SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-KSB


|X|   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
      ACT OF 1934 [FEE REQUIRED] For the Fiscal Year Ended December 31, 2002

                                       OR

|_|   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

      For the transition period from __________________ to _____________________


                        Commission File Number: 000-33405

                                AJS Bancorp, Inc.
             (Exact Name of Registrant as Specified in its Charter)

       United States                                            36-4485429
(State or Other Jurisdiction of                              (I.R.S. Employer
Incorporation or Organization)                              Identification No.)


14757 South Cicero Avenue, Midlothian, Illinois                    60445
    (Address of Principal Executive Offices)                    (Zip Code)

                                 (708) 687-7400
               (Registrant's Telephone Number including area code)

           Securities Registered Pursuant to Section 12(b) of the Act:

                                      None

           Securities Registered Pursuant to Section 12(g) of the Act:

                     Common Stock, par value $.01 per share
                                (Title of Class)

      Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to such
requirements for the past 90 days.

YES |X|       NO | |

      Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-B is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. |X|

State issuers's revenues for its most recent fiscal year        $14,712,000

      As of March 18, 2003, there were 2,406,950 shares issued and 2,398,550
shares outstanding of the Registrant's Common Stock. The aggregate value of the
voting stock held by non-affiliates of the Registrant, computed by reference to
the average bid and asked prices of the Common Stock as of March 18, 2003
($17.86) was $16,254,136.

                       DOCUMENTS INCORPORATED BY REFERENCE

1.    Proxy Statement for the 2003 Annual Meeting of Stockholders (Parts I and
      III).


<PAGE>

                                     PART I

ITEM 1.     BUSINESS

Forward Looking Statements

      This Annual Report contains certain "forward-looking statements" which may
be identified by the use of words such as "believe," "expect," "anticipate,"
"should," "planned," "estimated" and "potential." Examples of forward- looking
statements include, but are not limited to, estimates with respect to our
financial condition, results of operations and business that are subject to
various factors which could cause actual results to differ materially from these
estimates and most other statements that are not historical in nature. These
factors include, but are not limited to, general and local economic conditions,
changes in interest rates, deposit flows, demand for mortgage, commercial and
other loans, real estate values, competition, changes in accounting principles,
policies, or guidelines, changes in legislation or regulation, and other
economic, competitive, governmental, regulatory, and technological factors
affecting our operations, pricing products and services.

General

AJS Bancorp, Inc.

      Following completion of our mutual holding company and stock offering on
December 26, 2001, AJS Bancorp, Inc. became the mid-tier stock holding company
for A. J. Smith Federal Savings Bank. The business of AJS Bancorp, Inc. consists
of holding all of the outstanding common stock of A. J. Smith Federal Savings
Bank. AJS Bancorp, Inc. is chartered under Federal law and owns 100% of the
common stock of A. J. Smith Federal. As part of our reorganization, we issued
1,227,544 shares of common stock to our mutual holding company parent, AJS
Bancorp, MHC, and sold 1,179,406 shares to the public. So long as AJS Bancorp,
MHC exists, it will own at least 50.1% of the voting stock of AJS Bancorp, Inc.
At December 31, 2002, AJS Bancorp, Inc. had total consolidated assets of $222.6
million, total deposits of $169.0 million, and stockholders' equity of $33.6
million. Our executive offices are located at 14757 South Cicero Avenue,
Midlothian, Illinois 60445, and our telephone number is (708) 687-7400.

A. J. Smith Federal Savings Bank

      A. J. Smith Federal Savings Bank was founded in 1892 by Arthur J. Smith as
a building and loan cooperative organization. In 1924 we were chartered as an
Illinois savings and loan association, and in 1934 we converted to a federal
charter. In 1984 we amended our charter to become a federally chartered savings
bank. We are a customer- oriented institution, operating from a main office in
Midlothian, Illinois, and two branch offices in Orland Park, Illinois. We opened
our second branch location in Orland Park in 2002. Our primary business activity
is the origination of one- to four-family real estate loans. Since 1994 we also
have originated a significant number of one- to four-family loans to persons
with impaired credit histories which are classified as "subprime loans" under
Office of Thrift Supervision criteria. To a lesser extent, we originate
multi-family, commercial real estate and consumer loans. As part of our current
business plan, we intend to develop our business banking by offering commercial
loans and deposit products and services to business customers. We also invest in
securities, primarily United States Government Agency securities and
mortgage-backed securities. Through our wholly owned subsidiary, A. J. S.
Insurance, LLC, we offer insurance and investment services.


                                        1

<PAGE>



Market Area

      A. J. Smith Federal has been, and continues to be, a community-oriented
savings bank offering a variety of financial products and services to meet the
needs of the communities we serve. Our lending and deposit-generating area is
concentrated in the neighborhoods surrounding our three offices; our main office
in Midlothian, Illinois, and two branch offices in Orland Park, Illinois. Our
office locations are located in Cook County. However, we consider our market
area to be the counties of Will and Cook. Midlothian is primarily a residential
community, and its largest employers are state and local governments and
automobile dealerships. Orland Park has more retail businesses, as well as light
industrial companies. Our market area economy consists primarily of the services
industry, wholesalers and retailers and manufacturing. Major employers in our
market area include the Andrew Corporation, the Orland Park School District, the
Village of Orland Park, and various retailers including, J. C. Penney, Marshall
Fields and Sears. The economy in our market area is not dependent on any single
employer or type of business.

Competition

      We face significant competition in both originating loans and attracting
deposits. The Chicago metropolitan area has a high concentration of financial
institutions, most of which are significantly larger institutions with greater
financial resources than A. J. Smith Federal, and all of which are our
competitors to varying degrees. Our competition for loans comes principally from
commercial banks, savings banks, mortgage banking companies, credit unions,
insurance companies and other financial service companies. Our most direct
competition for deposits has historically come from commercial banks, savings
banks and credit unions. We face additional competition for deposits from non-
depository competitors such as mutual funds, securities and brokerage firms and
insurance companies. The Gramm- Leach-Bliley Act, which permits affiliation
among banks, securities firms and insurance companies, will likely increase
competition among financial services companies.

Lending Activities

      General. Our loan portfolio is comprised mainly of one- to four-family
residential real estate loans. The vast majority of these loans have fixed rates
of interest. In addition to one- to four-family residential real estate loans,
our loan portfolio consists primarily of multi-family loans and home equity
lines of credit. At December 31, 2002, our gross loans totaled $138.2 million,
of which $115.9 million, or 83.8%, were secured by one- to four-family
residential real estate, $13.2 million, or 9.5%, were secured by multi-family
residential and commercial real estate, $8.4 million, or 6.1%, were home equity
loans, and $782,000, or 0.6%, were consumer loans. Our lending area is the
Chicago metropolitan area, with an emphasis on lending in the south and
southwest suburbs.

      We try to reduce our interest rate risk by making our loan portfolio more
interest rate sensitive. Accordingly, we offer adjustable rate mortgage loans,
short-and medium-term mortgage loans, and three- and five-year balloon
mortgages. In addition, we offer shorter-term consumer loans and home equity
lines of credit with adjustable interest rates.

      Over the past several years, a significant portion of our loan
originations have consisted of loans to borrowers with impaired credit ratings,
which are classified as "subprime" loans by the bank regulatory agencies. Our
subprime loans are primarily secured by single family properties located
throughout the Chicago metropolitan area, and generally are first or second
mortgage loans. These loans generally have higher interest rates than
traditional one- to four-family loans. Subprime loans are underwritten using the
same criteria as our one- to four-family loans, except that loan applications
will not necessarily be rejected because of the impaired credit history of a
borrower or higher debt to income ratios than are permitted under Fannie Mae and
Freddie Mac underwriting guidelines. At December 31, 2002, $31.2 million, or
22.6% of our loan portfolio, consisted of subprime loans based upon Office of
Thrift Supervision criteria.


                                        2

<PAGE>



      Loan Portfolio Composition. The following table shows the composition of
our loan portfolio in dollar amounts and in percentages (before deductions for
loans in process, deferred fees and allowances for losses) as of the dates
indicated.

<TABLE>
<CAPTION>
                                                                               At December 31,
                                             ----------------------------------------------------------------------------------
                                                       2002                         2001                         2000
                                             -----------------------     --------------------------    ------------------------
                                               Amount       Percent        Amount         Percent        Amount        Percent
                                             ----------  -----------     ----------     -----------    ----------    ----------
                                                                           (Dollars in Thousands)
<S>                                          <C>             <C>          <C>             <C>          <C>             <C>
Real estate loans:
------------------
 One- to four-family (1) ..............      $ 115,880        83.84%      $ 115,344        88.01%      $  93,962        85.32%
 Multi-family and commercial ..........         13,187         9.54           9,281         7.08           9,442         8.57
                                             ---------       ------       ---------       ------       ---------       ------
     Total real estate loans ..........        129,067        93.38         124,625        95.09         103,404        93.89

Other Loans:
------------
 Consumer loans .......................            782         0.56             765         0.59             733         0.66
 Home equity ..........................          8,374         6.06           5,667         4.32           5,999         5.45
                                             ---------       ------       ---------       ------       ---------       ------
      Total loans .....................        138,223       100.00%        131,057       100.00%        110,136       100.00%
                                                             ======                       ======                       ======
Less:
-----
 Allowance for loan losses ............         (2,082)                      (2,508)                      (2,364)
 Deferred loan (fees) costs ...........             24                           (5)                          52
 Deferred gain on real estate contract             (31)                         (39)                         (55)
                                             ---------                    ---------                    ---------
 Total loans receivable, net ..........      $ 136,134                    $ 128,505                    $ 107,769
                                             =========                    =========                    =========

<CAPTION>

                                                                 At December 31,
                                             ----------------------------------------------------
                                                       1999                         1998
                                             -------------------------    -----------------------
                                               Amount         Percent       Amount       Percent
                                             -----------    ----------    ----------    --------
                                                             (Dollars in Thousands)
<S>                                          <C>             <C>          <C>             <C>
Real estate loans:
------------------
 One- to four-family (1) ..............      $  91,818        82.03%      $  91,225        80.80%
 Multi-family and commercial ..........         11,919        10.65          15,233        13.49
                                             ---------       ------       ---------       ------
     Total real estate loans ..........        103,737        92.68         106,458        94.29

Other Loans:
------------
 Consumer loans .......................            516         0.46             413         0.36
 Home equity ..........................          7,676         6.86           6,038         5.35
                                             ---------       ------       ---------       ------
      Total loans .....................        111,929       100.00%        112,909       100.00%
                                                             ======                       ======

Less:
-----
 Allowance for (fees) loan losses .....         (2,158)                      (1,919)
 Deferred loan costs ..................             68                           56
 Deferred gain on real estate contract             (63)                         (79)
                                             ---------                    ---------
 Total loans receivable, net ..........      $ 109,776                    $ 110,967
                                             =========                    =========
</TABLE>

--------------------
(1)   Subprime real estate loans totaled $31.2 million, $47.1 million, $51.6
      million, $54.9 million and $58.4 million at December 31, 2002, 2001, 2000,
      1999 and 1998, respectively.


                                        3

<PAGE>

      Maturity of Loan Portfolio. The following table sets forth certain
information regarding the dollar amounts maturing and the interest rate
sensitivity of our loan portfolio at December 31, 2002. Mortgages which have
adjustable or renegotiable interest rates are shown as maturing in the period
during which the contract is due. The schedule does not reflect the effects of
possible prepayments or enforcement of due-on-sale clauses.

<TABLE>
<CAPTION>
                                                                                  Multi-Family
                                             One- to Four-Family                 and Commercial                   Consumer
                                           ------------------------         -------------------------       ---------------------
                                                          Weighted                          Weighted                     Weighted
                                                           Average                           Average                      Average
                                           Amount           Rate            Amount            Rate          Amount         Rate
                                           ------        ----------         ------         ----------       ------       --------
                                                                            (Dollars in Thousands)
<S>                                      <C>                <C>            <C>               <C>            <C>            <C>
1 year or less ................          $    501           6.87%          $ 1,635           5.07%          $133           5.71%
Greater than 1 to 3 years .....             2,844           8.02             2,050           7.69            381           6.57
Greater than 3 to 5 years .....             5,724           7.88             6,324           7.72            268           6.77
Greater than 5 to 10 years ....            30,935           7.23             1,485           8.30             --             --
Greater than 10 to 20 years ...            39,782           6.99             1,536           9.12             --             --
More than 20 years ............            36,094           5.92               157           8.75             --             --
                                         --------                          -------                          ----

Total .........................          $115,880                          $13,187                          $782
                                         ========                          =======                          ====

<CAPTION>

                                                 Home Equity                        Total
                                             --------------------           ------------------------
                                                          Weighted                          Weighted
                                                           Average                           Average
                                           Amount           Rate            Amount            Rate
                                           ------         ---------         ------          --------
                                                               (Dollars in Thousands)
<S>                                      <C>                <C>            <C>               <C>
1 year or less ................            $  635           4.72%          $  2,904           5.39%
Greater than 1 to 3 years .....             2,111           4.13              7,386           6.79
Greater than 3 to 5 years .....             5,628           4.12             17,944           6.49
Greater than 5 to 10 years ....                --             --             32,420           7.28
Greater than 10 to 20 years ...                --             --             41,318           7.07
More than 20 years ............                --             --             36,251           5.93
                                           ------                          --------

Total .........................            $8,374                          $138,223
                                           ======                          ========
</TABLE>

      The total amount of loans due after December 31, 2003 which have
predetermined interest rates is $104.2 million, while the total amount of loans
due after such date which have floating or adjustable interest rates is $31.1
million.




                                        4

<PAGE>



      One- to four-family Residential Real Estate Loans. Our primary lending
activity consists of originating one- to four-family, owner-occupied, first and
second residential mortgage loans, virtually all of which are secured by
properties located in our market area. At December 31, 2002, these loans totaled
$115.9 million, or 83.8% of our total loan portfolio. During 1994, we began to
originate a substantial number of one- to four-family residential loans to
borrowers with impaired credit histories. These loans are primarily originated
from a network of mortgage brokers throughout our market area, and are
classified as subprime loans by the bank regulatory agencies. We originate
subprime loans using our customary underwriting standards, except that an
application is not necessarily rejected because of the borrower's impaired
credit history and higher debt-to-income ratios than are permitted under Fannie
Mae underwriting guidelines. While subprime loans involve higher risks of loss
than our other one- to four-family residential real estate loans, they provide
us with higher yields to compensate for this risk. In recent months, we have
deemphasized our subprime lending, and we anticipate that our level of subprime
loans will continue to decrease in the future. At December 31, 2002, our
subprime loans totaled $31.2 million, or 22.6% of total loans, wheareas at
December 31, 2001, our subprime loans totaled $47.1 million, or 35.9% of total
loans.

      We currently offer one- to four-family residential real estate loans with
terms up to 30 years, although we emphasize the origination of one- to
four-family residential loans with terms of 15 years or less. We offer our one-
to four-family residential loans with adjustable or fixed interest rates. At
December 31, 2002, $93.5 million, or 80.6% of our one- to four-family
residential real estate loans had fixed rates of interest, and $22.4 million, or
19.4% of our one- to four-family residential real estate loans, had adjustable
rates of interest. Our fixed rate loans include loans that generally amortize on
a monthly basis over periods between seven to 30 years. Our subprime loans
generally amortize over a fifteen-year period. We also offer loans which
generally have balloon payment features after three or five years. Our balloon
loans generally amortize over periods of 15 years or more. One- to four-family
residential real estate loans often remain outstanding for significantly shorter
periods than their contractual terms because borrowers have the right to
refinance or prepay their loans. With respect to subprime loans, our experience
has been that these loans remain outstanding for even shorter periods of time
than our other one- to four-family loans.

      We currently offer adjustable rate mortgage loans with an initial interest
rate fixed for one, three or five years, and annual adjustments thereafter based
on changes in a designated market index. Our adjustable rate mortgage loans
generally have an interest rate adjustment limit of 200 basis points per
adjustment, with a maximum lifetime interest rate adjustment limit of 800 basis
points and a floor of 500 basis points. Our adjustable rate mortgages are priced
at a level tied to the one-year United States Treasury bill rate. In order to
make our adjustable rate mortgages more attractive in the current low fixed
mortgage rate environment, we began to offer discounted or teaser rates on our
adjustable rate mortgages in July of 2002. These loans carry initial rates that
are lower than the rate would be if it were to adjust according to the
adjustable rate note and rider. We do not offer adjustable rate mortgages that
offer the possibility of negative amortization.

      Regulations limit the amount that a savings association may lend relative
to the appraised value of the real estate securing the loan, as determined by an
appraisal of the property at the time the loan is originated. For loans greater
than $175,000 we utilize outside independent appraisers. For loans up to
$175,000, appraisals are performed by in-house appraisers. For borrowers who do
not obtain private mortgage insurance, our lending policies limit the maximum
loan to value ratio on both fixed rate and adjustable rate mortgage loans to 80%
of the appraised value of the property that is collateral for the loan (and up
to 85% with respect to subprime loans). For one- to four-family residential real
estate loans with loan to value ratios of between 80% and 95%, we require the
borrower to obtain private mortgage insurance. For loans in excess of $75,000,
we require the borrower to obtain title insurance. For first mortgage loan
products under $75,000, we conduct a title search. For second mortgage type
products in excess of $200,000, title insurance is required. For second mortgage
type products under $200,000, we conduct a title search. We also require
homeowners insurance and fire and casualty insurance on properties securing real
estate loans.

      Multi-Family and Commercial Real Estate Loans. At December 31, 2002, $13.2
million, or 9.5% or our total loan portfolio, consisted of loans secured by
multi-family and commercial real estate properties, virtually all of which are
located in the State of Illinois. Our multi-family loans are secured by
multi-family and mixed use properties. Our


                                        5

<PAGE>

commercial real estate loans are secured by improved property such as offices,
small business facilities, unimproved land, warehouses and other non-residential
buildings. Our multi-family and commercial real estate loans are offered with
fixed or adjustable rates. Our fixed rate multi-family and commercial real
estate loans are offered with amortization schedules of up to 25 years, and
generally have three- and five-year balloon features. At December 31, 2002, the
average balance of our multi-family loans was $150,000, and the average balance
of our commercial real estate loans was $203,000. We generally will make
multi-family and commercial real estate loans for up to 80% of the cost of, or
the appraised value, of the property securing the loan.

