<PAGE>

================================================================================

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

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

                                    FORM 10-K

[X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934

                   For the fiscal year ended December 31, 2002

                                       OR

[ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934

                For the transition period from _______ to _______

                         Commission File Number 1-13676

                             KANKAKEE BANCORP, INC.
             (Exact name of Registrant as specified in its charter)

               DELAWARE                                   36-3846489
     (State or other jurisdiction of                   (I.R.S. Employer
     incorporation or organization)                 Identification Number)

     310 S. Schuyler Avenue, Kankakee, Illinois           60901
      (Address of principal executive offices)         (Zip Code)

Registrant's telephone number, including area code: (815) 937-4440

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

                                                  Name of Each Exchange
            Title of Each Class                   on which Registered
     Common Stock, par value $.01 per share       American Stock Exchange
        Preferred Share Purchase Rights           American Stock Exchange

           Securities Registered Pursuant to Section 12(g) of the Act:
                                      NONE
                                (Title of Class)

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

     YES X NO___

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

================================================================================

<PAGE>

     Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes __ No X

     The aggregate market value of the voting and non-voting common equity held
by non-affiliates of the registrant, based on the last sales price on the
American Stock Exchange on June 28, 2002, the last business day of the
registrant's most recently completed second fiscal quarter, was approximately
$40,447,528.*

     As of March 3, 2003, the Registrant had issued and outstanding 972,611
shares of the Registrant's common stock.

                       DOCUMENTS INCORPORATED BY REFERENCE

     PARTS II and IV of Form 10-K--Portions of the 2002 Annual Report to
     Stockholders.
     PART III of Form 10-K--Portions of the Proxy Statement for
     the 2003 Annual Meeting of Stockholders.

----------
*    Based on the last reported price ($39.75) of an actual transaction in the
     Registrant's common stock on June 28, 2002, and reports of beneficial
     ownership filed by directors and executive officers of the Registrant and
     by beneficial owners of more than 5% of the outstanding shares of common
     stock of the Registrant; however, such determination of shares owned by
     affiliates does not constitute an admission of affiliate status or
     beneficial interest in shares of the Registrant's common stock.

<PAGE>

                             KANKAKEE BANCORP, INC.

                         2002 ANNUAL REPORT ON FORM 10-K

                                Table of Contents

<TABLE>
<CAPTION>
                                                                               Page Number
                                                                               -----------
<S>                                                                                     <C>
                                     PART I
Item     1.  Business..................................................................  4
Item     2.  Properties................................................................ 45
Item     3.  Legal Proceedings......................................................... 46
Item     4.  Submission of Matters to a Vote of Security Holders....................... 46

                                     PART II

Item     5.  Market for the Registrant's Common Stock and Related
                Stockholder Matters.................................................... 46
Item     6.  Selected Financial Data................................................... 46
Item     7.  Management's Discussion and Analysis of Financial
                Condition and Results of Operations.................................... 46
Item     7a. Quantitative and Qualitative Disclosures About Market Risk................ 46
Item     8.  Financial Statements and Supplementary Data............................... 48
Item     9.  Changes in and Disagreements With Accountants on
                Accounting and Financial Disclosure.................................... 48

                                    PART III

Item    10.  Directors and Executive Officers of the Registrant........................ 48
Item    11.  Executive Compensation.................................................... 49
Item    12.  Security Ownership of Certain Beneficial Owners and
                Management............................................................. 49
Item    13.  Certain Relationships and Related Transactions............................ 49
Item    14.  Controls and Procedures................................................... 49

                                     PART IV

Item    15.  Exhibits, Financial Statement Schedules, and Reports on 8-K............... 50

Form 10-K Signature Page............................................................... 54
</TABLE>

                                        3

<PAGE>

                                     PART I

Item 1.  BUSINESS

                                   THE COMPANY

GENERAL

     Kankakee Bancorp, Inc., a Delaware corporation (the "Company"), is a
savings and loan holding company registered under the Home Owner's Loan Act, as
amended (the "HOLA"). The Company's primary business activity is acting as the
holding company for KFS Bank, F.S.B., a federally chartered savings bank (the
"Bank"). The Bank has two subsidiaries, KFS Service Corp., and its wholly-owned
subsidiary, KFS Insurance Agency, Inc., which engage in the business of
providing securities brokerage services and insurance and annuity products to
its customers and appraisal services to the Bank and other lenders in the
Kankakee area. All references to KFS Service Corp. include KFS Insurance Agency,
Inc., unless clearly indicated otherwise. The Company was organized in 1992, in
connection with the Bank's conversion from the mutual to the stock form of
organization which was completed on December 30, 1992. As part of the
conversion, the Company issued 1,750,000 shares of its common stock, $.01 par
value per share, at a price of $9.875 per share. On March 24, 1995, the
Company's common stock was listed on the American Stock Exchange under the
symbol "KNK". Prior to March 24, 1995, the Company's common stock was quoted on
The Nasdaq Stock Market under the symbol "KNKB".

     The Bank is the Company's only financial institution subsidiary and was
initially chartered as an Illinois state savings and loan association in 1885.
The Bank converted to a federally chartered savings and loan association in 1937
and changed its name to Kankakee Federal Savings Bank in connection with its
conversion to stock form in 1992. The Bank changed its name to KFS Bank, F.S.B.,
as of December 1, 2002. All references to the Company include the Bank and its
subsidiaries unless clearly indicated otherwise.

     The Company and the Bank are subject to comprehensive regulation,
examination and supervision by the Office of Thrift Supervision (the "OTS") and
the Federal Deposit Insurance Corporation (the "FDIC"). The Bank is a member of
the Federal Home Loan Bank System (the "FHLB") and its deposits are insured by
the Savings Association Insurance Fund ("SAIF") to the maximum extent permitted
by the FDIC.

     The Bank serves the financial needs of families and local businesses in its
primary market areas through its main office located at 310 S. Schuyler Avenue,
Kankakee, Illinois and thirteen branch offices located in the communities of
Ashkum, Bourbonnais, Bradley, Braidwood, Champaign, Coal City (2), Diamond,
Dwight, Herscher, Manteno, Momence and Urbana, Illinois. At December 31, 2002,
the Company had consolidated assets of $546.4 million, deposits of $432.0
million and stockholders' equity of $41.1 million.

     The Company engages in a general full service retail banking business and
offers a broad variety of consumer oriented products and services to residents
of its primary market areas. The

                                        4

<PAGE>

Company is principally engaged in the business of attracting deposits from the
general public and originating residential mortgage loans in its primary market
areas. The Company also originates commercial real estate, consumer,
multi-family, commercial business and construction loans. In addition, the
Company invests in mortgage-backed securities, investment securities,
certificates of deposit and short-term liquid assets. The Company also offers a
Visa/MasterCard program, debit card services, on-line banking and bill payment
services and, on an agency basis through KFS Service Corp., securities brokerage
services and insurance and annuity products to the Company's customers, and
provides appraisal services for the Bank and others.

     Since 1998, the Bank has offered trust services. While the Bank has
authority for full trust services, it has focused on personal trust services and
limited employee benefit plan services.

     The Company's revenues are derived from interest on loans, mortgage-backed
and related securities and investments, service charges and loan origination
fees, loan servicing fees and proceeds from the sale, through KFS Service Corp.,
of securities brokerage services, insurance and annuity products and appraisal
services. The Company's operations are materially affected by general economic
conditions, the monetary and fiscal policies of the federal government and the
policies of the various regulatory authorities, including the OTS and the Board
of Governors of the Federal Reserve System (the "FRB"). Historically, the
Company's results of operations have been largely dependent upon its net
interest income, which is the difference between the interest it receives on its
loan and investment securities portfolios and the interest it pays on deposit
accounts and borrowings. However, while the results of operations continue to be
dependent on net interest income, other income sources, such as fees, loan
servicing income, net gain on the sale of loans and other non-interest income,
have and continue to become more significant factors in the results of
operations.

     The executive offices of the Company are located at 310 S. Schuyler Avenue,
Kankakee, Illinois 60901 and its telephone number at that address is (815)
937-4440.

MARKET AREA

     The Bank's main office is located at 310 S. Schuyler Avenue, Kankakee,
Illinois. The bank also has thirteen branch offices located in the communities
of Ashkum, Bourbonnais, Bradley, Braidwood, Champaign, Coal City (2), Diamond,
Dwight, Herscher, Manteno, Momence and Urbana. The Company's market areas
include Kankakee, Champaign, Grundy, Iroquois and Livingston Counties and
portions of Will County, in Illinois. During 2001, the Company began working
with a consulting firm to determine how to increase the profitability of each
branch location and whether operations in certain market areas should be
expanded or abandoned so that the Company's capital resources may be put to use
in other market areas more profitably. The Company also continues to look for
expansion opportunities, including financial institution and branch
acquisitions, that would increase the Company's return to its stockholders. As a
result, the Company's market area is subject to revision.

     Kankakee is located approximately 35 miles south of the metropolitan
Chicago area. The metropolitan Kankakee area has a population of just under
60,000 and has experienced a slight

                                        5

<PAGE>

decrease in population since 1990. Kankakee County has a mixed agricultural and
industrial economy with the largest number of residents employed in the
agricultural, health care, food processing, chemical and retail redistribution
industries. Major employers include Riverside HealthCare, Provena St. Mary's
Hospital, Shapiro Development Center, the Baker and Taylor Company, CIGNA
Companies, Armstrong World Industries, Aventis Behring, Bunge Edible Oil
Corporation, Cognis Corporation, KMART Corporation Distribution Center, Sears
Logistics Services, Inc., American Spring Wire, Crown Cork and Seal Company,
Inc., and Dow Automotive.

     Champaign/Urbana is located approximately 75 miles south of Kankakee. It is
the location of the original campus of the University of Illinois which employs
16,200 people and has a student body of over 30,000. In addition, the economy of
the Champaign/Urbana market area includes several major medical centers and
agricultural and industrial businesses. Major employers in the Champaign/Urbana
area include Carle Clinic Association, Carle Foundation Hospital, Provena
Covenant Medical Center, Parkland College, Kraft Foods, Inc., SuperValu
Champaign Distribution Center, Rantoul Products, Champaign Unit School District
4, Champaign County and Caradco.

     Coal City is located approximately 30 miles northwest of Kankakee in Grundy
County, Illinois. Braidwood is located approximately 25 miles northwest of
Kankakee in Will County, Illinois. Coal City, Braidwood and their surrounding
communities have a population of 12,000 residents. As bedroom communities of the
south Chicago suburbs, the economy in this region is a mix of agricultural,
industrial and service-based businesses. Large corporate employers such as
ComEd, with its Braidwood nuclear power plant, Midwest Generation, with its
Collins Street nuclear plant, Excelon, with its Dresden nuclear plant, Amoco,
Equistar Chemicals, Reichhold Chemicals, Mobil and Caterpillar are within short
driving distances.

LENDING ACTIVITIES

     General. The principal lending activity of the Company is originating first
mortgage loans secured by owner occupied one-to-four family residential
properties located in its primary market areas. In addition, in order to
increase the yield and interest rate sensitivity of its portfolio and in order
to provide more comprehensive financial services to families and community
businesses in the Company's market areas, the Company also originates commercial
real estate, consumer, commercial business, multi-family and construction loans.
From time to time, the Company has also utilized loan purchases to supplement
loan originations.

                                        6

<PAGE>

     Loan and Mortgage-Backed Securities Portfolio Composition. The following
table provides information concerning the composition of the Company's loan and
mortgage-backed securities portfolios in dollar amounts and in percentages
(before deductions for loans in process, deferred fees and discounts and
allowances for losses) as of the dates indicated. Loans held for sale are
included primarily in one-to-four family real estate loans.

<TABLE>
<CAPTION>
                                                                    December 31,
                            --------------------------------------------------------------------------------------------
                                     2002                    2001                  2000                  1999
                            ---------------------   -------------------    ---------------------   ---------------------
                              Amount      Percent     Amount    Percent      Amount      Percent     Amount     Percent
                            ----------   --------   ----------  -------    ----------   --------   ----------   --------
                                                                (Dollars in thousands)
<S>                         <C>             <C>     <C>           <C>      <C>             <C>     <C>             <C>
Real Estate Loans
  One-to-four family ...... $  228,623      53.09%  $  247,436    60.06%   $  211,891      58.73%  $  165,089      56.61%
  Multi-family ............     13,672       3.18       11,983     2.91        11,608       3.22        8,923       3.06
  Commercial ..............     56,589      13.14       48,543    11.78        39,564      10.97       28,869       9.90
  Construction or
   development ............     21,286       4.94       22,555     5.47        17,797       4.93       14,235       4.88
  Mortgage-backed
   securities and parti-
   cipation certificates ..     38,205       8.87       11,673     2.83        16,118       4.47       17,600       6.03
                            ----------   --------   ----------  -------    ----------   --------   ----------   --------

    Total real estate loans
     and mortgage-backed
     securities ...........    358,375      83.22      342,190    83.05       296,978      82.32      234,716      80.48
                            ----------   --------   ----------  -------    ----------   --------   ----------   --------

Other Loans:
  Consumer Loans:
    Deposit account .......        812       0.19          831     0.20           786       0.22          788       0.27
    Student ...............         --         --           --       --            --         --          151       0.05
    Automobile ............      5,351       1.24        7,006     1.70         7,281       2.02        5,541       1.90

<CAPTION>
                                  December 31,
                              -------------------
                                     1998
                              -------------------
                                Amount    Percent
                              ----------  -------
<S>                           <C>           <C>
Real Estate Loans
  One-to-four family ......   $  159,956    59.23%
  Multi-family ............        5,556     2.06
  Commercial ..............       21,291     7.88
  Construction or
   development ............       13,938     5.16
  Mortgage-backed
   securities and parti-
   cipation certificates ..       18,746     6.94
                              ----------  -------

    Total real estate loans
     and mortgage-backed
     securities ...........      219,487    81.27
                              ----------  -------

Other Loans:
  Consumer Loans:
    Deposit account .......          827     0.31
    Student ...............          231     0.09
    Automobile ............        3,830     1.42
</TABLE>

                                        7

<PAGE>

<TABLE>
<CAPTION>
                                                                        December 31,
                                --------------------------------------------------------------------------------------
                                         2002                  2001                  2000                  1999
                                ---------------------   -------------------  -------------------  --------------------
                                  Amount     Percent      Amount    Percent    Amount    Percent    Amount     Percent
                                ----------   --------   ----------  -------  ---------   -------  ---------   --------
<S>                             <C>            <C>      <C>          <C>     <C>          <C>     <C>           <C>
    Home equity .............       22,560       5.24       18,407     4.47     17,815      4.94     17,028       5.84
    Home improvement ........           --         --           --       --         --        --          2       0.00
    Mobile home .............        1,132       0.26        1,408     0.34      1,734      0.48      2,158       0.74
    Credit cards ............        1,128       0.26        1,213     0.29      1,286      0.36      1,286       0.44
    Personal ................        7,985       1.86        9,705     2.36     11,133      3.08      7,946       2.73
                                ----------   --------   ----------  -------  ---------   -------  ---------   --------
      Total consumer loans ..       38,968       9.05       38,570     9.36     40,035     11.10     34,900      11.97
Commercial business loans ...       33,301       7.73       31,255     7.59     23,750      6.58     22,013       7.55
                                ----------   --------   ----------  -------  ---------   -------  ---------   --------
    Total other loans .......       72,269      16.78       69,825    16.95     63,785     17.68     56,913      19.52
                                ----------   --------   ----------  -------  ---------   -------  ---------   --------
Total loans and mortgage-
 backed securities
 receivable .................      430,644     100.00%     412,015   100.00%   360,763    100.00%   291,629     100.00%
                                ----------   ========   ----------  =======  ---------   =======  ---------   ========
Less:
  Loans in process ..........        1,043                   2,671               3,341                1,394
  Deferred fees and
   discounts ................          505                     470                 192                  104
  Allowance for losses
   on loans .................        6,524                   2,582               2,156                2,171
                                ----------              ----------           ---------            ---------
  Total loans and mortgage-
   backed securities
   receivable, net ..........   $  422,572              $  406,292           $ 355,074            $ 287,960
                                ==========              ==========           =========            =========

<CAPTION>
                                  December 31,
                              -------------------
                                      1998
                              -------------------
                                Amount    Percent
                              ---------   -------
<S>                           <C>          <C>
    Home equity .............    17,215      6.37
    Home improvement ........         7      0.00
    Mobile home .............     2,826      1.05
    Credit cards ............     1,376      0.51
    Personal ................     6,900      2.55
                              ---------   -------
      Total consumer loans ..    33,212     12.30
Commercial business loans ...    17,365      6.43
                              ---------   -------
    Total other loans .......    50,577     18.73
                              ---------   -------
Total loans and mortgage-
 backed securities
 receivable .................   270,064    100.00%
                              ---------   =======
Less:
  Loans in process ..........     1,671
  Deferred fees and
   discounts ................       129
  Allowance for losses
   on loans .................     2,375
                              ---------
  Total loans and mortgage-
   backed securities
   receivable, net .......... $ 265,889
                              =========
</TABLE>

                                        8

<PAGE>

     The following table shows the composition of the Company's loan and
mortgage-backed securities portfolios by fixed and adjustable rate at the dates
indicated. Loans held for sale are included primarily as fixed-rate one-to-four
family residential loans.

