<PAGE>

                                                                      Exhibit 13

                  SELECTED CONSOLIDATED FINANCIAL INFORMATION
                    ---------------------------------------

<TABLE>
<CAPTION>
                                              December 31,
                         ------------------------------------------------------
                            2000       1999       1998       1997       1996
                         ---------- ---------- ---------- ---------- ----------
                             (Dollars in thousands, except per share data)
<S>                      <C>        <C>        <C>        <C>        <C>
Selected Financial
 Condition Data:
  Total assets.......... $  459,894 $  404,718 $  411,779 $  343,409 $  350,643
  Loans, net, including
   loans held for sale..    338,956    270,360    247,144    239,050    233,963
  Mortgage-backed
   securities held-to-
   maturity.............         67        109        168        204        246
  Mortgage-backed
   securities available-
   for-sale.............     16,051     17,491     18,578     28,300     34,467
  Investment securities
   held-to-maturity (1).      1,999        857        893      2,173        623
  Investment securities
   available-for-sale...     57,170     65,132     75,943     36,823     51,345
  Deposits..............    388,050    354,977    346,803    280,022    277,348
  Total borrowings......     29,000     11,200     22,900     23,495     34,545
  Stockholders' equity..     39,289     36,248     39,677     37,821     36,494
  Shares outstanding....  1,263,108  1,243,383  1,367,358  1,371,638  1,414,918
  Stockholders' equity
   per share............ $    31.11 $    29.15 $    29.02 $    27.57 $    25.79
  Stockholders' tangible
   equity per share (2).      27.30      24.97      24.93      26.00      24.10

<CAPTION>
                                        Years Ended December 31,
                         ------------------------------------------------------
                            2000       1999       1998       1997       1996
                         ---------- ---------- ---------- ---------- ----------
                                         (Dollars in thousands)
<S>                      <C>        <C>        <C>        <C>        <C>
Selected Operations
 Data:
  Total interest income. $   30,339 $   26,900 $   27,522 $   24,895 $   25,808
  Total interest
   expense..............     17,437     15,343     16,126     14,273     15,199
                         ---------- ---------- ---------- ---------- ----------
    Net interest income.     12,902     11,557     11,396     10,622     10,609
  Provision for losses
   on loans.............         50        --         --          33         42
                         ---------- ---------- ---------- ---------- ----------
  Net interest income
   after provision for
   losses on loans......     12,852     11,557     11,396     10,589     10,567
                         ---------- ---------- ---------- ---------- ----------
  Fee income............      1,942      1,925      1,532      1,023        791
  Gain on sales of
   loans, mortgage-
   backed securities and
   investment
   securities...........        --         365        179        112        109
  Other non-interest
   income...............        572        674        765        554      1,237
                         ---------- ---------- ---------- ---------- ----------
    Total non-interest
     income.............      2,514      2,964      2,476      1,689      2,137
                         ---------- ---------- ---------- ---------- ----------
  Other expenses........     11,472     11,900     10,432      8,185     10,215
  Income tax expense....      1,310        862      1,151      1,081        713
                         ---------- ---------- ---------- ---------- ----------
    Total non-interest
     expense............     12,782     12,762     11,583      9,266     10,928
                         ---------- ---------- ---------- ---------- ----------
  Net income............ $    2,584 $    1,759 $    2,289 $    3,012 $    1,776
                         ========== ========== ========== ========== ==========
</TABLE>
-----
(1) Includes certificates of deposit and non-marketable equity securities.
(2) Calculated by subtracting intangible assets from stockholders' equity.

                                                                               7
<PAGE>

            SELECTED CONSOLIDATED FINANCIAL INFORMATION (continued)
                ----------------------------------------------

<TABLE>
<CAPTION>
                                            Years Ended December 31,
                                     ---------------------------------------
                                      2000    1999    1998    1997    1996
                                     ------- ------- ------- ------- -------
<S>                                  <C>     <C>     <C>     <C>     <C>
Selected Financial Ratios and Other
 Data:
Performance Ratios:
  Return on assets (ratio of net
   income to average total assets)..   0.60%   0.43%   0.57%   0.87%   0.50%(3)
  Interest rate spread information:
    Average during the year.........   3.13%   2.99%   2.92%   2.86%   2.78%
    End of year.....................   2.85%   2.96%   2.68%   2.73%   2.88%
    Net interest margin (1).........   3.25%   3.08%   3.07%   3.22%   3.11%
    Ratio of operating expense to
     average total assets...........   2.68%   2.92%   2.60%   2.36%   2.87%(4)
    Return on equity (ratio of net
     income to average equity)......   6.95%   4.61%   5.86%   8.04%   4.95%(5)
    Ratio of average interest-
     earning assets to average
     interest-bearing liabilities... 102.66% 102.39% 103.47% 108.25% 107.40%
Quality Ratios:
  Non-performing assets to total
   assets at end of period..........   0.76%   0.69%   0.82%   1.27%   1.16%
  Allowance for losses on loans to
   non-performing loans.............  83.89% 124.20% 160.43%  75.64%  60.92%
  Classified assets to total assets
   at end of period (2).............   1.29%   1.20%   1.70%   1.89%   1.88%
  Allowance for losses on loans to
   classified assets................  36.34%  44.84%  33.95%  32.86%  35.80%
Capital Ratios:
  Equity to total assets at end of
   period...........................   8.54%   8.96%   9.64%  11.01%  10.41%
  Average equity to average assets..   8.70%   9.38%   9.75%  10.71%  10.06%
  Dividend payout ratio.............  24.12%  37.50%  30.77%  24.00%  33.90%
Other data:
  Number of full service branch
   offices..........................      15      15      15       9       9
</TABLE>
-----
(1) Net interest income divided by average interest earning assets.
(2) Includes items classified as special mention.
(3) Without the effect of the special assessment on SAIF-insured deposits and
    the gain on the sale of a branch, the Return on assets would have been
    0.67%.
(4) Without the effect of the special assessment on SAIF-insured deposits, the
    ratio of Operating expenses to average assets would have been 2.40%.
(5) Without the effect of the special assessment on SAIF-insured deposits and
    the gain on the sale of a branch, the Return on equity would have been
    6.71%.

8
<PAGE>


MANAGEMENT'S DISCUSSION AND ANALYSIS
--------------------------------------------------------------------------------

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
--------------------------------------------------------------------------------
General
Kankakee Bancorp, Inc. (the "Company") is the holding company for Kankakee
Federal Savings Bank (the "Bank"). All references to the Company in the
following discussion include the Bank and the Bank's wholly-owned service
corporation, KFS Service Corporation ("KFS"), unless indicated otherwise. The
Company's results of operations are dependent primarily on net interest income,
which is the difference, or "spread", between the interest income earned on its
loan, mortgage-backed securities and investment portfolios and its cost of
funds, consisting of interest paid on its deposits and on borrowed funds. The
Company's operating expenses principally consist of employee compensation and
benefits, occupancy, federal deposit insurance premiums, marketing and other
general and administrative expenses. The Company's results of operations are
also significantly affected by general economic and competitive conditions,
particularly changes in market interest rates, government policies and actions
of regulatory authorities.

The Company's mission is to provide, safely and profitably, financial services
to families and businesses in the communities served by its offices. In seeking
to accomplish this mission, management has adopted a business strategy designed
to accomplish a number of goals, including:

  . maintain the Bank's tangible capital at a level that exceeds regulatory
    requirements;

  . maintain a high level of asset quality;

  . manage the Company's exposure to changes in market interest rates;

  . increase the Company's interest rate spread; and

  . to the extent available, take advantage of loan and deposit growth
    opportunities in the Company's principal market areas.

The Company has attempted to achieve these goals by focusing on a number of
areas, including:

  . the origination, to the extent requested in its lending areas, of
    adjustable-rate mortgage loans ("ARMs") on residential properties for
    retention in its portfolio;

  . the retention in its portfolio, beginning in 2000, of most of the 30-year,
    fixed-rate residential mortgage loans which it originates;

  . the origination of commercial real estate, consumer, commercial business,
    and, to a lesser extent, multi-family and construction loans;

  . providing high quality service to enhance customer loyalty; and

  . offering a variety of financial products and services to serve as
    comprehensively as practicable the financial needs of families and
    community businesses in its market areas.

Asset/Liability Management
The matching of assets and liabilities may be analyzed by examining the extent
to which such assets and liabilities are "interest rate sensitive" and by
monitoring an institution's interest rate sensitivity "gap". An asset or
liability is said to be interest rate sensitive within a specific time period
if it will mature or reprice within that time period. The interest rate
sensitivity gap is defined as the difference between the amount of interest-
earning assets anticipated, based upon certain assumptions, to mature or
reprice within a specific time period and the amount of interest-bearing
liabilities anticipated, based upon certain assumptions, to mature or reprice
within that same time period. A gap is considered positive when the amount of
interest rate sensitive assets exceeds the amount of interest rate sensitive
liabilities. A gap is considered negative when the amount of interest rate
sensitive liabilities exceeds the amount of interest rate sensitive assets.
During a period of rising interest rates, a negative gap would tend to
adversely affect net interest income while a positive gap would tend to result
in an increase in net interest income. During a period of falling interest
rates, a negative gap would tend to result in an increase in net interest
income while a

                                                                               9
<PAGE>


                                            MANAGEMENT'S DISCUSSION AND ANALYSIS
--------------------------------------------------------------------------------
positive gap would tend to adversely affect net interest income. At December
31, 2000, total interest-bearing liabilities maturing or repricing within one
year exceeded total interest-earning assets maturing or repricing in the same
period by $46.3 million, representing a negative cumulative one-year gap equal
to 10.1% of total assets.

In an attempt to manage its exposure to changes in interest rates, management
closely monitors the Company's interest rate risk. The Bank has an
Asset/Liability Management Committee, consisting of the president, certain vice
presidents and the controller of the Bank, which meets monthly and reviews the
Bank's interest rate risk position and makes quarterly recommendations for
adjusting such position to the Bank's board of directors. In addition, on a
quarterly basis the board reviews the Bank's asset/liability position,
including simulations of the effect on the Bank's capital of various interest
rate scenarios.

In managing its asset/liability mix, the Company, at times, depending on the
relationship between long-term and short-term interest rates, market conditions
and consumer preferences, may place somewhat greater emphasis on maximizing its
net interest margin than on better matching the interest rate sensitivity of
its assets and liabilities in an effort to improve its net income. Management
believes that the increased net income resulting from a mismatch in the
maturity of its asset and liability portfolios can, during periods of declining
or stable interest rates, provide returns that justify the increased exposure
to sudden and unexpected increases in interest rates which can result from such
a mismatch.

The Company attempts to manage its interest rate risk to the extent consistent
with its interest margin objectives through management of the mix of its assets
and liabilities in a number of ways, including the following:

  . To the extent requested in its lending areas, the Company has focused its
    one-to-four family residential lending program on ARMs. However, ARMs are
    not currently in great demand, and only about 10% of one-to-four family
    residential loans originated in 2000 were ARMs. The remaining 90% of the
    one-to-four family loan originations during 2000 were for fixed rates with
    maturities ranging from ten years to 30 years. Virtually all one-to-four
    family loans originated in 2000 were retained in the Company's portfolio.
    At December 31, 2000, approximately $79.0 million, or 37.3%, of the
    Company's one-to-four family residential loan portfolio consisted of ARMs.

  . The Company has continued its origination of consumer loans having terms
    to maturity that are significantly shorter than residential loans.

  . The Company has increased originations of commercial business and
    construction loans having adjustable or floating interest rates,
    relatively short terms to maturity, or a combination thereof.

  . Through the end of 1999, the Company sold substantially all of its newly
    originated conventional 30-year, fixed-rate residential mortgage loans
    with servicing retained.

At December 31, 2000, the Company held $132.8 million of fixed-rate one-to-four
family loans, of which $64.8 million had original terms of more than 15 years
(i.e., long-term loans). These loans are seasoned loans that have been carried
as part of the Company's permanent loan portfolio and are intended to be held
until maturity. Through December 31, 1999, the Company's policy was to sell
substantially all newly originated 30-year, fixed-rate loans. During 2000, the
Company began to retain substantially all newly originated 30-year, fixed-rate
loans, as part of its growth strategy which is discussed in the Business
Developments section. At December 31, 2000, there were no loans classified as
held for sale.

The Company currently does not enter into derivative financial instruments,
including futures, forwards, interest rate risk swaps, option contracts, or
other financial instruments with similar characteristics. However, the Company
is party to financial instruments with off-balance sheet risk in the normal
course of business to meet the financing needs of its customers such as
commitments to extend credit and letters of credit.

10
<PAGE>


MANAGEMENT'S DISCUSSION AND ANALYSIS
--------------------------------------------------------------------------------

Commitments to extend credit and letters of credit are not recorded as an asset
by the Company until the commitment is accepted and funded or the letter of
credit is exercised.

The Company's exposure to market risk is reviewed on a regular basis by the
Asset/Liability Committee. Interest rate risk is the potential of economic
losses due to future interest rate changes. These economic losses can be
reflected as a loss of future net interest income and/or a loss of current fair
market values. Tools used by management include the standard GAP report and the
quarterly Office of Thrift Supervision (the "OTS") report measuring interest
rate sensitivity. The OTS report provides the Company the economic value of
each type of asset, liability, and off-balance sheet contract under the
assumption that the Treasury yield curve shifts instantaneously and parallel up
and down by 100 to 300 basis points in 100 basis point increments. The Company
has no market risk sensitive instruments held for trading purposes. It appears
that the Company's market risk is reasonable at this time. The following
condensed GAP report summarizing the Company's interest rate sensitivity sets
forth the interest rate sensitivity of the Bank's assets and liabilities at
December 31, 2000. Except as stated below, the amounts of assets and
liabilities shown which reprice or mature during a particular period are
determined in accordance with the earlier of the term to repricing or maturity
of the asset or liability. The Bank has assumed that its passbook and statement
savings accounts, checking accounts and money market accounts, which totaled
$142.8 million at December 31, 2000, are withdrawn at the annual percentage
rates of 15.0%, 37.4% and 37.6%, respectively. Certificate accounts are assumed
to reprice at the date of contractual maturity.

<TABLE>
<CAPTION>
                                         Maturing or Repricing
                          -------------------------------------------------------
                                   4 Months
                            1-3     to One   Over 1-3  Over 3-5  Over 5
                           Months    Year     Years     Years     Years   Total
                          -------- --------  --------  --------  ------- --------
                           Amount   Amount    Amount    Amount   Amount   Amount
                          -------- --------  --------  --------  ------- --------
                                         (Dollars in Thousands)
<S>                       <C>      <C>       <C>       <C>       <C>     <C>
Fixed rate one-to-four
family (including
mortgage-backed
securities, commercial
real estate and
construction loans).....  $ 11,158 $ 18,294  $ 38,502  $ 27,513  $65,637 $161,104
Adjustable rate one-to-
four family (including
mortgage-backed
securities, commercial
real estate and
construction loans).....    42,113   67,660    17,831     7,552       --  135,156
Commercial business
loans...................    15,714    4,140     3,915       612       87   24,468
Consumer loans..........    18,784    6,757     9,464     3,551    1,479   40,035
Investment securities
and other...............    13,633    7,634    33,118    12,230    6,340   72,955
                          -------- --------  --------  --------  ------- --------
 Total interest-earning
 assets.................   101,402  104,485   102,830    51,458   73,543  433,718
                          -------- --------  --------  --------  ------- --------
Savings deposits........     2,107    6,322    13,255     9,577   24,937   56,198
Checking and money
market..................     8,120   24,360    32,998    12,896    8,270   86,644
Certificates............    59,988  122,250    51,381    11,285       --  244,904
FHLB advances...........    24,000    5,000        --        --       --   29,000
Other borrowings........        --       --        --        --       --       --
                          -------- --------  --------  --------  ------- --------
 Total interest-bearing
 liabilities............    94,215  157,932    97,634    33,758   33,207  416,746
                          -------- --------  --------  --------  ------- --------
Interest-earning assets
less interest-bearing
liabilities.............  $  7,187 $(53,447) $  5,196  $ 17,700  $40,336 $ 16,972
                          ======== ========  ========  ========  ======= ========
Cumulative interest-rate
sensitivity gap.........  $  7,187 $(46,260) $(41,064) $(23,364) $16,972
                          ======== ========  ========  ========  =======
Cumulative interest-rate
gap as a percentage of
assets..................     1.56% (10.06)%   (8.93)%   (5.08)%    3.69%
                          ======== ========  ========  ========  =======
</TABLE>

Certain shortcomings are inherent in the method of analysis presented in the
foregoing table. For example, although certain assets and liabilities may have
similar maturities or periods to repricing, they may react in different degrees
to changes in market interest rates. Also, the interest rates on certain types
of assets and liabilities may fluctuate in advance of changes in market
interest rates, while interest rates on other types may lag behind changes in
market rates. Additionally, certain assets, such as ARMs, have features which
restrict changes in interest rates on a short-term basis and over the life of
the asset. Further, in the event of a change in interest rates, prepayment and
early withdrawal levels could deviate significantly from those assumed in
calculating the table. Finally, the ability of many borrowers to service their
adjustable-rate debt may decrease in the event of an interest rate increase.

