---

|[X]  | ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
For the fiscal year ended December 31, 2002                                             
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|OR  
|[  ] | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from _______ to _______
 
Commission file number 0-49814.

|**Maryland**                                        | **04-3627031**     
|--------------------------------------------------- | -------------------
|(State or other jurisdiction of                     | (I.R.S. Employer   
|incorporation or organization)                      | Identification No.)
|                                                   
|**375 North Willowbrook Road, Coldwater, Michigan** | **49036**          
|(Address of principal executive offices)            | (Zip Code)         

|PART III of Form 10-KSB - | Portions of the Proxy Statement for the Annual Meeting of Stockholders to be held in April
2003.
|------------------------- | ------------------------------------------------------------------------------------------------

---

---

|*My Fellow Shareholders,* |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|                          | On behalf of the directors and officers of Monarch
Community Bancorp, Inc., and its subsidiary, Monarch
Community Bank, I am happy to report the state of our
company for the fiscal year ended on December 31, 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|                          | 2002 presented challenges to management and the
board that we had not experienced in our 68 year history...                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|                          | In July of 2002, we changed the bank's corporate
name from Branch County Federal Savings and Loan
Association to Monarch Community Bank ("MCB").  The
name change was the cornerstone of a long-term marketing
strategy that gave the institution a more progressive
corporate image and a name that was less geographically
anchored to a specific county ... the new name assertively
positioned the bank for future growth into other market
areas.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|                          | On August 29, 2002, MCB converted to a public
stock company, and in spite of a fluctuating stock market,
rising unemployment, declining interest rates and global
unrest, MCB concluded its transition year successfully.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|                          | Our corporate changes have not altered our commitment to the communities we serve.  To meet
Branch County's immediate need for moderately priced housing, Monarch stepped to the plate in a big
way.  MCB is a 1.5 million dollar limited partner in a 9.5 million dollar building project that constructed
112 new low-income residential apartments for families in the Coldwater area.  To further address this
housing crisis, MCB entered into an unprecedented collaboration with the Federal Home Loan Bank,
MISHDA (Michigan Income Subsidized Housing Development Authority) and the City of Coldwater.
This unique partnership enabled low-income families to purchase good quality, newly constructed
"stick-built" homes.  With up-front purchase subsidies provided by FHLB, MISHDA, and the City of
Coldwater, MCB was the exclusive lender providing mortgages to first-time homeowners in Coldwater's
East Point Housing Development project.  The success of this project has drawn State recognition and
resulted in the planned expansion/construction of two additional developments in the Sturgis and
Quincy communities, with Monarch continuing to be the exclusive lending institution.
|                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|                          | While we are proud of our history, we are most excited by the success we anticipate in 2003.
Going forward, we will continue to meet the challenges presented in this new financial era by providing
first class customer service, community advocacy, and consistent, reliable returns to you, our
shareholders.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|                          | Thank you for your continuing support.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

---

---

---

---

---

|                            | December 31, 2002      | December 31, 2001
|--------------------------- | ---------------------- | -----------------
|                            | Amount                 | Percent          
|                            | (Dollars in Thousands)
|                            |                        |                  
|Real Estate Loans:          |                        |                  
|One- to four-family         | $100,234               | 68.0%            
|Multi-family                | 172                    | 0.1              
|Commercial                  | 17,801                 | 12.1             
|Construction or development | 7,177                  | 4.9              
|Total real estate loans     | 125,384                | 85.1             
|                            |                        |                  
|Other loans:                |                        |                  
|Consumer loans:             |                        |                  
|Automobile                  | 2,233                  | 1.5              
|Home equity                 | 11,629                 | 7.9              
|Manufactured housing        | 1,274                  | 0.9              
|Other                       | 4,655                  | 3.1              
|Total consumer loans        | 19,791                 | 13.4             
|                            |                        |                  
|Commercial Business Loans   | 2,130                  | 1.5              
|                            |                        |                  
|Total other loans           | 21,921                 | 14.9             
|                            |                        |                  
|Total Loans                 | 147,305                | 100.0%           
|                            |                        |                  
|Less:                       |                        |                  
|Loans in process            | 2                      |                  
|Deferred fees and discounts | 406                    |                  
|Allowance for losses        | 1,735                  |                  
|                            | $145,162               |                  

---

|                            | December 31, 2002      | December 31, 2001
|--------------------------- | ---------------------- | -----------------
|                            | Amount                 | Percent          
|                            | (Dollars in Thousands)
|Fixed-Rate Loans:           |                        |                  
|Real estate:                |                        |                  
|One- to four-family         | $  85,224              | 57.9%            
|Multi-family                | 172                    | 0.1              
|Commercial                  | 13,903                 | 9.4              
|Construction or development | 6,943                  | 4.7              
|Total real estate loans     | 106,242                | 72.1             
|                            |                        |                  
|Consumer                    | 19,791                 | 13.4             
|Commercial business         | 1,427                  | 1.0              
|Total fixed-rate loans      | 127,460                | 86.5             
|                            |                        |                  
|Adjustable-Rate Loans:      |                        |                  
|Real estate:                |                        |                  
|One- to four-family         | 15,010                 | 10.2             
|Multi-family                | ---                    | ---              
|Commercial                  | 3,898                  | 2.7              
|Construction or development | 234                    | 0.1              
|Total real estate loans     | 19,142                 | 13.0             
|                            |                        |                  
|                            |                        |                  
|Consumer                    | ---                    | ---              
|Commercial business         | 703                    | 0.5              
|Total adjustable-rate loans | 19,845                 | 13.5             
|Total loans                 | 147,305                | 100.0%           
|                            |                        |                  
|Less:                       |                        |                  
|Loans in process            | 2                      |                  
|Deferred fees and discounts | 406                    |                  
|Allowance for loan losses   | 1,735                  |                  
|Total loans receivable, net | $145,162               |                  

---

|                                      | Real Estate            |                            |                            |                    
|------------------------------------- | ---------------------- | -------------------------- | -------------------------- | -------------------
|                                      | One- to Four-Family    | Multi-family andCommercial | Construction orDevelopment | Consumer           
|                                      | Amount                 | WeightedAverageRate        | Amount                     | WeightedAverageRate
|                                      | (Dollars in Thousands)
|Due to mature:                        |                        |                            |                            |                    
|One year or less(1)                   | $    2,744             | 8.27%                      | $2,259                     | 7.02%              
|After one year through
    five years | 5,707                  | 8.15%                      | 7,321                      | 7.77%              
|After five years                      | 91,783                 | 7.95%                      | 8,393                      | 7.30%              

---

> with a credit score of less than 600, or
> 
> that do not fall into either of our top two of four pricing criteria.

---

---

---

---

---

|                                        | Years EndedDecember 31,
|--------------------------------------- | -----------------------
|                                        | 2002                   
|                                        | (In Thousands)         
|Originations by type:                   |                        
|Real Estate:                            |                        
|One- to four-family                     | $79,658                
|Multi-family                            | ---                    
|Commercial                              | 8,916                  
|Construction or development             | 4,142                  
|Total real estate loans                 | 92,706                 
|                                        |                        
|Consumer Loans:                         |                        
|Automobile                              | 1,046                  
|Home equity                             | 6,544                  
|Manufactured housing                    | 94                     
|Other                                   | 3,183                  
|Commercial business                     | 871                    
|Total loans originated                  | 104,444                
|                                        |                        
|Sales and Repayments:                   |                        
|One- to four-family loans sold          | 35,547                 
|Principal repayments                    | 61,577                 
|Total reductions                        | 97,124                 
|Increase (decrease) in other items, net | (121)                  
|Net increase (decrease)                 | $      7,441           

---

---

|                                        | December 31, 2002Loans Delinquent For: |                 
|--------------------------------------- | -------------------------------------- | ----------------
|                                        | 60-89 Days                             | 90 Days and Over
|                                        | Number                                 | Amount          
|                                        | (Dollars in Thousands)                
|Real Estate:                            |                                        |                 
|One- to four-family                     | 71                                     | $4,137          
|Multi-family                            | ---                                    | ---             
|Commercial                              | 4                                      | 326             
|Construction or 
           development | ---                                    | ---             
|                                        |                                        |                 
|Total real estate loans                 | 75                                     | 4,463           
|                                        |                                        |                 
|Consumer                                | 19                                     | 224             
|Commercial business                     | ---                                    | ---             
|                                        |                                        |                 
|Total                                   | 94                                     | $4,687          

|                                        | December 31, 2001Loans Delinquent For: |                 
|--------------------------------------- | -------------------------------------- | ----------------
|                                        | 60-89 Days                             | 90 Days and Over
|                                        | Number                                 | Amount          
|                                        | (Dollars in Thousands)                
|Real Estate:                            |                                        |                 
|One- to four-family                     | 76                                     | $4,080          
|Multi-family                            | ---                                    | ---             
|Commercial                              | 4                                      | 393             
|Construction or 
           development | ---                                    | ---             
|                                        |                                        |                 
|Total real estate loans                 | 80                                     | 4,473           
|                                        |                                        |                 
|Consumer                                | 41                                     | 486             
|Commercial business                     | ---                                    | ---             
|                                        |                                        |                 
|Total                                   | 121                                    | $4,959          

---

|                                           | December 31,          
|------------------------------------------ | ----------------------
|                                           | 2002                  
|                                           | (Dollars in Thousands)
|                                           |                       
|Non-accruing loans:                        |                       
|One- to four-family                        | $1,372                
|Multi-family                               | ---                   
|Commercial real estate                     | 211                   
|Construction or development                | ---                   
|Consumer                                   | 55                    
|Commercial business                        | ---                   
|Total                                      | 1,638                 
|                                           |                       
|Accruing loans delinquent 90 days or more: |                       
|One- to four-family                        | 864                   
|Multi-family                               | ---                   
|Commercial real estate                     | 342                   
|Construction or development                | ---                   
|Consumer                                   | 111                   
|Commercial business                        | ---                   
|Total                                      | 1,317                 
|                                           |                       
|Foreclosed assets:                         |                       
|One- to four-family(1)                     | 2,022                 
|Multi-family                               | ---                   
|Commercial real estate                     | ---                   
|Construction or development                | ---                   
|Consumer                                   | 37                    
|Commercial business                        | ---                   
|Total                                      | 2,059                 
|                                           |                       
|Total non-performing assets                | $5,014                
|Total as a percentage of total assets      | 2.53%                 

|(1) | Includes $1.1 million and $1.6 million in real estate in judgment and subject to redemption at December 31, 2002 and 2001, respectively.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------

---

---

---

|                                                                                           | December 31,          
|------------------------------------------------------------------------------------------ | ----------------------
|                                                                                           | 2002                  
|                                                                                           | (Dollars in Thousands)
|                                                                                           |                       
|Balance at beginning of year                                                               | $1,683                
|                                                                                           |                       
|Charge-offs:                                                                               |                       
|One- to four-family                                                                        | 415                   
|Multi-family                                                                               | ---                   
|Commercial real estate                                                                     | 1                     
|Construction or development                                                                | ---                   
|Consumer                                                                                   | 152                   
|Commercial business                                                                        | ---                   
|                                                                                           | 568                   
|Recoveries:                                                                                |                       
|One- to four-family                                                                        | 135                   
|Multi-family                                                                               | ---                   
|Commercial real estate                                                                     | ---                   
|Construction or development                                                                | ---                   
|Consumer                                                                                   | 88                    
|Commercial business                                                                        | ---                   
|                                                                                           | 223                   
|                                                                                           |                       
|Net charge-offs                                                                            | 345                   
|Additions charged to operations                                                            | 397                   
|Balance at end of year                                                                     | $1,735                
|                                                                                           |                       
|Ratio of net charge-offs during the year to average loans
     outstanding during the year | .24 %                 
|                                                                                           |                       
|Allowance as a percentage of non-performing loans                                          | 58.71%                
|                                                                                           |                       
|Allowance as a percentage of total loans (end of year)                                     | 1.18%                 

---

|                                                  | December 31,               
|------------------------------------------------- | ---------------------------
|                                                  | 2002                       
|                                                  | Amount ofLoan LossAllowance
|                                                  | (Dollars in Thousands)     
|                                                  |                            
|One- to four-family(2)                            | $1,111                     
|Multi-family and non-residential
     real estate | 3                          
|Construction or development                       | 33                         
|Consumer                                          | 201                        
|Commercial                                        | 387                        
|Total                                             | $1,735                     

|(1) | Loan categories are based on the type of loan as opposed to the underlying collateral, which is the basis for
other loan tables presented in this document.       
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | One- to four-family loans includes real estate in judgment and subject to redemption of $1.1 million and $1.6
million at December 31, 2002 and 2001, respectively.