<TABLE>
<CAPTION>
                                                                      December 31,
                                -----------------------------------------------------------------------------------------
                                          2002                  2001                  2000                    1999
                                ----------------------   ------------------   --------------------   --------------------
                                  Amount       Percent    Amount    Percent     Amount     Percent     Amount     Percent
                                ----------     -------   ---------  -------   ----------   -------   ----------   -------
                                                                        (Dollars in thousands)
<S>                             <C>            <C>       <C>          <C>     <C>            <C>     <C>            <C>
Fixed-Rate Loans and
Mortgage-Backed Securities
  Real estate:
    One-to-four family ........ $  164,186       38.13%  $ 177,253    43.02%  $  132,847     36.82%  $   83,407     28.60%
    Multi-family ..............      2,652        0.62       2,884     0.70        3,206      0.89          693      0.24
    Commercial ................     13,500        3.13      11,410     2.77       11,015      3.06        7,664      2.63
    Construction or
     development ..............      6,292        1.46       7,142     1.73        2,579      0.71        2,380      0.82
  Mortgage-backed securities ..      9,303        2.16       9,185     2.23       11,813      3.28       11,731      4.02
                                ----------     -------   ---------  -------   ----------   -------   ----------   -------
  Total real estate loans and
   mortgage-backed
   securities .................    195,933       45.50     207,874    50.45      161,460     44.76      105,875     36.31
Consumer ......................     19,537        4.54      23,179     5.62       24,092      6.68       18,826      6.46
Commercial business ...........     17,047        3.96      18,166     4.41       12,709      3.52       11,215      3.85
                                ----------     -------   ---------  -------   ----------   -------   ----------   -------
  Total fixed-rate loans and
   mortgage-backed securities .    232,517       54.00     249,219    60.48      198,261     54.96      135,916     46.62
                                ----------     -------   ---------  -------   ----------   -------   ----------   -------
Adjustable-Rate Loans and
Mortgage-Backed Securities
  Real estate:
    One-to-four family ........     64,437       14.96      70,183    17.04       79,044     21.91       81,682     28.01
    Multi-family ..............     11,020        2.56       9,099     2.21        8,402      2.33        8,230      2.82
    Commercial ................     43,089       10.01      37,133     9.01       28,549      7.91       21,205      7.27
    Construction or
     development ..............     14,994        3.48      15,413     3.74       15,218      4.22       11,855      4.06

<CAPTION>
                                      December 31,
                                  --------------------
                                          1998
                                  --------------------
                                    Amount     Percent
                                  ----------   -------
<S>                               <C>            <C>
Fixed-Rate Loans and
Mortgage-Backed Securities
  Real estate:
    One-to-four family ........   $   75,352     27.90%
    Multi-family ..............          390      0.14
    Commercial ................        2,076      0.77
    Construction or
     development ..............        2,708      1.00
  Mortgage-backed securities ..        9,296      3.44
                                  ----------   -------
  Total real estate loans and
   mortgage-backed
   securities .................       89,822     33.25
Consumer ......................       19,087      7.07
Commercial business ...........        8,020      2.97
                                  ----------   -------
  Total fixed-rate loans and
   mortgage-backed securities .      116,929     43.29
                                  ----------   -------
Adjustable-Rate Loans and
Mortgage-Backed Securities
  Real estate:
    One-to-four family ........       84,604     31.33
    Multi-family ..............        5,166      1.92
    Commercial ................       19,215      7.11
    Construction or
     development ..............       11,230      4.16
</TABLE>

                                        9

<PAGE>

<TABLE>
<CAPTION>
                                                                    December 31,
                                    -----------------------------------------------------------------------------------------
                                          2002                  2001                  2000                  1999
                                    ---------------------- --------------------- ---------------------  ---------------------
                                     Amount     Percent     Amount    Percent     Amount     Percent     Amount      Percent
                                    ---------   -------   ---------   -------   ----------   -------   ----------   ---------
<S>                                 <C>          <C>      <C>          <C>      <C>           <C>      <C>             <C>
    Mortgage-backed securities....     28,902      6.71       2,488      0.60        4,305      1.19        5,869        2.01
                                    ---------   -------   ---------   -------   ----------   -------   ----------   ---------
      Total real estate loans
       and mortgage-backed
       securities ................    162,442     37.72     134,316     32.60      135,518     37.56      128,841       44.17
Consumer .........................     19,431      4.51      15,391      3.74       15,943      4.42       16,074        5.51
Commercial business ..............     16,254      3.77      13,089      3.18       11,041      3.06       10,798        3.70
                                    ---------   -------   ---------   -------   ----------   -------   ----------   ---------
    Total adjustable-rate loans
     and mortgage-backed
     securities ..................    198,127     46.00     162,796     39.52      162,502     45.04      155,713       53.38
                                    ---------   -------   ---------   -------   ----------   -------   ----------   ---------
  Total loans and mortgage-
   backed securities .............    430,644    100.00%    412,015    100.00%     360,763    100.00%     291,629      100.00%
                                    ---------   =======   ---------   =======   ----------   =======   ----------   =========
Less:
  Loans in process ...............      1,043                 2,671                  3,341                  1,394
  Deferred fees and discounts ....        505                   470                    192                    104
  Allowance for losses on loans ..      6,524                 2,582                  2,156                  2,171
                                    ---------             ---------             ----------             ----------
    Total loans and mortgage-
     backed securities
     receivable, net .............  $ 422,572             $ 406,292             $  355,074             $  287,960
                                    =========             =========             ==========             ==========

<CAPTION>
                                         December 31,
                                     -------------------
                                            1998
                                     -------------------
                                     Amount      Percent
                                     ----------  -------
<S>                                     <C>       <C>
    Mortgage-backed securities ...        9,450     3.50
                                     ----------  -------
      Total real estate loans
       and mortgage-backed
       securities ................      129,665    48.02
Consumer .........................       14,125     5.23
Commercial business ..............        9,345     3.46
                                     ----------  -------
    Total adjustable-rate loans
     and mortgage-backed
     securities ..................      153,135    56.71
                                     ----------  -------
  Total loans and mortgage-
   backed securities .............      270,064   100.00%
                                     ----------  =======
Less:
  Loans in process ...............        1,671
  Deferred fees and discounts ....          129
  Allowance for losses on loans ..        2,375
                                     ----------
    Total loans and mortgage-
     backed securities
     receivable, net .............   $  265,889
                                     ==========
</TABLE>

                                       10

<PAGE>

     The following schedule illustrates the interest rate sensitivity of the
Company's loan and mortgage-backed securities portfolio at December 31, 2002.
Loans that have adjustable or renegotiable interest rates are shown as maturing
in the period during which the contract reprices. The schedule does not reflect
the effects of possible prepayments or enforcement of due-on-sale clauses.

<TABLE>
<CAPTION>
                                               Real Estate
                    ------------------------------------------------------------------
                    One-to-four family and
                         Mortgage-Backed        Multi-family and     Construction or
                           Securities              Commercial          Development
                    -----------------------   -------------------  -------------------
                                   Weighted              Weighted             Weighted
                                   Average                Average             Average
                      Amount         Rate      Amount      Rate      Amount     Rate
                    ----------     --------   --------   --------  ---------  --------
                                         (Dollars in thousands)
<S>                 <C>                <C>    <C>            <C>   <C>            <C>
Due During Twelve
 Month Periods
 Ending
 December 31,
2003(1)............ $      133         8.97%  $ 13,335       6.98% $  13,468      6.05%
2004 and 2005......        536         7.52      3,322       7.33      1,008      5.37
2006 and 2007......      3,837         6.35      3,196       7.58      1,120      7.17
2008 through 2012..     21,327         6.61      7,064       7.00      3,680      6.58
2013 through 2027..    129,544         6.38     41,861       7.03      1,667      7.11
2028 and following.    111,451         6.51      1,483       7.17        343      6.63
                    ----------                --------             ---------
      Total         $  266,828                $ 70,261             $  21,286
                    ==========                ========             =========

<CAPTION>
                                                   Commercial
                            Consumer                Business              Total
                       --------------------   -------------------  --------------------
                                   Weighted              Weighted              Weighted
                                    Average              Average                Average
                        Amount       Rate      Amount      Rate      Amount      Rate
                       ---------   --------   --------   --------  ---------   --------
                                             (Dollars in thousands)
<S>                    <C>             <C>    <C>            <C>   <C>             <C>
Due During Twelve
 Month Periods
 Ending
 December 31,
2003(1)............    $   5,112       8.83%  $ 17,092       5.99% $   49,140      6.58%
2004 and 2005......        8,896       7.01      3,972       7.23      17,734      7.04
2006 and 2007......       13,147       6.28      7,671       6.30      28,971      6.47
2008 through 2012..       10,957       6.10      4,026       7.46      47,054      6.62
2013 through 2027..          856       8.46        540       6.93     174,468      6.55
2028 and following.           --         --         --         --     113,277      6.51
                       ---------              --------             ----------
      Total            $  38,968              $ 33,301             $  430,644
                       =========              ========             ==========
</TABLE>

----------
(1)  Includes demand loans and loans having no stated maturity.

                                       11

<PAGE>

     As of December 31, 2002, the total amount of loans and mortgage-backed
securities due after December 31, 2003, which had predetermined interest rates
was $212.9 million, while the total amount of loans and mortgage-backed and
related securities due after such date which had floating or adjustable interest
rates was $168.6 million.

     Under the Financial Institutions Reform, Recovery and Enforcement Act of
1989, the aggregate amount of loans that the Bank is permitted to make to any
one borrower is generally limited to 15% of unimpaired capital and surplus (25%
if the security for such loan has a "readily ascertainable" market value or 30%
for certain residential development loans). At December 31, 2002, the Bank's
regulatory loan-to-one borrower limit was $5.8 million. On the same date, the
Bank's largest total of loans to one borrower was $5.6 million.

     All of the Company's lending activities are conducted in accordance with
policies adopted by its board of directors. The Company is an equal opportunity
lender. Decisions on loan applications are made on the basis of detailed
applications and property valuations (consistent with the Company's written
appraisal policy) prepared by qualified appraisers. The loan applications are
designed primarily to determine the borrower's ability to repay and the more
significant items on the application are verified through use of credit reports,
financial statements, tax returns and/or third-party confirmations.

     The Company requires evidence of marketable title and lien position as well
as appropriate title and other insurance on all loans secured by real property
in amounts at least equal to the principal amount of the loan or the value of
improvements on the property, depending on the type of loan.

     One-to-Four Family Residential Real Estate Lending. The cornerstone of the
Company's lending program is the origination of loans secured by mortgages on
owner-occupied one-to-four family residences. At December 31, 2002, $266.8
million, or 62.0% of the Company's loan and mortgage-backed securities
portfolio, consisted of loans secured by one-to-four family residences. At that
date, the average outstanding residential loan balance was approximately $65,000
and the largest outstanding residential loan had a book value of $875,000.
Substantially all of the residential loans originated by the Company are secured
by properties located in the Company's primary market areas.

     In order to reduce its exposure to changes in interest rates, the Company
originates Adjustable Rate Mortgages ("ARM"), subject to market conditions and
consumer preference. The Company also originates long term fixed-rate
residential loans.

     Most of the Company's fixed-rate loans are originated with terms which
conform to secondary market standards (i.e., Freddie Mac standards). Most of the
Company's fixed-rate residential loans have contractual terms to maturity of 15
to 30 years. The origination of fixed-rate loans with terms which conform to
secondary market standards allows the Company the option of either retaining
fixed-rate loans for portfolio or selling them in the secondary market. The
option to sell fixed-rate loans has been a part of asset/liability management
and interest rate risk management for the Company since its formation, and was
one of the Bank's strategies prior to the formation of

                                       12

<PAGE>

the Company. The Company continuously reviews its current policy on fixed-rate
loan retention, in light of changing local, regional and national economic
conditions, and with regard to the Company's current interest rate risk and
assets/liability positions. Loans originated with certain terms and certain
interest rates are designated for sale based on a future date, either the
closing date or the application date. All loans either applied for or closed on
or after the pre-determined date, which meet the criteria, are designated for
sale.

     During 1999, the Company sold substantially all fixed-rate residential
loans having terms greater than 20 years. Those loans with terms of 20 years or
less were retained in portfolio. In 2000, the Company implemented an aggressive
growth strategy, during which virtually all originated fixed-rate residential
loans were retained in portfolio. As market interest rates declined during 2001,
the Company again began to sell originated fixed-rate residential loans.
Initially, loans with terms greater than 20 years were designated for sale, then
loans with terms greater than 15 years were designated for sale, and, finally,
in the fourth quarter, virtually all originated fixed-rate residential loans
were designated for sale. During 2002, the Company continued to sell virtually
all originated fixed-rate residential loans, with the exception of approximately
$10.0 million in loans with term of 15 to 20 years retained for asset/liability
management reasons. Except for Federal Housing Administration and Veterans'
Administration, which are sold with servicing released, the Company retains
servicing on the loans its sells. At December 31, 2002, the Company had $97.1
million of 15 year fixed-rate residential loans and $66.9 million of 30 year
fixed-rate residential loans in its portfolio.

     The Company offers ARM loans at rates, terms and fees determined in
accordance with market and competitive factors. The Company's current
one-to-four family residential ARMs are fully amortizing loans with contractual
maturities of up to 30 years. The interest rates on the ARMs originated by the
Company are subject to adjustment at stated intervals based on a margin over a
specified index and are subject to annual as well as lifetime adjustment limits.
The Company's current ARMs do not permit negative amortization of principal and
carry no prepayment penalty. At December 31, 2002, the Company had $24.0
million, $2.4 million and $38.1 million of one-year, three-year and five-year
ARMs, respectively.

     The Company's delinquency experience on its ARMs has generally been similar
to that on fixed-rate residential loans. Of the $1.8 million of one-to-four
family loans delinquent 60 days or more at December 31, 2002, $1.1 million (or
0.5% of one-to-four family loans) consisted of ARMs and $653,000 (or 0.3% of the
Company's one-to-four family loans) represented fixed-rate loans.

     The Company evaluates both the borrower's ability to make principal,
interest and escrow payments and the value of the property that will secure the
loan. The Company originates residential mortgage loans with loan-to-value
ratios generally up to 95% except for a program applicable to first time home
buyers where this ratio can go up to 97% with private mortgage insurance and/or
other collateral. On any mortgage loan exceeding an 80% loan-to-value ratio at
the time of origination, the Company generally requires private mortgage
insurance in an amount intended to reduce the Company's exposure to 80% or less
of the appraised value of the underlying property. In addition, the Company
offers 100% financing on the purchase of single-family, owner occupied homes.
All loans originated under this program are required to have private mortgage
insurance covering the top

                                       13

<PAGE>

35% of the loan balance, and can be either fixed rate or adjustable rate. This
program was initiated in 2000.

     In 1999, the Company announced a $30,000 grant program to assist qualified
first-time home buyers in purchasing owner-occupied single-family homes in the
Company's market areas. The program provides one-time grants of up to $1,000 to
assist qualified applicants who meet low-to-moderate income guidelines. During
2001, the $10,000 which was still available at the start of the year had been
used to assist qualified first-time home buyers. The Company decided to commit
an additional $30,000 to the grant program. At December 31, 2002, $16,000 of the
additional funds was still available to assist qualified first-time home buyers.