      Prior to funding a loan secured by multi-family, mixed use or commercial
property, we generally obtain an environmental assessment from an independent,
licensed environmental engineer regarding any environmental risks that may be
associated with the property. The level of the environmental engineer's
evaluation of a property will depend on the facts and circumstances relating to
the specific loan, but generally the environmental engineer's actions will range
from a consultant's discretionary environmental assessment to a Phase II
environmental report. The underwriting process for multi-family and commercial
real estate loans includes an analysis of the debt service coverage of the
collateral property. We typically require a debt service coverage ratio of 120%
or higher. We also require personal guarantees by the principals of the borrower
and a cash flow analysis when applicable.

      Loans secured by multi-family residential or commercial real estate
generally have larger loan balances and more credit risk than one- to
four-family residential mortgage loans. This increased credit risk is a result
of several factors, including the concentration of principal in a limited number
of loans and borrowers, the impact of local and general economic conditions on
the borrower's ability to repay the loan, and the increased difficulty of
evaluating and monitoring these types of loans. Furthermore, the repayment of
loans secured by multi-family properties typically depends upon the successful
operation of the real property securing the loan. If the cash flow from the
property is reduced, the borrower's ability to repay the loan may be impaired.
However, multi-family and commercial real estate loans generally have higher
interest rates than loans secured by one- to four-family residential real
estate.

      As part of our business plan, we intend to develop our commercial lending.
This lending may include non-real estate based loans, although at this time our
non-real estate commercial loans are not a significant part of our lending. We
are actively marketing our commercial business lending capability to local
businesses. In addition, we are advising our existing commercial real estate and
multi-family borrowers of our commercial business lending capability. Commercial
business loans are typically offered with adjustable rates.

      Our underwriting standards for commercial business loans include a review
of the applicant's tax returns, financial statements, credit history and an
assessment of the applicant's ability to meet existing obligations and payments
on the proposed loan based on cash flows generated by the applicant's business.

      Commercial business loans generally have higher interest rates and shorter
terms than one- to four-family residential loans, but they also may involve
higher average balances, increased difficulty of loan monitoring and a higher
risk of default since their repayment generally depends on the successful
operation of the borrower's business. We generally obtain personal guarantees
from the borrower or a third party as a condition to originating a commercial
business loan.

      Home Equity Lines of Credit. We offer home equity lines of credit, the
total of which amounted to $8.4 million, or 6.1% of our total loan portfolio, as
of December 31, 2002. Home equity lines of credit are generally made for
owner-occupied homes, and are secured by first or second mortgages on
residences. We generally offer these loans with a maximum loan to appraised
value ratio of 85% (including senior liens on the collateral property). We
currently offer these lines of credit for a period of five years, and generally
at rates tied to the prevailing prime interest rate. Our home equity lines of
credit are underwritten in the same manner as our one- to four-family
residential loans.

      Consumer Loans. We are authorized to make loans for a variety of personal
and consumer purposes. As of December 31, 2002, consumer loans totaled $782,000,
or 0.6% of our total loan portfolio. Our consumer loans consist


                                        6

<PAGE>

primarily of automobile loans, loans secured by deposit accounts, and loans
secured by inventory, equipment and other non real estate based collateral.
Automobile loans accounted for $481,000 of our consumer loans at December 31,
2002. Our procedure for underwriting consumer loans includes an assessment of
the applicant's credit history and ability to meet existing obligations and
payments of the proposed loan, as well as an evaluation of the value of the
collateral security, if any. Consumer loans generally entail greater risk than
residential mortgage loans, particularly in the case of loans that are unsecured
or are secured by assets that tend to depreciate in value, such as automobiles.
In these cases, repossessed collateral for a defaulted consumer loan may not
provide an adequate source of repayment for the outstanding loan, and the
remaining value often does not warrant further substantial collection efforts
against the borrower.

      Loan Originations, Purchases, Sales and Servicing. Although we originate
both fixed-rate and adjustable-rate loans, our ability to generate each type of
loan depends upon borrower demand, market interest rates, borrower preference
for fixed- versus adjustable-rate loans, and the interest rates offered on each
type of loan by other lenders in our market area. This includes commercial
banks, savings institutions, credit unions, and mortgage banking companies, as
well as life insurance companies, and Wall Street conduits that also actively
compete for local real estate loans. Our loan originations come from a number of
sources, including real estate broker referrals, existing customers, borrowers,
builders, attorneys, and "walk-in" customers.

      Our loan origination activity may be affected adversely by a rising
interest rate environment that typically results in decreased loan demand.
Accordingly, the volume of loan originations and the profitability of this
activity may vary from period to period. Historically, we have originated
mortgage loans for sale in the secondary market, and we may do so in the future,
although this is not a significant part of our business at this time.

      In the past, we have sold loans on a servicing retained basis. At December
31, 2002, we had mortgage servicing rights totaling $16,000.

      The following table shows our loan origination and repayment activities
for the periods indicated. We did not purchase any loans during the periods
indicated.


                                                 Years Ended December 31,
                                           -----------------------------------
                                              2002         2001         2000
                                           ---------    ---------    ---------
                                                     (In Thousands)
Loans receivable,
  beginning of period ..................   $ 131,057    $ 110,136    $ 111,929
Originations by type:
Real estate- one to four-family (1) ....      42,596       50,673       20,842
Multi-family and commercial ............       5,124        4,810          509
Non-real estate -consumer ..............       1,569        4,613          561
Home equity ............................       9,374        1,491        2,928
                                           ---------    ---------    ---------
Total loans originated .................      58,663       61,587       24,840

Sales ..................................        (127)

Principal repayments: ..................     (51,370)     (40,666)     (26,633)
                                           ---------    ---------    ---------

Loans receivable,
  at end of period .....................   $ 138,223    $ 131,057    $ 110,136
                                           =========    =========    =========
--------------------
(1)   Including subprime real estate loan originations of $1.1 million, $14.9
      million and $12.5 million for the years ended December 31, 2002, 2001, and
      2000, respectively.

      Loan Approval Procedures and Authority. Our lending activities are subject
to written, non-discriminatory underwriting standards and loan origination
procedures adopted by management and the Board of Directors. All loans,


                                        7

<PAGE>

regardless of size or type, are initially reviewed by a loan officer. Our junior
loan officers have the authority to approve loans in amounts up to $30,000 with
the approval of a designated officer. Senior loan officers who obtain the
approval of a designated officer, have the authority to approve loans in amounts
up to $100,000. Loans in excess of $100,000 and up to $250,000 must be reviewed
and approved by senior loan officers and a Vice President or Executive Vice
President. All loans of $250,000 or less that do not meet our standard
underwriting ratios and credit criteria must be reviewed by the Executive Vice
President or in his absence, an Assistant Vice President. The Officers Loan
Committee, which consists of Raymond Blake, Edward Milen, Lyn G. Rupich, James
Andretich, Donna Manuel and W. Anthony Kopp, has the authority to approve all
loans up to $750,000. Loans in excess of $750,000 must be approved by the Chief
Executive Officer and the Board of Directors.

      Loans-to-One-Borrower. Federal savings banks are subject to the same
loans-to-one-borrower limits as those applicable to national banks, which
restrict loans to one borrower to an amount equal to 15% of unimpaired capital
and unimpaired surplus on an unsecured basis, and an additional amount equal to
10% of unimpaired capital and unimpaired surplus if the loan is secured by
readily marketable collateral (generally, financial instruments and bullion, but
not real estate). At December 31, 2002, our lending limit was $4.4 million. At
December 31, 2002, our largest lending relationship to one borrower totaled $1.5
million. At December 31, 2002, we had seventeen lending relations in which the
total amount outstanding exceeded $500,000. All of the loans under these large
lending relationships were performing in accordance with their terms.

Asset Quality

      Loan Delinquencies and Collection Procedures. When a borrower fails to
make required payments on a loan, we take a number of steps to induce the
borrower to cure the delinquency and restore the loan to a current status. In
the case of mortgage loans, a reminder notice is sent 15 days after an account
becomes delinquent. After 15 days, we attempt to establish telephone contact
with the borrower. If the borrower does not remit the entire payment due by the
end of the month, then a letter that includes information regarding
home-ownership counseling organizations is sent to the borrower. During the
first 15 days of the following month, a second letter is sent, and we also
attempt to establish telephone contact with the borrower. At this time, and
after reviewing the cause of the delinquency and the borrower's previous loan
payment history, we may agree to accept repayment over a period of time which
will generally not exceed 60 days. However, should a loan become delinquent by
two or more payments, and the borrower is either unwilling or unable to repay
the delinquency over a period of time acceptable to us, we send a notice of
default by both regular and certified mail. This notice will provide the
borrower with the terms which must be met to cure the default, and will again
include information regarding home-ownership counseling.

      In the event the borrower does not cure the default within 30 days of the
postmark of the notice of default, we may instruct our attorneys to institute
foreclosure proceedings depending on the loan-to-value ratio or our relationship
with the borrower. We hold property foreclosed upon as other real estate owned.
We carry foreclosed real estate at its fair market value less estimated selling
costs. If a foreclosure action begins and the loan is not brought current or
paid in full before the foreclosure sale, we will either sell the real property
securing the loan at the foreclosure sale or sell the property as soon
thereafter as practical.

      In the case of consumer loans, customers are mailed delinquency notices
when the loan is 15 days past due. We also attempt to establish telephone
contact with the borrower. If collection efforts are unsuccessful, we may
instruct our attorneys to take further action.

      Our policies require that management continuously monitor the status of
the loan portfolio and report to the Board of Directors on a monthly basis.
These reports include information on delinquent loans and foreclosed real estate
and our actions and plans to cure the delinquent status of the loans and to
dispose of any real estate acquired through foreclosure.


                                        8
<PAGE>

      Non-Performing Loans. All loans are reviewed on a regular basis and are
placed on a non-accrual status when, in the opinion of management, there is
reasonable probability of loss of principal or the collection of additional
interest is deemed insufficient to warrant further accrual. Generally, we place
all loans more than 90 days past due on non- accrual status. In addition, we
place any loan on non-accrual status if any part of it is classified as loss or
if any part has been charged-off. When a loan is placed on non-accruing status,
total interest accrued and unpaid to date is reversed. Subsequent payments are
either applied to the outstanding principal balance or recorded as interest
income, depending on the assessment of the ultimate collectibility of the loan.

      As of December 31, 2002, our total non-accrual loans were $1.1 million,
compared to $1.6 million at December 31, 2001, and $1.2 million at December 31,
2000.

      The following table sets forth our loan delinquencies by type, amount and
percentage at December 31, 2002.

<TABLE>
<CAPTION>
                                                           Loans Delinquent For:
                                        ------------------------------------------------------------
                                                60-89 Days                   90 Days and Over             Total Delinquent Loans
                                        ---------------------------    -----------------------------   ----------------------------
                                                            Percent                         Percent                         Percent
                                                            of Loan                         of Loan                         of Loan
                                        Number    Amount   Category     Number    Amount    Category   Number     Amount   Category
                                        ------    ------   --------     ------    ------    --------   ------     ------   --------
                                                                             (Dollars in Thousands)
<S>                                        <C>    <C>        <C>           <C>    <C>        <C>       <C>        <C>        <C>
Real estate:
  One- to four-family ............          8     $  585     0.50%          7     $1,047     0.90%         15     $1,632     1.41%
  Multi-family and commercial ....         --         --       --           1        113     0.86           1        113     0.86
  Consumer and other .............          2          6     0.73          --         --       --           2          6     0.73
  Home equity ....................         --         --       --           4         79     0.94           4         79     0.94
                                         ----     ------     ----        ----     ------     ----      ------     ------     ----

     Total .......................         10     $  591     0.43%         12     $1,239     0.90%     $   22     $1,830     1.32%
                                         ====     ======     ====        ====     ======     ====      ======     ======     ====
</TABLE>

           The table below sets forth the amounts and categories of
nonperforming assets in our loan portfolio. For all years presented, we had no
troubled debt restructurings within the meaning of Statement of Financial
Accounting Standards No. 15. For the periods presented, we had no accruing loans
delinquent more than 90 days. Foreclosed assets include assets acquired in
settlement of loans.

<TABLE>
<CAPTION>
                                                                                    At December 31,
                                            --------------------------------------------------------------------------------------
                                                2002                 2001                2000             1999             1998
                                            ----------           ----------          -----------       -----------      ----------
                                                                                (Dollars In Thousands)
<S>                                         <C>                  <C>                 <C>               <C>              <C>
Non-accruing loans:
One- to four-family.................        $      860           $    1,124          $       965       $     1,651      $    2,624
Multi-family and commercial.........               113                  341                  225                --              --
Consumer and other..................                --                   --                    6                22              24
Home equity.........................                79                  111                   --                --              --
                                            ----------           ----------          -----------       -----------      ----------
   Total non-accruing loans.........             1,052                1,576                1,196             1,673           2,648
                                            ----------           ----------          -----------       -----------      ----------

Total nonperforming loans...........             1,052                1,576                1,196             1,673           2,648

Real estate owned...................                43                  161                  305                --              --
                                            ----------           ----------          -----------       -----------      ----------
Total nonperforming assets..........        $    1,095           $    1,737          $     1,501       $     1,673      $    2,648
                                            ==========           ==========          ===========       ===========      ==========
Total as a percentage of
  total assets......................              0.49%                0.79%                0.77%             0.84%           1.40%

Nonperforming loans as percentage of
  gross loans receivable............              0.76%                1.20%                1.09%             1.49%           2.35%
</TABLE>


                                        9

<PAGE>

      For the year ended December 31, 2002, gross interest income which would
have been recorded had the non- accruing loans been current in accordance with
their original terms amounted to $102,000. The amount that was included in
interest income totaled $37,000 for the year ended December 31, 2002.

      Real Estate Owned. Real estate owned consists of property acquired through
formal foreclosure or by deed in lieu of foreclosure, and is recorded at the
lower of recorded investment or fair value. Write-downs from recorded investment
to fair value which are required at the time of foreclosure are charged to the
allowance for loan losses. After transfer, the property is carried at the lower
of recorded investment or fair value, less estimated selling expenses.
Adjustments to the carrying value of the properties that result from subsequent
declines in value are charged to operations in the period in which the declines
occur. At December 31, 2002, we held real estate owned of $43,000.

      Classification of Assets. Consistent with regulatory guidelines, we
provide for the classification of loans and other assets, such as securities,
that are considered to be of lesser credit quality as substandard, special
mention or loss assets. An asset is considered substandard if it is inadequately
protected by the current net worth and paying capacity of the obligor or of the
collateral pledged, if any. Substandard assets include those characterized by
the distinct possibility that the savings institution will sustain some loss if
the deficiencies are not corrected. Assets classified as loss are those
considered uncollectible and of such little value that their continuance as
assets is not warranted. Assets that do not expose us to risk sufficient to
warrant classification in one of the aforementioned categories, but which
possess some weaknesses, are required to be designated as special mention by
management.

      When we classify assets as substandard, we allocate for analytical
purposes a portion of our general valuation allowances or loss reserves to these
assets as we consider prudent. General allowances represent loss allowances that
have been established to recognize the inherent risk associated with lending
activities, but which have not been allocated to particular problem assets. When
we classify problem assets as loss, we establish a specific allowance for losses
equal to 100% of the amount of the assets so classified, or we charge-off the
amount. Our determination as to the classification of assets and the amount of
valuation allowances is subject to review by regulatory agencies, which can
order the establishment of additional loss allowances. Management regularly
reviews our asset portfolio to determine whether any assets require
classification in accordance with applicable regulations.

      On the basis of management's review of our asset portfolio at December 31,
2002, we had classified $1.3 million of our assets as substandard, and $500,000
of our assets as special mention.



                                       10

<PAGE>



      Allowance for Loan Losses. The following table sets forth information
regarding our allowance for loan losses and other ratios at or for the dates
indicated.

<TABLE>
<CAPTION>
                                                                            Years Ended December 31,
                                             ------------------------------------------------------------------------------------
                                                 2002                2001              2000             1999               1998
                                             ----------          -----------         --------         ---------          --------
                                                                        (Dollars In Thousands)
<S>                                          <C>                 <C>                 <C>              <C>                <C>
Balance at beginning
 of period.............................      $   2,508           $    2,364          $  2,158         $   1,919          $  1,262

Charge-offs:
One- to four-family....................           (306)                (219)              (78)             (287)             (186)
Multi-family and commercial............            (90)                  --                --                --               (11)
Consumer and other.....................             --                   --               (16)               --                (4)
Home equity............................            (50)                 (50)               --                --                --
                                             ----------          -----------         --------         ---------          --------
Total charge-offs......................           (446)                (269)              (94)             (287)             (201)
Recoveries:
One- to four-family loans..............             --                   --                --                 1                24
                                             ---------           ----------          --------         ---------          --------
Net charge-offs(1).....................           (446)                (269)              (94)             (286)             (177)
Provisions for loan losses.............             20                  413               300               525               834
                                             ---------           ----------          --------         ---------          --------
Balance at end of period...............      $   2,082           $    2,508          $  2,364         $   2,158          $  1,919
                                             =========           ==========          ========         =========          ========
Ratio of net charge-offs during
 the period to average loans
 outstanding during the period.........           0.33%                0.23%             0.09%             0.26%             0.16%

Ratio of net charge-offs during
 the period to non-performing loans....          42.40                17.07              7.86             17.10              6.68

Ratio of non-performing assets to total
  assets at end of period..............           0.49                 0.79              0.77              0.84              1.40
Ratio of allowance for loan losses to
 non-performing loans..................         197.91               159.15            197.66            128.99             72.47
Ratio of allowance for loan losses to
 loans receivable, gross...............           1.51                 1.91              2.15              1.93              1.70
</TABLE>

-------------------
(1)   Net charge-offs of sub-prime loans totaled $245,000, $269,000, $78,000,
      $286,000 and $154,000, for the years ended December 31, 2002, 2001, 2000,
      1999 and 1998, respectively.

      The allowance for loan losses is a valuation account that reflects our
evaluation of the losses known and inherent in our loan portfolio that are both
probable and reasonable to estimate. We maintain the allowance through
provisions for loan losses that we charge to income. We charge losses on loans
against the allowance for loan losses when we believe the collection of loan
principal is unlikely.

      Our evaluation of risk in maintaining the allowance for loan losses
includes the review of all loans on which the collectibility of principal may
not be reasonably assured. We consider the following factors as part of this
evaluation: our historical loan loss experience, known and inherent risks in the
loan portfolio, (particularly subprime real estate loans), the estimated value
of the underlying collateral, peer group information and current economic and
market trends. There may be other factors that may warrant our consideration in
maintaining an allowance at a level sufficient to provide for probable losses.
This evaluation is inherently subjective as it requires estimates that are
susceptible to significant revisions as more information becomes available or as
future events change. Although we believe that we have established and
maintained the allowance for loan losses at adequate levels, future additions
may be necessary if economic and other conditions in the future differ
substantially from the current operating environment.

