<PAGE>

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

<TABLE>
<CAPTION>
                                              December 31,
                         ------------------------------------------------------
                            1999       1998       1997       1996       1995
                         ---------- ---------- ---------- ---------- ----------
                             (Dollars in thousands, except per share data)
<S>                      <C>        <C>        <C>        <C>        <C>
Selected Financial
 Condition Data:
  Total assets.......... $  404,718 $  411,779 $  343,409 $  350,643 $  355,103
  Loans, net, including
   loans held for sale..    270,360    247,144    239,050    233,963    230,467
  Mortgage-backed
   securities held-to-
   maturity.............        109        168        204        246        363
  Mortgage-backed
   securities available-
   for-sale.............     17,491     18,578     28,300     34,467     36,119
  Investment securities
   held-to-maturity (1).        857        893      2,173        623        913
  Investment securities
   available-for-sale...     65,132     75,943     36,823     51,345     47,711
  Deposits..............    354,977    346,803    280,022    277,348    286,080
  Total borrowings......     11,200     22,900     23,495     34,545     29,645
  Stockholders' equity..     36,248     39,677     37,821     36,494     36,451
  Shares outstanding....  1,243,383  1,367,358  1,371,638  1,414,918  1,453,418
  Stockholders' equity
   per share............ $    29.15 $    29.02 $    27.57 $    25.79 $    25.08
  Stockholders' tangible
   equity per share (2).      24.97      24.93      26.00      24.10      23.29

<CAPTION>
                                        Years Ended December 31,
                         ------------------------------------------------------
                            1999       1998       1997       1996       1995
                         ---------- ---------- ---------- ---------- ----------
                                         (Dollars in thousands)
<S>                      <C>        <C>        <C>        <C>        <C>
Selected Operations
 Data:
  Total interest income. $   26,900 $   27,522 $   24,895 $   25,808 $   22,830
  Total interest
   expense..............     15,343     16,126     14,273     15,199     12,562
                         ---------- ---------- ---------- ---------- ----------
    Net interest income.     11,557     11,396     10,622     10,609     10,268
  Provision for losses
   on loans.............        --         --          33         42        173
                         ---------- ---------- ---------- ---------- ----------
  Net interest income
   after provision for
   losses on loans......     11,557     11,396     10,589     10,567     10,095
  Fee income............      1,925      1,532      1,023        791        620
  Gain on sales of
   loans, mortgage-
   backed securities and
   investment
   securities...........        365        179        112        109         69
  Other non-interest
   income...............        674        765        554      1,237        492
                         ---------- ---------- ---------- ---------- ----------
    Total non-interest
     income.............      2,964      2,476      1,689      2,137      1,181
  Other expenses........     11,900     10,432      8,185     10,215      8,494
  Income tax expense....        862      1,151      1,081        713        934
                         ---------- ---------- ---------- ---------- ----------
    Total non-interest
     expense............     12,762     11,583      9,266     10,928      9,428
                         ---------- ---------- ---------- ---------- ----------
  Net income............ $    1,759 $    2,289 $    3,012 $    1,776 $    1,848
                         ========== ========== ========== ========== ==========
</TABLE>
-------
(1) Includes certificates of deposit and non-marketable equity securities.
(2) Calculated by subtracting intangible assets from stockholders' equity.

8
<PAGE>

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

<TABLE>
<CAPTION>
                                            Years Ended December 31,
                                     ------------------------------------------
                                      1999    1998    1997    1996       1995
                                     ------- ------- ------- -------    -------
<S>                                  <C>     <C>     <C>     <C>        <C>
Selected Financial Ratios and Other
 Data:
Performance Ratios:.................
  Return on assets (ratio of net
   income to average total assets)..   0.43%   0.57%   0.87%   0.50%(3)   0.58%
  Interest rate spread information:
    Average during the year.........   2.99%   2.92%   2.86%   2.78%      2.98%
    End of year.....................   2.96%   2.68%   2.73%   2.88%      2.64%
    Net interest margin (1).........   3.08%   3.07%   3.22%   3.11%      3.37%
    Ratio of operating expense to
     average total assets...........   2.92%   2.60%   2.36%   2.87%(4)   2.67%
    Return on equity (ratio of net
     income to average equity)......   4.61%   5.86%   8.04%   4.95%(5)   5.10%
    Ratio of average interest-
     earning assets to average
     interest-bearing liabilities... 102.39% 103.47% 108.25% 107.40%    109.33%
Quality Ratios:
  Non-performing assets to total
   assets at end of period..........   0.69%   0.82%   1.27%   1.16%      0.64%
  Allowance for loan losses to non-
   performing loans................. 124.20% 160.43%  75.64%  60.92%    163.45%
  Classified assets to total assets
   at end of period (2).............   1.20%   1.70%   1.89%   1.88%      2.15%
  Allowance for loan losses to
   classified assets................  44.84%  33.95%  32.86%  35.80%     31.30%
Capital Ratios:
  Equity to total assets at end of
   period...........................   8.96%   9.64%  11.01%  10.41%     10.26%
  Average equity to average assets..   9.38%   9.75%  10.71%  10.06%     11.38%
  Dividend payout ratio.............  37.50%  30.77%  24.00%  33.90%     33.90%
Other data:
  Number of full service branch
   offices..........................      15      15       9       9         10
</TABLE>
-------
(1) Net interest income divided by average interest earning assets.
(2) Includes items classified as special mention.
(3) Without the effect of the special assessment on SAIF-insured deposits and
    the gain on the sale of a branch, the Return on Average Assets would have
    been 0.67%.
(4) Without the effect of the special assessment on SAIF-insured deposits, the
    ratio of Operating Expenses to Average Assets would have been 2.40%.
(5) Without the effect of the special assessment on SAIF-insured deposits and
    the gain on the sale of a branch, the Return on Average Stockholders'
    Equity would have been 6.71%.

