Monarch Community Bancorp Inc. Reports Operating Results (10-Q)

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Aug 14, 2009
Monarch Community Bancorp Inc. (MCBF, Financial) filed Quarterly Report for the period ended 2009-06-30.

Monarch Community Bank is a service-oriented organization dedicated to protecting their members\' savings and providing affordable competitive loan opportunities to Branch and Hillsdale counties...and all the communities they serve. Monarch Community Bancorp Inc. has a market cap of $7.4 million; its shares were traded at around $3.61 with and P/S ratio of 0.4. The dividend yield of Monarch Community Bancorp Inc. stocks is 10%.

Highlight of Business Operations:

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.

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.

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.

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.

The Banks 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.

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