      In addition, the Office of Thrift Supervision, as an integral part of its
examination process, periodically reviews our loan and foreclosed real estate
portfolios and the related allowance for loan losses and valuation allowance for
foreclosed real estate. The Office of Thrift Supervision may require us to
increase the allowance for loan losses or the valuation allowance for foreclosed
real estate based on its review of information available at the time of the
examination, thereby adversely affecting our results of operations.


                                       11

<PAGE>

      Allocation of the Allowance for Loans Losses. The following table presents
our allocation of the allowance for loan losses by loan category and the
percentage of loans in each category to total loans at the periods indicated.

<TABLE>
<CAPTION>
                                                                         At December 31,
                              -----------------------------------------------------------------------------------------------------
                                           2002                               2001                               2000
                              --------------------------------   ------------------------------    --------------------------------
                                                      Percent                           Percent                            Percent
                                                     of Loans                          of Loans                           of Loans
                                           Loan       in Each                 Loan      in Each                  Loan      in Each
                              Amount of   Amounts    Category    Amount of   Amounts   Category    Amount of    Amounts   Category
                              Loan Loss     by       to Total    Loan Loss     by      to Total    Loan Loss      by      to Total
                              Allowance  Category      Loans     Allowance  Category     Loans     Allowance   Category     Loans
                              ---------  --------    ---------   ---------  --------   --------    ---------   --------   ---------
                                                                     (Dollars in Thousands)
<S>                           <C>       <C>          <C>         <C>       <C>          <C>       <C>          <C>          <C>
One- to four-family.......    $  1,655  $ 115,880     83.84%     $  2,057  $  115,344    88.01%   $   1,889    $  93,962     85.32%
Multi-family and other....          58     13,187      9.54           133       9,281     7.08          160        9,442      8.57
Consumer and other........           3        782      0.56             8         765     0.59            9          733      0.66
Home equity...............         278      8,374      6.06           232       5,667     4.32          221        5,999      5.45
Unallocated...............          88         --        --            78          --       --           85           --        --
                              --------  ---------    ------      --------  ----------  -------    ---------    ---------    ------
  Total...................    $  2,082  $ 138,223    100.00%     $  2,508  $  131,057   100.00%   $   2,364    $ 110,136    100.00%
                              ========  =========    ======      ========  ==========   ======    =========    =========    ======

<CAPTION>

                                                             At December 31,
                              -------------------------------------------------------------------------
                                              1999                                   1998
                              -----------------------------------     ---------------------------------
                                                          Percent                               Percent
                                                         of Loans                              of Loans
                                               Loan       in Each                  Loan         in Each
                                 Amount of    Amounts    Category     Amount    of Amounts     Category
                                 Loan Loss      by       to Total     Loan Loss     by         to Total
                                 Allowance   Category      Loans      Allowance  Category        Loans
                                 ---------   --------    --------     ---------  --------      --------
                                                         (Dollars in Thousands)
<S>                              <C>        <C>          <C>          <C>        <C>          <C>
One- to four-family.......       $ 1,695    $   91,818    82.03%      $  1,551   $  91,225      80.80%
Multi-family and other....           124        11,919    10.65            138      15,233      13.49
Consumer and other........             9           516     0.46              6         413       0.36
Home equity...............           240         7,676     6.86            188       6,038       5.35
Unallocated...............            90            --       --             36          --         --
                                 -------    ----------   ------       --------   ---------    -------
  Total...................       $ 2,158    $  111,929   100.00%      $  1,919   $ 112,909    100.00%
                                 =======    ==========   ======       ========   =========    ======
</TABLE>


                                       12

<PAGE>

      Management evaluates the total balance of the allowance for loan losses
based on several factors that are not loan specific but are reflective of the
losses inherent in the loan portfolio. This includes management's periodic
review of loan collectibility 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, prevailing
economic conditions such as housing trends, inflation rates and unemployment
rates, geographic concentrations of loans within our immediate market area, and
both peer financial institution historic loan loss experience and levels of
allowance for loan losses. Generally, small balance, homogenous type loans, such
as one- to four-family, mortgage, consumer and home equity loans are evaluated
for impairment in total. The allowance related to these loans is established
primarily by using loss experience data by general loan type. Subprime loans are
evaluated as a separate group due to their higher credit risk characteristics.
Nonperforming loans are evaluated individually, based primarily on the value of
the underlying collateral securing the loan. Larger loans, such as multi-family
mortgages are also generally evaluated for impairment individually. The
allowance is allocated to each loan type based on the results of the evaluation
described above. Small differences between the allocated allowance balance and
the recorded allowance amount is reflected as "unallocated" to absorb losses
resulting form the inherent imprecision involved in the loss evaluation process.

Investment Activities

      We are permitted under federal law to invest in various types of liquid
assets, including United States Government obligations, securities of various
federal agencies and of state and municipal governments, deposits at the Federal
Home Loan Bank of Chicago, certificates of deposit of federally insured
institutions, certain bankers' acceptances and federal funds. Within certain
regulatory limits, we may also invest a portion of our assets in commercial
paper and corporate debt securities. We are also required to maintain an
investment in FHLB stock.

      SFAS No. 115, "Accounting for Certain Investments in Debt and Equity
Securities," requires that securities be categorized as "held to maturity,"
"trading securities" or "available for sale," based on management's intent as to
the ultimate disposition of each security. SFAS No. 115 allows debt securities
to be classified as "held to maturity" and reported in financial statements at
amortized cost only if the reporting entity has the positive intent and ability
to hold these securities to maturity. Securities that might be sold in response
to changes in market interest rates, changes in the security's prepayment risk,
increases in loan demand, or other similar factors cannot be classified as "held
to maturity."

      We do not currently use or maintain a trading account. Debt and equity
securities not classified as "held to maturity" are classified as "available for
sale." These securities are reported at fair value, and unrealized gains and
losses on the securities are excluded from earnings and reported, net of
deferred taxes, as a separate component of equity.

      All of our securities carry market risk insofar as increases in market
rates of interest may cause a decrease in their market value. Investments in
securities are made based on certain considerations, which include the interest
rate, tax considerations, yield, settlement date and maturity of the security,
our liquidity position, and anticipated cash needs and sources. The effect that
the proposed security would have on our credit and interest rate risk and
risk-based capital is also considered. We purchase securities to provide
necessary liquidity for day-to-day operations, and when investable funds exceed
loan demand.

      Generally, our investment policy is to invest funds in various categories
of securities and maturities based upon our liquidity needs, asset/liability
management policies, investment quality, marketability and performance
objectives. The board of directors reviews our securities portfolio on a monthly
basis.

      Our securities classified as held to maturity, excluding mortgage backed
securities totaled $91,000 at December 31, 2002, and consisted primarily of
state and municipal bond obligations. Our securities classified as
available-for-sale totaled $36.1 million at December 31, 2002, and consisted of
Federal agency obligations, primarily Federal Farm Credit Bank notes and Federal
Home Loan Bank obligations with maturities of one to five years, and an ARM
mutual fund. We invested $3.1 million in an adjustable rate mortgage mutual fund
with Shay Financial Services. This fund invests primarily in adjustable rate
mortgage backed securities, and collateralized mortgage obligations.

                                       13

<PAGE>

      We also invested in $4.5 million of Federal Home Loan Bank stock at
December 31, 2002. For further information regarding our securities portfolio,
see Note 2 to Consolidated Financial Statements.

           The following table sets forth the composition of our securities
portfolio at the dates indicated.

<TABLE>
<CAPTION>
                                                                          At December 31,
                                         --------------------------------------------------------------------------------
                                                          2002                                      2001
                                         --------------------------------------    --------------------------------------
                                         Carrying   % of        Fair      % of   Carrying     % of        Fair     % of
                                          Value     Total      Value     Total      Value     Total      Value     Total
                                         -------   -------    -------   -------    -------   -------    -------   -------
                                                                     (Dollars in Thousands)
<S>                                      <C>        <C>       <C>        <C>       <C>        <C>       <C>        <C>
Securities classified as held to
  maturity (at amortized cost):

Municipal bonds ......................   $    91      0.22%   $    91      0.22%   $   559      1.20%   $   559      1.20%

Securities classified as available
  for sale (at fair value):

Shay ARM mutual Fund .................     3,137      7.71      3,137      7.71         --        --         --        --
U.S. Government securities ...........     1,016      2.50      1,016      2.50      1,014      2.17      1,014      2.17
FHLB .................................    25,373     62.34     25,373     62.34     37,107     79.43     37,107     79.43
FFCB .................................     3,478      8.54      3,478      8.54      6,725     14.39      6,725     14.39
FHLMC ................................     1,015      2.49      1,015      2.49         --        --         --        --
FNMA .................................     2,058      5.06      2,058      5.06         --        --         --        --
Concord EPS, Inc. stock ..............        56      0.14         56      0.14         --        --         --        --
                                         -------   -------    -------   -------    -------   -------    -------   -------
Subtotal .............................    36,133     88.78     36,133     88.78     44,846     95.99     44,846     95.99
                                         -------   -------    -------   -------    -------   -------    -------   -------
FHLB stock ...........................     4,477     11.00      4,477     11.00      1,314      2.81      1,314      2.81
                                         -------   -------    -------   -------    -------   -------    -------   -------
Total securities and FHLB stock ......   $40,701    100.00%   $40,701    100.00%   $46,719    100.00%   $46,719    100.00%
                                         =======   =======    =======   =======    =======   =======    =======   =======
Average remaining life of
   securities.........................   17.3  months                              18.1 months

Other interest-earning assets:
Interest-bearing deposits with
   banks .............................   $ 9,955     62.39%   $ 9,955     62.39%   $ 9,037     33.42%   $ 9,037     33.42%
Federal funds sold ...................     6,000     37.61      6,000     37.61     18,000     66.58     18,000     66.58
                                         -------   -------    -------   -------    -------   -------    -------   -------
Total ................................   $15,955    100.00%   $15,955    100.00%   $27,037    100.00%   $27,037    100.00%
                                         =======   =======    =======   =======    =======   =======    =======   =======

<CAPTION>

                                                     At December 31,
                                         ---------------------------------------
                                                          2000
                                         --------------------------------------
                                         Carrying   % of        Fair      % of
                                          Value     Total      Value     Total
                                         -------   -------    -------   -------
                                                  (Dollars in Thousands)
<S>                                      <C>        <C>       <C>        <C>
Securities classified as held to
  maturity (at amortized cost):

Municipal bonds ......................   $   319      0.66%   $   319      0.66%

Securities classified as available
  for sale (at fair value):

Shay ARM mutual Fund .................        --        --         --        --
U.S. Government securities ...........        --        --         --        --
FHLB .................................    42,711     88.06     42,711     88.06
FFCB .................................     4,246      8.75      4,246      8.75
FHLMC ................................        --        --         --        --
FNMA .................................        --        --         --        --
Concord EPS, Inc. stock ..............        --        --         --        --
                                         -------   -------    -------   -------
Subtotal .............................    46,957     96.81     46,957     96.81
                                         -------   -------    -------   -------
FHLB stock ...........................     1,228      2.53      1,228      2.53
                                         -------   -------    -------   -------
Total securities and FHLB stock ......   $48,504    100.00%   $48,504    100.00%
                                         =======   =======    =======   =======
Average remaining life of
   securities.........................   22.9 months

Other interest-earning assets:
Interest-bearing deposits with
   banks .............................   $ 4,512     27.33%   $ 4,512     27.33%
Federal funds sold ...................    12,000     72.67     12,000     72.67
                                         -------   -------    -------   -------
Total ................................   $16,512    100.00%   $16,512    100.00%
                                         =======   =======    =======   =======
</TABLE>


                                       14

<PAGE>



Mortgage-Backed Securities

      Mortgage-backed securities represent a participation interest in a pool of
one- to four-family or multi-family mortgages. The mortgage originators use
intermediaries (generally United States Government agencies and
government-sponsored enterprises) to pool and repackage the participation
interests in the form of securities, with investors such as A. J. Smith Federal
receiving the principal and interest payments on the mortgages. Such United
States Government agencies and government-sponsored enterprises guarantee the
payment of principal and interest to investors.

      Mortgage-backed securities are typically issued with stated principal
amounts, and the securities are backed by pools of mortgages that have loans
with interest rates that are within a specific range and have varying
maturities. The characteristics of the underlying pool of mortgages, i.e.,
fixed-rate or adjustable-rate, as well as prepayment risk, are passed on to the
certificate holder. The life of a mortgage-backed pass-through security thus
approximates the life of the underlying mortgages. Our mortgage-backed
securities consist primarily of Fannie Mae, Freddie Mac and Ginnie Mae
securities.

      At December 31, 2002, our mortgage-backed securities totaled to $16.0
million, which represented 7.2% of our total assets at that date. At December
31, 2002, $15.8 million of our mortgage-backed securities were classified as
available-for-sale. At that date, virtually all of our mortgage-backed
securities had fixed rates of interest. We purchased $10.0 million of
mortgage-backed securities during the year ended December 31, 2002, and $997,000
during the year ended December 31, 2001. For information regarding the
maturities of our mortgage-backed securities, see Note 2 of Notes to
Consolidated Financial Statements.

      Mortgage-backed securities generally yield less than the mortgage loans
underlying such securities because of their payment guarantees or credit
enhancements which offer nominal credit risk to the security holder. In
addition, mortgage-backed securities are more liquid than individual mortgage
loans and we may use them to collateralize borrowings or other obligations of A.
J. Smith Federal.

      The following table sets forth the composition of our mortgage-backed
securities at the dates indicated.

<TABLE>
<CAPTION>
                                                                          At December 31,
                                                -------------------------------------------------------------------
                                                       2002                    2001                     2000
                                                -------------------     -------------------     -------------------
                                                Carrying      % of      Carrying      % of      Carrying      % of
                                                  Value       Total       Value       Total       Value       Total
                                                --------     ------     --------     ------      -------     ------
                                                                       (Dollars in Thousands)
<S>                                             <C>          <C>        <C>          <C>         <C>         <C>
Mortgage-backed securities
 classified as held to maturity
  (at amortized cost):
 Ginnie Mae...........................          $    254       1.58%    $    340       3.64%     $   429       3.94%
 Freddie Mac..........................                14       0.09           26       0.28           38       0.35
 Other................................                 1       0.01            3       0.03            5       0.05
Mortgage-backed securities
 classified as available for sale
  (at fair value):
 Fannie Mae...........................            13,971      87.11        6,600      70.71        8,731      80.16
 Freddie Mac..........................             1,799      11.21        2,365      25.34        1,689      15.50
                                                --------     ------     --------     ------      -------     ------
       Total..........................          $ 16,039     100.00%    $  9,334     100.00%     $10,892     100.00%
                                                ========     ======     ========     ======      =======     ======
</TABLE>


                                       15

<PAGE>

      Carrying Values, Yields and Maturities. The composition and maturities of
our securities portfolio and of our mortgage-backed securities, excluding FHLB
stock, are indicated in the following table. Cost represents the amortized cost
of the securities and mortgage-backed securities at December 31, 2002. See Note
2 to the Notes to Consolidated Financial Statements.

<TABLE>
<CAPTION>
                                                                               At December 31, 2002
                                            ----------------------------------------------------------------------------------------
                                               Less Than       1 to 5         5 to 10          Over
                                                1 Year          Years          Years         10 Years          Total Securities
                                            -------------   ------------   ------------    -----------    --------------------------
                                               Amortized      Amortized      Amortized       Amortized     Amortized
                                                 Cost           Cost           Cost            Cost          Cost       Fair Value
                                            -------------   ------------   ------------    -----------    -----------   ------------
                                                                              (Dollars in Thousands)
<S>                                         <C>             <C>             <C>            <C>            <C>           <C>
Securities................................  $      14,397   $     16,430    $       --     $       999    $    31,826   $     33,031
Mortgage-backed securities................             16             13           440          15,171         15,640         16,049
                                            -------------   ------------    ----------     -----------    -----------   ------------
Total securities..........................  $      14,413   $     16,443    $      440     $    16,170    $    47,466   $     49,080
                                            =============   ============    ==========     ===========    ===========   ============

Weighted average yield....................           5.09%          5.61%         6.11%           5.58%          5.43%

Sources of Funds
</TABLE>

      General. Deposits have been our primary source of funds for lending and
other investment purposes. In addition to deposits, we derive funds primarily
from principal and interest payments on loans. These loan repayments are a
relatively stable source of funds, while deposit inflows and outflows are
significantly influenced by general interest rates and money market conditions.
Borrowings may be used on a short-term basis to compensate for reductions in the
availability of funds from other sources, and may be used on a longer-term basis
for general business purposes.

      Deposits. Our deposits are generated primarily from residents within our
primary market area. Deposit account terms vary, with the principal differences
being the minimum balance required, the time periods the funds must remain on
deposit and the interest rate. We are not currently using, nor have we used in
the past, brokers to obtain deposits. Our deposit products include demand, NOW,
money market, savings, and term certificate accounts. We establish interest
rates, maturity terms, service fees and withdrawal penalties on a periodic
basis. Management determines the rates and terms based on rates paid by
competitors, our need for funds or liquidity, growth goals and federal and state
regulations.

      Deposit Activity. The following table sets forth our deposit flows during
the periods indicated.

                                              Years Ended December 31,
                                   -------------------------------------------
                                      2002             2001             2000
                                   ---------        ---------        ---------
                                               (Dollars in Thousands)

Opening balance .............      $ 171,809        $ 161,251        $ 161,793
Deposits ....................        444,269          482,870          406,311
Withdrawals .................       (450,552)        (477,631)        (413,836)
Interest credited ...........          3,482            5,319            6,983
                                   ---------        ---------        ---------

Ending balance ..............      $ 169,008        $ 171,809        $ 161,251
                                   =========        =========        =========

Net increase (decrease) .....      $  (2,801)       $  10,558        $    (542)
                                   =========        =========        =========

Percent increase (decrease) .          (1.63)%           6.55%           (0.34)%
                                   =========        =========        =========


                                       16
<PAGE>

      Deposit Accounts. The following table sets forth the dollar amount of
savings deposits in the various types of deposit programs we offered as of the
dates indicated.