                                                                               9
<PAGE>


                                           MANAGEMENT'S DISCUSSION AND ANALYSIS
-------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
-------------------------------------------------------------------------------
General
Kankakee Bancorp, Inc. (the "Company") was formed as part of the conversion of
Kankakee Federal Savings and Loan Association from a mutual savings and loan
association to a federal stock savings bank known as Kankakee Federal Savings
Bank (the "Bank"), which was completed on December 30, 1992. The Company's
primary business activity is acting as the holding company for the Bank. All
references to the Company in the following discussion include the Bank and the
Bank's wholly-owned service corporation, KFS Service Corporation ("KFS"),
unless indicated otherwise. The Company's results of operations are dependent
primarily on net interest income, which is the difference, or "spread",
between the interest income earned on its loan, mortgage-backed securities and
investment portfolios and its cost of funds, consisting of interest paid on
its deposits and on borrowed funds. The Company's operating expenses
principally consist of employee compensation and benefits, occupancy, federal
deposit insurance premiums, marketing and other general and administrative
expenses. The Company's results of operations are also significantly affected
by general economic and competitive conditions, particularly changes in market
interest rates, government policies and actions of regulatory authorities.

The Company's mission is to provide, safely and profitably, financial services
to families and businesses in the communities served by its offices. In
seeking to accomplish this mission, management has adopted a business strategy
designed to: (i) maintain the Bank's tangible capital at a level that exceeds
regulatory requirements; (ii) maintain a high level of asset quality; (iii)
manage the Company's exposure to changes in market interest rates; (iv)
increase the Company's interest rate spread; and (v) take advantage of loan
and deposit growth opportunities in the Company's principal market areas, to
the extent available. The Company has attempted to achieve these goals by
focusing on: (i) the origination of adjustable-rate mortgage loans ("ARMs") on
residential properties for retention in its portfolio; (ii) the sale, through
the end of 1999, of most of the 30-year, fixed-rate residential mortgage loans
which it originates; (iii) supplementing its residential lending with
commercial real estate, consumer, commercial business, and, to a lesser
extent, multi-family and construction lending; (iv) providing high quality
service to enhance customer loyalty; and (v) offering a variety of financial
products and services to serve as comprehensively as practicable the financial
needs of families and community businesses in its market areas.

Asset/Liability Management
The matching of assets and liabilities may be analyzed by examining the extent
to which such assets and liabilities are "interest rate sensitive" and by
monitoring an institution's interest rate sensitivity "gap". An asset or
liability is said to be interest rate sensitive within a specific time period
if it will mature or reprice within that time period. The interest rate
sensitivity gap is defined as the difference between the amount of interest-
earning assets anticipated, based upon certain assumptions, to mature or
reprice within a specific time period and the amount of interest-bearing
liabilities anticipated, based upon certain assumptions, to mature or reprice
within that same time period. A gap is considered positive when the amount of
interest rate sensitive assets exceeds the amount of interest rate sensitive
liabilities. A gap is considered negative when the amount of interest rate
sensitive liabilities exceeds the amount of interest rate sensitive assets.
During a period of rising interest rates, a negative gap would tend to
adversely affect net interest income while a positive gap would tend to result
in an increase in net interest income. During a period of falling interest
rates, a negative gap would tend to result in an increase in net interest
income while a positive gap would tend to adversely affect net interest
income. At December 31, 1999, total interest-earning assets maturing or
repricing within one year exceeded total interest-bearing liabilities maturing
or repricing in the same period by $8.8 million, representing a positive
cumulative one-year gap equal to 2.2% of total assets.

In an attempt to manage its exposure to changes in interest rates, management
closely monitors the Company's interest rate risk. The Bank has an
asset/liability management committee consisting of the president, certain vice
presidents and the controller of the Bank which meets monthly and

10
<PAGE>


MANAGEMENT'S DISCUSSION AND ANALYSIS
--------------------------------------------------------------------------------
reviews the Bank's interest rate risk position and makes quarterly
recommendations for adjusting such position to the Bank's Board of Directors.
In addition, on a quarterly basis the Board reviews the Bank's asset/liability
position, including simulations of the effect on the Bank's capital of various
interest rate scenarios.

