Annual Reports

 
Quarterly Reports

  • 10-Q (Nov 14, 2014)
  • 10-Q (Aug 14, 2014)
  • 10-Q (May 13, 2014)
  • 10-Q (Nov 14, 2013)
  • 10-Q (Aug 12, 2013)
  • 10-Q (May 14, 2013)

 
8-K

 
Other

Monarch Community Bancorp 10-Q 2009

Documents found in this filing:

  1. 10-Q
  2. Ex-31.1
  3. Ex-31.2
  4. Ex-32
  5. Ex-32
e10vq
Table of Contents

 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
     
þ   Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended June 30, 2009 or
     
o   Transition report under Section 13 or 15(d) of the Exchange Act
For the transition period from ________ to ________
Commission file number: 000-49814
MONARCH COMMUNITY BANCORP, INC.
(Exact name of registrant as specified in its charter)
     
Maryland
(State or other jurisdiction
of incorporation or organization)
  04-3627031
(I.R.S. employer
identification no.)
375 North Willowbrook Road, Coldwater, MI 49036
(Address of principal executive offices)
517-278-4566
(Registrant’s telephone number)
Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes: þ No: o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
             
Large Accelerated Filer o   Accelerated Filer o   Non-Accelerated Filer o (Do not check if a smaller reporting company)   Smaller reporting company þ
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes: o No: þ
State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practical date: At July 31, 2009, there were 2,046,102 shares of the issuer’s Common Stock outstanding.
 
 

 


 

Monarch Community Bancorp, Inc.
Index
         
       
 
       
       
 
       
       
 
       
    2  
 
       
    3  
 
       
    4  
 
       
    5-9  
 
       
    9-16  
 
       
    16  
 
       
    17  
 
       
       
 
       
    17  
 
       
    17  
 
       
    17  
 
       
    17  
 
       
    17  
 
       
    17  
 
       
    17  
 
       
    18  
 
       
CERTIFICATIONS
    19-22  
 
       
 EX-31.1
 EX-31.2
 EX-32

 


Table of Contents

PART I—FINANCIAL INFORMATION
Item 1.   CONDENSED FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets
                 
    (Unaudited)        
    June 30,     December 31,  
    2009     2008  
    (Dollars in thousands,  
    except per share data)  
Assets
               
Cash and due from banks
    11,769       5,595  
Federal Home Loan Bank overnight time and other interest bearing deposits
    1,135       677  
 
           
Total cash and cash equivalents
    12,904       6,272  
Securities - Available for sale
    20,470       8,916  
Securities - Held to maturity
    23       37  
Other securities
    4,237       4,237  
Loans held for sale
    1,227       860  
Loans, net
    236,148       247,542  
Foreclosed assets, net
    3,344       2,076  
Premises and equipment
    4,357       4,456  
Goodwill
    9,606       9,606  
Core deposit intangible
    603       681  
Other assets
    8,769       7,124  
 
           
Total assets
  $ 301,688     $ 291,807  
 
           
 
               
Liabilities and Stockholders’ Equity
               
Liabilities
               
Deposits:
               
Non-interest bearing
  $ 14,734     $ 13,883  
Interest bearing
    187,648       178,273  
 
           
Total deposits
    202,382       192,156  
Federal Home Loan Bank advances
    56,678       60,178  
Fed Funds Purchased
          1,000  
Accrued expenses and other liabilities
    1,712       2,203  
 
           
Total liabilities
    260,772       255,537  
 
               
Stockholders’ Equity
               
Preferred stock-$.01 par value, 5,000,000 shares authorized, and 6,785 shares, fixed rate cumulative perpetual preferred stock, series A, $1,000 per share liquidation preference, issued and outstanding as of June 30, 2009
    6,734        
Common stock - $0.01 par value, 20,000,000 shares authorized, 2,046,102 shares issued and outstanding at June 30, 2009 and December 31, 2008
    20       20  
Common stock warrants issued and outstanding 260,962 as of June 30, 2009
    56        
Additional paid-in capital
    21,156       21,152  
Retained earnings
    13,758       15,867  
Accumulated other comprehensive income
    21       69  
Unearned compensation
    (829 )     (838 )
 
           
Total stockholders’ equity
    40,916       36,270  
 
           
Total liabilities and stockholders’ equity
  $ 301,688     $ 291,807  
 
           

 


Table of Contents

Condensed Consolidated Statements of Income (Unaudited)
                                 
    Three Months     Three Months     Six Months     Six Months  
    Ended     Ended     Ended     Ended  
    June 30,     June 30,     June 30,     June 30,  
    2009     2008     2009     2008  
(Dollars in thousands, except per share data)
Interest Income
                               
Loans, including fees
  $ 3,873     $ 4,090     $ 7,827     $ 8,148  
Investment securities
    162       169       280       339  
Federal funds sold and overnight deposits
    1       29       3       87  
 
                       
Total interest income
    4,036       4,288       8,110       8,574  
 
                               
Interest Expense
                               
Deposits
    1,274       1,483       2,593       3,038  
Federal Home Loan Bank advances
    643       643       1,302       1,302  
 
                       
Total interest expense
    1,917       2,126       3,895       4,340  
 
                       
Net Interest Income
    2,119       2,162       4,215       4,234  
 
                               
Provision for Loan Losses
    3,441       448       4,163       757  
 
                       
Net Interest Income After Provision for Loan Losses
    (1,322 )     1,714       52       3,478  
 
                               
Non-interest Income
                               
Fees and service charges
    549       573       1,064       1,144  
Loan servicing fees
    111       111       217       220  
Net gain on sale of loans
    748       195       1,457       461  
Net gain (loss) on sale of securities
    2       2       2       2  
 
                               
Other income
    58       60       102       113  
 
                       
Total non-interest income
    1,468       941       2,842       1,940  
 
                               
Non-interest Expense
                               
Salaries and employee benefits
    1,129       1,121       2,278       2,267  
Occupancy and equipment
    239       254       511       517  
Data processing
    200       189       407       391  
Amortization of mortgage servicing rights
    136       112       335       231  
Professional services
    123       107       252       193  
Amortization of core deposit intangible
    35       43       78       97  
NOW account processing
    40       42       79       87  
ATM/Debit card processing
    57       51       118       97  
Foreclosed property expense
    77       27       110       85  
 
                               
Other general and administrative
    540       376       917       677  
 
                       
Total non-interest expense
    2,576       2,322       5,085       4,641  
 
                       
Income - Before income taxes
    (2,430 )     332       (2,191 )     776  
Income Taxes
    (607 )     85       (547 )     195  
 
                       
Net Income
  $ (1,823 )   $ 247     $ (1,644 )   $ 581  
 
                       
 
                               
Dividends and amortization of discount on preferred stock
  $ 87     $     $ 138     $  
Net Income available to common stock
  $ (1,910 )   $ 247     $ (1,782 )   $ 581  
 