<TABLE>
<CAPTION>
                                                                            At December 31,
                                           ---------------------------------------------------------------------------------
                                                    2002                          2001                        2000
                                           ----------------------       ----------------------       -----------------------
                                             Amount       Percent         Amount       Percent        Amount         Percent
                                           ----------     -------       ----------     -------       ---------       -------
                                                                        (Dollars in Thousands)
<S>                                        <C>             <C>          <C>             <C>          <C>              <C>
Transactions and Savings Deposits:
---------------------------------

Checking accounts...................       $    3,309        1.96%      $    3,233        1.88%      $   2,850          1.77%
Passbook accounts...................           44,328       26.23           40,939       23.83          36,143         22.41
NOW accounts........................           19,322       11.43           24,894       14.49          16,617         10.30
Money market accounts...............            7,720        4.57           11,900        6.93           9,720          6.03
                                           ----------      ------       ----------      ------       ---------        ------

Total non-certificates..............           74,679       44.19           80,966       47.13          65,330         40.51
                                           ----------      ------       ----------      ------       ---------        ------

Certificates:
------------

 0.00 -  3.99%......................           48,339       28.59           31,566       18.37              --            --
 4.00 -  5.99%......................           30,634       18.13           30,754       17.90          51,553         31.97
 6.00 -  7.99%......................           15,340        9.08           28,486       16.58          43,680         27.09
 8.00 -  9.99%......................               16        0.01               37        0.02             688          0.43
                                           ----------      ------       ----------      ------       ---------        ------

Total certificates..................           94,329       55.81           90,843       52.87          95,921         59.49
                                           ----------      ------       ----------      ------       ---------        ------
Total deposits......................       $  169,008      100.00%      $  171,809      100.00%      $ 161,251        100.00%
                                           ==========      ======       ==========      ======       =========        ======
</TABLE>


           Deposit Maturity Schedule. The following table presents, by rate
category, the remaining period to maturity of time deposit accounts outstanding
as of December 31, 2002.


                         0-       4.00-     6.00-     8.00%-             Percent
                        3.99%     5.99%     7.99%   or greater  Total   of Total
                       -------   -------   -------  ----------  -----   --------
                                        (Dollars in Thousands)
Certificate accounts
  maturing in quarter
  ending:

March 31, 2003 ......  $16,859   $ 1,935   $ 3,054   $    11   $21,859    23.17%
June 30, 2003 .......    8,352     1,360       671        --    10,383    11.01
September 30, 2003 ..    5,085     1,546       957        --     7,588     8.04
December 31, 2003 ...    8,086       399       896        --     9,381     9.94
March 31, 2004 ......    2,401     1,077        73        --     3,551     3.76
June 30, 2004 .......    1,362       888       463        --     2,713     2.88
September 30, 2004 ..    1,126       744       319        --     2,189     2.32
December 31, 2004 ...      534       378       942        --     1,854     1.97
March 31, 2005 ......      949     1,368     4,039         5     6,361     6.74
June 30, 2005 .......      326       938     1,543        --     2,807     2.98
September 30, 2005 ..      833     2,110       763        --     3,706     3.93
December 31, 2005 ...    1,525       764     1,056        --     3,345     3.55
Thereafter ..........      901    17,127       564        --    18,592    19.71
                       -------   -------   -------   -------   -------   ------

   Total ............  $48,339   $30,634   $15,340   $    16   $94,329   100.00%
                       =======   =======   =======   =======   =======   ======

   Percent of total .    51.24%    32.48%    16.26%     0.02%


                                       17

<PAGE>



           Large Certificates. The following table indicates the amount of our
certificates of deposit and other deposits by time remaining until maturity as
of December 31, 2002.

<TABLE>
<CAPTION>
                                                                              Maturity
                                                     -----------------------------------------------------------
                                                                    Over        Over
                                                    3 Months       3 to 6      6 to 12       Over
                                                     or Less       Months       Months     12 Months      Total
                                                     -------      -------      -------      -------      -------
                                                                            (In Thousands)
<S>                                                  <C>          <C>          <C>          <C>          <C>
Certificates of deposit less than $100,000 ....      $16,353      $ 8,391      $10,622      $34,212      $69,578
Certificates of deposit of $100,000 or more ...        4,153        1,892        2,424        9,987       18,456
Public funds (1) ..............................        1,353          100        3,923          919        6,295
                                                     -------      -------      -------      -------      -------

Total certificates of deposit .................      $21,859      $10,383      $16,969      $45,118      $94,329
                                                     =======      =======      =======      =======      =======
</TABLE>

--------------------
(1)   Deposits from governmental and other public entities. The amounts shown
      under public funds include deposits of $100,000 or more totaling $6.1
      million.

      Borrowings. We may obtain advances from the Federal Home Loan Bank of
Chicago upon the security of the common stock we own in the Federal Home Loan
Bank and our qualifying residential mortgage loans and mortgage- backed
securities, provided certain standards related to creditworthiness are met.
These advances are made pursuant to several credit programs, each of which has
its own interest rate and range of maturities. Federal Home Loan Bank advances
are generally available to meet seasonal and other withdrawals of deposit
accounts and to permit increased lending.

      The following table sets forth the maximum month-end balance and average
balance of FHLB advances, securities sold under agreements to repurchase and
other borrowings for the periods indicated.


                                            Years Ended  December 31,
                                    -------------------------------------
                                      2002           2001           2000
                                    -------        -------        -------
                                               (In Thousands)
Maximum balance:
----------------
 FHLB advances .............        $17,000        $13,000        $17,000
 Federal funds purchased ...             --             --            500

Average balance:
----------------
 FHLB advances .............        $14,000        $12,167        $13,750
 Federal funds purchased ...             --             --             --

      The following table sets forth the balances of, and weighted average
interest rate on, certain borrowings at the dates indicated.


                                                  At December 31,
                                        -----------------------------------
                                          2002          2001          2000
                                        -------       -------       -------
                                               (Dollars In Thousands)

FHLB advances ....................      $16,000       $13,000       $12,000
Federal funds purchased ..........           --            --            --
                                        -------       -------       -------
     Total borrowings ............      $16,000       $13,000       $12,000
                                        =======       =======       =======

Weighted average interest
   rate of FHLB advances .........         4.91%         6.19%         6.14%

Weighted average interest rate
   of Federal funds purchased ....           --%           --%         6.00%


                                       18

<PAGE>

Employees

      At December 31, 2002, we had a total of 54 full-time and 25 part-time
employees, including three employed by A.J.S. Insurance, LLC, our wholly owned
subsidiary. Our employees are not represented by any collective bargaining
group. Management believes that we have good relations with our employees.

Service Corporation Activities

      As a federally chartered savings bank, we are permitted by Office of
Thrift Supervision regulations to invest up to 2% of our assets in the stock of,
or loans to, service corporation subsidiaries. We may invest an additional 1% of
our assets in service corporations if the additional funds are used for
inner-city or community development purposes, and up to 50% of our total capital
in conforming loans to service corporations in which we own more than 10% of the
capital stock. In addition to investments in service corporations, we may invest
an unlimited amount in operating subsidiaries engaged solely in activities in
which A. J. Smith Federal may engage as a federal savings bank. At December 31,
2002, we owned 100% of A. J. S. Insurance, LLC.

      A. J. S. Insurance, LLC is our wholly owned service corporation
subsidiary. A. J. S. Insurance, LLC offers insurance and investment products
such as home owners' insurance, fixed and variable rate annuities, and mutual
funds. A. J. S. Insurance, LLC had net income of $106,000 and $65,000 for the
years ended December 31, 2002, and December 31, 2001. At December 31, 2002, our
investment in A. J. S. Insurance, LLC was $206,000.

Regulation

      Loans-to-One-Borrower. Federal savings banks generally may not make a loan
or extend credit to a single or related group of borrowers in excess of 15% of
unimpaired capital and surplus on an unsecured basis. An additional amount may
be lent, equal to 10% of unimpaired capital and surplus, if the loan is secured
by readily marketable collateral, which is defined to include certain securities
and bullion, but generally does not include real estate. As of December 31,
2002, we were in compliance with our loans-to-one-borrower limitations.

      Qualified Thrift Lender Test. As a federal savings bank, we are required
to satisfy a qualified thrift lender test whereby we must maintain at least 65%
of our "portfolio assets" in "qualified thrift investments." These consist
primarily of residential mortgages and related investments, including
mortgage-backed and related securities. "Portfolio assets" generally means total
assets less specified liquid assets up to 20% of total assets, goodwill and
other intangible assets, and the value of property used to conduct business. A
savings bank that fails the qualified thrift lender test must either convert to
a bank charter or operate under specified restrictions. As of December 31, 2002,
we maintained 85.7% of our portfolio assets in qualified thrift investments and,
therefore, we met the qualified thrift lender test.

      Capital Distributions. Office of Thrift Supervision regulations govern
capital distributions by savings institutions, which include cash dividends,
stock repurchases and other transactions charged to the capital account of a
savings institution to make capital distributions. A savings institution must
file an application for Office of Thrift Supervision approval of the capital
distribution if either (1) the total capital distributions for the applicable
calendar year exceed the sum of the institution's net income for that year to
date plus the institution's retained net income for the preceding two years, (2)
the institution would not be at least adequately capitalized following the
distribution, (3) the distribution would violate any applicable statute,
regulation, agreement or Office of Thrift Supervision-imposed condition, or (4)
the institution is not eligible for expedited review of its filings. If an
application is not required to be filed, savings institutions which are a
subsidiary of a holding company, as well as certain other institutions, must
still file a notice with the Office of Thrift Supervision at least 30 days
before the board of directors declares a dividend or approves a capital
distribution.

      Any additional capital distributions would require prior regulatory
approval. In the event our capital falls below our fully phased-in requirement
or the Office of Thrift Supervision notifies us that we are in need of more than
normal supervision, our ability to make capital distributions could be
restricted. In addition, the Office of Thrift Supervision

                                       19

<PAGE>



could prohibit a proposed capital distribution by any institution,
which would otherwise be permitted by the regulation, if it determines that the
distribution would constitute an unsafe or unsound practice.

      Liquidity. We are required to maintain liquid assets in an amount that
would ensure our safe and sound operation. Our liquidity ratio at December 31,
2002 was 23.7%.

      The following table sets forth our contractual obligations and commercial
commitments at December 31, 2002.

<TABLE>
<CAPTION>
                                                            Less than                               After 5
                                                 Total        1 year     1-3 Years   4-5 years       Years
                                                -------      -------      -------      -------      -------
                                                                      (In thousands)
<S>                                             <C>          <C>          <C>          <C>          <C>
Federal funds purchased ..................      $    --      $    --      $    --      $    --      $    --
Securities sold under
   agreements to repurchase ..............           --           --           --           --           --
FHLB advances ............................       16,000        2,000        6,000        3,000        5,000
Note payable (ESOP) ......................          566           94          189          189           94
                                                -------      -------      -------      -------      -------
     Total ...............................      $16,566      $ 2,094      $ 6,189      $ 3,189      $ 5,094
                                                =======      =======      =======      =======      =======
</TABLE>

<TABLE>
<CAPTION>

                                                 Total
                                                Amounts     Less than                               After 5
                                               Committed      1 year     1-3 Years   4-5 years       Years
                                                -------      -------      -------      -------      -------
                                                                      (In thousands)
<S>                                             <C>          <C>          <C>          <C>          <C>
Lines of credit ..........................      $ 9,607      $ 1,782      $ 1,979      $ 5,846      $    --
Standby letters of credit(1) .............          189          189           --           --           --
Other commitments to extend credit (1) ...       10,541       10,541           --           --           --
                                                -------      -------      -------      -------      -------
     Total ...............................      $20,337      $12,512      $ 1,979      $ 5,846      $    --
                                                =======      =======      =======      =======      =======
</TABLE>

------------------

(1)   Represents amounts committed to customers.

      Community Reinvestment Act and Fair Lending Laws. Federal savings banks
have a responsibility under the Community Reinvestment Act and related
regulations of the Office of Thrift Supervision to help meet the credit needs of
their communities, including low- and moderate-income neighborhoods. In
addition, the Equal Credit Opportunity Act and the Fair Housing Act prohibit
lenders from discriminating in their lending practices on the basis of
characteristics specified in those statutes. An institution's failure to comply
with the provisions of the Community Reinvestment Act could, at a minimum,
result in regulatory restrictions on its activities, and failure to comply with
the Equal Credit Opportunity Act and the Fair Housing Act could result in
enforcement actions by the Office of Thrift Supervision, as well as other
federal regulatory agencies and the Department of Justice. We received a
satisfactory Community Reinvestment Act rating in our most recent examination by
the Office of Thrift Supervision.


                                       20
<PAGE>

      Transactions with Related Parties. Our authority to engage in transactions
with related parties or "affiliates" or to make loans to specified insiders, is
limited by Sections 23A and 23B of the Federal Reserve Act. The term "affiliate"
for these purposes generally means any company that controls or is under common
control with an institution, including AJS Bancorp, Inc. and its non-savings
institution subsidiaries. Section 23A limits the aggregate amount of certain
"covered" transactions with any individual affiliate to 10% of the capital and
surplus of the savings institution and also limits the aggregate amount of
covered transactions with all affiliates to 20% of the savings institution's
capital and surplus. Covered transactions with affiliates are required to be
secured by collateral in an amount and of a type described in Section 23A, and
purchasing low quality assets from affiliates is generally prohibited. Section
23B provides that covered transactions with affiliates, including loans and
asset purchases, must be on terms and under circumstances, including credit
standards, that are substantially the same or at least as favorable to the
institution as those prevailing at the time for comparable transactions with
non-affiliated companies. In addition, savings institutions are prohibited from
lending to any affiliate that is engaged in activities that are not permissible
for bank holding companies and no savings institution may purchase the
securities of any affiliate other than a subsidiary.

      Our authority to extend credit to executive officers, directors and 10%
stockholders, as well as entities controlled by these persons, is currently
governed by Sections 22(g) and 22(h) of the Federal Reserve Act, and also by
Regulation O. Among other things, these regulations generally require these
loans to be made on terms substantially the same as those offered to
unaffiliated individuals and do not involve more than the normal risk of
repayment. However, recent regulations now permit executive officers and
directors to receive the same terms through benefit or compensation plans that
are widely available to other employees, as long as the director or executive
officer is not given preferential treatment compared to other participating
employees. Regulation O also places individual and aggregate limits on the
amount of loans we may make to these persons based, in part, on our capital
position, and requires approval procedures to be followed. At December 31, 2002,
we were in compliance with these regulations.

      Enforcement. The Office of Thrift Supervision has primary enforcement
responsibility over savings institutions and has the authority to bring
enforcement action against all "institution-related parties," including
stockholders, and attorneys, appraisers and accountants who knowingly or
recklessly participate in wrongful action likely to have an adverse effect on an
insured institution. Formal enforcement action may range from the issuance of a
capital directive or cease and desist order to removal of officers and/or
directors of the institution, receivership, conservatorship or the termination
of deposit insurance. Civil penalties cover a wide range of violations and
actions, and range up to $25,000 per day, unless a finding of reckless disregard
is made, in which case penalties may be as high as $1.0 million per day. The
Federal Deposit Insurance Corporation also has the authority to recommend to the
Director of the Office of Thrift Supervision that enforcement action be taken
with respect to a particular savings institution. If action is not taken by the
Director, the Federal Deposit Insurance Corporation has authority to take action
under specified circumstances.

      Standards for Safety and Soundness. Federal law requires each federal
banking agency to prescribe for all insured depository institutions standards
relating to, among other things, internal controls, information systems and
audit systems, loan documentation, credit underwriting, interest rate risk
exposure, asset growth, compensation, and other operational and managerial
standards as the agency deems appropriate. The federal banking agencies adopted
Interagency Guidelines Prescribing Standards for Safety and Soundness to
implement the safety and soundness standards required under the Federal law. The
guidelines set forth the safety and soundness standards that the federal banking
agencies use to identify and address problems at insured depository institutions
before capital becomes impaired. The guidelines address internal controls and
information systems; internal audit systems; credit underwriting; loan
documentation; interest rate risk exposure; asset growth; and compensation, fees
and benefits. If the appropriate federal banking agency determines that an
institution fails to meet any standard prescribed by the guidelines, the agency
may require the institution to submit to the agency an acceptable plan to
achieve compliance with the standard. If an institution fails to meet these
standards, the appropriate federal banking agency may require the institution to
submit a compliance plan.

      Regulatory Guidance Relating to Subprime Lending. The Federal bank
regulatory agencies have issued regulatory guidance relating to the examination
of financial institutions that are engaged in significant subprime lending


                                       21
<PAGE>

activities. The purpose of the guidance is to provide regulatory agencies with
expanded guidelines when examining savings institutions that have significant
subprime lending programs.

      The regulatory guidance emphasizes that the federal banking agencies
believe that responsible subprime lending can expand credit access for consumers
and offer attractive returns for the savings institution. The guidance is
applicable to savings institutions that have subprime lending programs greater
than or equal to 25% of core capital. As part of the regulatory guidance,
examiners must provide greater scrutiny of (i) an institution's ability to
administer its higher risk subprime portfolio, (ii) the allowance for loan
losses to ensure that the portion of the allowance allocated to the subprime
portfolio is sufficient to absorb the estimated credit losses for the portfolio,
and (iii) the level of risk- based capital that the savings institution has to
ensure that such capital levels are adequate to support the savings
institution's subprime lending activities. The Office of Thrift Supervision has
not required us to restrict our subprime lending activities. Nor has it required
us to maintain specific levels in our allowance for loan losses or risk based
capital as a result of our subprime lending activities.

Capital Requirements

      Office of Thrift Supervision capital regulations require savings
institutions to meet three minimum capital standards: a 1.5% tangible capital
ratio, a 4% leverage ratio (3% for institutions receiving the highest rating on
the CAMELS rating system) and an 8% risk-based capital ratio. In addition, the
prompt corrective action standards discussed below also establish, in effect, a
minimum 2% tangible capital standard, a 4% leverage ratio (3% for institutions
receiving the highest rating on the CAMELS financial institution rating system),
and, together with the risk-based capital standard itself, a 4% Tier 1
risk-based capital standard. Office of Thrift Supervision regulations also
require that in meeting the tangible, leverage and risk-based capital standards,
institutions must generally deduct investments in and loans to subsidiaries
engaged in activities as principal that are not permissible for a national bank.