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

The Company attempts to reduce its interest rate risk to the extent consistent
with its interest margin objectives through management of the mix of its assets
and liabilities. First, the Company, to the extent requested in its lending
areas, has focused its one-to-four family residential lending program on ARMs.
Approximately 30.3% of one-to-four family residential loans originated in 1999
were ARMs. In excess of half of the fixed-rate one-to-four family loan
originations, including loans originated for sale, during 1999 were in loans
with an initial term to maturity of 20 years or less. Such loans are originated
at market rates, and, based on the policy in effect at the time the application
is taken, they are designated for sale or for retention in the Company's
portfolio. At December 31, 1999, approximately $81.7 million, or 49.5%, of the
Company's one-to-four family residential loan portfolio consisted of ARMs.
Second, the Company has continued its origination of consumer loans having
terms to maturity that are significantly shorter than residential loans. Third,
the Company has increased originations of commercial business and construction
loans having adjustable or floating interest rates, relatively short terms to
maturity, or a combination thereof. Fourth, the Company through the end of
1999, sold substantially all of its newly originated conventional 30-year,
fixed-rate residential mortgage loans with servicing retained.

At December 31, 1999, the Company held $83.4 million of fixed-rate one-to-four
family loans, of which $16.3 million had original terms of more than 15 years
(i.e., long-term loans). These loans are seasoned loans that have been carried
in the Company's permanent loan portfolio and are intended to be held until
maturity. Through December 31, 1999, the Company's policy was to sell
substantially all newly originated 30 year, fixed-rate loans, and at December
31, 1999, there were no loans classified as held for sale.

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

Commitments to extend credit and letters of credit are not recorded as an asset
by the Company until the instrument is exercised.

The Company's exposure to market risk is reviewed on a regular basis by the
Asset/Liability Committee. Interest rate risk is the potential of economic
losses due to future interest rate changes. These economic losses can be
reflected as a loss of future net interest income and/or a loss of current fair
market values. Tools used by management include the standard GAP report and the
quarterly Office of Thrift Supervision (the "OTS") report measuring interest
rate sensitivity. The OTS report provides the Company the economic value of
each type of asset, liability, and off-balance sheet contract under the
assumption that the Treasury yield curve shifts instantaneously and parallel up
and down by 100 to 300 basis points in 100 basis point increments. The Company
has no market risk sensitive instruments held for trading purposes. It appears
that the Company's market risk is reasonable at this time. The following
condensed GAP report summarizing the Company's interest rate sensitivity sets
forth the interest rate sensitivity of the Bank's assets and

                                                                              11
<PAGE>


                                           MANAGEMENT'S DISCUSSION AND ANALYSIS
-------------------------------------------------------------------------------
liabilities at December 31, 1999. Except as stated below, the amounts of
assets and liabilities shown which reprice or mature during a particular
period are determined in accordance with the earlier of the term to repricing
or maturity of the asset or liability. The Bank has assumed that its passbook
and statement savings accounts, checking accounts and money market accounts,
which totaled $136.6 million at December 31, 1999, are withdrawn at the annual
percentage rates of 15.0%, 37.4% and 37.6%, respectively. Certificate accounts
are assumed to reprice at the date of contractual maturity.

<TABLE>
<CAPTION>
                                             Maturing or Repricing
                          ------------------------------------------------------------
                                      4 Months     Over       Over     Over
                          1-3 Months to One Year 1-3 Years  3-5 Years 5 Years  Total
                          ---------- ----------- ---------  --------- ------- --------
                            Amount     Amount     Amount     Amount   Amount   Amount
                          ---------- ----------- ---------  --------- ------- --------
<S>                       <C>        <C>         <C>        <C>       <C>     <C>
Fixed rate one-to-four
 family (including
 mortgage-backed
 securities, commercial
 real estate and
 construction loans)....   $  8,903   $ 12,104   $ 25,141    $17,933  $41,794 $105,875
Adjustable rate one-to-
 four family (including
 mortgage-backed
 securities, commercial
 real estate and
 construction loans)....     38,392     61,470     17,673     11,306       --  128,841
Commercial business
 loans..................     14,951      3,721      2,709        541       91   22,013
Consumer loans..........     16,764      6,255      7,749      2,681    1,451   34,900
Investment securities
 and other..............     26,469      6,505     19,251     23,496    7,117   82,838
                           --------   --------   --------    -------  ------- --------
 Total interest-earning
  assets................    105,479     90,055     72,523     55,957   50,453  374,467
                           --------   --------   --------    -------  ------- --------
Savings deposits........      2,276      6,829     14,317     10,344   26,933   60,699
Checking and money
 market.................      7,112     21,336     28,917     11,309    7,264   75,938
Certificates............     52,846     90,169     67,853      7,189       --  218,057
FHLB advances...........      6,200         --      5,000         --       --   11,200
Other borrowings........         --         --         --         --       --       --
                           --------   --------   --------    -------  ------- --------
 Total interest-bearing
  liabilities...........     68,434    118,334    116,087     28,842   34,197  365,894
                           --------   --------   --------    -------  ------- --------
Interest-earning assets
 less interest-bearing
 liabilities............   $ 37,045   $(28,279)  $(43,564)   $27,115  $16,256 $  8,573
                           ========   ========   ========    =======  ======= ========
Cumulative interest-rate
 sensitivity gap........   $ 37,045   $  8,766   $(34,798)   $(7,683) $ 8,573
                           ========   ========   ========    =======  =======
Cumulative interest-rate
 gap as a percentage of
 assets.................      9.15%      2.17%     (8.60%)    (1.90%)   2.12%
                           ========   ========   ========    =======  =======
</TABLE>