                                                                              11
<PAGE>


                                            MANAGEMENT'S DISCUSSION AND ANALYSIS
--------------------------------------------------------------------------------

Current Economic Climate
During the first month of 2001, the Federal Open Market Committee ("the FOMC")
lowered its target short-term interest rates by a total of one full percentage
point. The federal funds target went from 6.50% to 5.50% and the Federal
Reserve discount rate went from 6.00% to 5.00%. The federal funds rate is the
rate at which financial institutions borrow from each other, while the discount
rate is the rate which member banks borrow from the Federal Reserve. The FOMC
cited a slowing economy and the risk of a recession as the primary reasons for
lowering interest rates. Lower short-term interest rates would tend to
stimulate economic activity by reducing the financing costs on borrowed funds
for both businesses and individuals.

A slowing economy would likely result in some increase in problem assets, and
could possibly result in some increase in loan losses. As the economy slows,
the cash flows and profits of commercial customers would decrease, which could
result in an increase in delinquencies. Additionally, individual borrowers
could experience cash flow problems from job loss, reduction in investment
returns or other causes. This could also result in an increase in
delinquencies.

Lower interest rates, because of the Company's current structure of assets and
liabilities, could have a beneficial effect on the Company's interest rate
spread and results of operations. Since the Company has a negative cumulative
one-year gap of 10.1%, a reduction in market interest rates should have a
positive effect on net interest income and the results of operations. This is
due to liabilities maturing, and repricing, from their current rates to lower
rates, more quickly than assets will mature and reprice to lower rates. This
positive effect is mitigated by several factors, including, limits on the
company's ability to decrease rates on some of its deposit sources, such as
money market accounts and NOW accounts, and by the ability of borrowers to
repay loans ahead of schedule and refinance at lower rates. Management believes
that the Company's current level of interest rate sensitivity is reasonable,
particularly in light of the current trend in market rates. However,
significant fluctuations in interest rates may have an adverse effect on the
Company's financial condition and results of operations.

Business Developments
During the late 1990s, the Company experienced significant growth and
improvement in its office facilities and a widening of its market areas. This
was accomplished through the acquisition of a bank, the opening of several new
offices and the replacement of an outdated office building. There were also
significant changes and improvements in products and services brought about
through the use of technology.

During this same period, the Company began the process of shifting its
operating philosophy to a sales orientation and away from traditional
approaches to banking services. Management continues to support and encourage
this process, recognizing that changes, particularly of this type and
magnitude, require employee education and customer communication. These changes
in philosophy and culture require not only time but allocation of other Company
resources. None of these efforts were without cost, and have been, and, to some
degree, will continue to be, reflected in operating expenses and net income.

In the first quarter of 2000, management initiated an aggressive growth
strategy which was aimed at increasing deposits and growing the loan portfolio,
while continuing to reduce the size of the investment portfolio. The benefits
to be derived from this strategy included:

  . improved utilization of facilities and increased productivity of
    personnel;

  . increased capital leverage;

  . improved asset yields, due to increased commercial and consumer lending
    and the replacement of investments with fixed rate mortgage loans; and

  . improved results of operations.

12
<PAGE>


MANAGEMENT'S DISCUSSION AND ANALYSIS
--------------------------------------------------------------------------------

It was recognized that such a strategy would:

  . likely increase the cost of funds, due to aggressive deposit pricing and
    the potential need to borrow money at wholesale market rates; and

  . necessitate the assumption of an increased level of interest rate risk,
    due to aggressive loan pricing and the need to retain longer term, fixed-
    rate mortgages for the portfolio.

The Company is committed to continuing the profitable growth of its assets and
liabilities, if market conditions warrant, although management may control the
rate of growth. The Company monitors interest rates and economic conditions in
its own market, as well as on a regional and national basis.

During 2000, the Company began offering 100% financing on the purchase of
single-family, owner occupied homes. Loans under this program are required to
have private mortgage insurance covering the top 35% of the loan balance, and
can be either fixed rate or adjustable rate.

During 1999, the Company completed an addition to its main office building in
Kankakee, Illinois, which relocated the primary entrance, created some
additional office space and provided improved customer parking and building
access.

Since receiving regulatory approval in 1998, the Bank has offered trust
services. Although granted full trust powers, the Bank has initially focused on
personal trust services and limited employee plan services. Initially, it was
anticipated that the trust operations would generate operating losses through
the year ending December 31, 2000, after which it would break even or produce a
small profit. However, current projections indicate that trust operations will
continue to generate small operating losses in the near term. While the trust
department is continuing to increase its business, many of the contacts
currently being made and the referrals which have been received will not result
in profitable business until sometime in the future.

The Year 2000 posed a unique set of challenges to those industries, including
financial institutions, reliant on information technology. The Company's
cumulative costs of the Year 2000 project through the end of 1999 were
approximately $100,000. This included costs to upgrade equipment specifically
for the purpose of Year 2000 compliance and certain administrative
expenditures. Additional costs related to Year 2000 were limited, in 2000, to
payment of invoices, if any, received after the end of 1999.

As a result of the efforts of the Company's Year 2000 Committee, the Company
and its subsidiaries experienced an uneventful transition from 1999 to 2000.
There was no disruption of services to customers or with internal operations.
Among the benefits derived from the time, effort and costs related to Year 2000
was a complete review and update of the Company's disaster recovery and
contingency plans. As a result, the Company is now better prepared to deal with
technical or natural disasters which could threaten the Company's operations.

Financial Condition
Total assets increased by $55.2 million or 13.6% to $459.9 million at December
31, 2000, from $404.7 million at December 31, 1999. The increase in total
assets during 2000 was primarily attributed to an increase in loans which was
partially offset by decreases in cash and cash equivalents, investment
securities and mortgage-backed securities.

Cash and cash equivalents decreased by $5.0 million to $25.1 million at
December 31, 2000, from $30.1 million at December 31, 1999. The decrease was
primarily attributed to funding the net loan growth.

At December 31, 2000, investment securities available-for-sale totaled $57.2
million, a decrease of $8.0 million or 12.2% from the amount classified as
available-for-sale at December 31, 1999, as the Company continued to attempt to
shift its asset mix in favor of higher yielding loans. The decrease

                                                                              13
<PAGE>


                                            MANAGEMENT'S DISCUSSION AND ANALYSIS
--------------------------------------------------------------------------------
was the result of maturities and calls of $17.0 million of available-for-sale
securities, which was partially offset by a positive adjustment of $1.5 million
in the market value of available-for-sale securities and by purchases totaling
$7.5 million of available-for-sale securities, during the year ended December
31, 2000.

At December 31, 2000, mortgage-backed securities available-for-sale totaled
$16.1 million, a decrease of $1.4 million from the amount classified as
available-for-sale at December 31, 1999. The decrease in mortgage-backed
securities available-for-sale was the result of principal repayments totaling
$3.7 million, which was partially offset by a positive adjustment to market
value of $309,000 and by the purchase of $2.0 million in mortgage-backed
securities available-for-sale.

During the year ended December 31, 2000, net loans increased by $68.6 million
or 25.4% to $339.0 million from $270.4 million at December 31, 1999. The
increase was the result of the origination of $119.6 million of real estate
loans, the origination of $55.6 million of consumer and commercial business
loans and loan repayments which totaled $106.3 million. There were no loans
purchased during 2000. The year 2000 was a period of relatively stable market
rates, during which the Company maintained a high volume in shorter term
commercial loans. While repayments during 2000 increased over those in 1999,
absence of significant refinancing activity resulted in a lower level of
repayments than had been experienced in 1998.

There were no loans held for sale at either December 31, 2000 or December 31,
1999. During 2000, one loan of $77,000 was originated for sale and was sold.

The Company participates in government-sponsored, insured and guaranteed loan
programs, such as those offered by the Veterans' Administration and the Federal
Housing Authority. During 2000, no such loans were either originated or sold,
while during 1999, $505,000 of such loans were originated and sold to investors
with servicing released. Borrowers under these programs are notified at the
time of application that their loan will be sold to, and serviced by, a party
other than the Company.

Pursuant to its now expired agreement with Sallie Mae, during 2000 the Company
sold $251,000 in student loans at the time the loans were fully disbursed.
Currently, the Company has student loan application forms available, but it is
no longer involved in either the processing or disbursement of student loans.

Held-to-maturity investment securities and non-marketable equity securities
increased by $1.1 million to $1.9 million at December 31, 2000, from $807,000
at December 31, 1999. This increase was the result of the purchase of $1.2
million of held-to-maturity securities, which was partially offset by the
maturity or prepayment of $57,000 of such securities.

Real estate held for sale decreased by $91,000 (15.8%) to $484,000 at December
31, 2000 from $575,000 at December 31, 1999. The decrease was the result of the
disposal of three one-to-four family properties and the write downs to fair
value totaling $98,000. The decreases were partially offset by the transfer of
one one-to-four family property and one small commercial property to real
estate held for sale during the year ended December 31, 2000, and to additional
capital expenditures incurred.

Deposits increased by $33.1 million (9.3%) to $388.1 million at December 31,
2000, from $355.0 million at December 31, 1999. The increase resulted from a
$26.9 million increase in certificates of deposit, and a $6.2 million increase
in passbook savings, checking and money market accounts.

Borrowed money increased by $17.8 million (158.9%) to $29.0 million at December
31, 2000, from $11.2 million at December 31, 1999. Borrowed money consisted
entirely of advances from the Federal Home Loan Bank of Chicago (the "FHLB").
There were no borrowings using securities sold under agreements to repurchase
at December 31, 2000. During 2000, borrowed money was primarily used for both
short-term and long-term cash management requirements. Approximately $5 million
of borrowed money was used to purchase and retain mortgage-backed securities in
order

14
<PAGE>


MANAGEMENT'S DISCUSSION AND ANALYSIS
--------------------------------------------------------------------------------
to generate additional net interest income and as a method of increasing the
leverage on the Company's capital.

Stockholders' equity on a per share basis increased from $29.15 at December 31,
1999, to $31.11 at December 31, 2000. Stockholders' equity increased by $3.1
million (8.4%) to $39.3 million at December 31, 2000. The increase in
stockholders' equity was attributed to net income of $2.6 million, an increase
in the market value adjustment on available-for-sale securities, which, net of
provision for income taxes, amounted to $1.2 million and proceeds from the
exercise of stock options totaling $726,000. These increases were partially
offset by the payment of dividends of $607,000 during the year ended December
31, 2000 and the repurchase of 46,300 shares of Company common stock at a total
cost of $1.0 million.

Asset Quality
Asset quality is an important aspect of the economic condition of a financial
institution such as the Company. Measurements of asset quality are indicators
of both the current strength of a financial institution and of its ability to
generate the desired returns from its business activities. For more
information, please refer to the section on Provision for Losses on Loans,
which is part of the analysis of the Company's results of operations.

Company management performs a quarterly analysis of the adequacy of the
allowance for losses on loans. Management classifies problem assets into one of
four categories: Substandard, Doubtful, Loss and Special Mention. During the
year ended December 31, 2000, total classified assets increased by $1.1 million
to $5.9 million from $4.8 million at December 31, 1999. This increase was due
to increases of $11,000 in assets classified as Loss and $1.3 million in assets
classified as Special Mention. These increases were partially offset by a
decrease of $230,000 in assets categorized as Substandard. The increase in
assets categorized as Special Mention was due to the inclusion of loans to
three commercial borrowers with short-term cash flow problems, which management
believes will be resolved in 2001.

Non-performing assets include foreclosed assets, loans that have been placed on
non-accrual status, loans 90 days or more past due that continue to accrue
interest and restructured troubled debt. During the year ended December 31,
2000, total non-performing assets increased by $706,000, or 25.4%, to $3.5
million from $2.8 million at December 31, 1999. The increase was due to
increases of $207,000 in non-accruing one-to-four family loans, $824,000 in
accruing commercial business loans 90 days or more past due and $900,000 in
accruing construction and development loans 90 days or more past due. These
increases were partially offset by decreases of $797,000 in accruing commercial
real estate loans 90 days or more past due, $232,000 in accruing consumer loans
90 days or more past due, $80,000 in non-accruing commercial real estate loans,
$81,000 in foreclosed assets and $25,000 in restructured troubled debt. Based
on its review of the non-performing loans, management does not anticipate that
the Company will incur a material loss with respect to these non-performing
assets. However, there can be no assurance that adverse developments, either in
the general or local economy, or in the operation of individual businesses,
would not result in possible losses.

Results of Operations
The Company's results of operations depend primarily on the level of its net
interest and non-interest income and its control of operating expenses. Net
interest income depends upon the volume of interest-earning assets and
interest-bearing liabilities and the interest rate earned or paid on them.

                                                                              15
<PAGE>


                                            MANAGEMENT'S DISCUSSION AND ANALYSIS
--------------------------------------------------------------------------------
Net Interest Income Analysis
The following table presents for the periods indicated the total dollar amount
of interest income from average interest-earning assets and resultant yields,
as well as the interest expense on average interest-bearing liabilities,
expressed both in dollars and rates. No tax equivalent adjustments were made.
All average balances are monthly average balances. Non-accruing loans have been
included in the table as loans carrying a zero yield.

<TABLE>
<CAPTION>
                                                      Year Ended December 31,
                                                               2000
                                                    ---------------------------
                                                      Average   Interest
                                                    Outstanding Earned/  Yield/
                                                      Balance     Paid    Rate
                                                    ----------- -------- ------
<S>                                                 <C>         <C>      <C>
Interest-earning assets:
  Loans receivable (1).............................  $303,499   $24,220  7.98%
  Mortgage-backed securities (2)...................    17,488     1,222  6.99%
  Investments securities (3).......................    60,764     3,788  6.23%
  Other interest-earning assets....................    13,915       966  6.94%
  FHLB stock.......................................     1,903       143  7.51%
                                                     --------   -------
    Total interest-earning assets..................   397,569    30,339  7.63%
                                                     --------   -------
Other assets                                           29,827
                                                     --------
    Total assets...................................  $427,396
                                                     ========
Interest-bearing liabilities:
  Time deposits....................................  $231,198    12,981  5.61%
  Savings deposits.................................    59,637     1,502  2.52%
  Demand and NOW deposits..........................    77,776     1,835  2.36%
  Borrowings.......................................    18,662     1,119  6.00%
                                                     --------   -------
    Total interest-bearing liabilities.............   387,273    17,437  4.50%
                                                     --------   -------
Other liabilities..................................     2,951
                                                     --------
    Total liabilities..............................   390,224
                                                     --------
Stockholders' equity...............................    37,172
                                                     --------
    Total liabilities and stockholders' equity.....  $427,396
                                                     ========
Net interest income................................             $12,902
                                                                =======
Net interest rate spread...........................                      3.13%
                                                                         =====
Net earning assets.................................  $ 10,296
                                                     ========
Net yield on average interest-earning assets (net
 interest margin)..................................                      3.25%
                                                                         =====
Average interest-earning assets to average
 interest-bearing liabilities......................             102.66%
                                                                =======
</TABLE>
-----
(1) Calculated including loans held for sale, and net of deferred loan fees,
    loan discounts, loans in process and the allowance for losses on loans.
(2) Calculated including mortgage-backed securities available-for-sale.
(3) Calculated including investment securities available-for-sale and
    certificates of deposit.

16
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MANAGEMENT'S DISCUSSION AND ANALYSIS
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
      Year Ended December 31,                      Year Ended December 31,
               1999                                         1998
----------------------------------            ----------------------------------
  Average      Interest                         Average      Interest
Outstanding    Earned/      Yield/            Outstanding    Earned/      Yield/
  Balance        Paid        Rate               Balance        Paid        Rate
-----------    --------     ------            -----------    --------     ------
                         (Dollars in Thousands)
<S>            <C>          <C>               <C>            <C>          <C>
 $261,883       $20,407      7.79%              $248,148      $20,291      8.18%
   19,075         1,125      5.90%                24,409        1,486      6.09%
   69,980         4,138      5.91%                61,739        3,813      6.18%
   21,998         1,109      5.04%                34,879        1,809      5.19%
    1,808           121      6.69%                 1,848          123      6.66%
 --------       -------                         --------      -------
  374,744        26,900      7.18%               371,023       27,522      7.42%
 --------       -------                         --------      -------
   32,194                                         29,486
 --------                                       --------
 $406,938                                       $400,509
 ========                                       ========
 $210,899        11,141      5.28%              $204,622       11,465      5.60%
   61,413         1,503      2.45%                59,242        1,598      2.70%
   74,903         1,683      2.25%                71,010        1,775      2.50%
   18,769         1,016      5.41%                23,722        1,288      5.43%
 --------       -------                         --------      -------
  365,984        15,343      4.19%               358,596       16,126      4.50%
 --------       -------                         --------      -------
    2,799                                          2,876
 --------                                       --------
  368,783                                        361,472
 --------                                       --------
   38,155                                         39,037
 --------                                       --------
 $406,938                                       $400,509
 ========                                       ========
                $11,557                                       $11,396
                =======                                       =======
                             2.99%                                         2.92%
                             =====                                         =====
 $  8,760                                       $ 12,427
 ========                                       ========
                             3.08%                                         3.07%
                             =====                                         =====
                102.39%                                       103.47%
                =======                                       =======
</TABLE>

                                                                              17
<PAGE>


                                            MANAGEMENT'S DISCUSSION AND ANALYSIS
--------------------------------------------------------------------------------

The following table sets forth the weighted average yields on the Company's
interest-earning assets, the weighted average interest rates on interest-
bearing liabilities and the interest rate spread between the Company's weighted
average yields and rates at the dates indicated. Non-accruing loans have been
included in the table as loans carrying a zero yield.