                       
Earnings Per Share
                               
Basic
  $ (0.97 )   $ 0.12     $ (0.91 )   $ 0.27  
 
                       
Diluted
  $ (0.97 )   $ 0.12     $ (0.91 )   $ 0.27  
 
                       

2


Table of Contents

Condensed Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)
                                                                         
                                                    Accumulated              
    Preferred Stock     Common Stock     Additional             Other              
    Number of             Number of             Paid in     Retained     Comprehensive     Unearned        
    Shares     Amount     Shares     Amount     Capital     Earnings     Income (Loss)     Compensation     Total  
Balance - January 1 , 2008
                    2,322       23       23,828       16,341       52       (1,158 )     39,086  
 
                                                                       
Vesting of restricted shares
                                                            169       169  
179,042 shares repurchased at an average price $10.24/share
                    (179 )     (2 )     (1,835 )                             (1,837 )
 
                                                                       
Stock option expenses
                                    5                               5  
 
                                                                       
Net Income
                                            580                       580  
Change in unrealized loss on securities available-for-sale, net of tax
                                                    (24 )             (24 )
 
                                                                     
 
                                                                       
Total comprehensive income
                                                                    556  
Dividends paid ($0.18/share)
                                  (400 )                 (400 )
 
                                                     
 
                                                                       
Balance - June 30, 2008
                2,143       21       21,998       16,521       28       (989 )     37,579  
 
                                                     
 
                                                                       
Balance - January 1, 2009
                2,047     $ 20     $ 21,152     $ 15,867     $ 69     $ (838 )   $ 36,270  
 
                                                                       
 
                                                            9       9  
Issuance of preferred stock
    6785       6785                                                       6,785  
Discount on preferred stock
            (56 )                                                     (56 )
Common stock warrants
    261       56                                                       56  
Stock option expenses
                                    4                               4  
Accretion of preferred stock disocunt
            5                               (5 )                      
Comprehensive Income:
                                                                       
Net Income
                                            (1,644 )                     (1,644 )
Change in unrealized loss on securities available-for-sale, net of tax
                                                    (48 )             (48 )
 
                                                                     
Total comprehensive income
                                                                    (1,692 )
Dividends on preferred stock
                                            (93 )                     (93 )
 
                                                                     
Dividends paid ($0.09/share)
                                  (367 )                 (367 )
 
                                                     
Balance - June 30, 2009
    7,046       6,790       2,047       20       21,156       13,758       21       (829 )   $ 40,916  
 
                                                     

3


Table of Contents

Condensed Consolidated Statements of Cash Flows (Unaudited)
                 
    Six Months Ended  
    June, 30     June, 30  
    2009     2008  
    (Dollars in thousands)     (Dollars in thousands)  
Cash Flows From Operating Activities
               
Net Income
  $ (1,644 )   $ 581  
Adjustments to reconcile net income to net cash from operating activities
               
Depreciation and amortization
    693       574  
Provision for loan losses
    4,163       757  
Stock option expense
    4       5  
Gain on sale of foreclosed assets
    24       (35 )
Mortgage loans originated for sale
    (65,280 )     (21,718 )
Proceeds from sale of mortgage loans
    66,370       21,196  
Gain on sale of mortgage loans
    (1,458 )     (461 )
(Gain) Loss on sale of available for sale securities
    (2 )     (2 )
Earned stock compensation
    9       169  
Net change in:
               
Deferred loan fees
    62       (47 )
Accrued interest receivable
    (50 )     21  
Other assets
    (1,980 )     (848 )
Accrued expenses and other liabilities
    (416 )     (209 )
 
           
Net cash provided by operating activities
    495       (17 )
Cash Flows From Investing Activities
               
Activity in available-for-sale securities:
               
Purchases
    (17,814 )     (2,269 )
Proceeds from maturities of securities
    6,141       2,364  
Activity in held-to-maturity securities:
               
Purchases
          (7 )
Proceeds from maturities of securities
    14       208  
Loan originations and principal collections, net
    5,370       (13,723 )
Proceeds from sale of foreclosed assets
    508       1,249  
Purchase of premises and equipment
    (133 )     (189 )
 
           
Net cash provided by (used in) investing activities
    (5,914 )     (12,367 )
Cash Flows From Financing Activities
               
Net increase in deposits
    10,226       14,098  
Repurchase of common stock
          (1,837 )
Issuance of preferred stock, net
    6,734          
Issuance of Warrants
    56          
Dividends paid
    (465 )     (400 )
Proceeds from FHLB advances
          8,500  
Repayment of FHLB advances
    (3,500 )     (13,000 )
Repayment of Fed Funds purchased
    (1,000 )      
 
           
Net cash provided by financing activities
    12,051       7,361  
 
           
Net Increase in Cash and Cash Equivalents
    6,632       (5,023 )
Cash and Cash Equivalents - Beginning
    6,272       13,842  
 
           
Cash and Cash Equivalents - End
  $ 12,904     $ 8,819  
 
           
Supplemental Cash Flow Information:
               
Cash paid for:
               
Interest
    3,932       4,343  
Income taxes
    215       325  
Noncash investing activities:
               
Loans transferred to foreclosed assets
    1,800       540  

4


Table of Contents

MONARCH COMMUNITY BANCORP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Monarch Community Bancorp, Inc. (the “Corporation”) was incorporated in 2002 under Maryland law to hold all of the common stock of Monarch Community Bank (the “Bank”), formerly known as Branch County Federal Savings and Loan Association. The Bank converted to a stock savings institution effective August 29, 2002. In connection with the conversion, the Corporation sold 2,314,375 shares of its common stock in a subscription offering.
Monarch Community Bank provides a broad range of banking services to its primary market area of Branch, Calhoun and Hillsdale counties in Michigan. The Bank operates six full service offices. The Bank owns 100% of First Insurance Agency. First Insurance Agency is a licensed insurance agency established to allow for the receipt of fees on insurance services provided to the Bank’s customers. The Bank also owns a 24.98% interest in a limited partnership formed to construct and operate multi-family housing units.
BASIS OF PRESENTATION
The condensed consolidated financial statements of the Corporation include the accounts of Monarch Community Bank and First Insurance Agency. All significant intercompany balances and transactions have been eliminated in consolidation. The condensed consolidated financial statements for interim periods are unaudited; however, in the opinion of the Corporation’s management, all adjustments, consisting only of normal recurring accruals, necessary for a fair presentation of the Corporation’s financial position and results of operations have been included.
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements. Actual results could differ from those estimates and assumptions.
The accompanying financial statements have been prepared in accordance with the instructions for Form 10-Q and, therefore, do not include all information and footnotes required by generally accepted accounting principles in annual consolidated financial statements. These condensed consolidated financial statements should be read in conjunction with the Corporation’s Form 10-K for the year ended December 31, 2008 filed with the Securities and Exchange Commission.
The results of operations for the three and six month periods ended June 30, 2009 are not necessarily indicative of the results to be expected for the full year period.
ALLOWANCE FOR LOAN LOSSES
The appropriateness of the allowance for loan losses is reviewed by management based upon our evaluation of then-existing economic and business conditions affecting our key lending areas and other conditions, such as credit quality trends (including trends in delinquencies, nonperforming loans and foreclosed assets expected to result from existing conditions), collateral values, loan volumes and concentrations, specific industry conditions within portfolio segments and recent loss experience in particular segments of the portfolio that existed as of the balance sheet date and the impact that these conditions were believed to have had on the collectability of the loan. Senior management reviews these conditions at least quarterly.
To the extent that any of these conditions is evidenced by a specifically identifiable problem credit or portfolio segment as of the evaluation date, management’s estimate of the effect of this condition may be reflected as a specific allowance applicable to this credit or portfolio segment.
The allowance for loan losses is based on estimates of losses inherent in the loan portfolio. Actual losses can vary significantly from the estimated amounts. Our methodology as described permits adjustments to any loss factor used in the computation of the formula allowance in the event that, in management’s judgment, significant factors which affect the collectability of the portfolio as of the evaluation date are not reflected in the loss factors. By assessing the estimated losses inherent in the loan portfolio on a quarterly basis, we are able to adjust specific and inherent loss estimates based upon any more recent information that has become available.