     The Company, on occasion, originates loans in excess of $300,700 (the
Freddie Mac maximum during 2002). As of December 31, 2002, the Company had 12
residential mortgage loans having an aggregate balance of $5.5 million with
original balances in excess of $300,700 ("jumbo loans"). The Company's
historical delinquency experience on its jumbo loans has been excellent.

     The Company is an approved one-to-four family lender for both the Federal
Housing Administration ("FHA") and the Veterans' Administration ("VA"). The
Company sells, with servicing released, all FHA and VA loans it originates to
other investors, and does not aggressively promote FHA and VA lending. During
2002 there were three FHA or VA loans originated by the Company. Borrowers are
notified at the time of application that their loan will be sold to, and
serviced by, a party other than the Company.

     Multi-Family and Commercial Real Estate Lending. The Company also makes
multi-family and commercial real estate loans in its primary market areas. At
December 31, 2002, the Company had $70.3 million in multi-family and commercial
real estate loans, representing 16.3% of the Company's total loan and
mortgage-backed securities portfolio.

     The Company's multi-family portfolio includes loans secured by residential
buildings (including university student housing) located primarily in the
Company's primary market areas. The Company's commercial real estate portfolio
consists of loans on a variety of non-residential properties including nursing
homes, churches and other commercial buildings.

     The Company has originated both adjustable and fixed-rate multi-family and
commercial real estate loans. Rates on the Company's adjustable-rate
multi-family and commercial real estate loans generally adjust in a manner
consistent with the Company's ARMs. Multi-family and commercial real estate
loans are generally underwritten in amounts of up to 75% of the appraised value
of the underlying property.

     The table below sets forth by type of property taken as collateral, the
number, loan amount and outstanding balance of the Company's multi-family and
commercial real estate loans (including purchased loan participations) at
December 31, 2002 and the amounts of such loans which were non-performing or "of
concern" at December 31, 2002. The amounts shown do not reflect allowances for
losses.

                                       14

<PAGE>

                                      Original    Outstanding      Amount
                           Number       Loan       Principal    Non-performing
                          of Loans     Amount      Balance      or of Concern
                          --------   ----------   -----------   --------------
                                     (Dollars in thousands)
Multi-family residential        30   $   17,933   $   13,672    $          118
Improved real estate            13       11,225        4,092                --
Churches                        24        6,015        5,159                19
Agricultural related            22        2,433        1,984                40
Industrial and warehouse       126       29,114       24,795             2,855
Retail                          49       11,659        7,952               485
Office                          12        1,604        1,137                --
Other                           89       14,218       11,470               200
                          --------   ----------   -----------   --------------
         Total                 365   $   94,201   $   70,261    $        3,717
                          ========   ==========   ===========   ==============

     Multi-family residential and commercial real estate loans generally
present a higher level of risk than loans secured by one-to-four family
residences. This greater risk is due to several factors, including the
concentration of principal in a limited number of loans and borrowers, the
effects of general economic conditions on income producing properties and the
increased difficulty of evaluating and monitoring these types of loans.

     Purchased Loan Participations. In order to supplement lending activities
during periods of low loan volume, the Company has from time to time purchased
participation interests in multi-family and commercial real estate loans
originated and serviced by other lenders. Prior to purchase, the Company reviews
each participation to ensure that the underlying loan complies with the
Company's lending policy as in effect at the time of purchase. At December 31,
2002, the Bank had $197,000 of purchased loans and participation interests in
one-to-four family loans and $505,000 in participation interests in multi-family
and commercial real estate loans.

     The purchase of loan participations involves the same risks as the
origination of the same type of loans as well as additional risks related to the
purchaser's lower level of control over the origination and subsequent
administration of the loan. Also, some of the loan participations currently on
the Company's books are on real estate located out-of-state. Out-of-state
investments are considered to carry a higher degree of risk due to the
difficulty of monitoring such investments.

     Commercial Business Lending. Federally chartered savings institutions, such
as the Bank, are authorized to make secured or unsecured loans and issue letters
of credit for commercial, corporate, business and agricultural purposes and to
engage in commercial leasing activities, up to a maximum of 20% of total assets.
However, any amount exceeding 10% of total assets must represent small business
loans as defined by the OTS.

     In order to increase the proportion of interest rate sensitive and
relatively high yielding loans in its portfolio, and as a part of its effort to
provide more comprehensive financial services in the communities serviced by its
offices, the Company originates secured and unsecured commercial loans to local
businesses. Currently, the Company's commercial business lending activities
encompass loans with a broad variety of purposes including working capital,
accounts receivable, inventory, equipment and agriculture. The Company does not
have any energy or foreign loans.

                                       15

<PAGE>

     At December 31, 2002, the Company had $33.3 million in commercial business
loans outstanding (representing 7.7% of the Company's total loan and
mortgage-backed securities portfolio) with additional commercial business loan
commitments totaling $5.3 million, most of which were undrawn lines of credit.
In addition, at December 31, 2002, the Company had twenty-seven letters of
credit outstanding, in an aggregate amount of $1.2 million. Most of the
Company's commercial business loans have terms to maturity of five years or less
and adjustable or floating interest rates. At December 31, 2002, the Company had
thirty-four commercial business loans with balances of $250,000 or more, in an
aggregate amount of $17.5 million.

     The Company recognizes the generally increased risks associated with
commercial business lending. The Company's commercial business lending policy
emphasizes credit file documentation and analysis of the borrower's character,
management capabilities, capacity to repay the loan, the adequacy of the
borrower's capital and collateral as well as an evaluation of the industry
conditions affecting the borrower. Analysis of the borrower's past, present and
future cash flows is also an important aspect of the Company's credit analysis.
Asset quality issues that came to light during 2002 led management and the Board
of Directors, through its Audit Committee, to initiate an extensive review of
the commercial loan portfolio, including a review of the Company's underwriting
process and portfolio management procedures.

     The following table sets forth information regarding the number and amount
of the Company's commercial business loans and the amounts of such loans which
were non-performing and "of concern" as of December 31, 2002.

<TABLE>
<CAPTION>
                                                                 Total     Outstanding      Amount
                                                    Number       Loan       Principal    Non-Performing
                                                   of Loans   Commitment     Balance     or of Concern
                                                   --------   ----------   -----------   --------------
                                                                    (Dollars in thousands)
    <S>                                                 <C>   <C>          <C>           <C>
    Secured Loans:
      Accounts receivable.......................         22   $   14,885   $     5,832   $           --
      Inventory.................................          2          100            67               --
      Equipment.................................         72        4,789         3,432               19
      Other business assets.....................         52       10,256         8,137            1,966
      Stocks and bonds..........................         13        2,654         2,417               --
      Heavy duty vehicles.......................        161        8,374         5,467               --
      Other motor vehicles......................         43        1,325         1,020                8
      Assignments other.........................         10        3,962         1,535              739
      Stand-by letters of credit................         18          931            --               --
      Beneficial interest in real estate trust..         19        6,490         3,130               --
    Unsecured loans.............................         69        3,727         2,264              155
    Unsecured stand-by letters of credit........          9          297            --               --
                                                   --------   ----------   -----------   --------------
      Total commercial business loans...........        490   $   57,790   $    33,301   $        2,887
                                                   ========   ==========   ===========   ==============
</TABLE>

     Consumer Lending. Management believes that offering consumer loan products
helps to expand the Company's customer base and to create stronger ties to its
existing customer base. In addition, because consumer loans generally have
shorter terms to maturity and/or adjustable-rates and carry higher rates of
interest than do residential mortgage loans, they can be valuable
asset/liability management tools. The Company currently originates substantially
all of its consumer

                                       16

<PAGE>

loans in its market areas. At December 31, 2002, the Company's consumer loans
totaled $39.0 million or 9.1% of the Company's loan and mortgage-backed
securities portfolio.

     The Company offers a variety of secured consumer loans, including home
equity and home improvement loans, loans secured by savings deposits, mobile
home and automobile loans. Although the Company primarily originates consumer
loans secured by real estate, deposits or other collateral, the Company also
makes unsecured personal loans. In addition, the Company offers unsecured
consumer loans through its Visa and MasterCard credit card programs.

     The Company offers mobile home loans in order to provide affordable
housing. All of the Company's mobile home loans have been originated with
fixed-rates of interest and are generally made in amounts of up to a maximum of
80% of the buyer's cost. As of December 31, 2002, mobile home loans totaled $1.1
million or approximately 0.3% of the Company's gross loan and mortgage-backed
securities portfolio.

     Unsecured personal loans are made to borrowers for a variety of personal
needs and are usually limited to a maximum of $3,000, with a minimum loan amount
of $1,000. Lines of credit extended through the Company's Visa and MasterCard
credit card programs are generally limited to $5,000. Underwriting standards for
the Company's credit card program are substantially the same as for personal
loans.

     Consumer loans may entail greater risk than residential mortgage loans,
particularly in the case of consumer loans which are unsecured or secured by
rapidly depreciable assets such as automobiles. The greater risk inherent in
consumer loans has been emphasized by recent nationwide increases in personal
bankruptcies. Although the level of delinquencies in the Company's consumer loan
portfolio has generally been low (at December 31, 2002, $290,000, or
approximately 0.7% of the consumer loan portfolio was 90 days or more
delinquent), there can be no assurance that delinquencies will not increase in
the future.

     Construction Lending. Historically, construction lending was a relatively
minor part of the Company's business activities. However, in light of the
economic climate in its principal market areas and in order to increase the
yield on, and the proportion of, interest rate sensitive loans in its portfolio
and to provide more comprehensive financial services to families and community
businesses within its market areas, the Company expanded its construction
lending. At December 31, 2002, the Company had $1.8 million of residential
construction loans and $1.8 million of lot loans to borrowers intending to live
in the properties upon completion of construction.

     On occasion, the Company also originates construction loans to builders and
developers for the construction of one-to-four family residences, multi-family
residences and commercial real estate and the acquisition and development of
one-to-four family lots in the Company's primary market areas. Construction
loans to builders of one-to-four family residences generally carry terms of up
to one year and may provide for the payment of interest and loan fees from loan
proceeds. At December 31, 2002, the Bank had approximately $5.8 million in loans
to builders of residences, and $7.0 million in loans on commercial construction.
In addition, on the same date, the Company had $4.8 million of subdivision loans
to developers for the development of one-to-four family lots.

                                       17

<PAGE>

     Most of the Company's construction loans have been originated with
adjustable rates and terms of 12 months or less. Construction loans to owner
occupants are generally made in amounts of up to a maximum loan-to-value ratio
of 80% (75% in the case of commercial real estate). The Company's construction
loans to persons other than owner occupants generally involve larger principal
balances than do its one-to-four family residential loans. At December 31, 2002,
only nine of the Company's construction loans had a principal balance in excess
of $500,000. The total principal balances of these loans was $13.1 million.

     The table below sets forth the number and amount of the Company's
construction loans at December 31, 2002, by type of security property.

<TABLE>
<CAPTION>
                                                                 Total     Outstanding       Amount
                                                    Number       Loan       Principal    Non-Performing
                                                   of Loans   Commitment     Balance     or of Concern
                                                   --------   ----------   -----------   --------------
                                                                 (Dollars in thousands)
    <S>                                                  <C>  <C>          <C>           <C>
    One-to-four family residential............           14   $    2,276   $     2,242   $           --
    Multi-family residential..................            2          821           789               --
    Land acquisition and development..........           68       22,677        11,926            1,687
    Retail and Industrial.....................            5        7,327         6,329               --
                                                   --------   ----------   -----------   --------------
             Total............................           89   $   33,101   $    21,286   $        1,687
                                                   ========   ==========   ===========   ==============
</TABLE>

     Construction lending to persons other than owner occupants is generally
considered to involve a higher level of credit risk than one-to-four family
residential lending due to the concentration of principal in a limited number of
loans and borrowers and the effects of general economic conditions on
construction projects, real estate developers and managers. In addition, the
nature of these loans is such that they are more difficult to evaluate and
monitor.

     Originations, Purchases and Sales of Loans. The Company originates real
estate and other loans through employees located at each of the Company's
offices. Walk-in customers and referrals from real estate brokers and builders
are also important sources of loan originations. The Company does not generally
utilize the services of mortgage brokers.

     From time to time, in order to supplement its loan production, particularly
during periods of low loan demand, the Company purchases residential and other
loans from third parties. Under its loan purchase policies, prior to purchase,
the Company reviews each loan to assure that it complies with the Company's
normal underwriting standards. While the Company will continue to evaluate loan
purchase opportunities as they arise, the Company currently anticipates limiting
its future purchases of out-of-area non-residential loans.

     As part of its asset/liability management and interest rate risk
management, the Company continuously evaluates its policy on the sale versus
retention of its fixed-rate loan production. General economic factors and
current strategic objectives are among the factors considered in decisions to
retain or sell loans. During the three year period from 2000 through 2002, there
were periods of time the Company retained all fixed-rate loans, no fixed-rate
loans and a portion of fixed-rate loans, determined by rate and term. The
Company's sales during recent years have been made through sales contracts
entered into after the Company committed to fund the loan. When loans are

                                       18

<PAGE>

designated for sale, the Company attempts to limit interest rate risk created by
forward commitments by limiting the number of days between the commitment and
closing, charging fees for commitments and limiting the amounts of its uncovered
commitments outstanding at any one time.

     When loans have been sold, the Company virtually always retains the
responsibility for servicing such loans. At December 31, 2002, excluding
mortgage-backed securities, approximately $1.1 million of the Company's loan
portfolio consisting of purchased loans and purchased participations serviced by
others and the Company serviced $104.8 million of loans for others. During the
year ended December 31, 2002, the Company received fee income of $213,000 in
connection with loans serviced for others.

                                       19

<PAGE>

     The following table shows the loan origination, purchase and repayment
activities of the Company for the periods indicated.

<TABLE>
<CAPTION>
                                                        Year Ended December 31,
                                                --------------------------------------
                                                   2002          2001          2000
                                                ----------    ----------    ----------
                                                         (Dollars in thousands)
<S>                                             <C>           <C>           <C>
Originations By Type:
  Adjustable-Rate:
    Real estate - one-to-four family ........   $   17,289    $   21,089    $   15,802
            - commercial ....................       39,583        32,469        31,577
    Non-real estate - consumer ..............       16,976        11,437        11,176
                - commercial business .......       13,908        12,511        14,191
                                                ----------    ----------    ----------
          Total adjustable-rate .............       87,756        77,506        72,746
                                                ----------    ----------    ----------
  Fixed-Rate:
    Real estate - one-to-four family ........       92,226        98,080        61,096
            - commercial ....................       10,597        13,008        11,192
    Non-real estate - consumer ..............       11,684        15,493        17,776
                - commercial business .......        9,921        18,202        12,665
                                                ----------    ----------    ----------
          Total fixed-rate ..................      124,428       144,783       102,729
                                                ----------    ----------    ----------
          Total loans originated ............      212,184       222,289       175,475
                                                ----------    ----------    ----------
Purchases:
  Real estate - one-to-four family ..........           --            --            --
            - commercial ....................        2,212            --            --
    Non-real estate - commercial business ...          866            --            --
                                                ----------    ----------    ----------
          Total loans .......................        3,078            --            --
  Mortgage-backed securities ................       34,567           301         1,963
                                                ----------    ----------    ----------
          Total purchased ...................       37,645           301         1,963
                                                ----------    ----------    ----------
Sales and Repayments:
Sales:
  Real estate - one-to-four family ..........       57,816        22,266            77
            - commercial ....................        1,750         1,791           ---
  Non-real estate - consumer ................          ---           ---           251
                                                ----------    ----------    ----------
          Total sales .......................       59,566        24,057           328
                                                ----------    ----------    ----------
  Principal repayments ......................      170,210       146,210       110,018
                                                ----------    ----------    ----------
          Total reductions ..................      229,776       170,267       110,346
                                                ----------    ----------    ----------
  Increase (decrease) in other items, net ...       (1,424)       (1,071)        2,042
                                                ----------    ----------    ----------
          Net increase ......................   $   18,629    $   51,252    $   69,134
                                                ==========    ==========    ==========
</TABLE>

                                       20

<PAGE>

     Delinquency Procedures. When a borrower fails to make a required payment on
a loan, the Company attempts to cause the delinquency to be cured by contacting
the borrower. In the event a real estate loan payment is past due for 90 days or
more, the Company performs an in- depth review of the loan status, the condition
of the property and the circumstances of the borrower. Based upon the results of
its review, the Company may negotiate and accept a repayment program with the
borrower, accept a voluntary deed in lieu of foreclosure or, when deemed
necessary, initiate foreclosure proceedings.

