UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-K
  þ
    
    ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2008
 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
 o þ
 þ o
 o
  Large accelerated filer o
Accelerated filer o
Non-accelerated filer o(Do not check if a smaller reporting company)
Smaller reporting company þ o þ
   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, 2008
    
    
    December 31, 2007
    
    
    December 31, 2006
    
    
    December 31, 2005
    
    
    December 31, 2004Amount
    
    
    Percent
    
    
    Amount
    
    
    Percent
    
    
    Amount
    
    
    Percent
    
    
    Amount
    
    
    Percent
    
    
    Amount
    
    
    Percent(Dollars in thousands)Real Estate Loans:One-to four-family
    
    $
    124,855
    
    
    
    49.80
    %
    
    $
    126,780
    
    
    
    55.80
    %
    
    $
    140,374
    
    
    
    60.30
    %
    
    
    139,636
    
    
    $
    64.40
    %
    
    $
    141,251
    
    
    
    62.31
    %Multi-family
    
    
    5,728
    
    
    
    2.26
    
    
    
    5,594
    
    
    
    3.22
    
    
    
    7,511
    
    
    
    3.22
    
    
    
    3,534
    
    
    
    1.67
    
    
    
    4,042
    
    
    
    1.79Commercial
    
    
    75,730
    
    
    
    30.19
    
    
    
    56,714
    
    
    
    24.97
    
    
    
    41,079
    
    
    
    17.64
    
    
    
    34,721
    
    
    
    16.03
    
    
    
    42,746
    
    
    
    18.87Construction or development
    
    
    9,499
    
    
    
    3.79
    
    
    
    6,409
    
    
    
    2.82
    
    
    
    9,529
    
    
    
    4.09
    
    
    
    5,415
    
    
    
    2.50
    
    
    
    8,853
    
    
    
    3.92Total real estate loans
    
    
    215,812
    
    
    
    86.04
    
    
    
    195,497
    
    
    
    85.25
    
    
    
    198,493
    
    
    
    85.25
    
    
    
    183,306
    
    
    
    84.60
    
    
    
    196,892
    
    
    
    86.89Other loans:Consumer loans:Home equity
    
    
    20,677
    
    
    
    8.24
    
    
    
    20,430
    
    
    
    8.99
    
    
    
    19,077
    
    
    
    8.19
    
    
    
    16,170
    
    
    
    7.46
    
    
    
    14,234
    
    
    
    6.28Other
    
    
    5,737
    
    
    
    2.29
    
    
    
    7,014
    
    
    
    3.09
    
    
    
    9,087
    
    
    
    3.90
    
    
    
    10,822
    
    
    
    5.00
    
    
    
    10,151
    
    
    
    4.48Total consumer loans
    
    
    26,414
    
    
    
    10.53
    
    
    
    27,444
    
    
    
    12.08
    
    
    
    28,164
    
    
    
    12.09
    
    
    
    26,992
    
    
    
    12.46
    
    
    
    24,385
    
    
    
    10.76Commercial Business Loans
    
    
    8,609
    
    
    
    3.43
    
    
    
    4,228
    
    
    
    1.86
    
    
    
    6,205
    
    
    
    2.67
    
    
    
    6,364
    
    
    
    2.94
    
    
    
    5,330
    
    
    
    2.35Total other loans
    
    
    35,023
    
    
    
    13.96
    
    
    
    31,672
    
    
    
    13.94
    
    
    
    34,369
    
    
    
    14.76
    
    
    
    33,356
    
    
    
    15.40
    
    
    
    29,715
    
    
    
    13.11Total Loans
    
    
    250,835
    
    
    
    100.00
    %
    
    
    227,169
    
    
    
    100.00
    %
    
    
    232,862
    
    
    
    100.00
    %
    
    
    216,662
    
    
    
    100.00
    %
    
    
    226,607
    
    
    
    100.00
    %Less:Allowance for loan losses
    
    
    2,719
    
    
    
    
    
    
    
    1,824
    
    
    
    
    
    
    
    2,024
    
    
    
    
    
    
    
    2,925
    
    
    
    
    
    
    
    6,420Net deferred loan fees
    
    
    574
    
    
    
    
    
    
    
    548
    
    
    
    
    
    
    
    591
    
    
    
    
    
    
    
    640
    
    
    
    
    
    
    
    808Loans in process
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6Total Loans, net
    
    $
    247,542
    
    
    
    
    
    
    $
    224,797
    
    
    
    
    
    
    $
    230,247
    
    
    
    
    
    
    
    213,097
    
    
    
    
    
    
    $
    $219,373
 4




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##### 



December 31, 2008
    
    
    December 31, 2007
    
    
    December 31, 2006Amount
    
    
    Percent
    
    
    Amount
    
    
    Percent
    
    
    Amount
    
    
    Percent(Dollars in thousands)Fixed-Rate LoansReal Estate Loans:One-to-four family
    
    $
    92,644
    
    
    
    36.9
    %
    
    $
    83,386
    
    
    
    36.7
    %
    
    $
    87,568
    
    
    
    37.6
    %Multi-family
    
    
    5,524
    
    
    
    2.2
    %
    
    
    5,397
    
    
    
    2.4
    %
    
    
    5,578
    
    
    
    2.4
    %Commercial
    
    
    47,689
    
    
    
    19.0
    %
    
    
    36,723
    
    
    
    16.2
    %
    
    
    21,081
    
    
    
    9.1
    %Construction or development
    
    
    8,111
    
    
    
    3.2
    %
    
    
    5,537
    
    
    
    2.4
    %
    
    
    4,908
    
    
    
    2.1
    %Total real estate loans
    
    
    153,968
    
    
    
    61.4
    %
    
    
    131,043
    
    
    
    57.7
    %
    
    
    119,135
    
    
    
    51.2
    %Consumer
    
    
    19,406
    
    
    
    7.7
    %
    
    
    21,354
    
    
    
    9.4
    %
    
    
    20,687
    
    
    
    8.9
    %Commercial Business
    
    
    7,011
    
    
    
    2.8
    %
    
    
    2,932
    
    
    
    1.3
    %
    
    
    4,544
    
    
    
    1.9
    %Total fixed-rate loans
    
    
    180,385
    
    
    
    71.9
    %
    
    
    155,329
    
    
    
    68.4
    %
    
    
    144,366
    
    
    
    62.0
    %Adjustable-Rate LoansReal Estate Loans:One-to-four family
    
    $
    32,211
    
    
    
    12.8
    %
    
    $
    43,394
    
    
    
    18.3
    %
    
    $
    52,805
    
    
    
    22.7
    %Multi-family
    
    
    204
    
    
    
    0.1
    %
    
    
    197
    
    
    
    0.1
    %
    
    
    1,932
    
    
    
    0.8
    %Commercial
    
    
    28,041
    
    
    
    11.2
    %
    
    
    19,991
    
    
    
    8.8
    %
    
    
    19,999
    
    
    
    8.6
    %Construction or development
    
    
    1,388
    
    
    
    .6
    %
    
    
    872
    
    
    
    0.3
    %
    
    
    4,622
    
    
    
    2.0
    %Total real estate loans
    
    
    61,844
    
    
    
    24.7
    %
    
    
    64,454
    
    
    
    27.5
    %
    
    
    79,358
    
    
    
    34.1
    %Consumer
    
    
    7,008
    
    
    
    2.8
    %
    
    
    6,090
    
    
    
    2.7
    %
    
    
    7,477
    
    
    
    3.2
    %Commercial Business
    
    
    1,598
    
    
    
    .6
    %
    
    
    1,296
    
    
    
    0.6
    %
    
    
    1,661
    
    
    
    0.7
    %Total adjustable-rate loans
    
    
    70,450
    
    
    
    28.1
    %
    
    
    71,840
    
    
    
    31.6
    %
    
    
    88,496
    
    
    
    38.0
    %Total loans
    
    
    250,835
    
    
    
    100.0
    %
    
    
    227,169
    
    
    
    100.0
    %
    
    
    232,862
    
    
    
    100.0
    %Less:Allowance for loan losses
    
    
    2,719
    
    
    
    
    
    
    
    1,824
    
    
    
    
    
    
    
    2,024Net deferred loan fees
    
    
    574
    
    
    
    
    
    
    
    548
    
    
    
    
    
    
    
    591Loans in process
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total Loans, net
    
    $
    247,542
    
    
    
    
    
    
    $
    224,797
    
    
    
    
    
    
    $
    230,247
 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)
    
    
    7,505
    
    
    
    6.22
    %
    
    
    5,048
    
    
    
    6.06
    %
    
    
    2,470
    
    
    
    5.94
    %
    
    
    1,860
    
    
    
    7.77
    %
    
    
    1,045
    
    
    
    6.69
    %
    
    
    17,928
    
    
    
    6.32
    %After one year
through five years
    
    
    20,838
    
    
    
    6.87
    %
    
    
    53,354
    
    
    
    6.59
    %
    
    
    1,506
    
    
    
    6.73
    %
    
    
    14,907
    
    
    
    7.60
    %
    
    
    2,242
    
    
    
    6.69
    %
    
    
    92,847
    
    
    
    6.82
    %After five years
    
    
    96,461
    
    
    
    6.72
    %
    
    
    23,174
    
    
    
    6.32
    %
    
    
    5,574
    
    
    
    4.82
    %
    
    
    9,646
    
    
    
    5.64
    %
    
    
    5,205
    
    
    
    7.28
    %
    
    
    140,060
    
    
    
    6.52
    %
 
 (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
     8




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Construction and Land Development Lending
   Consumer and Other Lending
   9




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Commercial Business Lending
    Loan Originations, Purchases, Sales and Repayments
   10




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##### 



Years EndedDecember 31,2008
    
    
    2007(Dollars in thousands)Originations by type:Real Estate:One-to-four family
    
    $
    54,846
    
    
    $
    44,652Multi-family
    
    
    250
    
    
    
    608Commercial
    
    
    31,316
    
    
    
    26,840Construction or development
    
    
    5,358
    
    
    
    11,617Total real estate loans
    
    
    91,770
    
    
    
    83,717Consumer Loans:Home Equity
    
    
    5,809
    
    
    
    7,407Other
    
    
    891
    
    
    
    831Commercial business
    
    
    7,101
    
    
    
    2,168Total loans originated
    
    
    105,571
    
    
    
    94,123Sales and Repayments:One-to-four family loans sold
    
    
    27,838
    
    
    
    28,739Commercial real estate loans sold
    
    
    
    
    
    
    1,200Principal repayments
    
    
    54,067
    
    
    
    69,906Total reductions
    
    
    81,905
    
    
    
    99,845Increase (decrease) in other items, net
    
    
    921
    
    
    
    243Net increase (decrease)
    
    $
    22,745
    
    
    $
    (5,965
    )
 Asset Quality
  11




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##### 



Delinquent Loans.
 December 31, 2008Loans 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
    
    
    50
    
    
    $
    2,284
    
    
    
    1.83
    %
    
    
    23
    
    
    $
    466
    
    
    
    0.37
    %
    
    
    73
    
    
    $
    2,750
    
    
    
    2.20
    %Multi-family
    
    
    
    
    
    
    
    
    
    
    0.00
    %
    
    
    1
    
    
    
    164
    
    
    
    2.86
    %
    
    
    1
    
    
    
    164
    
    
    
    2.86
    %Commercial
    
    
    5
    
    
    
    770
    
    
    
    1.02
    %
    
    
    2
    
    
    
    175
    
    
    
    0.23
    %
    
    
    7
    
    
    
    945
    
    
    
    1.25
    %Construction or development
    
    
    
    
    
    
    
    
    
    
    0.00
    %
    
    
    1
    
    
    
    139
    
    
    
    1.46
    %
    
    
    1
    
    
    
    139
    
    
    
    1.46
    %Total real estate loans
    
    
    55
    
    
    $
    3,054
    
    
    
    1.42
    %
    
    
    27
    
    
    $
    944
    
    
    
    0.44
    %
    
    
    82
    
    
    $
    3,998
    
    
    
    1.84
    %Consumer
    
    
    5
    
    
    
    73
    
    
    
    0.28
    %
    
    
    3
    
    
    
    115
    
    
    
    0.44
    %
    
    
    8
    
    
    
    188
    
    
    
    0.71
    %Commercial Business
    
    
    1
    
    
    
    1
    
    
    
    0.01
    %
    
    
    
    
    
    
    
    
    
    
    0.00
    %
    
    
    1
    
    
    
    1
    
    
    
    0.01
    %Total
    
    
    61
    
    
    $
    3,128
    
    
    
    1.25
    %
    
    
    30
    
    
    $
    1,059
    
    
    
    0.42
    %
    
    
    91
    
    
    $
    4,187
    
    
    
    1.67
    %
 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
    %
 12




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##### 



Non-performing Assets.
 December 31,2008
    
    
    2007
    
    
    2006
    
    
    2005
    
    
    2004(Dollars in Thousands)Non-accruing loans:One-to-four family
    
    
    622
    
    
    
    607
    
    
    $
    408
    
    
    $
    406
    
    
    $
    1,866Multi-family
    
    
    164
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Commercial real estate
    
    
    459
    
    
    
    
    
    
    
    
    
    
    
    397
    
    
    
    1,708Construction or development
    
    
    1,298
    
    
    
    153
    
    
    
    
    
    
    
    
    
    
    
    220Consumer
    
    
    28
    
    
    
    
    
    
    
    60
    
    
    
    8
    
    
    
    93Commercial business
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    344Total
    
    
    2,571
    
    
    
    760
    
    
    
    468
    
    
    
    811
    
    
    
