    620
    
    
    
    628
    
    
    
    400Income tax expense
    
    
    164
    
    
    
    156
    
    
    
    157
    
    
    
    84Net Income
    
    $
    494
    
    
    $
    464
    
    
    $
    471
    
    
    $
    316Earnings per share:Basic
    
    $
    0.21
    
    
    $
    0.19
    
    
    $
    0.19
    
    
    $
    0.14Diluted
    
    $
    0.21
    
    
    $
    0.19
    
    
    $
    0.19
    
    
    $
    0.14Cash dividends declared per share
    
    $
    0.07
    
    
    $
    0.07
    
    
    $
    0.07
    
    
    $
    0.08
 Year Ended December 31, 20061st Qtr
    
    
    2nd Qtr
    
    
    3rd Qtr
    
    
    4th Qtr(Dollars in thousands, except per share data)Interest income
    
    $
    4,032
    
    
    $
    4,234
    
    
    $
    4,415
    
    
    $
    4,606Interest expense
    
    
    1,916
    
    
    
    2,049
    
    
    
    2,255
    
    
    
    2,387Net interest income
    
    
    2,116
    
    
    
    2,185
    
    
    
    2,160
    
    
    
    2,219Provision for loan losses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net interest income after
provision for loan losses
    
    
    2,116
    
    
    
    2,185
    
    
    
    2,160
    
    
    
    2,219Noninterest income
    
    
    752
    
    
    
    803
    
    
    
    743
    
    
    
    824Noninterest expense
    
    
    2,463
    
    
    
    2,542
    
    
    
    2,438
    
    
    
    2,267Income before income taxes
    
    
    405
    
    
    
    446
    
    
    
    465
    
    
    
    776Income tax expense
    
    
    75
    
    
    
    130
    
    
    
    133
    
    
    
    206Net Income
    
    $
    330
    
    
    $
    316
    
    
    $
    332
    
    
    $
    570Earnings per share:Basic
    
    $
    0.13
    
    
    $
    0.12
    
    
    $
    0.14
    
    
    $
    0.24Diluted
    
    $
    0.13
    
    
    $
    0.12
    
    
    $
    0.14
    
    
    $
    0.24Cash dividends declared per share
    
    $
    0.06
    
    
    $
    0.06
    
    
    $
    0.06
    
    
    $
    0.06
 39




---



##### 



ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
  ITEM 9A (T). Controls and Procedures
      Internal ControlIntegrated Framework
  Donald L. DenneyPresident and Chief Executive OfficerRebecca S. CrabillVice President and Chief Financial Officer
 40




---



##### 



ITEM 9B. Other Information 
 PART III
 ITEM 10. Directors, Executive Officers and Corporate Governance
  ITEM 11. Executive Compensation
  ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder
Matters
  Equity Compensation Plan Information
  Number of securitiesto be issued upon
    
    Weighted-average
    
    Number of securitiesexercise of
    
    exercise price of
    
    remaining available foroutstanding options
    
    outstanding options
    
    future issuance underPlan Category
    
    warrants and rights
    
    warrants and rights
    
    equity compensation plansEquity compensation
plans approved by
security holders
(1)
    
    
    174,757
    
    
    
    13.21
    
    
    
    56,681Equity compensation
plans not approved
by security holders
    
    
    
    
    
    
    
    
    
    
    
 
 (1)
    
    Includes 2003 Stock Option and Incentive Plan and 2003 Recognition and Retention Plan approved
at the 2003 Annual Meeting of Shareholders ITEM 13. Certain Relationships and Related Transactions, and Director Independence
  41




---



##### 



ITEM 14. Principal Accountant Fees and Services
  PART IV
 ITEM 15. Exhibits and Financial Statement Schedules
 Documents Filed As Part Of This Annual Report on Form 10-K
 1.
    
    Financial Statement  See the Financial Statements included in Item 8.
 2.
    
    Financial Statement Schedules  Financial statement schedules are omitted for
the reason that they are not required or are not applicable, or the required information is
included in the financial statements.
 3.
    