     Unsecured consumer loans are charged-off if they remain delinquent for 120
days. Secured consumer loans are liquidated and charged-off to the extent the
debt exceeds the fair value of the collateral. The Company's procedures for
repossession and sale of consumer collateral are subject to various requirements
under Illinois consumer protection laws.

     Delinquencies in the Company's commercial business loan portfolio are
handled on a case-by-case basis under the direction of the chief commercial
banking officer. Generally, personal contact is made with the borrower when the
loan is 15 days past due. Each credit on the Company's internal loan "watch
list" is evaluated periodically to estimate potential losses. 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.
Commercial and other loan charge-offs are made based on management's on-going
evaluation of non-performing loans. In order to strengthen and expand the
commercial loan review process, a new position at the vice president level was
created and staffed at the Bank during the first quarter of 2003 at the
recommendation of the Audit Committee. This officer, an experienced lender, is
responsible for reviewing credit and other loan quality issues on both existing
and proposed commercial business and commercial real estate loans.

     Real estate acquired by the Company as a result of foreclosure or by deed
in lieu of foreclosure is classified as real estate owned until it is sold. When
property is acquired, it is recorded at its estimated fair value at the date of
acquisition, and any write-down resulting therefrom is charged to the allowance
for losses on loans. Upon acquisition, all costs incurred in maintaining the
property are expensed. Costs relating to the development and improvement of the
property, however, are capitalized to the extent of its fair value.

                                       21

<PAGE>

     The following table sets forth the Company's loan delinquencies by type, by
amount and by percentage of type at December 31, 2002.

<TABLE>
<CAPTION>
                                               Loans Delinquent For:
                       --------------------------------------------------------------------     Total 60 Days or More
                                60-89 Days                            90 Days and Over                Delinquent
                       ---------------------------------------  ---------------------------- ----------------------------
                                                 Percent                            Percent                        Percent
                                                 of Loan                            of Loan                        of Loan
                          Number      Amount     Category    Number      Amount     Category   Number   Amount     Category
                          ------      -------    --------    ------    ---------    --------   ------  --------   ----------
                                                            (Dollars in thousands)
<S>                           <C>     <C>            <C>         <C>   <C>              <C>       <C>  <C>           <C>
Real Estate:
  One-to-four family ..       13      $   643        0.28%       23    $   1,115        0.49%      36  $  1,758       0.77%
  Multi-family ........       --           --                    --          118        0.86       --       118       0.86
  Commercial ..........        6          977        1.73        32        5,555        9.81       38     6,532      11.54
  Construction and
   development ........       --           --                     1        1,688        7.93        1     1,688       7.93
Consumer ..............       14          153        0.39        27          290        0.74       41       443       1.13
Commercial business ...        1          352        1.06        16        1,508        4.53       17     1,860       5.59
                          ------      -------                ------    ---------               ------  --------
       Total ..........       34      $ 2,125        0.54        99    $  10,274        2.62      133  $ 12,399       3.16
                          ======      =======                ======    =========               ======  ========
</TABLE>

     The following table sets forth the Company's loan delinquencies by type, by
amount and by percentage of type at December 31, 2001.

<TABLE>
<CAPTION>
                                            Loans Delinquent For:
                       --------------------------------------------------------------------     Total 60 Days or More
                                60-89 Days                            90 Days and Over                Delinquent
                       ---------------------------------------  ---------------------------- ----------------------------
                                                 Percent                            Percent                          Percent
                                                 of Loan                            of Loan                          of Loan
                          Number      Amount     Category    Number      Amount     Category   Number       Amount  Category
                          ------      ------     --------    ------      ------     --------   ------       ------  --------
                                                            (Dollars in thousands)
<S>                            <C>    <C>           <C>          <C>     <C>           <C>        <C>      <C>          <C>
Real Estate:
  One-to-four family ..        21     $    964      0.39%        16      $   572       0.23%      37       $ 1,536      0.62%
  Multi-family ........        --           --                   --           --                  --            --
  Commercial ..........        --           --                    2           33       0.07        2            33      0.07
  Construction and
   development ........        --           --                   --           --                  --            --
Consumer ..............         3           54      0.14         30          375       0.97       43           429      1.11
Commercial business ...         1           11      0.04          5          141       0.45        6           152      0.49
                           ------     --------               ------      -------              ------       -------
       Total ..........        35     $  1,029      0.26         53      $ 1,121       0.28       88       $ 2,150      0.54
                           ======     ========               ======      =======              ======       =======
</TABLE>

                                       22

<PAGE>

     Classification of Assets. Federal regulations require that each savings
institution classify its own assets on a regular basis. In addition, in
connection with examinations of savings institutions, OTS and FDIC examiners
have authority to identify problem assets and, if appropriate, require them to
be classified. There are three classifications for problem assets: Substandard,
Doubtful and Loss. The regulations have also created a Special Mention category,
consisting of assets which do not currently expose a savings institution to a
sufficient degree of risk to warrant classification, but do possess credit
deficiencies or potential weaknesses deserving management's close attention.
Assets classified as Substandard or Doubtful require the institution to
establish prudent general allowances for losses on loans. If an asset or portion
thereof is classified as Loss, the institution must either establish specific
allowances for losses on loans in the amount of 100% of the portion of the asset
classified Loss, or charge off such amount. If an institution does not agree
with an examiner's classification of an asset, it may appeal this determination
to the Regional Director of the OTS. On the basis of management's review of its
assets, at December 31, 2002, on a net basis, the Company had classified $6.0
million of its assets as Special Mention, $6.5 million as Substandard, $41,000
of its assets as doubtful and $3.5 million as Loss. The Company's classified
assets consist of the non-performing loans and loans and other assets of concern
discussed herein.

     Non-Performing Assets. The following table sets forth the amounts and
categories of non-performing assets of the Company. Loans are reviewed quarterly
and any loan whose collectibility is doubtful is placed on non-accrual status.
Real estate loans are placed on non-accrual status when either principal or
interest is 90 days or more past due, unless, in the judgment of management,
collectibility is considered highly probable and collection efforts are in
progress, in which case interest would continue to accrue. At December 31, 2002,
there were 48 loans with outstanding principal balances totaling $3.4 million
which were 90 days or more past due and continuing to accrue interest.

     Interest accrued and unpaid at the time a consumer loan is placed on
non-accrual status is charged against interest income. Subsequent payments are
either applied to the outstanding principal balance or recorded as interest
income, depending on the assessment of the ultimate collectibility of the loan.
For all years presented, the Company had no troubled debt restructurings other
than those included in the non-performing assets table. Foreclosed assets
include assets acquired in settlement of loans. The loan and foreclosed asset
amounts shown are stated net of the specific reserves which have been
established against such assets.

                                       23

<PAGE>

<TABLE>
<CAPTION>
                                                                     December 31,
                                           -----------------------------------------------------------------
                                               2002         2001          2000         1999         1998
                                           ------------ ------------  ------------ ------------ ------------
                                                                (Dollars in thousands)
<S>                                        <C>           <C>           <C>           <C>           <C>
Non-accruing loans:
  One-to-four family(1) .................. $    1,115    $      572    $      680    $      473    $      606
  Multi-family ...........................        118            --            --                          --
  Commercial .............................      3,039            33            --            80           265
  Construction and development ...........      1,687            --            --            --            --
  Consumer ...............................         --            --            --            --            --
  Commercial business ....................        875           125            --            --            90
                                           ----------    ----------    ----------    ----------    ----------
     Total ...............................      6,834           730           680           553           962
                                           ----------    ----------    ----------    ----------    ----------
Accruing loans delinquent more
 than 90 days:
  One-to-four family(1) ..................         --            --            --            --            --
  Multi-family ...........................         --            --            --            --            --
  Commercial .............................      2,516            --            10           807            41
  Construction and development ...........         --            --           900            --            --
  Consumer ...............................        290           375           156           388           438
  Commercial business ....................        633            16           824            --            40
                                           ----------    ----------    ----------    ----------    ----------
     Total ...............................      3,439           391         1,890         1,195           519
                                           ----------    ----------    ----------    ----------    ----------
Foreclosed assets:
  One-to-four family .....................        303           370           204           344           387
  Multi-family ...........................         --            --            48            --            --
  Commercial .............................         --            68           175           157         1,489
  Construction and development ...........         --            --            --            --            --
  Consumer ...............................         13            31            51            68            --
  Commercial business ....................         --            --            --            --            --
                                           ----------    ----------    ----------    ----------    ----------
     Total foreclosed assets .............        316           469           478           569         1,876
                                           ----------    ----------    ----------    ----------    ----------
Troubled debt restructuring Real estate:
  One-to-four family .....................        214           249           120           122            --
  Commercial .............................        266           295           319           342            --
  Construction and development ...........         --            17            --            --            --
  Consumer ...............................         --            50            --            --            --
                                           ----------    ----------    ----------    ----------    ----------
     Total troubled debt restructuring ...        480           611           439           464            --
                                           ----------    ----------    ----------    ----------    ----------
Total non-performing assets .............. $   11,069    $    2,201    $    3,487    $    2,781    $    3,357
                                           ==========    ==========    ==========    ==========    ==========
Total as a percentage of total
  assets .................................       2.03%         0.45%         0.76%         0.69%         0.82%
                                           ==========    ==========    ==========    ==========    ==========
</TABLE>

----------
(1)  Includes loans held for sale.

     For the years ended December 31, 2002 and 2001, gross interest income which
would have been recorded had the non-accruing loans been current in accordance
with their original terms amounted to $387,000 and $33,000, respectively. The
amount that was included in interest income on such loans was $153,000 and
$34,000 for 2002 and 2001, respectively.

                                       24

<PAGE>

     Analysis of Allowance for Losses on Loans. The following table sets forth
an analysis of the Company's allowance for losses on loans.

<TABLE>
<CAPTION>
                                                                       Year Ended
                                                                      December 31,
                                           ----------------------------------------------------------------------
                                               2002         2001          2000         1999          1998
                                           ------------ ------------  ------------ ------------    ----------
                                                                 (Dollar in thousands)
<S>                                        <C>            <C>            <C>            <C>            <C>
Balance at beginning of period ........... $    2,582     $    2,156     $    2,171     $    2,375     $    2,130
Charge-offs:
  One-to-four family .....................          2             --             --             21             20
  Multi-family ...........................         --             --             --             --             --
  Commercial real estate .................         --             28              3             29             --
  Construction ...........................         --             --             --             --             --
  Consumer ...............................         79             61            124            114            160
  Commercial business ....................         --             14              8            123             44
                                           ----------     ----------     ----------     ----------     ----------
                                                   81            103            135            287            224
                                           ----------     ----------     ----------     ----------     ----------
Recoveries:
  One-to-four family .....................         --             --             --             --             --
  Multi-family ...........................         --             --             --             --             --
  Commercial real estate .................         --              1             28             16             --
  Construction ...........................         --             --             --             --             --
  Consumer ...............................         22             24             27             42             71
  Commercial business ....................         11              1             15             25             --
                                           ----------     ----------     ----------     ----------     ----------
                                                   33             26             70             83             71
                                           ----------     ----------     ----------     ----------     ----------
Net charge-offs ..........................        (48)           (77)           (65)          (204)          (153)
Additions charged to operations ..........      3,990            503             50             --             --
Additions through acquisitions ...........         --             --             --             --            398
                                           ----------     ----------     ----------     ----------     ----------
Balance at end of period ................. $    6,524     $    2,582     $    2,156     $    2,171     $    2,375
                                           ==========     ==========     ==========     ==========     ==========
Ratio of net charge-offs during the
 period to average loans
 outstanding during the period ...........       0.01%          0.02%          0.02%          0.08%          0.06%
                                           ==========     ==========     ==========     ==========     ==========
Ratio of net charge-offs during the
 period to average non-
 performing assets .......................       0.75%          3.07%          2.75%          6.65%          3.97%
                                           ==========     ==========     ==========     ==========     ==========
</TABLE>

     The balance in the allowance for losses on loans and the related amount
charged to operations is based upon periodic evaluations of the loan portfolio
by management. These evaluations consider several factors including, but not
limited to, general economic conditions, loan portfolio composition, prior loan
loss experience, and management's estimate of future potential losses.

                                       25

<PAGE>

     While management believes that it uses the best information available to
determine the allowance for estimated losses on loans, unforeseen market
conditions could result in adjustments to the allowance for estimated losses on
loans and net earnings could be significantly affected if circumstances differ
substantially from the assumptions used in making the final determination.

<TABLE>
<CAPTION>
                                                                       December 31,
                    ----------------------------------------------------------------------------------------------------------------
                              2002                   2001                   2000                   1999                   1998
                    ------------------------- ---------------------- ---------------------- ---------------------- -----------------
                                  Percent of             Percent of             Percent of           Percent of           Percent of
                                   Loans in               Loans in               Loans in             Loans in             Loans in
                                     Each                   Each                   Each                 Each                Each
                                 Category to             Category to            Category to          Category to         Category to
                       Amount    Total Loans    Amount   Total Loans  Amount    Total Loans  Amount  Total Loans  Amount Total Loans
                       ------    -----------    ------   -----------  ------   -----------   ------  -----------  ------  ----------
                                                                   (Dollars in thousands)
<S>                    <C>          <C>       <C>          <C>       <C>          <C>       <C>        <C>       <C>        <C>
One-to-four
  Family ...........   $    224      58.26%   $    157      61.81%   $    209      61.48%   $    313    60.24%   $    415    63.65%
Multi-family .......          7       3.48           6       2.99          24       3.37          66     3.26          83     2.21
Commercial real
 estate ............      3,212      14.42         933      12.13         825      11.48         611    10.54         469     8.47
                                                                                                                             10.54
Construction or
 development .......      1,403       5.42         532       5.63         350       5.16         208     5.19         301     5.55
Consumer ...........        244       9.93         225       9.63         167      11.62         207    12.74         208    13.21
Commercial
 business ..........      1,434       8.49         729       7.81         581       6.89         600     8.03         556     6.91
Unallocated ........         --         --          --         --          --         --         166       --         343       --
                       --------     ------    --------     ------    --------     ------    --------   ------    --------   ------
     Total .........   $  6,524     100.00%   $  2,582     100.00%   $  2,156     100.00%   $  2,171   100.00%   $  2,375   100.00%
                       ========     ======    ========     ======    ========     ======    ========   ======    ========   ======
</TABLE>

                                       26

<PAGE>

INVESTMENT ACTIVITIES

     The Company has traditionally invested in U.S. Government securities and
agency obligations of both long and short terms to supplement its lending
activities. During recent years, the Company has refocused its investment
activities on short and medium term securities, although the Company has
retained a number of longer term securities in its portfolio which are held for
investment. In addition, from time to time, the Company has acquired securities
for trading purposes, although during 2002, the Company did not hold or acquire
any securities held for trading. When the Company holds securities for trading,
they are recorded on the Company's books at market value. At December 31, 2002,
the Bank did not own any securities of a single issuer which exceeded 10% of the
Bank's stockholder's equity, other than U.S. Government or federal agency
obligations.

     The Company, from time to time, considers other types of investment
opportunities, with the primary goal of improving net income and enhancing
stockholder value. Investments are considered if they are accretive to net
income, carry acceptable levels of interest rate risk, credit risk and other
risk factors, and are an appropriate fit for the Company's balance sheet.

     After completing an evaluation process that began in the second half of
2001, the Company, during the first quarter of 2002, invested $8.0 million in
Bank Owned Life Insurance ("BOLI"), covering the lives of 15 senior officers.
This investment provides non-taxable current income through increases in cash
surrender value of the policies. The purpose of this investment is to increase
after-tax earnings on the invested funds, which can be used to offset costs, or
cost increases, associated with employee benefit plans, such as those involving
health insurance.

     An investment in BOLI provides no cash flow unless the policies are
cancelled, an option with negative tax consequences, or death benefits are paid.
Since BOLI is not a liquid investment, it is included on the statement of
condition as part of "Other assets" and income recorded from the investment is
included in the "Other" line item under "Other income."

     Management receives regular performance reports on the investment in BOLI
and regular evaluative reports on the issuing insurance companies. Management
believes that the investment in BOLI carries minimal risk to either the
liquidity position or the capital position of the Company.