      The risk-based capital standard for savings institutions requires the
maintenance of Tier 1 (core) and total capital (which is defined as core capital
and supplementary capital) to risk-weighted assets of at least 4% and 8%,
respectively. In determining the amount of risk-weighted assets, all assets,
including certain off-balance sheet assets, are multiplied by a risk-weight
factor of 0% to 100%, assigned by the Office of Thrift Supervision capital
regulation based on the risks believed inherent in the type of asset. Core
capital is defined as common stockholders' equity (including retained earnings),
certain noncumulative perpetual preferred stock and related surplus and minority
interests in equity accounts of consolidated subsidiaries, less intangibles
other than certain mortgage servicing rights and credit card relationships. The
components of supplementary capital currently include cumulative preferred
stock, long-term perpetual preferred stock, mandatory convertible securities,
subordinated debt and intermediate preferred stock, the allowance for loan and
lease losses limited to a maximum of 1.25% of risk-weighted assets, and up to
45% of unrealized gains on available-for-sale equity securities with readily
determinable fair market values. Overall, the amount of supplementary capital
included as part of total capital cannot exceed 100% of core capital.

      The capital regulations also incorporate an interest rate risk component.
Savings institutions with "above normal" interest rate risk exposure are subject
to a deduction from total capital for purposes of calculating their risk-based
capital requirements. For the present time, the Office of Thrift Supervision has
deferred implementation of the interest rate risk capital charge. At December
31, 2002, A. J. Smith Federal met each of its capital requirements. In addition,
we have has not been advised by the Office of Thrift Supervision of any
deficiencies in our allowance for loan losses or capital levels as a result of
our subprime lending program.

Prompt Corrective Regulatory Action

      Under the Office of Thrift Supervision Prompt Corrective Action
regulations, the Office of Thrift Supervision is required to take supervisory
actions against undercapitalized institutions, the severity of which depends
upon the institution's level of capital. Generally, a savings institution that
has total risk-based capital of less than 8.0%, or a leverage ratio or a Tier 1
core capital ratio that is less than 4.0%, is considered to be undercapitalized.
A savings institution that has total risk-based capital less than 6.0%, a Tier 1
core risk-based capital ratio of less than 3.0% or a


                                       22
<PAGE>

leverage ratio that is less than 3.0% is considered to be "significantly
undercapitalized." A savings institution that has a tangible capital to assets
ratio equal to or less than 2.0% is deemed to be "critically undercapitalized."
Generally, the banking regulator is required to appoint a receiver or
conservator for an institution that is "critically undercapitalized." The
regulation also provides that a capital restoration plan must be filed with the
Office of Thrift Supervision within 45 days of the date an institution receives
notice that it is "undercapitalized," "significantly undercapitalized" or
"critically undercapitalized." In addition, numerous mandatory supervisory
actions become immediately applicable to the institution, including, but not
limited to, restrictions on growth, investment activities, capital
distributions, and affiliate transactions. The Office of Thrift Supervision may
also take any one of a number of discretionary supervisory actions against
undercapitalized institutions, including the issuance of a capital directive and
the replacement of senior executive officers and directors.

Insurance of Deposit Accounts

      The Federal Deposit Insurance Corporation has adopted a risk-based deposit
insurance assessment system. The Federal Deposit Insurance Corporation assigns
an institution to one of three capital categories based on the institution's
financial information, as of the reporting period ending seven months before the
assessment period, and one of three supervisory subcategories within each
capital group. The three capital categories are well capitalized, adequately
capitalized and undercapitalized. The supervisory subgroup to which an
institution is assigned is based on a supervisory evaluation provided to the
Federal Deposit Insurance Corporation by the institution's primary federal
regulator and information which the Federal Deposit Insurance Corporation
determines to be relevant to the institution's financial condition and the risk
posed to the deposit insurance funds. An institution's assessment rate depends
on the capital category and supervisory category to which it is assigned. The
Federal Deposit Insurance Corporation is authorized to raise the assessment
rates. The Federal Deposit Insurance Corporation has exercised this authority
several times in the past and may raise insurance premiums in the future. If
this type of action is taken by the Federal Deposit Insurance Corporation, it
could have an adverse effect on our earnings.

Federal Home Loan Bank System

      We are a member of the Federal Home Loan Bank System, which consists of 12
regional Federal Home Loan Banks. The Federal Home Loan Bank System provides a
central credit facility primarily for member institutions. As a member of the
Federal Home Loan Bank of Chicago, we are required to acquire and hold shares of
capital stock in the Federal Home Loan Bank in an amount equal to at least 1% of
the aggregate principal amount of our unpaid residential mortgage loans and
similar obligations at the beginning of each year, or 1/20 of our borrowings
from the Federal Home Loan Bank, whichever is greater. As of December 31, 2002,
we were in compliance with this requirement. The Federal Home Loan Banks are
required to provide funds for the resolution of insolvent thrifts and to
contribute funds for affordable housing programs. These requirements could
reduce the amount of dividends that the Federal Home Loan Banks pay to their
members and could also result in the Federal Home Loan Banks imposing a higher
rate of interest on advances to their members.

Federal Reserve System

      Federal Reserve Board regulations require savings institutions to maintain
noninterest-earning reserves against their transaction accounts, such as
negotiable order of withdrawal and regular checking accounts. At December 31,
2002, we were in compliance with these reserve requirements. The balances
maintained to meet the reserve requirements imposed by the Federal Reserve Board
may be used to satisfy liquidity requirements imposed by the Office of Thrift
Supervision.

Holding Company Regulation

      General. AJS Bancorp, MHC and AJS Bancorp, Inc. are nondiversified mutual
savings and loan holding companies within the meaning of the Home Owners' Loan
Act. As such, AJS Bancorp, MHC and AJS Bancorp, Inc. are registered with the
Office of Thrift Supervision and are subject to Office of Thrift Supervision
regulations, examinations,


                                       23
<PAGE>

supervision and reporting requirements. In addition, the Office of Thrift
Supervision has enforcement authority over AJS Bancorp, Inc. and AJS Bancorp
MHC, and their subsidiaries. Among other things, this authority permits the
Office of Thrift Supervision to restrict or prohibit activities that are
determined to be a serious risk to the subsidiary savings institution. As
federal corporations, AJS Bancorp, Inc. and AJS Bancorp, MHC are generally not
subject to state business organization laws.

      Permitted Activities. Pursuant to Section 10(o) of the Home Owners' Loan
Act and Office of Thrift Supervision regulations and policy, a mutual holding
company and a federally chartered mid-tier holding company such as AJS Bancorp,
Inc. may engage in the following activities: (i) investing in the stock of a
savings association; (ii) acquiring a mutual association through the merger of
such association into a savings association subsidiary of such holding company
or an interim savings association subsidiary of such holding company; (iii)
merging with or acquiring another holding company, one of whose subsidiaries is
a savings association; (iv) investing in a corporation, the capital stock of
which is available for purchase by a savings association under federal law or
under the law of any state where the subsidiary savings association or
associations share their home offices; (v) furnishing or performing management
services for a savings association subsidiary of such company; (vi) holding,
managing or liquidating assets owned or acquired from a savings subsidiary of
such company; (vii) holding or managing properties used or occupied by a savings
association subsidiary of such company; (viii) acting as trustee under deeds of
trust; (ix) any other activity (A) that the Federal Reserve Board, by
regulation, has determined to be permissible for bank holding companies under
Section 4(c) of the Bank Holding Company Act of 1956, unless the Director, by
regulation, prohibits or limits any such activity for savings and loan holding
companies; or (B) in which multiple savings and loan holding companies were
authorized (by regulation) to directly engage on March 5, 1987; (x) any activity
permissible for financial holding companies under Section 4(k) of the Bank
Holding Company Act, including securities and insurance underwriting; and (xi)
purchasing, holding, or disposing of stock acquired in connection with a
qualified stock issuance if the purchase of such stock by such savings and loan
holding company is approved by the Director. If a mutual holding company
acquires or merges with another holding company, the holding company acquired or
the holding company resulting from such merger or acquisition may only invest in
assets and engage in activities listed in (i) through (xi) above, and has a
period of two years to cease any nonconforming activities and divest of any
nonconforming investments.

      The Home Owners' Loan Act prohibits a savings and loan holding company,
including AJS Bancorp, Inc. and AJS Bancorp, MHC, directly or indirectly, or
through one or more subsidiaries, from acquiring another savings institution or
holding company thereof, without prior written approval of the Office of Thrift
Supervision. It also prohibits the acquisition or retention of, with certain
exceptions, more than 5% of a nonsubsidiary savings institution, a nonsubsidiary
holding company, or a nonsubsidiary company engaged in activities other than
those permitted by the Home Owners' Loan Act; or acquiring or retaining control
of an institution that is not federally insured. In evaluating applications by
holding companies to acquire savings institutions, the Office of Thrift
Supervision must consider the financial and managerial resources, future
prospects of the company and institution involved, the effect of the acquisition
on the risk to the insurance fund, the convenience and needs of the community
and competitive factors.

      The Office of Thrift Supervision is prohibited from approving any
acquisition that would result in a multiple savings and loan holding company
controlling savings institutions in more than one state, subject to two
exceptions: (i) the approval of interstate supervisory acquisitions by savings
and loan holding companies, and (ii) the acquisition of a savings institution in
another state if the laws of the state of the target savings institution
specifically permit such acquisitions. The states vary in the extent to which
they permit interstate savings and loan holding company acquisitions.

      Waivers of Dividends by AJS Bancorp, MHC. Office of Thrift Supervision
regulations require AJS Bancorp, MHC to notify the Office of Thrift Supervision
of any proposed waiver of its receipt of dividends from AJS Bancorp, Inc. The
Office of Thrift Supervision reviews dividend waiver notices on a case-by-case
basis, and, in general, does not object to any such waiver if: (i) the mutual
holding company's board of directors determines that such waiver is consistent
with such directors' fiduciary duties to the mutual holding company's members;
(ii) for as long as the savings association subsidiary is controlled by the
mutual holding company, the dollar amount of dividends waived by the mutual
holding company are considered as a restriction on the retained earnings of the
savings association, which


                                       24
<PAGE>

restriction, if material, is disclosed in the public financial statements of the
savings association as a note to the financial statements; (iii) the amount of
any dividend waived by the mutual holding company is available for declaration
as a dividend solely to the mutual holding company, and, in accordance with SFAS
5, where the savings association determines that the payment of such dividend to
the mutual holding company is probable, an appropriate dollar amount is recorded
as a liability; and (iv) the amount of any waived dividend is considered as
having been paid by the savings association in evaluating any proposed dividend
under Office of Thrift Supervision capital distribution regulations.AJS Bancorp,
MHC may waive dividends paid by AJS Bancorp, Inc. Under Office of Thrift
Supervision regulations, our public stockholders would not be diluted because of
any dividends waived by AJS Bancorp, MHC (and waived dividends would not be
considered in determining an appropriate exchange ratio) in the event AJS
Bancorp, MHC converts to stock form.

      Conversion of AJS Bancorp, MHC to Stock Form. Office of Thrift Supervision
regulations permit AJS Bancorp, MHC to convert from the mutual form of
organization to the capital stock form of organization (a "Conversion
Transaction"). There can be no assurance when, if ever, a Conversion Transaction
will occur, and the Board of Directors has no current intention or plan to
undertake a Conversion Transaction. In a Conversion Transaction a new holding
company would be formed as the successor to AJS Bancorp, Inc. (the "New Holding
Company"), AJS Bancorp, MHC's corporate existence would end, and certain
depositors of A. J. Smith Federal would receive the right to subscribe for
additional shares of the New Holding Company. In a Conversion Transaction, each
share of common stock held by stockholders other than AJS Bancorp, MHC
("Minority Stockholders") would be automatically converted into a number of
shares of common stock of the New Holding Company determined pursuant an
exchange ratio that ensures that Minority Stockholders own the same percentage
of common stock in the New Holding Company as they owned in AJS Bancorp, Inc.
immediately prior to the Conversion Transaction. Under Office of Thrift
Supervision regulations, Minority Stockholders would not be diluted because of
any dividends waived by AJS Bancorp, MHC (and waived dividends would not be
considered in determining an appropriate exchange ratio), in the event AJS
Bancorp, MHC converts to stock form. The total number of shares held by Minority
Stockholders after a Conversion Transaction also would be increased by any
purchases by Minority Stockholders in the stock offering conducted as part of
the Conversion Transaction.

The USA PATRIOT Act

      In response to the events of September 11, 2001, the Uniting and
Strengthening America by Providing Appropriate Tools Required to Intercept and
Obstruct Terrorism Act of 2001, or the USA PATRIOT Act, was signed into law on
October 26, 2001. The USA PATRIOT Act gives the federal government new powers to
address terrorist threats through enhanced domestic security measures, expanded
surveillance powers, increased information sharing and broadened anti-money
laundering requirements. By way of amendments to the Bank Secrecy Act, Title III
of the USA PATRIOT Act takes measures intended to encourage information sharing
among bank regulatory agencies and law enforcement bodies. Further, certain
provisions of Title III impose affirmative obligations on a broad range of
financial institutions, including banks, thrifts, brokers, dealers, credit
unions, money transfer agents and parties registered under the Commodity
Exchange Act.

Among other requirements, Title III of the USA PATRIOT Act imposes the following
requirements with respect to financial institutions:

      o     Pursuant to Section 352, all financial institutions must establish
            anti-money laundering programs that include, at minimum: (i)
            internal policies, procedures, and controls; (ii) specific
            designation of an anti-money laundering compliance officer; (iii)
            ongoing employee training programs; and (iv) an independent audit
            function to test the anti-money laundering program.

      o     Section 326 authorizes the Secretary of the Department of Treasury,
            in conjunction with other bank regulators, to issue regulations by
            October 26, 2002 that provide for minimum standards with respect to
            customer identification at the time new accounts are opened.


                                       25
<PAGE>

      o     Section 312 requires financial institutions that establish,
            maintain, administer, or manage private banking accounts or
            correspondence accounts in the United States for non-United States
            persons or their representatives (including foreign individuals
            visiting the United States) to establish appropriate, specific, and,
            where necessary, enhanced due diligence policies, procedures, and
            controls designed to detect and report money laundering.

      o     Financial institutions are prohibited from establishing,
            maintaining, administering or managing correspondent accounts for
            foreign shell banks (foreign banks that do not have a physical
            presence in any country), and will be subject to certain record
            keeping obligations with respect to correspondent accounts of
            foreign banks.

      o     Bank regulators are directed to consider a holding company's
            effectiveness in combating money laundering when ruling on Federal
            Reserve Act and Bank Merger Act applications.

      The federal banking agencies have begun to propose and implement
regulations pursuant to the USA PATRIOT Act. These proposed and interim
regulations would require financial institutions to adopt the policies and
procedures contemplated by the USA PATRIOT Act.

Sarbanes-Oxley Act of 2002

     On July 30, 2002, the President signed into law the Sarbanes-Oxley Act of
2002 ("Sarbanes-Oxley"), which implemented legislative reforms intended to
address corporate and accounting fraud. In addition to the establishment of a
new accounting oversight board that will enforce auditing, quality control and
independence standards and will be funded by fees from all publicly traded
companies, Sarbanes-Oxley places certain restrictions on the scope of services
that may be provided by accounting firms to their public company audit clients.
Any non-audit services being provided to a public company audit client will
require preapproval by the company's audit committee. In addition,
Sarbanes-Oxley makes certain changes to the requirements for audit partner
rotation after a period of time. Sarbanes-Oxley requires chief executive
officers and chief financial officers, or their equivalent, to certify to the
accuracy of periodic reports filed with the Securities and Exchange Commission,
subject to civil and criminal penalties if they knowingly or willingly violate
this certification requirement. The Company's Chief Executive Officer,
President, and Chief Financial Officer have signed certifications to this Form
10-KSB as required by Sarbanes-Oxley. In addition, under Sarbanes-Oxley, counsel
will be required to report evidence of a material violation of the securities
laws or a breach of fiduciary duty by a company to its chief executive officer,
or its chief legal officer, and, if such officer does not appropriately respond,
to report such evidence to the audit committee or other similar committee of the
board of directors or the board itself.

      Under Sarbanes-Oxley, longer prison terms will apply to corporate
executives who violate federal securities laws; the period during which certain
types of suits can be brought against a company or its officers is extended; and
bonuses issued to top executives prior to restatement of a company's financial
statements are now subject to disgorgement if such restatement was due to
corporate misconduct. Executives are also prohibited from trading the company's
securities during retirement plan "blackout" periods, and loans to company
executives (other than loans by financial institutions permitted by federal
rules and regulations) are restricted. In addition, a provision directs that
civil penalties levied by the Securities and Exchange Commission as a result of
any judicial or administrative action under Sarbanes-Oxley be deposited to a
fund for the benefit of harmed investors. The Federal Accounts for Investor
Restitution provision also requires the Securities and Exchange Commission to
develop methods of improving collection rates. The legislation accelerates the
time frame for disclosures by public companies, as they must immediately
disclose any material changes in their financial condition or operations.
Directors and executive officers must also provide information for most changes
in ownership in a company's securities within two business days of the change.

      Sarbanes-Oxley also increases the oversight of, and codifies certain
requirements relating to audit committees of public companies and how they
interact with the company's "registered public accounting firm." Audit Committee
members must be independent and are absolutely barred from accepting consulting,
advisory or other compensatory fees from the issuer. In addition, companies must
disclose whether at least one member of the committee is a "financial


                                       26
<PAGE>

expert" (as such term is defined by the Securities and Exchange Commission) and
if not, why not. Under Sarbanes-Oxley, a company's registered public accounting
firm is prohibited from performing statutorily mandated audit services for a
company if such company's chief executive officer, chief financial officer,
comptroller, chief accounting officer or any person serving in equivalent
positions had been employed by such firm and participated in the audit of such
company during the one-year period preceding the audit initiation date.
Sarbanes-Oxley also prohibits any officer or director of a company or any other
person acting under their direction from taking any action to fraudulently
influence, coerce, manipulate or mislead any independent accountant engaged in
the audit of the company's financial statements for the purpose of rendering the
financial statements materially misleading. Sarbanes-Oxley also requires the
Securities and Exchange Commission to prescribe rules requiring inclusion of any
internal control report and assessment by management in the annual report to
shareholders. Sarbanes-Oxley requires the company's registered public accounting
firm that issues the audit report to attest to and report on management's
assessment of the company's internal controls.

      Although we anticipate that we will incur additional expense in complying
with the provisions of the Sarbanes-Oxley Act and the resulting regulations,
management does not expect that such compliance will have a material impact on
our results of operations or financial condition.

Taxation

Federal Taxation

      For federal income tax purposes, AJS Bancorp, Inc. and A. J. Smith Federal
files separate federal income tax returns on a calendar year basis using the
accrual method of accounting.