    4,231Accruing loans delinquent 90 days or more:One-to-four family
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Multi-family
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Commercial real estate
    
    
    
    
    
    
    87
    
    
    
    
    
    
    
    
    
    
    
    Construction or development
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Consumer
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Commercial business
    
    
    
    
    
    
    18
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    
    
    
    
    105
    
    
    
    
    
    
    
    
    
    
    
    Foreclosed assets:One-to-four family (1)
    
    
    1,669
    
    
    
    1,453
    
    
    
    1,580
    
    
    
    2,239
    
    
    
    1,560Multi-family
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Commercial real estate
    
    
    407
    
    
    
    62
    
    
    
    
    
    
    
    480
    
    
    
    400Construction or development
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Consumer
    
    
    
    
    
    
    
    
    
    
    100
    
    
    
    22
    
    
    
    9Commercial business
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    70
    
    
    
    Total
    
    
    2,076
    
    
    
    1,515
    
    
    
    1,680
    
    
    
    2,811
    
    
    
    1,969Total non-performing assets
    
    $
    4,647
    
    
    $
    2,380
    
    
    $
    2,148
    
    
    $
    3,622
    
    
    $
    6,200Total as a percentage of total assets
    
    
    1.59
    %
    
    
    0.85
    %
    
    
    0.74
    %
    
    
    1.31
    %
    
    
    2.23
    %
 
 (1)
    
    Includes $1.3 million, $630,000, $895,000, $1.3 million and $726,000
in real estate in judgment and subject to redemption at December 31,
2008, 2007, 2006, 2005 and 2004 respectively.  13




---



##### 



Classified Assets.
   Provision for Loan Losses
 Allowance for Loan Losses
  14




---



##### 



15




---



##### 



December 31,2008
    
    
    2007
    
    
    2006
    
    
    2005
    
    
    2004Balance at beginning of year
    
    $
    1,824
    
    
    $
    2,024
    
    
    $
    2,925
    
    
    $
    6,420
    
    
    $
    2,618Charge-offs:One-to-four family
    
    
    879
    
    
    
    774
    
    
    
    223
    
    
    
    754
    
    
    
    375Multi-family
    
    
    
    
    
    
    28
    
    
    
    
    
    
    
    
    
    
    
    Commercial real estate
    
    
    321
    
    
    
    197
    
    
    
    15
    
    
    
    1,904
    
    
    
    1,306Construction or development
    
    
    50
    
    
    
    
    
    
    
    340
    
    
    
    6
    
    
    
    Consumer
    
    
    532
    
    
    
    386
    
    
    
    494
    
    
    
    393
    
    
    
    181Commercial business
    
    
    239
    
    
    
    17
    
    
    
    113
    
    
    
    386
    
    
    
    Total
    
    
    2,021
    
    
    
    1,402
    
    
    
    1,185
    
    
    
    3,443
    
    
    
    1,862Recoveries:One-to-four family
    
    
    4
    
    
    
    16
    
    
    
    4
    
    
    
    78
    
    
    
    105Multi-family
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Commercial real estate
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    28Construction or development
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Consumer
    
    
    198
    
    
    
    175
    
    
    
    275
    
    
    
    230
    
    
    
    143Commercial business
    
    
    
    
    
    
    40
    
    
    
    5
    
    
    
    24
    
    
    
    Total
    
    
    204
    
    
    
    231
    
    
    
    284
    
    
    
    333
    
    
    
    276Net charge-offs:
    
    
    1,817
    
    
    
    1,171
    
    
    
    901
    
    
    
    3,110
    
    
    
    1,586Allowance acquired in acquisition
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    513Additions charged to operations
    
    
    2,712
    
    
    
    971
    
    
    
    
    
    
    
    
    
    
    
    4,875Provision recovered from operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (385
    )
    
    
    Balance at end of year
    
    $
    2,719
    
    
    $
    1,824
    
    
    $
    2,024
    
    
    $
    2,925
    
    
    $
    6,420Ratio of net charge-offs during the year to
average loans
    
    
    0.76
    %
    
    
    0.49
    %
    
    
    0.39
    %
    
    
    1.42
    %
    
    
    0.82
    %Allowance as a percentage of non-performing loans
    
    
    105.76
    %
    
    
    210.87
    %
    
    
    432.48
    %
    
    
    360.67
    %
    
    
    151.74
    %Allowance as a percentage of total loans (end of year)
    
    
    1.21
    %
    
    
    0.81
    %
    
    
    0.93
    %
    
    
    1.37
    %
    
    
    2.84
    %
 16




---



##### 



December 31,2008
    
    
    2007
    
    
    2006Amount of
    
    
    Percentage
    
    
    Amount of
    
    
    Percentage
    
    
    Amount of
    
    
    PercentageLoan Loss
    
    
    of
    
    
    Loan Loss
    
    
    of
    
    
    Loan Loss
    
    
    ofAllowance
    
    
    Allowance
    
    
    Allowance
    
    
    Allowance
    
    
    Allowance
    
    
    AllowanceOne-to-four family
    
    $
    1,618
    
    
    
    59.5
    %
    
    $
    979
    
    
    
    53.7
    %
    
    $
    783
    
    
    
    60.3
    %Multi-family
and non-residential real estate
    
    
    533
    
    
    
    19.6
    %
    
    
    351
    
    
    
    19.2
    %
    
    
    809
    
    
    
    20.8
    %Construction or development
    
    
    75
    
    
    
    2.8
    %
    
    
    154
    
    
    
    8.4
    %
    
    
    7
    
    
    
    4.1
    %Consumer
    
    
    305
    
    
    
    11.2
    %
    
    
    287
    
    
    
    15.7
    %
    
    
    302
    
    
    
    12.1
    %Commercial business
    
    
    188
    
    
    
    6.9
    %
    
    
    53
    
    
    
    2.9
    %
    
    
    123
    
    
    
    2.7
    %Total
    
    $
    2,719
    
    
    
    100.0
    %
    
    $
    1,824
    
    
    
    100.0
    %
    
    $
    2,024
    
    
    
    100.0
    %
 2005
    
    
    2004Amount of
    
    
    Percentage
    
    
    Amount of
    
    
    PercentageLoan Loss
    
    
    of
    
    
    Loan Loss
    
    
    ofAllowance
    
    
    Allowance
    
    
    Allowance
    
    
    AllowanceOne-to-four family
    
    $
    1,378
    
    
    
    64.4
    %
    
    $
    1,516
    
    
    
    62.3
    %Multi-family
and non-residential real estate
    
    
    1,091
    
    
    
    17.7
    %
    
    
    4,513
    
    
    
    20.7
    %Construction or development
    
    
    17
    
    
    
    2.5
    %
    
    
    27
    
    
    
    3.9
    %Consumer
    
    
    284
    
    
    
    12.5
    %
    
    
    296
    
    
    
    10.7
    %Commercial business
    
    
    155
    
    
    
    2.9
    %
    
    
    68
    
    
    
    2.4
    %$
    2,925
    
    
    
    100.0
    %
    
    $
    6,420
    
    
    
    100.0
    %
 Investment Activities
    17




---



##### 



December 31, 2008
    
    
    December 31, 2007Percent 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
    
    $
    5,698
    
    
    $
    5,761
    
    
    
    64.3
    %
    
    $
    7,692
    
    
    $
    7,730
    
    
    
    68.3
    %Mortgage-backed securities
    
    
    739
    
    
    
    734
    
    
    
    8.2
    %
    
    
    932
    
    
    
    918
    
    
    
    8.1
    %Obligations of states and
political subdivisions
    
    
    2,375
    
    
    
    2,421
    
    
    
    27.0
    %
    
    
    2,381
    
    
    
    2,436
    
    
    
    21.5
    %Total available-for-sale securities
    
    $
    8,812
    
    
    $
    8,916
    
    
    
    99.6
    %
    
    $
    11,005
    
    
    $
    11,084
    
    
    
    97.9
    %Held-to-maturity securities:Municipal security
    
    $
    37
    
    
    $
    37
    
    
    
    0.4
    %
    
    $
    238
    
    
    $
    234
    
    
    
    2.1
    %Total investment securities
    
    $
    8,849
    
    
    $
    8,953
    
    
    
    100.0
    %
    
    $
    11,243
    
    
    $
    11,318
    
    
    
    100.0
    %
 December 31, 2006Percent ofFair
    
    TotalAmortized
    
    Market
    
    Fair MarketCost
    
    Value
    
    ValueAvailable-for-sale securities:U.S. government agency obligations
    
    $
    10,730
    
    
    $
    10,626
    
    
    
    76.3
    %Mortgage-backed securities
    
    
    1,108
    
    
    
    1,082
    
    
    
    7.8
    %Obligations of states and
political subdivisions
    
    
    1,964
    
    
    
    1,998
    
    
    
    14.3
    %Total available-for-sale securities
    
    $
    13,802
    
    
    $
    13,706
    
    
    
    98.4
    %Held-to-maturity securities:Municipal securityTotal investment securities
    
    $
    14,030
    
    
    $
    13,934
    
    
    
    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
    
    $
    2,998
    
    
    
    4.33
    %
    
    $
    1,251
    
    
    
    2.65
    %
    
    $
    1,449
    
    
    
    5.12
    %
    
    $
    
    
    
    
    0.00
    %
    
    $
    5,698
    
    
    
    4.16
    %Mortgage-backed securities
    
    
    
    
    
    
    0.00
    %
    
    
    739
    
    
    
    4.50
    %
    
    
    
    
    
    
    0.00
    %
    
    
    
    
    
    
    0.00
    %
    
    
    739
    
    
    
    4.50
    %Obligations of states and
political subdivisions
    
    
    
    
    
    
    
    
    
    
    900
    
    
    
    4.30
    %
    
    
    1,475
    
    
    
    4.12
    %
    
    
    
    
    
    
    0.00
    %
    
    
    2,375
    
    
    
    4.19
    %Total available-for-sale securities
    
    
    2,998
    
    
    
    4.33
    %
    
    
    2,889
    
    
    
    3.64
    %
    
    
    2,925
    
    
    
    4.62
    %
    
    
    
    
    
    
    0.00
    %
    
    
    8,812
    
    
    
    4.20
    %Held-to-maturity securities:Municipal security
    
    
    
    
    
    
    0.00
    %
    
    
    37
    
    
    
    4.50
    %
    
    
    
    
    
    
    0.00
    %
    
    
    
    
    
    
    0.00
    %
    
    
    37
    
    
    
    4.50
    %Total investment securities
    
    $
    2,998
    
    
    
    3.48
    %
    
    $
    2,927
    
    
    
    3.65
    %
    
    $
    2,924
    
    
    
    4.62
    %
    
    $
    
    
    
    
    0.00
    %
    
    $
    8,849
    
    
    
    4.20
    %
 Sources of Funds
 General.
 Deposits .
  19




---



##### 



Year EndedDecember 31,2008
    
    
    2007(Dollars in Thousands)Opening balance
    
    $
    177,936
    
    
    $
    192,572Net deposits (withdrawals)
    
    
    8,359
    
    
    
    (20,743
    )Interest credited
    
    
    5,861
    
    
    
    6,107Ending balance
    
    $
    192,156
    
    
    $
    177,936Net increase
    
    $
    14,220
    
    
    $
    (14,636
    )Percent increase (decrease)
    
    
    7.99
    %
    
    
    -7.60
    %
  Year Ended December 31,2008
    
    
    
    
    
    
    2007Percent
    
    
    
    
    
    
    PercentAmount
    
    
    of Total
    
    
    Amount
    
    
    of Total(Dollars in Thousands)Transaction and Savings Deposits:Non-interest bearing accounts
    
    $
    13,883
    
    
    
    7.2
    %
    
    $
    13,609
    
    
    
    7.6
    %Savings accounts
    
    
    18,488
    
    
    
    9.6
    %
    
    
    19,426
    
    
    
    10.9
    %Checking & NOW accounts
    
    
    16,058
    
    
    
    8.4
    %
    
    
    17,927
    
    
    
    10.1
    %Money market accounts
    
    
    41,156
    
    
    
    21.4
    %
    
    
    26,014
    
    
    
    14.6
    %Total transaction and savings
    
    $
    89,585
    
    
    
    46.6
    %
    
    $
    76,976
    
    
    
    43.3
    %Certificates:0.00-1.99%
    
    
    72
    
    
    
    0.0
    %
    
    
    
    
    
    
    0.0
    %2.00-3.99%
    
    
    45,309
    
    
    
    23.6
    %
    
    
    5,712
    
    
    
    3.2
    %4.00-5.99%
    
    
    57,190
    
    
    
    29.8
    %
    
    
    95,248
    
    
    
    53.5
    %Total certificates
    
    
    102,571
    
    
    
    53.4
    %
    
    
    100,960
    
    
    
    56.7
    %Total deposits
    
    $
    192,156
    
    
    
    100.0
    %
    
    $
    177,936
    
    
    
    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
    
    $
    9,245
    
    
    $
    9,029
    
    
    $
    17,205
    
    
    $
    20,471
    
    
    $
    55,950Certificates of deposit of $100,000 or more
    
    
    2,421
    
    
    
    9,181
    
    
    
    11,715
    
    
    
    23,304
    
    
    
    46,621Total certificates of deposit
    
    $
    11,666
    
    
    $
    18,210
    
    
    $
    28,920
    
    
    $
    43,775
    
    
    $
    102,571
  0.00-1.99%
    
    
    2.00-3.99%
    
    
    4.00-5.99%
    
    
    6.00-7.99%
    
    
    Total
    
    

Percentof Total(Dollars in Thousands)Certificate accounts
maturing in quarter ending:March 31, 2009
    
    $
    
    
    