<TABLE>
<CAPTION>
                                                               At December 31,
                                                              -----------------
                                                              2000  1999  1998
                                                              ----- ----- -----
<S>                                                           <C>   <C>   <C>
Weighted average yield on:
  Loans receivable (1)....................................... 8.12% 7.78% 7.77%
  Mortgaged-backed securities (2)............................ 7.09% 6.41% 7.18%
  Investment securities (3).................................. 6.04% 5.85% 5.89%
  Other interest-earning assets.............................. 6.08% 4.44% 4.60%
  Combined weighted average yield on interest-earning assets. 7.74% 7.22% 7.09%
Weighted average rate paid on:
  Saving deposits............................................ 2.57% 2.50% 2.44%
  Demand and NOW deposits.................................... 2.55% 2.19% 2.27%
  Certificates............................................... 6.09% 5.42% 5.63%
  Borrowings................................................. 6.25% 5.37% 5.34%
  Combined weighted average rate paid on interest-bearing
   liabilities............................................... 4.89% 4.26% 4.41%
Spread....................................................... 2.85% 2.96% 2.68%
</TABLE>
-----
(1) Includes loans held for sale.
(2) Includes mortgage-backed securities available for sale.
(3) Includes investment securities available for sale and certificates of
    deposit.

The following schedule 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 increase related to
higher outstanding balances and that due to the levels and volatility of
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>
                          Year Ended December 31,    Year Ended December 31,
                               2000 vs. 1999              1999 vs. 1998
                          ------------------------- ---------------------------
                            Increase                   Increase
                           (Decrease)                 (Decrease)
                             Due to                     Due to
                          --------------            ---------------
                                           Total                       Total
                                          Increase                    Increase
                          Volume   Rate  (Decrease) Volume   Rate    (Decrease)
                          ------  ------ ---------- ------  -------  ----------
                                        (Dollars in thousands)
<S>                       <C>     <C>    <C>        <C>     <C>      <C>
Interest earning assets:
  Loans receivable....... $3,305  $  508   $3,813   $1,104  $  (988)   $ 116
  Mortgage-backed
   securities............   (101)    198       97     (316)     (45)    (361)
  Investment securities..   (560)    210     (350)     484     (159)     325
  Other interest-earning
   assets................   (482)    339     (143)    (650)     (50)    (700)
  Federal Home Loan Bank
   stock.................      6      16       22       (3)       1       (2)
                          ------  ------   ------   ------  -------    -----
    Total interest-
     earning assets...... $2,168  $1,271   $3,439   $  619  $(1,241)   $(622)
                          ======  ======   ======   ======  =======    =====
Interest bearing
 liabilities:
  Certificate accounts... $1,116  $  724   $1,840   $  345  $  (669)   $(324)
  Savings deposits.......    (44)     43       (1)      57     (152)     (95)
  Demand and NOW
   deposits..............     67      85      152       94     (186)     (92)
  Borrowings.............     (7)    110      103     (267)      (5)    (272)
                          ------  ------   ------   ------  -------    -----
    Total interest-
     bearing liabilities. $1,132  $  962   $2,094   $  229  $(1,012)   $(783)
                          ======  ======   ======   ======  =======    =====
Net interest income......                  $1,345                      $ 161
                                           ======                      =====
</TABLE>

18
<PAGE>


MANAGEMENT'S DISCUSSION AND ANALYSIS
--------------------------------------------------------------------------------
Comparison of Operating Results for the Year Ended December 31, 2000, to the
Year Ended December 31, 1999

General
Consolidated net income was $2.6 million, or $1.99 per share (diluted), for the
year ended December 31, 2000 compared to $1.8 million, or $1.28 per share
(diluted), for the year ended December 31, 1999. This 50% increase occurred
primarily due to the successful implementation of the growth strategy
initiative during 2000.

Net Interest Income
Net interest income was $12.9 million for the year ended December 31, 2000, an
increase of $1.3 million, or 11.6%, during 2000 as compared to 1999. Net
interest income increased primarily due to the increase in interest income
exceeding the increase in interest expense. The increase in interest income
resulted from increases in both the average balance of and the average rate of
interest on interest-earning assets. The increase in interest expense resulted
from increases in both the average balance of and the average rate of interest
on interest-bearing liabilities.

Interest Income
Interest income totaled $30.3 million for the year ended December 31, 2000, an
increase of $3.4 million or 12.8%, as compared to $26.9 million for 1999. This
resulted from an increase in the yield earned on assets from 7.18% during 1999
to 7.63% during 2000, and from a $22.9 million increase in average interest-
earning assets from $374.7 million during 1999 to $397.6 million during 2000.

Interest on loans was $24.2 million for 2000, an increase of $3.8 million, or
18.7%, as compared to 1999. This was primarily attributable to the effect of an
increase of $41.6 million in average outstanding loans, and by an increase in
the yield on loans from 7.79% during 1999 to 7.98% during 2000. The increase in
interest income on loans and the decrease in interest earned on investment
securities discussed below resulted in part from the Company's continued
efforts to shift its asset mix to higher yielding loans.

Interest earned on mortgage-backed securities was $1.2 million for 2000, as
compared to $1.1 million for 1999. This represented an increase of 8.6% between
the periods and was primarily due to an increase in the yield on mortgage-
backed securities to 6.99% during 2000 from 5.90% during 1999, which was
partially offset by a decrease of $1.6 million in average mortgage-backed
securities.

Interest earned on investment securities and other interest-earning assets and
dividends on FHLB stock totaled $4.9 million for 2000, as compared to $5.4
million for 1999. This represented a decrease of 8.8% during 2000. This was
primarily due to a decrease in the average balance of these assets from $93.8
million in 1999 to $76.6 million in 2000, which was partially offset by an
increase in average yield on these assets from 5.72% in 1999 to 6.39% in 2000.

Interest Expense
Interest expense was $17.4 million for 2000, or $2.1 million (13.7%) greater
than in 1999. This was due to an increase in average yield to 4.50% for 2000
from 4.19% for 1999 and an increase of $21.3 million in the average balance of
interest-bearing liabilities to $387.3 million for 2000 from $366.0 million for
1999. The higher average yield during 2000 was attributable to increases in the
average cost of deposit accounts, which resulted from an aggressive growth
strategy which increased the rates of the average balance of certificates of
deposit to average total deposits from 60.7% in 1999 to 62.7% in 2000,
certificates of deposit renewing at slightly higher rates during most of the
year, and from an increase in the use of borrowing as a funding source.

During 2000, $1.1 million of the Company's interest expense, compared to $1.0
million during 1999, related to advances from the FHLB and from securities sold
under agreements to repurchase.

                                                                              19
<PAGE>


                                            MANAGEMENT'S DISCUSSION AND ANALYSIS
--------------------------------------------------------------------------------

Provision for Losses on Loans
Based on management's review of the adequacy of the allowance for losses on
loans, a $50,000 provision for losses on loans was recorded during 2000. No
provision for losses on loans was deemed necessary during 1999. Charge-offs
during 2000 decreased by more than half to $135,000, from $287,000 during 1999.
Recoveries during 2000 decreased to $70,000 from $83,000 in 1999. The ratio of
net charge-offs to average outstanding loans decreased to 0.02% in 2000 from
0.08% in 1999.

The allowance for losses on loans is maintained at a level believed adequate by
management to absorb potential losses in the loan portfolio. Management's
methodology to determine the adequacy of the allowance for losses on loans
considers specific credit reviews, past loan loss experience, current economic
conditions and trends, and the volume, growth and composition of the loan
portfolio. Based upon the Company's quarterly analysis of the adequacy of the
allowance for losses on loans, considering remaining collateral of loans with
more than a normal degree of risk, historical loan loss percentages and
economic conditions, it is management's belief that the $2.2 million allowance
for losses on loans at December 31, 2000 was adequate. However, there can be no
assurance that the allowance for losses on loans will be adequate to cover all
losses.

Each credit on the Company's internal loan "watch list" is evaluated
periodically to estimate potential losses. In addition, minimum loss estimates
for each category of watch list credits also are provided for based on
management's judgment which considers past loan loss experience and other
factors. For installment and real estate mortgage loans, specific allocations
are based on past loss experience adjusted for recent portfolio growth and
economic trends. The total of the estimated loss exposure resulting from the
analysis is considered the "allocated" portion of the allowance for losses on
loans. The amounts specifically provided for individual loans and pools of
loans are supplemented by an unallocated portion of the allowance for losses on
loans. This unallocated amount is determined based on management's judgment
which considers, among other things, the risk of error in the specific
allocations, other potential exposure in the loan portfolio, economic
conditions and trends, and other factors.

The allowance for losses on loans is charged when management determines that
the prospects of recovery of the principal of a loan have significantly
diminished. Subsequent recoveries, if any, are credited to the allowance for
losses on loans. Credit card loans are charged off at the earlier of notice of
bankruptcy, when at least 120 days past due, or when otherwise deemed to be
uncollectible. All other installment loans that are 90 to 120 days past due are
charged off monthly unless the loans are insured for credit loss or where
scheduled payments are being received. Real estate mortgage loans are written
down to fair value upon the earlier of receipt of a deed of foreclosure or upon
completion of foreclosure proceedings. Commercial and other loan charge-offs
are made based on management's on-going evaluation of non-performing loans.

The following is a summary of loan loss experience and nonperforming assets for
the years ended December 31, 2000 and 1999:

<TABLE>
<CAPTION>
                                                                2000     1999
                                                              -------- --------
<S>                                                           <C>      <C>
Total loans.................................................. $341,113 $272,531
Total assets.................................................  459,894  404,718
Allowance for losses on loans................................    2,156    2,171
Net loan charge-offs.........................................       65      204
Net loan charge-offs as a percentage of average loans........    0.02%    0.08%
Nonperforming loans.......................................... $  2,570 $  1,748
Nonperforming assets.........................................    3,487    2,781
Nonperforming assets to total assets.........................    0.76%    0.69%
Allowance for losses on loans to total loans.................    0.63%    0.80%
Allowance for losses on loans to nonperforming loans.........    83.9%   124.2%
</TABLE>

The Company will continue to monitor and adjust its allowance for losses on
loans based on management's analysis of its loan portfolio and general economic
conditions.

20
<PAGE>


MANAGEMENT'S DISCUSSION AND ANALYSIS
--------------------------------------------------------------------------------

Other Income
Other income decreased $451,000 for 2000 to $2.5 million, compared to $3.0
million for 1999. The 15.2% decrease in other income was primarily related to a
decrease of $304,000 in the net gain on the sale of office-related properties,
and to decreases of $19,000 in gain on the sale of real estate held for sale,
$11,000 in gain on sale of loans held for sale and $149,000 in other income.
These decreases were partially offset by increases of $18,000 in fee income and
$65,000 in insurance commissions. The decrease in net gain on the sale of
office-related properties was the result of a $316,000 gain during 1999 which
did not recur during 2000. The $149,000 decrease in other income was primarily
the result of the receipt, during 1999, of rental income of $171,000 on a
commercial building in real estate held for sale, which did not recur during
2000 due to the sale of the building in 1999. Additionally, appraisal fees
decreased by $26,000 in 2000 compared to 1999. The increase in fee income was
attributable to the increase in outstanding balances of transaction accounts
through growth.

Other Expenses
Other expenses were $11.5 million for 2000, as compared to $11.9 million for
1999. This represented a decrease of $428,000 or 3.6% during 2000. The decrease
in other expenses during 2000 was reflected in all but three categories of such
expense. Federal insurance premiums decreased by $96,000 (56.8%), occupancy
decreased by $9,000 (0.8%), furniture and equipment expense decreased by
$15,000 (2.0%), advertising expense decreased by $37,000 (9.9%), the
amortization of intangibles decreased by $13,500 (3.5%), data processing
services decreased by $30,000 (7.7%) and other general and administrative
expenses decreased by $350,000 (15.3%). These decreases were partially offset
by increases in compensation and benefits of $24,000 (0.4%), the provision for
losses on foreclosed assets of $95,000 (215.9%) and telephone and postage of
$3,000 (0.9%). The decreases in expenses, as well as the modest increases in
two of the three categories which increased, was primarily due to ongoing
efforts to contain costs. The increase in provisions for losses on foreclosed
assets was primarily due to one foreclosed property which had experienced
substantial deterioration during the period preceding foreclosure.

Income Taxes
Federal income tax expense was $1.3 million for 2000, as compared to $862,000
for 1999. This increase was primarily the result of the increase in pre-tax
income. The Company's effective tax rate was 34% for the year ended December
31, 2000 and 33% for the year ended December 31, 1999. A summary of the
significant tax components is provided in Note 10 of the Notes to Consolidated
Financial Statements included later in this report.

                                                                              21
<PAGE>


                                            MANAGEMENT'S DISCUSSION AND ANALYSIS
--------------------------------------------------------------------------------

Comparison of Operating Results for the Year Ended December 31, 1999, to the
Year Ended December 31, 1998

General
Consolidated net income was $1.8 million, or $1.28 per share (diluted), for the
year ended December 31, 1999 compared to $2.3 million, or $1.56 per share
(diluted), for the year ended December 31, 1998.

Net Interest Income
Net interest income was $11.6 million for the year ended December 31, 1999, an
increase of $162,000, or 1.4%, during 1999 as compared to 1998. Net interest
income increased primarily due to the decrease in interest expense resulting
from the decrease in the rate of interest-bearing liabilities exceeding the
decrease in interest income resulting from the decrease in the rate of
interest-earning assets.

Interest Income
Interest income totaled $26.9 million for the year ended December 31, 1999, a
decrease of $622,000 or 2.3%, as compared to $27.5 million for 1998. This
resulted from a decrease in the yield earned on assets from 7.42% during 1998
to 7.18% during 1999, which was partially offset by a $3.7 million increase in
average interest-earning assets from $371.0 million during 1998 to $374.7
million during 1999.

Interest on loans was $20.4 million for 1999, an increase of $116,000, or 0.6%,
as compared to 1998. This was primarily attributable to the effect of an
increase of $13.7 million in average outstanding loans, which was partially
offset by a decrease in the yield on loans from 8.18% during 1998 to 7.79%
during 1999.

Interest earned on mortgage-backed securities was $1.1 million for 1999, as
compared to $1.5 million for 1998. This represented a decrease of 24.3% between
the periods and was primarily due to a decrease of $5.3 million in average
mortgage-backed securities and a decrease in the yield on mortgage-backed
securities to 5.90% during 1999 from 6.09% during 1998.

Interest earned on investment securities and other interest-earning assets and
dividends on FHLB stock totaled $5.4 million for 1999, as compared to $5.7
million for 1998. This represented a decrease of 6.6% during 1999. This was
primarily due to a decrease in the average balance of these assets from $98.5
million in 1998 to $93.8 million in 1999 and a lower average yield on these
assets from 5.83% in 1998 to 5.72% in 1999.

Interest Expense
Interest expense was $15.3 million for 1999, or $784,000 (4.9%) less than in
1998. This was due to a decrease in average yield to 4.19% for 1999 from 4.50%
for 1998, which was partially offset by an increase of $7.4 million in the
average balance of interest-bearing liabilities to $366.0 million for 1999 from
$358.6 million for 1998. The lower average yield during 1999 was attributable
to decreases in the average cost of deposit accounts, which resulted from lower
market rates during most of the year, and from a reduction in higher cost
borrowings.

During 1999, $1.0 million of the Company's interest expense, compared to $1.3
million during 1998, related to advances from the FHLB and from securities sold
under agreements to repurchase.

22
<PAGE>


MANAGEMENT'S DISCUSSION AND ANALYSIS
--------------------------------------------------------------------------------

Provision for Losses on Loans
No provision for losses on loans was deemed necessary during either 1999 or
1998 based on management's review of the adequacy of the allowance for losses
on loans subsequent to the acquisition of $398,000 in allowance for losses on
loans as part of the purchase of Coal City National Bank ("CCNB") in January,
1998. Charge-offs during 1999 increased to $287,000, from $224,000 during 1998.
However, recoveries during 1999 increased to $83,000 from $71,000 in 1998. The
ratio of net charge-offs to average outstanding loans increased to 0.08% in
1999 from 0.06% in 1998.