     Through March 15, 2001, the Bank was required by federal regulations to
maintain a minimum amount of liquid assets based on a percentage of net
withdrawable savings and current borrowings. This OTS requirement was eliminated
effective March 15, 2001. However, management is required to maintain a level of
liquid assets consistent with safe and sound operation of the Bank. As part of
this requirement, cash flow projections are reviewed on an ongoing basis to
assure that adequate liquidity is provided.

                                       27

<PAGE>

     The following table sets forth the composition of the Company's investment
portfolio at the dates indicated.

<TABLE>
<CAPTION>
                                                                            December 31,
                                                 -----------------------------------------------------------------
                                                         2002                  2001                   2000
                                                 -------------------    -------------------    -------------------
                                                   Book      % of         Book      % of         Book      % of
                                                   Value     Total       Value      Total       Value      Total
                                                 --------   --------    --------   --------    --------   --------
                                                                       (Dollars in thousands)
<S>                                              <C>          <C>       <C>          <C>       <C>          <C>
Investment Securities (1):
   U.S. government securities ................   $     --         --%   $     --         --%   $     --         --%
   Federal agency obligations ................     43,994      91.15      34,322      88.77      56,759      92.70
   Municipal bonds ...........................      1,067       2.21       1,465       3.79       1,448       2.36
   Non-marketable equity securities ..........         --         --          --         --         501       0.82
   Mutual fund shares ........................        465       0.96         434       1.12         411       0.67
                                                 --------   --------    --------   --------    --------   --------
         Subtotal ............................     45,526      94.32      36,221      93.68      59,119      96.55
FHLB Stock ...................................      2,740       5.68       2,443       6.32       2,112       3.45
                                                 --------   --------    --------   --------    --------   --------
         Total investment securities and FHLB
          stock ..............................   $ 48,266     100.00%   $ 38,664     100.00%   $ 61,231     100.00%
                                                 ========   ========    ========   ========    ========   ========
Average remaining life or term to repricing of
 investment securities excluding FHLB stock
 and non-marketable securities ...............   33 months              34 months              32 months
Other Interest-Earning Assets:
   Federal funds sold ........................   $ 19,178      54.93%   $  7,113      46.66%   $  1,330       9.71%
   Money market funds ........................     11,671      33.43       4,118      27.01       5,110      37.30
   FHLB overnight investments ................      4,013      11.50       3,965      26.00       7,211      52.63
   Certificates of deposit ...................         50       0.14          50       0.33          50       0.36
                                                 --------   --------    --------   --------    --------   --------
      Total ..................................   $ 34,912     100.00%   $ 15,246     100.00%   $ 13,701     100.00%
                                                 ========   ========    ========   ========    ========   ========
</TABLE>

----------
(1)      Includes securities available-for-sale.

                                       28

<PAGE>

     The composition and maturities of the investment securities portfolios,
excluding FHLB stock and non-marketable equity securities at December 31, 2002,
are indicated in the following table.

<TABLE>
<CAPTION>
                                                              At December 31, 2002
                                 ---------------------------------------------------------------------
                                  Less Than      1 to 5       5 to 10         Over    Total Investment
                                   1 Year         Years        Years        10 Years     Securities
                                 ----------    ----------    ----------    ---------- ----------------
                                 Book Value    Book Value    Book Value    Book Value  Book Value
                                 ----------    ----------    ----------    ----------    ----------
                                                      (Dollars in thousands)
<S>                              <C>           <C>           <C>           <C>           <C>
Securities available-for-sale:
U.S. government securities ...   $       --    $       --    $       --    $       --    $       --
Federal agency obligations ...       10,191        33,803            --            --        43,994
Mutual fund shares ...........          465            --            --            --           465
                                 ----------    ----------    ----------    ----------    ----------
Total ........................   $   10,656    $   33,803    $       --    $       --    $   44,459
                                 ==========    ==========    ==========    ==========    ==========
Weighted average yield .......         5.75%         4.44%          --%           --%          4.76%
                                 ==========    ==========    ==========    ==========    ==========
Securities held-to-maturity:
Municipal Bonds ..............   $      120    $      871    $       21    $       55    $    1,067
                                 ==========    ==========    ==========    ==========    ==========
Weighted averageyield ........         3.55%         3.89%         5.60%         6.40%         4.01%
                                 ==========    ==========    ==========    ==========    ==========
</TABLE>

SOURCES OF FUNDS

     General. Deposit accounts have traditionally been the principal source of
the Company's funds for use in lending and for other general business purposes.
In addition to deposits, the Company derives funds from loan repayments and cash
flows generated from operations. Scheduled loan payments are a relatively stable
source of funds, while deposit inflows and outflows and the related cost of such
funds have varied. Other potential sources of funds available to the Bank
include borrowings from the FHLB and reverse repurchase agreements.

     Deposits. The Company attracts both short-term and long-term deposits by
offering a wide assortment of accounts and rates. The Company offers commercial
demand, regular statement savings accounts, NOW accounts, money market accounts,
fixed interest rate certificates of deposit with varying maturities and
individual retirement accounts. Deposit account terms vary, according to the
minimum balance required, the time period the funds must remain on deposit and
the interest rate, among other factors. The Company has not actively sought
deposits outside of its primary market area.

                                       29

<PAGE>

     The following table sets forth the savings flows at the Company during the
periods indicated:

<TABLE>
<CAPTION>
                                       Year Ended December 31,
                            -------------------------------------------
                               2002            2001            2000
                            -----------     -----------     -----------
                                        (Dollars in thousands)
<S>                         <C>             <C>             <C>
Opening balance .........   $   415,467     $   388,050     $   354,977
Deposits ................     1,401,391       1,226,566       1,188,101
Withdrawals .............    (1,396,377)     (1,217,009)     (1,168,567)
Increase (decrease)
  before  interest
  credited ..............         5,014           9,557          19,534
Interest credited .......        11,551          17,860          13,539
                            -----------     -----------     -----------
Ending balance ..........   $   432,032     $   415,467     $   388,050
                            ===========     ===========     ===========
Net increase ............   $    16,565     $    27,417     $    33,073
                            ===========     ===========     ===========
Percent increase ........          3.99%           7.07%           9.32%
                            ===========     ===========     ===========
</TABLE>

     The following table sets forth the dollar amount of savings deposits in the
various types of deposit programs offered by the Company at the dates indicated.

                                       30

<PAGE>

<TABLE>
<CAPTION>
                                                           December 31,
                         ----------------------------------------------------------------------------------
                                      2002                        2001                       2000
                            ------------------------    ------------------------    ------------------------
                                           Percent                     Percent                     Percent
                                             of                          of                          of
                              Amount        Total         Amount        Total         Amount        Total
                            ----------    ----------    ----------    ----------    ----------    ----------
                                                        (Dollars in thousands)
<S>                         <C>               <C>       <C>               <C>       <C>               <C>
Transaction and Savings
 Deposits(1):
Commercial Demand
 0% .....................   $   14,995          3.47%   $   14,642          3.52%   $   16,855          4.34%
Savings Accounts
  1.29% .................       72,521         16.79        66,892         16.10        56,198         14.48
NOW Accounts
  1.14% .................       54,455         12.60        49,235         11.85        45,374         11.69
Money Market Accounts
  1.91% .................       33,792          7.82        30,976          7.46        24,306          6.27
                            ----------    ----------    ----------    ----------    ----------    ----------
Total Non-Certificates         175,763         40.68       161,745         38.93       142,733         36.78
                            ----------    ----------    ----------    ----------    ----------    ----------
Certificates:
 0.00 - 2.99% ...........       86,996         20.14        19,322          4.65           ---           ---
 3.00 - 4.99% ...........      123,950         28.69       107,015         25.76         7,127          1.84
 5.00 - 5.49% ...........       12,492          2.89        38,522          9.27        58,950         15.19
 5.50 - 5.99% ...........       15,428          3.57        25,414          6.12        32,052          8.26
 6.00 - over ............       17,185          3.98        63,135         15.19       146,775         37.82
                            ----------    ----------    ----------    ----------    ----------    ----------
Total Certificates ......      256,051         59.27       253,408         60.99       244,904         63.11
                            ----------    ----------    ----------    ----------    ----------    ----------
Accrued Interest ........          218          0.05           314          0.08           413          0.11
                            ----------    ----------    ----------    ----------    ----------    ----------
Total Deposits ..........   $  432,032        100.00%   $  415,467        100.00%   $  388,050        100.00%
                            ==========    ===========   ==========    ===========   ==========    ===========
</TABLE>

(1) Rates on  transaction  and savings  deposits are those in effect on December
31, 2002.

                                       31

<PAGE>

     The following table shows rate and maturity information for the Company's
certificates of deposit as of December 31, 2002.

<TABLE>
<CAPTION>
                               0.00-         3.00-          5.00-        5.50-                                   Percent
                               2.99%         4.99%          5.49%        5.99%      6% and Over     Total       of Total
                               -----         -----          -----        -----      -----------     -----       --------
                                                                   (Dollars in thousands)
<S>                         <C>          <C>            <C>          <C>           <C>            <C>            <C>
Certificate Accounts
 Maturing
 In Quarter Ending:
March 31, 2003 ..........   $   23,390    $   17,681    $    1,889    $    6,830    $    8,646    $   58,436        22.82%
June 30, 2003 ...........       21,599        33,431         4,865         4,793            --        64,688        25.26
September 30, 2003 ......       16,995        21,951           112           571            --        39,629        15.48
December 31, 2003 .......       13,703         2,916           153         1,000            --        17,772         6.94
March 31, 2004 ..........        2,705         2,663         1,096           682            --         7,146         2.79
June 30, 2004 ...........        6,261         1,567         1,082             1             5         8,916         3.48
September 30, 2004 ......           62         3,465           775            --             2         4,304         1.68
December 31, 2004 .......        2,219           246           241           651           214         3,571         1.39
March 31, 2005 ..........           --        14,427            17           113         2,615        17,172         6.71
June 30, 2005 ...........           62        10,577            14            15         1,791        12,459         4.87
September 30, 2005 ......           --         6,118           891            --           614         7,623         2.98
December 31, 2005 .......           --           789           837            30         1,937         3,593         1.40
Thereafter                          --         8,119           520           742         1,361        10,742         4.20
                            ----------    ----------    ----------    ----------    ----------    ----------   ----------
   Total ................   $   86,996    $  123,950    $   12,492    $   15,428    $   17,185    $  256,051       100.00%
                            ==========    ==========    ==========    ==========    ==========    ==========   ==========
   Percent of total .....        33.98%        48.41%         4.88%         6.02%        6.71%
                            ==========    ==========    ==========    ==========    ==========
</TABLE>

                                       32

<PAGE>

     The following table indicates the amount of the Company's certificates of
deposit and other deposits by time remaining until maturity as of December 31,
2002.

<TABLE>
<CAPTION>
                                                            Maturity
                                 --------------------------------------------------------------
                                                 Over         Over
                                   3 Months     3 to 6       6 to 12      Over
                                   or Less      Months        Months    12 months      Total
                                 ----------   ----------   ----------   ----------   ----------
                                                  (Dollars in thousands)
<S>                              <C>          <C>          <C>          <C>          <C>
Certificates of deposit less
 than $100,000 (1)               $   49,070   $   48,679   $   51,492   $   64,485   $  213,726
Certificates of deposit of
 $100,000 or more (1)                 5,138        6,648        5,272        9,790       26,848
Public funds (2)                      4,228        9,361          637        1,251       15,477
                                 ----------   ----------   ----------   ----------   ----------
Total certificates of
 deposit                         $   58,436   $   64,688   $   57,401   $   75,526   $  256,051
                                 ==========   ==========   ==========   ==========   ==========
</TABLE>

----------
(1)  Excluding public funds.
(2)  Deposits from governmental and other public entities.

     Borrowings. The Company utilizes borrowings primarily for two purposes. The
first is to purchase mortgage-backed securities in order to generate additional
net interest income and as a method of increasing the leverage on its capital.
The second is as part of the management of short term cash requirements. The
decision to borrow money to purchase mortgage-backed securities is based on
several factors, including the current asset/liability mix, the regulatory
capital position of the Bank and the adequacy of available interest rate spreads
available in such transactions, subject to the limits on such transactions
established by the board of directors. Borrowings for such purposes are derived
from securities sold under agreements to repurchase and advances from the FHLB
of Chicago. Borrowings related to short term cash management are in the form of
advances from the FHLB of Chicago. As a member of the FHLB of Chicago, the
Company is authorized to apply for advances from the FHLB of Chicago. Each FHLB
of Chicago credit program has its own interest rate, which may be fixed or
variable, and range of maturities. The FHLB of Chicago may prescribe the
acceptable uses for these advances, as well as limitations on the size of the
advances and repayment provisions. At December 31, 2002, borrowed money totaled
$59.7 million, of which $32.1 million was in advances from the FHLB of Chicago
and $27.6 million was from securities sold under agreements to repurchase.
Interest expense on borrowed money totaled $2.4 million during 2002 and $1.3
million during 2001.

     Capital Management. The Company employed an aggressive capital management
plan over the last two years. As part of this plan, the Company made open market
purchases of its own stock, repurchasing 83,600 common shares at an average cost
of $38.30 per share in 2002 and 64,200 common shares at an average cost of
$24.03 per share in 2001. During the first quarter of 2003,

                                       33

<PAGE>

through March 10, 2003, the Company made open market purchases of 233,700 common
shares at an average cost of $39.90 per share. Since converting to a stock
organization in 1992, the Company, through December 31, 2002, had repurchased
753,119 common shares at an average cost of $23.31 per share. Through March 10,
2003, 986,389 common shares had been repurchased at an average cost of $27.24
per share.

     The Company continuously evaluates balance sheet opportunities to augment
and leverage its strong capital base to maximize stockholders' return on equity.
During the middle part of the 1990's, the Company employed a leveraging
strategy, borrowing and investing funds to enhance net interest income. This
strategy was minimized in 2000 and 2001, when the Company increased leverage
through internally generated growth. While opportunities for internally
generated growth are in process of development and implementation, during 2002
the Company borrowed $30.0 million and purchased mortgage-backed securities in a
new leverage strategy.

     As a way to create flexibility in its capital management strategies, the
Company issued $10.0 million in trust preferred securities during the second
quarter of 2002. Such securities are includable, within specified limits, in
regulatory capital and the interest paid on the securities is deductible for tax
purposes. The funds provided were used primarily for the repurchase of common
shares. Interest expense related to trust preferred securities totaled $438,000
during 2002.

SERVICE CORPORATION

     Federal savings associations generally may invest up to 2% of their assets
in service corporations, plus an additional 1% of assets if used for community
purposes. In addition, federal savings associations may invest up to 50% of
their regulatory capital in conforming loans to their service corporations. In
addition to investments in service corporations, federal associations are
permitted to invest an unlimited amount in operating subsidiaries engaged solely
in activities which a federal savings association may engage in directly.

     KFS Service Corp. was organized by the Company to provide appraisal
services to the Company and others. In addition, since 1983, KFS Service Corp.
has offered, on an agency basis, brokerage services to the Company's customers
utilizing the services of INVEST Financial Corporation, a registered
broker-dealer. Finally, it has also invested in an insurance agency. At December
31, 2002, the Company's equity investment in KFS Service Corp. was approximately
$305,000. During 2002, KFS Service Corp. recorded a net consolidated income of
$11,000. During 2002 and 2001, gross revenues related to securities and
annuities brokerage, appraisal activities and insurance agency activities
totaled $141,000, $187,000 and $38,000, and $182,000, $211,000 and $44,000,
respectively.

COMPETITION

     The Company faces competition both in originating loans and in attracting
deposits. Competition in originating loans comes primarily from other savings
institutions, commercial banks, credit unions and mortgage bankers who also make
loans secured by real estate located in the Company's primary market areas. The
Company competes for loans principally on the basis of the

                                       34

<PAGE>

interest rates and loan fees it charges, the types of loans it originates and
the quality of services it provides to borrowers.

     The Company faces substantial competition in attracting deposits from other
savings institutions, commercial banks, securities firms, money market and
mutual funds, credit unions, insurance companies and other investment vehicles.
The ability of the Company to attract and retain deposits depends on its ability
to provide an investment opportunity that satisfies the requirements of
investors as to rate of return, liquidity, risk, convenient locations and other
factors. The Company competes for these deposits by offering a variety of
deposit accounts at competitive rates, convenient business hours and a customer
oriented staff. The Company estimates its market share of savings deposits in
the Kankakee, Grundy and Champaign counties to be 17.9%, 10.0% and 1.3%,
respectively.