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

12
<PAGE>


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

Bank Acquisition and Other Developments
On January 29, 1998, the Company completed the acquisition of Coal City
National Bank ("CCNB") from Coal City Corporation, a multi-bank holding company
headquartered in Chicago, Illinois. CCNB was based in Coal City, Illinois,
which is 30 miles northwest of Kankakee, and also had offices in nearby
Braidwood and Diamond, Illinois. All three offices of CCNB became offices of
the Bank upon completion of the merger, and their operating results have been
included with those of the Bank since January 29, 1998.

At the time of purchase, CCNB had total assets of approximately $56.0 million,
deposits of approximately $51.7 million and stockholders' equity of
approximately $3.7 million. The cash purchase price, including acquisition
costs, was $8.2 million, and the transaction was accounted for as a purchase.
Intangible assets of about $3.8 million were recorded as a result of this
purchase.

In addition to the purchase of CCNB, three new branch offices of the Bank were
opened during 1998. A branch in a grocery store in Coal City, Illinois, and a
stand-alone branch in Urbana, Illinois, opened for business in June. A branch
in a superstore in Bradley, Illinois, opened for business in November. The
Company also completed construction of a new building to replace its Herscher,
Illinois, branch. The new building was occupied and opened for business in
August.

During the second quarter of 1998, the Company's item processing was converted
to an in-house operation. Additionally, during the second quarter the Company
completed the data processing conversion of the deposit and loan accounts
acquired with the acquisition of CCNB.

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

In February 1998, the Bank received regulatory approval to begin offering trust
services. Although granted full trust powers, the Bank has initially focused on
personal trust services and limited employee plan services. It is anticipated
that the trust operations will generate operating losses during the year ending
December 31, 2000, and are not projected to break even or produce a small
profit until the year 2001.

The Year 2000 posed a unique set of challenges to those industries reliant on
information technology. Financial institutions are particularly dependent on
electronic data processing systems. In late 1996, the Company started the
process of identifying the hardware and software issues required to be
addressed to assure Year 2000 compliance. The Company began by assessing the
issues related to the Year 2000 and the potential for those issues to adversely
affect the Company's operations and those of its subsidiaries.

The Company's cumulative costs of the Year 2000 project through the end of 1999
were approximately $100,000. This included costs to upgrade equipment
specifically for the purpose of Year 2000 compliance and certain administrative
expenditures. Additional costs related to Year 2000 will be limited to payment
of invoices, if any, received after the end of 1999.

As a result of the efforts of the Company's Year 2000 Committee, the Company
and its subsidiaries experienced an uneventful transition from 1999 to 2000.
There was no disruption of services to customers or with internal operations.
Among the benefits derived from the time, effort and costs related to Year 2000
was a complete review and update of the Company's disaster recovery and
contingency plans. As a result, the Company is now better prepared to deal with
technical or natural disasters which could threaten the Company's operations.
The Company will continue to remain aware of dates during 2000 which are
considered critical, such as 2/29/2000 and 10/10/2000, and will address issues,
should they arise.

                                                                              13
<PAGE>


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

Financial Condition
Total assets decreased by $7.1 million or 1.7% to $404.7 million at December
31, 1999, from $411.8 million at December 31, 1998. The decrease in total
assets during 1999 was primarily attributed to decreases in cash and cash
equivalents, investment securities and mortgage-backed securities, which were
partially offset by an increase in net loans.

Cash and cash equivalents decreased by $16.9 million to $30.1 million at
December 31, 1999, from $47.0 million at December 31, 1998. The decrease was
primarily attributed to the net loan growth and repayment of other borrowings.

At December 31, 1999, investment securities available-for-sale totaled $65.4
million, a decrease of $10.8 million or 14.2% from the amount classified as
available-for-sale at December 31, 1998. The decrease was the result of
maturities and calls of $24.0 million of available-for sale securities, sales
of $2.0 million of available-for-sale securities and a negative adjustment of
$1.7 million in the market value of available-for-sale securities, which were
partially offset by purchases totaling $17.0 million of available-for-sale
securities, during the fiscal year ended December 31, 1999.

At December 31, 1999, mortgage-backed securities available-for-sale totaled
$17.5 million, a decrease of $1.1 million from the amount classified as
available-for-sale at December 31, 1998. The decrease in mortgage-backed
securities available-for-sale was the result of principal repayments totaling
$7.5 million, and a negative adjustment to market value of $424,000 during the
year, which were partially offset by the purchase of $7.0 million in mortgage-
backed securities available-for-sale.