    Exhibits  The exhibits filed as part of this Annual Report on Form 10-K are
identified in the Exhibit Index, which Exhibit Index specifically identifies those exhibits
that describe or evidence all management contracts and compensation plans or arrangements
required to be filed as exhibits to this report. Such Exhibit Index is incorporated herein
by reference.
 42




---



##### 



SIGNATURES
  MONARCH COMMUNITY BANCORP, INC.Dated: March 28, 2008
    By:

/s/ Donald L. DenneyDonald L. Denney, Presidentand Chief Executive Officer  43




---



##### 



Signature
    
    Title
    
    Date/s/
    
    Donald L. Denney
    
    President and Chief Executive Officer
    
    March 28, 2008Donald L. Denney
    
    (Principal Executive Officer)/s/
    
    Stephen M. Ross
    
    Chairman of the Board
    
    March 28, 2008Stephen M. Ross/s/
    
    Rebecca S. Crabill
    
    Vice President and Chief Financial Officer
    
    March 28, 2008Rebecca S. Crabill
    
    (Principal Accounting Officer)/s/
    
    Harold A. Adamson
    
    Director
    
    March 28, 2008Harold A. Adamson/s/
    
    Lauren L. Bracy
    
    Director
    
    March 28, 2008Lauren L. Bracy/s/
    
    James R. Vozar
    
    Director
    
    March 28, 2008James R. Vozar/s/
    
    Martin L. Mitchell
    
    Director
    
    March 28, 2008Martin L. Mitchell/s/
    
    Gordon L. Welch
    
    Director
    
    March 28, 2008Gordon L. Welch/s/
    
    Craig W. Dally
    
    Director
    
    March 28, 2008Craig W. Dally/s/
    
    Richard L. Dobbins
    
    Director
    
    March 28, 2008Richard L. Dobbins
 44




---



##### 



Exhibit Index
 Reference toPrior Filing orExhibit
    
    
    
    Exhibit NumberNumber
    
    Document
    
    Attached Hereto3.1
    
    Registrants Articles of Incorporation
    
    
    *3.2
    
    Registrants Bylaws (also incorporated by reference from Form 8-K filed on 9/20/06)
    
    
    *4
    
    Registrants Specimen Stock Certificate
    
    
    *10.1
    
    Employment Agreement between Monarch Community Bancorp, Inc and Donald L. Denney
(incorporated by reference from Form 8-K filed on 9/25/2006)10.2
    
    Management Continuity Agreement between Monarch Community Bancorp, Inc. and
William C. Kurtz and Andrew J. Van Doren (incorporated by reference from Form 8-K
filed on 12/21/2004)10.3
    
    Registrants Employee Stock Ownership Plan
    
    
    *10.4
    
    Registrants 2003 Stock Option and Incentive Plan
    
    
    **10.5
    
    Registrants Recognition and Retention Plan
    
    
    **10.6
    
    Form of Stock Option Agreement
    
    
    ***10.7
    
    Management Continuity Agreement with Scott McQueen (incorporated by reference from
Quarterly Report on Form 10-Q for the quarter ended June 30, 2007 )
    
    
    *11
    
    Statement re computation of per share earnings
    
    See Note 1 of theNotesto ConsolidatedFinancialStatementscontained inthis report12
    
    Statements re computation of ratios
    
    None13
    
    Annual Report to Security Holders
    
    Not required14
    
    Registrants Code of Conduct
    
    
    1416
    
    Letter re: change in certifying accountant
    
    None18
    
    Letter re: change in accounting principles
    
    None21
    
    Subsidiaries of the registrant
    
    
    2122
    
    Published report regarding matters submitted to vote of security holders
    
    None23
    
    Consent of Plante & Moran, PLLC
    
    
    2324
    
    Power of Attorney
    
    Not required31.1
    
    Rule 13a-14(a) Certification of the Companys President and Chief Executive Officer
    
    
    31.131.2
    
    Rule 13a-14(a) Certification of the Companys Chief Financial Officer
    
    
    31.232
    
    Section 1350 Certification.
    
    
    32
 
 *
    
    Filed on March 27, 2002 as an exhibit to the Registrants Registration Statement on Form SB-2
(File No. 333-85018), and incorporated herein by reference.**
    
    Filed on March 19, 2003 as part of Registrants Schedule 14A (File No. 000-49814), and
incorporated by reference***
    
    Incorporated by reference from Annual Report on Form 10-KSB for the year ended December 31, 2004 45