    $
    8,618
    
    
    $
    3,048
    
    
    $
    
    
    
    $
    11,666
    
    
    
    11.4
    %June 30, 2009
    
    
    
    
    
    
    11,401
    
    
    
    6,809
    
    
    
    
    
    
    
    18,210
    
    
    
    17.8
    %September 30, 2009
    
    
    
    
    
    
    6,616
    
    
    
    4,304
    
    
    
    
    
    
    
    10,920
    
    
    
    10.6
    %December 31, 2009
    
    
    65
    
    
    
    8,396
    
    
    
    9,589
    
    
    
    
    
    
    
    18,050
    
    
    
    17.6
    %March 31, 2010
    
    
    
    
    
    
    394
    
    
    
    3,812
    
    
    
    
    
    
    
    4,206
    
    
    
    4.1
    %June 30, 2010
    
    
    
    
    
    
    1,489
    
    
    
    2,107
    
    
    
    
    
    
    
    3,596
    
    
    
    3.5
    %September 30, 2010
    
    
    
    
    
    
    535
    
    
    
    4,403
    
    
    
    
    
    
    
    4,938
    
    
    
    4.8
    %December 31, 2010
    
    
    
    
    
    
    1,275
    
    
    
    1,376
    
    
    
    
    
    
    
    2,651
    
    
    
    2.6
    %March 31, 2011
    
    
    
    
    
    
    812
    
    
    
    3,877
    
    
    
    
    
    
    
    4,689
    
    
    
    4.6
    %June 30, 2011
    
    
    
    
    
    
    195
    
    
    
    1,225
    
    
    
    
    
    
    
    1,420
    
    
    
    1.4
    %September 30, 2011
    
    
    
    
    
    
    196
    
    
    
    5,203
    
    
    
    
    
    
    
    5,399
    
    
    
    5.3
    %December 31, 2011
    
    
    
    
    
    
    2,305
    
    
    
    3,695
    
    
    
    
    
    
    
    6,000
    
    
    
    5.8
    %Thereafter
    
    
    7
    
    
    
    3,077
    
    
    
    7,742
    
    
    
    
    
    
    
    10,826
    
    
    
    10.6
    %Total
    
    $
    72
    
    
    $
    45,309
    
    
    $
    57,190
    
    
    $
    
    
    
    $
    102,571
    
    
    
    100.0
    %Percent of total
    
    
    0.07
    %
    
    
    44.17
    %
    
    
    55.76
    %
    
    
    0.00
    %
 21




---



##### 



Borrowings .
    Year EndedDecember 31,2008
    
    
    2007(Dollars in Thousands)Maximum Balance:FHLB advances
    
    $
    62,330
    
    
    $
    62,476Fed funds purchased
    
    $
    3,000
    
    
    $
    Average Balance:FHLB advances
    
    $
    55,106
    
    
    $
    57,859Fed funds purchased
    
    $
    55
    
    
    $
    
  December 31,2008
    
    
    2007(Dollars in Thousands)FHLB advances
    
    $
    60,178
    
    
    $
    59,330Fed funds purchased
    
    $
    1,000
    
    
    $
    Weighted average interest rate of FHLBFHLB advances
    
    
    4.45
    %
    
    
    5.10
    %Fed funds purchased
    
    
    0.25
    %
    
    
    0.00
    %
 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.
   25




---



##### 



Dividends.
 Recent Developments .
   26




---



##### 



The Bank
 General.
 Business Activities.
  Branching.
  Loans to One Borrower.
 27




---



##### 



Enforcement.
  Assessments and Fees.
 Regulatory Capital Requirements.
     28




---



##### 



Prompt Corrective Regulatory Action.
   Deposit Insurance.
 29




---



##### 



Payment of Dividends by the Bank.
  30




---



##### 



Loans to Directors, Executive Officers, and Principal Shareholders.
 Certain Transactions With Related Parties.
  Standards for Safety and Soundness.
 Reserve Requirement.
 
    
    for transaction accounts totaling $10.3 million or less, a reserve of 0%; and
    
    for transaction accounts in excess of $10.3 million up to and including $44.4 million, a
reserve of 3%; and
    
    for transaction accounts totaling in excess of $44.4 million, a reserve requirement of
$1.023 million plus 10% of that portion of the total transaction accounts greater than
$44.4 million.
  ITEM 1A. Risk Factors
  We are dependent on the strength of our local economy for our growth and profitability
  31




---



##### 



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
  Our loan portfolio possesses increased risk due to our subprime residential lending
  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
 32




---



##### 




    
    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.
  ITEM 1B. Unresolved Staff Comments  None
 ITEM 2. Properties
  33




---



##### 



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
  34




---



##### 



PART II
 ITEM 5. Market for the Companys Common Equity, Related Stockholder Matters and Issuer Purchases
of Equity Securities
  Year
    
    Quarter ending
    
    High
    
    Low2007
    
    
    March 31
    
    $
    12.50
    
    
    $
    10.05June 30
    
    $
    12.16
    
    
    $
    11.23September 30
    
    $
    12.86
    
    
    $
    11.70December 31
    
    $
    12.50
    
    
    $
    11.102008
    
    
    March 31
    
    $
    10.37
    
    
    $
    9.80June 30
    
    $
    9.64
    
    
    $
    9.45September 30
    
    $
    9.25
    
    
    $
    8.04December 31
    
    $
    3.84
    
    
    $
    3.50
  35




---



##### 



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 Program10/01/08-10/31/08
    
    
    15,750
    
    
    $
    7.90
    
    
    
    15,750
    
    
    
    11/01/08-11/30/08
    
    
    
    
    
    $
    
    
    
    
    
    
    
    
    12/01/08-12/31/08
    
    
    
    
    
    $
    
    
    
    
    
    
    
    
    Total
    
    
    15,750
    
    
    $
    7.90
    
    
    
    15,750
    
    
    
    
  36




---



##### 



ITEM 6. Selected Financial Data
 SELECTED FINANCIAL AND OTHER DATA
  December 31,2008
    
    2007
    
    2006
    
    2005
    
    2004(In Thousands)Selected Financial Condition Data:Total Assets
    
    $
    291,807
    
    
    $
    279,208
    
    
    $
    289,987
    
    
    $
    277,068
    
    
    $
    275,448Loans receivable, net
    
    
    247,542
    
    
    
    224,797
    
    
    
    230,247
    
    
    
    213,097
    
    
    
    219,373Investment securities, at carrying value
    
    
    8,916
    
    
    
    11,322
    
    
    
    13,934
    
    
    
    14,584
    
    
    
    8,324Fed Funds sold and overnight deposits
    
    
    677
    
    
    
    6,151
    
    
    
    7,864
    
    
    
    6,988
    
    
    
    6,120Deposits
    
    
    192,156
    
    
    
    177,936
    
    
    
    192,572
    
    
    
    174,715
    
    
    
    169,573Federal Home Loan Bank Advances
    
    
    60,178
    
    
    
    59,330
    
    
    
    54,476
    
    
    
    59,562
    
    
    
    65,955Equity
    
    
    36,270
    
    
    
    39,086
    
    
    
    39,986
    
    
    
    40,576
    
    
    
    39,419
 December 31,2008
    
    
    2007
    
    
    2006
    
    
    2005
    
    
    2004(In Thousands)Selected Operations Data:Total interest income
    
    $
    17,196
    
    
    $
    17,545
    
    
    $
    17,287
    
    
    $
    15,231
    
    
    $
    13,818Total interest expense
    
    
    8,536
    
    
    
    9,222
    
    
    
    8,607
    
    
    
    6,567
    
    
    
    6,173Net interest income
    
    
    8,660
    
    
    
    8,323
    
    
    
    8,680
    
    
    
    8,664
    
    
    
    7,645Provision for loan losses
    
    
    2,712
    
    
    
    971
    
    
    
    
    
    
    
    (385
    )
    
    
    4,875Net interest
income after provision for loan losses
    
    
    5,948
    
    
    
    7,352
    
    
    
    8,680
    
    
    
    9,049
    
    
    
    2,770Fees and service charges
    
    
    2,757
    
    
    
    2,921
    
    
    
    2,642
    
    
    
    2,496
    
    
    
    2,333Gains on sales of loans, mortgage-backed
securities and investment securities
    
    
    629
    
    
    
    651
    
    
    
    342
    
    
    
    562
    
    
    
    805Other non-interest income
    
    
    217
    
    
    
    374
    
    
    
    138
    
    
    
    341
    
    
    
    287Total non-interest income
    
    
    3,603
    
    
    
    3,946
    
    
    
    3,122
    
    
    
    3,399
    
    
    
    3,425Total non-interest expense
    
    
    9,152
    
    
    
    8,992
    
    
    
    9,710
    
    
    
    10,503
    
    
    
    9,978Income before taxes
    
    
    399
    
    
    
    2,306
    
    
    
    2,092
    
    
    
    1,945
    
    
    
    (3,783
    )Income tax provision
    
    
    101
    
    
    
    561
    
    
    
    544
    
    
    
    505
    
    
    
    (1,272
    )Net income (loss)
    
    $
    298
    
    
    $
    1,745
    
    
    $
    1,548
    
    
    $
    1,440
    
    
    $
    (2,511
    )
 37




---



##### 



ITEM 6. Selected Financial Data, continued
 December 31,2008
    
    2007
    
    2006
    
    2005
    
    2004Selected Financial Ratios and Other Data:Performance Ratios:Return on assets (ratio of net income to average total assets)
    
    
    0.10
    %
    
    
    0.61
    %
    
    
    0.54
    %
    
    
    0.52
    %
    
    
    -0.97
    %Return on Equity (ratio of net income to average equity)
    
    
    0.78
    %
    
    
    4.30
    %
    
    
    3.85
    %
    
    
    3.59
    %
    
    
    -6.53
    %Interest rate spread information:Average during period
    
    
    3.11
    %
    
    
    3.05
    %
    
    
    3.26
    %
    
    
    3.41
    %
    
    
    3.15
    %Net interest margin
    
    
    3.32
    %
    
    
    3.27
    %
    
    
    3.42
    %
    
    
    3.56
    %
    
    
    3.33
    %Ratio of operating expense to average total assets
    
    
    3.20
    %
    
    
    3.17
    %
    
    
    3.41
    %
    
    
    3.80
    %
    
    
    3.85
    %Ratio of average interest-earning assets to average
interest-bearing liabilities
    
    
    1.06
    
    
    
    1.06
    
    
    
    1.05
    
    
    
    1.05
    
    
    
    1.07Efficiency ratio
    
    
    73.25
    %
    
    
    72.62
    %
    
    
    80.44
    %
    
    
    85.39
    %
    
    
    88.18
    %Asset Quality Ratios:Non-performing assets to total assets at end of period
    
    
    1.59
    %
    
    
    0.81
    %
    
    
    0.74
    %
    
    
    1.31
    %
    
    
    2.23
    %Non-performing loans to total loans
    
    
    1.04
    %
    
    
    0.33
    %
    
    
    0.20
    %
    
    
    0.37
    %
    
    
    1.87
    %Allowance for loan losses to non-performing loans
    
    
    105.76
    %
    
    
    240.00
    %
    
    
    432.48
    %
    
    
    360.67
    %
    
    
    151.74
    %Allowance for loan losses to loans receivable, net
    
    
    1.10
    %
    
    
    0.81
    %
    
    
    0.88
    %
    
    
    1.37
    %
    
    
    2.84
    %Capital ratios:Equity to total assets at end of period
    
    
    12.43
    %
    
    
    14.00
    %
    
    
    13.79
    %
    
    
    14.64
    %
    
    
    14.31
    %Other data:Number of full-service offices
    
    
    6
    
    
    
    6
    
    
    
    6
    
    
    
    6
    
    
    
    7
 ITEM 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
 General
   Critical Accounting Policies
  Management Strategy
   38




---



##### 



Changes in Financial Condition from December 31, 2007 to December 31, 2008
 General.
 Loans.
 Securities.
 Liabilities.
  Equity
 39




---



##### 



Average Balances, Net Interest Income, Yields Earned and Rates Paid
  Year Ended December 31,2008
    
    
    
    
    
    
    
    
    
    
    2007Average
    
    
    Interest
    
    
    
    
    
    
    Average
    
    
    InterestOutstanding
    
    
    Earned/
    
    
    Yield/
    
    
    Outstanding
    
    
    Earned/
    
    
    Yield/Balance
    
    
    Paid
    
    
    Rate
    
    
    Balance
    
    
    Paid
    
    
    Rate(dollars in thousands)Fed Funds and overnight deposits
    
    $
    8,170
    
    
    $
    102
    
    
    
    1.25
    %
    
    $
    7,373
    
    
    $
    389
    
    
    
    5.28
    %Investment securities
    
    
    9,951
    
    
    
    428
    
    
    
    4.30
    
    
    
    13,445
    
    
    
    599
    
    
    
    4.46Other securities
    
    
    4,174
    
    
    
    209
    
    
    
    5.01
    
    
    
    4,174
    
    
    
    188
    
    
    
    4.50Loans receivable (1)
    
    
    238,838
    
    
    
    16,457
    
    
    
    6.89
    
    
    
    229,451
    
    
    
    16,369
    
    
    
    7.13Total earning assets
    
    $
    261,133
    
    
    $
    17,196
    
    
    
    6.59
    
    
    $
    254,443
    
    
    $
    17,545
    
    
    
    6.90Demand and NOW accounts
    
    $
    32,032
    
    
    $
    95
    
    
    
    0.30
    
    
    $
    32,619
    
    
    $
    78
    
    
    
    0.24Money market accounts
    
    
    35,497
    
    
    