Other Income
Other income increased $488,000 for 1999 to $3.0 million, compared to $2.5
million for 1998. The 19.7% increase in other income was primarily related to a
net gain of $316,000 on the sale of office-related properties, and to increases
of $251,000 in fee income, $17,000 in gain on the sale of real estate held for
sale and $59,000 in other income. These increases were partially offset by
decreases of $148,000 in gain on the sale of loans and $8,000 in insurance
commissions. The increase in fee income was attributable to the increase in
outstanding balances of transaction accounts through normal growth, and
attributable to the Company's ongoing review of service charges. The decrease
in gain on the sale of loans was the result of a decrease in the volume of
loans originated for sale due to increasing market rates during 1999. During
1999, the Company sold $7.2 million fixed-rate one-to-four family loans from
its held for sale portfolio, as compared to $35.1 million of similar sales
during 1998.

Other Expenses
Other expenses were $11.9 million for 1999, as compared to $10.4 million for
1998. This represented an increase of $1.5 million or 14.1% during 1999. The
increase in other expenses during 1999 was reflected in all but one category of
such expense. The amortization of intangible assets decreased by $16,000 (4.0%)
during 1999. The increases were due to several factors, including: the
operation of fifteen offices throughout 1999 compared to nine offices at the
start of 1998, additional costs related to staffing changes in the second year
of operations of a trust department; higher than anticipated operating costs
associated with the in-house item processing operation; and, an ongoing high
level of training required to continue moving the Company to a sales oriented
business approach. Compensation and benefits increased by $516,000 (9.3%),
occupancy increased by $200,000 (22.0%), furniture and equipment expense
increased by $116,000 (19.5%), advertising expense increased by $43,000
(12.8%), the provision for losses on foreclosed assets increased by $23,000
(114.9%) and other general and administrative expenses increased by $573,000
(33.5%).

Income Taxes
Federal income tax expense was $862,000 for 1999, as compared to $1.2 million
for 1998. This decrease was primarily the result of a decrease in pre-tax
income. The Company's effective tax rate was 33% for the years ended December
31, 1999 and 1998. A summary of the significant tax components is provided in
Note 10 of the Notes to Consolidated Financial Statements included later in
this report.

                                                                              23
<PAGE>


                                            MANAGEMENT'S DISCUSSION AND ANALYSIS
--------------------------------------------------------------------------------

Liquidity and Capital Resources
The Company's primary sources of funds are deposits, proceeds from principal
and interest payments on loans and investment and mortgage-backed securities.
While maturities and scheduled amortization of loans and mortgage-backed
securities are a predictable source of funds, deposit flows and mortgage loan
prepayments are greatly influenced by general interest rates, economic
conditions and competition. In a period of declining interest rates, mortgage
loan prepayments generally increase. As a result, the proceeds from mortgage
loan prepayments are invested in lower yielding loans or other investments
which have the effect of reducing interest income. In a period of rising
interest rates, mortgage loan prepayments generally decrease and the proceeds
from such prepayments are invested in higher yielding loans or investments
which would have the effect of increasing interest income.

The Company's liquidity, represented by cash and cash equivalents, is a result
of its operating, investing and financing activities. These activities are
summarized below for the years ended December 31, 2000, 1999 and 1998,
respectively:

<TABLE>
<CAPTION>
                                                    Years Ended December 31,
                                                   ----------------------------
                                                     2000      1999      1998
                                                   --------  --------  --------
                                                     (Dollars in Thousands)
<S>                                                <C>       <C>       <C>
Net income.......................................  $  2,584  $  1,759  $  2,289
Adjustments to reconcile net income to net cash
provided (used) by operating activities..........     1,437     3,724      (774)
                                                   --------  --------  --------
Net cash provided by operating activities........     4,021     5,483     1,515
Net cash used by investing activities............   (59,140)  (14,903)  (12,591)
Net cash provided (used) by financing activities.    50,172    (7,477)   13,496
                                                   --------  --------  --------
Net increase (decrease) in cash and cash
equivalents......................................    (4,947)  (16,897)    2,420
Cash and cash equivalents at beginning of period.    30,094    46,991    22,826
Cash acquired with Coal City National Bank.......        --        --    21,745
                                                   --------  --------  --------
Cash and cash equivalents at end of period.......  $ 25,147  $ 30,094  $ 46,991
                                                   ========  ========  ========
</TABLE>

The primary investing activities of the Company are the origination of loans,
the purchase of investment and mortgage-backed securities, and, to a lesser
extent, the purchase of loans and loan participations. During the years ended
December 31, 2000, 1999 and 1998, respectively, the Company's loan originations
totaled $175.5 million, $133.5 million and $142.7 million, respectively.
Purchases of loans totaled $1.4 million and $300,000 for 1999 and 1998,
respectively. There were no loans purchased in 2000. Purchases of mortgage-
backed securities totaled $2.0 million, $7.0 million and $8.8 million for 2000,
1999 and 1998, respectively. Other investment activities included the purchase
of investment securities which totaled $8.7 million, $17.0 million and $57.1
million for 2000, 1999 and 1998, respectively. During 2000, 1999 and 1998,
these activities were funded primarily by maturities of investment securities
totaling $17.1 million, $24.0 million and $33.4 million, respectively, by
principal repayments on loans and mortgage-backed securities and proceeds from
the sale of mortgaged-backed securities totaling $110.0 million, $107.7 million
and $133.5 million, respectively, and, by sales of investment securities
totaling $2.0 million in 1999. There were no sales of investment securities
during either 2000 or 1998.

The major sources of cash from financing activities during 2000 were a net
increase of $33.0 million in deposit accounts and a net increase of $17.8
million in borrowed money. Additionally, financing activities for 2000 included
the purchase of common stock totaling $1.0 million, the payment of dividends to
stockholders of $607,000 and proceeds from the exercise of stock options of
$726,000. The major source of cash from financing activities during 1999 was a
net increase of $8.1 million in deposit accounts. Additionally, financing
activities for 1999 included the purchase of common stock totaling $3.5
million, the payment of dividends to stockholders totaling $634,000 and the net
repayment of borrowings totaling $11.7 million. The major source of cash from
financing activities during 1998 was a net increase of $14.8 million in deposit
accounts. Additionally, financing activities for 1998 included the purchase of
common stock totaling $347,000, the payment of dividends to stockholders
totaling $661,000 and the net repayment of borrowings totaling $595,000. Net
cash used in investing activities was offset by cash provided by

24
<PAGE>


MANAGEMENT'S DISCUSSION AND ANALYSIS
--------------------------------------------------------------------------------
operating and financing activities for 2000. Net cash used in financing
activities and investing activities was offset by the net cash provided by
operating activities for 1999. Net cash provided from financing activities was
used to offset the net cash used in investing activities for 1998.

The Bank is required to maintain minimum levels of liquid assets as defined by
the OTS regulations. This requirement, which may be waived at the discretion of
the OTS depending upon economic conditions and deposit flows, currently
requires the Bank to maintain, for each calendar quarter, an average daily
balance of liquid assets (including cash and cash equivalent investments) equal
to at least 4% of its liquidity base as of the end of the preceding calendar
quarter or the average daily balance of its liquidity base during the preceding
calendar quarter. The liquidity base consists of net withdrawable accounts plus
borrowings repayable in 12 months or less. The Bank's regulatory liquidity
ratio was 13.8% at December 31, 2000.

The Company's most liquid assets are cash, cash in banks and highly liquid,
short-term investments. The levels of these assets are dependent on the
Company's operating, financing, lending and investing activities during any
given period. At December 31, 2000, 1999 and 1998, these liquid assets totaled
$25.1 million, $30.1 million, and $47.0 million, respectively. The level of
liquid assets at December 31, 2000, while less than the previous two year ends,
was inflated by significant year-end, holiday weekend deposits at the end of
2000. The high level of liquid assets at December 31, 1999 was due, in part, to
larger than normal levels of cash on hand at the Company's offices during the
weeks preceding the Year 2000. The very high level of liquid assets at
December 31, 1998 was due to the net acquisition of cash with the CCNB
acquisition, loan principal repayments and loan sales. Additionally, securities
available-for-sale may be utilized to meet liquidity needs.

Liquidity management for the Company is both a daily and long-term function of
the Company's management strategy. Excess funds are generally invested in
short-term investments such as federal funds. In the event that the Company
should require funds beyond its ability to generate them internally, additional
sources of funds are available, including FHLB advances. At December 31, 2000,
the Company had outstanding borrowings totaling $29.0 million, all of which
were advances from the FHLB.

At December 31, 2000, the Company had outstanding commitments to originate
mortgage loans of $6.5 million, of which 96.6% were at fixed interest rates.
These commitments provided that the loans would be secured by properties
located, for the most part, in the Company's primary market areas. The Company
anticipates that it will have sufficient funds available to meet its current
loan commitments. Certificates of deposit which were scheduled to mature in one
year or less from December 31, 2000, totaled $175.8 million. Based upon the
historically stable nature of the Company's deposit base, management believes
that a significant portion of such deposits will remain with the Company. The
Company also had unused lines of credit provided to customers of $26.4 million
and $26.1 million at December 31, 2000, and 1999, respectively.

At December 31, 2000, the Bank exceeded all of its capital requirements on a
fully phased-in basis. See Note 11 of the Notes to Consolidated Financial
Statements and the discussion of the Company's financial condition above.

Dividends
A federal thrift institution is precluded under current regulations of the OTS
from declaring or paying a dividend or repurchasing any of its common stock if
either of such actions would reduce the institution's core, tangible or risk-
based capital levels below its liquidation account balance or any of the three
current minimum regulatory capital requirements. Under presently effective OTS
regulations, the maximum amount of dividends that a thrift institution will be
permitted to pay in any calendar year without prior OTS approval is limited to
the institution's year-to-date net income plus its retained net income for the
preceding two years. The Bank declared and paid dividends totaling $1.3
million, $1.0 million and $1.2 million to the Company, its sole stockholder,
during 2000, 1999 and 1998, respectively.

                                                                              25
<PAGE>


                                            MANAGEMENT'S DISCUSSION AND ANALYSIS
--------------------------------------------------------------------------------

Cash dividends in the total amount of $.48 per share were paid during each year
from 1998 through 2000. The Board of Directors of the Company has declared a
quarterly cash dividend of $.12 per share payable on February 28, 2001, to
stockholders of record as of February 9, 2001. Future dividends will depend
primarily upon the Company's earnings, financial condition and need for funds,
as well as restrictions imposed by regulatory authorities regarding dividend
payments and net worth requirements.

Safe Harbor Statement under the Private Securities Litigation Reform Act of
1995
This report, including the Letter to Stockholders, contains certain forward-
looking statements within the meaning of Section 27A of the Securities Act of
1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as
amended. The Company intends such forward-looking statements to be covered by
the safe harbor provisions for forward-looking statements contained in the
Private Securities Reform Act of 1995, and is including this statement for
purposes of these safe harbor provisions. Forward-looking statements, which are
based on certain assumptions and describe future plans, strategies and
expectations of the Company, are generally identifiable by use of the words
"believe," "expect," "intend," "anticipate," "estimate," "project" or similar
expressions. The Company's ability to predict results or the actual effect of
future plans or strategies is inherently uncertain. Factors which could have a
material adverse affect on the operations and future prospects of the Company
and the subsidiaries include, but are not limited to, changes in: interest
rates, general economic conditions, legislative/regulatory changes, monetary
and fiscal policies of the U. S. Government, including policies of the U. S.
Treasury and the Federal Reserve Board, the quality or composition of the loan
or investment portfolios, demand for loan products, deposit flows, competition,
demand for financial services in the Company's market area, implementation by
the Company of new technologies, the Company's ability to develop and maintain
secure and reliable electronic systems and accounting principles, policies and
guidelines. These risks and uncertainties should be considered in evaluating
forward-looking statements and undue reliance should not be placed on such
statements. Further information concerning the Company and its business,
including additional factors that could materially affect the Company's
financial results, is included in the Company's filings with the Securities and
Exchange Commission.

26
<PAGE>


INDEPENDENT AUDITOR'S
REPORT
--------------------------------------------------------------------------------
INDEPENDENT AUDITOR'S REPORT
--------------------------------------------------------------------------------

To the Stockholders and Board of Directors
Kankakee Bancorp, Inc.
Kankakee, Illinois

We have audited the accompanying consolidated statements of financial condition
of Kankakee Bancorp, Inc. and Subsidiary as of December 31, 2000 and 1999, and
the related consolidated statements of income, stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 2000. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Kankakee Bancorp, Inc. and Subsidiary as of December 31, 2000 and 1999, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 2000, in conformity with generally accepted
accounting principles.

/s/ McGladry & Pullen, LLP

Champaign, Illinois
February 2, 2001

                                                                              27
<PAGE>

                 CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
                   -----------------------------------------
                     KANKAKEE BANCORP, INC. AND SUBSIDIARY

<TABLE>
<CAPTION>
                                                            December 31,
                                                      -------------------------
                                                          2000         1999
                                                      ------------ ------------
<S>                                                   <C>          <C>
Assets
  Cash and due from banks............................ $ 18,707,762 $ 19,118,528
  Federal funds sold.................................    1,329,776    6,321,834
  Money market funds.................................    5,109,735    4,653,221
                                                      ------------ ------------
   Cash and cash equivalents.........................   25,147,273   30,093,583
                                                      ------------ ------------
  Certificates of deposit............................       50,000       50,000
                                                      ------------ ------------
  Securities:
  Investment securities:
    Available-for-sale, at fair value................   57,169,644   65,131,965
    Held-to-maturity, at cost (fair value: 2000
     $1,434,708; 1999 $284,038)......................    1,447,846      306,241
                                                      ------------ ------------
    Total investment securities......................   58,617,490   65,438,206
                                                      ------------ ------------
  Mortgage-backed securities:
    Available-for-sale, at fair value................   16,050,792   17,490,841
    Held-to-maturity, at cost (fair value: 2000
     $67,727; 1999 $109,819).........................       66,867      108,724
                                                      ------------ ------------
    Total mortgage-backed securities.................   16,117,659   17,599,565
                                                      ------------ ------------
  Nonmarketable equity securities, at cost...........      501,000      501,100
  Loans, net of allowance for losses on loans of
   $2,156,420 in 2000 and $2,171,040 in 1999.........  338,956,136  270,360,059
  Real estate held for sale..........................      484,320      575,164
  Federal Home Loan Bank stock, at cost..............    2,112,000    1,811,400
  Office properties and equipment....................    8,594,823    8,850,579
  Accrued interest receivable........................    3,282,214    2,889,498
  Prepaid expenses and other assets..................    1,225,070    1,352,138
  Intangible assets..................................    4,805,849    5,196,634
                                                      ------------ ------------
Total assets......................................... $459,893,834 $404,717,926
                                                      ============ ============
</TABLE>

28
<PAGE>


<TABLE>
<CAPTION>
                                                          December 31,
                                                    --------------------------
                                                        2000          1999
                                                    ------------  ------------
<S>                                                 <C>           <C>
Liabilities and Stockholders' Equity
  Liabilities
    Deposits
      Noninterest bearing..........................  $25,357,749   $21,455,669
      Interest bearing.............................  362,692,592   333,521,782
    Short term borrowings..........................   14,000,000            --
    Other borrowings...............................   15,000,000    11,200,000
    Advance payments by borrowers for taxes and
     insurance.....................................    1,813,412     1,548,998
    Other liabilities..............................    1,740,938       743,750
                                                    ------------  ------------
  Total liabilities................................  420,604,691   368,470,199
                                                    ------------  ------------

  Stockholders' Equity
    Preferred stock, $.01 par value; authorized,
     500,000 shares; none outstanding..............           --            --
    Common stock, $.01 par value; authorized
     3,500,000 shares; shares issued 1,750,000.....       17,500        17,500
    Additional paid-in capital.....................   15,328,249    16,019,390
    Retained income, partially restricted..........   34,285,960    32,309,425
    Treasury stock (486,892 and 506,617 shares in
     2000 and 1999, respectively), at cost.........  (10,458,535)  (10,851,899)
    Accumulated other comprehensive income (loss)..      115,969    (1,095,478)
                                                    ------------  ------------
  Total stockholders' equity before Employee Stock
   Ownership Plan Loan.............................   39,289,143    36,398,938
    Employee Stock Ownership Plan Loan.............           --      (151,211)
                                                    ------------  ------------
  Total stockholders' equity.......................   39,289,143    36,247,727
                                                    ------------  ------------
Total liabilities and stockholders' equity......... $459,893,834  $404,717,926
                                                    ============  ============
</TABLE>

          See Accompanying Notes to Consolidated Financial Statements.