5


Table of Contents

RECLASSIFICATIONS
Certain 2009 amounts have been reclassified to conform to the 2008 presentation.
EARNINGS PER SHARE
A reconciliation of the numerators and denominators used in the computation of the basic earnings per share and diluted earnings per share is presented below (000s omitted except per share data):
                                 
    Three Months     Three Months     Six Months     Six Months  
    Ended     Ended     Ended     Ended  
    June 30, 2009     June 30, 2008     June 30, 2009     June 30, 2008  
     
Basic earnings per share
                               
Numerator:
                               
Net income
  $ (1,823 )   $ 247     $ (1,644 )   $ 581  
Dividends and amortization of discount on preferred stock
  $ 87     $     $ 138     $  
 
                       
Net Income available to common stock
  $ (1,910 )   $ 247     $ (1,782 )   $ 581  
 
                       
 
                               
Denominator:
                               
Weighted average common shares outstanding
    2,046       2,209       2,046       2,246  
Less: Average unallocated ESOP shares
    (74 )     (83 )     (74 )     (83 )
Less: Average non-vested RRP shares
    (7 )     (15 )     (7 )     (35 )
 
                       
Weighted average common shares outstanding
                               
    for basic earnings per share
    1,965       2,111       1,965       2,128  
 
                       
Basic earnings per share
  $ (0.97 )   $ 0.12     $ (0.91 )   $ 0.27  
 
                       
 
                               
Diluted earnings per share
                               
Numerator:
                               
Net Income available to common stock
  $ (1,910 )   $ 247     $ (1,782 )   $ 581  
 
                       
 
                               
Denominator:
                               
Weighted average common shares outstanding for basic earnings per share
    1,965       2,111       1,965       2,128  
Add: Dilutive effects of restricted stock, stock options and warrants
                       
 
                       
Weighted average common shares and dilutive potential common shares outstanding
    1,965       2,111       1,965       2,128  
 
                       
Diluted earnings per share
  $ (0.97 )   $ 0.12     $ (0.91 )   $ 0.27  
 
                       
RECENT ACCOUNTING PRONOUNCEMENTS
In April 2009, the FASB issued the following three FSPs intended to provide additional application guidance and enhance disclosures regarding fair value measurements and impairments of securities:
FSP FAS 157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly,” provides additional guidance for estimating fair value in accordance with SFAS No. 157 when the volume and level of activity for the asset or liability have decreased significantly. FSP FAS 157-4 also provides guidance on identifying circumstances that indicate a transaction is not orderly. The provisions of FSP FAS 157-4 became effective for the Company’s interim period ending on June 30, 2009 and did not effect the Company’s financial statements.
FSP FAS 107-1 and APB 28-1, “Interim Disclosures about Fair Value of Financial Instruments,” requires disclosures about fair value of financial instruments in interim reporting periods of publicly traded companies that were previously only required to be disclosed in annual financial statements. The provisions of FSP FAS 107-1 and APB 28-1 are effective for the Company’s interim period ending on June 30, 2009. The Company has complied with the disclosure requirements.
FSP FAS 115-2 and FAS 124-2, “Recognition and Presentation of Other-Than-Temporary Impairments,” amends current other-than-temporary impairment guidance in GAAP for debt securities to make the guidance more operational and to improve the presentation and disclosure of other-than-temporary impairments on debt and equity securities in the financial statements. This FSP does not amend existing recognition and measurement guidance related to other-than-temporary impairments of equity securities. The provisions of FSP FAS 115-2 and FAS 124-2 became effective for the Company’s interim period ending on June 30, 2009 and did not effect the Company’s financial statements.

6


Table of Contents

In May 2009, the FASB issued SFAS No. 165, Subsequent Events. SFAS 165 establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. Although there is new terminology, the standard is based on the same principles as those that currently exist in the auditing standards. The standard also includes a required disclosure of the date through which the entity has evaluated subsequent events and whether the evaluation date is the date of issuance or the date the financial statements were available to be issued. The standard is effective for interim or annual periods ending after June 15, 2009. The Company has complied with the disclosure requirements.
FAIR VALUE MEASUREMENTS
In general, fair values determined by Level 1 inputs use quoted prices in active markets for identical assets or liabilities that the Company has the ability to access.
Fair values determined by Level 2 inputs use other inputs that are observable, either directly or indirectly. These Level 2 inputs include quoted prices for similar assets and liabilities in active markets, and other inputs such as interest rates and yield curves that are observable at commonly quoted intervals.
Level 3 inputs are unobservable inputs, including inputs that are available in situations where there is little, if any, market activity for the related asset or liability.
In instances where inputs used to measure fair value fall into different levels in the above fair value hierarchy, fair value measurements in their entirety are categorized based on the lowest level input that is significant to the valuation. The Company’s assessment of the significance of particular inputs to these fair value measurements requires judgment and considers factors specific to each asset or liability.
The following table present information about the Company’s assets and liabilities measured at fair value on a recurring basis at June 30, 2009, and the valuation techniques used by the Company to determine those fair values.
                                 