During the year ended December 31, 1999, net loans increased by $25.2 million
or 10.2% to $270.4 million from $245.2 million at December 31, 1998. The
increase was the result of the origination of $66.1 million of real estate
loans, the origination of $58.3 million of consumer and commercial business
loans, the purchase of $1.4 million of commercial real estate loans, and loan
repayments which totaled $100.2 million. During 1998, low market rates
resulted in a high volume of refinancing in one-to-four family, commercial and
consumer loans, which produced a high level of loan repayments. During 1999,
increasing market rates resulted in a significantly lower volume of
refinancing in one-to-four family and consumer loans, while increased volume
in shorter term commercial loans resulted in an increase in prepayments. The
net result was an overall decrease in total repayments.

There were no loans held for sale at December 31, 1999, representing a
decrease of $1.9 million from December 31, 1998. This was the result of the
origination for sale of approximately $7.2 million of fixed-rate loans, offset
by the sale with servicing retained of approximately $9.1 million of such
loans, primarily to Freddie Mac.

The Company participates in government-sponsored, insured and guaranteed loan
programs, such as those offered by the Veterans' Administration and the
Federal Housing Authority. During 1999, $505,000 of such loans were originated
and sold to investors with servicing released. Borrowers under these programs
are notified at the time of application that their loan will be sold to, and
serviced by, a party other than the Company.

During the second quarter of 1998, as a result of legislation which changed
the pricing on education loans purchased by the Student Loan Marketing
Association ("Sallie Mae"), the Company elected to sell its education loan
portfolio. As the result of this decision, education loans totaling $867,000
were sold, resulting in a gain of $22,000. The Company continues to offer
student loans. Pursuant to its ongoing agreement with Sallie Mae, during 1999
the Company sold $365,000 in student loans at the time the loans were fully
disbursed.

Held-to-maturity investment securities and non-marketable equity securities
decreased by $36,000 to $807,000 at December 31, 1999, from $843,000 at
December 31, 1998. This decrease was the result of the maturity of held-to-
maturity securities.

14
<PAGE>


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

Real estate held for sale decreased by $1.3 million (69.4%) to $575,000 at
December 31, 1999 from $1.9 million at December 31, 1998. The decrease was the
result of the disposal of nine one-to-four family properties and the sale of a
large commercial building in Champaign, Illinois. The sale of the commercial
building resulted in a deferred gain of $311,000. The gain was not recognized
in current income due to the Bank's participation in the buyer's financing
through a second mortgage in the amount of $350,000. The second mortgage was
made with market terms and at a market rate. The decreases were partially
offset by the transfer of nine one-to-four family properties and one small
commercial property to real estate held for sale during the year ended December
31, 1999, and to additional expenditures incurred in connection with the
commercial building.

Deposits increased by $8.2 million (2.4%) to $355.0 million at December 31,
1999, from $346.8 million at December 31, 1998. The increase resulted from a
$7.7 million increase in certificates of deposit, and a $449,000 increase in
passbook savings, checking and money market accounts.

Borrowed money decreased by $11.7 million (51.1%) to $11.2 million at December
31, 1999, from $22.9 million at December 31, 1998. Borrowed money consisted
entirely of advances from the Federal Home Loan Bank of Chicago (the "FHLB").
There were no borrowings using securities sold under agreements to repurchase
at December 31, 1999. Borrowed money was primarily used to purchase and retain
mortgage-backed securities in order to generate additional net interest income
and as a method of increasing the leverage on the Company's capital.
Periodically, borrowed money is used for both short-term and long-term cash
management requirements.

Stockholders' equity on a per share basis increased from $29.02 at December 31,
1998, to $29.15 at December 31, 1999. Stockholders' equity decreased by $3.5
million (8.6%) to $36.2 million at December 31, 1999. The decrease in
stockholders' equity was attributed to the repurchase of 136,000 shares of
Company common stock at a total cost of $3.5 million, the payment of dividends
of $634,000 during the year ended December 31, 1999, and to a decrease in the
market value adjustment on available-for-sale securities, which, net of
provision for income taxes, amounted to $1.4 million. The decrease was
partially offset by net income of $1.8 million.

Asset Quality
Asset quality is an important aspect of the economic condition of a financial
institution such as the Company. Measurements of asset quality are indicators
of both the current strength of a financial institution and of its ability to
generate the desired returns from its business activities. See also "Comparison
of Operating Results for the Year Ended December 31, 1999, to the Year Ended
December 31, 1998--Provision for Losses on Loans".

Company management performs a quarterly analysis of the adequacy of the
allowance for losses on loans. Management classifies problem assets into one of
four categories: Substandard, Doubtful, Loss and Special Mention. During the
year ended December 31, 1999, total classified assets decreased by $2.2 million
to $4.8 million from $7.0 million at December 31, 1998. This decrease was due
to decreases of $83,000 in assets classified as Loss, $1.7 million in assets
categorized as Substandard, and $402,000 in assets classified as Special
Mention. The decrease in assets classified as Substandard was due primarily to
the sale of the commercial building in Champaign, Illinois.