    1,041
    
    
    
    2.93
    
    
    
    24,451
    
    
    
    902
    
    
    
    3.69Savings accounts
    
    
    19,123
    
    
    
    81
    
    
    
    0.42
    
    
    
    21,502
    
    
    
    90
    
    
    
    0.42Certificates of deposit
    
    
    103,569
    
    
    
    4,644
    
    
    
    4.48
    
    
    
    103,970
    
    
    
    5,037
    
    
    
    4.84Fed Funds Purchased
    
    
    56
    
    
    
    
    
    
    
    Federal Home Loan Bank advances
    
    
    55,106
    
    
    
    2,675
    
    
    
    4.85
    
    
    
    57,268
    
    
    
    3,115
    
    
    
    5.44Total interest bearing liabilities
    
    $
    245,383
    
    
    
    8,536
    
    
    
    3.48
    
    
    
    239,810
    
    
    
    9,222
    
    
    
    3.85Net interest income
    
    
    
    
    
    $
    8,660
    
    
    
    
    
    
    
    
    
    
    
    8,323Net interest spread
    
    
    
    
    
    
    
    
    
    
    3.11
    %
    
    
    
    
    
    
    
    
    
    
    3.05
    %Net interest margin
    
    
    
    
    
    
    
    
    
    
    3.32
    %
    
    
    
    
    
    
    
    
    
    
    3.27
    %
 2006Average
    
    
    InterestOutstanding
    
    
    Earned/
    
    
    Yield/Balance
    
    
    Paid
    
    
    RateFed Funds and overnight depositsInvestment securities
    
    $
    6,913
    
    
    $
    380
    
    
    
    5.50
    %Other securities
    
    
    14,038
    
    
    
    574
    
    
    
    4.09Loans receivable (1)
    
    
    4,583
    
    
    
    226
    
    
    
    4.93Total earning assets
    
    
    228,613
    
    
    
    16,107
    
    
    
    7.05$
    254,147
    
    
    $
    17,287
    
    
    
    6.80Demand and NOW accountsMoney market accounts
    
    $
    32,055
    
    
    $
    70
    
    
    
    0.22Savings accounts
    
    
    19,304
    
    
    
    617
    
    
    
    3.20Certificates of deposit
    
    
    25,230
    
    
    
    105
    
    
    
    0.42Federal Home Loan Bank advances
    
    
    105,179
    
    
    
    4,626
    
    
    
    4.40Total interest bearing liabilities
    
    
    58,105
    
    
    
    3,189
    
    
    
    5.49Net interest income
    
    $
    239,873
    
    
    
    8,607
    
    
    
    3.59Net interest spread
    
    
    
    
    
    $
    8,680Net interest margin
    
    
    
    
    
    
    
    
    
    
    3.21
    %3.42
    %
 
 (1)
    
    Calculated net of deferred loan fees, loan discounts and loans in process. Nonaccrual loans are included in the average outstanding balance. 40




---



##### 



Rate/Volume Analysis
  Year Ended December 31,
    
    
    Year Ended December 31,2008 vs. 2007
    
    
    2007 vs. 2006Total
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    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
    
    $
    (297
    )
    
    $
    42
    
    
    
    (32
    )
    
    
    (287
    )
    
    $
    (15
    )
    
    
    25
    
    
    
    (1
    )
    
    
    9Investment securities
    
    
    (21
    )
    
    
    (156
    )
    
    
    5
    
    
    
    (171
    )
    
    
    51
    
    
    
    (24
    )
    
    
    (2
    )
    
    
    25Other securities
    
    
    21
    
    
    
    
    
    
    
    
    
    
    
    21
    
    
    
    (20
    )
    
    
    (20
    )
    
    
    2
    
    
    
    (38
    )Loans receivable
    
    
    (559
    )
    
    
    670
    
    
    
    (23
    )
    
    
    88
    
    
    
    202
    
    
    
    654
    
    
    
    (594
    )
    
    
    262Total interest-earning assets
    
    $
    (855
    )
    
    $
    556
    
    
    $
    (50
    )
    
    $
    (349
    )
    
    $
    219
    
    
    $
    635
    
    
    $
    (595
    )
    
    $
    258Interest-bearing liabilitiesDemand and NOW accounts
    
    
    19
    
    
    
    (1
    )
    
    
    (1
    )
    
    
    17
    
    
    
    7
    
    
    
    1
    
    
    
    
    
    
    
    8Money market accounts
    
    
    (185
    )
    
    
    407
    
    
    
    (84
    )
    
    
    139
    
    
    
    95
    
    
    
    165
    
    
    
    25
    
    
    
    285Savings accounts
    
    
    1
    
    
    
    (10
    )
    
    
    
    
    
    
    (9
    )
    
    
    
    
    
    
    (15
    )
    
    
    
    
    
    
    (15
    )Certificates of deposit
    
    
    (375
    )
    
    
    (19
    )
    
    
    1
    
    
    
    (393
    )
    
    
    469
    
    
    
    (53
    )
    
    
    (5
    )
    
    
    411Fed Funds Purchased
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Federal Home Loan Bank advances
    
    
    (335
    )
    
    
    (118
    )
    
    
    13
    
    
    
    (440
    )
    
    
    (28
    )
    
    
    (46
    )
    
    
    0
    
    
    
    (74
    )Total interest-bearing liabilities
    
    $
    (875
    )
    
    $
    259
    
    
    $
    (71
    )
    
    $
    (686
    )
    
    $
    542
    
    
    $
    52
    
    
    $
    21
    
    
    $
    615Net interest income
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    337
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (357
    )
 Comparison of Results of Operations for the Years Ended December 31, 2008, 2007, and 2006
 General
 Net Interest Income.
 41




---



##### 



Interest Income.
 Interest Expense.
 Provision for Loan Losses.
   Non-interest Income.
    42




---



##### 



Non-interest Expense.
      Federal Income Taxes.
 43




---



##### 



Liquidity and Commitments
       Off-Balance Sheet Arrangements
  44




---



##### 



Capital
  Impact of Inflation
    Recent Developments
      45




---



##### 



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.
  46




---



##### 




    
    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 Rates
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net Portfolio Value as %Basis Points (bp)
    
    Net Portfolio Value
    
    of Present Value of Assets(Rate Shock in Rates) (1)
    
    $ Amount
    
    $ Change
    
    % Change
    
    NPV Ratio
    
    Change+ 300 bp
    
    
    27,505
    
    
    
    5,533
    
    
    
    -17
    %
    
    
    9.79
    %
    
    -271bp
    
    
    -1.4+ 200 bp
    
    
    28,770
    
    
    
    4,268
    
    
    
    -13
    %
    
    
    10.09
    %
    
    -183bp
    
    
    -1.1+100 bp
    
    
    30,760
    
    
    
    2,278
    
    
    
    -7
    %
    
    
    10.61
    %
    
    -80bp
    
    
    -0.580 bp
    
    
    33,038
    
    
    
    0
    
    
    
    
    
    
    
    11.19
    %
    
    
    0-100 bp
    
    
    36,308
    
    
    
    3,270
    
    
    
    10
    %
    
    
    12.08
    %
    
    +7bp
    
    
    0.89-200 bp
    
    
    39,724
    
    
    
    6,686
    
    
    
    20
    %
    
    
    12.99
    %
    
    +25bp
    
    
    1.8-300 bp
    
    
    n/m
    (2)
    
    
    n/m
    (2)
    
    
    n/m
    (2)
    
    
    n/m
    (2)
    
    
    n/m
    (2)
 
 (1)
    
    Assumes an instantaneous uniform change in interest rates at all maturities.  47




---



##### 



Principal Amount Maturing In:
 2014 and
    
    
    
    
    
    Fair Value2009
    
    2010
    
    2011
    
    2012
    
    2013
    
    beyond
    
    Total
    
    12/31/2008Rate-sensitive assetsFed funds and overnight
deposits
    
    $
    677
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    677
    
    
    $
    677Average interest rate
    
    
    1.25
    %Securities
    
    $
    3,002
    
    
    $
    1,514
    
    
    $
    507
    
    
    $
    395
    
    
    $
    506
    
    
    $
    2,925
    
    
    $
    8,849
    
    
    $
    8,953Average interest rate
    
    
    4.33
    %
    
    
    2.97
    %
    
    
    4.50
    %
    
    
    4.38
    %
    
    
    4.25
    %
    
    
    4.61
    %Gross loans
    
    $
    17,928
    
    
    $
    13,176
    
    
    $
    24,182
    
    
    $
    22,222
    
    
    $
    33,267
    
    
    $
    140,060
    
    
    $
    250,835
    
    
    
    250,068Average interest rate
    
    
    6.23
    %
    
    
    6.80
    %
    
    
    6.60
    %
    
    
    7.07
    %
    
    
    6.83
    %
    
    
    6.52
    %Rate-sensitive liabilitiesSavings &
interest-bearing demand
deposits
    
    $
    75,702
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    75,702
    
    
    $
    89,553Average interest rate
    
    
    1.45
    %Certificates of deposit
    
    $
    58,747
    
    
    $
    15,490
    
    
    $
    8,338
    
    
    $
    13,517
    
    
    $
    6,479
    
    
    $
    
    
    
    $
    102,571
    
    
    $
    103,744Average interest rate
    
    
    3.91
    %
    
    
    4.33
    %
    
    
    4.54
    %
    
    
    4.33
    %
    
    
    4.46
    %FHLB advances
    
    $
    15,500
    
    
    $
    8,000
    
    
    $
    16,000
    
    
    $
    13,000
    
    
    $
    7,678
    
    
    $
    
    
    
    $
    60,178
    
    
    $
    63,252Average interest rate
    
    
    4.50
    %
    
    
    5.64
    %
    
    
    3.43
    %
    
    
    4.78
    %
    
    
    4.23
    %
 48




---



##### 



ITEM 8. Financial Statements and Supplementary Data
 Monarch Community Bancorp, Inc. and
Subsidiaries
 
 Consolidated Financial Report
December 31, 2008




---



##### 



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
    
    8-45




---



##### 



(PLANTE MORAN LOGO)
    
    Plante & Moran, PLLC
Suite 400
634 Front Avenue N.W.
Grand Rapids, MI 49504
Tel: 616.774.8221
Fax: 616.774.0702
plantemoran.com
  
      
 
 3




---



##### 



Monarch Community Bancorp, Inc. and Subsidiaries
 Consolidated Balance Sheet
(000s omitted, except per share data)
 December 31,2008
    
    
    2007AssetsCash and due from banks
    
    $
    5,595
    
    
    $
    7,691Federal Home Loan Bank overnight time and
other interest bearing deposits
    
    
    677
    
    
    
    6,151Total cash and cash equivalents
    
    
    6,272
    
    
    
    13,842Securities  Available for sale (Note 3)
    
    
    8,916
    
    
    
    11,084Securities  Held to maturity (Note 3)
    
    
    37
    
    
    
    238Other securities (Note 3)
    
    
    4,237
    
    
    
    4,237Loans held for sale
    
    
    860
    
    
    
    422Loans, net (Note 4)
    
    
    247,542
    
    
    
    224,797Foreclosed assets, net (Note 6)
    
    
    2,076
    
    
    
    1,515Premises and equipment (Note 7)
    
    
    4,456
    
    
    
    4,675Goodwill (Note 2)
    
    
    9,606
    
    
    
    9,606Core deposit (Note 2)
    
    
    681
    
    
    
    862Other assets (Notes 5 and 10)
    
    
    7,124
    
    
    
    7,930Total assets
    
    $
    291,807
    
    
    $
    279,208Liabilities and Stockholders EquityLiabilitiesDepositsNoninterest-bearing
    
    $
    13,883
    
    
    $
    13,609Interest-bearing (Note 8):
    
    
    178,273
    
    
    
    164,327Total deposits
    
    
    192,156
    
    
    
    177,936Federal Home Loan Bank advances (Note 9)
    
    
    60,178
    
    
    
    59,330Fed funds purchased (Note 9)
    
    
    1,000
    
    
    
    Accrued expenses and other liabilities (Note 14)
    
    
    2,203
    
    
    
    2,856Total liabilities
    
    
    255,537
    
    
    
    240,122Commitments and Contingencies(Note 11)
    
    
    
    
    
    
    Stockholders Equity(Notes 12 ,13 and 17)Common stock  $0.01 par value
20,000,000 shares authorized, 2,046,102 shares issued and
outstanding at December 31, 2008 and 2,321,585 shares issued
and outstanding at December 31, 2007
    
    
    20
    
    
    
    23Additional paid-in capital
    
    
    21,152
    
    
    
    23,828Retained earnings
    
    
    15,867
    
    
    
    16,341Accumulated other comprehensive income
    
    
    69
    
    
    
    52Unearned compensation (Notes 17 and 18)
    
    
    (838
    )
    
    
    (1,158
    )Total stockholders equity
    
    
    36,270
    
    
    
    39,086Total liabilities and stockholders equity
    
    $
    291,807
    
    
    $
    279,208
  4




---



##### 



Monarch Community Bancorp, Inc. and Subsidiaries
 Consolidated Statement of Income
(000s omitted, except per share data)
 Year Ended December 31,2008
    
    
    2007
    
    
    2006Interest IncomeLoans, including fees
    
    $
    16,457
    
    
    $
    16,369
    
    
    $
    16,107Investment securities
    
    
    637
    
    
    
    787
    
    
    
    800Federal funds sold and overnight deposits
    
    
    102
    
    
    
    389
    
    
    
    380Total interest income
    
    
    17,196
    
    
    
    17,545
    
    
    
    17,287Interest ExpenseDeposits
    
    
    5,861
    
    
    