            Significant              
    Quoted Prices in Active     Other     Significant        
    Markets for Identical     Observable     Unobservable     Balance at June 30,  
    Assets (Level 1)     Inputs (Level 2)     Inputs (Level 3)     2009  
Assets
                               
Investment securities- available - for - sale
  $ 8,230     $ 12,240     $     $ 20,470  
The Company also has assets that under certain conditions are subject to measurement at fair value on a non-recurring basis. These assets include loans and foreclosed assets. These assets are not measured at fair value on an ongoing basis, but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment). The following table presents the Corporation’s assets at fair value on a nonrecurring basis as of June 30, 2009. (000s omitted).
Assets Measured at Fair Value on a Nonrecurring Basis
                                         
    Balance at   Quoted Prices in Active   Significant Other   Significant    
    June 30,   Markets for Identical   Observable Inputs   Unobservable Inputs   Change in Fair Value for the
    2009   Assets (Level 1)   (Level 2)   (Level 3)   quarter ended June 30, 2009
Impaired Loans accounted for under SFAS 114
    11,074                   9,513       2,437  
Foreclosed Assets
    1,030                   515       515  

7


Table of Contents

Fair Value of Financial Instruments
The fair value of a financial instrument is the current amount that would be exchanged between willing parties, other than in a forced liquidation. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Corporation’s various financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument. SFAS 107 excludes certain financial instruments and all nonfinancial instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts presented may not necessarily represent the underlying fair value of the Corporation.
The fair value of all financial instruments not discussed below (Cash and cash equivalents, Federal funds sold, Federal Home Loan Bank stock, Accrued interest receivable, Federal funds purchased and Interest payable) are estimated to be equal to their carrying amounts as of June 30, 2009 and December 31, 2008. The following methods and assumptions were used by the Corporation in estimating fair value disclosures for financial instruments:
Securities - Fair values for securities are based on quoted market prices.
Mortgage Loans Held for Sale - Fair values of mortgage loans held for sale are based on commitments on hand from investors or prevailing market prices.
Loans Receivable - For variable-rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values. Fair values for other loans are estimated using discounted cash flows analyses using current market rates applied to the estimated life. Fair values for non-performing loans are estimated using discounted cash flow analyses or underlying collateral values, where applicable.
Deposit Liabilities - The fair values disclosed for demand deposits (e.g., interest and non-interest checking, passbook savings, and certain types of money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amounts). The carrying amounts of variable-rate, fixed term money market accounts and certificates of deposit approximate their fair values at the reporting date. Fair values for fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on time deposits.
Federal Home Loan Bank Advances - The fair values of the Corporation’s Federal Home Loan Bank advances are estimated using discounted cash flow analyses based on the Corporation’s current incremental borrowing rates for similar types of borrowing arrangements.

8


Table of Contents

The estimated fair values, and related carrying or notional amounts, of the Corporation’s financial instruments are as follows (000s omitted):
                                 
    June 30,   December 31,
    2009   2008
    Carrying Amount   Fair Value   Carrying Amount   Fair Value
Assets:
                               
Cash and cash equivalents
  $ 12,904     $ 12,904     $ 6,272     $ 6,272  
Securities - Held to maturity
    23       23       37       37  
Securities - Available for sale
    20,470       20,470       8,916       8,916  
Other securities
    4,237       4,237       4,237       4,237  
Loans held for sale
    1,227       1,237       860       864  
Net loans
    236,148       250,857       247,542       250,068  
Accrued interest and late charges receivable
    1,350       1,350       1,300       1,300  
 
                               
Liabilities:
                               
Federal Home Loan Bank advances
    56,678       61,233       60,178       63,252  
Fed funds purchased
                1,000       1,000  
Deposits
    202,382       190,190       192,156       192,045  
Accrued interest payable
    488       488       526       526  
ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the condensed consolidated financial statements of the Corporation and the accompanying notes.
The Corporation is not aware of any market or institutional trends, events, or circumstances that will have or are likely to have a material effect on liquidity, capital resources, or results of operations except as discussed herein. Also, the Corporation is not aware of any current recommendations by regulatory authorities that will have such effect if implemented.
FORWARD-LOOKING STATEMENTS
In addition to historical information, the following discussion contains “forward-looking statements” that involve risks and uncertainties. All statements regarding the expected financial position, business and strategies are forward-looking statements and the Corporation intends for them to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. The words “anticipates,” “believes,” “estimates,” “seeks,” “expects,” “plans,” “intends,” and similar expressions, as they relate to the Corporation or management, are intended to identify forward-looking statements. The Corporation believes that the expectations reflected in these forward-looking statements are reasonable based on our current beliefs and assumptions; however, these expectations may prove to be incorrect.
Factors which could have a material adverse effect on our operations include, but are not limited to, changes in interest rates, changes in the relative difference between short and long-term interest rates, general economic conditions, legislative/regulatory changes, monetary and fiscal policies of the U.S. Government, including policies of the U.S. Treasury and the Federal Reserve Board, the quality or composition of the loan or investment portfolios, including levels of non-performing assets, demand for loan products, deposit flows, competition, demand for financial services in our market area, our operating costs and accounting principles and guidelines. These risks and uncertainties should be considered in evaluating forward-looking statements and you should not rely too much on these statements.

9


Table of Contents

CRITICAL ACCOUNTING POLICIES
The nature of the financial services industry is such that, other than described below, the use of estimates and management judgment is not likely to present a material risk to the financial statements. In cases where estimates or management judgment are required, internal controls and processes are established to provide assurance that such estimates and management judgments are materially correct to the best of management’s knowledge.
Allowance for Loan Losses. Accounting for loan classifications, accrual status, and determination of the allowance for loan losses is based on regulatory guidance. This guidance includes, but is not limited to, generally accepted accounting principles, the uniform retail credit classification and account management policy issued by the Federal Financial Institutions Examination Council, the joint policy statement on the allowance for loan losses methodologies issued by the Federal Financial Institutions Examination Council and guidance issued by the Securities and Exchange Commission. Accordingly, the allowance for loan losses includes a reserve calculation based on an evaluation of loans determined to be impaired, risk ratings, historical losses, loans past due, collateral values and cost of disposal and other subjective factors.
Foreclosed Assets. Assets acquired through, or in lieu of, loan foreclosure are held for sale and are initially recorded at fair value at the date of the foreclosure, establishing a new cost basis. Subsequent to foreclosure, valuations are periodically performed by management and the assets are carried at the lower of carrying amount or fair value less estimated selling expenses, which consist primarily of commissions that will be paid to an independent real estate agent upon sale of the property. Revenue and expenses from operations and changes in the valuation allowance are included in net expenses from foreclosed assets.
Goodwill and Other Intangible Assets. Goodwill represents the excess of the cost of an acquisition over the fair value of net identifiable tangible and intangible assets acquired. Under the provisions of SFAS 142, goodwill is no longer amortized into the income statement over an estimated life, but rather is tested at least annually for impairment. Impairment of goodwill is evaluated by reporting unit and is based on a comparison of the recorded balance of goodwill to the applicable market value or discounted cash flows. To the extent that impairment may exist, the current carrying amount is reduced by the estimated shortfall. Intangible assets which have finite lives are amortized over their estimated useful lives and are subject to impairment testing.
FINANCIAL CONDITION
Assets
Total assets increased $9.9 million, or 3.4%, to $301.7 million at June 30, 2009 compared to $291.8 million at December 31, 2008. Management attributes this growth to a strategy for 2009 that emphasizes growth in our investment portfolio. The increase in assets is also a by product of management’s continued focus on the growth of core deposits which has generated increased cash balances.
Securities
Securities increased to $20.5 million at June 30, 2009 compared to $8.9 million at December 31, 2008. The increase was attributable to $11.6 million in securities being purchased primarily to offset costs associated with the Capital Purchase Program (CPP). Those costs include an annual dividend of 5%, and amortization of the discount on the preferred stock of .16%. The tax equivalent cost of the capital is 8%. See Equity for further discussion on the Capital Purchase Program (CPP) The yield on investment securities has decreased to 3.59% during the six month ended June 30, 2009 from 4.34% for the same period a year ago. Management has slowed further purchasing of securities due to the decline in the current market yield. With the increase in securities we have continued to maintain a diversified securities portfolio, which includes obligations of U.S. government-sponsored agencies, securities issued by states and political subdivisions and mortgage-backed securities. We regularly evaluate asset/liability management needs and attempt to maintain a portfolio structure that provides sufficient liquidity and cash flow.