Non-performing assets include foreclosed assets, loans that have been placed on
non-accrual status, loans 90 days or more past due that continue to accrue
interest and restructured troubled debt. During the year ended December 31,
1999, total non-performing assets decreased by $576,000, or 17.2%, to $2.8
million from $3.4 million at December 31, 1998. The decrease was due to
decreases of $1.3 million in foreclosed assets, $185,000 in non-accruing
commercial loans, $133,000 in non-
accruing one-to-four family loans, $91,000 in non-accruing commercial business
loans, $50,000 in accruing consumer loans 90 days or more past due and accruing
commercial loans 90 days or more past due. These decreases were partially
offset by increases of $766,000 and $464,000 in accruing commercial real estate
loans 90 days or more past due, and restructured troubled debt, respectively.
Based on its review of the non-performing loans, management does not anticipate
that the Company will incur a material loss.

                                                                              15
<PAGE>


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

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

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

<TABLE>
<CAPTION>
                                                      Year Ended December 31,
                                                               1999
                                                    ----------------------------
                                                      Average   Interest
                                                    Outstanding Earned/   Yield/
                                                      Balance     Paid     Rate
                                                    ----------- --------  ------
<S>                                                 <C>         <C>       <C>
Interest-earning assets:
  Loans receivable (1).............................  $261,883   $20,407   7.79%
  Mortgage-backed securities (2)...................    19,075     1,125   5.90%
  Investments securities (3).......................    69,980     4,138   5.91%
  Other interest-earning assets....................    21,998     1,109   5.04%
  FHLB stock.......................................     1,808       121   6.69%
                                                     --------   -------
    Total interest-earning assets..................   374,744    26,900   7.18%
                                                     --------   -------
Other assets                                           32,194
                                                     --------
    Total assets...................................  $406,938
                                                     ========
Interest-bearing liabilities:
  Time deposits....................................  $210,899    11,141   5.28%
  Savings deposits.................................    61,413     1,503   2.45%
  Demand and NOW deposits..........................    74,903     1,683   2.25%
  Borrowings.......................................    18,769     1,016   5.41%
                                                     --------   -------
    Total interest-bearing liabilities.............   365,984    15,343   4.19%
                                                     --------   -------
Other liabilities..................................     2,799
                                                     --------
    Total liabilities..............................   368,783
                                                     --------
Stockholders' equity...............................    38,155
                                                     --------
    Total liabilities and stockholders' equity.....  $406,938
                                                     ========
Net interest income................................             $11,557
                                                                =======
Net interest rate spread...........................                       2.99%
                                                                          =====
Net earning assets.................................  $  8,760
                                                     ========
Net yield on average interest-earning assets (net
 interest margin)..................................                       3.08%
                                                                          =====
Average interest-earning assets to average
 interest-bearing liabilities......................              102.39%
                                                                =======
</TABLE>
------
(1) Calculated including loans held for sale, and net of deferred loan fees,
    loan discounts, loans in process and the allowance for losses on loans.
(2) Calculated including mortgage-backed securities available-for-sale.
(3) Calculated including investment securities available-for-sale and
    certificates of deposit.

16
<PAGE>


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


<TABLE>
<CAPTION>
                                    Year Ended December 31,
  Year Ended December 31, 1998               1997
--------------------------------- ----------------------------
    Average      Interest           Average   Interest
  Outstanding    Earned/   Yield/ Outstanding Earned/   Yield/
    Balance        Paid     Rate    Balance     Paid     Rate
---------------- --------  ------ ----------- --------  ------
<S>              <C>       <C>    <C>         <C>       <C>
   $     248,148 $20,291   8.18%   $233,745   $18,894   8.08%
          24,409   1,486   6.09%     32,309     2,198   6.80%
          61,739   3,813   6.18%     46,817     2,941   6.28%
          34,879   1,809   5.19%     14,775       734   4.97%
           1,848     123   6.66%      1,887       128   6.78%
   ------------- -------           --------   -------
         371,023  27,522   7.42%    329,533    24,895   7.55%
   ------------- -------           --------   -------
          29,486                     14,750
   -------------                   --------
   $     400,509                   $344,283
   =============                   ========
   $     204,622  11,465   5.60%   $177,357     9,968   5.62%
          59,242   1,598   2.70%     51,777     1,409   2.72%
          71,010   1,775   2.50%     49,021     1,387   2.83%
          23,722   1,288   5.43%     26,273     1,509   5.74%
   ------------- -------           --------   -------
         358,596  16,126   4.50%    304,428    14,273   4.69%
   ------------- -------           --------   -------
           2,876                      2,394
   -------------                   --------
         361,472                    306,822
   -------------                   --------
          39,037                     37,461
   -------------                   --------
   $     400,509                   $344,283
   =============                   ========
                 $11,396                      $10,622
                 =======                      =======
                           2.92%                        2.86%
                           =====                        =====
   $      12,427                   $ 25,105
   =============                   ========
                           3.07%                        3.22%
                           =====                        =====
                  103.47%                      108.25%
                 =======                      =======
</TABLE>