                                                                              29
<PAGE>

                       CONSOLIDATED STATEMENTS OF INCOME
                        -------------------------------
                     KANKAKEE BANCORP, INC. AND SUBSIDIARY

<TABLE>
<CAPTION>
                                                 Years Ended December 31,
                                            -----------------------------------
                                               2000        1999        1998
                                            ----------- ----------- -----------
<S>                                         <C>         <C>         <C>
Interest income:
  Loans.................................... $24,220,459 $20,406,989 $20,291,307
  Investment securities and other..........   4,897,215   5,368,712   5,745,120
  Mortgage-backed securities...............   1,221,687   1,124,621   1,485,642
                                            ----------- ----------- -----------
    Total interest income..................  30,339,361  26,900,322  27,522,069
                                            ----------- ----------- -----------
Interest expense:
  Deposits.................................  16,318,219  14,326,288  14,838,161
  Borrowed funds...........................   1,118,979   1,016,271   1,288,296
                                            ----------- ----------- -----------
    Total interest expense.................  17,437,198  15,342,559  16,126,457
                                            ----------- ----------- -----------
    Net interest income....................  12,902,163  11,557,763  11,395,612
Provision for losses on loans..............      50,000          --          --
                                            ----------- ----------- -----------
    Net interest income after provision for
     losses on loans.......................  12,852,163  11,557,763  11,395,612
                                            ----------- ----------- -----------
Other income:
  Net gain on sales of securities
   available-for-sale......................          --       1,094          --
  Net gain on sales of real estate held for
   sale....................................      29,968      37,187      20,367
  Net gain on sales of loans held for sale.         328      10,880     158,551
  Net gain on sale of property held for
   expansion...............................      11,552     315,596          --
  Fee income...............................   1,942,223   1,924,663   1,673,609
  Insurance commissions....................     187,928     122,880     130,470
  Other....................................     341,404     551,884     493,151
                                            ----------- ----------- -----------
    Total other income.....................   2,513,403   2,964,184   2,476,148
                                            ----------- ----------- -----------
Other expenses:
  Compensation and benefits................   6,093,309   6,069,433   5,553,788
  Occupancy................................   1,097,369   1,106,006     906,201
  Furniture and equipment..................     695,048     709,565     593,600
  Federal deposit insurance premiums.......      72,792     168,388     168,322
  Advertising..............................     340,257     377,605     334,659
  Provision for losses on real estate held
   for sale................................     138,805      43,936      20,442
  Data processing services.................     361,006     391,155     382,263
  Telephone and postage....................     361,987     358,887     353,626
  Amortization of intangible assets........     377,538     391,043     407,191
  Other general and administrative.........   1,933,943   2,284,297   1,711,455
                                            ----------- ----------- -----------
    Total other expenses...................  11,472,054  11,900,315  10,431,547
                                            ----------- ----------- -----------
    Income before income taxes.............   3,893,512   2,621,632   3,440,213
Income taxes...............................   1,309,950     862,150   1,151,047
                                            ----------- ----------- -----------
    Net income............................. $ 2,583,562 $ 1,759,482 $ 2,289,166
                                            =========== =========== ===========
Basic Earnings Per Share................... $      2.05 $      1.35 $      1.66
                                            =========== =========== ===========
Diluted Earnings Per Share................. $      1.99 $      1.28 $      1.56
                                            =========== =========== ===========
</TABLE>

          See Accompanying Notes to Consolidated Financial Statements.

30
<PAGE>

                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                  Years Ended December 31, 2000, 1999 and 1998
                  -------------------------------------------
                     KANKAKEE BANCORP, INC. AND SUBSIDIARY

<TABLE>
<CAPTION>
                                                                             Accumulated  Employee
                                    Additional                                  Other       Stock        Total
                            Common    Paid-In     Retained      Treasury    Comprehensive Ownership  Stockholders'
                             Stock    Capital      Income        Stock      Income (Loss) Plan Loan     Equity
                            ------- -----------  -----------  ------------  ------------- ---------  -------------
<S>                         <C>     <C>          <C>          <C>           <C>           <C>        <C>
Balance, December 31,
1997......................  $17,500 $16,090,239  $29,554,920  $ (7,459,540)  $   71,881   $(453,633)  $37,821,367
Comprehensive income:
 Net income...............       --          --    2,289,166            --           --          --     2,289,166
 Unrealized gain on
 securities available-for-
 sale arising during the
 period, net of tax of
 $162,880.................       --          --           --            --      257,564          --       257,564
                                                                                                      -----------
                                                                                                          257,564
                                                                                                      -----------
  Comprehensive income....                                                                              2,546,730
Purchase of 13,650 shares
of treasury stock.........       --          --           --      (346,995)          --          --      (346,995)
Exercise of stock options.       --          --           --        92,529           --          --        92,529
Adjustment to paid-in
capital due to exercise of
stock options.............       --     (20,082)          --        92,407           --          --        72,325
Dividends paid on common
stock--$.48 per share.....       --          --     (660,558)           --           --          --      (660,558)
Principal payment on ESOP
loan......................       --          --           --            --           --     151,211       151,211
                            ------- -----------  -----------  ------------   ----------   ---------   -----------
Balance, December 31,
1998......................   17,500  16,070,157   31,183,528    (7,621,599)     329,445    (302,422)   39,676,609
Comprehensive income:
 Net income...............       --          --    1,759,482            --           --          --     1,759,482
 Unrealized loss on
 securities available-for-
 sale arising during the
 period, net of tax of
 $(705,677).................     --          --           --            --   (1,425,645)         --    (1,425,645)
 Less: Reclassifications
 adjustment for gains
 included in net income,
 net of tax of $372.......       --          --           --            --          722          --           722
                                                                                                      -----------
                                                                                                       (1,424,923)
                                                                                                      -----------
  Comprehensive income....                                                                                334,559
Purchase of 136,000 shares
of treasury stock.........       --          --           --    (3,472,591)          --          --    (3,472,591)
Exercise of stock options.       --          --           --       118,747           --          --       118,747
Adjustment to paid-in
capital due to exercise of
stock options.............       --     (50,767)          --       123,544           --          --        72,777
Dividends paid on common
stock--$.48 per share.....       --          --     (633,585)           --           --          --      (633,585)
Principal payment on ESOP
loan......................       --          --           --            --           --     151,211       151,211
                            ------- -----------  -----------  ------------   ----------   ---------   -----------
Balance, December 31,
1999......................   17,500  16,019,390   32,309,425   (10,851,899)  (1,095,478)   (151,211)   36,247,727
Comprehensive income:
 Net income...............       --          --    2,583,562            --           --          --     2,583,562
 Unrealized gain on
 securities available-for-
 sale arising during the
 period, net of tax of
 $624,070.................       --          --           --            --    1,211,447          --     1,211,447
                                                                                                      -----------
                                                                                                        1,211,447
                                                                                                      -----------
  Comprehensive income....                                                                              3,795,009
Purchase of 46,300 shares
of treasury stock.........       --          --           --    (1,023,572)          --          --    (1,023,572)
Exercise of stock options.       --          --           --       654,653           --          --       654,653
Adjustment to paid-in
capital due to exercise of
stock options.............       --    (691,141)          --       762,283           --          --        71,142
Dividends paid on common
stock--$.48 per share.....       --          --     (607,027)           --           --          --      (607,027)
Principal payment on ESOP
loan......................       --          --           --            --           --     151,211       151,211
                            ------- -----------  -----------  ------------   ----------   ---------   -----------
Balance, December 31,
2000......................  $17,500 $15,328,249  $34,285,960  $(10,458,535)  $  115,969   $      --   $39,289,143
                            ======= ===========  ===========  ============   ==========   =========   ===========
</TABLE>

          See Accompanying Notes to Consolidated Financial Statements.

                                                                              31
<PAGE>

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                      ----------------------------------
                     KANKAKEE BANCORP, INC. AND SUBSIDIARY

<TABLE>
<CAPTION>
                                           Years Ended December 31,
                                   -------------------------------------------
                                       2000           1999           1998
                                   -------------  -------------  -------------
<S>                                <C>            <C>            <C>
Cash Flows from Operating
 Activities
 Net income....................... $   2,583,562  $   1,759,482  $   2,289,166
 Adjustments to reconcile net
  income to net cash provided by
  operating activities:
  Provision for losses on loans...        50,000             --             --
  Provision for losses on real
   estate held for sale...........       138,805         43,936         20,442
  Depreciation and amortization...     1,299,133      1,287,009      1,064,712
  Amortization of investment
   premiums and discounts, net....          (832)       250,846        299,937
  Accretion of loan fees and
   discounts, net.................         6,722         41,295        (45,066)
  Deferred income tax provision
   (benefit)......................       (41,838)       100,107        (33,968)
  Origination of loans held for
   sale...........................      (327,882)    (9,091,292)   (38,590,159)
  Proceeds from sales of loans....       328,210     11,013,138     37,092,150
  (Increase) decrease in interest
   receivable.....................      (392,716)      (116,626)           196
  Increase in interest payable on
   deposits.......................        60,641         71,234         86,190
  Net gain on sales of loans......          (328)       (10,880)      (158,551)
  Net gain on sales of securities
   available-for-sale.............            --         (1,094)            --
  Net gain on sales of real estate
   held for sale..................       (29,968)       (37,187)       (20,367)
  Net gain on sale of property
   held for expansion.............       (11,552)      (315,596)            --
  Federal Home Loan Bank stock
   dividend.......................     (100,600)             --             --
  Other, net......................       459,383        488,978       (489,956)
                                   -------------  -------------  -------------
Net cash from operating
 activities.......................     4,020,740      5,483,350      1,514,726
                                   -------------  -------------  -------------
Cash Flow from Investing
 Activities
 Investment securities:
  Available-for-sale:
   Purchases......................    (7,499,291)   (16,972,198)   (55,944,227)
   Proceeds from sales............            --      2,001,094             --
   Proceeds from calls and
    maturities....................    17,000,000     24,000,000     32,295,000
  Held-to-maturity:
   Purchases......................    (1,200,000)            --     (1,150,000)
   Proceeds from maturities.......        56,976         33,797      1,056,629
 Mortgage-backed securities:
  Available-for-sale:
   Purchases......................    (1,962,724)    (6,991,551)    (8,771,840)
   Proceeds from maturities and
    paydowns......................     3,702,154      7,453,485     18,473,627
  Held-to-maturity:
   Proceeds from maturities and
    paydowns......................        41,857         59,017         35,921
 Purchases of certificates of
  deposit.........................            --             --       (765,692)
 Proceeds from maturities of
  certificates of deposit.........            --             --      2,317,692
 Proceeds from sales of real
  estate..........................       212,951      3,409,153        323,492
 Deferred loan fees and costs,
  net.............................        90,445        (79,600)        23,210
 Loans originated.................  (175,146,655)  (124,417,009)  (104,134,300)
 Loans purchased..................            --     (1,366,276)      (300,000)
 Principal collected on loans.....   106,274,103    100,159,376    115,028,208
 Purchases of office properties
  and equipment, net..............      (709,549)    (1,845,158)    (2,665,242)
 Acquisition of Coal City National
  Bank............................            --             --     (8,084,596)
 Payments for improvements on real
  estate..........................            --       (347,623)      (328,986)
                                   -------------  -------------  -------------
Net cash from investing
 activities.......................   (59,139,733)   (14,903,493)   (12,591,104)
                                   -------------  -------------  -------------
</TABLE>

32
<PAGE>

               CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
                  ------------------------------------------
                     KANKAKEE BANCORP, INC. AND SUBSIDIARY

<TABLE>
<CAPTION>
                                              Years Ended December 31,
                                       ----------------------------------------
                                           2000          1999          1998
                                       ------------  ------------  ------------
<S>                                    <C>           <C>           <C>
Cash Flows from Financing Activities
 Net increase in non-certificate of
  deposit accounts...................  $  6,165,886  $    448,994  $  7,039,825
 Net increase in certificate of
  deposit accounts...................    26,846,363     7,654,377     7,790,818
 Increase in advance payments by
  borrowers for taxes and insurance..       265,238        34,369       103,172
 Proceeds from short-term borrowings.    41,000,000     3,000,000            --
 Repayments of short-term borrowings.   (27,000,000)   (3,000,000)   (8,220,000)
 Proceeds from other borrowings......    10,000,000            --     8,000,000
 Repayments of other borrowings......    (6,200,000)  (11,700,000)     (375,000)
 Proceeds from exercise of stock
  options............................       725,795       191,524       164,854
 Dividends paid......................      (607,027)     (633,585)     (660,558)
 Purchase of treasury stock..........    (1,023,572)   (3,472,591)     (346,995)
                                       ------------  ------------  ------------
Net cash from financing activities...    50,172,683    (7,476,912)   13,496,116
                                       ------------  ------------  ------------
Increase (decrease) in cash and cash
 equivalents.........................    (4,946,310)  (16,897,055)    2,419,738
Cash and cash equivalents:
 Beginning of year...................    30,093,583    46,990,638    22,825,892
 Cash acquired with Coal City
  National Bank......................            --            --    21,745,008
                                       ------------  ------------  ------------
 End of year.........................  $ 25,147,273  $ 30,093,583  $ 46,990,638
                                       ============  ============  ============
Supplemental Disclosures of Cash Flow
 Information
 Cash paid during the year for:
  Interest on deposits...............  $ 16,257,600  $ 14,255,000  $ 14,924,400
                                       ============  ============  ============
  Interest on borrowed funds.........  $  1,037,800  $  1,068,200  $  1,308,500
                                       ============  ============  ============
  Income taxes.......................  $    776,824  $    632,072  $  1,177,335
                                       ============  ============  ============
Supplemental Disclosures of Noncash
 Investing Activities:
 Real estate acquired through
  foreclosure........................  $    129,308  $    534,936  $    550,603
                                       ============  ============  ============
 Reduction of Employee Stock
  Ownership Plan loan................  $    151,211  $    151,211  $    151,211
                                       ============  ============  ============
Acquisition of Coal City National
 Bank
 Cash paid...........................  $         --  $         --  $ (8,084,596)
 Assets acquired:
  Cash...............................            --            --    21,745,008
  Investments........................            --            --    15,538,921
  Loans..............................            --            --    17,560,127
  Accrued interest receivable........            --            --       307,474
  Premises and equipment.............            --            --       696,288
  Other assets.......................            --            --       122,646
 Liabilities assumed:                            --
  Non-certificates of deposit........            --            --   (28,996,351)
  Certificates of deposit............            --            --   (22,691,676)
  Accrued interest payable...........            --            --      (176,247)
  Other liabilities..................            --            --      (459,339)
  Equity.............................            --            --    (3,646,851)
                                       ------------  ------------  ------------
                                       $         --  $         --  $ (8,084,596)
                                       ============  ============  ============
</TABLE>

          See Accompanying Notes to Consolidated Financial Statements.

                                                                              33
<PAGE>


                                                NOTES TO CONSOLIDATED STATEMENTS
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------
KANKAKEE BANCORP, INC. AND SUBSIDIARY

Note 1. Significant Accounting Policies
Through Kankakee Federal Savings Bank (the "Bank"), Kankakee Bancorp, Inc. (the
"Company") provides a full range of banking services to individual and
corporate customers through its 15 locations throughout central Illinois. The
Bank is subject to competition from other financial institutions and
nonfinancial institutions providing financial products. Additionally, the
Company and the Bank are subject to the regulations of certain regulatory
agencies and undergo periodic examinations by those regulatory agencies.

The significant accounting and reporting policies of the Company and its
subsidiary follow:

Basis of Consolidation and Financial Statement Presentation
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiary, the Bank and the Bank's wholly-owned subsidiary,
KFS Service Corporation. Significant intercompany accounts and transactions
have been eliminated in consolidation. Based on the Company's approach to
decision making, it has decided that its business is comprised of a single
business segment.

The consolidated financial statements of the Company have been prepared in
conformity with generally accepted accounting principles and conform to
predominate practice within the banking industry.

In preparing the consolidated financial statements, Company management is
required to make estimates and assumptions which significantly affect the
amounts reported in the consolidated financial statements. Significant
estimates which are particularly susceptible to change in a short period of
time include the determination of the market value of investment and mortgage
backed securities, the allowance for losses on loans and valuation of real
estate and other properties acquired in connection with foreclosures or in
satisfaction of amounts due from borrowers on loans. Actual results could
differ from those estimates.

Comprehensive Income
Accounting principles generally require that recognized revenue, expenses,
gains and losses be included in net income. Although certain changes in assets
and liabilities, such as unrealized gains and losses on available-for-sale
securities, are reported as a separate component of the equity section of the
balance sheet, such items, along with net income, are components of
comprehensive income.

Securities
Securities classified as held-to-maturity are those securities the Company has
both the positive intent and ability to hold to maturity regardless of changes
in market conditions, liquidity needs or changes in general economic
conditions. These securities are carried at cost adjusted for amortization of
premium and accretion of discount, computed by the interest method over their
contractual lives.

Securities classified as available-for-sale are those securities that the
Company intends to hold for an indefinite period of time, but not necessarily
to maturity. Any decision to sell a security classified as available-for-sale
would be based on various factors, including significant movements in interest
rates, changes in the maturity mix of the Company's assets and liabilities,
liquidity needs, regulatory capital considerations and other similar factors.
Securities available-for-sale are carried at fair value. The difference between
fair value and cost, adjusted for amortization of premium and accretion of
discounts, results in an unrealized gain or loss. Unrealized gains or losses
are reported as accumulated other comprehensive income (loss), net of the
related deferred tax

34
<PAGE>


NOTES TO CONSOLIDATED STATEMENTS
--------------------------------------------------------------------------------
effect. Gains or losses on the sale of securities are determined on the basis
of the specific security sold and are included in earnings. Premiums and
discounts are recognized in interest income using the interest method over
their contractual lives.

Nonmarketable Equity Securities
Nonmarketable equity securities are carried at cost, as fair values are not
readily determinable.