10


Table of Contents

Loans
The Bank’s net loan portfolio decreased by $11.4 million, or 4.6%, from $247.5 million at December 31, 2008 to $236.1 million at June 30, 2009. The following table presents information concerning the composition of our loan portfolio in dollar amounts and in percentages as of the dates indicated:
                                 
    June 30, 2009     December 31, 2008  
    Amount     Percent     Amount     Percent  
    (Dollars in thousands)  
Real Estate Loans:
                               
One-to-four family
  $ 114,303       47.2     $ 124,855       49.8  
Multi-family
    5,501       2.3       5,728       2.2  
Commercial
    81,230       33.5       75,730       30.2  
Construction or development
    7,867       3.2       9,499       3.8  
 
                           
Total real estate loans
    208,901       86.2       215,812       86.0  
Other loans:
                               
Consumer loans:
                               
Home equity
    19,584       8.1       20,677       8.2  
Other
    5,094       2.1       5,737       2.3  
 
                       
Total consumer loans
    24,678       10.2       26,414       10.5  
Commercial Business Loans
    8,630       3.6       8,609       3.5  
 
                       
Total other loans
    33,308       13.8       35,023       14.0  
 
                       
Total Loans
    242,209       100.0 %     250,835       100.0 %
 
                           
 
                               
Allowance for loan losses
    5,550               2,719          
Less: Net deferred loan fees
    511               574          
Total Loans, net
  $ 236,148             $ 247,542          
 
                           
One-to-four family loans decreased $10.5 million from year end 2008 as a result of the Bank’s continued strategy to sell a large portion of new one to four family loan originations. Historically low rates on residential mortgages have provided us the opportunity to refinance loans and increase our gains on sale of mortgages substantially. Commercial real estate loans increased $5.5 million or 7.3%. The Bank expects future loan growth to come primarily from commercial lending with a focus on in-market lending, however, we remain cautiously optimistic about the Bank’s potential for loan growth during the remainder of the year, given the difficult economic conditions that we are facing in our market.
The allowance for loan losses was $5.5 million at June 30, 2009 compared to $2.7 million at December 31, 2008, an increase of $2.8 million. The increase was necessitated by the increases in net charge offs and nonperforming assets which are directly related to the continued overall weakness in the Michigan economy. Year to date 2009 net charge offs totaled $1.3 million compared to $575,000 for the same period a year ago. Net charge offs year to date consisted of 56% one to four family residential mortgages, 29% commercial real estate, 10% consumer and the remaining 5% included construction, commercial and industrial and home equity lines of credit. See “Provision for Loan Losses” below for further explanation regarding charge-offs and non-performing loans. We continue to be diligent in review of our loan portfolios for problem loans and believe that early detection of troubled credits is critical. We maintain the allowance for loan losses at a level considered adequate to cover losses within the loan portfolio. The allowance balance is established after considering past loan loss experience, current economic conditions, composition of the loan portfolio, delinquencies, and other relevant factors.
Deposits
Total deposits increased $10.2 million, or 5.3%, from $192.2 million at December 31, 2008 to $202.4 million at June 30, 2009. The increase can be attributed to an increase of $8.8 million in local certificates of deposit, an increase of $3.1 million in demand and Now accounts, an increase in money market accounts of $2.6 million and an increase of $1.1 million in savings accounts. Brokered deposits decreased $5.4 million as management continues to try to reduce its reliance on wholesale funding. The increase in local certificates of deposits and money market accounts is largely due to management’s efforts to remain competitive with interest rates in these categories of deposits. The increase in money market accounts has provided funding so it has not been necessary for management to borrow additional FHLB advances or increase brokered deposits. Brokered deposits have been managed to provide additional liquidity or reduce excess liquidity depending on current conditions. Management expects future deposit growth to come from increased sales and marketing efforts to attract lower cost savings and checking accounts as well as product enhancement.

11


Table of Contents

Federal Home Loan Bank Advances
Total Federal Home Loan Bank (FHLB) advances decreased to $56.7 million as of June 30, 2009 from $60.2 at December 31, 2008. The decrease is attributable to the repayment of $3.5 million of FHLB advances during the six months ended June 30, 2009. Management is attempting to reduce its reliance on borrowed funds through the growth of low cost core deposits. Should this strategy not succeed, management anticipates the need for future borrowings to fund loan growth. See “Net Interest Income” below, and also see “Liquidity” later in this report regarding available borrowings.
Equity
Total equity was $40.9 million at June 30, 2009 compared to $36.3 million at December 31, 2008. This represents 13.6% and 12.4% of total assets at June 30, 2009 and December 31, 2008, respectively. Increases in equity primarily resulted from the issuance of preferred stock in the amount of $6.8 million associated with the Capital Purchase Program. Decreases in equity for the six months ended June 30, 2009 included a net loss of $1.6 million and $460,000 in dividend payments, which included dividends to common shareholders of $367,000 and $93,000 on the Preferred stock. The annual 5% dividend on the Preferred Stock together with the amortization of the discount will reduce net income (or increase the net loss) applicable to common stock by approximately $350,000 annually. Management intends to utilize funds provided by the issuance of the preferred stock to invest in securities and pursue lending opportunities. Management considers its equity position to be strong.
RESULTS OF OPERATIONS
Net Interest Income
Net interest income before any provision for loan losses decreased $43,000 for the quarter ended June 30, 2009 compared to the same period in 2008. The Bank’s net interest margin decreased to 3.07% for the quarter ended June 30, 2009 from 3.33% for the quarter ended June 30, 2008 as a result of a the yield on earning assets declining faster that the cost of funds. This is attributable to the falling rate environment consistent through 2008 and 2009. Interest income from loans represented 96% of total interest income for the three months ended June 30, 2009 compared to 95.4% for the same period in 2008.
Net interest income before any provision for loan losses decreased $19,000 for the six months ended June 30, 2009 compared to the same period in 2008. The Bank’s net interest margin decreased to 3.06% for the six months ended June 30, 2009 from 3.29% for the six months ended June 30, 2008 as our loan yields decreased more than our deposit costs compared to the same period a year ago as a result of falling rate environment mentioned previously.
The Bank’s ability to maintain its net interest margin is heavily dependent on future loan demand and its ability to attract core deposits to offset the effect of higher cost certificates of deposits and borrowings. The Bank continues to be challenged in its efforts to increase lower costing core deposits. Management continues to put its efforts towards meeting this challenge.
The following table presents, for the periods indicated, the total dollar amount of interest income from average interest-earning assets and the resultant yields, as well as the interest expense on average interest-bearing liabilities, expressed both in dollars and rates. No tax equivalent adjustments were made.