      As a result of the enactment of the Small Business Job Protection Act of
1996, all savings banks and savings associations may convert to a commercial
bank charter, diversify their lending, or merge into a commercial bank without
having to recapture any of their pre-1988 tax bad debt reserve accumulations.
However, transactions which would require recapture of the pre-1988 tax bad debt
reserve include redemption of A. J. Smith Federal's stock, payment of dividends
or distributions in excess of earnings and profits, or failure by the
institution to qualify as a bank for federal income tax purposes. At December
31, 2002, A. J. Smith Federal had approximately $2.4 million of pre-1988 bad
debt reserves. A deferred tax liability has not been provided on this amount as
management does not intend to make distributions, redeem stock or fail certain
bank tests that would result in recapture of the reserve.

      Deferred income taxes arise from the recognition of items of income and
expense for tax purposes in years different from those in which they are
recognized in the consolidated financial statements. AJS Bancorp, Inc. will
account for deferred income taxes by the asset and liability method, applying
the enacted statutory rates in effect at the balance sheet date to differences
between the book basis and the tax basis of assets and liabilities. The
resulting deferred tax liabilities and assets will be adjusted to reflect
changes in the tax laws.

      AJS Bancorp, Inc. is subject to the corporate alternative minimum tax to
the extent it exceeds AJS Bancorp, Inc.'s regular income tax for the year. The
alternative minimum tax will be imposed at the rate of 20% of a specially
computed tax base. Included in this base are a number of preference items,
including interest on certain tax-exempt bonds issued after August 7, 1986, and
an "adjusted current earnings" computation which is similar to a tax earnings
and profits computation. In addition, for purposes of the alternative minimum
tax, the amount of alternative minimum taxable income that may be offset by net
operating losses is limited to 90% of alternative minimum taxable income.

      A. J. Smith Federal's income tax returns have not been audited by the
Internal Revenue Service within the past five years.


                                       27
<PAGE>

State Taxation

      Illinois State Taxation. AJS Bancorp, Inc. is required to file Illinois
income tax returns and pay tax at an effective tax rate of 7.18% of Illinois
taxable income. For these purposes, Illinois taxable income generally means
federal taxable income subject to certain modifications, primarily the exclusion
of interest income on United States obligations.


                                       28
<PAGE>


                                                              MANAGEMENT

Executive Officers of AJS Bancorp, Inc.

           The following individuals hold the following executive officer
positions of AJS Bancorp, Inc.

         Name                     Age               Position
         ----                     ---               --------

Thomas R. Butkus                  55                Chairman of the Board and
                                                      Chief Executive Officer

Lyn G. Rupich                     40                President

James J. Andretich                61                Executive Vice President

W. Anthony Kopp                   52                Senior Vice President

Pamela N. Favero                  39                Chief Financial Officer


ITEM 1.     AVAILABILITY OF ANNUAL REPORT ON FORM 10-KSB

      Our Annual Report on Form 10-KSB may be accessed on our website at
www.ajsmithbank.com.

ITEM 2.     PROPERTIES

Properties

      At December 31, 2002, we conducted our business from our main office at
14757 South Cicero, Midlothian, Illinois, a branch office located at 8000 West
159th Street, Orland Park, Illinois and a branch office located at 11275 W.
143rd Street, Orland Park, Illinois. We own all of our branch locations. At
December 31, 2002, the net book value of our office locations was $4.3 million.

ITEM 3.     LEGAL PROCEEDINGS

      We are involved, from time to time, as plaintiff or defendant in various
legal actions arising in the normal course of our business. At December 31,
2002, we were not involved in any legal proceedings, the outcome of which would
be material to our financial condition or results of operations.

ITEM 4.     SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None

                                     PART II

ITEM 5.     MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS

            (a)   The Company's Common Stock is quoted on the electronic
                  bulletin board under the symbol "AJSB."

      The following table sets forth the range of the high and low bid prices of
the Company's Common Stock for the prior five calendar quarters and is based
upon information provided by Nasdaq. The Company has not paid any dividends
since the completion of its initial public offering.


                                       29
<PAGE>

                                    Prices of Common Stock
                                      High          Low
                                     ------        -----
Calendar Quarter Ended (1)
December 31, 2001 ............        13.20        13.10
March 31, 2002 ...............        14.15        13.50
June 30, 2002 ................        15.35        14.00
September 30, 2002 ...........        15.00        14.05
December 31, 2002 ............        17.75        14.60

-------------------------
(1)   The Company's common stock began trading on December 27, 2001.

      (b)   As of December 31, 2002, the Company had 485 stockholders of record.

      (d)   None.

                             SELECTED FINANCIAL DATA

            The following tables set forth selected consolidated historical
      financial and other data of AJS Bancorp, Inc. and its predecessor A. J.
      Smith Federal Savings Bank for the periods and at the dates indicated. The
      information is derived in part from, and should be read together with, the
      Consolidated Financial Statements and Notes thereto of AJS Bancorp, Inc.
      contained elsewhere in this Annual Report.

                                                       At December 31,
                                            ------------------------------------
                                              2002          2001          2000
                                            --------      --------      --------
                                                       (In Thousands)
      Selected Financial Condition Data:
      Total assets .......................  $222,570      $219,780      $195,690
      Loans receivable, net ..............   136,134       128,505       107,769
      Mortgage-backed securities:
       Held to maturity ..................       269           369           472
      Available for sale .................    15,770         8,965        10,420
      Securities:
       Held to maturity ..................        91           559           319
      Available for sale .................    36,133        44,846        46,957
      Deposits ...........................   169,008       171,809       161,251
      Total borrowings ...................    16,000        13,000        12,000
      Equity .............................    33,646        31,248        19,215


                                                  Years Ended December 31,
                                            ------------------------------------
                                              2002          2001          2000
                                            --------      --------      --------
                                                       (In Thousands)
      Selected Operations Data:
      Total interest income ..............  $ 13,113      $ 13,645      $ 14,236
      Total interest expense .............     5,426         7,482         8,504
                                            --------      --------      --------
        Net interest income ..............     7,687         6,163         5,732
      Provision for loan losses ..........        20           413           300
                                            --------      --------      --------
      Net interest income after
        provision for loan losses ........     7,667         5,750         5,432
      Noninterest income .................     1,599         1,146         1,036
      Noninterest expense ................     5,855         5,401         4,463
                                            --------      --------      --------
      Income before taxes ................     3,411         1,495         2,005
      Income tax provision ...............     1,296           516           666
                                            --------      --------      --------
        Net income .......................  $  2,115      $    979      $  1,339
                                            ========      ========      ========
      Net income per share ...............  $    .90           N/A           N/A

      --------------
      N/A - Not applicable.


                                       30
<PAGE>

                                                   Years Ended December 31,
                                                2002         2001         2000
                                               ------       ------       ------
      Selected Financial Ratios and Other Data:

      Performance Ratios:
        Return on assets (ratio
          of net income to
          average total assets) ...........      0.98%        0.48%        0.69%
        Return on retained earnings
          (ratio of net income
          to average equity) ..............      6.50         4.80         7.39
        Interest rate spread information:
        Average during period .............      3.39         2.95         2.77
        Net interest margin (1) ...........      3.78         3.27         3.04
        Ratio of operating expense
          to average total assets .........      2.72         2.65         2.23
        Efficiency ratio (2) ..............     63.04        73.90        65.94
        Ratio of average interest-
          earning assets to average
          interest-bearing liabilities ....    114.49       107.96       105.84

      Asset Quality Ratios:
        Non-performing assets to total
          assets at end of period .........      0.49         0.79         0.77
        Allowance for loan losses to
          non-performing loans ............    197.91       159.15       197.66
        Allowance for loan losses to
          loans receivable, gross .........      1.51         1.91         2.15

      Capital Ratios:
        Retained earnings to total
          assets at end of period .........     15.12        14.22         9.82
        Average retained earnings to
          average assets (3) ..............     15.14        10.00         9.06

      Other Data:
        Number of full-service offices ....         3            2            2

      --------------------
      (1)   Net interest income divided by average interest earning assets.

      (2)   Efficiency ratio represents noninterest expense as a percentage of
            net interest income plus noninterest income

      (3)   Excluding accumulated comprehensive income (loss).


                                       31
<PAGE>

ITEM 6.     MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
            RESULTS OF OPERATIONS

Forward Looking Statements

      This Annual Report contains certain "forward-looking statements" which may
be identified by the use of words such as "believe," "expect," "anticipate,"
"should," "planned," "estimated," and "potential." Examples of forward- looking
statements include, but are not limited to, estimates with respect to our
financial condition, results of operations and business that are subject to
various factors which could cause actual results to differ materially from these
estimates and most other statements that are not historical in nature. These
factors include, but are not limited to, general and local economic conditions,
changes in interest rates, deposit flows, demand for mortgage, commercial and
other loans, real estate values, competition, changes in accounting principles,
policies, or guidelines, changes in legislation or regulation, and other
economic, competitive, governmental, regulatory, and technological factors
affecting our operations, pricing products and services.

General

      Our results of operations depend primarily on our net interest income. Net
interest income is the difference between the interest income we earn on our
interest-earning assets, consisting primarily of loans, investment securities
and interest-bearing deposits with other financial institutions, and the
interest we pay on our interest-bearing liabilities, consisting primarily of
savings accounts and time deposits. Our results of operations are also affected
by our provisions for loans losses, other income and other expense. Other income
consists primarily of insurance commissions and service charges on deposit
accounts. Other expense consists primarily of noninterest expense, including
salaries and employee benefits, occupancy, equipment, data processing and
deposit insurance premiums. Our results of operations may also be affected
significantly by general and local economic and competitive conditions, changes
in market interest rates, governmental policies and actions of regulatory
authorities.

Business Strategy

      Our business strategy is to operate as a well-capitalized, profitable,
community-oriented savings bank dedicated to providing quality customer service.
In the past, we implemented our business strategy by emphasizing the origination
of one- to four-family loans and other loans secured by real estate. We will
continue to be primarily a one- to four- family lender. Management, however, has
determined to broaden the scope of our loan products and services to enhance
profitability and reduce the risks inherent in our loan portfolio, consistent
with safety and soundness. In this regard, we have determined to reduce our
reliance on subprime lending and to expand our commercial business lending and
business banking services. There can be no assurances that we will successfully
implement our strategy.

      Highlights of our business strategy are as follows:

            o     Continuing One- to Four-Family Residential Real Estate
                  Lending. Historically, we have emphasized one- to four-family
                  residential lending within our market area. As of December 31,
                  2002, $115.9 million, or 83.8%, of our total loan portfolio
                  consisted of one- to four- family residential real estate
                  loans. During the year ended December 31, 2002, we originated
                  $42.6 million of one- to four-family residential real estate
                  loans of which $1.1 million were subprime loans. We intend to
                  continue to originate one- to four-family loans because of our
                  expertise with this type of lending, although we expect to
                  reduce our subprime lending.

            o     Reducing Reliance on Subprime Loans. In 1994, we began
                  originating "subprime" loans through mortgage brokers to
                  borrowers with impaired credit histories. Since that time, a
                  significant number of our one- to four-family loan
                  originations have been subprime loans primarily because they
                  offered higher yields than traditional one- to four-family
                  mortgage loans. Consequently, at December 31, 1999, $54.9
                  million of our loans, comprising 49.1% of


                                       32
<PAGE>

                  our total loans, consisted of loans categorized as subprime
                  loans. Beginning in 2000, we determined to de-emphasize the
                  origination of such loans, because they carry greater credit
                  risk. At December 31, 2002, our subprime loans totaled $31.2
                  million, or 22.6% of total loans. While we still originate
                  subprime loans, we intend to increase our originations of
                  traditional one- to four-family loans and commercial business
                  loans.

            o     Commercial Business Lending. We intend to originate more
                  commercial business loans to complement our one- to
                  four-family residential real estate lending. These loans will
                  most likely encumber business real estate whenever possible,
                  however, we may use non-real estate based liens when
                  necessary. Although commercial business loans were an
                  insignificant component of our loan portfolio at December 31,
                  2002, we are committed to developing our commercial business
                  lending and our commercial business banking services. We have
                  added a senior commercial banking officer to our staff with
                  extensive experience in originating and servicing commercial
                  business loans. We may add one or more additional experienced
                  commercial business lending personnel to our staff as
                  circumstances warrant. We believe that expanding our
                  commercial business lending will enable us to improve the
                  yield on our loan portfolio and diversify our assets while
                  continuing to meet the needs of our community.

            o     Establishing Our Commercial Business Banking. We are committed
                  to meeting the financial needs of the communities in which we
                  operate. In particular, we have increased our emphasis on
                  business banking, and we now offer commercial deposit
                  products, such as transaction accounts, to our business
                  customers. Our objective is to actively market our business
                  banking products and services to our existing customers, as
                  well as new businesses within our market area.

            o     Controlled Growth of Our Business. We intend to grow and
                  expand our operations as market conditions warrant and
                  consistent with our loan underwriting and capital criteria. In
                  this regard, we are diversifying our lending operations by
                  introducing commercial business lending, and we are marketing
                  our deposit products to our commercial customers. In addition,
                  we have built a new branch facility in Orland Park, Illinois,
                  which opened in December 2002. Should market conditions be
                  such that we feel the institution would benefit from an
                  additional branch we may pursue the opening of a fourth branch
                  facility. We believe these strategies will increase our
                  presence in our market area.

Comparison of Financial Condition at December 31, 2002 and December 31, 2001

      Our total assets increased by $2.8 million, or 1.3%, to $222.6 million at
December 31, 2002 from $219.8 million at December 31, 2001. Loans receivable
increased $7.6 million or 5.9% to $136.1 at December 31,2002 from $128.5 million
at December 31, 2001. Securities decreased $2.5 million or 4.6%, to $52.2
million at December 31, 2002 from $54.7 million at December 31, 2001. The
increase in loans and decrease in securities represents the Bank's attempt to
invest the cash received from maturing securities into higher yielding loans.

      Total deposits decreased $2.8 million or 1.6% to $169.0 million at
December 31, 2002 from $171.8 million at December 31, 2001. While deposits were
relatively stable, our transaction and savings deposits decreased to $74.7
million at December 31, 2002 from $81.0 million at December 31, 2001, largely
due to the refund of excess stock subscription money that was on deposit as of
December 31, 2001. Our certificate of deposit accounts increased to $94.3
million from $90.8 million at December 31, 2001.

      Federal Home Loan Bank advances increased to $16.0 million at December 31,
2002 from $13.0 million at December 31, 2001. The increase in FHLB advances was
used to fund the purchase of mortgage backed securities that would allow us to
enhance revenue by creating a positive spread between the yield on the
securities and the cost of the advances.


                                       33
<PAGE>

      At December 31, 2002 the Company had non-performing assets of $1.1 million
compared to $1.7 million as of December 31, 2001. The allowance for loan losses
was $2.1 million at December 31, 2002, and $2.5 million at December 31, 2001.
This represents a ratio of allowance for loan losses to gross loans receivable
of 1.51% at December 31, 2002 and 1.91% at December 31, 2001. Sub-prime loan
balances decreased $15.9 million to $31.2 million at December 31, 2002 from
$47.1 million at December 31, 2001. The decrease in sub-prime loans reflects our
decision to de-emphasize this type of lending.

      Total stockholders' equity increased to $33.6 million at December 31, 2002
from $31.2 million at December 31, 2001. The increase was primarily the result
of the Company's net income of $2.1 million for the year ended December 31, 2002

Comparison of Financial Condition at December 31, 2001 and December 31, 2000

      Our total assets increased by $24.1 million, or 12.3%, to $219.8 million
at December 31, 2001 from $195.7 million at December 31, 2000. The increase
reflected growth in loans receivable and cash and cash equivalents, funded by an
increase in deposits and decreases in securities. Loans increased by $20.7
million, or 19.2%, to $128.5 million at December 31, 2001 from $107.8 million at
December 31, 2000. Our increase in loans resulted from a higher volume of one-
to four-family mortgage loan originations reflecting increased demand as
borrowers sought to take advantage of lower market interest rates. Cash and cash
equivalents increased $6.2 million, or 27.2%, to $29.0 million at December 31,
2001 from $22.8 million at December 31, 2000 due to the net proceeds totaling
$10.2 million from the sale of stock in the Company's initial public offering.
Securities available-for-sale decreased by $3.6 million, or 6.2%, to $53.8
million at December 31, 2001 from $57.4 million at December 31, 2000. Securities
decreased during this period due to maturities.

      Total deposits increased by $10.6 million, or 6.6%, to $171.8 million at
December 31, 2001 from $161.3 million at December 31, 2000. While deposit levels
were relatively stable, our transaction and savings deposits increased to $81.0
million from $65.3 million, while our certificate of deposit accounts decreased
to $90.8 million from $95.9 million.

      Federal Home Loan Bank advances increased $1.0 million, or 8.3%, to $13.0
million at December 31, 2001 from $12.0 million at December 31, 2000. The
increase in FHLB advances was used to fund new loan originations in 2001.

      Equity increased $12.0 million, or 62.6%, to $31.2 million at December 31,
2001 from $19.2 million at December 31, 2000. The increase was primarily the
result of the Company's initial public offering, which raised $10.2 million, net
of offering costs. Net income of $979,000 for the year ended December 31, 2001
and a $590,000 change in unrealized after-tax gains on securities
available-for-sale also contributed to the increase in equity.

Comparison of Operating Results for the Years Ended December 31, 2002 and
December 31, 2001

      General. Net income increased $1.1 million, or 116.0%, to $2.1 million for
the year ended December 31, 2002 from $979,000 for the year ended December 31,
2001. The increase in net income resulted from a decrease in interest expense, a
decrease in the provision for loan losses and an increase an noninterest income,
partially offset by a decrease in interest income and an increase in noninterest
expense.

      Interest Income. Total interest income declined to $13.1 million for the
twelve months ended December 31, 2002 down $532,000 or 3.9% from $13.6 million
for the same period in 2001. The decrease in interest income resulted primarily
from decreases in income on securities and federal funds sold, offset by an
increase in interest income on loans and interest bearing deposits.


                                       34
<PAGE>

      Interest income from loans increased $200,000 to $9.7 million for the year
ended December 31, 2002 from $9.5 million for the year ended December 31, 2001.
The increase in interest income from loans was due to increased loan balances as
the average yield on loans fell to 7.29% for 2002 from 8.09% in 2001. This drop
in yield was primarily due to overall declining interest rates in the
marketplace.

      The gain in interest income from loans was more than offset by a decrease
in securities income of $506,000 and a decrease in federal fund income of
$302,000. These decreases were primarily due to lower interest rates earned on
these assets due to a general decline in market interest rates, as well as
shrinking balances in securities and federal funds as we reinvested our cash in
higher earning loan products. Our yield was 5.72% on average securities balances
of $51.0 million for December 31, 2002 whereas our yield was 6.18% on average
securities balances of $55.4 million for December 31, 2001. Similarly, our yield
was 1.74% on average federal fund balances of $3.5 million for December 31,
2002, whereas the yield was 4.76% on average federal fund balances of $7.6
million for December 31, 2001.