     Under the Gramm-Leach-Bliley Act, which became effective in 2000,
securities firms and insurance companies that elect to become financial holding
companies may acquire banks and other financial institutions. The
Gramm-Leach-Bliley Act may significantly change the competitive environment in
which the Company and the Bank conduct business. The financial services industry
is also likely to become more competitive as further technological advances
enable more companies to provide financial services. These technological
advances may diminish the importance of depository institutions and other
financial intermediaries in the transfer of funds between parties.

EMPLOYEES

     As of December 31, 2002, the Company had 145 full-time employees and 38
part-time employees. The Company places a high priority on staff development
which involves extensive training, including customer service and sales
training. New employees are selected on the basis of both technical skills and
customer service capabilities. None of the Company's employees are represented
by any collective bargaining group. The Company offers a variety of employee
benefits and management considers its relations with its employees to be
excellent.

                           SUPERVISION AND REGULATION

GENERAL

     Financial institutions, their holding companies and their affiliates are
extensively regulated under federal and state law. As a result, the growth and
earnings performance of the Company may be affected not only by management
decisions and general economic conditions, but also by the requirements of
federal and state statutes and by the regulations and policies of various bank
regulatory authorities, including the Office of Thrift Supervision (the "OTS"),
the Board of Governors of the Federal Reserve System (the "Federal Reserve"),
and the Federal Deposit Insurance Corporation (the "FDIC"). Furthermore,
taxation laws administered by the Internal Revenue Service and state taxing
authorities and securities laws administered by the Securities and Exchange
Commission (the "SEC") and state securities authorities have an impact on the
Company. The effect of these statutes, regulations and regulatory policies may
be significant, and cannot be predicted with a high degree of certainty.

                                       35

<PAGE>

     Federal and state laws and regulations generally applicable to financial
institutions regulate, among other things, the scope of business, the kinds and
amounts of investments, reserve requirements, capital levels relative to
operations, the nature and amount of collateral for loans, the establishment of
branches, mergers and consolidations and the payment of dividends. This system
of supervision and regulation establishes a comprehensive framework for the
respective operations of the Company and its subsidiaries and is intended
primarily for the protection of the FDIC insured deposits and the depositors of
the Bank, rather than shareholders.

     The following is a summary of the material elements of the regulatory
framework that applies to the Company and the Bank. It does not describe all of
the statutes, regulations and regulatory policies that apply, nor does it
restate all of the requirements of those that are described. As such, the
following is qualified in its entirety by reference to applicable law. Any
change in applicable statutes, regulations or regulatory policies may have a
material effect on the business of the Company and the Bank.

THE COMPANY

     General. The Company, as the sole shareholder of the Bank, is a savings and
loan holding company. As a savings and loan holding company, the Company is
registered with, and is subject to regulation by, the OTS under the Home Owners'
Loan Act, as amended (the "HOLA"). Under the HOLA, the Company is subject to
periodic examination by the OTS. The Company is also required to file with the
OTS periodic reports of the Company's operations and such additional information
regarding the Company and the Bank as the OTS may require.

     Acquisitions, Activities and Change in Control. The HOLA prohibits a
savings and loan holding company, directly or indirectly, or through one or more
subsidiaries from: (i) acquiring control of, or acquiring by merger or purchase
of assets, another savings association or savings and loan holding company
without the prior written approval of the OTS; (ii) subject to certain
exceptions, acquiring more than 5% of the issued and outstanding shares of
voting stock of a savings association or savings and loan holding company except
as part of an acquisition of control approved by the OTS; or (iii) acquiring or
retaining control of a financial institution that is not FDIC-insured.

     A savings and loan holding company may acquire savings associations located
in more than one state in both supervisory transactions involving failing
savings associations and nonsupervisory acquisitions of healthy institutions.
Interstate acquisitions of healthy savings associations, however, are permitted
only if the law of the state in which the savings association to be acquired is
located specifically authorizes the proposed acquisition, by language to that
effect and not merely by implication. State laws vary in the extent to which
interstate acquisitions of savings associations and savings and loan holding
companies are permitted. Illinois law presently permits savings and loan holding
companies located in any state of the United States to acquire savings
associations or savings and loan holding companies located in Illinois, subject
to certain conditions, including the requirement that the laws of the state in
which the acquiror is located permit savings and loan holding companies located
in Illinois to acquire savings associations or savings and loan holding

                                       36

<PAGE>

companies in the acquiror's state.

     Because the Company controls only one savings association subsidiary and
because the Company acquired control of the Bank, and thus became a savings and
loan holding company, before May 4, 1999, the Company is generally not subject
to any restrictions on the types of non-financial activities that the Company
may conduct either directly or through a non-banking subsidiary, so long as the
Bank constitutes a qualified thrift lender (see "--The Bank--Qualified Thrift
Lender Test"). If the Bank were to fail to meet the qualified thrift lender
test, or if the Company acquired another savings association and maintained it
as a separate subsidiary of the Company, the Company would become subject to
certain restrictions on the non-financial activities in which it may engage. In
any case, however, if the OTS determines that there is reasonable cause to
believe that the continuation by a savings and loan holding company of a
particular activity constitutes a serious risk to the financial safety,
soundness or stability of the holding company's savings association subsidiary,
the OTS may require the holding company to cease engaging in the activity (or
divest any subsidiary that engages in the activity) or may impose such
restrictions on the holding company and the subsidiary savings association as
the OTS deems necessary to address the risk. The restrictions the OTS may impose
include limitations on (i) the payment of dividends by the savings association
to the holding company; (ii) transactions between the savings association and
its affiliates; and (iii) any activities of the savings association that might
create a serious risk that liabilities of the holding company and its affiliates
may be imposed on the savings association.

     Federal law also prohibits any person or company from acquiring "control"
of a savings association or a savings and loan holding company without prior
notice to the OTS. "Control" is conclusively presumed to exist upon the
acquisition of 25% or more of the outstanding voting stock of a savings
association or savings and loan holding company, but may arise under certain
circumstances at 10% ownership.

     Dividend Payments. The Company's ability to pay dividends to its
shareholders may be affected by both general corporate law considerations and
policies of the OTS applicable to savings and loan holding companies. As a
Delaware corporation, the Company is subject to the limitations of the Delaware
General Corporation Law (the "DGCL"), which allows the Company to pay dividends
only out of its surplus (as defined and computed in accordance with the
provisions of the DGCL) or if the Company has no such surplus, out of its net
profits for the fiscal year in which the dividend is declared and/or the
preceding fiscal year. Additionally, OTS policies provide that a savings and
loan holding company should not pay dividends that are not supportable by the
company's core earnings or that may be funded only by borrowings or by sales of
assets. The OTS also possesses enforcement powers over savings and loan holding
companies to prevent or remedy actions that represent unsafe or unsound
practices or violations of applicable statutes and regulations. Among these
powers is the ability to prohibit or limit the payment of dividends by savings
and loan holding companies.

     Federal Securities Regulation. The Company's common stock is registered
with the SEC under the Securities Act of 1933, as amended, and the Securities
Exchange Act of 1934, as amended

                                       37

<PAGE>

(the "Exchange Act"). Consequently, the Company is subject to the information,
proxy solicitation, insider trading and other restrictions and requirements of
the SEC under the Exchange Act.

THE BANK

     General. The Bank is a federally chartered savings association, the
deposits of which are insured by the FDIC's Savings Association Insurance Fund
("SAIF"). As a federally chartered savings association, the Bank is subject to
the examination, supervision, reporting and enforcement requirements of the OTS,
the chartering authority for federal savings associations. The FDIC, as
administrator of the SAIF, also has regulatory authority over the Bank. The Bank
is a member of the Federal Home Loan Bank System, which provides a central
credit facility primarily for member institutions.

     Deposit Insurance. As an FDIC-insured institution, the Bank is required to
pay deposit insurance premium assessments to the FDIC. The FDIC has adopted a
risk-based assessment system under which all insured depository institutions are
placed into one of nine categories and assessed insurance premiums based upon
their respective levels of capital and results of supervisory evaluations.
Institutions classified as well-capitalized (as defined by the FDIC) and
considered healthy pay the lowest premium while institutions that are less than
adequately capitalized (as defined by the FDIC) and considered of substantial
supervisory concern pay the highest premium. Risk classification of all insured
institutions is made by the FDIC for each semi-annual assessment period.

     During the year ended December 31, 2002, SAIF assessments ranged from 0% of
deposits to 0.27% of deposits. For the semi-annual assessment period beginning
January 1, 2003, SAIF assessment rates will continue to range from 0% of
deposits to 0.27% of deposits.

     FICO Assessments. Since 1987, a portion of the deposit insurance
assessments paid by SAIF members has been used to cover interest payments due on
the outstanding obligations of the Financing Corporation ("FICO"). FICO was
created in 1987 to finance the recapitalization of the Federal Savings and Loan
Insurance Corporation, the SAIF's predecessor insurance fund. As a result of
federal legislation enacted in 1996, beginning as of January 1, 1997, both SAIF
members and members of the FDIC's Bank Insurance Fund ("BIF") became subject to
assessments to cover the interest payments on outstanding FICO obligations.
These FICO assessments are in addition to amounts assessed by the FDIC for
deposit insurance. During the year ended December 31, 2002, the FICO assessment
rate for BIF and SAIF members was approximately 0.02% of deposits.

     Supervisory Assessments. All Federal savings associations are required to
pay supervisory assessments to the OTS to fund the operations of the OTS. The
amount of the assessment is calculated using a formula that takes into account
the institution's size, its supervisory condition (as determined by the
composite rating assigned to the institution as a result of its most recent OTS
examination) and the complexity of its operations. During the year ended
December 31, 2002, the Bank paid supervisory assessments to the OTS totaling
$109,000.

     Capital Requirements. Savings associations are generally required to
maintain capital levels

                                       38

<PAGE>

in excess of other businesses. Pursuant to the HOLA and OTS regulations, savings
associations, such as the Bank, are subject to the following minimum capital
requirements: (i) a core capital requirement, consisting of a minimum ratio of
core capital to total assets of 3% for savings associations assigned a composite
rating of 1 as of the association's most recent OTS examination, with a minimum
core capital requirement of 4% of total assets for all other savings
associations; (ii) a tangible capital requirement, consisting of a minimum ratio
of tangible capital to total assets of 1.5%; and (iii) a risk-based capital
requirement, consisting of a minimum ratio of total capital to total
risk-weighted assets of 8%, and a minimum ratio of core capital to total
risk-weighted assets of 4%. Core capital consists primarily of permanent
stockholders' equity less (i) intangible assets other than certain supervisory
goodwill, certain loan servicing rights and certain purchased credit card
relationships and (ii) investments in subsidiaries engaged in activities not
permitted for national banks. Tangible capital is substantially the same as core
capital except that all intangible assets other than certain mortgage servicing
rights must be deducted. Total capital consists primarily of core capital plus
certain debt and equity instruments that do not qualify as core capital and a
portion of the Bank's allowances for loan and lease losses.

     The capital requirements described above are minimum requirements. Higher
capital levels will be required if warranted by the particular circumstances or
risk profiles of individual institutions. For example, regulations of the OTS
provide that additional capital may be required to take adequate account of,
among other things, interest rate risk or the risks posed by concentrations of
credit or nontraditional activities.

     Further, federal law and regulations provide various incentives for
financial institutions to maintain regulatory capital at levels in excess of
minimum regulatory requirements. For example, a financial institution that is
"well-capitalized" may qualify for exemptions from prior notice or application
requirements otherwise applicable to certain types of activities and may qualify
for expedited processing of other required notices or applications. Under the
regulations of the OTS, in order to be "well-capitalized" a savings association
must maintain a ratio of total capital to total risk-weighted assets of 10% or
greater, a ratio of Tier 1 capital to total risk-weighted assets of 6% or
greater and a ratio of Tier 1 capital to total assets of 5% or greater. For
purposes of these provisions of OTS regulations, "Tier 1 capital" is defined to
mean core capital.

     Federal law provides the federal banking regulators with broad power to
take prompt corrective action to resolve the problems of undercapitalized
institutions. The extent of the regulators' powers depends on whether the
institution in question is "adequately capitalized," "undercapitalized,"
"significantly undercapitalized" or "critically undercapitalized," in each case
as defined by regulation. Depending upon the capital category to which an
institution is assigned, the regulators' corrective powers include: (i)
requiring the institution to submit a capital restoration plan; (ii) limiting
the institution's asset growth and restricting its activities; (iii) requiring
the institution to issue additional capital stock (including additional voting
stock) or to be acquired; (iv) restricting transactions between the institution
and its affiliates; (v) restricting the interest rate the institution may pay on
deposits; (vi) ordering a new election of directors of the institution; (vii)
requiring that senior executive officers or directors be dismissed; (viii)
prohibiting the institution from accepting

                                       39

<PAGE>

deposits from correspondent banks; (ix) requiring the institution to divest
certain subsidiaries; (x) prohibiting the payment of principal or interest on
subordinated debt; and (xi) ultimately, appointing a receiver for the
institution.

     As of December 31, 2002: (i) the Bank was not subject to a directive from
the OTS to increase its capital to an amount in excess of the minimum regulatory
capital requirements; (ii) the Bank exceeded its minimum regulatory capital
requirements under OTS capital adequacy guidelines; and (iii) the Bank was
"well-capitalized", as defined by OTS regulations.

     Dividend Payments. The primary source of funds for the Company is dividends
from the Bank. OTS regulations require prior OTS approval for any dividend or
other capital distribution by a savings association that is not eligible for
expedited processing under the OTS's application processing regulations. In
order to qualify for expedited processing, a savings association must: (i) have
a composite examination rating of 1 or 2; (ii) have a Community Reinvestment Act
rating of satisfactory or better; (iii) have a compliance rating of 1 or 2; (iv)
meet all applicable regulatory capital requirements; and (v) not have been
notified by the OTS that it is a problem association or an association in
troubled condition. Savings associations that qualify for expedited processing
are not required to obtain OTS approval prior to making a capital distribution
unless: (a) the amount of the proposed capital distribution, when aggregated
with all other capital distributions during the same calendar year, will exceed
an amount equal to the association's year-to-date net income plus its retained
net income for the preceding two years; (b) after giving effect to the
distribution, the association will not be at least "adequately capitalized" (as
defined by OTS regulation); or (c) the distribution would violate a prohibition
contained in an applicable statute, regulation or agreement with the OTS or the
FDIC or violate a condition imposed in connection with an OTS-approved
application or notice. The OTS must be given prior notice of certain types of
capital distributions, including any capital distribution by a savings
association that, like the Bank, is a subsidiary of a savings and loan holding
company, or by a savings association that, after giving effect to the
distribution, would not be "well-capitalized" (as defined by OTS regulation).

     The payment of dividends by any financial institution or its holding
company is affected by the requirement to maintain adequate capital pursuant to
applicable capital adequacy guidelines and regulations, and a financial
institution generally is prohibited from paying any dividends if, following
payment thereof, the institution would be undercapitalized. As described above,
the Bank exceeded its minimum capital requirements under applicable guidelines
as of December 31, 2002. Further, under applicable regulations of the OTS, the
Bank may not pay dividends in an amount that would reduce its capital below the
amount required for the liquidation account established in connection with the
Bank's conversion from the mutual to the stock form of ownership in 1992. As of
December 31, 2002, approximately $8.2 million was available to be paid as
dividends to the Company by the Bank. Notwithstanding the availability of funds
for dividends, however, the OTS may prohibit the payment of any dividends by the
Bank if the OTS determines such payment would constitute an unsafe or unsound
practice.

                                       40

<PAGE>

     Insider Transactions. The Bank is subject to certain restrictions imposed
by federal law on extensions of credit to the Company, on investments in the
stock or other securities of the Company and the acceptance of the stock or
other securities of the Company as collateral for loans made by the Bank.
Certain limitations and reporting requirements are also placed on extensions of
credit by the Bank to its directors and officers, to directors and officers of
the Company, to principal stockholders of the Company, and to "related
interests" of such directors, officers and principal stockholders. In addition,
federal law and regulations may affect the terms upon which any person becoming
a director or officer of the Company or the Bank or a principal stockholder of
the Company may obtain credit from banks with which the Bank maintains
correspondent relationships.

     Safety and Soundness Standards. The federal banking agencies have adopted
guidelines that establish operational and managerial standards to promote the
safety and soundness of federally insured depository institutions. The
guidelines set forth standards for internal controls, information systems,
internal audit systems, loan documentation, credit underwriting, interest rate
exposure, asset growth, compensation, fees and benefits, asset quality and
earnings.