12


Table of Contents

                                                 
    Six Months Ended June 30,     Six Months Ended June 30,  
    2009     2008  
    Average     Interest             Average     Interest        
    Outstanding     Earned/     Yield/     Outstanding     Earned/     Yield/  
    Balance     Paid     Rate     Balance     Paid     Rate  
    (dollars in thousands)     (dollars in thousands)  
Fed Funds and overnight deposits
  $ 9,779     $ 3       0.06 %   $ 9,323     $ 87       1.87 %
Investment securities
    14,654       261       3.59       10,849       235       4.34  
Other securities
    4,174       19       0.92       4,174       104       5.00  
Loans receivable
    246,448       7,827       6.40       233,220       8,148       7.01  
 
                                       
Total earning assets
  $ 275,055     $ 8,110       5.95     $ 257,566     $ 8,574       6.68  
 
                                       
 
                                               
Demand and NOW Accounts
  $ 32,788     $ 43       0.26     $ 32,413     $ 49       0.30  
Money market accounts
    42,290       417       1.99       31,469       491       3.13  
Savings accounts
    18,914       37       0.39       19,273       41       0.43  
Certificates of deposit
    105,506       2,097       4.01       106,224       2,457       4.64  
Fed Funds Purchased
                0.00                   0.00  
Federal Home Loan Bank Advances
    57,672       1,301       4.55       52,557       1,302       4.97  
 
                                       
Total interest bearing liabilities
  $ 257,170       3,895       3.05     $ 241,936       4,340       3.60  
 
                                         
Net interest income
          $ 4,215                     $ 4,234          
 
                                           
Net interest spread
                    2.89 %                     3.08 %
 
                                           
Net interest margin
                    3.06 %                     3.29 %
 
                                           
Provision for Loan Losses
The provision for loan losses was $3.4 million in the second quarter of 2009, compared to $448,000 in the second quarter of 2008 and $4.2 million for the six month period ended June 30, 2009, compared to $757,000 in the same period of 2008. Net charge-offs for the quarter ended June 30, 2009 totaled $1.1 million, compared to $228,000 for the quarter ended June 30 , 2008 and $1.3 million for the six months ended June 30, 2009, compared to $575,000 for the same period a year ago. The significant increase in the provision was primarily driven by the continued deteriorating economic conditions in Michigan and weaknesses in the local real estate markets which resulted in downgrades to the credit ratings of certain loans in the portfolio and a significant increase in the balances of nonperforming loans.
Nonperforming assets including the amount of real estate in judgment and foreclosed and repossessed properties, increased from $4.6 million at the end of 2008 to $11.3 million as of June 30, 2009. This increase was largely due to an increase nonperforming loans, specifically in commercial real estate and one to four family residential mortgage loans. Management also classified a large commercial loan relationship in the amount of $4 million as non-performing during the quarter.
The following table presents non-performing assets and certain asset quality ratios at June 30, 2009 and December 31, 2008.
                 
    June 30, 2009     December 31, 2008  
    (In thousands)  
Non-performing loans
  $ 7,979     $ 2,571  
Real estate in judgement
    2,303       1,327  
Foreclosed and repossessed assets
    1,041       749  
 
           
Total non-performing assets
  $ 11,323     $ 4,647  
 
           
 
               
Non-performing loans to total loans
    3.29 %     1.04 %
Non-performing assets to total assets
    3.75 %     1.59 %
Allowance for loan losses to non-performing loans
    69.60 %     105.76 %
Allowance for loan losses to net loans receivable
    2.29 %     1.10 %
The Bank had 35 non-performing loan relationships as of June 30, 2009 compared to 24 non-performing loan relationships as of December 31, 2008.