---

|                                                           | December 31,          
|---------------------------------------------------------- | ----------------------
|                                                           | 2002                  
|                                                           | AmortizedCost         
|                                                           | (Dollars in Thousands)
|                                                           |                       
|Trading securities:                                        |                       
|Mortgage backed securities                                 | $    ---              
|                                                           |                       
|Available for sale:                                        |                       
|U.S. Treasury obligations                                  | 3,310                 
|U.S. government agency obligations                         | 10,246                
|Obligations of states and political
          subdivisions | 3,505                 
|Total available for sale                                   | 17,061                
|                                                           |                       
|Held to maturity:                                          |                       
|Mortgage backed securities                                 | 274                   
|Total investment securities                                | $17,335               

---

|                                                             | Less than 1 year       | 1 to 5 years         | 5 to 10 years | Over 10 years        | Total Securities
|------------------------------------------------------------ | ---------------------- | -------------------- | ------------- | -------------------- | ----------------
|                                                             | AmortizedCost          | WeightedAverageYield | AmortizedCost | WeightedAverageYield | AmortizedCost   
|                                                             | (Dollars in Thousands)
|                                                             |                        |                      |               |                      |                 
|Available for Sale:                                          |                        |                      |               |                      |                 
|U.S. Treasury obligations                                    | $     ---              | ---                  | $  3,310      | 2.36%                | $  ---          
|U.S. government agency obligations                           | 4,038                  | 2.65%                | 6,208         | 2.48                 | ---             
|Obligations of states and political
            subdivisions | 70                     | 2.12                 | 3,435         | 2.89                 | ---             
|Total available for sale                                     | 4,108                  | 2.64                 | 12,953        | 2.56                 | ---             
|                                                             |                        |                      |               |                      |                 
|Held to Maturity:                                            |                        |                      |               |                      |                 
|Mortgage-backed securities                                   | ---                    | ---                  | ---           | ---                  | ---             
|Total investment securities                                  | $4,108                 | 2.64%                | $12,953       | 2.56%                | $   ---         

---

|                           | Year EndedDecember 31,
|-------------------------- | ----------------------
|                           | 2002                  
|                           | (Dollars in Thousands)
|                           |                       
|Opening balance            | $105,698              
|Net deposits (withdrawals) | (2,343)               
|Interest credited          | 3,389                 
|                           |                       
|Ending balance             | $106,744              
|                           |                       
|Net increase               | $    1,046            
|                           |                       
|Percent increase           | 0.99%                 

---

|                                  | Year Ended December 31,
|--------------------------------- | -----------------------
|                                  | 2002                   
|                                  | Amount                 
|                                  | (Dollars in Thousands) 
|                                  |                        
|Transaction and Savings Deposits: |                        
|                                  |                        
|Non-interest bearing accounts     | $    3,046             
|Savings accounts 1.26%            | 15,274                 
|NOW accounts 1.0%                 | 9,596                  
|Money market accounts 1.75%       | 9,868                  
|                                  |                        
|Total non-certificates            | 37,784                 
|                                  |                        
|Certificates:                     |                        
|                                  |                        
|0.00 -  1.99%                     | 9,019                  
|2.00 -  3.99%                     | 27,616                 
|4.00 -  5.99%                     | 26,908                 
|6.00 -  7.99%                     | 5,417                  
|8.00 -  9.99%                     | ---                    
|                                  |                        
|Total certificates                | 68,960                 
|Total deposits                    | $106,744               

|                                            | Maturity        |                 
|------------------------------------------- | --------------- | ----------------
|                                            | 3 Monthsor Less | Over3 to 6Months
|                                            | (In Thousands) 
|                                            |                 |                 
|Certificates of deposit less than $100,000  | $  8,694        | $  7,645        
|                                            |                 |                 
|Certificates of deposit of $100,000 or more | 1,898           | 2,571           
|                                            |                 |                 
|Total certificates of deposit               | $10,592         | $10,216         

---

|                                                | 0.00- 1.99%            | 2.00-3.99% | 4.00-5.99% | 6.00-7.99% | Total   | Percentof Total
|----------------------------------------------- | ---------------------- | ---------- | ---------- | ---------- | ------- | ---------------
|                                                | (Dollars in Thousands)
|Certificate accountsmaturing in quarter ending: |                        |            |            |            |         |                
|                                                |                        |            |            |            |         |                
|March 31, 2003                                  | $3,113                 | $  4,183   | $ 2,481    | $   815    | $10,592 | 15.4%          
|June 30, 2003                                   | 4,047                  | 3,696      | 2,006      | 467        | 10,216  | 14.8           
|September 30, 2003                              | 251                    | 4,118      | 996        | 925        | 6,290   | 9.1            
|December 31, 2003                               | 1,286                  | 1,681      | 337        | 621        | 3,925   | 5.7            
|March 31, 2004                                  | ---                    | 459        | 2,154      | 296        | 2,909   | 4.2            
|June 30, 2004                                   | 98                     | 341        | 1,422      | 192        | 2,053   | 3.0            
|September 30, 2004                              | ---                    | 1,185      | 3,655      | 100        | 4,940   | 7.2            
|December 31, 2004                               | 95                     | 4,073      | 3,089      | 361        | 7,618   | 11.0           
|March 31, 2005                                  | ---                    | 87         | 463        | 875        | 1,425   | 2.1            
|June 30, 2005                                   | ---                    | 52         | 589        | 285        | 926     | 1.3            
|September 30, 2005                              | ---                    | 1,623      | 4          | 229        | 1,856   | 2.7            
|December 31, 2005                               | ---                    | 6,068      | ---        | 69         | 6,137   | 8.9            
|Thereafter                                      | 129                    | 50         | 9,712      | 182        | 10,073  | 14.6           
|                                                |                        |            |            |            |         |                
|Total                                           | $9,019                 | $27,616    | $26,908    | $5,417     | $68,960 | 100.0%         
|                                                |                        |            |            |            |         |                
|Percent of total                                | 13.08%                 | 40.05%     | 39.02%     | 7.86%      |         |                

---

|                 | Year EndedDecember 31,
|---------------- | ----------------------
|                 | 2002                  
|                 | (Dollars in Thousands)
|Maximum Balance: |                       
|FHLB advances    | $55,500               
|                 |                       
|Average Balance: |                       
|FHLB advances    | $51,679               

|                                                | December 31,          
|----------------------------------------------- | ----------------------
|                                                | 2002                  
|                                                | (Dollars in Thousands)
|                                                |                       
|FHLB advances                                   | $52,500               
|                                                |                       
|Weighted average interest rate of FHLB advances | 5.72%                 

---

---

---

---

---

---

---

---

> audit committees;
> 
> certification of financial statements by the chief executive officer and the chief financial
> officer;
> 
> the forfeiture of bonuses or other incentive-based compensation and profits from the sale of
> an issuer's securities by directors and senior officers in the twelve month period following
> initial publication of any financial statements that later require restatement;
> 
> a prohibition on insider trading during pension plan black out periods;
> 
> disclosure of off-balance sheet transactions;
> 
> expedited filing requirements for Form 4s;
> 
> isclosure of a code of ethics and filing a Form 8-K for a change or waiver of such code;
> 
> "real time" filing of periodic reports;
> 
> the formation of a public accounting oversight board;
> 
> auditor independence; and
> 
> various increased criminal penalties for violations of securities laws.

---

|Location                                                  | County                 | Owned/Leased | December 31, 2002Net Book Value(Building)
|--------------------------------------------------------- | ---------------------- | ------------ | -----------------------------------------
|                                                          | (Dollars in Thousands)
|                                                          |                        |              |                                          
|*Main Office*                                             |                        |              |                                          
|                                                          |                        |              |                                          
|375 N. Willowbrook Road
Coldwater, MI 49036               | Branch                 | Owned        | $2,148                                   
|                                                          |                        |              |                                          
|*Branch Offices*                                          |                        |              |                                          
|                                                          |                        |              |                                          
|30 West Chicago Street
Coldwater, MI 49036                | Branch                 | Owned        | 72                                       
|                                                          |                        |              |                                          
|356 N. Broadway
Union City, MI 49094                      | Branch                 | Owned        | 53                                       
|                                                          |                        |              |                                          
|1 W. Carleton Road
Hillsdale, MI 49242                    | Hillsdale              | Owned        | 547                                      
|                                                          |                        |              |                                          
|125 W. Chicago Street
Jonesville, MI 49250                | Hillsdale              | Owned        | 81                                       
|                                                          |                        |              |                                          
|*Other Facilities*                                        |                        |              |                                          
|                                                          |                        |              |                                          
|34 Grand Street (Garage)
Coldwater, MI 49036              | Branch                 | Owned        | 129                                      
|                                                          |                        |              |                                          
|24 Grand Street (Drive Through)
Coldwater, MI 49036       | Branch                 | Owned        | 38                                       
|                                                          |                        |              |                                          
|87 Marshall Street (Leased to others)
Coldwater, MI 49036 | Branch                 | Owned        | 211                                      

---

|**Year** | **Quarter Ending** | **High** | **Low**
|-------- | ------------------ | -------- | -------
|         |                    |          |        
|2002     | September 30       | $11.90   | $10.01 
|         | December 31        | $11.98   | $10.25 