    6,107
    
    
    
    5,418Federal Home Loan Bank advances
    
    
    2,675
    
    
    
    3,115
    
    
    
    3,189Total interest expense
    
    
    8,536
    
    
    
    9,222
    
    
    
    8,607Net Interest Income
    
    
    8,660
    
    
    
    8,323
    
    
    
    8,680Provision for Loan Losses(Note 4)
    
    
    2,712
    
    
    
    971
    
    
    
    Net Interest Income After Provision for Loan Losses
    
    
    5,948
    
    
    
    7,352
    
    
    
    8,680Noninterest IncomeFees and service charges
    
    
    2,314
    
    
    
    2,477
    
    
    
    2,195Loan servicing fees
    
    
    443
    
    
    
    444
    
    
    
    447Net gain on sale of loans
    
    
    627
    
    
    
    668
    
    
    
    362Net loss on sale of investment securities (Note 3)
    
    
    2
    
    
    
    (17
    )
    
    
    (20
    )Net gain on sale of premises and equipment
    
    
    
    
    
    
    49
    
    
    
    Other income (Note 6)
    
    
    217
    
    
    
    325
    
    
    
    138Total noninterest income
    
    
    3,603
    
    
    
    3,946
    
    
    
    3,122Noninterest ExpenseSalaries and employee benefits (Note 14, 17 and 18)
    
    
    4,584
    
    
    
    4,522
    
    
    
    4,967Occupancy and equipment (Note 7)
    
    
    1,032
    
    
    
    1,008
    
    
    
    1,020Data processing
    
    
    777
    
    
    
    731
    
    
    
    704Mortgage banking
    
    
    406
    
    
    
    359
    
    
    
    382Professional services
    
    
    401
    
    
    
    591
    
    
    
    441Amortization of intangible assets (Note 2)
    
    
    181
    
    
    
    230
    
    
    
    291NOW account processing
    
    
    176
    
    
    
    180
    
    
    
    171ATM/Debit card processing
    
    
    200
    
    
    
    192
    
    
    
    233Repossessed property expense (Note 6)
    
    
    219
    
    
    
    207
    
    
    
    346Other general and administrative
    
    
    1,176
    
    
    
    972
    
    
    
    1,155Total noninterest expense
    
    
    9,152
    
    
    
    8,992
    
    
    
    9,710Income- Before income taxes
    
    
    399
    
    
    
    2,306
    
    
    
    2,092Income Taxes(Note 10)
    
    
    101
    
    
    
    561
    
    
    
    544Net Income
    
    $
    298
    
    
    $
    1,745
    
    
    $
    1,548Earnings Per ShareBasic
    
    $
    0.14
    
    
    $
    0.73
    
    
    $
    0.63Diluted
    
    $
    0.14
    
    
    $
    0.73
    
    
    $
    0.63
  5




---



##### 



Monarch Community Bancorp, Inc. and Subsidiaries
 Consolidated Statement of Stockholders Equity
(000s omitted, except per share data)
 Common Stock
    
    
    
    
    
    
    
    
    
    
    AccumulatedNumber of
    
    
    
    
    
    
    Additional Paid
    
    
    Retained
    
    
    Other Comprehensive
    
    
    UnearnedShares
    
    
    Amount
    
    
    in Capital
    
    
    Earnings
    
    
    Income (Loss)
    
    
    Compensation
    
    
    TotalBalance  January 1, 2006
    
    
    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
    )
    
    $
    39,086Vesting of 17,289 restricted shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    227
    
    
    
    227Allocation of ESOP shares (Note 17)
    
    
    
    
    
    
    
    
    
    
    15
    
    
    
    
    
    
    
    
    
    
    
    93
    
    
    
    108Repurchase of 275,483 shares at average price of $9.81/share
    
    
    (275
    )
    
    
    (3
    )
    
    
    (2,701
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,704
    )Stock option expenses
    
    
    
    
    
    
    
    
    
    
    10
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10Comprehensive Income:Net Income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    298
    
    
    
    
    
    
    
    
    
    
    
    298Change in unrealized loss on
securities available-for-sale, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17
    
    
    
    
    
    
    
    17Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    315Dividends paid ($0.36/share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (772
    )
    
    
    
    
    
    
    
    
    
    
    (772
    )Balance  December 31, 2008
    
    
    2,047
    
    
    $
    20
    
    
    $
    21,152
    
    
    $
    15,867
    
    
    $
    69
    
    
    $
    (838
    )
    
    $
    36,270
 
 6




---



##### 



Monarch Community Bancorp, Inc. and Subsidiaries
 Consolidated Statement of Cash Flows
(000s omitted)
 Year Ended December 31,2008
    
    
    2007
    
    
    2006Cash Flows From Operating ActivitiesNet income
    
    $
    298
    
    
    $
    1,745
    
    
    $
    1,548Adjustments to reconcile net income to net cash provided by
operating activities:Depreciation and amortization
    
    
    1,082
    
    
    
    1,100
    
    
    
    1,271Provision for loan loss
    
    
    2,712
    
    
    
    971
    
    
    
    Stock option expense
    
    
    10
    
    
    
    88
    
    
    
    85(Gain) loss on sale of foreclosed assets
    
    
    (68
    )
    
    
    (138
    )
    
    
    67Deferred income taxes
    
    
    (274
    )
    
    
    (394
    )
    
    
    264Mortgage loans originated for sale
    
    
    (28,273
    )
    
    
    (28,224
    )
    
    
    (16,969
    )Proceeds from sale of mortgage loans
    
    
    28,464
    
    
    
    29,407
    
    
    
    16,563Gain on sale of mortgage loans
    
    
    (627
    )
    
    
    (668
    )
    
    
    (362
    )(Gain) Loss on sale of available for sale securities
    
    
    (2
    )
    
    
    17
    
    
    
    20Gain on sale of premises and equipment
    
    
    
    
    
    
    (49
    )
    
    
    Earned stock compensation
    
    
    335
    
    
    
    371
    
    
    
    464Net change in:Accrued interest receivable
    
    
    64
    
    
    
    (63
    )
    
    
    (164
    )Other assets
    
    
    345
    
    
    
    (226
    )
    
    
    337Accrued expenses and other liabilities
    
    
    (390
    )
    
    
    (109
    )
    
    
    925Net cash provided by operating activities
    
    
    3,676
    
    
    
    3,828
    
    
    
    4,049Cash Flows From Investing ActivitiesActivity in available-for-sale securities:Purchases
    
    
    (3,519
    )
    
    
    (3,819
    )
    
    
    (4,755
    )Proceeds from sale of securities
    
    
    5,691
    
    
    
    4,428
    
    
    
    2,543Proceeds from maturities of securities
    
    
    208
    
    
    
    2,173
    
    
    
    2,994Activity in held-to-maturity securities:Purchases
    
    
    (7
    )
    
    
    (30
    )
    
    
    (7
    )Proceeds from maturities of securities
    
    
    
    
    
    
    20
    
    
    
    Activity in other securities:Redemption of other securities, at par
    
    
    
    
    
    
    
    
    
    
    600Loan originations and principal collections, net
    
    
    (27,672
    )
    
    
    3,001
    
    
    
    (19,248
    )Proceeds from sale of foreclosed assets
    
    
    1,715
    
    
    
    1,793
    
    
    
    3,196Proceeds on sale of premises and equipment
    
    
    
    
    
    
    283
    
    
    
    30Purchase of premises and equipment
    
    
    (254
    )
    
    
    (131
    )
    
    
    (113
    )Net cash provided by (used in) investing activities
    
    
    (23,838
    )
    
    
    7,718
    
    
    
    (14,760
    )Cash Flows From Financing ActivitiesNet increase (decrease) in deposits
    
    
    14,220
    
    
    
    (14,636
    )
    
    
    17,587Repurchases of common stock
    
    
    (2,704
    )
    
    
    (2,496
    )
    
    
    (2,149
    )Dividends paid
    
    
    (772
    )
    
    
    (723
    )
    
    
    (630
    )Proceeds from FHLB advances
    
    
    44,500
    
    
    
    41,500
    
    
    
    27,000Repayment of FHLB advances
    
    
    (42,652
    )
    
    
    (36,646
    )
    
    
    (32,086
    )Net cash provided by (used in) financing activities
    
    
    12,592
    
    
    
    (13,001
    )
    
    
    9,722Net Increase (Decrease) in Cash and Cash Equivalents
    
    
    (7,570
    )
    
    
    (1,455
    )
    
    
    (989
    )Cash and Cash Equivalents- Beginning
    
    
    13,842
    
    
    
    15,297
    
    
    
    16,286Cash and Cash Equivalents End
    
    $
    6,272
    
    
    $
    13,842
    
    
    $
    15,297
  7




---



##### 



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




---



##### 



Monarch Community Bancorp, Inc. and Subsidiaries
  Note 1  Summary of Significant Accounting Policies (Continued)
 Foreclosed Assets
 Premises and Equipment
 Goodwill and Other Intangible Assets
  Income Taxes 
 Comprehensive Income
  2008
    
    
    2007
    
    
    2006Change in unrealized holding gain (loss)
on available-for-sale securities
    
    $
    27
    
    
    $
    158
    
    
    $
    118Reclassification adjustment for (gains) losses
realized in income
    
    
    (2
    )
    
    
    17
    
    
    
    20Net unrealized gains (losses)
    
    $
    25
    
    
    $
    175
    
    
    $
    138Tax effect
    
    
    (8
    )
    
    
    (60
    )
    
    
    (46
    )Net-of-tax amount
    
    $
    17
    
    
    $
    115
    
    
    $
    92
 11




---



##### 



Monarch Community Bancorp, Inc. and Subsidiaries
 Notes to Consolidated Financial Statements
 Note 1  Summary of Significant Accounting Policies (Continued)
 Earnings (Loss) Per Common Share
  2008
    
    
    2007
    
    
    2006Basic earnings per shareNumerator:Net income
    
    $
    298
    
    
    $
    1,745
    
    
    $
    1,548Denominator:Weighted average common shares outstanding
    
    
    2,159
    
    
    
    2,508
    
    
    
    2,626Less: Average unallocated ESOP shares
    
    
    (83
    )
    
    
    (93
    )
    
    
    (111
    )Less: Average non-vested RRP shares
    
    
    (11
    )
    
    
    (32
    )
    
    
    (49
    )Weighted average common shares outstanding
for basic earnings per share
    
    
    2,065
    
    
    
    2,383
    
    
    
    2,466Basic earnings per share
    
    $
    0.14
    
    
    $
    0.73
    
    
    $
    0.63Diluted earnings per shareNumerator:Net income
    
    $
    298
    
    
    $
    1,745
    
    
    $
    1,548Denominator:Weighted average common shares outstanding
for basic earnings per share
    
    
    2,065
    
    
    
    2,383
    
    
    
    2,466Add: 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
    
    
    2,065
    
    
    
    2,383
    
    
    
    2,466Diluted earnings per share
    
    $
    0.14
    
    
    $
    0.73
    
    
    $
    0.63
  12




---



##### 



Monarch Community Bancorp, Inc. and Subsidiaries
 Notes to Consolidated Financial Statements
 Note 1  Summary of Significant Accounting Policies (Continued)
 Employee Stock Ownership Plan (ESOP)
 Stock Based Compensation 
 Recent Accounting Pronouncements
  Fair Value Measurements
      13




---



##### 



Monarch Community Bancorp, Inc. and Subsidiaries
 Notes to Consolidated Financial Statements
 Fair Value Measurements (Continued)
 Quoted Prices inActive Markets for
    
    Significant Other
    
    Significant
    
    Balance atIdentical Assets
    
    Observable Inputs
    
    Unobservable
    
    December(Level 1)
    
    (Level 2)
    
    Inputs (Level 3)
    
    31, 2008AssetsInvestment
securities  available 
for  sale
    
    $
    5,757
    
    
    $
    3,159
    
    
    $-
    
    $
    8,916
   SignificantQuoted Prices in
    
    Other
    
    
    
    
    
    Change in FairBalance at
    
    Active Markets for
    
    Observable
    
    Significant
    
    Value for the yearDecember
    
    Identical Assets
    
    Inputs
    
    Unobservable
    
    ended December31, 2008
    
    (Level 1)
    
    (Level 2)
    
    Inputs (Level 3)
    
    31, 2008Impaired
Loans
accounted
for under
SFAS 114
    
    $
    2,377
    
    
    $
    
    
    
    $
    
    
    
    $
    2,377
    
    
    $
    (193
    )
   14




---



##### 



Monarch Community Bancorp, Inc. and Subsidiaries
 Notes to Consolidated Financial Statements
 Supplemental Cash Flow Information (000s omitted)
 December 31,2008
    
    2007
    
    2006Cash paid (received) for:Interest
    
    $
    8,553
    
    
    $
    9,218
    
    
    $
    8,491Income taxes
    
    $
    400
    
    
    $
    500
    
    
    $
    (1,122
    )Noncash investing activities -Loans transferred to real estate owned
    
    $
    1,715
    
    
    $
    1,478
    
    
    $
    2,097Issuance of common stock in connection with
the 2003 Recognition and Retention Plan
    
    $
    
    
    
    $
    
    
    
    $
    47
 Reclassifications 
 15




---



##### 



Monarch Community Bancorp, Inc. and Subsidiaries
 Notes to Consolidated Financial Statements
 Note 2  Goodwill and Intangible Assets
   (In thousands of Dollars)Gross
    
    
    Accumulated
    
    
    NetAmount
    
    
    Amortization
    
    
    Carrying2008Amortized intangible assets:Core deposit premium resulting from
bank and branch acquistionsTotal
    