13


Table of Contents

Non-interest Income
Non-interest income for the quarter ended June 30, 2009 increased $530,000, or 56.3%, from $941,000 to $1.5 million compared to the same period a year ago. This increase is attributable to an increase in gain on sale of loans offset by a decrease in fees and services charges.
Net gain on sale loans increased $553,000 for the quarter ended June 30, 2009 from $195,000 to $748,000 compared to the same period a year ago. The increase is largely due to the falling rate environment which has generated a significant amount of one to four family residential mortgage refinancing. Management expects this trend to decline through the latter half of 2009. Fees and service charges decreased $24,000 for the quarter ended June 30, 2009 from $573,000 to $549,000 compared to the same period a year ago. This decrease was a result of a decrease in overdraft fees of $26,000 offset by an increase of $2,000 in all other fees and charges. Future increases in this source of income are dependent on the Bank increasing the number of checking account customers. Management does not expect significant increases in Bounce Protection income from its existing customer base.
Non-interest income for the six months ended June 30, 2009 increased $903,000, or 46.5%, from $1.9 million to $2.8 million for the same period in 2008. Net gain on sale loans increased $996,000 for the six months ended June 30, 2009 from $461,000 to $1.4 million compared to the same period a year ago. Fees and Service charges decreased $80,000 for the six months ended June 30, 2009 from $1.1 million to $1.06 million compared to the same period a year ago. As mentioned previously the decrease in fees and service charges is primarily due to the decrease in overdraft fees of $74,000, and a decrease of $6,000 in all other fees.
Non-interest Expense
Noninterest expense increased $254,000, or 11%, for the three months ended June 30, 2009 compared to the same period ending a year ago. Amortization of mortgage servicing rights increased $24,000 as a result of a continued increase in mortgage loan payoffs due to refinancing associated with the decrease of interest rates in the fourth quarter of 2008. Other general and administrative expenses increased $164,000, from $540,000 to $376,000; reflecting the increase of $188,000 in the quarterly FDIC assessment and the one-time special assessment of $140,000 on all insured financial institutions equal to approximately 5 basis points of total assets, less tier one equity. Foreclosed property expense increased $50,000, from $27,000 to $77,000 to due increases in loan collection costs, and losses and impairment charges associated with the disposition of other real estate. Professional services increased $59,000 from $193,000 to $252,000 primarily due to increases in legal fees associated with non-performing loans.
Noninterest expense increased $444,000, or 9.6%, for the six months ended June 30, 2009 compared to the same period ending a year ago. Other general and administrative expenses increased $240,000, from $677,000 to $917,000; this is primarily due to the increase in FDIC insurance as mentioned previously. Amortization of mortgage servicing rights increased $104,000, from $231,000 to $335,000, also for reasons mentioned previously. Professional services increased $59,000, from $193,000 to $252,000 primarily due to increases in legal fees associated with non-performing loans and legal fees associated with the issuance of preferred stock and common stock warrants as part of the Capital Purchase Program transaction. Other operating expenses increased $41,000. The increase in other operating expenses was due to increases in loan collection costs, and losses and impairment charges associated with the disposition of other real estate and additional costs associated with the reissuance of atm/debit cards associated with a compromised card processing vendor.
Federal Income Tax Expense
An income tax benefit totaling $607,000 was recorded in the second quarter of 2009, an effective rate of approximately 25% of the pretax loss. A significant component of income tax expense is made up of general tax credit generated each year. Due to the current year loss, these tax credits may not be fully utilized. Accordingly, in the second quarter of 2009, a valuation allowance of $300,000 was established on general business tax credit carry forward that are not expected to be utilized.
An income tax benefit totaling $547,000 was recorded for six months ended June 30, 2009 compared to a provision for federal income tax of $195,000 for the same period a year ago. The effective tax rate for the six months ended June 30, 2009 was 25.0% compared to 25.1% for the same period in 2008. The difference between the effective tax rates and the federal corporate income tax rate of 34% is attributable to the low income housing credits available to the Bank from the investment in the limited partnership as well as fluctuation of permanent book and tax differences such as non-taxable income and non-deductible expenses.
LIQUIDITY
The Bank’s liquidity, represented by cash, overnight funds and investments, is a product of our operating, investing, and financing activities. The Bank’s primary sources of funds are deposits, amortization, prepayments and maturities of outstanding loans, and funds provided from operations. While scheduled payments from the amortization of loans are a relatively predictable source of funds, deposit flows and loan prepayments are greatly influenced by general interest rates, economic conditions and competition. The Bank also generates cash through borrowings. The Bank utilizes Federal Home Loan Bank advances to leverage its capital base and provide funds for its lending and investment activities, and to enhance its interest rate risk management.

14


Table of Contents

Liquidity management is both a daily and long-term function of business management. Excess liquidity is generally invested in short-term investments such as overnight deposits. On a longer-term basis, the Bank maintains a strategy of investing in various investments and lending products. The Bank uses its sources of funds primarily to meet its ongoing commitments, to pay maturing certificates of deposit and savings withdrawals and to fund loan commitments. Certificates of deposit scheduled to mature in one year or less at June 30, 2009 totaled $57.4 million. Management believes that a significant portion of these certificates of deposit will remain with the Bank provided the Bank pays a rate of interest that is competitive both in the local and national markets.
If necessary, additional funding sources include additional deposits and Federal Home Loan Bank advances. Deposits can be obtained in the local market area and from out of market sources; however, this may require the Bank to offer interest rates higher than those of the competition. At June 30, 2009 and based on current collateral levels, the Bank could borrow an additional $15.9 million from the Federal Home Loan Bank at prevailing interest rates. This borrowing capacity can be increased in the future if the Bank pledges additional collateral to the Federal Home Loan Bank. The Company anticipates that it will continue to have sufficient funds, through deposits and borrowings, to meet its current commitments.
The Bank’s total cash and cash equivalents increased by $6.6 million during the six months ended June 30, 2009 compared to a $5 million decrease for the same period in 2008. The primary sources of cash for the six months ended June 30, 2009 were $6.8 million increase in cash generated by the issuance of preferred stock, $10.2 million increase in deposits, $66.4 million in proceeds from the sale of mortgage loans, $6.1 million in maturities of available-for-sale investment securities and $5.4 of principal loan collections in excess of loan originations compared to $14.1 million increase in deposits, $21.2 million in proceeds from the sale of mortgage loans, $8.5 million in proceeds from FHLB advances and $2.4 million in maturities of available-for-sale investment securities. The primary uses of cash for the six months ended June 30, 2009 were $65.3 million of mortgage loans originated for sale, $3.5 million in repayments of FHLB advances, $1.0 million in repayment of Fed funds purchased, and $17.8 million in purchases of available-for-sale investment securities compared to $21.7 million of mortgage loans originated for sale, $13.0 million in repayments of FHLB advances, $13.7 million loan originations in excess of principal collections and $2.3 million in purchases of available-for-sale investment securities.
CONTRACTUAL OBLIGATIONS AND OFF BALANCE SHEET ARRANGEMENTS
The Corporation has certain obligations and commitments to make future payments under contracts. At June 30, 2009, the aggregate contractual obligations and commitments are:
                                         
    Payments Due by Period  
            Less than     1-3     3-5     After  
Contractual Obligations   Total     1 year     years     years     5 years  
    (Dollars in Thousands)  
Certificates of deposit
  $ 105,351     $ 57,412     $ 32,128     $ 15,811     $ 560  
FHLB advances
    56,678       12,160       32,343       12,175        
 
                             
 
                                       
Total
  $ 162,029     $ 69,572     $ 64,471     $ 27,986     $ 560  
 
                             
 
                                       
                                         
    Amount of commitment expiration per period  
            Less than     1-3     3-5     After  
Other Commitments   Total     1 year     years     years     5 years  
    (Dollars in Thousands)  
Commitments to grant loans
  $ 3,131     $ 3,131     $     $     $  
Unfunded commitments under HELOCs
    15,505       1,743       3,808       2,713       7,241  
Unfunded commitments under Commercial LOCs
    2,431       1,184       885       340       22  
Letters of credit
    172       172                    
 
                             
 
                                       
Total
  $ 21,239     $ 6,230     $ 4,693     $ 3,053     $ 7,263  
 
                             
Commitments to grant loans are governed by the Bank’s credit underwriting standards, as established by the Bank’s Loan Policy. The Bank’s policy is to grant Home Equity Lines of Credits (HELOCs) for periods of up to 15 years.