---

|                                   |                                       | December 31,
|---------------------------------- | ------------------------------------- | ------------
|                                   |                                       | 2002        
|Selected Financial Condition Data: | (In Thousands)                       
|                                   |                                       |             
|Total Assets                       | $197,985                              | $168,684    
|Loans receivable, net              | 145,162                               | 137,721     
|Trading securities at fair value:  |                                       |             
|                                   | Mortgage-backed securities            | ---         
|Investment securities:             |                                       |             
|                                   | U.S. Government and Agency securities | 17,160      
|                                   | Mortgage-backed securities            | 274         
|Overnight deposits                 | 16,063                                | 12,035      
|Deposits                           | 106,744                               | 105,698     
|Federal Home Loan Bank Advances    | 52,500                                | 45,500      
|Equity                             | 36,949                                | 15,365      

|                                                    |                                                     | 2002     | 2001      | 2000     | 1999     | 1998    
|--------------------------------------------------- | --------------------------------------------------- | -------- | --------- | -------- | -------- | --------
|Selected Operations Data:                           | (In Thousands)                                     
|                                                    |                                                     |          |           |          |          |         
|Total interest income                               | $12,931                                             | $14,470  | $13,869   | $12,525  | $12,604 
|Total interest expense                              | 6,466                                               | 8,117    | 7,434     | 6,998    | 7,318   
|                                                    | Net interest income                                 | 6,465    | 6,353     | 6,435    | 5,527    | 5,286   
|Provision for loan losses                           | 397                                                 | 1,039    | 245       | 180      | 120     
|                                                    | Net interest income after provision for loan losses | 6,068    | 5,314     | 6,190    | 5,347    | 5,166   
|Fees and service charges                            | 1,154                                               | 1,227    | 1,234     | 1,148    | 899     
|Gains on sales of loans, mortgage-backed securities |                                                     |          |           |          |         
|                                                    | and investment securities                           | 998      | 1,170     | 234      | 317      | 941     
|Other non-interest income                           | 7                                                   | 85       | 64        | 217      | 15      
|                                                    | Total non-interest income                           | 2,159    | 2,482     | 1,532    | 1,682    | 1,855   
|                                                    | Total non-interest expense                          | 6,798    | 6,738     | 5,636    | 5,365    | 4,800   
|                                                    | Income before taxes                                 | 1,429    | 1,058     | 2,086    | 1,664    | 2,221   
|Income tax provision                                | 415                                                 | 299      | 749       | 530      | 756     
|                                                    |                                                     |          |           |          |          |         
|                                                    | Net income                                          | $  1,014 | $     759 | $  1,337 | $  1,134 | $  1,465

---

|                                          |                                                                | December 31,                
|----------------------------------------- | -------------------------------------------------------------- | ----------------------------
|                                          |                                                                | 2002                        
|Selected Financial Ratios and Other Data: | (In Thousands)                                                
|                                          |                                                                |                             
|Performance Ratios:                       |                                                                |                             
|                                          | Return on assets (ratio of net income to average total assets) | 0.54%                       
|                                          | Return on equity (ratio of net income to average equity)       | 4.08%                       
|                                          | Interest rate spread information:                              |                             
|                                          |                                                                | Average during period       
|                                          | Net interest margin(1)                                         | 3.85%                       
|                                          | Ratio of operating expense to average total assets             | 3.72%                       
|                                          | Ratio of average interest-earning assets to average            |                             
|                                          |                                                                | interest-bearing liabilities
|                                          | Efficiency ratio(2)                                            | 75.1%                       
|                                          |                                                                |                             
|Asset Quality Ratios:                     |                                                                |                             
|                                          | Non-performing assets to total assets and end of period        | 2.53%                       
|                                          | Non-performing loans to total loans                            | 2.04%                       
|                                          | Allowance for loan losses to non-performing loans              | 58.71%                      
|                                          | Allowance for loan losses to loans receivable, net             | 1.18%                       
|                                          |                                                                |                             
|Capital Ratios:                           |                                                                |                             
|                                          | Equity to total assets at end of period                        | 18.66%                      
|                                          |                                                                |                             
|Other Data:                               |                                                                |                             
|                                          | Number of full-service offices                                 | 5                           

|(1) | Net interest income divided by average-earning assets.                                                                                                        
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | Total noninterest expenses, excluding real estate owned and repossessed property expense, as a percentage of net interest income and total
noninterest income.

---

---

> originating shorter-term consumer loans and commercial construction and commercial
> permanent real estate loans for retention in our portfolio
> selling a portion of the long-term, lower yielding, 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
> acquiring longer-term borrowings at fixed interest rates to offset the negative impact of
> longer-term fixed rate loans in our loan portfolio.

|Change in Interest Rates inBasis Points ("bp")(Rate Shock in Rates)(1) | Net Portfolio Value | Net Portfolio Value as %of Present Value of Assets
|---------------------------------------------------------------------- | ------------------- | --------------------------------------------------
|$ Amount                                                               | $ Change            | % Change                                          
|(Dollars in Thousands)                                                
|                                                                       |                     |                                                   
|+300 bp                                                                | $33,214             | 1,319                                             
|+200 bp                                                                | 33,649              | 1,754                                             
|+100 bp                                                                | 33,176              | 1,281                                             
|0 bp                                                                   | 31,895              |                                                   
|-100 bp                                                                | 30,216              | (1,679)                                           
|-200 bp                                                                | n/m(2)              | n/m(2)                                            
|-300 bp                                                                | n/m(2)              | n/m(2)                                            

|(1) | Assumes an instantaneous uniform change in interest rates at all maturities. 
|--- | -----------------------------------------------------------------------------
|(2) | Not meaningful because some market rates would compute to a rate less than 0.

---

---

---

|                                                                            | Year Ended December 31,  
|--------------------------------------------------------------------------- | -------------------------
|                                                                            | 2002                     
|                                                                            | AverageOutstandingBalance
|                                                                            | (Dollars in Thousands)   
|                                                                            |                          
|Fed Funds and overnight deposits                                            | $ 17,376                 
|Trading assets                                                              | 65                       
|Investment securities                                                       | 2,549                    
|Other securities                                                            | 2,627                    
|Loans receivable(1)                                                         | 145,487                  
|Total earning assets                                                        | $168,104                 
|                                                                            |                          
|Demand and NOW accounts                                                     | $12,717                  
|Money market accounts                                                       | 11,065                   
|Savings accounts                                                            | 16,945                   
|Certificates of deposit                                                     | 64,925                   
|Federal Home Loan Bank advances                                             | 51,679                   
|Total interest-bearing liabilities                                          | $157,331                 
|Net interest income                                                         |                          
|Net interest spread                                                         |                          
|Net interest margin                                                         |                          
|Average interest-earning assets to
    average interest-bearing liabilities |                          

|(1) | Calculated net of deferred loan fees, loan discounts and loans in process.  Nonaccrual loans are included in the average outstanding balance.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------

---

|                                   | Year Ended December 31,  | Year Ended December 31,
|---------------------------------- | ------------------------ | -----------------------
|                                   | 2002 vs. 2001            | 2001 vs. 2000          
|                                   | Increase(Decrease)Due to | TotalIncrease          
|                                   | Rate                     | Volume                 
|                                   | (In Thousands)          
|Interest-earning assets:           |                          |                        
|Fed funds and overnight deposits   | $   (373)                | $    (67)              
|Trading assets                     | (2)                      | (10)                   
|Investment securities              | (18)                     | 158                    
|Federal Home Loan Bank stock       | (34)                     | 9                      
|Loans receivable                   | (1,549)                  | 458                    
|Total interest-earning assets      | $(1,977)                 | $   548                
|                                   |                          |                        
|Interest-bearing liabilities:      |                          |                        
|Demand and NOW accounts            | $    (69)                | $       23             
|Money market accounts              | (136)                    | 108                    
|Savings accounts                   | (178)                    | 61                     
|Certificates of deposit            | (1,003)                  | (511)                  
|Federal Home Loan Bank advances    | (147)                    | 177                    
|Total interest-bearing liabilities | $(1,533)                 | $  (142)               
|                                   |                          |                        
|Net interest income                |                          |                        

---

|                                                                           | At December 31,
|-------------------------------------------------------------------------- | ---------------
|                                                                           | 2002           
|                                                                           |                
|Weighted average yield on:                                                 |                
|Overnight deposits                                                         | 1.12%          
|Trading assets                                                             | ---            
|Investment securities                                                      | 2.58           
|Federal Home Loan Bank stock                                               | 5.75           
|Loans:                                                                     |                
|One- to four-family                                                        | 7.94           
|Multi-family                                                               | 9.51           
|Commercial                                                                 | 7.44           
|Construction or development                                                | 6.60           
|Total real estate loans                                                    | 7.79           
|Other loans:                                                               |                
|Consumer loans                                                             | 9.37           
|Commercial business loans                                                  | 6.65           
|Total loans                                                                | 7.99           
|Combined weighted average yield on interest-earning assets                 | 6.89           
|                                                                           |                
|Weighted average rate paid on:                                             |                
|Demand and NOW accounts                                                    | .87            
|Money market accounts                                                      | 1.75           
|Savings deposits                                                           | 1.26           
|Certificate of deposit accounts                                            | 3.80           
|Federal Home Loan Bank advances                                            | 5.72           
|Combined weighted average rate paid on interest-bearing 
      liabilities | 3.83           
|                                                                           |                
|Spread                                                                     | 3.06           

---

---

---

|                              | Payments Due by Period
|----------------------------- | ----------------------
|                              | (Dollars in Thousands)
|                              | Total                 
|                              |                       
|Certificates of deposit       | $  68,960             
|FHLB advances                 | 52,500                
|Total contractual obligations | $121,460              

---

|**Monarch Community Bancorp, Inc. and Subsidiaries**
|----------------------------------------------------
|**Contents**                                        

|Independent Auditor's Report                                                                        | F-2
|--------------------------------------------------------------------------------------------------- | ---
|                                                                                                    |    
|Consolidated Balance Sheet as of December 31, 2002 and 2001                                         | F-3
|                                                                                                    |    
|Consolidated Statement of Income for the Years Ended
December 31, 2002, 2001 and 2000               | F-4
|                                                                                                    |    
|Consolidated Statement of Stockholders' Equity for the Years Ended
December 31, 2002, 2001 and 2000 | F-5
|                                                                                                    |    
|Consolidated Statement of Cash Flows for the Years Ended
December 31, 2002, 2001 and 2000           | F-6
|                                                                                                    |    
|Notes to Consolidated Financial Statements                                                          | F-7
|                                                                                                    |    

---

---

|**Monarch Community Bancorp, Inc. and Subsidiaries**                
|--------------------------------------------------------------------
|**Consolidated Balance Sheet
(000s omitted, except per share data)**

|                                               | December 31                                  
|---------------------------------------------- | ---------------------------------------------
|                                               | 2002                                         
|**Assets**                                     | ****                                         
|Cash and due from banks                        | $   4,144                                    
|Federal Home Loan Bank overnight time and      |                                              
|                                               | other interest bearing deposits              
|                                               |                                              
|                                               |                                              
|                                               |                                              
|Trading assets (Note 2)                        | -                                            
|Securities -- Available for sale (Note 3)      | 17,160                                       
|Securities -- Held to maturity (Note 3)        | 274                                          
|Other securities (Note 3)                      | 2,807                                        
|Real estate investment -- Limited partnership, |                                              
|                                               | at equity (Note 4)                           
|Loans held for sale                            | 1,527                                        
|Loans, net (Notes 5 and 15)                    | 145,162                                      
|Accrued interest receivable                    | 1,275                                        
|Foreclosed assets, net (Note 7)                | 2,022                                        
|Premises and equipment (Note 8)                | 4,569                                        
|Deferred income taxes (Note 11)                | 556                                          
|Other assets (Note 6 and 11)                   | 872                                          
|                                               |                                              
|                                               |                                              
|                                               |                                              
|**Liabilities and Stockholders' Equity**       | ****                                         
|**Liabilities**                                | ****                                         
|                                               | Deposits (Notes 9 and 15):                   
|                                               |                                              
|                                               |                                              
|                                               |                                              
|                                               |                                              
|                                               |                                              
|Federal Home Loan Bank advances (Note 10)      | 52,500                                       
|Accrued expenses and other liabilities         | 1,792                                        
|                                               |                                              
|                                               |                                              
|                                               |                                              
|**Commitments and Contingencies (Note 12)**    | -                                            
|                                               |                                              
|**Stockholders' Equity (Note 13)**             | ****                                         
|                                               | Common stock -- $0.01 par value              
|                                               |                                              
|                                               |                                              
|                                               |                                              
|                                               | Additional paid-in capital                   
|                                               | Retained earnings -- Substantially restricted
|                                               | Accumulated other comprehensive income       
|                                               | Unearned compensation (Note 17)              
|                                               |                                              
|                                               |                                              
|                                               |                                              
|                                               |                                              