Loans
Loans originated or purchased are identified as either held for sale or
portfolio at origination or purchase. Loans held for portfolio are originated
or purchased with the intent to hold them to maturity for the purpose of
earning interest income. Since the Bank has the ability to hold such loans as
intended, they are recorded at cost. Loans held for sale are recorded at the
lower of aggregate cost or market until they are sold. Any transfers between
portfolios, which are rare, are recorded at the lower of cost or market.

Unearned discount on installment loans is credited to income over the term of
the loan using the interest method. For all other loans, interest is credited
to income as earned using the simple interest method applied to the daily
balances of the principal outstanding.

A loan is considered to be impaired when, based on current information and
events, it is probable the Bank will not be able to collect all amounts due.
The portion of the allowance for losses on loans applicable to impaired loans
has been computed based on the present value of the estimated future cash flows
of interest and principal discounted at the loan's effective interest rate or
on the fair value of the collateral for collateral dependent loans. The entire
change in present value of expected cash flows of impaired loans or of
collateral value is reported as a provision for losses on loans in the same
manner in which impairment initially was recognized or as a reduction in the
amount of a provision for losses on loans that otherwise would be reported.

The accrual of interest income on loans is discontinued when, in the opinion of
management, there is reasonable doubt as to the borrower's ability to meet
payments of interest or principal when they become due. Interest income on
these loans is recognized to the extent interest payments are received and the
principal is considered fully collectible.

Loan origination fees and certain direct origination costs are being amortized
as an adjustment of the yield over the contractual life of the related loan,
adjusted for prepayments, using the interest method.

Allowance for Losses on Loans
The allowance for losses on loans ("allowance") is established as losses are
estimated to have occurred through a provision for losses on loans charged to
earnings. Loan losses are charged against the allowance when management
believes that the uncollectibility of a loan balance is confirmed. Subsequent
recoveries, if any, are credited to the allowance.

The allowance is evaluated on a regular basis by management and is based upon
management's periodic review of the collectibility of the loans in light of
historical experience, the nature and volume of the loan portfolio, adverse
situations that may affect the borrower's ability to repay, estimated values of
any underlying collateral and prevailing economic conditions. This evaluation
is inherently subjective as it requires estimates that are susceptible to
significant revision as more information becomes available.

While management uses the best information available to make its evaluation,
future adjustments to the allowance may be necessary if there are significant
changes in economic conditions. In addition, various regulatory agencies
periodically review the allowance. These agencies may require the Bank to make
additions to the allowance based on their judgments of collectibility based on
information available to them at the time of their examination.

                                                                              35
<PAGE>


                                                NOTES TO CONSOLIDATED STATEMENTS
--------------------------------------------------------------------------------

Real Estate Held for Sale
Real estate acquired through foreclosure or deed in lieu of foreclosure
represents specific assets to which the Company has acquired legal title in
satisfaction of indebtedness. Such real estate is recorded at the property's
fair value at the date of foreclosure (cost). Initial valuation adjustments, if
any, are charged against the allowance for losses on loans. Property is
evaluated regularly to ensure the recorded amount is supported by its current
fair value. Subsequent declines in estimated fair value are charged to expense
when incurred. Revenues and expenses related to holding and operating these
properties are included in operations.

Office Properties and Equipment
Office properties and equipment are stated at cost less accumulated
depreciation. Depreciation is computed on the straight-line method over the
estimated useful lives of the assets.

Intangible Assets
The excess of cost over the fair value of assets acquired for transactions
accounted for as purchases is recorded as an asset by the Company. This amount
is amortized into other expense on a straight-line basis using periods of eight
to twenty years. On a periodic basis, the Company reviews the intangible assets
for events or circumstances that may indicate a change in recoverability of the
underlying basis.

Deferred Income Taxes
Deferred income tax assets and liabilities are computed annually for
differences between the financial statement and tax bases of assets and
liabilities that will result in taxable or deductible amounts in the future
based on enacted tax laws and rates applicable to the periods in which the
differences are expected to affect taxable income. Deferred tax assets are also
recognized for operating loss and tax credit carryforwards. Valuation
allowances are established when necessary to reduce deferred tax assets to an
amount expected to be realized. Income tax expense is the tax payable or
refundable for the period plus or minus the change during the period in
deferred tax assets and liabilities.

Earnings Per Share
Basic earnings per share is computed by dividing net income for the year by the
average number of shares outstanding of 1,256,713, 1,312,235 and 1,375,553 for
2000, 1999 and 1998, respectively.

Diluted earnings per share are determined by dividing net income for the year
by the average number of shares of common stock and dilutive potential common
shares outstanding. Dilutive potential common shares assume exercise of stock
options and use of proceeds to purchase treasury stock at the average market
price for the period. The average shares outstanding were 1,296,231, 1,383,613
and 1,464,029 for 2000, 1999 and 1998, respectively.

Cash and Cash Equivalents
For reporting cash flows, cash and cash equivalents represent highly liquid
investments with maturities of 90 days or less at the time of purchase and
includes cash on hand, due from bank accounts (including cash items in process
of clearing), money market funds and federal funds sold.

Trust Assets
Assets of the trust department, other than trust cash on deposit at the Bank,
are not included in these financial statements because they are not assets of
the Bank.

Emerging Accounting Standards
Accounting for Derivative Instruments and Hedging Activities Statement of
Financial Accounting Standard No. 133, "Accounting for Derivative Instruments
and Hedging Activities" (FAS 133) establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts and for hedging activities. It requires that an
entity recognize all derivatives as either assets or liabilities in the
statement of financial position

36
<PAGE>


NOTES TO CONSOLIDATED STATEMENTS
--------------------------------------------------------------------------------
and measure those instruments at fair value. The accounting for changes in the
fair value of a derivative depends on the intended use of the derivative and
the resulting designation. This Statement applies to all entities. FAS 133 is
effective for all fiscal quarters of fiscal years beginning after June 15,
1999. Earlier application is encouraged. The Statement is not to be applied
retroactively to financial statements of prior periods. In June 1999, Statement
of Financial Accounting Standard No. 137 was issued to extend the effective
date by one year to all fiscal quarters of fiscal years beginning after June
15, 2000. In June 2000, the Statement of Financial Accounting Standard No. 138
(FAS 138) was issued to modify and clarify various provisions of FAS 133. The
Company does not believe the adoption of FAS 133, as amended by FAS 137 and
138, will have a material impact on the consolidated financial statements.

Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities In September 2000, Statement on Financial Accounting Standards
No. 140 (FAS 140), "Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities," was issued to replace Statement on
Financial Accounting Standards No. 125 (FAS 125), which was issued in June
1996. FAS 125 addressed issues related to transfers of financial assets in
which the transferor has some continuing involvement with the transferred
assets or with the transferee. FAS 140 resolves implementation issues which
arose as a result of FAS 125, but carries forward most of FAS 125's provisions.
FAS 140 is effective for transfers occurring after March 31, 2001 and for
disclosures relating to securitization transactions and collateral for fiscal
years ending after December 15, 2000. Management does not believe the adoption
of FAS 140 will have a significant impact on its financial statements.

Note 2. Acquisition of Coal City National Bank
On January 29, 1998, the Company acquired for cash all of the outstanding
shares of Coal City National Bank for $8,084,596. The acquisition has been
accounted for using the purchase method of accounting. As such, the results of
operations of the acquired entity are excluded from the consolidated financial
statements of income for the periods prior to the acquisition date. The
purchase price has been allocated based on the fair values at the date of
acquisition. This allocation resulted in intangible assets of $3,833,128 which
are being amortized over twenty years. At closing, Coal City National Bank had
assets of $55,973,464, deposits of $51,688,027 and stockholders' equity of
$3,646,851.

                                                                              37
<PAGE>


                                                NOTES TO CONSOLIDATED STATEMENTS
--------------------------------------------------------------------------------

Note 3. Securities
Amortized costs and fair values of securities are summarized as follows:

<TABLE>
<CAPTION>
                                               Available-for-Sale
                                  ---------------------------------------------
                                                Gross      Gross
                                   Amortized  Unrealized Unrealized    Fair
                                     Cost       Gains      Losses      Value
                                  ----------- ---------- ---------- -----------
<S>                               <C>         <C>        <C>        <C>
December 31, 2000
U. S. government and agency
 securities...................... $56,547,040  $386,348  $  174,340 $56,759,048
Mutual fund shares...............     432,894        --      22,298     410,596
                                  -----------  --------  ---------- -----------
  Total investment securities....  56,979,934   386,348     196,638  57,169,644
Mortgage-backed securities.......  16,064,679    90,074     103,961  16,050,792
                                  -----------  --------  ---------- -----------
  Total.......................... $73,044,613  $476,422  $  300,599 $73,220,436
                                  ===========  ========  ========== ===========
December 31, 1999
U. S. government and agency
 securities...................... $66,059,685  $  4,939  $1,309,264 $64,755,360
Mutual fund shares...............     409,040        --      32,435     376,605
                                  -----------  --------  ---------- -----------
  Total investment securities....  66,468,725     4,939   1,341,699  65,131,965
Mortgage-backed securities.......  17,813,775    61,365     384,299  17,490,841
                                  -----------  --------  ---------- -----------
  Total.......................... $84,282,500  $ 66,304  $1,725,998 $82,622,806
                                  ===========  ========  ========== ===========

<CAPTION>
                                                Held-to-Maturity
                                  ---------------------------------------------
                                                Gross      Gross
                                   Amortized  Unrealized Unrealized    Fair
                                     Cost       Gains      Losses      Value
                                  ----------- ---------- ---------- -----------
<S>                               <C>         <C>        <C>        <C>
December 31, 2000
Municipal bonds.................. $ 1,447,846  $     39  $   13,177 $ 1,434,708
Mortgage-backed securities.......      66,867       860          --      67,727
                                  -----------  --------  ---------- -----------
  Total.......................... $ 1,514,713  $    899  $   13,177 $ 1,502,435
                                  ===========  ========  ========== ===========
December 31, 1999
Municipal bonds.................. $   306,241  $     --  $   22,203 $   284,038
Mortgage-backed securities.......     108,724     1,095          --     109,819
                                  -----------  --------  ---------- -----------
  Total.......................... $   414,965  $  1,095  $   22,203 $   393,857
                                  ===========  ========  ========== ===========
</TABLE>

The amortized cost and fair value of securities classified as held-to-maturity
and available-for-sale at December 31, 2000, by contractual maturity, are shown
below. Expected maturities may differ from contractual maturities because
borrowers may have the right to prepay obligations without prepayment
penalties, and certain securities require principal repayments prior to
maturity. Therefore, these securities and mutual fund shares are not included
in the maturity categories in the following maturity summary.

<TABLE>
<CAPTION>
                                     Held-to-Maturity      Available-for-Sale
                                   --------------------- -----------------------
                                   Amortized     Fair     Amortized     Fair
                                      Cost      Value       Cost        Value
                                   ---------- ---------- ----------- -----------
<S>                                <C>        <C>        <C>         <C>
Due within 1 year................  $  640,000 $  640,039 $ 7,994,207 $ 8,004,680
Due after 1 year through 5 years.     579,630    578,542  44,552,833  44,821,516
Due after 5 through 10 years.....     166,865    154,776   4,000,000   3,932,852
Due after 10 years...............      61,351     61,351          --          --
Mortgage-backed securities.......      66,867     67,727  16,064,679  16,050,792
Mutual fund shares...............          --         --     432,894     410,596
                                   ---------- ---------- ----------- -----------
  Total..........................  $1,514,713 $1,502,435 $73,044,613 $73,220,436
                                   ========== ========== =========== ===========
</TABLE>

The Bank, as a member of the Federal Home Loan Bank of Chicago (the "FHLB"), is
required to maintain an investment in capital stock of the FHLB in an amount
equal to 1% of its outstanding home loans. No ready market exists for the FHLB
stock, and it has no quoted market value. For disclosure purposes, such stock
is assumed to have a market value which is equal to cost.

38
<PAGE>


NOTES TO CONSOLIDATED STATEMENTS
--------------------------------------------------------------------------------

U. S. government and agency securities with a carrying value of approximately
$23,693,000 and $19,695,000 at December 31, 2000 and 1999, respectively, were
pledged to in connection with certain deposit accounts and for other purposes
as required or permitted by law.

Realized gains and losses were as follows:

<TABLE>
<CAPTION>
                                                        Year Ended December 31,
                                                        ------------------------
                                                         2000     1999    1998
                                                        ------- -------- -------
<S>                                                     <C>     <C>      <C>
Realized gains......................................... $    -- $  1,094 $    --
Realized losses........................................      --       --      --
                                                        ------- -------- -------
  Net gain............................................. $    -- $  1,094 $    --
                                                        ======= ======== =======
</TABLE>

Note 4. Loans
<TABLE>
<S>                              <C>
Loans consist of the following;
</TABLE>

<TABLE>
<CAPTION>
                                                            December 31,
                                                      -------------------------
                                                          2000         1999
                                                      ------------ ------------
<S>                                                   <C>          <C>
Real estate mortgage loans:
  One-to-four family................................. $211,891,202 $165,088,747
  Multifamily........................................   11,608,341    8,923,474
  Commercial.........................................   39,564,924   28,868,801
  Construction and development.......................   17,796,945   14,235,389
Consumer loans:
  Mobile home loans..................................    1,734,407    2,157,624
  Student loans......................................           --      151,055
  Home improvement loans.............................           --        2,396
  Home equity loans..................................   17,814,212   17,027,560
  Credit card loans..................................    1,285,772    1,285,937
  Motor vehicle loans................................    7,280,778    5,541,134
  Personal loans.....................................   11,132,818    7,945,906
  Loans secured by savings accounts..................      785,830      788,276
Commercial loans.....................................   23,749,610   22,012,684
                                                      ------------ ------------
Gross loans..........................................  344,644,839  274,028,983
Less:
  Unearned discounts.................................          859          882
  Deferred loan fees, net............................      190,760      102,707
  Undisbursed portion of loan proceeds...............    3,340,664    1,394,295
  Allowance for losses on loans......................    2,156,420    2,171,040
                                                      ------------ ------------
                                                      $338,956,136 $270,360,059
                                                      ============ ============
</TABLE>

The Company's lending activities have been concentrated primarily in the market
areas immediately surrounding the branch locations. The largest portion of the
Company's loans are originated for the purpose of enabling borrowers to
purchase residential real estate property secured by first liens on such
property and generally maintain loan-to-value ratios of no greater than 80%.

The Company's opinion as to the ultimate collectibility of these loans is
subject to estimates regarding the future cash flows from operations and the
value of property, real and personal, pledged as collateral. These estimates
are affected by changing economic conditions and the economic prospects of the
borrowers.

Loans serviced by the Company for others approximated $63,138,000, $70,545,000
and $71,322,000 at December 31, 2000, 1999 and 1998.

At December 31, 2000, one-to-four family real estate mortgage loans of
approximately $206,535,000 were pledged to secure advances from the Federal
Home Loan Bank of Chicago.

                                                                              39
<PAGE>


                                                NOTES TO CONSOLIDATED STATEMENTS
--------------------------------------------------------------------------------

Note 5. Allowance for Losses on Loans
Changes in the allowance for losses on loans were as follows:

<TABLE>
<CAPTION>
                                                 Year Ended December 31,
                                             ----------------------------------
                                                2000        1999        1998
                                             ----------  ----------  ----------
<S>                                          <C>         <C>         <C>
Balance at beginning of year................ $2,171,040  $2,375,533  $2,130,146
Balance acquired............................         --          --     398,178
Provision for losses on loans...............     50,000          --          --
Charge-offs.................................   (134,718)   (287,719)   (223,869)
Recoveries..................................     70,098      83,226      71,078
                                             ----------  ----------  ----------
Balance at end of year...................... $2,156,420  $2,171,040  $2,375,533
                                             ==========  ==========  ==========
</TABLE>

Note 6. Office Properties and Equipment
Office properties and equipment consist of:

<TABLE>
<CAPTION>
                                                             December 31,
                                                        -----------------------
                                                           2000        1999
                                                        ----------- -----------
<S>                                                     <C>         <C>
Office properties:
  Land................................................. $ 1,763,733 $ 1,751,039
  Building.............................................   7,160,936   7,036,809
  Leasehold improvements...............................     444,902     444,902
Parking facilities:
  Land.................................................     340,862     340,862
  Improvements.........................................     189,572     133,418
Land acquired for future use...........................     997,359   1,020,074
Furniture and equipment................................   5,948,208   5,471,423
                                                        ----------- -----------
                                                         16,845,572  16,198,527
Less: Accumulated depreciation and amortization........   8,250,749   7,347,948
                                                        ----------- -----------
                                                        $ 8,594,823 $ 8,850,579
                                                        =========== ===========
</TABLE>

Depreciation and amortization expense amounted to $921,595, $895,966 and
$657,521 for the years ended December 31, 2000, 1999 and 1998, respectively.

The Company leases space inside three grocery stores, which are the locations
of the Bank's Braidwood and Bradley offices, and one of its Coal City offices.
The leases on the Braidwood and Coal City locations expire in 2005 with options
to renew for two additional periods of five years. The lease on the Bradley
location expires in 2013, but the lease terms provide for early termination in
either 2003 or 2008, providing certain advance notice requirements are met.