     In general, the safety and soundness guidelines prescribe the goals to be
achieved in each area, and each institution is responsible for establishing its
own procedures to achieve those goals. If an institution fails to comply with
any of the standards set forth in the guidelines, the institution's primary
federal regulator may require the institution to submit a plan for achieving and
maintaining compliance. If an institution fails to submit an acceptable
compliance plan, or fails in any material respect to implement a compliance plan
that has been accepted by its primary federal regulator, the regulator is
required to issue an order directing the institution to cure the deficiency.
Until the deficiency cited in the regulator's order is cured, the regulator may
restrict the institution's rate of growth, require the institution to increase
its capital, restrict the rates the institution pays on deposits or require the
institution to take any action the regulator deems appropriate under the
circumstances. Noncompliance with the standards established by the safety and
soundness guidelines may also constitute grounds for other enforcement action by
the federal banking regulators, including cease and desist orders and civil
money penalty assessments.

     Branching Authority. Federally chartered savings associations that qualify
as "domestic building and loan associations," as defined in the Internal Revenue
Code, or meet the qualified thrift lender test (see "-- Qualified Thrift Lender
Test") have the authority, subject to receipt of OTS approval, to establish or
acquire branch offices anywhere in the United States. If a federal savings
association fails to qualify as a "domestic building and loan association," as
defined in the Internal Revenue Code, and fails to meet the qualified thrift
lender test the association may branch only to the extent permitted for national
banks located in the savings association's home state. As of December 31, 2002,
the Bank qualified as a "domestic building and loan association," as defined in
the Internal Revenue Code and met the qualified thrift lender test.

     Qualified Thrift Lender Test. The HOLA requires every savings association
to satisfy a "qualified thrift lender" ("QTL") test. Under the HOLA, a savings
association will be deemed to

                                       41

<PAGE>

meet the QTL test if it either (i) maintains at least 65% of its "portfolio
assets" in "qualified thrift investments" on a monthly basis in nine out of
every 12 months or (ii) qualifies as a "domestic building and loan association,"
as defined in the Internal Revenue Code. For purposes of the QTL test,
"qualified thrift investments" consist of mortgage loans, mortgage-backed
securities, education loans, small business loans, credit card loans and certain
other housing and consumer-related loans and investments. "Portfolio assets"
consist of a savings association's total assets less goodwill and other
intangible assets, the association's business properties and a limited amount of
the liquid assets maintained by the association pursuant to OTS requirements. A
savings association that fails to meet the QTL test must either convert to a
bank charter or operate under certain restrictions on its operations and
activities. Additionally, within one year following the loss of QTL status, the
holding company for the savings association will be required to register as, and
will be deemed to be, a bank holding company. A savings association that fails
the QTL test may requalify as a QTL but it may do so only once. As of December
31, 2002, the Bank satisfied the QTL test, with a ratio of qualified thrift
investments to portfolio assets of 84.40%, and qualified as a "domestic building
and loan association," as defined in the Internal Revenue Code.

     Federal Reserve System. Federal Reserve regulations, as presently in
effect, require depository institutions to maintain non-interest earning
reserves against their transaction accounts (primarily NOW and regular checking
accounts), as follows: for transaction accounts aggregating $42.1 million or
less, the reserve requirement is 3% of total transaction accounts; and for
transaction accounts aggregating in excess of $42.1 million, the reserve
requirement is $1.083 million plus 10% of the aggregate amount of total
transaction accounts in excess of $42.1 million. The first $6.0 million of
otherwise reservable balances are exempted from the reserve requirements. These
reserve requirements are subject to annual adjustment by the Federal Reserve.
The Bank is in compliance with the foregoing requirements.

FEDERAL AND STATE TAXATION

     General. Prior to 1996, savings associations such as the Bank that met
certain definitional tests relating to the composition of assets and income as
defined in the Internal Revenue Code of 1986 were allowed to establish reserves
for bad debts on "qualifying real property loans" based either upon a percentage
of taxable income or the experience method, whichever resulted in a larger
deduction. Reserves for bad debts on nonqualifying loans were based solely upon
the experience method. The experience method reserve amount is calculated as a
function of the actual bad debt experience sustained by the institution over a
period of years, whereas the percentage of taxable income method is a strict
numeric calculation not dependent on actual loss experience.

     The Small Business Job Protection Act of 1996 became law on August 20,
1996. One of the provisions in the new law repealed the special bad debt reserve
methods that had existed for savings associations prior to 1996. The Bank is now
required to compute reserves on all loans under the experience method. The new
law froze the reserves for bad debts that existed at the end of the last tax
year beginning before January 1, 1988 and required the Bank to recapture into
taxable income over a six year period the "applicable excess reserve." For the
Bank, the applicable excess reserve was approximately $648,000 which represented
the difference between the reserve balance at

                                       42

<PAGE>

December 31, 1995, and the balance of the reserve at end of the last tax year
beginning before January 1, 1988. This excess reserve was recaptured at the rate
of $108,000 per year, into taxable income during the six tax years from 1996
through 2001. Deferred taxes had previously been established on the applicable
excess reserve.

     Retained income of the Bank includes approximately $8,998,000 that
represents tax provisions for losses on loans that have been deducted in excess
of amounts that have been charged against income on the financial statements. No
provision for federal income tax has been made against this amount. If, in the
future, the Bank ceases to qualify as a "bank" for federal income tax purposes
or if these retained earnings are liquidated, federal income taxes may be
imposed at the then-applicable rates. If federal income taxes had been provided,
the deferred liability would have been approximately $3,059,000.

     Banks that are "large banks" may no longer use a reserve method for
computing bad debt deductions for tax purposes but must instead use the specific
charge-off method of Code Section 166 for determining the appropriate tax
deduction. In the year a bank becomes a "large bank," it is required to begin
recapturing its experience method reserve into taxable income using one of three
IRS-approved methods. For former savings associations, such as the Bank, the
amount to be recaptured does not include amounts discussed in the preceding
paragraph. In 2002, the Bank became a "large bank," but it has no tax reserves
subject to the recapture rules.

     In addition to the regular income tax, corporations, including savings
associations such as the Bank, generally are subject to a minimum tax. An
alternative minimum tax is imposed at a minimum tax rate of 20% on alternative
minimum taxable income, which is the sum of a corporation's regular taxable
income (with certain adjustments) and tax preference items, less any available
exemption. The alternative minimum tax is imposed to the extent it exceeds
corporation's regular income tax. During the years ended December 31, 2000, 2001
and 2002, the Bank was not required to pay alternative minimum tax.

     The Company, the Bank and its subsidiary file consolidated federal income
tax returns on a calendar year basis using the accrual method of accounting.

     The Bank and its consolidated subsidiaries have been audited by the IRS
with respect to consolidated federal income tax returns through December 31,
1982. With respect to years examined by the IRS, all deficiencies have been
satisfied. In the opinion of management, any examination of still open returns
would not result in a deficiency which could have a material adverse effect on
the financial condition of the Company and its consolidated subsidiaries.

                        EXECUTIVE OFFICERS OF THE COMPANY

     The business experience during the past five years with respect to
executive officers of the Company and the Bank who do not serve on the Company's
board of directors is listed below. Each officer is elected annually to serve
until his or her successor is elected and qualified, or until he or she is no
longer employed by the Company or its subsidiaries or is removed by the board of
directors. There are no arrangements or understandings between the persons named
and any other person pursuant to which such officers were selected.

                                       43

<PAGE>

     Carol S. Hoekstra, age 47, was elected an Executive Vice President and
Interim Chief Operating Officer of both the Company and the Bank in 2003. She
was a Senior Vice President of the Bank since 1999 and an Assistant Secretary of
the Company since 1992. Previously, she was a Vice President of the Bank since
1995. Mrs. Hoekstra is responsible for oversight of the Company's and the Bank's
operations. Mrs. Hoekstra first joined the Bank in 1977. She rejoined the Bank
in 1991 as consumer loan manager, following her return to the area from Texas
where she worked at a commercial bank in consumer lending.

     Ronald J. Walters, age 53, is Vice President, Treasurer and Chief Financial
Officer of the Company and Senior Vice President, Treasurer and Chief Financial
Officer of the Bank, positions he has held since August 1992 and January 1985,
respectively. As the Chief Financial Officer of the Bank, Mr. Walters is
responsible for the establishment and supervision of the Bank's accounting,
office services, and buildings and grounds. Mr. Walters joined the Bank in 1984
as Controller and Chief Financial Officer, was named Vice President and
Treasurer in 1985, and promoted to Senior Vice President in 1996. Mr. Walters is
a certified public accountant.

     Keith M. Roseland, age 53, is a Senior Vice President and Chief Commercial
Lending Officer of the Bank, a position he was appointed to in 2002. Previously,
Mr. Roseland was Regional Commercial Lending Officer of the Bank since 1999, and
Regional Branch Manger responsible for the operation of the Coal City, Diamond
and Braidwood, Illinois branches of the Bank since 1998. He had previously
served as President, since 1986, of Coal City National Bank, which was acquired
by the Bank in January, 1998. Mr. Roseland had been with Coal City National Bank
since 1967.

     Terry L. Ralston, age 53, was elected a Vice President of the Bank in 1998.
He is also Information Technology Manager of the Bank, a position he was
appointed to in 2000. Previously, since joining the Bank in February, 1996, he
was Data Processing Manager. He is responsible for the day-to-day operation of
the Bank's Data Processing Department and Deposit Services Center. He has over
twenty-five years of experience in similar positions with financial institutions
in northern Illinois and southern Wisconsin.

                                       44

<PAGE>

ITEM 2.   PROPERTIES
OFFICES
     The following table sets forth information concerning the main office and
each branch office of the Bank at December 31, 2002. At December 31, 2002, the
Company's premises had an aggregate net book value of approximately $7.4
million.

<TABLE>
<CAPTION>
                              Year         Owned             Lease               Net
         Location          Opened (1)    or Leased      Expiration Date      Book Value
------------------------   ----------    ---------   --------------------   --------------
                                                                            (In thousands)

<S>                           <C>         <C>        <C>                    <C>
Main Office
310 S. Schuyler Avenue        1958         Owned             N/A            $        2,630
Kankakee, Illinois

Full Service Branches
Main Street and U.S. 45       1977         Owned              N/A                       18
Ashkum, Illinois

680 S. Main Street            1974         Owned              N/A                      233
Bourbonnais, Illinois

990 N. Kinzie Avenue (5)      1998        Leased     October 22, 2003 (2)              108
Bradley, Illinois

180 N. Front Street           1998        Leased       July 24, 2005 (3)                16
Braidwood, Illinois

1001 S. Neil Street           1992         Owned              N/A                      702
Champaign, Illinois

100 S. Broadway               1998        Leased       July 24, 2005 (3)                81
Coal City, Illinois

660 S. Broadway               1998         Owned              N/A                      913
Coal City, Illinois

1275 E. Division Street       1998         Owned              N/A                      375
Diamond, Illinois

302 W. Mazon Avenue           1987         Owned              N/A                      361
Dwight, Illinois

654 N. Park Road              1998         Owned              N/A                      582
Herscher, Illinois

323 E. Main Street (4)        1994         Owned              N/A                      150
Hoopeston, Illinois

310 Section Line Road         1975         Owned              N/A                      228
Manteno, Illinois

200 W. Washington Street      1995         Owned              N/A                      269
Momence, Illinois

1708 S. Philo Road            1998         Owned              N/A                      721
Urbana, Illinois
                                                                            --------------
                                                                            $        7,387
                                                                            ==============
</TABLE>

(1)  Year opened refers to the year in which the current facility opened or was
     acquired.
(2)  The Bank has provided notice, consistent with the terms of the lease, to
     cancel the lease at the end of the fifth year on October 22, 2003.
(3)  The Bank has an option to renew this lease for two consecutive five year
     terms.
(4)  The Hoopeston, Illinois office was sold as of February 14, 2003.
(5)  A new office building will be built on nearby leased property and available
     for occupancy prior to October 22, 2003.

                                       45

<PAGE>

     The Company believes that its current facilities are adequate to meet
present and immediately foreseeable needs.

     The Company maintains depositor and borrower customer files on an in-house
system. The net book value of the data processing and computer equipment
utilized by the Company at December 31, 2002 was $407,000.

ITEM 3.   LEGAL PROCEEDINGS

     The Company is involved as plaintiff or defendant in various legal actions
arising in the normal course of its business. While the ultimate outcome of
current legal proceedings cannot be predicted with certainty, it is the opinion
of management that the resolution of these legal actions should not have a
material effect on the Company's consolidated financial position or results of
operations.

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

     No matter was submitted to a vote of security holders, through the
solicitation of proxies or otherwise, during the quarter ended December 31,
2002.

                                     PART II

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

     Page 57 of the 2002 Annual Report to Stockholders is incorporated by
reference.

ITEM 6.   SELECTED FINANCIAL DATA

     Pages 8 and 9 of the 2002 Annual Report to Stockholders is incorporated by
reference.

ITEM 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
          RESULTS OF OPERATION

     Pages 10 through 28 of the 2002 Annual Report to Stockholders are
incorporated by reference.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     The Company's net income and net portfolio value ("NPV"), in the normal
course of business, are exposed to interest rate risk, and can vary based on
changes in the general level of interest rates. All financial products carry
some amount of interest rate risk, and substantial portions of both the
Company's assets and liabilities are financial products. These include
investment securities, asset-backed securities, loans, deposits and borrowed
money. Off-balance sheet items,

                                       46

<PAGE>

such as loan commitments, letters of credit, commitments to buy or sell loans or
securities, and derivative financial instruments, also carry some amount of
interest rate risk.

     The Bank's Funds Management Committee, consisting of the president, certain
vice presidents and the controller of the Bank, is responsible for developing
methods and strategies for the Company to manage the sensitivity characteristics
of its assets and liabilities, and for directing the implementation of these
methods and strategies. The Funds Management Committee meets on a weekly basis,
and the boards of both the Bank and the Company review the Company's exposure to
interest rate risk on at least a quarterly basis.

     The Funds Management Committee generally uses two types of analysis in
measuring and reviewing the Company's interest rate sensitivity. These are the
GAP analysis, which is discussed under the heading of Asset/Liability Management
on page 20 of the Annual Report, and the NPV calculation. The NPV calculation
uses information about the Company's assets, liabilities and off-balance sheet
items, market interest rate levels and assumptions about the behavior of the
assets and liabilities, to calculate the Company's NPV. The NPV is the market
value of assets minus the market value of liabilities, adjusted for off-balance
sheet items divided by the market value of assets. The NPV is then subjected to
immediate and permanent upward changes of 300 basis points in market interest
rate levels, in 100 basis point increments, and a downward change of 100 basis
points. The resulting changes in NPV and net interest income at each increment
are measured against pre-determined, minimum NPV ratios for each incremental
rate change, as approved by the board in the interest rate risk policy. Due to
the low level of market interest rates at both December 31, 2001 and 2002,
calculations for the 200 basis point decline and the 300 basis point decline
were omitted as highly improbable.

     The following table presents the Bank's NPV ratios for the various rate
change levels at December 31, 2002 and 2001:

                                        NPV Ratios
                                     -----------------
    Changes in Interest Rates         2002       2001
    -------------------------        ------     ------

    300 basis point rise               6.92%      6.21%
    200 basis point rise               7.83%      7.53%
    100 basis point rise               8.59%      8.82%
    Base rate scenario                 8.94%     10.04%
    100 basis point decline            8.69%     10.70%

     The preceding table indicates that at December 31, 2002, in the event of an
immediate and permanent increase in prevailing market interest rates, the Bank's
NPV ratio, would be expected to decrease, and that in the event of an immediate
and permanent decrease in prevailing market interest rates, the Bank's NPV ratio
would also be expected to decrease. At December 31, 2002, the estimated changes
in the Bank's NPV ratios were within the levels approved by the board of
directors.

                                       47

<PAGE>

     The NPV decreases in a rising rate scenario because the Company's
interest-bearing liabilities generally reprice faster than its interest-earning
assets. This effect is increased by periodic and lifetime limits on changes in
rate on most adjustable-rate, interest-earning assets. The NPV decreases in a
falling rate scenario because of the 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.