    $
    2,081
    
    
    $
    1,400
    
    
    $
    6812007Amortized intangible assets:Core deposit premium resulting from
bank and branch acquistionsTotal
    
    $
    2,081
    
    
    $
    1,219
    
    
    $
    862
  Year EndingDecember 312009
    
    $
    1492010
    
    
    1422011
    
    
    1422012
    
    
    142Thereafter
    
    
    106Total
    
    $
    681
 16




---



##### 



Monarch Community Bancorp, Inc. and Subsidiaries
  Note 3  Securities
  Gross
    
    
    Gross
    
    
    EstimatedAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    MarketCost
    
    
    Gains
    
    
    Losses
    
    
    Value2008Available-for-sale securities:U.S. government agency obligations
    
    $
    5,698
    
    
    $
    63
    
    
    $
    
    
    
    $
    5,761Mortgage-backed securities
    
    
    739
    
    
    
    
    
    
    
    (5
    )
    
    
    734Obligations of states and
political subdivisions
    
    
    2,375
    
    
    
    58
    
    
    
    (12
    )
    
    
    2,421Total available-for-sale securities
    
    $
    8,812
    
    
    $
    121
    
    
    $
    (17
    )
    
    $
    8,916Held-to-maturity securities:Municipal securities
    
    $
    37
    
    
    $
    
    
    
    $
    
    
    
    $
    37
 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
    )
    
    $
    234
 17




---



##### 



Monarch Community Bancorp, Inc. and Subsidiaries
 Notes to Consolidated Financial Statements
 Note 3  Securities (Continued)
  Held to Maturity
    
    
    Available for SaleAmortized
    
    
    Market
    
    
    Amortized
    
    
    MarketCost
    
    
    Value
    
    
    Cost
    
    
    ValueDue in one year or less
    
    $
    
    
    
    $
    
    
    
    $
    2,998
    
    
    $
    3,051Due in one through five years
    
    
    37
    
    
    
    37
    
    
    
    2,151
    
    
    
    2,188Due after five years through ten years
    
    
    
    
    
    
    
    
    
    
    2,924
    
    
    
    2,943Due after ten years
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    37
    
    
    $
    37
    
    
    
    8,073
    
    
    
    8,182Mortgage-backed securities
    
    
    
    
    
    
    
    
    
    
    739
    
    
    
    734Total available-for-sale securities
    
    
    
    
    
    
    
    
    
    $
    8,812
    
    
    $
    8,916
  18




---



##### 



Monarch Community Bancorp, Inc. and Subsidiaries
 Notes to Consolidated Financial Statements
 Note 3  Securities (Continued)
  Less than Twelve Months
    
    
    Twelve Months and OverGross
    
    
    
    
    
    
    GrossUnrealized
    
    
    Estimated
    
    
    Unrealized
    
    
    EstimatedLosses
    
    
    Market Value
    
    
    Losses
    
    
    Market Value2008Available-for-sale securities:Mortgage-backed securities
    
    $
    5
    
    
    $
    734
    
    
    $
    
    
    
    $
    Obligations of states and
political subdivisions
    
    
    12
    
    
    
    528
    
    
    
    
    
    
    
    Total available-for-sale securities
    
    $
    17
    
    
    $
    1,262
    
    
    $
    
    
    
    $
    2007Available-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
    
    
    $
    
    
    
    $
    
   19




---



##### 



Monarch Community Bancorp, Inc. and Subsidiaries
 Notes to Consolidated Financial Statements
 Note 4  Loans
  December 31,2008
    
    
    2007Mortgage loans on real estate:One-to-four family
    
    $
    124,855
    
    
    $
    126,780Multi-family
    
    
    5,728
    
    
    
    5,594Commercial
    
    
    75,730
    
    
    
    56,714Construction or land development
    
    
    9,499
    
    
    
    6,409Total real estate loans
    
    
    215,812
    
    
    
    195,497Consumer loans:Home equity
    
    
    20,677
    
    
    
    20,430Other
    
    
    5,737
    
    
    
    7,014Total consumer loans
    
    
    26,414
    
    
    
    27,444Commercial business loans
    
    
    8,609
    
    
    
    4,228Subtotal
    
    
    250,835
    
    
    
    227,169Less: Allowance for loan losses
    
    
    2,719
    
    
    
    1,824Net deferred loan fees
    
    
    574
    
    
    
    548Loans, net
    
    $
    247,542
    
    
    $
    224,797
 20




---



##### 



Monarch Community Bancorp, Inc. and Subsidiaries
 Notes to Consolidated Financial Statements
 Note 4  Loans (Continued)
  December 31,2008
    
    
    2007
    
    
    2006Balance  Beginning
    
    $
    1,824
    
    
    $
    2,024
    
    
    $
    2,925Provision for loan losses
    
    
    2,712
    
    
    
    971
    
    
    
    Loans charged-off
    
    
    (2,021
    )
    
    
    (1,402
    )
    
    
    (1,185
    )Recoveries of loans previously charged off
    
    
    204
    
    
    
    231
    
    
    
    284Balance  Ending
    
    $
    2,719
    
    
    $
    1,824
    
    
    $
    2,024
  December 31,2008
    
    
    2007Impaired loans with a valuation allowance
    
    $
    2,394
    
    
    $
    424Valuation allowance related to impaired loans
    
    $
    364
    
    
    $
    90Total non-accrual loans
    
    $
    2,571
    
    
    $
    760Total loans past-due ninety days or more and still accruing
    
    $
    
    
    
    $
    105
  December 31,2008
    
    
    2007
    
    
    2006Average investment in impaired loans
    
    $
    1,661
    
    
    $
    1,748
    
    
    $
    2,709
  21




---



##### 



Monarch Community Bancorp, Inc. and Subsidiaries
 Notes to Consolidated Financial Statements
 Note 5  Servicing
    December 31,2008
    
    
    2007
    
    
    2006Mortgage servicing rights  Beginning
    
    $
    1,016
    
    
    $
    1,129
    
    
    $
    1,358Mortgage servicing rights capitalized
    
    
    252
    
    
    
    246
    
    
    
    153Mortgage servicing rights scheduled
amortization
and direct writedown for loan payoffs
    
    
    (406
    )
    
    
    (359
    )
    
    
    (382
    )Mortgage servicing rights  Ending
    
    $
    862
    
    
    $
    1,016
    
    
    $
    1,129
 Note 6  Foreclosed Assets
  December 31,2008
    
    
    2007Real estate owned
    
    $
    749
    
    
    $
    885Real estate in judgment and
subject to redemption
    
    
    1,327
    
    
    
    630Total
    
    $
    2,076
    
    
    $
    1,515
 22




---



##### 



Monarch Community Bancorp, Inc. and Subsidiaries
 Notes to Consolidated Financial Statements
 Note 6
 Foreclosed Assets (Continued)
  December 31,2008
    
    
    2007
    
    
    2006Net loss (gain) on sales of real estate
    
    $
    (68
    )
    
    $
    (138
    )
    
    $
    67Operating expenses
    
    
    219
    
    
    
    207
    
    
    
    346Total
    
    $
    151
    
    
    $
    69
    
    
    $
    413
 Note 7  Premises and Equipment
  DepreciableDecember 31,
    
    
    Life2008
    
    
    2007
    
    
    (in Years)Land
    
    $
    566
    
    
    $
    566Buildings and improvements
    
    
    5,550
    
    
    
    5,494
    
    
    
    5-40Furniture, fixtures and equipment
    
    
    2,779
    
    
    
    2,581
    
    
    
    2-15Total bank premises and equipment
    
    
    8,895
    
    
    
    8,641Less accumulated depreciation
and amortization
    
    
    4,439
    
    
    
    3,966Net carrying amount
    
    $
    4,456
    
    
    $
    4,675
  23




---



##### 



Monarch Community Bancorp, Inc. and Subsidiaries
 Notes to Consolidated Financial Statements
 Note 8  Deposits
  December 31,2008
    
    
    2007Balances by account type:Demand and NOW accounts
    
    $
    16,057
    
    
    $
    17,927Money market
    
    
    41,156
    
    
    
    26,014Passbook and statement savings
    
    
    18,489
    
    
    
    19,426Total transactional accounts
    
    
    75,702
    
    
    
    63,367Certificates of deposit:$100,000 and over
    
    
    46,621
    
    
    
    46,023Under $100,000
    
    
    55,950
    
    
    
    54,937Total certificates of deposit
    
    
    102,571
    
    
    
    100,960Total
    
    $
    178,273
    
    
    $
    164,327
  December 31, 2008Less than
    
    
    $100,000 &$100,000
    
    
    greaterLess than one year
    
    $
    35,431
    
    
    $
    23,316One to two years
    
    
    6,984
    
    
    
    8,506Two to three years
    
    
    6,038
    
    
    
    2,300Three to four years
    
    
    2,880
    
    
    
    10,637Four to five years
    
    
    4,617
    
    
    
    1,862Total
    
    $
    55,950
    
    
    $
    46,621
 Note 9  Federal Home Loan Bank Advances and Fed Funds Purchased
   24




---



##### 



Monarch Community Bancorp, Inc. and Subsidiaries
 Notes to Consolidated Financial Statements
 Note 9  Federal Home Loan Bank Advances and Fed Funds Purchased (Continued)
     Year EndingDecember 312009
    
    $
    15,6602010
    
    
    8,1682011
    
    
    16,1752012
    
    
    13,1162013
    
    
    7,059Total
    
    $
    60,178
 Note 10  Income Taxes
  December 31,2008
    
    
    2007
    
    
    2006Current expense
    
    $
    371
    
    
    $
    955
    
    
    $
    280Deferred expense (recovery)
    
    
    (270
    )
    
    
    (394
    )
    
    
    264Total tax expense
    
    $
    101
    
    
    $
    561
    
    
    $
    544
 25




---



##### 



Monarch Community Bancorp, Inc. and Subsidiaries
 Notes to Consolidated Financial Statements
 Note 10  Income Taxes (Continued)
  Percent of Pretax Income (Loss)December 31,2008
    
    
    2007
    
    
    2006Statutory federal tax rate
    
    
    34.00
    %
    
    
    34.00
    %
    
    
    34.00
    %Increase (decrease) resulting from:Nondeductible expenses
    
    
    2.50
    %
    
    
    0.84
    %
    
    
    1.30
    %Tax exempt income
    
    
    -18.70
    %
    
    
    -3.49
    %
    
    
    -2.73
    %Low income housing credit
    
    
    -20.40
    %
    
    
    -5.93
    %
    
    
    -4.18
    %Other
    
    
    27.90
    %
    
    
    -1.09
    %
    
    
    -2.39
    %Reported tax expense
    
    
    25.30
    %
    
    
    24.33
    %
    
    
    26.00
    %
  December 31,2008
    
    
    2007Deferred tax assets:Provision for loan losses
    
    $
    297
    
    
    $
    120Net deferred loan fees
    
    
    195
    
    
    
    186Deferred compensation
    
    
    334
    
    
    
    345Unrealized loss on available for sale securities
    
    
    
    
    
    
    General business tax credit carryforward
    
    
    480
    
    
    
    525Depreciation
    
    
    224
    
    
    
    144Other
    
    
    311
    
    
    
    432Total deferred tax assets
    
    
    1,841
    
    
    
    1,752Deferred tax liabilities:Mortgage servicing rights
    
    $
    274
    
    
    $
    323Original issue discount
    
    
    72
    
    
    
    61Net purchase premiums
    
    
    673
    
    
    
    769Unrealized gain on available for sale securities
    
    
    35
    
    
    
    27Other
    
    
    133
    
    
    
    180Total deferred tax liabilities
    
    
    1,187
    
    
    
    1,360Net deferred tax asset
    
    $
    654
    
    
    $
    392
 26




---



##### 



Monarch Community Bancorp, Inc. and Subsidiaries
 Notes to Consolidated Financial Statements
 Note 10  Income Taxes (Continued)
   Note
11  Off-Balance Sheet Activities
 Credit Related Financial Instruments
   Contract AmountDecember 31,2008
    
    2007Commitments to grant loans
    
    $
    6,907
    
    
    $
    9,568Unfunded commitments under lines of credit
    
    
    18,952
    
    
    
    20,296Unfunded commitments under letters of credit
    
    
    10
    
    
    
    16
   27




---



##### 



Monarch Community Bancorp, Inc. and Subsidiaries
 Notes to Consolidated Financial Statements
 Note
11  Off-Balance Sheet Activities (Continued)
  Collateral Requirements
 Note
12  Regulatory Matters
     December 31,2008
    
    
    2007Equity per consolidated bank balance sheet
    
    $
    36,186
    
    
    $
    38,309Less: intangible and disallowed assets
    
    
    (10,440
    )
    
    
    (11,207
    )Tier 1 Capital
    
    
    25,746
    
    
    
    27,102Plus: Allowance for loan losses **
    
    
    2,719
    
    
    
    1,824Total Capital
    
    $
    28,465
    
    
    $
    28,926
 
 **
    
    Limited to 1.25% of risk weighted assets 28




---



##### 



Monarch Community Bancorp, Inc. and Subsidiaries
 Notes to Consolidated Financial Statements
 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, 2008:Total Capital
(to Risk-Weighted Assets)
    
    $
    28,465
    
    
    
    12.54
    %
    
    $
    18,155
    
    
    
    8.00
    %
    
    $
    22,693
    
    
    
    10.00
    %Tier 1 Capital
(to Risk-Weighted Assets)
    
    $
    25,746
    
    
    
    11.35
    %
    
    $
    9,077
    
    
    
    4.00
    %
    
    $
    13,616
    
    
    