                                                                              17
<PAGE>


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

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

<TABLE>
<CAPTION>
                                                               At December 31,
                                                              -----------------
                                                              1999  1998  1997
                                                              ----- ----- -----
<S>                                                           <C>   <C>   <C>
Weighted average yield on:
  Loans receivable (1)....................................... 7.78% 7.77% 8.02%
  Mortgaged-backed securities (2)............................ 6.41% 7.18% 6.89%
  Investment securities (3).................................. 5.85% 5.89% 6.08%
  Other interest-earning assets.............................. 4.44% 4.60% 5.37%
  Combined weighted average yield on interest-earning assets. 7.22% 7.09% 7.53%
Weighted average rate paid on:
  Saving deposits............................................ 2.50% 2.44% 2.77%
  Demand and NOW deposits.................................... 2.19% 2.27% 2.79%
  Certificates............................................... 5.42% 5.63% 5.80%
  Borrowings................................................. 5.37% 5.34% 5.67%
  Combined weighted average rate paid on interest-bearing
   liabilities............................................... 4.26% 4.41% 4.80%
Spread....................................................... 2.96% 2.68% 2.73%
</TABLE>
------
(1) Includes loans held for sale.
(2) Includes mortgage-backed securities available for sale.
(3) Includes investment securities available for sale and certificates of
    deposit.

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

<TABLE>
<CAPTION>
                           Year Ended December 31,        Year Ended December 31,
                                1999 vs. 1998                  1998 vs. 1997
                          --------------------------- ---------------------------------
                             Increase
                          (Decrease) Due              Increase (Decrease)
                                to           Total           Due to            Total
                          ---------------   Increase  ---------------------   Increase
                          Volume   Rate    (Decrease)   Volume      Rate     (Decrease)
                          ------  -------  ---------- ----------  ---------  ----------
                                           (Dollars in thousands)
<S>                       <C>     <C>      <C>        <C>         <C>        <C>
Interest earning assets:
  Loans receivable......  $1,104  $  (988)   $ 116    $    1,152  $     245    $1,397
  Mortgage-backed
   securities...........    (316)     (45)    (361)         (538)      (174)     (712)
  Investment securities.     484     (159)     325           935        (63)      872
  Other interest-earning
   assets...............    (650)     (50)    (700)          998         77     1,075
  Federal Home Loan Bank
   stock................      (3)       1       (2)           (3)        (2)       (5)
                          ------  -------    -----    ----------  ---------    ------
    Total interest-
     earning assets.....  $  619  $(1,241)   $(622)   $    2,544  $      83    $2,627
                          ======  =======    =====    ==========  =========    ======
Interest bearing liabil-
 ities:
  Certificate accounts..  $  345  $  (669)   $(324)   $    1,537  $  (   40)   $1,497
  Savings deposits......      57     (152)     (95)          202        (13)      189
  Demand and NOW
   deposits.............      94     (186)     (92)          622       (234)      388
  Borrowings............    (267)      (5)    (272)         (147)       (74)     (221)
                          ------  -------    -----    ----------  ---------    ------
    Total interest-
     bearing
     liabilities........  $  229  $(1,012)   $(783)   $    2,214  $  (  361)   $1,853
                          ======  =======    =====    ==========  =========    ======
Net interest income.....                     $ 161                             $  774
                                             =====                             ======
</TABLE>

18
<PAGE>


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

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

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

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

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

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

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

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

                                                                              19
<PAGE>


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

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

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

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

The allowance for losses on loans is maintained at a level believed adequate
by management to absorb potential losses in the loan portfolio. Management's
methodology to determine the adequacy of the allowance for losses on loans
considers specific credit reviews, past loan loss experience, current economic
conditions and trends, and the volume, growth and composition of the loan
portfolio. Based upon the Company's quarterly analysis of the adequacy of the
allowance for losses on loans, considering remaining collateral of loans with
more than a normal degree of risk, historical loan loss percentages and
economic conditions, it is management's belief that the $2.2 million allowance
for losses on loans at December 31, 1999 was adequate. However, there can be
no assurance that the allowance for losses on loans will be adequate to cover
all losses.

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

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

20
<PAGE>


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

The following is a summary of loan loss experience and nonperforming assets for
the years ended December 31, 1999 and 1998:

<TABLE>
<CAPTION>
                                                                1999     1998
                                                              -------- --------
<S>                                                           <C>      <C>
Total loans.................................................. $272,531 $249,519
Total assets.................................................  404,718  411,779
Allowance for losses on loans................................    2,171    2,376
Net loan charge-offs.........................................      204      153
Net loan charge-offs as a percentage of average loans........    0.08%    0.06%
Nonperforming loans.......................................... $  1,748 $  1,481
Nonperforming assets.........................................    2,781    3,357
Nonperforming assets to total assets.........................    0.69%    0.82%
Allowance for losses on loans to nonperforming loans.........   124.2%   160.4%
</TABLE>

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

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

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

Income Taxes
Federal income tax expense was $862,000 for 1999, as compared to $1.2 million
for 1998. This decrease was primarily the result of a decrease in pre-tax
income. The Company's effective tax rate was 33% for the years ended December
31, 1999 and 1998. A summary of the significant tax components is provided in
Note 9 of the Notes to Consolidated Financial Statements included later in this
report.