The total minimum rental commitment including all option periods, at December
31, 2000, under the leases mentioned above is as follows:

<TABLE>
<CAPTION>
                                                                        Amount
Year of Maturity                                                      ----------
<S>                                                                   <C>
2001................................................................. $   84,067
2002.................................................................     84,067
2003.................................................................     85,911
2004.................................................................     93,593
2005.................................................................     95,723
Thereafter...........................................................    859,878
                                                                      ----------
                                                                      $1,303,239
                                                                      ==========
</TABLE>

The total rental expense included in the income statement for the years ended
December 31, 2000, 1999 and 1998 was $81,449, $74,083 and $27,797,
respectively.

40
<PAGE>


NOTES TO CONSOLIDATED STATEMENTS
--------------------------------------------------------------------------------

Note 7. Deposits
As of December 31, 2000, certificates of deposit had scheduled maturity dates
as follows:

<TABLE>
<CAPTION>
                                                                       Amount
Year of Maturity                                                    ------------
<S>                                                                 <C>
2001............................................................... $175,763,831
2002...............................................................   53,927,235
2003...............................................................    3,931,918
2004...............................................................    4,281,502
2005 and thereafter................................................    6,999,290
                                                                    ------------
                                                                    $244,903,776
                                                                    ============
</TABLE>

The aggregate amount of time certificates of deposit in denominations of
$100,000 or more was $29,700,045 and $26,427,470 at December 31, 2000 and 1999,
respectively.

Note 8. Short-Term Borrowings
Short-term borrowings consist of:

<TABLE>
<CAPTION>
                                                              December 31,
                                                         -----------------------
                                                            2000        1999
                                                         ----------- -----------
<S>                                                      <C>         <C>
Federal Home Loan Bank short-term advances.............. $14,000,000 $        --
                                                         =========== ===========
</TABLE>

Advances from the FHLB which were due within three months or less are
considered short-term. The advances from the FHLB are collateralized by one-to-
four family residential mortgages.

Average and maximum balances and rates on aggregate short-term borrowings
outstanding were as follows:

<TABLE>
<CAPTION>
                                                          Year Ended December
                                                                  31,
                                                         ----------------------
                                                            2000        1999
                                                         ----------- ----------
<S>                                                      <C>         <C>
Maximum month-end balance............................... $14,000,000 $7,500,000
Average month-end balance...............................   5,833,000  4,636,000
Weighted average interest rate for the year.............       6.83%      5.26%
Weighted average interest rate at year-end..............       6.62%         --
</TABLE>

Note 9. Other Borrowings
Other borrowings at December 31, 2000 and 1999 consisted of advances from the
FHLB of $15,000,000 and $11,200,000, respectively. The weighted average
maturity date was approximately 34 months and 60 months, respectively, and the
weighted average interest rates were approximately 5.91% and 5.37%,
respectively.

Advances from the FHLB are collateralized by one-to-four family residential
mortgages.

Future payments at December 31, 2000, for all other borrowings were as follows:

<TABLE>
<CAPTION>
                                                                       Amount
Year Ended                                                           -----------
<S>                                                                  <C>
2001................................................................ $10,000,000
2002................................................................          --
2003................................................................          --
2004................................................................          --
2005................................................................          --
Thereafter..........................................................   5,000,000
                                                                     -----------
Total............................................................... $15,000,000
                                                                     ===========
</TABLE>

                                                                              41
<PAGE>


                                                NOTES TO CONSOLIDATED STATEMENTS
--------------------------------------------------------------------------------

Note 10. Income Taxes
Under provisions of the Internal Revenue Code and similar sections of the
Illinois income tax law that apply to tax years beginning before December 31,
1995, qualifying thrifts were allowed to claim bad debt deductions based on the
greater of (1) a specified percentage of taxable income, as defined, or (2)
actual loss experience. If, in the future, any of the accumulated bad debt
deductions are used for any purpose other than to absorb bad debt losses, gross
taxable income may result and income taxes may be payable.

The Small Business Job Protection Act became law on August 20, 1996. One of the
provisions in this law repealed the reserve method of accounting for bad debts
for thrift institutions so that the bad debt deduction described in the
preceding paragraph will no longer be effective for tax years beginning after
December 31, 1995. The change in the law requires that the tax bad debt
reserves accumulated after December 31, 1987 be recaptured into taxable income
over a six-year period. The start of the six-year period can be delayed for up
to two tax years if the Company meets certain residential lending thresholds.
Deferred taxes have been provided on the portion of the tax reserve for loan
loss that must be recaptured.

Retained earnings at December 31, 2000 and 1999 includes approximately
$8,998,000 of the tax reserve which accumulated prior to 1988, for which no
deferred income tax liability has been recognized. This amount represents an
allocation of income to bad debt deductions for tax purposes only. Reduction of
amounts so allocated for purposes other than tax bad debt losses or adjustments
arising from carryback of net operating losses would create income for tax
purposes only, which would be subject to the then-current corporate income tax
rate. The unrecorded deferred income tax liability on the above amounts was
approximately $3,059,000 as of December 31, 2000 and 1999.

As of December 31, 2000, the Company had State net operating loss carryforwards
of approximately $9,692,000 for income tax purposes. The difference between
book and tax net operating income results from interest income from certain
investments which is exempt from income tax for state income tax purposes. For
financial reporting purposes, a valuation allowance of $459,000 based on the
net effective state tax rate of 4.74% has been recognized to offset the
deferred tax assets related to those carryforwards. The net operating loss
carryforwards expire through 2007.

Income taxes consist of:

<TABLE>
<CAPTION>
                                                 Year Ended December 31,
                                              --------------------------------
                                                 2000       1999       1998
                                              ----------  --------  ----------
<S>                                           <C>         <C>       <C>
Current...................................... $1,351,788  $762,043  $1,185,015
Deferred.....................................    (41,838)  100,107     (33,968)
                                              ----------  --------  ----------
                                              $1,309,950  $862,150  $1,151,047
                                              ==========  ========  ==========

The Company's income tax expense differed from the maximum statutory federal
rate of 35% as follows:

<CAPTION>
                                                 Year Ended December 31,
                                              --------------------------------
                                                 2000       1999       1998
                                              ----------  --------  ----------
<S>                                           <C>         <C>       <C>
Expected income taxes........................ $1,362,729  $917,571  $1,204,075
Income tax effect of:
  State income tax (carryforward), net of
   federal benefit...........................   (174,254)  (46,246)      9,816
  Income taxed at lower rate.................    (38,935)  (26,216)    (34,402)
  Utilization of (addition to) state net
   operating loss carryforwards..............    174,254    46,246      (9,816)
  Other......................................    (13,844)  (29,205)    (18,626)
                                              ----------  --------  ----------
                                              $1,309,950  $862,150  $1,151,047
                                              ==========  ========  ==========
</TABLE>

42
<PAGE>


NOTES TO CONSOLIDATED STATEMENTS
--------------------------------------------------------------------------------

Significant components of the deferred tax liabilities and assets are as
follows:

<TABLE>
<CAPTION>
                                                              December 31,
                                                           --------------------
                                                             2000       1999
                                                           ---------  ---------
<S>                                                        <C>        <C>
Deferred tax assets:
  Allowance for losses on loans..........................  $ 837,334  $ 743,560
  State net operating loss carryforwards.................    459,261    545,521
  Accrued benefits.......................................    151,229    138,863
  Intangible assets......................................      8,214     27,627
  OREO...................................................    134,323    115,387
  Unrealized loss on assets available for sale...........         --    564,216
  Other..................................................     34,137         --
                                                           ---------  ---------
   Total deferred tax assets.............................  1,624,498  2,135,174
  Valuation allowance for deferred tax assets............    459,261    545,521
                                                           ---------  ---------
   Total deferred tax assets, net of valuation allowance.  1,165,237  1,589,653
                                                           ---------  ---------
Deferred tax liabilities:
  Unrealized gain in assets available-for-sale...........    (59,854)        --
  Loan fees deferred for income tax purposes.............    (59,925)   (63,607)
  Excess of tax accumulated provision for losses over
   base year.............................................    (41,683)   (73,165)
  Stock dividend on FHLB stock...........................   (128,833)   (50,280)
  Loan costs deferred for book purposes..................   (318,256)  (215,760)
  Mortgage servicing rights..............................   (138,483)  (146,161)
  Other..................................................    (42,762)   (93,953)
                                                           ---------  ---------
   Total deferred tax liabilities........................   (789,796)  (642,926)
                                                           ---------  ---------
Net deferred tax assets..................................  $ 375,441  $ 946,727
                                                           =========  =========
</TABLE>

The Company believes that it is more likely than not that the deferred tax
asset will be realized based upon historical taxable income levels. The Company
has reported federal taxable income and pretax book income amounts totaling
approximately $6.0 million and $10.0 million over the past three years,
respectively.

Note 11. Stockholders' Equity and Regulatory Capital
The Bank is subject to various regulatory capital requirements administered by
the federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory--and possibly additional discretionary--actions by
regulators that, if undertaken, could have a direct material effect on the
Bank's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet specific
capital guidelines that involve quantitative measures of assets, liabilities,
and certain off-balance-sheet items as calculated under regulatory accounting
practices. The Bank's capital amounts and classifications are also subject to
qualitative judgments by the regulators about components, risk weightings, and
other factors.

Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the table
below) of Tangible and Core capital (as defined by the regulations) to tangible
assets (as defined) and Total and Tier I capital (as defined) to risk-weighted
assets (as defined). Management believes, as of December 31, 2000, that the
Bank meets all capital adequacy requirements to which it is subject.

                                                                              43
<PAGE>


                                                NOTES TO CONSOLIDATED STATEMENTS
--------------------------------------------------------------------------------

As of December 31, 2000, the most recent notification from the Office of Thrift
Supervision (the "OTS"), categorized the Bank as well capitalized under the
regulatory framework for prompt corrective action. To be categorized as well
capitalized, the Bank must maintain minimum total risk-based, Tier I risk-based
and Tier I leverage ratios as set forth in the table below. There are no
conditions or events since that notification that management believes have
changed the Bank's category.

<TABLE>
<CAPTION>
                                                                   To be Well
                                                                  Capitalized
                                                                  Under Prompt
                                                    For Capital    Corrective
                                                      Adequacy       Action
                                         Actual       Purposes     Provisions
                                     -------------- ------------ --------------
                                     Amount  Ratio  Amount Ratio Amount  Ratio
                                     ------- ------ ------ ----- ------- ------
                                               (Dollars in thousands)
<S>                                  <C>     <C>    <C>    <C>   <C>     <C>
As of December 31, 2000
Tangible Capital to Tangible Assets
 Kankakee Federal Savings Bank...... $31,325  6.93% $6,785 1.50%     N/A

Core Capital to Tangible Assets
 Kankakee Federal Savings Bank......  31,325  6.93% 18,092 4.00% $22,615  5.00%

Tier I Capital to Risk Weighted
 Assets Kankakee Federal Savings
 Bank...............................  31,325 11.02%    N/A        17,061  6.00%

Total Capital to Risk Weighted
 Assets Kankakee Federal Savings
 Bank...............................  33,407 11.75% 22,748 8.00%  28,435 10.00%

As of December 31, 1999
Tangible Capital to Tangible Assets
 Kankakee Federal Savings Bank...... $29,525  7.40% $5,982 1.50%     N/A

Core Capital to Tangible Assets
 Kankakee Federal Savings Bank......  29,525  7.40% 15,951 4.00% $19,939  5.00%

Tier I Capital to Risk Weighted
 Assets Kankakee Federal Savings
 Bank...............................  29,525 12.44%    N/A        14,237  6.00%

Total Capital to Risk Weighted
 Assets Kankakee Federal Savings
 Bank...............................  31,621 13.33% 18,983 8.00%  23,728 10.00%
</TABLE>

A liquidation account in the amount of $17,720,139 was established for the
benefit of eligible deposit account holders who continue to maintain their
deposit accounts in the Bank after the December 30, 1992 conversion from a
mutual savings and loan association to a stock savings bank. In the unlikely
event of a complete liquidation of the Bank, each eligible deposit account
holder would be entitled to receive a liquidation distribution from the
liquidation account, in the proportionate amount of the then-current adjusted
balance for deposit accounts held, before any distribution may be made with
respect to the Bank's capital stock. The Bank may not declare or pay a cash
dividend to the Company on, or repurchase any of, its capital stock if the
effect thereof would cause the net worth of the Bank to be reduced below the
amount required for the liquidation account. Due to various natural events,
such as death, relocation and general attrition of accounts, the balance in the
liquidation account has been reduced to $1,875,286 as of December 31, 2000.

The OTS capital distribution regulations restrict the Bank's cash dividend
payments or other capital distributions. The OTS regulations generally provide
that an institution can make capital distributions during a calendar year up to
100% of its net income to date during the calendar year plus the amount that
would reduce by one-half the excess capital over fully phased-in capital
requirements at the beginning of the calendar year. Any additional capital
distributions would also require prior notice to the OTS. The Company is not
subject to these regulatory restrictions on the payment of dividends to its
stockholders; however, the ability of the Company to pay future dividends will
depend on dividends from the Bank.

Note 12. Officer, Director and Employee Plans

Money Purchase Pension Plan and Trust
The Bank sponsors a Money Purchase Pension Plan and Trust (the "Money Purchase
Plan") for the benefit of its employees meeting certain age and service
requirements. The Bank contributes to

44
<PAGE>


NOTES TO CONSOLIDATED STATEMENTS
--------------------------------------------------------------------------------
the Money Purchase Plan on behalf of each Participant an amount equal to 7% of
the Participant's compensation, as defined by the Money Purchase Plan. Expense
related to the Money Purchase Plan amounted to approximately $254,000, $267,000
and $245,000, for the years ended December 31, 2000, 1999 and 1998,
respectively.

401(k) Savings Plan
The Bank established a qualified, tax-exempt pension plan qualifying under
section 401(k) of the Internal Revenue Code (the "401(k) Plan"). Virtually all
employees are eligible to participate after meeting certain age and service
requirements. Eligible employees are permitted to contribute 1% to 10% of their
compensation to the 401(k) Plan. Expense related to the 401(k) Plan, including
plan administration, amounted to approximately $19,600, $12,700 and $15,400,
for the years ended December 31, 2000, 1999 and 1998, respectively.

Employee Stock Ownership Plan
The Kankakee Bancorp, Inc. Employee Stock Ownership Plan (the "ESOP") covers
all full time employees who have completed twelve months of service and have
attained the minimum age of twenty-one. A participant is 100 percent vested
after seven years of credited service.

The ESOP operated as a leveraged employee stock ownership plan. These shares
were held in trust and allocated to participants' accounts in the ESOP as the
related loan obligation was repaid. The final loan payment was made in December
2000.

Beginning in 2001, the Company will make direct cash contributions to the ESOP
in an amount determined annually by the Board of Directors. The trust will use
the contributions to acquire Company stock in the open market, and the acquired
shares will be allocated to the participants at the end of each plan year.

The following table reflects the shares held by the ESOP:

<TABLE>
<CAPTION>
                                                          December 31,
                                                  -----------------------------
                                                    2000      1999      1998
                                                  --------- --------- ---------
<S>                                               <C>       <C>       <C>
Share allocated to participants.................. 106,081.0  93,552.5  82,172.0
Unallocated shares (grandfathered under SOP 93-
 6)..............................................        --  15,312.5  30,625.0
                                                  --------- --------- ---------
Total............................................ 106,081.0 108,865.0 112,797.0
                                                  ========= ========= =========
</TABLE>

The ESOP borrowed from the Company to purchase the shares of common stock. The
loan obligation was considered unearned employee compensation and was recorded
as a reduction of stockholders' equity, while the loan was outstanding.

                                                                              45
<PAGE>


                                                NOTES TO CONSOLIDATED STATEMENTS
--------------------------------------------------------------------------------

The Bank made discretionary cash contributions to the ESOP which, along with
dividend payments, were sufficient to service the principal payments plus
interest at 7 percent over the eight year loan term.

Interest expense recognized by the ESOP was $7,939, $18,523 and $29,108 for the
years ended December 31, 2000, 1999 and 1998, respectively. The Bank
contributed $151,698, $162,883 and $158,061 to the ESOP to fund principal and
interest payments for the years ended December 31, 2000, 1999 and 1998,
respectively.

The Board of Directors of the Company may direct payment of dividends with
respect to shares allocated to the participants to be paid in cash to the
participants. Dividends on unallocated shares were used to make payments on the
loan. All shares of stock owned by the ESOP are considered outstanding and
included in the weighted average shares outstanding for calculating earnings
per share.