---

|**Monarch Community Bancorp, Inc. and Subsidiaries**
|----------------------------------------------------
|**Consolidated Statement of Income
(000s omitted)** 

|                                        |                                                   |                           | Year Ended December 31
|--------------------------------------- | ------------------------------------------------- | ------------------------- | ----------------------
|                                        |                                                   |                           | 2002                  
|**Interest Income**                     |                                                   |                           |                       
|                                        | Loans, including fees                             | $12,408                   | $13,551               
|                                        | Investment securities                             | 238                       | 230                   
|                                        | Federal funds sold and overnight deposits         | 285                       | 689                   
|                                        |                                                   | Total interest income     | 12,931                
|                                        |                                                   |                           |                       
|**Interest Expense**                    | ****                                              |                           |                       
|                                        | Deposits (Note 9)                                 | 3,325                     | 4,997                 
|                                        | Federal Home Loan Bank advances                   | 3,141                     | 3,120                 
|                                        |                                                   | Total interest expense    | 6,466                 
|                                        |                                                   |                           |                       
|**Net Interest Income**                 | 6,465                                             | 6,353                     | 6,435                 
|                                        |                                                   |                           |                       
|**Provision for Loan Losses** (Note 5)  | 397                                               | 1,039                     | 245                   
|                                        |                                                   |                           |                       
|**Net Interest Income After Provision** | ****                                              |                           |                       
|                                        | **for Loan Losses**                               | 6,068                     | 5,314                 
|                                        |                                                   |                           |                       
|**Noninterest Income**                  | ****                                              |                           |                       
|                                        | Fees and service charges                          | 955                       | 1,059                 
|                                        | Loan servicing fees                               | 199                       | 182                   
|                                        | Net gain on sale of loans                         | 1,000                     | 1,166                 
|                                        | Net gain (loss) on trading activities             | (2)                       | 5                     
|                                        | Net gain (loss) on sale of premises and equipment | (35)                      | (4)                   
|                                        | Other income                                      | 42                        | 74                    
|                                        |                                                   | Total noninterest income  | 2,159                 
|                                        |                                                   |                           |                       
|**Noninterest Expenses**                | ****                                              |                           |                       
|                                        | Salaries and employee benefits (Note 14 and 17)   | 3,542                     | 3,277                 
|                                        | Occupancy and equipment                           | 782                       | 836                   
|                                        | Data processing                                   | 370                       | 535                   
|                                        | Mortgage banking                                  | 365                       | 369                   
|                                        | NOW account expense                               | 162                       | 172                   
|                                        | Professional services                             | 296                       | 222                   
|                                        | Office supplies and forms                         | 182                       | 212                   
|                                        | Advertising                                       | 115                       | 127                   
|                                        | Other general and administrative                  | 984                       | 988                   
|                                        |                                                   | Total noninterest expense | 6,798                 
|                                        |                                                   |                           |                       
|**Income** -- Before income taxes       | 1,429                                             | 1,058                     | 2,086                 
|                                        |                                                   |                           |                       
|**Income Taxes** (Note 11)              | 415                                               | 299                       | 750                   
|                                        |                                                   |                           |                       
|Net Income                              | **$  1,014**                                      | **$     759**             | **$  1,336**          

---

|**Monarch Community Bancorp, Inc. and Subsidiaries**             
|-----------------------------------------------------------------
|**Consolidated Statement of Stockholders' Equity
(000s omitted)**

|                                       |                              | Common Stock                   | AdditionalPaid inCapital | RetainedEarnings | AccumulatedOtherComprehensiveIncome | UnearnedCompensationESOP | Total      
|-------------------------------------- | ---------------------------- | ------------------------------ | ------------------------ | ---------------- | ----------------------------------- | ------------------------ | -----------
|                                       |                              | Number ofShares                | Amount                  
|**Balance** -- January 1, 2000         | -                            | $   -                          | $          -             | $13,270          | $   -                               | $   -                    | $13,270    
|                                       |                              |                                |                          |                  |                                     |                          |            
|Comprehensive income:                  |                              |                                |                          |                  |                                     |                          |            
|                                       | Net income                   | -                              | -                        | -                | 1,336                               | -                        | -          
|                                       |                              |                                |                          |                  |                                     |                          |            
|**Balance** -- December 31, 2000       | -                            | -                              | -                        | 14,606           | -                                   | -                        | 14,606     
|                                       |                              |                                |                          |                  |                                     |                          |            
|Comprehensive income:                  |                              |                                |                          |                  |                                     |                          |            
|                                       | Net income                   | -                              | -                        | -                | 759                                 | -                        | -          
|                                       |                              |                                |                          |                  |                                     |                          |            
|**Balance** -- December 31, 2001       | -                            | -                              | -                        | 15,365           | -                                   | -                        | 15,365     
|                                       |                              |                                |                          |                  |                                     |                          |            
|Issuance of common stock in connection |                              |                                |                          |                  |                                     |                          |            
|with the Bank's conversion from mutual |                              |                                |                          |                  |                                     |                          |            
|to stock-owned holding company         | 2,314                        | 23                             | 22,124                   |                  |                                     | (1,852)                  | 20,295     
|                                       |                              |                                |                          |                  |                                     |                          |            
|Allocation of ESOP shares (Note 17)    |                              |                                | 25                       |                  |                                     | 186                      | 211        
|                                       |                              |                                |                          |                  |                                     |                          |            
|Comprehensive income:                  |                              |                                |                          |                  |                                     |                          |            
|                                       | Net income                   |                                |                          |                  | 1,014                               |                          |            
|                                       | Change in unrealized gain on |                                |                          |                  |                                     |                          |            
|                                       |                              | securities available-for-sale, |                          |                  |                                     |                          |            
|                                       |                              | net of tax of $33              | -                        | -                | -                                   | -                        | 64         
|                                       |                              |                                |                          |                  |                                     |                          |            
|                                       |                              | Total comprehensive income     | -                        | -                | -                                   | 1,014                    | 64         
|                                       |                              |                                |                          |                  |                                     |                          |            
|**Balance** -- December 31, 2002       | **2,314**                    | **$23**                        | **$22,149**              | **$16,379**      | **$64**                             | **$(1,666)**             | **$36,949**

---

|**Monarch Community Bancorp, Inc. and Subsidiaries**   
|-------------------------------------------------------
|**Consolidated Statement of Cash Flows
(000s omitted)**

|                                              |                                                           |                                        |                                               |                                        | Year Ended December 31                             
|--------------------------------------------- | --------------------------------------------------------- | -------------------------------------- | --------------------------------------------- | -------------------------------------- | ---------------------------------------------------
|                                              |                                                           |                                        |                                               |                                        | 2002                                               
|**Cash Flows from Operating Activities**      | ****                                                      |                                        |                                              
|                                              | Net income                                                | $  1,014                               | $     759                                     | $  1,336                              
|                                              | Adjustments to reconcile net income to net cash from      |                                        |                                               |                                       
|                                              |                                                           | operating activities:                  |                                               |                                        |                                                    
|                                              |                                                           |                                        | Depreciation                                  | 462                                    | 482                                                
|                                              |                                                           |                                        | Provision for loan loss                       | 397                                    | 1,039                                              
|                                              |                                                           |                                        | Amortization                                  | 359                                    | 369                                                
|                                              |                                                           |                                        | (Gain) loss on sale of foreclosed assets      | (1)                                    | 1                                                  
|                                              |                                                           |                                        | Deferred income taxes                         | (105)                                  | (280)                                              
|                                              |                                                           |                                        | Mortgage loans originated for sale            | (37,074)                               | (46,568)                                           
|                                              |                                                           |                                        | Proceeds from sale of mortgage loans          | 36,547                                 | 48,117                                             
|                                              |                                                           |                                        | Gain on sale of mortgage loans                | (1,000)                                | (1,166)                                            
|                                              |                                                           |                                        | (Gain) loss on sale of premises and equipment | 35                                     | 4                                                  
|                                              |                                                           |                                        | Allocation of ESOP shares                     | 211                                    | -                                                  
|                                              |                                                           |                                        | Net change in:                                |                                        |                                                    
|                                              |                                                           |                                        |                                               | Trading assets                         | 258                                                
|                                              |                                                           |                                        |                                               | Change in deferred loan fees           | (141)                                              
|                                              |                                                           |                                        |                                               | Accrued interest receivable            | (74)                                               
|                                              |                                                           |                                        |                                               | Other assets                           | (707)                                              
|                                              |                                                           |                                        |                                               | Accrued expenses and other liabilities | (329)                                              
|                                              |                                                           |                                        |                                               |                                        |                                                    
|                                              |                                                           |                                        |                                               |                                        | Net cash provided by (used in) operating activities
|                                              |                                                           |                                        |                                               |                                        |                                                    
|**Cash Flows from Investing Activities**      | ****                                                      |                                        |                                              
|                                              | Activity in available-for-sale securities:                |                                        |                                               |                                       
|                                              |                                                           | Purchases                              | (17,110)                                      | -                                      | -                                                  
|                                              | Activity in held-to-maturity securities:                  |                                        |                                               |                                       
|                                              |                                                           | Proceeds from maturities of securities | 93                                            | 106                                    | 93                                                 
|                                              | Activity in other securities:                             |                                        |                                               |                                       
|                                              |                                                           | Purchase of other securities           | (255)                                         | (81)                                   | (201)                                              
|                                              | Purchase of real estate investment -- Limited partnership | -                                      | (1,500)                                       | -                                     
|                                              | Loan originations and principal collections, net          | (9,633)                                | (2,644)                                       | (13,294)                              
|                                              | Proceeds from sale of foreclosed assets                   | 2,745                                  | 1,109                                         | 787                                   
|                                              | Proceeds on sale of premises and equipment                | 17                                     | -                                             | 11                                    
|                                              | Purchase of premises and equipment                        | (155)                                  | (237)                                         | (151)                                 
|                                              | Loan to employee ESOP plan                                | (1,852)                                | -                                             | -                                     
|                                              |                                                           |                                        |                                               |                                        |                                                    
|                                              |                                                           |                                        |                                               |                                        | Net cash used in investing activities              
|                                              |                                                           |                                        |                                               |                                        |                                                    
|**Cash Flows from Financing Activities**      | ****                                                      |                                        |                                              
|                                              | Net increase in deposits                                  | 1,046                                  | 6,711                                         | 2,897                                 
|                                              | Proceeds from issuance of common stock                    | 22,147                                 | -                                             | -                                     
|                                              | Proceeds from FHLB advances                               | 14,000                                 | 1,500                                         | 18,000                                
|                                              | Repayment of FHLB advances                                | (7,000)                                | (5,000)                                       | (7,000)                               
|                                              |                                                           |                                        |                                               |                                        |                                                    
|                                              |                                                           |                                        |                                               |                                        | Net cash provided by financing activities          
|                                              |                                                           |                                        |                                               |                                        |                                                    
|**Net Increase in Cash and Cash Equivalents** | 3,895                                                     | 2,750                                  | 3,674                                        
|                                              |                                                           |                                        |                                               |                                        |                                                    
|**Cash and Cash Equivalents** -- Beginning    | 16,312                                                    | 13,562                                 | 9,888                                        
|                                              |                                                           |                                        |                                               |                                        |                                                    
|**Cash and Cash Equivalents**-- End           | **$20,207**                                               | **$16,312**                            | **$13,562**                                  