     The NPV ratio is calculated by the OTS on a quarterly basis utilizing
information about the Company's assets, liabilities and off-balance sheet items.
This information is provided by the Company. The calculation is designed to
estimate the effects of hypothetical rate changes on the NPV, utilizing
projected cash flows, and is based on numerous assumptions, including relative
levels of market interest rates, loan prepayments speeds and deposit decay
rates. Actual changes in the NPV, in the event of market interest rate changes
of the type and magnitude used in the calculation, could differ significantly.
Additionally, the calculation does not account for possible actions taken by
Funds Management to mitigate the adverse effects of changes in market interest
rates.

ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     Pages 30 through 55 of the 2002 Annual Report to Stockholders are
incorporated by reference.

ITEM 9.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
          FINANCIAL DISCLOSURE

     None

                                    PART III

ITEM 10.  DIRECTORS AND OFFICERS OF THE REGISTRANT

     Information concerning directors of the Company is incorporated by
reference from the Company's definitive Proxy Statement for the Annual Meeting
of Stockholders to be held in 2003, a copy of which was filed with the
Securities and Exchange Commission on March 14, 2003 (the "2003 Proxy
Statement").

EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS

     Information regarding the business experience during the past five years
with respect to the executive officers of the Company contained in Part I of
this Form 10-K is incorporated by reference.


                                       48

<PAGE>

COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

     Section 16(a) of the Securities Exchange Act of 1934 requires that the
Company's executive officers and directors and persons who own more than 10% of
the Company Common Stock file reports of ownership and changes in ownership with
the SEC and with the exchange on which the Company's shares of Common Stock are
traded. Such persons are also required to furnish the Company with copies of all
Section 16(a) forms they file. Based solely on the Company's review of the
copies of such forms furnished to the Company and, if appropriate,
representations made to the Company by any such reporting person concerning
whether a Form 5 was required to be filed for 2002, the Company is not aware
that any of its directors and executive officers or 10% stockholders failed to
comply with the filing requirements of Section 16(a) during 2002.

ITEM 11.  EXECUTIVE COMPENSATION

     Information concerning executive compensation called for by Item 11 of this
Form 10-K is incorporated by reference from the section in the Company's 2003
Proxy Statement entitled "Executive Compensation." The report of the Company's
Compensation Committee and the stock performance table are not incorporated into
this Form 10-K.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     Information concerning security ownership of certain beneficial owners and
management called for by Item 12 of this Form 10-K is incorporated by reference
from the section in the Company's 2003 Proxy Statement entitled "Voting
Securities and Principal Holders."

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     Information concerning certain relationships and related transactions
called for by Item 13 of this Form 10-K is incorporated by reference from the
section in the Company's 2003 Proxy Statement entitled "Certain Relationships
and Related Transactions."

ITEM 14.  CONTROLS AND PROCEDURES

     Based upon an evaluation within the 90 days prior to the filing date of
this report, the Company's Chief Executive Officer and Principal Financial
Officer concluded that the Company's disclosure controls and procedures are
effective. There have been no significant changes in the Company's internal
controls, other than the additional review processing regarding commercial
loans, or in other factors that could significantly affect the Company's
internal controls subsequent to the date of the evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.

                                       49

<PAGE>

                                     PART IV

ITEM 15.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

     (a)(1) Consolidated Financial Statements:

     The following information appearing in the Registrant's 2002 Annual Report
to Stockholders is incorporated by reference in this Annual Report on Form 10-K
as Exhibit 13.

                                                                 Pages in
                   Annual Report Section                       Annual Report
------------------------------------------------------------   -------------
Selected Financial Data.....................................       8-9

Management's Discussion and Analysis of
  Financial Condition and Results of Operations.............       10-28

Report of Independent Auditors..............................       29

Consolidated Statements of Financial Condition..............       30-31

Consolidated Statements of Income...........................       32

Consolidated Statements of Stockholders' Equity.............       33

Consolidated Statements of Cash Flows.......................       34-35

Notes to Consolidated Financial Statements..................       36-55

Quarterly Financial Information ............................       55

     With the exception of those sections specifically incorporated by
reference, the Registrant's 2002 Annual Report to Stockholders is not deemed
filed as part of this Annual Report on Form 10-K.

     (a)(2) Financial Statement Schedules:

     Financial statement schedules have been omitted as the required information
is contained in the consolidated financial statements and notes thereto, or
because such schedules are not required or applicable.

                                       50

<PAGE>

     (a)(3) Exhibits:

 Regulation                                           Reference to Prior
S-K Exhibit                                            Filing or Exhibit
   Number                  Document                 Number Attached Hereto
-----------   ----------------------------------    ----------------------
          3   Articles of Incorporation                       (1)

          3   Bylaws                                          (1)

          4   Instruments defining the rights                 (1)
               of security holders, including
               debentures

         10   Material Contracts

              a.  Stock Option Plan                           (2)

              b.  Management Recognition Plan
                  and Trusts                                  (2)

              c.  Employee Stock Ownership Plan               (1)

              d.  Money Purchase Pension Plan                 (1)

              e.  401(k) Plan                                 (1)

              f.  Kankakee Bancorp, Inc. Bank
                  Incentive Plan and Trust                    (3)

              g.  Rights Agreement                            (4)

              h.  Form of Change of Control
                  Agreements for Carol S.
                  Hoekstra, Larry D. Huffman,
                  Terry L. Ralston, and Ronald
                  J. Walters                                  (5)

              i.  Employment Agreement between
                  the Company and Larry D.
                  Huffman                                     (6)

         13   2002 Annual Report to Stockholder               13

         21   Subsidiaries of Registrant                      21

         23   Consent of Independent Auditor                  23

       99.1   Certification of Chief Executive               99.1
              Officer

       99.2   Certification of Principal                     99.2
              Financial Officer

-------------------
(1)  Filed on September 11, 1992, as exhibits to the Registrant's Registration
     Statement No. 33-51950 on Form S-1. Such previously filed documents are
     hereby incorporated herein by reference in accordance with Item 601 of
     Regulation S-K.

(2)  Filed on March 29, 1993, as exhibits to the Registrant's Annual Report on
     Form 10-K. Such previously filed documents are hereby incorporated herein
     by reference in accordance with Item 601 of Regulation S-K.

(3)  Filed on March 30, 1994, as an exhibit to the Registrant's Annual Report on
     Form 10-K. Such previously filed documents are hereby incorporated herein
     by reference in accordance with Item 601 of Regulation S-K.

                                       51

<PAGE>

(4)  Filed on May 21, 1999, as an exhibit to the Registrant's Form 8-K. Such
     previously filed document is hereby incorporated herein by reference in
     accordance with Item 601 of Regulation S-K.

(5)  Filed on October 23, 2001, as an exhibit to the Registrant's Form 8-K. Such
     previously filed document is hereby incorporated herein by reference in
     accordance with Item 601 of Regulation S-K.

(6)  Filed on May 8, 2001, as an exhibit to the Registrant's Form 10-Q. Such
     previously filed document is hereby incorporated herein by reference in
     accordance with Item 601 of Regulation S-K.

     (b)  Reports on Form 8-K:

          On October 4, 2002, the Company filed a report on Form 8-K stating
          under Item 5 that the Company had, on October 4, 2002, issued a news
          release announcing that the Company had taken a nonrecurring after-tax
          charge of approximately $2.17 million, or approximately $1.85 per
          diluted share, to its third quarter earnings. The charge was recorded
          as an additional provision to the allowance for losses on loans.

          On October 10, 2002, the Company filed a report on Form 8-K stating
          under Item 5 that the Company had, on October 10, 2002, issued a news
          release announcing that its wholly-owned subsidiary, Kankakee Federal
          Savings Bank had signed a definitive agreement to sell its banking
          office in Hoopeston, Illinois to Capstone Bank, N.A., of Watseka,
          Illinois.

          On October 22, 2002, the Company filed a report on Form 8-K stating
          under Item 5 that the Company had, on October 22, 2002, issued a news
          release announcing its earnings for the quarter ended September 30,
          2002, as well as other recent corporate events.

          On December 6, 2002, the Company filed a report on Form 8-K stating
          under Item 5 that the Company had, on December 6, 2002, issued a news
          release announcing its appointment of Michael A. Griffith to the
          boards of directors of both the Company and the Bank. The appointment
          was made as part of the agreement with an investor group led by
          Jeffrey L. Gendell.

          On January 17, 2003, the Company filed a report on Form 8-K stating
          under Item 5 that the Company had, on January 17, 2003, issued a news
          release announcing the implementation of a number of organizational
          changes intended to comply with the requirements for public companies
          under the Sarbanes-Oxley Act of 2002, and to ensure both greater
          independence on the board and stronger leadership from its independent
          directors. Additionally, it was announced that the Board had received
          the resignation of the Company's President and CEO and had established
          a procedure for securing his successor.

          On February 3, 2003, the Company filed a report on Form 8-K stating
          under Item 5 that the Company had, on February 3, 2003, issued a news
          release announcing its earnings for the quarter ended December 31,
          2002, as well as other recent corporate events.

          On February 20, 2003, the Company filed a report on Form 8-K stating
          under Item 5 that the Company, on February 18, 2003, pursuant to a
          stock buyback program authorized by the Board of Directors of the
          Company, after being approached by two stockholders offering to

                                       52

<PAGE>

          sell their shares to the Company, the Company purchased an aggregate
          of 174,270 shares of its common stock in open market transaction at a
          purchase price of $40.02 per share, the current market price
          immediately prior to the transaction. The sellers were Lawrence B.
          Seidman, and related parties under his control, and Investors of
          America, Limited Partnership.

          On March 13, 2003, the Company filed a report on Form 8-K stating
          under Item 5 that the Company, on March 10, 2003, pursuant to a stock
          buyback program authorized by the Board of Directors, repurchased from
          two stockholders an aggregate of 40,000 share of its common stock in
          open market transactions at a purchase price of $39.27 per share, the
          current market price immediately prior to the transaction. The sellers
          were Tontine Management L.L.C. and Private Capital Management, L.P.
          Both stockholders' ownership in our common stock exceeded 10% as a
          result of our repurchases in February, and these latest purchases
          brought both stockholders' ownership below 10%.

                                       53

<PAGE>

                                   SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                      KANKAKEE BANCORP, INC.

Date:  March 26, 2003                 By:  /s/ Larry D. Huffman
                                           -------------------------------------
                                           Larry D. Huffman,
                                           Chief Executive Officer and President
                                               (Principal Executive Officer)

                                      By:  /s/ Ronald J. Walters

                                           Ronald J. Walters, Vice President and
                                           Treasurer
                                             (Principal Financial and Accounting
                                             Officer)

I, Larry D. Huffman, Chief Executive Officer of the Company, certify that:

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

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

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

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

          (a)  designed such disclosure controls and procedures to ensure that
     material information relating to the registrant, including its consolidated
     subsidiaries, is made known to us by others within those entities,
     particularly during the period in which this annual report is being
     prepared;

          (b)  evaluated the effectiveness of the registrant's disclosure
     controls and procedures as of a date within 90 days prior to the filing
     date of this annual report (the "Evaluation Date"); and

          (c)  presented in this annual report our conclusions about the
     effectiveness of the disclosure controls and procedures based on our
     evaluation as of the Evaluation Date;

                                       54

<PAGE>

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

          (a)  all significant deficiencies in the design or operation of
     internal controls which could adversely affect the registrant's ability to
     record, process, summarize and report financial data and have identified
     for the registrant's auditors any material weaknesses in internal controls;
     and

          (b)  any fraud, whether or not material, that involves management or
     other employees who have a significant role in the registrant's internal
     controls; and

6.   The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to date of their evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.

Date:  March 26,  2003

                                           /s/ Larry D. Huffman
                                           -----------------------
                                           Larry D. Huffman
                                           Chief Executive Officer

I, Ronald J. Walters, Principal Financial Officer of Kankakee Bancorp, Inc.,
certify that:

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

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

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

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

          (a)  designed such disclosure controls and procedures to ensure that
     material information relating to the registrant, including its consolidated
     subsidiaries, is made known to us by others within those entities,
     particularly during the period in which this annual report is being
     prepared;

          (b)  evaluated the effectiveness of the registrant's disclosure
     controls and procedures as of a date within 90 days prior to the filing
     date of this annual report (the "Evaluation Date"); and

                                       55

<PAGE>

          (c)  presented in this annual report our conclusions about the
     effectiveness of the disclosure controls and procedures based on our
     evaluation as of the Evaluation Date;

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

          (a)  all significant deficiencies in the design or operation of
     internal controls which could adversely affect the registrant's ability to
     record, process, summarize and report financial data and have identified
     for the registrant's auditors any material weaknesses in internal controls;
     and

          (b)  any fraud, whether or not material, that involves management or
     other employees who have a significant role in the registrant's internal
     controls; and

6.   The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to date of their evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.

Date:  March 26,  2003

                                           /s/ Ronald J. Walters
                                           ---------------------------
                                           Ronald J. Walters
                                           Principal Financial Officer

                                       56

<PAGE>

Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.

/s/ Michael A. Griffith       3-26-03     Chairman of the Board
------------------------      -------
Michael A. Griffith           Date

/s/ William Cheffer           3-26-03     Director
------------------------      -------
William Cheffer               Date

 /s/ Brenda L. Baird          3-26-03     Director
------------------------      -------
Brenda L. Baird               Date

 /s/ Charles C. Huber         3-26-03     Director
------------------------      -------
Charles C. Huber              Date

 /s/ Wesley E. Walker         3-26-03     Director
------------------------      -------
Wesley E. Walker              Date

 /s/ Larry D. Huffman         3-26-03     President, Chief Executive Officer and
------------------------      -------     Director
Larry D. Huffman              Date

 /s/ Mark L. Smith            3-26-03     Director
------------------------      -------
Mark L. Smith                 Date

                                       57

<PAGE>

                                INDEX TO EXHIBITS

 Regulation                                           Reference to Prior
S-K Exhibit                                            Filing or Exhibit
   Number             Document                      Number Attached Hereto
-----------   --------------------------            ----------------------
          3   Articles of Incorporation                       (1)

          3   Bylaws                                          (1)

          4   Instruments defining the rights                 (1)
              of security holders, including
              debentures

         10   Material Contracts

              a.  Stock Option Plan                           (2)

              b.  Management Recognition Plan
                  and Trusts                                  (2)

              c.  Employee Stock Ownership Plan               (1)

              d.  Money Purchase Pension Plan                 (1)

              e.  401(k) Plan                                 (1)

              f.  Kankakee Bancorp, Inc. Bank
                  Incentive Plan and Trust                    (3)

              g.  Rights Agreement                            (4)

              h.  Form of Change of Control
                  Agreements for Carol S.
                  Hoekstra, Larry D. Huffman,
                  Terry L. Ralston, and Ronald
                  J. Walters                                  (5)

              i.  Employment Agreement between
                  the Company and Larry D.
                  Huffman                                     (6)

         13   2002 Annual Report to                            13
              Stockholders

         21   Subsidiaries of Registrant                       21

         23   Consent of Independent Auditor                   23

       99.1   Certification of Chief Executive               99.1
              Officer

       99.2   Certification of Principal                     99.2
              Financial Officer

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

(1)  Filed on September 11, 1992, as exhibits to the Registrant's Registration
     Statement No. 33-51950 on Form S-1. Such previously filed documents are
     hereby incorporated herein by reference in accordance with Item 601 of
     Regulation S-K.

(2)  Filed on March 29, 1993, as exhibits to the Registrant's Annual Report on
     Form 10-K. Such previously filed documents are hereby incorporated herein
     by reference in accordance with Item 601 of Regulation S-K.

                                       58

<PAGE>

(3)  Filed on March 30, 1994, as an exhibit to the Registrant's Annual Report on
     Form 10-K. Such previously filed documents are hereby incorporated herein
     by reference in accordance with Item 601 of Regulation S-K.

(4)  Filed on May 21, 1999, as an exhibit to the Registrant's Form 8-K. Such
     previously filed document is hereby incorporated herein by reference in
     accordance with Item 601 of Regulation S-K.

(5)  Filed on October 23, 2001, as an exhibit to the Registrant's Form 8-K. Such
     previously filed document is hereby incorporated herein by reference in
     accordance with Item 601 of Regulation S-K.

(6)  Filed on May 8, 2001, as an exhibit to the Registrant's Form 10-Q. Such
     previously filed document is hereby incorporated herein by reference in
     accordance with Item 601 of Regulation S-K.

                                       59