      Interest income from interest-bearing deposits increased $76,000, or
24.2%, to $390,000 for the year ended December 31, 2002 from $314,000 for the
year ended December 31, 2001. The increase resulted from an increase in the
average outstanding balance to $15.4 million from $7.4 million, while the
average yield decreased to 2.5% from 4.2%, reflecting lower market interest
rates in 2002.

      Interest Expense. Interest expense on deposits decreased by $2.1 million
or 30.9% to $4.7 million for the year ended December 31, 2002 from $6.7 million
for 2001. The decrease in our cost of deposits was due to the general decline in
market interest rates and certificates of deposit maturing and renewing at lower
rates during 2002. Average deposits increased to $163.9 million for the year
ended December 31, 2002 from $162.3 million for 2001. Our average cost of
deposits decreased to 2.84% from 4.14% for the respective periods. Interest
expense on borrowings increased marginally to $775,000 for the twelve months
ended December 31, 2002 from $756,000 for the same period during 2001. This was
largely due to additional Federal Home Loan Bank borrowings.

      Net Interest Income. Net interest income increased by $1.5 million or
24.7% to $7.7 million for the twelve months ended December 31, 2002 from $6.2
million for the same period in 2001. Our net interest rate spread increased 44
basis points to 3.39% from 2.95%, while our net interest margin increased 51
basis points to 3.78% from 3.27%. The ratio of average interest-earning assets
to average interest-bearing liabilities improved to 114.49% for the year ended
December 31, 2002 from 107.96% for the same period in 2001.

      Provision for Loan Losses. We establish provisions for loan losses, which
are charged to operations, at a level management believes is appropriate to
absorb probable incurred credit losses in the loan portfolio. In evaluating the
level of the allowance for loan losses, management considers historical loss
experience, the types of loans and the amount of loans in the loan portfolio,
adverse situations that may affect the borrower's ability to repay, estimated
value of any underlying collateral, peer group information, and prevailing
economic conditions. This evaluation is inherently subjective as it requires
estimates that are susceptible to significant revision as more information
becomes available or as future events change. Based on our evaluation of these
factors, we made provisions of $20,000 and $413,000 for the years ended December
31, 2002 and 2001, respectively. The provision decreased by $393,000 due to a
decrease in nonperforming assets to $1.1 million at December 31, 2002, from $1.7
million at December 31, 2001. We used the same methodology and generally similar
assumptions in assessing the adequacy of the allowance for both periods.
Originations of subprime loans during the year ended December 31, 2002 and 2001
were $1.1 million and $14.9 million, respectively. The allowance for loan losses
was $2.1 million, or 1.51% of loans outstanding at December 31, 2002, as
compared with $2.5 million, or 1.91%, of loans outstanding at December 31, 2001.
The level of the allowance is based on estimates and the ultimate losses may
vary from the estimates.

      Management assesses the allowance for loan losses on a quarterly basis and
makes provisions for loan losses as necessary in order to maintain the adequacy
of the allowance. While management uses available information to recognize
losses on loans, future loan loss provisions may be necessary based on changes
in economic conditions. In addition, various regulatory agencies, as an integral
part of their examination process, periodically review the allowance for loan
losses and may require us to recognize additional provisions based on their
judgment of information available


                                       35
<PAGE>

to them at the time of their examination. The allowance for loan losses as of
December 31, 2002 is maintained at a level that represents management's best
estimate of inherent losses in the loan portfolio, and such losses were both
probable and reasonably estimable.

      Noninterest Income. Noninterest income increased to $1.6 million for the
year ended December 31, 2002 from $1.1 million for the comparable period in
2001. The $453,000 increase included higher insurance commissions of $73,000, an
increase in correspondent fees of $290,000, and an increase in rental income of
$40,000. These increases were partially offset by a decrease in service charge
fees of $87,000 in 2002. Insurance commissions have been consistently rising
over this twelve-month period due to greater sales of insurance products.
Correspondent fee income has increased due to the addition of our new
correspondent lending department, which started at the beginning of this year.
The increase in rental income occurred due to a loan on an apartment building
defaulting and the resulting repossession and collection of rents that
subsequently took place until we found a buyer for the property.

      Noninterest Expense. Noninterest expense increased $454,000 to $5.9
million for the year ended December 31, 2002 from $5.4 million in 2001. Salaries
and benefit expense accounted for $319,000 of this increase, occupancy costs
increased $32,000, advertising and promotion expense increased $52,000, data
processing costs increased $26,000, other noninterest expenses increased
$195,000, while the amortization of mortgage servicing rights decreased
$170,000.

      Salaries and employee benefits represented 56.0% and 54.8% of total
noninterest expense for the years ended December 31, 2002 and 2001. The increase
in salaries and benefits is a result of normal salary increases, an increase in
costs associated with the ESOP, greater insurance costs, and additional staffing
for our new branch facility.

      Occupancy costs increased mostly due to increased real estate tax expense
when compared with the previous year. We received a refund of $70,000 in real
estate taxes in the fourth quarter of 2001. The $70,000 refund reduced occupancy
costs for the year 2001. Additionally, real estate tax expense increased due to
the purchase of our new branch office in Orland Park. We expect our real estate
taxes to increase in the future as this new property moves into the "fully
improved" category. Offsetting the increase in real estate taxes is a $33,000
decrease in depreciation costs. Our depreciation costs declined due to a group
of our assets reaching fully depreciated status in 2002.

      Advertising costs increased due to the promotion of our new branch
facility. Data processing costs and other noninterest expense increased partly
as a result of normal annual increases and partially due to the addition of
our new branch.

      Mortgage servicing rights are recognized as assets for purchased rights
and for the allocated value of retained servicing rights on loans sold. Mortgage
servicing rights are expensed in proportion to and over the period of the life
of the loan that was sold. Mortgage services rights are impaired when the fair
value of the rights are compromised, either because the underlying loans are
prepaid or the loans become delinquent or nonperforming. During the year ended
December 31, 2001, we recorded an impairment charge of $154,000 to reflect the
impact of declining interest rate environment in 2001, which reflected in higher
prepayment speeds due to increased loan prepayments. For further information,
see Notes 1 and 3 to Notes to the Consolidated Financial Statements.

      Other noninterest expense increased $195,000, or 22.5%, to $1.1 million
for the year ended December 31, 2002 from $868,000 during the same period in
2001. This increase reflects higher costs of $75,000 associated with becoming a
public company, a portion of which was due to filing and printing costs, an
increase in loan expenses of $36,000, an increase of $25,000 in postage which
primarily occurred due to the increased mail solicitations our correspondent
lending department engaged in during the year, and an increase in our legal
expense during the year of $24,000.

      Provision for Income Taxes. The provision for income taxes increased to
$1.3 million, or 38.0%, of income before income taxes for the year ended
December 31, 2002 from $516,000, or 34.5% of income before taxes, for the year
ended December 31, 2001.


                                       36
<PAGE>

Comparison of Operating Results for the Years Ended December 31, 2001 and
December 31, 2000

      General. Net income decreased $360,000, or 26.9%, to $979,000 for the year
ended December 31, 2001 from $1.3 million for the year ended December 31, 2000.
The decrease in net income resulted from a decrease in interest income, an
increase in the provision for loan losses and an increase in noninterest
expense, partially offset by a decrease in interest expense.

      Interest Income. Total interest income decreased by $591,000, or 4.2%, to
$13.6 million for the year ended December 31, 2001 from $14.2 million for the
year ended December 31, 2000. The decrease in interest income resulted primarily
from decreases in interest on federal funds sold and interest-bearing deposits
in other financial institutions, partially offset by an increase in interest
from loans receivable.

      Interest income from loans increased $338,000, or 3.7%, to $9.5 million
for the year ended December 31, 2001 from $9.2 million for the year ended
December 31, 2000. The increase resulted from a $10.0 million, or 9.3%, increase
in the average balance of loans to $118.0 million from $108.0 million, as loan
originations exceeded repayment due to strong demand, reflecting generally lower
interest rates in 2001. The average yield on loans receivable decreased to 8.09%
from 8.53%, reflecting decreased market interest rates.

      Interest income on securities remained relatively stable, decreasing
$98,000, or 2.8%, to $3.4 million for the year ended December 31, 2001.

      Interest income from interest-bearing deposits decreased $340,000, or
52.0%, to $314,000 for the year ended December 31, 2001 from $654,000 for the
year ended December 31, 2000. The decrease resulted from a decline in the
average yield to 4.23% from 6.92%, reflecting lower market interest rates in
2001. Interest income from federal funds sold decreased $491,000, or 57.5%, to
$363,000 for the year ended December 31, 2001 from $854,000 fro the same period
in 2000. The decrease was attributable to a decrease in the average balance of
federal funds sold to $7.6 million from $13.5 million, as well as a drop in
yield from 6.33% to 4.76%.

      Interest Expense. Total interest expense decreased $1.0 million, or 12.0%,
to $7.5 million for the year ended December 31, 2001 from $8.5 million for the
year ended December 31, 2000. The decrease in interest expense resulted
primarily from decreases in the cost of deposits and Federal Home Loan Bank
advances. Interest expense on deposits decreased $910,000, or 11.9%, to $6.7
million for the year ended December 31, 2001 from $7.6 million for the same
period in 2000. The decrease resulted from a 51 basis point decrease in the cost
of deposits to 4.14% from 4.65%, reflecting generally lower market interest
rates in 2001. Interest expense on Federal Home Loan Bank advances decreased
$112,000, or 12.9%, to $756,000 for the year ended December 31, 2001 from
$868,000 for the year ended December 31, 2000. The decrease resulted from a $1.6
million decrease in the average balance of Federal Home Loan Bank advances, as
well as a 10 basis point decrease in the cost of Federal Home Loan Bank
advances.

      Net Interest Income. Net interest income remained relatively stable,
increasing $431,000, or 7.5%, to $6.2 million for the year ended December 31,
2001 from $5.7 million for the same period in 2000. The net interest rate spread
and the net interest margin increased during the period, reflecting lower levels
of interest rates resulting in increased loan demand that exceeded the effects
of the decrease in market rates. The net interest spread increased 18 basis
points to 2.95% from 2.77% while the net interest margin increased 23 basis
points to 3.27% from 3.04%.

      Provision for Loan Losses. We establish provisions for loan losses, which
are charged to operations, at a level management believes is appropriate to
absorb probable incurred credit losses in the loan portfolio. In evaluating the
level of the allowance for loan losses, management considers historical loss
experience, the types of loans and the amount of loans in the loan portfolio,
adverse situations that may affect the borrower's ability to repay, estimated
value of any underlying collateral, peer group information, and prevailing
economic conditions. This evaluation is inherently subjective as it requires
estimates that are susceptible to significant revision as more information
becomes available or as future events change. Based on our evaluation of these
factors, we made provisions of $413,000 and $300,000 for the years ended
December 31, 2001 and 2000, respectively. The provision increased by $113,000
due to an increase in charge-offs to $269,000 for the year ended December 31,
2001, from $94,000 for the year ended December 31, 2000 as well as a $380,000
increase in nonaccrual loans in 2001. The increased charge-offs during the year
ended December 31, 2001,


                                       37
<PAGE>

reflected, in part, losses incurred on a small number of mortgage loans secured
by residential properties. The value of the properties securing the loans was
impaired to a greater degree than management's initial assessment. We used the
same methodology and generally similar assumptions in assessing the adequacy of
the allowance for both periods. Originations of subprime loans during the year
ended December 31, 2001 and 2000 were $14.9 million and $12.5 million,
respectively. The allowance for loan losses was $2.5 million, or 1.91% of loans
outstanding at December 31, 2001, as compared with $2.4 million, or 2.15%, of
loans outstanding at December 31, 2000. The level of the allowance is based on
estimates and the ultimate losses may vary from the estimates.

      Management assesses the allowance for loan losses on a quarterly basis and
makes provisions for loan losses as necessary in order to maintain the adequacy
of the allowance. While management uses available information to recognize
losses on loans, future loan loss provisions may be necessary based on changes
in economic conditions. In addition, various regulatory agencies, as an integral
part of their examination process, periodically review the allowance for loan
losses and may require us to recognize additional provisions based on their
judgment of information available to them at the time of their examination. The
allowance for loan losses as of December 31, 2001 is maintained at a level that
represents management's best estimate of inherent losses in the loan portfolio,
and such losses were both probable and reasonably estimable.

      Noninterest Income. Noninterest income increased $110,000, or 10.6%, to
$1.1 million for the year ended December 31, 2001 from $1.0 million for the same
period in 2000, primarily as a result of increases in insurance commissions of
$84,000 and the gains on sale of other real estate of $30,000.

      Noninterest Expense. Noninterest expense increased $938,000, or 21.0%, to
$5.4 million for the year ended December 31, 2001 from $4.5 million for the year
ended December 31, 2000. This increase was a result of the $484,000 increase in
salaries and employee benefits, an impairment charge of $154,000 related to our
mortgage servicing rights, and a $179,000 increase in other expenses.

      Salaries and employee benefits represented 54.8% and 55.5% of total
noninterest expense for the years ended December 31, 2001 and 2000. Total
salaries and employee benefits increased $484,000, or 19.6%, to $3.0 million for
the year ended December 31, 2001 from $2.5 million for the same period in 2000.
The increase is primarily due to changes in our deferred compensation plan for
directors, resulting in an additional expense of $142,000 as well as normal
salary increases, bonuses, and benefit plan accruals, and the hiring of a
commercial business lender.

      Mortgage servicing rights are recognized as assets for purchased rights
and for the allocated value of retained servicing rights on loans sold. Mortgage
servicing rights are expensed in proportion to and over the period of the life
of the loan that was sold. Mortgage services rights are impaired when the fair
value of the rights are compromised, either because the underlying loans are
prepaid or the loans become delinquent or nonperforming. During the year ended
December 31, 2001, we recorded an impairment charge of $154,000 to reflect the
impact of declining interest rate environment in 2001, which reflected in higher
prepayment speeds due to increased loan prepayments. For further information,
see Notes 1 and 3 to Notes to the Consolidated Financial Statements.

      Other noninterest expense increased $179,000, or 26.0%, to $868,000 for
the year ended December 31, 2001 from $689,000 during the same period in 2000.
This increase reflects increased telephone expense of $34,000 reflecting our
implementation of a banking-by-telephone in 2001 and an increase of $40,000 in
postage and office supply expense which primarily was incurred in order to
comply with the new privacy disclosure requirement.

      Provision for Income Taxes. The provision for income taxes decreased to
$516,000, or 34.5%, of income before income taxes for the year ended December
31, 2001 from $666,000, or 33.2%, for the year ended December 31, 2000.


                                       38
<PAGE>

Average Balance Sheets

      The following tables present for the periods indicated the total dollar
amount of interest income on average interest-earning assets and the resultant
yields, the interest expense on average interest-bearing liabilities, expressed
both in dollars and rates, as well as yields and costs at December 31, 2002. No
tax equivalent adjustments were made. All average balances are monthly average
balances. Non-accruing loans have been included in the table as loans carrying a
zero yield.


                                                       At December 31, 2002
                                                    ------------------------
                                                     Actual           Yield/
                                                     Balance          Rate(1)
                                                    --------          ------
Interest-earning assets:
  Loans receivable (1) ...................          $138,223            6.61%
  Securities .............................            50,604            5.34
  Interest-bearing deposits and other ....            14,431            2.57
  Federal funds ..........................             6,000            1.06
                                                    --------          ------
    Total interest-earning assets ........          $209,258            5.87
                                                    ========          ------

Interest-bearing liabilities:
  Passbook savings .......................          $ 44,328            1.29
  NOW accounts ...........................            19,322            0.42
  Checking accounts ......................             3,309              --
  Money market accounts ..................             7,720            1.08
  Time deposits ..........................            94,329            3.78
                                                    --------          ------
    Total deposits .......................           169,008            2.54
  FHLB advances ..........................            16,000            4.91
                                                    --------
    Total interest-bearing liabilities ...          $185,008            2.75
                                                    ========          ------

Net interest income ......................             7,687
Net interest rate spread .................                              3.12%
                                                                      ======
Net earning assets .......................          $ 24,250
                                                    ========
Average interest-earning assets to
  average interest-liabilities ...........                            113.10%
                                                                      ======
---------------------
(1)   Yield at December 31, 2002 excludes loan fees.