---

|**Monarch Community Bancorp, Inc. and Subsidiaries**                           
|-------------------------------------------------------------------------------
|**Notes to Consolidated Financial Statements
December 31, 2002, 2001 and 2000**

> **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.  Prior to August 29, 2002, the Bank was a federally charted and insured mutual savings
> institution, which converted to a stock savings institution effective August 29, 2002.  In connection with the conversion, on
> August 29, 2002, the Corporation sold 2,314,375 shares of its common stock in a subscription offering.  Fifty percent of the
> net proceeds from this offering were used to purchase all of the shares of the common stock of the Bank.
> Monarch Community Bank provides a broad range of banking services to its primary market area of Branch and Hillsdale
> counties in Michigan.  The Bank operates five full service offices and one drive-through only office.  The Bank owns 100
> percent of Community Services Group, Inc., which invests in other entities, including 100 percent ownership of First
> Insurance Agency, a minority ownership in a limited liability company that re-insures credit life and disability insurance, a
> minority ownership in a limited liability company that operates a title insurance company, and a minority ownership in a
> limited liability company that re-insures private mortgage insurance services provided to the Bank's customers.**Basis of Presentation and Consolidation**- The consolidated financial statements include the accounts of Monarch
> Community Bancorp, Inc., Monarch Community Bank, and Community Services Group, Inc.  All significant intercompany
> balances and transactions have been eliminated in consolidation.**Use of Estimates** - The accounting and reporting policies of the Corporation and its subsidiaries conform to accounting
> principles generally accepted in the United States.  Management is required to make estimates and assumptions that affect the
> amounts reported in the financial statements and accompanying notes.  Actual results could differ from these estimates and
> assumptions.  Material estimates that are particularly susceptible to significant change in the near term relate to the
> determination of the allowance for loan losses and the valuation of foreclosed real estate.**Significant Group Concentrations of Credit Risk**- Most of the Corporation's activities are with customers located within
> Michigan.  Notes 2 and 3 discuss the types of securities the Corporation invests in.  Note 4 discusses the Corporation's
> investment in an unconsolidated partnership.  Note 5 discusses the types of lending that the Corporation engages in.  The
> Corporation has a significant concentration of loans secured by residential real estate located in Branch and Hillsdale
> counties.

---

|**Monarch Community Bancorp, Inc. and Subsidiaries**                           
|-------------------------------------------------------------------------------
|**Notes to Consolidated Financial Statements
December 31, 2002, 2001 and 2000**

> **Cash and Cash Equivalents**- For the purpose of the consolidated statement of cash flows, cash and cash equivalents
> include cash and balances due from banks and interest-bearing deposits and overnight time deposits with the Federal Home
> Loan Bank, all of which mature within ninety days.**Trading Activities**- The Corporation engages in trading activities for its own account.  Securities held principally for resale
> in the near term are recorded in the trading assets account at fair value with changes in fair value recorded in earnings.
> Quoted market prices are used to determine the fair value of trading instruments.  Interest and dividends are included in net
> interest income.  **Securities** - Debt securities that management has the positive intent and ability to hold to maturity are classified as "held to
> maturity" and recorded at amortized cost.  Securities not classified as held to maturity or trading including equity securities
> with readily determinable fair values, are classified as "available for sale" and recorded at fair value, with unrealized gains
> and losses, net of deferred income taxes, excluded from earnings and reported in other comprehensive income.
> Purchase premiums and discounts are recognized in interest income using the interest method over the terms of the securities.
> Declines in the fair value of held-to-maturity securities below their cost that are deemed to be other than temporary are
> reflected in earnings as realized losses.  Gains and losses on the sale of securities are recorded on the trade date and are
> determined using the specific identification method.  **Loans Held for Sale**- Loans originated and intended for sale in the secondary market are carried at the lower of cost or
> estimated fair value in the aggregate.  Net unrealized losses, if any, are recognized in a valuation allowance by charges to
> income.**Loans**- The Corporation grants mortgage, commercial and consumer loans to customers.  Loans are reported at their
> outstanding unpaid principal balances adjusted for charge-offs, the allowance for loan losses, and any deferred fees or costs
> on originated loans.  Interest income is accrued on the unpaid principal balance.  Loan origination fees, net of certain direct
> origination costs, are deferred and recognized as an adjustment of the related loan yield over the contractual life of the loans.
> The accrual of interest on loans is discontinued at the time the loan is 90 days delinquent unless the credit is well-secured and
> in process of collection.  In all cases, loans are placed on nonaccrual or charged-off at an earlier date if collection of principal
> or interest is considered doubtful.

---

|**Monarch Community Bancorp, Inc. and Subsidiaries**                           
|-------------------------------------------------------------------------------
|**Notes to Consolidated Financial Statements
December 31, 2002, 2001 and 2000**

> The interest on these loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual.
> Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and
> future payments are reasonably assured.**Allowance for Loan Losses**- The allowance for loan losses is established as losses are estimated to have occurred through a
> provision for loan losses charged to earnings.  Loan losses are charged against the allowance when management believes the
> uncollectibility of a loan balance is confirmed.  Subsequent recoveries, if any, are credited to the allowance.
> The allowance for loan losses is evaluated on a regular basis by management and is based upon management's periodic
> review of the collectibility of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse
> situations that may affect the borrower's ability to repay, estimated value of any underlying collateral and prevailing
> economic conditions.  This evaluation is inherently subjective as it requires estimates that are susceptible to significant
> revision as more information becomes available.
> A loan is considered impaired when, based on current information and events, it is probable that the Corporation will be
> unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan
> agreement.  Factors considered by management in determining impairment include payment status, collateral value, and the
> probability of collecting scheduled principal and interest payments when due.  Loans that experience insignificant payment
> delays and payment shortfalls generally are not classified as impaired.  Management determines the significance of payment
> delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan
> and the borrower, including length of the delay, the reasons for the delay, the borrower's prior payment record, and the
> amount of the shortfall in relation to the principal and interest owed.  Impairment is measured on a loan by loan basis for
> commercial and construction loans by either the present value of expected future cash flows discounted at the loan's effective
> interest rate, the loan's obtainable market price, or the fair value of the collateral if the loan is collateral dependent.
> Large groups of homogeneous loans are collectively evaluated for impairment.  Accordingly, the Corporation does not
> separately identify individual consumer and residential loans for impairment disclosures.

---

|**Monarch Community Bancorp, Inc. and Subsidiaries**                           
|-------------------------------------------------------------------------------
|**Notes to Consolidated Financial Statements
December 31, 2002, 2001 and 2000**

> **Servicing**- Servicing assets are recognized as separate assets when rights are acquired through purchase or through sale of
> financial assets.  Capitalized servicing rights are reported in other assets and are amortized into noninterest income in
> proportion to, and over the period of, the estimated future net servicing income of the underlying financial assets.  Servicing
> assets are evaluated for impairment based upon the fair value of the rights as compared to amortized cost.  Impairment is
> determined by stratifying rights by predominant characteristics, such as interest rates and terms.  Fair value is determined
> using prices for similar assets with similar characteristics, when available, or based upon discounted cash flows using
> market-based assumptions.  Impairment is recognized through a valuation allowance for an individual stratum, to the extent
> that fair value is less than the capitalized amount for the stratum.**Credit Related Financial Instruments**- In the ordinary course of business, the Corporation has entered into commitments
> to extend credit, including commitments under commercial letters of credit and standby letters of credit.  Such financial
> instruments are recorded when they are funded.**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. **Banking Premises and Equipment**- Land is carried at cost.  Buildings and equipment are carried at cost, less accumulated
> depreciation computed on the straight-line method over the estimated useful lives of the assets.**Income Taxes**- Deferred income tax assets and liabilities are determined using the liability (or balance sheet) method.
> Under this method, the net deferred tax asset or liability is determined based on the tax effects of the various temporary
> differences between the book and tax bases of the various balance sheet assets and liabilities and gives current recognition to
> changes in tax rates and laws.

---

|**Monarch Community Bancorp, Inc. and Subsidiaries**                           
|-------------------------------------------------------------------------------
|**Notes to Consolidated Financial Statements
December 31, 2002, 2001 and 2000**

> **Comprehensive Income**- Accounting principals generally require that recognized revenue, expenses, gains and losses be
> included in net income.  Although certain changes in assets and liabilities, such as unrealized gains and losses on available
> for sale securities, are reported as a separate component of the equity section of the balance sheet, such items, along with net
> income, are components of comprehensive income. **Classification**- Certain amounts in the 2001 and 2000 financial statements have been reclassified to conform to the 2002
> presentation.**Earnings Per Common Share**- Basic earnings per share represents income available to common stockholders divided by
> the weighted-average number of common share outstanding during the period.  Earnings per share data from August 29,
> 2002 (the date of conversion) to December 31, 2002 is not meaningful due to the shortness of the period and, accordingly,
> has not been presented. Earnings per share data does not apply to the periods prior to the conversion, since the Bank was a
> mutual savings bank with no stock outstanding.**Employee Stock Ownership Plan (ESOP)** - Compensation expense is recognized as ESOP shares are committed to be
> released. Allocated and committed to be released ESOP shares are considered outstanding for earnings per share calculation
> based on debt service payments.  Other ESOP shares are excluded from earnings per share calculation.  Dividends declared
> on allocated ESOP shares are charged to retained earnings.  Dividends declared on unallocated ESOP shares are used for
> debt service.  The Corporation has committed to make contributions to the ESOP sufficient to service the debt to the extent
> not paid through dividends. The value of unearned shares to be allocated to ESOP participants for future services not yet
> performed is reflected as a reduction of stockholders' equity.**Supplemental Cash Flow Information (000s omitted)**December 31,2002
> 2001
> 2000Cash paid for:Interest
> $   6,487
> $ 8,182
> $ 7,383Income taxes
> 583
> 809
> 679Noncash investing activities -Loans transferred to real estate owned
> 1,936
> 2,243
> 1,350

---

|**Monarch Community Bancorp, Inc. and Subsidiaries**                           
|-------------------------------------------------------------------------------
|**Notes to Consolidated Financial Statements
December 31, 2002, 2001 and 2000**

> Trading assets, at fair value, consist of mortgage backed securities of $258,000 as of December 31, 2001.  There were no
> trading securities held as of December 31, 2002.  The mortgage-backed securities are a mix of securities guaranteed by the
> U.S. government or its agencies and securities issued by private parties.