Stock Option Plan
In 1992, the Company adopted an incentive stock option plan for the benefit of
directors, officers, and employees of the Company or the Bank (the "Stock
Option Plan"). The number of shares of common stock authorized under the Stock
Option Plan is 175,000. The option exercise price of an incentive stock option
must be at least equal to the fair market value per share of the common stock
on the date of grant. The Stock Option Plan also provides for the issuance of
nonqualified stock options, restricted stock and stock appreciation rights and
limited stock appreciation rights. Activity in the Stock Option Plan was as
follows:

<TABLE>
<CAPTION>
                                2000               1999               1998
                          ------------------ ------------------ ------------------
                                   Weighted-          Weighted-          Weighted-
                                    Average            Average            Average
                                   Exercise           Exercise           Exercise
                          Shares     Price   Shares     Price   Shares     Price
Fixed Options             -------  --------- -------  --------- -------  ---------
<S>                       <C>      <C>       <C>      <C>       <C>      <C>
Outstanding at beginning
 of year................  115,610   $ 9.960  127,635   $9.952   137,005   $9.947
Granted.................    2,500    20.500       --       --        --       --
Exercised...............  (66,025)    9.915  (12,025)   9.875    (9,370)   9.875
Forfeited...............   (1,750)   15.500       --       --        --       --
                          -------            -------            -------
Outstanding at end of
 year...................   50,335    10.350  115,610    9.960   127,635    9.952
                          =======            =======            =======
Options exercisable at
 year-end...............   50,335            115,610            127,635
                          =======            =======            =======
Weighted-average fair
 value of options
 granted during the
 year...................               4.60                --                 --
                                    =======            ======             ======
</TABLE>

The fair value of the stock options granted in 2000 has been estimated using
the Black-Scholes option pricing model with the following weighted average
assumptions. The Black-Scholes option pricing model was developed for use in
estimating the fair value of traded options which have no vesting restrictions.
In addition, such models require the use of subjective assumptions, including
expected stock price volatility. In management's opinion, such valuation models
may not necessarily provide the best single measure of option value. There were
no stock options granted in 1999 or 1998.

<TABLE>
<CAPTION>
                                                                          2000
                                                                         ------
<S>                                                                      <C>
Number of options granted...............................................  2,500
Risk-free interest rate.................................................  5.13%
Expected life, in years.................................................   5.00
Expected volatility.....................................................    22%
Expected dividend yield.................................................  2.34%
Estimated fair value per option......................................... $ 4.60
</TABLE>

46
<PAGE>


NOTES TO CONSOLIDATED STATEMENTS
--------------------------------------------------------------------------------

Grants under the stock option plan are accounted for following APB Opinion No.
25 and related interpretations. Accordingly, no compensation cost has been
recognized for incentive stock option grants under the plan. Had compensation
cost for all of the stock-based compensation plan been determined based on the
fair values of awards (the method described by Statement No. 123), on the grant
date, reported income and earnings per common share would have been reduced to
the pro forma amounts shown below:

<TABLE>
<CAPTION>
                                                  2000       1999       1998
                                               ---------- ---------- ----------
<S>                                            <C>        <C>        <C>
Net income on common stock:
  As reported................................. $2,583,562 $1,759,482 $2,289,166
  Pro forma...................................  2,575,969  1,759,482  2,289,166
Basic earnings per share:
  As reported................................. $     2.05 $     1.35 $     1.66
  Pro forma...................................       2.05       1.35       1.66
Diluted earnings per share:
  As reported................................. $     1.99 $     1.28 $     1.56
  Pro forma...................................       1.99       1.28       1.56
</TABLE>

Stockholders' Rights Plan
On May 14, 1999, the Company's Board of Directors adopted a Stockholders'
Rights Plan. The Plan provided for the distribution of one Right on June 15,
1999, for each share of the Company's outstanding common stock as of May 24,
1999. The Rights have no immediate economic value to stockholders because they
cannot be exercised unless and until a person, group or entity acquires 15% or
more of the Company's common stock or announces a tender offer. The Plan also
permits the Company's Board of Directors to redeem each Right for one cent
under various circumstances.

In general, the Rights Plan provides that if a person, group or entity acquires
a 15% or larger stake in the Company or announces a tender offer, and the
Company's Board chooses not to redeem the Rights, all holders of Rights, other
than the 15% stockholder or the tender offeror, will be able to purchase a
certain amount of the Company's common stock for half of its market price.

Note 13. Commitments and Contingencies
In the normal course of business, there are outstanding various contingent
liabilities such as claims and legal action, which are not reflected in the
consolidated financial statements. In the opinion of management, the ultimate
resolution of these matters is not expected to have a material effect on the
financial position or on the results of operations of the Company and its
subsidiary.

Note 14. Financial Instruments
The Bank is party to financial instruments with off-balance-sheet risk in the
normal course of business to meet the financing needs of its customers. These
financial instruments include commitments to extend credit, standby letters of
credit, and financial guarantees. Those instruments involve, to varying
degrees, elements of credit and interest rate risk. The contract or notional
amounts of those instruments reflect the extent of involvement the Bank has in
particular classes of financial instruments.

The Bank's exposure to credit loss, in the event of nonperformance by the other
party to the financial instruments for commitments to extend credit and standby
letters of credit, is represented by the contractual notional amount of those
instruments. The Bank uses the same credit policies in making commitments and
conditional obligations as it does for on-balance-sheet instruments.

Financial instruments whose contract represent credit risk follows:

<TABLE>
<CAPTION>
                                                             December 31,
                                                        -----------------------
                                                           2000        1999
                                                        ----------- -----------
<S>                                                     <C>         <C>
Commitments to originate new loans..................... $14,695,000 $16,944,000
Commitments to extend credit...........................  26,420,000  26,080,000
Standby letters of credit..............................     841,000   2,093,000
</TABLE>

                                                                              47
<PAGE>


                                                NOTES TO CONSOLIDATED STATEMENTS
--------------------------------------------------------------------------------

Such commitments are recorded in the financial statements when they are funded
or related fees are incurred or received. These commitments are principally at
variable interest rates.

Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements.

Standby letters of credit written are conditional commitments issued by the
bank to guarantee the performance of a customer to a third party. Those
guarantees are primarily issued to support public and private borrowing
arrangements, including commercial paper, bond financing, and similar
transactions. The credit risk involved in issuing letters of credit is
essentially the same as that involved in extending loan facilities to
customers.

The Company and the Bank do not engage in the use of interest rate swaps,
futures, forwards, or option contracts.

Note 15. Fair Value of Financial Instruments
The following table reflects a comparison of carrying amounts and the fair
values of the financial instruments:

<TABLE>
<CAPTION>
                                               December 31,
                            ---------------------------------------------------
                                      2000                      1999
                            ------------------------- -------------------------
                              Carrying                  Carrying
                               Amount     Fair Value     Amount     Fair Value
                            ------------ ------------ ------------ ------------
<S>                         <C>          <C>          <C>          <C>
Assets:
  Cash and cash
   equivalents............. $ 25,147,273 $ 25,147,273 $ 30,093,583 $ 30,093,583
  Certificates of deposit..       50,000       50,000       50,000       50,000
  Investment and mortgage-
   backed securities.......   74,735,149   74,722,871   83,037,771   83,016,663
  Nonmarketable equity
   securities..............      501,000      501,000      501,100      501,100
  Loans....................  341,112,556  342,677,559  272,531,099  269,036,875
  FHLB stock...............    2,112,000    2,112,000    1,811,400    1,811,400
  Accrued interest
   receivable..............    3,282,214    3,282,214    2,889,498    2,889,498
Liabilities:
  Deposits................. $388,050,341 $389,087,939 $354,977,451 $355,501,883
  Borrowed funds...........   29,000,000   28,985,775   11,200,000   11,157,454
  Advance payments by
   borrowers for taxes and
   insurance...............    1,813,412    1,813,412    1,548,998    1,548,998
</TABLE>

The fair values utilized in the table were derived using the information
described below for the group of instruments listed. It should be noted that
the fair values disclosed in this table do not represent market values of all
assets and liabilities of the Company and, thus, should not be interpreted to
represent a market or liquidation value for the Company.

The following methods and assumptions were used by the Bank in estimating the
fair value disclosures for financial instruments:

Cash and cash equivalents and certificates of deposit: The carrying amounts
reported in the balance sheet for cash and short-term instruments approximate
those assets' fair values.

Investment and mortgage-backed securities: Fair values for securities are based
on quoted market prices, where available. If quoted market prices are not
available, fair values are based on quoted market prices of comparable
instruments. The carrying amounts of accrued interest approximate their fair
values.

Nonmarketable equity securities and FHLB stock: Those securities are carried at
cost, as fair values are not readily determinable.

48
<PAGE>


NOTES TO CONSOLIDATED STATEMENTS
--------------------------------------------------------------------------------

Loans: For variable-rate loans that reprice frequently and with no significant
change in credit risk, fair values are based on carrying values. The fair
values for fixed-rate loans are estimated using discounted cash flow analyses
using interest rates currently being offered for loans with similar terms to
borrowers of similar credit quality. The carrying amounts of accrued interest
approximate their fair value.

Loans held for sale: Fair values are based on quoted market price.

Off-balance-sheet instruments: Fair values for the Bank's off-balance-sheet
instruments (guarantees and loan commitments) are based on fees currently
charged to enter into similar agreements, taking into account the remaining
terms of the agreements and the counterparties' credit standing. The fair value
for such commitments is nominal.

Deposits: The fair values disclosed for demand deposits are, by definition,
equal to the amount payable on demand at the balance sheet date. The carrying
amounts for variable-rate, fixed-term money market accounts approximate their
fair values at the balance sheet date. Fair values for fixed-rate certificates
of deposit are estimated using a discounted cash flow calculation that applies
interest rates currently being offered on certificates to a schedule of
aggregated expected monthly maturities on time deposits. The carrying amounts
of accrued interest payable, which is included in the deposit amount, and
advance payments by borrowers for taxes and insurance approximates their fair
value.

Borrowed funds: Rates currently available to the Company for debt with similar
terms and remaining maturities are used to estimate fair value of existing
debt.

Note 16. Condensed Parent Company Only Financial Statements

<TABLE>
<CAPTION>
                                                          December 31,
                                                    --------------------------
                                                        2000          1999
                                                    ------------  ------------
<S>                                                 <C>           <C>
Statement of financial condition
Assets:
  Cash and cash equivalents........................ $  1,626,075  $  1,284,825
  Certificate of deposit...........................       50,000        50,000
  Investment securities, available-for-sale........      410,596       376,605
  Equity in net assets of Kankakee Federal Savings
   Bank............................................   37,106,194    34,413,574
  Other assets.....................................      183,346       203,161
                                                    ------------  ------------
                                                    $ 39,376,211  $ 36,328,165
                                                    ============  ============
Liabilities and stockholders' equity:
  Other liabilities................................ $     87,068  $     80,438
  Common stock.....................................       17,500        17,500
  Additional paid-in capital.......................   15,328,249    16,019,390
  Retained income..................................   34,285,960    32,309,425
  Accumulated comprehensive income (loss)..........      115,969    (1,095,478)
  Treasury stock...................................  (10,458,535)  (10,851,899)
  Employee Stock Ownership Plan loan...............           --      (151,211)
                                                    ------------  ------------
                                                    $ 39,376,211  $ 36,328,165
                                                    ============  ============
</TABLE>

                                                                              49
<PAGE>


                                                NOTES TO CONSOLIDATED STATEMENTS
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                Year Ended December 31,
                                          -------------------------------------
                                             2000         1999         1998
                                          -----------  -----------  -----------
<S>                                       <C>          <C>          <C>
Statement of operations
Dividends from subsidiary...............  $ 1,300,989  $ 1,011,253  $ 1,210,525
Interest income.........................      110,498      170,631      259,616
                                          -----------  -----------  -----------
  Operating income......................    1,411,487    1,181,884    1,470,141
                                          -----------  -----------  -----------
Equity in undistributed earnings of
 Kankakee Federal Savings Bank..........    1,487,864      948,175    1,155,542
Other noninterest income................        6,388           --          400
                                          -----------  -----------  -----------
  Total other income....................    1,494,252      948,175    1,155,942
Other expenses..........................      427,927      473,577      404,670
                                          -----------  -----------  -----------
  Income before income tax benefit......    2,477,812    1,656,482    2,221,413
Income tax benefit......................      105,750      103,000       67,753
                                          -----------  -----------  -----------
  Net income............................  $ 2,583,562  $ 1,759,482  $ 2,289,166
                                          ===========  ===========  ===========

<CAPTION>
                                                Year Ended December 31,
                                          -------------------------------------
                                             2000         1999         1998
                                          -----------  -----------  -----------
<S>                                       <C>          <C>          <C>
Statement of cash flows
Operating activities:
  Net income............................  $ 2,583,562  $ 1,759,482  $ 2,289,166
  Adjustments to reconcile net income to
   net cash provided by operating
   activities:
   Equity in undistributed earnings of
    Kankakee Federal Savings Bank.......   (1,487,864)    (948,175)  (1,155,542)
   Other................................       22,999      (13,253)      41,956
                                          -----------  -----------  -----------
     Net cash provided by operating
      activities........................    1,118,697      798,054    1,175,580
                                          -----------  -----------  -----------
Investing activities:
  Available-for-sale investment and
   mortgage backed securities:
   Purchase.............................      (23,854)     (21,999)     (23,118)
   Proceeds from maturities and
    paydowns............................           --           --      109,593
  Purchase of equipment.................           --         (579)          --
                                          -----------  -----------  -----------
     Net cash provided by (used in)
      investing activities..............      (23,854)     (22,578)      86,475
                                          -----------  -----------  -----------
Financing activities:
  Principal collected on ESOP loan......      151,211      151,211      151,211
  Purchase of treasury stock............   (1,023,572)  (3,472,591)    (346,995)
  Dividends paid to stockholders........     (607,027)    (633,585)    (660,558)
  Proceeds from exercise of stock
   options..............................      725,795      191,524      164,854
                                          -----------  -----------  -----------
     Net cash used in financing
      activities........................     (753,593)  (3,763,441)    (691,488)
                                          -----------  -----------  -----------
Increase (decrease) in cash and cash
 equivalents............................      341,250   (2,987,965)     570,567
Cash and cash equivalents:
  Beginning of period...................    1,284,825    4,272,790    3,702,223
                                          -----------  -----------  -----------
  End of period.........................  $ 1,626,075  $ 1,284,825  $ 4,272,790
                                          ===========  ===========  ===========
</TABLE>

50
<PAGE>


NOTES TO CONSOLIDATED STATEMENTS
--------------------------------------------------------------------------------

Note 17. Quarterly Results of Operations (Unaudited)

<TABLE>
<CAPTION>
                                          Year Ended December 31, 2000
                                 ----------------------------------------------
                                               Three Months Ended
                                 December 31 September 30  June 30    March 31
                                 ----------- ------------ ---------- ----------
<S>                              <C>         <C>          <C>        <C>
Interest income................. $8,246,923   $7,894,213  $7,302,284 $6,895,941
Interest expense................  4,924,226    4,659,789   4,027,440  3,825,743
                                 ----------   ----------  ---------- ----------
 Net interest income............  3,322,697    3,234,424   3,274,844  3,070,198
Provision for losses on loans...     30,000       20,000          --         --
                                 ----------   ----------  ---------- ----------
 Net interest income after
  provision for losses on loans.  3,292,697    3,214,424   3,274,844  3,070,198
Other income....................    656,215      662,705     593,181    601,302
Other expense...................  2,879,926    2,968,690   2,703,719  2,919,719
                                 ----------   ----------  ---------- ----------
 Income before income taxes.....  1,068,986      908,439   1,164,306    751,781
Income taxes....................    361,900      300,625     395,925    251,500
                                 ----------   ----------  ---------- ----------
 Net income..................... $  707,086   $  607,814  $  768,381 $  500,281
                                 ==========   ==========  ========== ==========
Basic earnings per share........ $     0.56   $     0.48  $     0.61 $     0.40
                                 ==========   ==========  ========== ==========
Diluted earnings per share...... $     0.54   $     0.47  $     0.59 $     0.39
                                 ==========   ==========  ========== ==========
<CAPTION>
                                          Year Ended December 31, 1999
                                 ----------------------------------------------
                                               Three Months Ended
                                 December 31 September 30  June 30    March 31
                                 ----------- ------------ ---------- ----------
<S>                              <C>         <C>          <C>        <C>
Interest income................. $6,771,650   $6,737,789  $6,752,705 $6,638,178
Interest expense................  3,815,453    3,804,947   3,837,556  3,884,603
                                 ----------   ----------  ---------- ----------
 Net interest income............  2,956,197    2,932,842   2,915,149  2,753,575
Provision for losses on loans...         --           --          --         --
                                 ----------   ----------  ---------- ----------
 Net interest income after
  provision for losses on loans.  2,956,197    2,932,842   2,915,149  2,753,575
Other income....................    942,170      605,044     631,285    785,685
Other expense...................  3,163,023    2,964,017   2,903,529  2,869,746
                                 ----------   ----------  ---------- ----------
 Income before income taxes.....    735,344      573,869     642,905    669,514
Income taxes....................    241,800      188,600     204,108    227,642
                                 ----------   ----------  ---------- ----------
 Net income..................... $  493,544   $  385,269  $  438,797 $  441,872
                                 ==========   ==========  ========== ==========
Basic earnings per share........ $     0.40   $     0.29  $     0.33 $     0.33
                                 ==========   ==========  ========== ==========
Diluted earnings per share...... $     0.38   $     0.28  $     0.31 $     0.31
                                 ==========   ==========  ========== ==========
</TABLE>

                                                                              51