15


Table of Contents

CAPITAL RESOURCES
The Bank is subject to various regulatory capital requirements. As of June 30, 2009, the Bank met the regulatory standards to be classified as “well capitalized.” The Bank’s regulatory capital ratios as of June 30, 2009 were as follows: Tier 1 leverage ratio 9.19%, Tier 1 risk-based capital ratio 11.45%; and total risk-based capital, 12.67%. The regulatory capital requirements to be considered well capitalized are 5.0%, 6.0%, and 10.0%, respectively. Management considers the Bank’s capital to be adequate for current and projected needs at both the Bank and Corporation.
ITEM 3.   QUANTITATIVE AND QUALITIVE DISCLOSURES ABOUT MARKET RISK
The Corporation’s primary market risk exposure is interest rate risk (“IRR”). Interest rate risk refers to the risk that changes in market interest rates might adversely affect the Corporation’s net interest income or the economic value of its portfolio of assets, liabilities, and off-balance sheet contracts. Interest rate risk is primarily the result of an imbalance between the price sensitivity of the Corporation’s assets and its liabilities (including off-balance sheet contracts). Such imbalances can be caused by differences in the maturity, repricing and coupon characteristics of assets and liabilities, and options, such as loan prepayment options, interest rate caps and floors, and deposit withdrawal options. These imbalances, in combination with movement in interest rates, will alter the pattern of the Corporation’s cash inflows and outflows, affecting the earnings and economic value of the Corporation.
The Corporation’s primary tool for assessing IRR is a model that uses scenario analysis to evaluate the IRR exposure of the Bank by estimating the sensitivity of the Bank’s portfolios of assets, liabilities, and off-balance sheet contracts to changes in market interest rates. To measure the sensitivity of the Bank’s Net Portfolio Value (NPV) to changes in interest rates, the (NPV) model estimates what would happen to the economic value of each type of asset, liability, and off-balance sheet contract under six different interest rate scenarios. The model estimates the NPV that would result following instantaneous, parallel shifts in the Treasury yield curve of -300, -200, -100, +100, +200, +300 basis points. Management then compares the resulting NPV and the magnitude of change in NPA to regulatory and industry guidelines to determine if the company’s IRR is acceptable. Management believes, based on data from the model, as of June 30, 2009, and indicates that the Bank’s IRR level remains minimal.
ITEM 4T.   CONTROLS AND PROCEDURES
An evaluation of the Corporation’s disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934 (the “Exchange Act”)) as of June 30, 2009 was carried out under the supervision and with the participation of the Corporation’s Chief Executive Officer, Chief Financial Officer and several other members of the Corporation’s senior management. The Company’s Chief Executive Officer and Chief Financial Officer concluded that the Corporation’s disclosure controls and procedures as currently in effect are effective in ensuring that the information required to be disclosed by the Corporation in the reports it files or submits under the Exchange Act is (i) accumulated and communicated to the Corporation’s management (including the Chief Executive Officer and Chief Financial Officer) in a timely manner, and (ii) recorded, processed, summarized and reported within time periods specified in the SEC’s rules and forms. There have been no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) that occurred during the quarter ended June 30, 2009, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
The Corporation intends to continually review and evaluate the design and effectiveness of its disclosure controls and procedures and to improve its controls and procedures over time and to correct any deficiencies that it may discover in the future. The goal is to ensure that senior management has timely access to all material financial and non-financial information concerning the Corporation’s business. While the Corporation believes the present design of its disclosure controls and procedures is effective to achieve its goal, future events affecting its business may cause the Corporation to modify its disclosure controls and procedures.
PART II-OTHER INFORMATION
Item 1.   LEGAL PROCEEDINGS
The Corporation and the Bank are from time-to-time involved in legal proceedings arising out of, and incidental to, their business. Management, based on its review with counsel of all actions and proceedings affecting the Corporation and the Bank, has concluded that the aggregate loss, if any, resulting from the disposition of these proceedings should not be material to the Corporation’s financial condition or results of operations.
Item 1A.   RISK FACTORS
In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2008, which could materially affect our business, financial condition or future results. The risks described in our Annual Report on Form 10-K are not the only risks facing our

16


Table of Contents

Corporation. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.
Item 2.   UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Not applicable
Item 3.   DEFAULTS UPON SENIOR SECURITIES
Not applicable
Item 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  1.   Election of Directors with terms ending in 2012
         
Martin M. Mitchell
  For: 1,437,501   Withheld: 158,340
Stephen M. Ross
  For: 1,437,501   Withheld: 158,340
Gordon L. Welch
  For: 1,436,501   Withheld: 159,340
       The following are the names of the directors (and remaining terms) whose terms continued after the meeting:
     
Craig W. Dally
  Term Expires: 2010
Donald L. Denney
  Term Expires: 2010
Richard L. Dobbins
  Term Expires: 2010
Harold A. Adamson
  Term Expires: 2011
James W. Gordon
  Term Expires: 2011
Karl F. Loomis
  Term Expires: 2011
  2.   Advisory vote on executive compensation of the Company:
         
For: 1,273,569   Against: 266,767   Abstain: 55,505
  3.   Ratification of appointment of Plante & Moran, LLP as independent auditors for the fiscal year ending December 31, 2009:
         
For: 1,527,923   Against: 64,946   Abstain: 1,972
Item 5.   OTHER INFORMATION
Not applicable
Item 6.   EXHIBITS
See the index to exhibits.

17


Table of Contents

SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
         
  MONARCH COMMUNITY BANCORP, INC.
 
 
Date: August 14, 2009  By:   /s/ Donald L. Denney    
    Donald L. Denney   
    President and Chief Executive Officer   
 
     
Date: August 14, 2009  And:   /s/ Rebecca S. Crabill    
    Rebecca S. Crabill   
    Senior Vice President, Chief Financial Officer   

18


Table of Contents

         
INDEX TO EXHIBITS
         
Exhibit No.   Description of Exhibit
  31.1    
Rule 13a-14(a) Certification of the Corporation’s President and Chief Executive Officer.
       
 
  31.2    
Rule 13a-14(a) Certification of the Corporation’s Chief Financial Officer.
       
 
  32    
Section 1350 Certification.

19

Wikinvest © 2006, 2007, 2008, 2009, 2010, 2011, 2012. Use of this site is subject to express Terms of Service, Privacy Policy, and Disclaimer. By continuing past this page, you agree to abide by these terms. Any information provided by Wikinvest, including but not limited to company data, competitors, business analysis, market share, sales revenues and other operating metrics, earnings call analysis, conference call transcripts, industry information, or price targets should not be construed as research, trading tips or recommendations, or investment advice and is provided with no warrants as to its accuracy. Stock market data, including US and International equity symbols, stock quotes, share prices, earnings ratios, and other fundamental data is provided by data partners. Stock market quotes delayed at least 15 minutes for NASDAQ, 20 mins for NYSE and AMEX. Market data by Xignite. See data providers for more details. Company names, products, services and branding cited herein may be trademarks or registered trademarks of their respective owners. The use of trademarks or service marks of another is not a representation that the other is affiliated with, sponsors, is sponsored by, endorses, or is endorsed by Wikinvest.
Powered by MediaWiki