> The amortized cost and fair value of securities, with gross unrealized gains and losses, follows (000s omitted):AmortizedCost
> GrossUnrealizedGains
> GrossUnrealizedLosses
> EstimatedMarketValue2002Available-for-sale securities:U.S. treasury obligations
> $  3,310
> $     28
> $      -
> $  3,338U.S. government agency obligations
> 10,246
> 66
> -
> 10,312Obligations of states and
> 
> 
> 
> -political subdivisions
> 3,505
> 5
> -
> 3,510Total available-for-sale securities
> $17,061
> $     99
> $      -
> $17,160Held-to-maturity securities:Mortgage-backed securities
> $     274
> $       1
> $      -
> $     2752001Available-for-sale securities
> $          -
> $        -
> $      -
> $          -Held-to-maturity securities:Mortgage-backed securities
> $     367
> $       2
> $      -
> $     369

---

|**Monarch Community Bancorp, Inc. and Subsidiaries**                           
|-------------------------------------------------------------------------------
|**Notes to Consolidated Financial Statements
December 31, 2002, 2001 and 2000**

> The amortized cost and estimated market values of securities at December 31, 2002, by contractual maturity, are shown
> below.  Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay
> obligations with or without call or prepayment penalties (000s omitted):AmortizedCost
> GrossUnrealizedGains
> GrossUnrealizedLosses
> EstimatedMarketValueDue in one year or less
> $     -
> $     -
> $  4,108
> $  4,138Due in one through five years
> -
> -
> 12,953
> 13,022Total
> -
> -
> 17,061
> 17,160Mortgage-backed securities
> 274
> 275
> -
> -Total
> $274
> $275
> $17,061
> $17,160
> 
> Other securities, consisting primarily of restricted Federal Home Loan Bank stock, are recorded at cost, which approximates
> market value.

> In June of 2001, the Corporation acquired a 24.98 percent interest in a limited partnership formed to construct and operate
> multi-family housing units.  All income, expenses and tax credits will be allocated to the Corporation based upon ownership
> percentage.  The Corporation accounts for the investment in the limited partnership using the equity method.  The
> Corporation as an investor is able to exercise influence over operating and financial policies of the management through
> provisions of the partnership agreement that require a majority approval of the limited partners.  At such time the project is
> sold, the limited partners will receive a share of the net proceeds proportionate to the limited partners outstanding capital
> balance.  Under the terms of the limited partnership agreement, the Corporation has made a total capital contribution of
> approximately $1,500,000, in cash, and is allocated tax losses and affordable housing federal income tax credits.

---

|**Monarch Community Bancorp, Inc. and Subsidiaries**                           
|-------------------------------------------------------------------------------
|**Notes to Consolidated Financial Statements
December 31, 2002, 2001 and 2000**

> Condensed financial information for the investee partnership is summarized as follows (000s omitted).  September 30, 2002
> is the most current financial information available for the partnership as of December 31, 2002. September 30,2002
> December 31, 2001Balance Sheet:Cash
> $     12
> $1,707Prepaid expenses
> 11
> -Note receivable
> 500
> 500Loan to affiliates
> 100
> -Development costs
> 8,510
> 4,882Total assets
> $9,133
> $7,089Accounts payable
> $   118
> $   335Accrued liabilities
> 292
> -Loans payable to Monarch Community Bank
> 1,500
> 1,500Loans payable to others
> 6,581
> 4,555Partners' equity
> 642
> 699Total liabilities and partners' equity
> $9,133
> $7,089Operations --Net income
> $   (97)
> $       -

---

|**Monarch Community Bancorp, Inc. and Subsidiaries**                           
|-------------------------------------------------------------------------------
|**Notes to Consolidated Financial Statements
December 31, 2002, 2001 and 2000**

> A summary of the balances of loans follows (000s omitted):December 31,2002
> 2001Mortgage loans on real estate:One-to-four family
> $100,234
> $  95,445Multi-family
> 172
> 245Commercial
> 17,801
> 14,898Construction or development
> 7,177
> 6,785Total real estate loans
> 125,384
> 117,373Consumer loans:Automobile
> 2,233
> 3,287Home equity
> 11,629
> 14,084Manufactured housing
> 1,274
> 1,557Other
> 4,655
> 1,800Total consumer loans
> 19,791
> 20,728Commercial business loans
> 2,130
> 1,884Subtotal
> 147,305
> 139,985Less:  Allowance for loan losses
> 1,735
> 1,683Net deferred loan fees
> 406
> 563Loans in process
> 2
> 18Loans, net
> $145,162
> $137,721

---

|**Monarch Community Bancorp, Inc. and Subsidiaries**                           
|-------------------------------------------------------------------------------
|**Notes to Consolidated Financial Statements
December 31, 2002, 2001 and 2000**

> An analysis of the allowance for loan losses follows (000s omitted):December 31,2002
> 2001
> 2000Balance -- Beginning
> $1,683
> $   857
> $   705Provision for loan losses
> 397
> 1,039
> 245Loans charged-off
> (568)
> (322)
> (115)Recoveries of loans previously charged off
> 223
> 109
> 22Balance -- Ending
> $1,735
> $1,683
> $   857The following is a summary of information pertaining to impaired loans (000s omitted):
> 
> December 31,2002
> 2001Impaired loans with a valuation allowance
> $211
> $100Valuation allowance related to impaired loans
> $105
> $  15There are no impaired loans without a valuation allowance as of December 31, 2002 and 2001 (000s omitted).
> 
> December 31,2002
> 2001
> 2000Average investment in impaired loans
> $213
> $  75
> $109Interest income recognized on impaired loans was not significant for the years ended December 31, 2002, 2001, and 2000.
> No additional funds are committed to be advanced in connection with impaired loans.

---

|**Monarch Community Bancorp, Inc. and Subsidiaries**                           
|-------------------------------------------------------------------------------
|**Notes to Consolidated Financial Statements
December 31, 2002, 2001 and 2000**

> Loans serviced for others are not included in the accompanying consolidated balance sheets.  The unpaid principal balances
> of mortgage loans serviced for others were $80,798,000, $81,828,000, and $70,149,000 at December 31, 2002, 2001, and
> 2000, respectively.
> The fair value of mortgage servicing rights approximates $775,000 and $700,000 at December 31, 2002 and 2001,
> respectively.  The fair value was determined by discounting estimated net future cash flows from mortgage servicing
> activities using an 8.0 percent discount rate  and prepayment rates that approximate current market rates.  The impairment
> valuation allowance is $0 as of December 31, 2002, 2001, and 2000.  There has been no activity in the impairment valuation
> allowance during the years ended December 31, 2002, 2001, and 2000.
> The following summarizes mortgage servicing rights capitalized and amortized (000s omitted):December 31,2002
> 2001
> 2000Mortgage servicing rights - Beginning
> $  432
> $  326
> $  361Mortgage servicing rights capitalized
> 361
> 475
> 97Mortgage servicing rights - direct writedown forloan payoffs
> (312)
> (241)
> (37)Mortgage servicing rights scheduled amortization
> (53)
> (128)
> (95)Mortgage servicing rights - Ending
> $  428
> $  432
> $  326

> Foreclosed assets consisted of the following (000s omitted):December 31,2002
> 2001Real estate owned
> $    886
> $   846Real estate in judgment andsubject to redemption
> 1,136
> 1,591Total
> $2,022
> 2,437

---

|**Monarch Community Bancorp, Inc. and Subsidiaries**                           
|-------------------------------------------------------------------------------
|**Notes to Consolidated Financial Statements
December 31, 2002, 2001 and 2000**

> Expenses applicable to foreclosed assets include the following (000s omitted):December 31,2002
> 2001
> 2000Net loss (gain) on sales of real estate
> $  (1)
> $    1
> $  (7)Operating expenses
> 203
> 158
> 78Total
> $202
> $159
> $  71

> A summary of the cost and accumulated depreciation of premises and equipment follows (000s omitted):December 31,
> DepreciableLife (inYears)2002
> 2001Land
> $   646
> $   646Buildings and improvements
> 4,517
> 4,486
> 30-40Furniture, fixtures and equipment
> 2,981
> 2,991
> 5-7Total bank premises and equipment
> 8,144
> 8,123Less accumulated depreciation and amortization
> 3,575
> 3,195Net carrying amount
> $4,569
> $4,928

---

|**Monarch Community Bancorp, Inc. and Subsidiaries**                           
|-------------------------------------------------------------------------------
|**Notes to Consolidated Financial Statements
December 31, 2002, 2001 and 2000**

> The following is a summary of interest bearing deposit accounts (000s omitted):December 31,2002
> 2001Balances by account type:Demand and NOW accounts
> $    9,596
> $    9,013Money market
> 9,868
> 10,036Passbook and statement savings
> 15,274
> 14,771Total transactional accounts
> 34,738
> 33,820Certificates of deposit:$100,000 and over
> 18,380
> 19,213Under $100,000
> 50,580
> 50,802Total certificates of deposit
> 68,960
> 70,015Total
> $103,698
> $103,835Generally, deposit amounts in excess of $100,000 are not federally insured.

---

|**Monarch Community Bancorp, Inc. and Subsidiaries**                           
|-------------------------------------------------------------------------------
|**Notes to Consolidated Financial Statements
December 31, 2002, 2001 and 2000**

> The remaining maturities of certificates of deposit outstanding are as follows (000s omitted):December 31,2002Year
> Less than
> $100,000
> Greater than
> $100,000Less than one year
> $24,308
> $  6,715One to two years
> 11,502
> 6,018Two to three years
> 7,044
> 3,300Three to four years
> 2,844
> 200Four to five years
> 4,882
> 2,147Total
> $50,580
> $18,380The following is a summary of interest expense by deposit account type (000s omitted):
> 
> December 31,2002
> 2001
> 2000Demand and NOW accounts
> $   146
> $   200
> $   244Money market
> 194
> 275
> 298Passbook and statement savings
> 222
> 369
> 440Certificates of deposit
> 2,763
> 4,153
> 3,772Total deposit interest expense
> $3,325
> $4,997
> $4,754

---

|**Monarch Community Bancorp, Inc. and Subsidiaries**                           
|-------------------------------------------------------------------------------
|**Notes to Consolidated Financial Statements
December 31, 2002, 2001 and 2000**

> The Corporation has fixed rate Federal Home Loan Bank advances of $52,500,000 and $45,500,000 at December 31, 2002
> and 2001, respectively, which mature through 2013.  At December 31, 2002 and 2001, the interest rates on fixed rate
> advances ranged from 3.43 percent to 6.56 percent and from 5.49 percent to 6.88 percent, respectively.  At December 31,
> 2002 and 2001, the weighted average interest rates were 5.72 percent and 6.15 percent, respectively.  The Bank has no
> floating rate advances as of December 31, 2002 and 2001.
> The Corporation has provided a blanket pledge of all of the Corporation's residential mortgage loans and mortgage-backed
> securities as collateral for fixed rate debt.
> The contractual maturities of advances are as follows (000s omitted):December 31,2002Less than one year
> $          -One to two years
> -Two to three years
> 4,000Three to four years
> 7,000Four to five years
> 6,000Thereafter
> 35,500Total
> $52,500

---

|**Monarch Community Bancorp, Inc. and Subsidiaries**                           
|-------------------------------------------------------------------------------
|**Notes to Consolidated Financial Statements
December 31, 2002, 2001 and 2000**