                                       39
<PAGE>

Average Balance Sheets

<TABLE>
<CAPTION>
                                                                         Years Ended December 31,
                                           -----------------------------------------------------------------------------------
                                                            2002                                             2001
                                           -------------------------------------         -------------------------------------
                                            Average        Interest                       Average        Interest
                                          Outstanding       Earned/       Yield/        Outstanding       Earned/       Yield/
                                            Balance          Paid          Rate           Balance          Paid          Rate
                                           --------        -------        ------         --------        -------        ------
                                                                              (In Thousands)
Interest-earning assets:
<S>                                        <C>             <C>            <C>            <C>             <C>            <C>
    Loans receivable ..............        $133,745        $ 9,745          7.29%        $118,028        $ 9,545          8.09%
    Securities ....................          51,022          2,917          5.72           55,357          3,423          6.18
    Interest-bearing deposits
      and other ...................          15,358            390          2.54            7,419            314          4.23
    Federal funds .................           3,500             61          1.74            7,625            363          4.76
                                           --------        -------        ------         --------        -------        ------
        Total interest-earning
          assets ..................        $203,625         13,113          6.44         $188,429         13,645          7.24
                                           ========        -------        ------         ========        -------        ------

Interest-bearing liabilities:
    Passbook savings ..............        $ 42,996            652          1.52         $ 38,299          1,027          2.68
    NOW accounts ..................          21,146             91          0.43           20,519            150          0.73
    Money market accounts .........           8,483            137          1.61            9,840            317          3.22
    Time deposits .................          91,228          3,771          4.13           93,716          5,232          5.58
                                           --------        -------        ------         --------        -------        ------
        Total deposits ............         163,853          4,651          2.84          162,374          6,726          4.14
    FHLB advances .................          14,000            775          5.54           12,167            756          6.21
                                           --------        -------        ------         --------        -------        ------
        Total interest-bearing
          liabilities .............        $177,853          5,426          3.05         $174,541          7,482          4.29
                                           ========        -------        ------         ========        -------        ------

Net interest income ...............                        $ 7,687                                       $ 6,163
Net interest rate spread ..........                                         3.39%                                         2.95%
                                                                          ======                                        ======
Net earning assets ................        $ 25,772                                      $ 13,888
Net yield on average interest-
  earning assets ..................                                         3.78%                                         3.27%
                                                                          ======                                        ======
Average interest-earning assets
  to average interest-bearing
  liabilities .....................                         114.49%                                       107.96%
                                                            ======                                        ======

<CAPTION>

                                                  Years Ended December 31,
                                           -------------------------------------
                                                            2000
                                           -------------------------------------
                                            Average        Interest
                                          Outstanding       Earned/       Yield/
                                            Balance          Paid          Rate
                                           --------        -------        ------
                                                       (In Thousands)

<S>                                        <C>             <C>            <C>
    Loans receivable ..............        $107,950        $ 9,207          8.53%
    Securities ....................          57,540          3,521          6.12
    Interest-bearing deposits
      and other ...................           9,448            654          6.92
    Federal funds .................          13,500            854          6.33
                                           --------        -------        ------
        Total interest-earning
          assets ..................        $188,438         14,236          7.55
                                           ========        -------        ------

Interest-bearing liabilities:
    Passbook savings ..............        $ 36,894          1,061          2.88
    NOW accounts ..................          18,720            145          0.77
    Money market accounts .........           9,171            388          4.23
    Time deposits .................          99,510          6,042          6.07
                                           --------        -------        ------
        Total deposits ............         164,295          7,636          4.65
    FHLB advances .................          13,750            868          6.31
                                           --------        -------        ------
        Total interest-bearing
          liabilities .............        $178,045          8,504          4.78
                                           ========        -------        ------

Net interest income ...............                        $ 5,732
Net interest rate spread ..........                                         2.77%
                                                                           ======
Net earning assets ................        $ 10,393
Net yield on average interest-
  earning assets ..................                                         3.04%
                                                                           ======
Average interest-earning assets
  to average interest-bearing
  liabilities .....................                         105.84%
                                                            ======
</TABLE>


                                       40
<PAGE>

Rate/Volume Analysis

      The following table presents the dollar amount of changes in interest
income and interest expense for major components of interest-earning assets and
interest-bearing liabilities. It distinguishes between the changes related to
outstanding balances and those due to the changes in interest rates. For each
category of interest-earning assets and interest-bearing liabilities,
information is provided on changes attributable to (i) changes in volume (i.e.,
changes in volume multiplied by old rate) and (ii) changes in rate (i.e.,
changes in rate multiplied by old volume). For purposes of this table, changes
attributable to both rate and volume, which cannot be segregated, have been
allocated proportionately to the change due to volume and the change due to
rate.

<TABLE>
<CAPTION>
                                                                                Years Ended December 31,
                                                     -----------------------------------------------------------------------------
                                                                 2002 vs. 2001                             2001 vs. 2000
                                                     -----------------------------------       -----------------------------------
                                                      Increase/(Decrease)                       Increase/(Decrease)
                                                            Due to               Total                Due to               Total
                                                     ---------------------      Increase       -----------------------    Increase
                                                     Volume         Rate       (Decrease)      Volume         Rate       (Decrease)
                                                     -------       -------       -------       -------       -------       -------
                                                                                                     (In thousands)
<S>                                                  <C>           <C>           <C>           <C>           <C>           <C>
Interest-earning assets
    Loans receivable ..........................      $ 1,199       $  (999)      $   200       $   831       $  (493)      $   338
    Securities ................................         (258)         (248)         (506)         (135)           37           (98)
    Interest-bearing deposits and other .......          238          (162)           76          (121)         (219)         (340)
    Federal funds .............................         (139)         (163)         (302)         (313)         (178)         (491)
                                                     -------       -------       -------       -------       -------       -------
        Total interest-earning assets .........      $ 1,040       $(1,572)      $  (532)          262          (853)         (591)
                                                     =======       =======       =======       =======       =======       =======

Interest-bearing liabilities
    Transaction and savings deposits ..........           79          (693)         (614)           79          (179)         (100)
    Certificate accounts ......................         (139)       (1,322)       (1,461)         (340)         (470)         (810)
    Borrowings ................................          114           (95)           19           (99)          (13)         (112)
                                                     -------       -------       -------       -------       -------       -------
        Total interest-bearing liabilities ....      $    54       $(2,110)      $(2,056)         (360)         (662)       (1,022)
                                                     =======       =======       =======       =======       =======       =======

Net interest income ...........................      $   986       $   538       $ 1,524       $   622       $  (191)      $   431
</TABLE>

Management of Market Risk

      General. The majority of our assets and liabilities are monetary in
nature. Consequently, our most significant form of market risk is interest rate
risk. Our assets, consisting primarily of mortgage loans, have longer maturities
than our liabilities, consisting primarily of deposits. As a result, a principal
part of our business strategy is to manage interest rate risk and reduce the
exposure of our net interest income to changes in market interest rates.
Accordingly, our Board of Directors has established an Asset/Liability
Management Committee which is responsible for evaluating the interest rate risk
inherent in our assets and liabilities, for determining the level of risk that
is appropriate given our business strategy, operating environment, capital,
liquidity and performance objectives, and for managing this risk consistent with
the guidelines approved by the Board of Directors. Senior management monitors
the level of interest rate risk on a regular basis and the Asset/Liability
Management Committee, which consists of senior management operating under a
policy adopted by the Board of Directors, meets as needed to review our
asset/liability policies and interest rate risk position.

      We have sought to manage our interest rate risk by more closely matching
the maturities of our interest rate sensitive assets and liabilities. In
particular, we offer one, three and five year adjustable rate mortgage loans,
and three and five year balloon loans. Furthermore, our experience with subprime
loans has been that these loans remain a part of our portfolio for a
significantly shorter period of time than other one- to four-family loans. In a
low interest rate environment, borrowers typically prefer fixed-rate loans to
adjustable-rate mortgages. We intend to sell into the secondary market our
originations of longer-term fixed-rate loans. We do not solicit high-rate jumbo
certificates of deposit or brokered funds.

      Net Portfolio Value. In past years, many savings associations have
measured interest rate sensitivity by computing the "gap" between the assets and
liabilities which are expected to mature or reprice within certain time periods


                                       41
<PAGE>

based on assumptions regarding loan prepayment and deposit decay rates formerly
provided by the Office of Thrift Supervision. However, the Office of Thrift
Supervision now requires the computation of amounts by which the net present
value of an institution's cash flow from assets, liabilities and
off-balance-sheet items (the institution's net portfolio value or "NPV") would
change in the event of a range of assumed changes in market interest rates. The
Office of Thrift Supervision provides all institutions that file a Consolidated
Maturity/Rate Schedule as a part of their quarterly Thrift Financial Report with
an interest rate sensitivity report of net portfolio value. The Office of Thrift
Supervision simulation model uses a discounted cash flow analysis and an
option-based pricing approach to measuring the interest rate sensitivity of net
portfolio value. The Office of Thrift Supervision model estimates the economic
value of each type of asset, liability and off-balance-sheet contract under the
assumption that the United States Treasury yield curve increases or decreases
instantaneously by 100 to 300 basis points in 100 basis point increments. A
basis point equals one-hundredth of one percent, and 100 basis points equals one
percent. An increase in interest rates from 7% to 8% would mean, for example, a
100 basis point increase in the "Change in Interest Rates" column below. The
Office of Thrift Supervision provides us the results of the interest rate
sensitivity model, which is based on information we provide to the Office of
Thrift Supervision to estimate the sensitivity of our net portfolio value.

      The table below sets forth, as of September 30, 2002 (the latest date for
which information is available), the estimated changes in our net portfolio
value that would result from the designated instantaneous changes in the United
States Treasury yield curve.

                                                       Net Portfolio Value as
                                                       a % of Present Value of
                         Net Portfolio Value            Assets/Liabilities
  Change in      ---------------------------------     -----------------------
Interest Rates   Estimated   Amount of
(Basis Points)      NPV       Change       Percent     NPV Ratio      Change(1)
--------------   ---------   ---------     -------     ---------      --------
                             (Dollars in Thousands)

     +300        $30,866      $(4,597)        13%         13.66%         (141)
     +200         33,038       (2,444)        (7)         14.38           (69)
     +100         34,609         (873)        (2)         14.86           (21)
        0         35,482           --         --          15.07            --
     -100         35,048         (434)        (1)         14.80           (27)

(1)   Expressed in basis points.

      The table above indicates that at September 30, 2002, in the event of a
100 basis point decrease in interest rates, we would experience a 1% decrease in
net portfolio value. In the event of a 100 basis point increase in interest
rates, we would experience a 2% decrease in net portfolio value.

      Certain shortcomings are inherent in the methodology used in the above
interest rate risk measurement. Modeling changes in net portfolio value require
making certain assumptions that may or may not reflect the manner in which
actual yields and costs respond to changes in market interest rates. In this
regard, the net portfolio value table presented assumes that the composition of
our interest-sensitive assets and liabilities existing at the beginning of a
period remains constant over the period being measured and assumes that a
particular change in interest rates is reflected uniformly across the yield
curve regardless of the duration or repricing of specific assets and
liabilities. Accordingly, although the net portfolio value table provides an
indication of our interest rate risk exposure at a particular point in time,
such measurements are not intended to and do not provide a precise forecast of
the effect of changes in market interest rates on its net interest income, and
will differ from actual results.


                                       42
<PAGE>

Liquidity and Capital Resources

      We maintain liquid assets at levels we consider adequate to meet our
liquidity needs. Our liquidity ratio averaged 28.7% and 31.9% for the years
ended December 31, 2002 and 2001. We adjust our liquidity levels to fund deposit
outflows, pay real estate taxes on mortgage loans, repay our borrowings and to
fund loan commitments. We also adjust liquidity as appropriate to meet asset and
liability management objectives.

      Our primary sources of liquidity are deposits, amortization and prepayment
of loans and mortgage-backed securities, maturities of investment securities and
other short-term investments, and earnings and funds provided from operations.
While scheduled principal repayments on loans and mortgage-backed securities are
a relatively predictable source of funds, deposit flows and loan prepayments are
greatly influenced by general interest rates, economic conditions, and
competition. We set the interest rates on our deposits to maintain a desired
level of total deposits. In addition, we invest excess funds in short-term
interest-earning investments and other assets, which provide liquidity to meet
lending requirements. Short-term interest-bearing deposits with the Federal Home
Loan Bank of Chicago amounted to $10.0 million at December 31, 2002 and $8.0
million at December 31, 2001. For additional information about cash flows from
our operating, financing, and investing activities, see Consolidated Statements
of Cash Flows included in the financial statements.

      A significant portion of our liquidity consists of securities classified
as available-for-sale and cash and cash equivalents, which are a product of our
operating, investing and financing activities, and of government-backed
securities classified as available-for-sale. Our primary sources of cash are net
income, principal repayments on loans and mortgage-backed securities, and
increases in deposit accounts, along with advances from the Federal Home Loan
Bank of Chicago.

      Liquidity management is both a daily and long-term function of business
management. If we require funds beyond our ability to generate them internally,
borrowing agreements exist with the Federal Home Loan Bank of Chicago which
provide an additional source of funds. At December 31, 2002, we had $16.0
million in advances from the Federal Home Loan Bank of Chicago. Of this amount,
$2.0 million is due within one year, $6.0 million is due between one and three
years, $3.0 million is due between four and five years and $5.0 million is due
after five years.

      At December 31, 2002, we had outstanding commitments of $10.5 million to
originate loans. This amount does not include the unfunded portion of loans in
process. At December 31, 2002, certificates of deposit scheduled to mature in
less than one year totaled $49.2 million. Based on prior experience, management
believes that a significant portion of such deposits will remain with us,
although there can be no assurance that this will be the case. In addition, the
cost of such deposits may be significantly higher upon renewal in a rising
interest rate environment. We intend to utilize our high levels of liquidity to
fund our lending activities.

Impact of Inflation and Changing Prices

      The consolidated financial statements and related notes of A. J. Smith
Federal have been prepared in accordance with accounting principles generally
accepted in the United States of America ("GAAP"). GAAP generally requires the
measurement of financial position and operating results in terms of historical
dollars without consideration for changes in the relative purchasing power of
money over time due to inflation. The impact of inflation is reflected in the
increased cost of our operations. Unlike industrial companies, our assets and
liabilities are primarily monetary in nature. As a result, changes in market
interest rates have a greater impact on performance than the effect of
inflation.

[ITEM 6A.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

      See ITEM 5 "Management's Discussion and Analysis of Financial
Consolidation and Results of Operations--Management of Market Risk."


                                       43
<PAGE>

ITEM 7.     FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

      The financial statements identified in Item 13(a)(1) hereof are
incorporated by reference hereunder.

ITEM 8.     CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
            FINANCIAL DISCLOSURE

      None.

                                    PART III

ITEM 9.     DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

      Information concerning Directors of the Company is incorporated herein by
reference from the Company's definitive Proxy Statement (the "Proxy Statement"),
specifically the section captioned "Proposal I--Election of Directors." In
addition, see "Executive Officers of the Company" in Item 1 for information
concerning the Company's executive officers.

ITEM 10.    EXECUTIVE COMPENSATION

      Information concerning executive compensation is incorporated herein by
reference from the Company's Proxy Statement, specifically the section captioned
"Executive Compensation."

ITEM 11.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

      Information concerning security ownership of certain owners and management
is incorporated herein by reference from the Company's Proxy Statement,
specifically the section captioned "Voting Securities and Principal Holder
Thereof."

ITEM 12.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

      Information concerning relationships and transactions is incorporated
herein by reference from the Company's Proxy Statement, specifically the section
captioned "Transactions with Certain Related Persons."

                                     PART IV

ITEM 13.    EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

            The exhibits and financial statement schedules filed as a part of
      this Form 10-KSB are as follows:

     (a)(1) Financial Statements

            o     Report of Independent Auditors

            o     Consolidated Statements of Financial Condition at December 31,
                  2002 and 2001

            o     Consolidated Statements of Income for the Years Ended December
                  31, 2002 and 2001

            o     Consolidated Statements of Stockholders' Equity for the Years
                  Ended December 31, 2002 and 2001

            o     Consolidated Statements of Cash Flows for the Years Ended
                  Years Ended December 31, 2002 and 2001

            o     Notes to Consolidated Financial Statements.


                                       44
<PAGE>

     (a)(2) Financial Statement Schedules

            No financial statement schedules are filed because the required
            information is not applicable or is included in the consolidated
            financial statements or related notes.

     (a)(3) Exhibits

            13    Financial Statements

            21    Subsidiaries of the Registrant

            99.1  Certification of Chief Executive Officer and Chief Financial
                  Officer pursuant to Section 906 of the Sarbanes-Oxley Act of
                  2002

      (b)   Reports on Form 8-K

      None.

      (c)   The exhibits listed under (a)(3) above are filed herewith.

      (d)   Not applicable.

ITEM 14.     CONTROLS AND PROCEDURES

      (a)   Evaluation of disclosure controls and procedures.

      Under the supervision and with the participation of our management,
including our Chief Executive Officer, President and Chief Financial Officer, we
evaluated the effectiveness of the design and operation of our disclosure
controls and procedures (as defined in Rule 13a-14(c) under the Exchange Act) as
of a date (the "Evaluation Date") within 90 days prior to the filing date of
this report. Based upon that evaluation, the Chief Executive Officer, President
and Chief Financial Officer concluded that, as of the Evaluation Date, our
disclosure controls and procedures were effective in timely alerting them to the
material information relating to us (or our consolidated subsidiaries) required
to be included in our periodic SEC filings.

      (b)   Changes in internal controls.

      There were no significant changes made in our internal controls during the
period covered by this report or, to our knowledge, in other factors that could
significantly affect these controls subsequent to the date of their evaluation.


                                       45
<PAGE>

                    Certification of Chief Executive Officer
            Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
            ---------------------------------------------------------

      I, Thomas R. Butkus, Chairman of the Board and Chief Executive Officer,
      certify that:

1.    I have reviewed this annual report on Form 10-KSB of AJS Bancorp, Inc.;

2.    Based on my knowledge, this annual report does not contain any untrue
      statement of a material fact or omit to state a material fact necessary to
      make the statements made, in light of the circumstances under which such
      statements were made, not misleading with respect to the period covered by
      this annual report;

3.    Based on my knowledge, the financial statements, and other financial
      information included in this annual report, fairly present in all material
      respects the financial condition, results of operations and cash flows of
      the registrant as of, and for, the periods presented in this annual
      report;

4.    The registrant's other certifying officers and I are responsible for
      establishing and maintaining disclosure controls and procedures (as
      defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
      have:

      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;

5.    The registrant's other certifying officers and I have disclosed, based on
      our most recent evaluation, to the registrant's auditors and the audit
      committee of registrant's board of directors (or persons performing the
      equivalent functions):

      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

6.    The registrant's other certifying officers and I have indicated in this
      annual report whether there were significant changes in internal controls
      or in other factors that could significantly affect internal controls
      subsequent to the date of our most recent evaluation, including any
      corrective actions with regard to significant deficiencies and material
      weaknesses.


March 24, 2003                 /s/ Thomas R. Butkus
-----------------------        -------------------------------------------------
Date                           Thomas R. Butkus
                               Chairman of the Board and Chief Executive Officer


                                       46
<PAGE>

                    Certification of Chief Financial Officer
            Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
            ---------------------------------------------------------

      I, Lyn G. Rupich, President, certify that:

1.    I have reviewed this annual report on Form 10-KSB of AJS Bancorp, Inc.;

2.    Based on my knowledge, this annual report does not contain any untrue
      statement of a material fact or omit to state a material fact necessary to
      make the statements made, in light of the circumstances under which such
      statements were made, not misleading with respect to the period covered by
      this annual report;

3.    Based on my knowledge, the financial statements, and other financial
      information included in this annual report, fairly present in all material
      respects the financial condition, results of operations and cash flows of
      the registrant as of, and for, the periods presented in this annual
      report;

4.    The registrant's other certifying officers and I are responsible for
      establishing and maintaining disclosure controls and procedures (as
      defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
      have:

      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;

5.    The registrant's other certifying officers and I have disclosed, based on
      our most recent evaluation, to the registrant's auditors and the audit
      committee of registrant's board of directors (or persons performing the
      equivalent functions):

      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

6.    The registrant's other certifying officers and I have indicated in this
      annual report whether there were significant changes in internal controls
      or in other factors that could significantly affect internal controls
      subsequent to the date of our most recent evaluation, including any
      corrective actions with regard to significant deficiencies and material
      weaknesses.


March 24, 2003                 /s/ Lyn G. Rupich
-----------------------        -------------------------------------------------
Date                           Lyn G. Rupich
                               President


                                       47