    6.00
    %Tier 1 Capital
(to Average Assets)
    
    $
    25,746
    
    
    
    9.26
    %
    
    $
    13,903
    
    
    
    5.00
    %
    
    $
    13,903
    
    
    
    5.00
    %As 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
    %
 Note
13  Restrictions on Dividends, Loans and Advances
    29




---



##### 



Monarch Community Bancorp, Inc. and Subsidiaries
 Notes to Consolidated Financial Statements
 Note 14  Retirement Plans
     Note 15  Related Party Transactions
  30




---



##### 



Monarch Community Bancorp, Inc. and Subsidiaries
 Notes to Consolidated Financial Statements
 Note 16  Fair Value of Financial Instruments
   Cash and Cash Equivalents
 Securities
 Mortgage Loans Held for Sale
 Loans Receivable
 Deposit Liabilities
 31




---



##### 



Monarch Community Bancorp, Inc. and Subsidiaries
 Notes to Consolidated Financial Statements
 Note 16  Fair Value of Financial Instruments (Continued)
 Federal Home Loan Bank Advances
 Fed Funds Purchased
 Accrued Interest
  December 31,2008
    
    2007Carrying
    
    
    
    
    
    CarryingAmount
    
    Fair Value
    
    Amount
    
    Fair ValueAssets:Cash and cash equivalents
    
    $
    6,272
    
    
    $
    6,272
    
    
    $
    13,842
    
    
    $
    13,842Securities  Held to maturity
    
    
    37
    
    
    
    37
    
    
    
    238
    
    
    
    234Securities  Available for sale
    
    
    8,916
    
    
    
    8,916
    
    
    
    11,084
    
    
    
    11,084Other securities
    
    
    4,237
    
    
    
    4,237
    
    
    
    4,237
    
    
    
    4,237Loans held for sale
    
    
    860
    
    
    
    864
    
    
    
    422
    
    
    
    428Net loans
    
    
    247,542
    
    
    
    250,068
    
    
    
    224,797
    
    
    
    226,760Accrued interest
and late charges
receivable
    
    
    1,300
    
    
    
    1,300
    
    
    
    1,364
    
    
    
    1,364Liabilities:Federal Home Loan Bank
advances
    
    
    60,178
    
    
    
    63,252
    
    
    
    59,330
    
    
    
    60,409Fed funds purchased
    
    
    1,000
    
    
    
    1,000
    
    
    
    
    
    
    
    Deposits
    
    
    192,156
    
    
    
    192,045
    
    
    
    177,936
    
    
    
    177,754Accrued interest payable
    
    
    526
    
    
    
    526
    
    
    
    544
    
    
    
    544
 Note 17  Employee Stock Ownership Plan (ESOP)
  32




---



##### 



Monarch Community Bancorp, Inc. and Subsidiaries
 Notes to Consolidated Financial Statements
 Note 17  Employee Stock Ownership Plan (ESOP) (Continued)
  Year EndingDecember 312009
    
    $
    892010
    
    
    942011
    
    
    982012
    
    
    1032013
    
    
    108Thereafter
    
    
    356Total
    
    $
    848
   2008
    
    
    2007Allocated shares
    
    
    101,833
    
    
    
    92,575Shares released for allocation
    
    
    9,258
    
    
    
    9,258Shares distributed
    
    
    (29,504
    )
    
    
    (27,810
    )Unreleased shares
    
    
    74,059
    
    
    
    83,317Total ESOP shares
    
    
    155,646
    
    
    
    157,340Fair value of unallocated shares
    
    $
    259
    
    
    $
    942
  33




---



##### 



Monarch Community Bancorp, Inc. and Subsidiaries
 Notes to Consolidated Financial Statements
 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%
 34




---



##### 



Monarch Community Bancorp, Inc. and Subsidiaries
 Notes to Consolidated Financial Statements
 Note
18  Stock Compensation Plans (continued)
  2008
    
    
    2007Weighted
    
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    
    AverageExercise
    
    
    
    
    
    
    ExerciseShares
    
    
    Price
    
    
    Shares
    
    
    PriceOutstanding at beginning of year
    
    
    175
    
    
    $
    13.21
    
    
    
    192
    
    
    $
    13.09Granted
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    10.12Exercised
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Forfeited/expired
    
    
    13
    
    
    
    13.00
    
    
    
    18
    
    
    
    11.91Outstanding at end of year
    
    
    162
    
    
    $
    13.22
    
    
    
    175
    
    
    $
    13.21Exercisable at year-end
    
    
    152
    
    
    $
    13.20
    
    
    
    129
    
    
    $
    13.18
  2008
    
    2007Beginning of year
    
    
    129
    
    
    
    101Newly Vested
    
    
    23
    
    
    
    28Exercised
    
    
    
    
    
    
    End of year
    
    
    152
    
    
    
    129
  Outstanding
    
    ExercisableExercise Price
    
    Number
    
    Remaining
    
    NumberPer share
    
    Outstanding
    
    Life (in Months)
    
    Exercisable$ 14.00
    
    
    39,836
    
    
    
    69
    
    
    
    31,868$ 13.10
    
    
    5,000
    
    
    
    72
    
    
    
    4,000$ 13.00
    
    
    115,426
    
    
    
    52
    
    
    
    115,426$ 11.15
    
    
    1,500
    
    
    
    84
    
    
    
    900$ 10.12
    
    
    500
    
    
    
    97
    
    
    
    100
 35




---



##### 



Monarch Community Bancorp, Inc. and Subsidiaries
 Notes to Consolidated Financial Statements
 Note 19  Condensed Financial Statements of Parent Company
  Condensed Balance Sheet (000s omitted)
 December 31,
    
    
    December 31,2008
    
    
    2007AssetsCash
    
    $
    469
    
    
    $
    758Investments
    
    
    123
    
    
    
    323Investment in Monarch Community Bank
    
    
    36,186
    
    
    
    38,309Other assets
    
    
    140
    
    
    
    28Total assets
    
    $
    36,918
    
    
    $
    39,418Liabilities and Stockholders EquityAccrued expenses
    
    $
    648
    
    
    $
    332Stockholders equity
    
    
    36,270
    
    
    
    39,086Total liabilities and stockholders equity
    
    $
    36,918
    
    
    $
    39,418
 Condensed Income Statement (000s omitted)
 December 31,
    
    
    December 31,
    
    
    December 31,2008
    
    
    2007
    
    
    2006Income  Interest on investmentsIncome  Interest on investments
    
    $
    15
    
    
    $
    23
    
    
    $
    83Dividends from Monarch Community Bank
    
    
    2,638
    
    
    
    3,261
    
    
    
    Operating expense
    
    
    217
    
    
    
    385
    
    
    
    204Income (loss)  Before equity in undistributed
net income of subsidiary
    
    
    2,436
    
    
    
    2,899
    
    
    
    (121
    )Equity in undistributed net income of subsidiary
    
    
    (2,138
    )
    
    
    (1,154
    )
    
    
    1,669Net income
    
    $
    298
    
    
    $
    1,745
    
    
    $
    1,548
 36




---



##### 



Monarch Community Bancorp, Inc. and Subsidiaries
 Notes to Consolidated Financial Statements
 Note 19  Condensed Financial Statements of Parent Company (Continued)
 Condensed Statement of Cash Flows (000s omitted)
 December 31,
    
    
    December 31,
    
    
    December 31,2008
    
    
    2007
    
    
    2006Cash flows from operating activities:Net income
    
    $
    298
    
    
    $
    1,745
    
    
    $
    1,548Adjustments to reconcile net income to net
cash provided by operating activities:Amortization
    
    
    1
    
    
    
    1
    
    
    
    2Allocation of ESOP and RRP
    
    
    335
    
    
    
    371
    
    
    
    464(Increase) decrease in other assets
    
    
    (112
    )
    
    
    139
    
    
    
    (10
    )Decrease in accrued expenses
    
    
    326
    
    
    
    54
    
    
    
    (3
    )Undistributed net income of subsidiary
    
    
    2,138
    
    
    
    1,154
    
    
    
    (1,669
    )Net cash provided by operating activities
    
    
    2,986
    
    
    
    3,464
    
    
    
    332Cash flows from investing activities:Purchase of securities
    
    
    (7
    )
    
    
    (30
    )
    
    
    (83
    )Proceeds from sales and maturities of securities
    
    
    208
    
    
    
    20
    
    
    
    439Net cash (used in) provided by investing activities
    
    
    201
    
    
    
    (10
    )
    
    
    356Cash flows from financing activities:Repurchase of common stock
    
    
    (2,704
    )
    
    
    (2,496
    )
    
    
    (2,149
    )Dividends received
    
    
    
    
    
    
    
    
    
    
    Dividends paid
    
    
    (772
    )
    
    
    (723
    )
    
    
    (630
    )Net cash (used in) provided by financing activities
    
    
    (3,476
    )
    
    
    (3,219
    )
    
    
    (2,779
    )Net increase (decrease) in cash
    
    
    (289
    )
    
    
    235
    
    
    
    (2,091
    )Cash at beginning of year
    
    
    758
    
    
    
    523
    
    
    
    2,614Cash at end of year
    
    $
    469
    
    
    $
    758
    
    
    $
    523
 37




---



##### 



Monarch Community Bancorp, Inc. and Subsidiaries
 Notes to Consolidated Financial Statements
 Note
20  Subsequent events -The Troubled Asset Relief Program Capital Purchase Program
     38




---



##### 



Monarch Community Bancorp, Inc. and Subsidiaries
 Notes to Consolidated Financial Statements
 The Companys TARP Application
    December 31, 2008Actual
    
    Pro formaTier I leverage ratio
    
    
    9.26
    %
    
    
    10.70
    %Tier I risk-based capital ratio
    
    
    11.35
    %
    
    
    13.06
    %Total risk-based captial ratio
    
    
    12.54
    %
    
    
    14.26
    %
 pari passu
 39




---



##### 



Monarch Community Bancorp, Inc. and Subsidiaries
 Notes to Consolidated Financial Statements
 The Companys TARP Application (Continued)
 pari passu pari passu
  pari passu
  40




---



##### 



Monarch Community Bancorp, Inc. and Subsidiaries
 Notes to Consolidated Financial Statements
 Pro Forma Financial Statements
   
  41




---



##### 



Monarch Community Bancorp, Inc. and Subsidiaries
 Notes to Consolidated Financial Statements
 December 31,2008
    
    
    2007
    
    
    AdjustedAssetsCash and due from banks
    
    $
    5,595
    
    
    $
    7,691
    
    
    $
    5,595Federal Home Loan Bank overnight time and
other interest bearing deposits
    
    
    677
    
    
    
    6,151
    
    
    
    677Total cash and cash equivalents
    
    
    6,272
    
    
    
    13,842
    
    
    
    6,272Securities  Available for sale (1)
    
    
    8,916
    
    
    
    11,084
    
    
    
    15,701Securities  Held to maturity
    
    
    37
    
    
    
    238
    
    
    
    37Other securities
    
    
    4,237
    
    
    
    4,237
    
    
    
    4,237Loans held for sale
    
    
    860
    
    
    
    422
    
    
    
    860Loans, net
    
    
    247,542
    
    
    
    224,797
    
    
    
    247,542Foreclosed assets, net
    
    
    2,076
    
    
    
    1,515
    
    
    
    2,076Premises and equipment
    
    
    4,456
    
    
    
    4,675
    
    
    
    4,456Goodwill
    
    
    9,606
    
    
    
    9,606
    
    
    
    9,606Core deposit
    
    
    681
    
    
    
    862
    
    
    
    681Other assets
    
    
    7,124
    
    
    
    7,930
    
    
    
    7,124Total assets
    
    $
    291,807
    
    
    $
    279,208
    
    
    $
    298,592Liabilities and Stockholders EquityLiabilitiesDepositsNoninterest-bearing
    
    $
    13,883
    
    
    $
    13,609
    
    
    $
    13,883Interest-bearing
    
    
    178,273
    
    
    
    164,327
    
    
    
    178,273Total deposits
    
    
    192,156
    
    
    
    177,936
    
    
    
    192,156Federal Home Loan Bank advances
    
    
    60,178
    
    
    
    59,330
    
    
    
    60,178Fed funds purchased
    
    
    1,000
    
    
    
    
    
    
    
    1,000Accrued expenses and other liabilities
    
    
    2,203
    
    
    
    2,856
    
    
    
    2,203Total liabilities
    
    
    255,537
    
    
    
    240,122
    
    
    
    255,537Commitments and Contingencies
    
    
    
    
    
    
    
    
    
    
    Stockholders EquitySenior preferred stock, $1,000 par value; 5,000,000
shares authorized (2)
    
    
    
    
    
    
    
    
    
    
    6,785Discount on senior preferred stock (3)
    
    
    
    
    
    
    
    
    
    
    (56
    )Warrant to purchase common stock (4)
    
    
    
    
    
    
    
    
    
    
    56Common stock  $0.01 par value20,000,000 shares authorized, 2,046,102 shares issued
and outstanding at December 31, 2008 and 2,321,585 shares issued
and outstanding at December 31,2007
    
    
    20
    
    
    
    23
    
    
    
    20Additional paid-in capital
    
    
    21,152
    
    
    
    23,828
    
    
    
    21,152Retained earnings
    
    
    15,867
    
    
    
    16,341
    
    
    
    15,867Accumulated other comprehensive income (loss)
    
    
    69
    
    
    
    52
    
    
    
    69Unearned compensation
    
    
    (838
    )
    
    
    (1,158
    )
    
    
    (838
    )Total stockholders equity
    
    
    36,270
    
    
    
    39,086
    
    
    
    43,055Total liabilities and stockholders equity
    
    $
    291,807
    
    
    $
    279,208
    
    
    $
    298,592
 42




---



##### 



Monarch Community Bancorp, Inc. and Subsidiaries
 Notes to Consolidated Financial Statements
 
 1.
    