> Allocation of income taxes between current and deferred portions is as follows (000s omitted):December 31,2002
> 2001
> 2000Current expense
> $  520
> $    579
> $    810Deferred expense (recovery)
> (105)
> (280)
> (60)Total tax expense
> $  415
> $    299
> $    750The reasons for the differences between the statutory federal income tax rate and the effective tax rates are summarized as
> follows:
> Percent of Pretax Income
> 
> December 31,2002
> 2001
> 2000Statutory federal tax rate
> 34.0%
> 34.0%
> 34.0%Increase (decrease) resulting from:Nondeductible expenses
> 2.4%
> 0.3%
> 0.2%Dividend received deduction
> (1.5)%
> (1.3)%
> (1.1)%Tax exempt income
> (0.2)%
> -   %
> -%Low income housing credit
> (2.7)%
> -   %
> -%Other
> (3.0)%
> (4.7)%
> 2.8%Reported tax expense
> 29.0%
> 28.3%
> 35.9%

---

|**Monarch Community Bancorp, Inc. and Subsidiaries**                           
|-------------------------------------------------------------------------------
|**Notes to Consolidated Financial Statements
December 31, 2002, 2001 and 2000**

> The components of the net deferred tax asset are as follows (000s omitted):December 31,2002
> 2001Deferred tax assets:Provision for loan losses
> $543
> $509Net deferred loan fees
> 138
> 180Deferred compensation
> 96
> 84Accrued employee benefits
> 40
> 41Other real estate
> 46
> 32Loans held for sale
> 15
> -Other
> 33
> 10Total deferred tax assets
> 911
> 856Deferred tax liabilities:Depreciation
> 52
> 60Mortgage servicing rights
> 146
> 147Original issue discount
> 122
> 164Unrealized gain on available-for-sale securities
> 35
> -Total deferred tax liabilities
> 355
> 371Net deferred tax asset
> $556
> $485

> **Credit Related Financial Instruments** - The Corporation is a party to credit related financial instruments with off-balance
> sheet risk in the normal course of business to meet the financing need of its customer.  These financial instruments include
> commitments to extend credit, and unfounded commitments under lines of credit.  Such commitments involve, to varying
> degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheets.
> The Corporation's exposure to credit loss is represented by the contractual amount of these commitments.  The Corporation
> follows the same credit policies in making commitments as it does for on-balance sheet instruments.

---

|**Monarch Community Bancorp, Inc. and Subsidiaries**                           
|-------------------------------------------------------------------------------
|**Notes to Consolidated Financial Statements
December 31, 2002, 2001 and 2000**

> The following financial instruments were outstanding whose contract amounts represent credit risk (000s omitted):Contract Amount
> 
> December 31,2002
> 2001Commitments to grant loans
> $5,644
> $1,340Unfunded commitments under lines of credit
> 6,150
> 8,047
> The above commitments to grant loans are all fixed rate loan commitments with interest rates ranging between 4.25 percent
> and 9.00 percent at December 31, 2002, 5.50 percent and 11.25 percent at December 31, 2001.
> Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition
> established in the contract.  Commitments generally have fixed expiration dates or other termination clauses and may require
> payment of a fee.  The commitments for equity lines of credit may expire without being drawn upon.  Therefore, the total
> commitment amounts do not necessarily represent future cash requirements.  The amount of collateral obtained, if it is
> deemed necessary by the Corporation, is based on management's credit evaluation of the customer.
> Unfunded commitments under commercial lines of credit and revolving credit lines are commitments for possible future
> extensions of credit to existing customers.  These lines of credit are collateralized and usually do not contain a specified
> maturity date and may be drawn upon to the total extent to which the Corporation is committed.**Collateral Requirements** - To reduce credit risk related to the use of credit related financial instruments, the Corporation
> might deem it necessary to obtain collateral.  The amount and nature of the collateral obtained is based on the Corporation's
> credit evaluation of the customer.  Collateral held varies but may include cash, securities, accounts receivable, inventory,
> property, plant, and equipment and real estate.

---

|**Monarch Community Bancorp, Inc. and Subsidiaries**                           
|-------------------------------------------------------------------------------
|**Notes to Consolidated Financial Statements
December 31, 2002, 2001 and 2000**

> **Employment Agreement**- The Corporation has entered into an employment agreement with its president and chief
> executive officer.  The agreement has a term of two years, with automatic annual renewals, that provides for annual base
> salary in an amount of not less than $149,000.  Also, in the unlikely event of a change of control of the Corporation,
> following conversion, the president and chief executive officer will receive a payment of approximately $450,000.

> The Corporation has qualified under a provision of the Internal Revenue Code which permits it to deduct from taxable
> income a provision for bad debts in excess of such provision charged to income in the consolidated financial statements.
> Accordingly, retained earnings at December 31, 2002 and 2001 includes approximately $1,592,000 for which no provision
> for federal income taxes has been made.  Unrecognized deferred taxes on this amount are approximately $541,000.  If, in the
> future, this portion of retained earnings is used for any purpose other than to absorb bad debt losses, federal income taxes
> would be imposed at the then applicable rates.
> The Bank is subject to various regulatory capital requirements administered by federal banking agencies.  Failure to meet
> minimum capital requirements can initiate certain mandatory and discretionary actions by regulators that could have a direct
> material effect on the Bank's financial statements.  Under capital adequacy guidelines and the regulatory framework for
> prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank's
> assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices.
> Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts
> and ratios, which are shown in the table below.  Management believes, as of December 31, 2002 and 2001, that the Bank has
> met all of the capital adequacy requirements to which they are subject.
> As of December 31, 2002, the most recent notification from the Office of Thrift Supervision ("OTS") categorized the Bank
> as well capitalized, under the regulatory framework for prompt corrective action.  To be categorized as well capitalized,
> minimum capital amounts and ratios must be maintained as shown in the following tables.  There are no conditions or events
> since that notification that management believes have changed the Bank's capital category.

---

|**Monarch Community Bancorp, Inc. and Subsidiaries**                           
|-------------------------------------------------------------------------------
|**Notes to Consolidated Financial Statements
December 31, 2002, 2001 and 2000**

> A reconciliation of the Bank's equity to major categories of capital is as follows (000s omitted):December 31,2002
> 2001Equity per consolidated balance sheet
> $27,567
> $15,365Less: deferred tax asset and other
> (612)
> (485)Tangible and leverage capital
> 26,955
> 14,880Plus:  Allowance for loan losses **
> 1,586
> 1,515Risk based capital
> $28,541
> $16,395**   Limited to 1.25 percent of risk weighed assets
> 
> 
> Regulatory capital balances and ratios are as follows (000s omitted)Actual
> For Capital Adequacy
> Purposes
> To be Well Capitalized
> Under Prompt Corrective Action
> 
> ProvisionsAmount
> Ratio
> Amount
> Ratio
> Amount
> RatioAs of December 31, 2002:Tangible capital
> $ 26,955
> 14.10%
> $ 2,868
> 1.50%
> $ 5,737
> 3.00%Leverage capital
> 26,955
> 14.10%
> 5,737
> 3.00%
> 9,562
> 5.00%Total risk-based capital
> 28,541
> 22.53%
> 10,136
> 8.00%
> 12,670
> 10.00%As of December 31, 2001:Tangible capital
> $ 14,880
> 8.85%
> $ 2,523
> 1.50%
> $ 5,046
> 3.00%Leverage capital
> 14,880
> 8.85%
> 5,046
> 3.00%
> 8,409
> 5.00%Risk-based capital
> 16,395
> 13.54%
> 9,685
> 8.00%
> 12,106
> 10.00%

---

|**Monarch Community Bancorp, Inc. and Subsidiaries**                           
|-------------------------------------------------------------------------------
|**Notes to Consolidated Financial Statements
December 31, 2002, 2001 and 2000**

> The Corporation is part of a non-contributory, multiple-employer defined benefit pension plan covering substantially all
> employees.  The plan is administered by the trustees of the Financial Institutions Retirement Fund.  Because it is a multiple-employer plan, there is no separate valuation of plan benefits or segregation of plan assets specifically for the Corporation.
> During 2002, 2001 and 2000, the Corporation recognized pension expense for this plan of $192,000, $156,000, and
> $137,000, respectively.
> The Corporation has a Defined Contribution Retirement plan for all eligible employees.  The Corporation has a matching
> contribution agreement to match 50 percent of the first 6 percent of an employee's salary.  During 2002, 2001 and 2000, the
> Corporation recognized pension expense for this plan of $99,000, $96,000, and $49,000, respectively.
> The Corporation has a nonqualified deferred-compensation plan to provide retirement benefits to the Directors, at their
> option, in lieu of annual directors' fees and meeting fees.  The value of benefits accrued to participants is $283,000 and
> $248,000 at December 31, 2002 and 2001, respectively.  The expense for the plan was $35,000, $92,000, and $83,000 for
> 2002, 2001, and 2000, respectively.

> In the ordinary course of business, the Bank has granted loans to principal officers and directors and their affiliates
> amounting to $672,000 and $912,000 at December 31, 2002 and 2001, respectively.  During the year ended December 31,
> 2002, total principal additions were $511,000 and total principal payments were $751,000.
> Deposits from related parties held by the Bank at December 31, 2002 and 2001 amounted to $1,379,000 and $2,241,000,
> respectively.

---

|**Monarch Community Bancorp, Inc. and Subsidiaries**                           
|-------------------------------------------------------------------------------
|**Notes to Consolidated Financial Statements
December 31, 2002, 2001 and 2000**

> 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 following methods and assumptions were used by the Corporation in estimating fair value disclosures for financial
> instruments:**Cash and Cash Equivalents** - The carrying amounts of cash and short-term instruments approximate fair values. The
> carrying amounts of interest-bearing deposits maturing within ninety days approximate their fair values.  Fair values of other
> interest-bearing deposits are estimated using discounted cash flow analyses based on current rates for similar types of
> deposits.**Trading Assets** -  Fair values for trading account securities (including derivative financial instruments held or issued for
> trading purposes), which also are the amounts recognized in the consolidated balance sheet, are based on quoted market
> prices, where available.  If quoted market prices are not available, fair values are based on quoted market prices of
> comparable instruments except in the case of certain options and swaps where pricing models are used.**Securities** - Fair values for securities, excluding Federal Home Loan Bank stock, are based on quoted market prices.  The
> carrying value of Federal Home Loan Bank stock approximates fair value based on the redemption provisions of the Federal
> Home Loan Bank.**Real Estate Investment - Limited Partnership, at Equity** - Fair values are based on quoted market prices of comparable
> instruments.**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.

---

|**Monarch Community Bancorp, Inc. and Subsidiaries**                           
|-------------------------------------------------------------------------------
|**Notes to Consolidated Financial Statements
December 31, 2002, 2001 and 2000**

> **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 certain mortgage loans (e.g., one-to-four family residential) and other consumer
> loans are based on quoted market prices of similar loans sold in conjunction with securitization transactions, adjusted for
> differences in loan characteristics.  Fair values for other loans (e.g., commercial real estate and investment property mortgage
> loans, commercial and industrial loans) are estimated using discounted cash flow analyses, using interest rates currently
> being offered for loans with similar terms to borrowers of similar credit quality.  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.**Accrued Interest** - The carrying amounts of accrued interest approximate fair value.**Off-balance Sheet Instruments** - Fair values for off-balance sheet, credit related financial instruments are based on fees
> currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the
> counterparties' credit standing.  Fair values for off-balance sheet derivative financial instruments, for other than trading
> purposes, are based upon quoted market prices, except in the case of certain options and swaps where pricing models are
> used.

---

|**Monarch Community Bancorp, Inc. and Subsidiaries**                           
|-------------------------------------------------------------------------------
|**Notes to Consolidated Financial Statements
December 31, 2002, 2001 and 2000**

> The estimated fair values, and related carrying or notional amounts, of the Corporation's financial instruments are as follows
> (000s omitted):
> December 31,2002
> 2001Carrying
> Amount
> Fair
> Value
> Carrying
> Amount
> Fair
> ValueAssets:Cash and cash equivalents
> $  20,207
> $  20,207
> $  16,312
> $  16,312Trading assets
> -
> -
> 258
> 258Securities -- Held to maturity
> 274
> 275
> 367
> 369Securities -- Available for sale
> 17,160
> 17,160
> -
> -Other securities
> 2,807
> 2,807
> 2,552
> 2,552Real estate investment -- Limitedpartnership, at equity
> 1,554
> 1,554
> 1,500
> 1,500Loans held for sale
> 1,527
> 1,570
> -
> -Net loans and accrued interestreceivable
> 146,437
> 149,408
> 138,923
> 148,965Liabilities:Federal Home Loan Bankadvances
> 52,500
> 57,148
> 45,500
> 46,189Deposits and accrued interestpayable
> 106,880
> 108,717
> 106,003
> 106,599

> As part of the conversion, the Corporation implemented an employee stock ownership plan (ESOP) covering substantially all
> employees. The Corporation provided a loan to the ESOP, which was used to purchase 185,150 shares of the Corporation's
> outstanding stock at $10 per share. The loan will be repaid over a period of ten years ending on December 31, 2011.
> Dividends on the allocated shares are distributed to participants and the dividends on the unallocated shares are used to pay
> debt service. The Corporation has committed to make contributions to the ESOP sufficient to support debt service of the
> loan.  The ESOP shares initially were pledged as collateral for its debt. As the debt is repaid, shares are released from
> collateral and allocated to active participants. The shares pledged as collateral are reported as unallocated common stock held
> by the ESOP in the equity section of the balance sheet. As shares are released they become outstanding for earnings per share
> computations.

---

|**Monarch Community Bancorp, Inc. and Subsidiaries**                           
|-------------------------------------------------------------------------------
|**Notes to Consolidated Financial Statements
December 31, 2002, 2001 and 2000**

> The ESOP shares as of December 31 were as follows:2002Allocated shares
> -Shares released for allocation
> 18,515Unreleased shares
> 166,635Total ESOP shares
> 185,150Total compensation expense applicable to the ESOP amounted to approximately $211,000 for the year ended December 31,
> 2002.

> During January 2003, the Board of Directors approved a resolution to form a stock option plan (SOP) and a recognition and
> retention plan (RRP).  The SOP has the availability to initially award in the aggregate, an amount equal to 231,438 shares of
> common stock of the Corporation.  The RRP has the availability to initially award in the aggregate, an amount equal to
> 92,575 shares of common stock of the Corporation.  Both plans are subject to approval at the Corporation's annual meeting.

---

|**Monarch Community Bancorp, Inc. and Subsidiaries**                           
|-------------------------------------------------------------------------------
|**Notes to Consolidated Financial Statements
December 31, 2002, 2001 and 2000**

> The following represents the condensed financial statements of Monarch Community Bancorp, Inc. ("Parent") only.  The
> Parent-only financial information should be read in conjunction with the Corporation's consolidated financial statements.**Condensed Balance Sheet (000s omitted)**December 31,2002**Assets**
> ****Cash
> $  7,612Investments
> 1,763Investment in Monarch Community Bank
> 27,567Other assets
> 13Total assets
> $36,955**Liabilities and Stockholders' Equity**
> ****Accrued expenses
> $         6Stockholders' equity
> 36,949Total liabilities and stockholders' equity
> $36,955**Condensed Statement of Income (000s omitted)**
> 
> December 31,2002Income -- Interest on investments
> $     65Operating expense
> 48Income (loss) -- Before equity in undistributednet income of subsidiary
> 17Equity in undistributed net income of subsidiary
> 997Net income
> $1,014

---

|**Monarch Community Bancorp, Inc. and Subsidiaries**                           
|-------------------------------------------------------------------------------
|**Notes to Consolidated Financial Statements
December 31, 2002, 2001 and 2000**

> **Condensed Statements of Cash Flows (000s omitted)**December 31,
> 2002Cash flows from operating activities:Net income
> $1,014Adjustments to reconcile net income to net cashprovided by operating activities:Allocation of ESOP
> 211Increase in other assets
> (13)Increase in accrued expenses
> 6Undistributed net income of subsidiary
> (997)Net cash provided by operating activities
> 221Cash flows from investing activities:Purchase of subsidiary stock
> (11,141)Purchase of securities
> (1,763)Loan to employee ESOP plan
> (1,852)Net cash used in investing activities
> (14,756)Cash flows from financing activities:Proceeds from issuance of common stock
> 22,147Net increase in cash
> 7,612Cash at beginning of year
> -Cash at end of year
> $7,612

---

---

|(a) | See Index to Exhibits.                                                                      
|--- | --------------------------------------------------------------------------------------------
|    |                                                                                             
|(b) | The Company did not file any reports on Form 8-K during the quarter ended December 31, 2002.

---

|                       | **MONARCH COMMUNITY BANCORP, INC.**                     
|---------------------- | --------------------------------------------------------
|Dated:  March 19, 2003 | By:	/s/ **John R. Schroll**                             
|                       | John R. Schroll, President and   Chief Executive Officer

|Signature                                  | Title                                                                              | Date          
|------------------------------------------ | ---------------------------------------------------------------------------------- | --------------
|                                           |                                                                                    |               
|                                           |                                                                                    |               
|/s/ **John R. Schroll**
John R. Schroll    | President and Chief Executive Officer*(Principal Executive Officer)*               | March 19, 2003
|                                           |                                                                                    |               
|/s/ **Frank M. Tripp**
   Frank M. Tripp   | Chairman of the Board                                                              | March 19, 2003
|                                           |                                                                                    |               
|/s/ **William C. Kurtz**
William C. Kurtz  | Senior Vice President and Chief
Financial Officer *(Principal Accounting
Officer)* | March 19, 2003
|                                           |                                                                                    |               
|/s/ **Harold A. Adamson**Harold A. Adamson | Director                                                                           | March 19, 2003
|                                           |                                                                                    |               
|/s/ **Lauren L. Bracy**Lauren L. Bracy     | Director                                                                           | March 19, 2003
|                                           |                                                                                    |               
|/s/ **James R. Vozar**James R. Vozar       | Director                                                                           | March 19, 2003
|                                           |                                                                                    |               
|/s/ **Stephen M. Ross**
Stephen M. Ross    | Director                                                                           | March 19, 2003
|                                           |                                                                                    |               
|/s/ **Gordon L. Welch**
Gordon L. Welch    | Director                                                                           | March 19, 2003
|                                           |                                                                                    |               
|/s/ **Craig W. Dally**
Craig W. Dally      | Director                                                                           | March 19, 2003

---

> a)              designed such disclosure controls and procedures to ensure that material information
> relating to the Registrant, including its consolidated subsidiaries, is made known to us by others
> within those entities, particularly during the period in which this annual report is being prepared;
> 		b)              evaluated the effectiveness of the Registrant's disclosure controls and procedures as
> of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and
> 		c)              presented in this annual report our conclusions about the effectiveness of the
> disclosure controls and procedures based on our evaluation as of the Evaluation Date;

> a)              all significant deficiencies in the design or operation of internal controls which could
> adversely affect the Registrant's ability to record, process, summarize and report financial data
> and have identified for the Registrant's auditors any material weaknesses in internal controls; and
> 		b)             any fraud, whether or not material, that involves management or other employees who
> have a significant role in the Registrant's internal controls; and

|Date: | March 19, 2003 |  | By: | /s/ **John R. Schroll**John R. Schroll, President and Chief Executive
Officer (*Principal Executive Officer)*
|----- | -------------- |  | --- | -------------------------------------------------------------------------------------------------------------

---

> a)              designed such disclosure controls and procedures to ensure that material information
> relating to the Registrant, including its consolidated subsidiaries, is made known to us by others
> within those entities, particularly during the period in which this annual report is being prepared;
> 		b)              evaluated the effectiveness of the Registrant's disclosure controls and procedures as
> of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and
> 		c)              presented in this annual report our conclusions about the effectiveness of the
> disclosure controls and procedures based on our evaluation as of the Evaluation Date;

> a)              all significant deficiencies in the design or operation of internal controls which could
> adversely affect the Registrant's ability to record, process, summarize and report financial data
> and have identified for the Registrant's auditors any material weaknesses in internal controls; and
> 		b)             any fraud, whether or not material, that involves management or other employees who
> have a significant role in the Registrant's internal controls; and

|Date: | March 19, 2003 |  | By: | /s/ **William C. Kurtz**William C. Kurtz, Senior Vice President and Chief
Financial Officer (*Principal Accounting Officer)*
|----- | -------------- |  | --- | ----------------------------------------------------------------------------------------------------------------------------

---

|Exhibit
Number | Document                                                                                          | Reference to
Prior Filing or
Exhibit Number
Attached Hereto                          
|-------------- | ------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------
|               |                                                                                                   |                                                                                      
|3.1            | Registrant's Articles of Incorporation                                                            | *                                                                                    
|3.2            | Registrant's Bylaws                                                                               | *                                                                                    
|4              | Registrant's Specimen Stock Certificate                                                           | *                                                                                    
|10.1           | Employment Agreement between Branch County
Federal Savings & Loan Association and John R.
Schroll | *                                                                                    
|10.2           | Registrant's Employee Stock Ownership Plan                                                        | *                                                                                    
|11             | Statement re computation of per share earnings                                                    | See Note 1 of the Notes
to Consolidated Financial
Statements contained in
this report
|12             | Statements re computation of ratios                                                               | None                                                                                 
|13             | Annual Report to Security Holders                                                                 | Not required                                                                         
|16             | Letter re: change in certifying accountant                                                        | None                                                                                 
|18             | Letter re: change in accounting principles                                                        | None                                                                                 
|21             | Subsidiaries of the registrant                                                                    | 21                                                                                   
|22             | Published report regarding matters submitted to vote
of security holders                          | None                                                                                 
|23             | Consent of Plante & Moran PLLC                                                                    | Not required                                                                         
|24             | Power of Attorney                                                                                 | Not required                                                                         
|99.1           | Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                           | 99.1                                                                                 

---

|Locations...
Main Office
375 N. Willowbrook Road
Coldwater, Michigan 49036
Downtown Branch
30 W. Chicago Street
Coldwater, Michigan 49036
Downtown Drive-Thru
24 Grand Street
Coldwater, Michigan 49036
Hillsdale Branch
1 W. Carleton Street
Hillsdale, Michigan 49242
Jonesville Branch
125 W. Chicago Street
Jonesville, Michigan 49250
Union City Branch
365 N. Broadway Street
Union City, Michigan |                              
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -----------------------------
|                                                                                                                                                                                                                                                                                                                                                                                                         | MemberFDICEqual HousingLENDER
|www.monarchcommunitybank.com                                                                                                                                                                                                                                                                                                                                                                             |                              

---

---