    The pro forma financial information above assumes the
proceeds from the issuance of the preferred stock will be used to purchase
investment securities. The Company initially plans to invest the proceeds in a
mix of mortgage-backed securities (MBS), bonds and municipals. It is expected
that the MBS will provide cash flow for subsequent investment in loans. It is
estimated that the Company will earn a pre-tax yield of approximately 4.59% on
such investments and the average life will be five years.2.
    
    Reflects the issuance of the preferred stock.3.
    
    The Company will allocate the estimated proceeds from the
issuance based on the relative fair value of the warrants as compared to the
fair value of the preferred stock. The fair value of the warrants is
determined under a Black-Scholes model (as described in note 4) The fair
value of the preferred stock is determined based on assumptions regarding the
discount rate (market rate) on the preferred stock (currently estimated at
12%). The Company will then accrete the discount over a period of 5 years with
corresponding charges to retained earnings using the effective yield method
(approximately 8%).4.
    
    Reflects the Companys estimate of the relative fair value of
the warrants to be issued to Treasury. As mentioned in note 3, the Company
used the Black-Scholes pricing model. This model includes assumptions
regarding Monarch Community Bancorps common stock price, estimated dividend
yield, stock price volatility, as well as assumptions regarding a risk-free
interest rate. Additionally, based on this pro forma, it is estimated that the
warrants will have an exercise price equal to $3.9 per share, which is
expected to result in approximately $1.0 million in proceeds to the Company
upon exercise. It is estimated the Company will issue a warrant to Treasury
to purchase approximately 260,962 shares of its common stock.
 
 43




---



##### 



Monarch Community Bancorp, Inc. and Subsidiaries
 Notes to Consolidated Financial Statements
 Year Ended December 31,2008 Actual
    
    
    2007 Actual
    
    
    2006 Actual
    
    
    2008 AdjustedInterest IncomeLoans, including fees
    
    $
    16,457
    
    
    $
    16,369
    
    
    $
    16,107
    
    
    $
    16,457Investment securities (1)
    
    
    637
    
    
    
    787
    
    
    
    800
    
    
    
    948Federal funds sold and overnight deposits
    
    
    102
    
    
    
    389
    
    
    
    380
    
    
    
    102Total interest income
    
    
    17,196
    
    
    
    17,545
    
    
    
    17,287
    
    
    
    17,507Interest ExpenseDeposits
    
    
    5,861
    
    
    
    6,107
    
    
    
    5,418
    
    
    
    5,861Federal Home Loan Bank advances
    
    
    2,675
    
    
    
    3,115
    
    
    
    3,189
    
    
    
    2,675Total interest expense
    
    
    8,536
    
    
    
    9,222
    
    
    
    8,607
    
    
    
    8,536Net Interest Income
    
    
    8,660
    
    
    
    8,323
    
    
    
    8,680
    
    
    
    8,971Provision for Loan Losses
    
    
    2,712
    
    
    
    971
    
    
    
    
    
    
    
    2,712Net Interest Income After Provision for Loan Losses
    
    
    5,948
    
    
    
    7,352
    
    
    
    8,680
    
    
    
    6,259Noninterest IncomeFees and service charges
    
    
    2,314
    
    
    
    2,477
    
    
    
    2,195
    
    
    
    2,314Loan servicing fees
    
    
    443
    
    
    
    444
    
    
    
    447
    
    
    
    443Net gain on sale of loans
    
    
    627
    
    
    
    668
    
    
    
    362
    
    
    
    627Net loss on sale of investment securities
    
    
    2
    
    
    
    (17
    )
    
    
    (20
    )
    
    
    2Net gain on sale of premises and equipment
    
    
    
    
    
    
    49
    
    
    
    
    
    
    
    Other income
    
    
    217
    
    
    
    325
    
    
    
    138
    
    
    
    217Total noninterest income
    
    
    3,603
    
    
    
    3,946
    
    
    
    3,122
    
    
    
    3,603Noninterest ExpenseSalaries and employee benefits
    
    
    4,584
    
    
    
    4,522
    
    
    
    4,967
    
    
    
    4,584Occupancy and equipment
    
    
    1,032
    
    
    
    1,008
    
    
    
    1,020
    
    
    
    1,032Data processing
    
    
    777
    
    
    
    731
    
    
    
    704
    
    
    
    777Mortgage banking
    
    
    406
    
    
    
    359
    
    
    
    382
    
    
    
    406Professional services
    
    
    401
    
    
    
    591
    
    
    
    441
    
    
    
    401Amortization of intangible assets
    
    
    181
    
    
    
    230
    
    
    
    291
    
    
    
    181NOW account processing
    
    
    176
    
    
    
    180
    
    
    
    171
    
    
    
    176ATM/Debit card processing
    
    
    200
    
    
    
    192
    
    
    
    233
    
    
    
    200Repossessed property expense
    
    
    219
    
    
    
    207
    
    
    
    346
    
    
    
    219Other general and administrative
    
    
    1,176
    
    
    
    972
    
    
    
    1,155
    
    
    
    1,176Total noninterest expense
    
    
    9,152
    
    
    
    8,992
    
    
    
    9,710
    
    
    
    9,152Income- Before income taxes
    
    
    399
    
    
    
    2,306
    
    
    
    2,092
    
    
    
    710Income Taxes(2)
    
    
    101
    
    
    
    561
    
    
    
    544
    
    
    
    178Net Income
    
    $
    298
    
    
    $
    1,745
    
    
    $
    1,548
    
    
    $
    532Dividends on preferred stock (3)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    339Amortization of discount on preferred stock (4)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11Net Income available to common
    
    $
    298
    
    
    $
    1,745
    
    
    $
    1,548
    
    
    $
    182Earnings Per ShareBasic (5)
    
    $
    0.14
    
    
    $
    0.73
    
    
    $
    0.63
    
    
    $
    0.08Diluted (5)
    
    $
    0.14
    
    
    $
    0.73
    
    
    $
    0.63
    
    
    $
    0.08
 44




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##### 



Monarch Community Bancorp, Inc. and Subsidiaries
 Notes to Consolidated Financial Statements
 
 1.
    
    Reflects estimated additional interest income resulting from
the investment of proceeds the Company may receive under the TARP program. The
Company initially plans to invest the proceeds in a mix of mortgage-backed
securities (MBS), bonds and municipals. It is expected that the MBS will
provide cash flow for subsequent investment in loans. It is estimated that the
Company will earn a pre-tax yield of approximately 4.59% on such investments
and the average life will be five years. The Company anticipates making such
an investment in an effort to minimize the impact the cost of the preferred
equity is expected to have on income available to common shareholders.2.
    
    Provisions for income taxes are adjusted to reflect the
estimated additional income tax the Company may have to accrue for given the
expected increases in interest income. This pro forma assumes a tax rate of
25.0%.3.
    
    Reflect required quarterly dividend payments the Company can
expect to make under the terms of the program. Dividends reflected in the pro
forma information above are equivalent to 5% of the preferred equity assumed
to be issued.4.
    
    Amortization related to the discount on the preferred stock
is expected to take place over a period of five years. The Company will
accrete the value of the discount to preferred equity with corresponding
charges made to retained earnings.5.
    
    Diluted shares and corresponding earnings per share have been
adjusted to reflect the estimated impact that the aforementioned items in
notes 3 and 4 as well as the dilutive nature the issuance of the warrants is
expected to have. For purposes of this pro forma the Company assumed the
warrants were issued and exercisable on January 1, 2008. This pro forma also
assumes the treasury stock method was used in determining the estimated
diluted shares outstanding for the periods presented and corresponding
earnings per share. Estimated proceeds from the assumed exercise of the
warrants were determined using an estimated exercise price of $3.90 per share.
 45




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##### 



QUARTERLY RESULTS OF OPERATIONS
  Year Ended December 31, 20081st Qtr
    
    
    2nd Qtr
    
    
    3rd Qtr
    
    
    4th Qtr(Dollars in thousands, except per share data)Interest income
    
    $
    4,285
    
    
    $
    4,295
    
    
    $
    4,297
    
    
    $
    4,319Interest expense
    
    
    2,213
    
    
    
    2,126
    
    
    
    2,112
    
    
    
    2,085Net interest income
    
    
    2,072
    
    
    
    2,169
    
    
    
    2,185
    
    
    
    2,234Provision for loan losses
    
    
    308
    
    
    
    448
    
    
    
    731
    
    
    
    1,225Net interest income after
provision for loan losses
    
    
    1,764
    
    
    
    1,721
    
    
    
    1,454
    
    
    
    1,009Noninterest income
    
    
    1,000
    
    
    
    933
    
    
    
    898
    
    
    
    772Noninterest expense
    
    
    2,322
    
    
    
    2,321
    
    
    
    2,258
    
    
    
    2,251Income before income taxes
    
    
    442
    
    
    
    333
    
    
    
    94
    
    
    
    (470
    )Income tax expense
    
    
    110
    
    
    
    85
    
    
    
    37
    
    
    
    (131
    )Net Income
    
    $
    332
    
    
    $
    248
    
    
    $
    57
    
    
    $
    (339
    )Earnings per share:Basic
    
    $
    0.15
    
    
    $
    0.12
    
    
    $
    0.03
    
    
    $
    (0.17
    )Diluted
    
    $
    0.15
    
    
    $
    0.12
    
    
    $
    0.03
    
    
    $
    (0.17
    )Cash dividends declared per share
    
    $
    0.09
    
    
    $
    0.09
    
    
    $
    0.09
    
    
    $
    0.09
 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
 46




---



##### 



ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
  ITEM 9A (T). Controls and Procedures
      Internal ControlIntegrated Framework
  /s/ Donald L. DenneyDonald L. DenneyPresident and Chief Executive Officer/s/ Rebecca S. CrabillRebecca S. CrabillVice President and Chief Financial Officer 47




---



##### 



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
    
    
    
    
    
    Number ofsecurities to be
    
    
    
    
    
    securitiesissued upon
    
    Weighted-average
    
    remaining availableexercise of
    
    exercise price of
    
    for future issuanceoutstanding options
    
    outstanding options
    
    under equityPlan Category
    
    warrants and rights
    
    warrants and rights
    
    compensation plansEquity compensation
plans approved by
security holders
(1)
    
    
    162,262
    
    
    
    13.22
    
    
    
    69,176Equity 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
  48




---



##### 



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.
 49




---



##### 



SIGNATURES
  MONARCH COMMUNITY BANCORP, INC.Dated: March 30, 2009
    By:
    /s/ Donald L. DenneyDonald L. Denney,President and Chief Executive Officer  Signature
    
    Title
    
    Date/s/ Donald L. Denney

Donald L. Denney
    
    President and Chief Executive Officer(Principal Executive Officer)
    
    March 30, 2009/s/ Stephen M. Ross

Stephen M. Ross
    
    Chairman of the Board
    
    March 30, 2009/s/ Rebecca S. Crabill

Rebecca S. Crabill
    
    Vice President and Chief Financial Officer(Principal Accounting Officer)
    
    March 30, 2009/s/ Harold A. Adamson

Harold A. Adamson
    
    Director
    
    March 30, 2009/s/ Karl F. Loomis

Karl F. Loomis
    
    Director
    
    March 30, 2009/s/ James W. Gordon

James W. Gordon
    
    Director
    
    March 30, 2009/s/ Martin L. Mitchell

Martin L. Mitchell
    
    Director
    
    March 30, 2009/s/ Gordon L. Welch

Gordon L. Welch
    
    Director
    
    March 30, 2009/s/ Craig W. Dally

Craig W. Dally
    
    Director
    
    March 30, 2009/s/ Richard L. Dobbins

Richard L. Dobbins
    
    Director
    
    March 30, 2009
 50




---



##### 



Exhibit Index
 Reference toPrior Filing orExhibit
    
    
    
    Exhibit NumberNumber
    
    Document
    
    Attached Hereto3.1 (i)
    
    Registrants Articles of Incorporation
    
    
    *3.1 (ii)
    
    Articles Supplementary (Incorporated by reference from Form 8-K filed 2/9/09)3.2 (i)
    
    Registrants Bylaws
    
    
    *3.2 (ii)
    
    Amendment to bylaws (incorporated by reference from Form 8-K filed on 9/25/06)4.1
    
    Registrants Specimen Stock Certificate
    
    
    *4.2
    
    Warrant to Purchase 260,962 shares of Common Stock issued to the U.S. Treasury (Incorporated
by reference from Form 8-K filed on 2/12/09)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 Rebecca S. Crabill (Incorporated by reference from
Form 8-K filed on 02/27/08)10.8
    
    Letter Agreement dated February 6, 2009 including the Securities Purchase Agreement Standard Terms
Incorporated by reference therein between the Company and the U.S. Treasury (incorporated by reference
from Form 8-K filed on 2/12/09)10.9
    
    Form of Waiver of Senior Executive Officers (incorporated by reference from Form 8-K, filed on 2/12/09)10.10
    
    Form of Amendment Agreement (incorporated by reference from Form 8-K filed on 2/12/09)10.11
    
    Amendment to Employment Agreement with Don L. Denney10.12
    
    Amendment to Employment Agreement with Andrew J. Van Doren10.13
    
    Amendment to Employment Agreement with Rebecca S. Crabill11
    
    Statement re computation of per share earnings
    
    See Note 1 of the
Notes
to Consolidated
Financial
Statements
contained in
this 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 51