                                                                              21
<PAGE>


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

Comparison of Operating Results for the Year Ended December 31, 1998, to the
Year Ended December 31, 1997

General
Consolidated net income was $2.3 million, or $1.56 per share (diluted), for
the year ended December 31, 1998 compared to $3.0 million, or $2.00 per share
(diluted), for the year ended December 31, 1997.

Net Interest Income
Net interest income was $11.4 million for the year ended December 31, 1998, an
increase of $774,000, or 7.3%, during 1998 as compared to 1997. Net interest
income increased due primarily to the increase in interest income resulting
from the increase in volume of interest-earning assets exceeding the increase
in interest expenses resulting from the increase in volume of interest-bearing
liabilities, and to the decrease in rate on interest bearing liabilities
exceeding the decrease in rate on interest-earning assets.

Interest Income
Interest income totaled $27.5 million for the year ended December 31, 1998, an
increase of $2.6 million or 10.6%, as compared to $24.9 million for 1997. This
resulted from a $41.5 million increase in average interest-earning assets from
$329.5 million during 1997 to $371.0 million during 1998, which was partially
offset by a decrease in the yield earned on assets from 7.55% during 1997 to
7.42% during 1998.

Interest on loans was $20.3 million for 1998, an increase of $1.4 million or
7.4%, as compared to 1997. This was primarily attributable to the effect of an
increase of $14.4 million in average outstanding loans and an increase in the
yield on loans from 8.08% during 1997 to 8.18% during 1998.

Interest earned on mortgage-backed securities was $1.5 million for 1998, as
compared to $2.2 million for 1997. This represented a decrease of 32.4%
between the periods and was primarily due to a decrease of $7.9 million in
average mortgage-backed securities and a decrease in the yield on mortgage-
backed securities to 6.09% during 1998 from 6.80% during 1997.

Interest earned on investment securities and other interest-earning assets and
dividends on FHLB stock totaled $5.7 million for 1998, as compared to $3.8
million for 1997. This represented an increase of 51.1% during 1998. This was
primarily due to an increase in the average balance of these assets from $63.5
million in 1997 to $98.5 million in 1998, which was partially offset by a
lower average yield on these assets from 5.99% in 1997 to 5.83% in 1998.

Interest Expense
Interest expense was $16.1 million for 1998, or $1.9 million (13.0%), higher
than in 1997. This was due to an increase in the average balance outstanding
of interest-bearing liabilities to $358.6 million for 1998, from $304.4
million for 1997, which was partially offset by a decrease in average yields
to 4.50% for 1998 from 4.69% for 1997. The lower average yield during 1998 was
attributable to decreases in the average cost of deposit accounts and
borrowings, which resulted from a reduction in market rates.

During 1998, $1.3 million of the Company's interest expense, compared to $1.5
million during 1997, related to advances from the FHLB and from securities
sold under agreements to repurchase.

22
<PAGE>


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

Provision for Losses on Loans
The provision for losses on loans totaled $33,000 for the year ended December
31, 1997. No provision for losses on loans was deemed necessary during 1998
based on management's review of the adequacy of the allowance for losses on
loans subsequent to the acquisition of $398,000 in allowance for losses on
loans as part of the purchase of CCNB in January, 1998. Charge-offs during 1998
decreased to $224,000, from $296,000 during 1997. In addition to the decrease
in charge-offs, recoveries during 1998 increased to $71,000 from $33,000 in
1997. The ratio of net charge-offs to average outstanding loans decreased to
0.06% in 1998 from 0.11% in 1997.

Other Income
Other income increased $787,000 for 1998 to $2.5 million, compared to $1.7
million for 1997. The 46.6% increase in other income was primarily related to
increases of $650,000 in fee income, $100,000 in gain on the sale of loans and
$67,000 in other income. These increases were partially offset by a decrease in
net gain on the sale of securities available-for-sale. The increase in fee
income was attributable to the increase in outstanding balances of transaction
accounts due to the acquisition of CCNB and normal growth, and attributable to
the Company's ongoing review of service charges. During 1998, the Company sold
$35.1 million fixed-rate one-to-four family loans from its held for sale
portfolio, as compared to $6.3 million of similar sales during 1997.

Other Expenses
Other expenses were $10.4 million for 1998, as compared to $8.2 million for
1997. This represented an increase of $2.2 million or 27.5% during 1998. The
increase in other expenses during 1998 was reflected in all but one category of
such expense. Federal insurance premiums decreased by $2,000 (1.0%) during
1998. The increases were due to several factors, including: the operating of
fifteen offices by year end 1998 compared to nine offices throughout 1997; the
start-up and first year operations of a trust department; non-capital costs
associated with the data processing conversion of the former CCNB offices; non-
capital costs associated with the return of item processing to an in-house
operation; and, the increased level of training required to absorb employees of
acquired offices and new employees to staff additional offices. Compensation
and benefits increased by $1.1 million (25.9%), occupancy increased by $158,000
(21.1%), data processing increased by $102,000 (36.5%), telephone and postage
increased by $107,000 (43.3%), amortization of intangible assets increased by
$176,000 (75.8%) and other general and administrative expenses increased by
$343,000 (25.0%).

Income Taxes
Federal income tax expense was $1.2 million for 1998, as compared to $1.1
million for 1997. This increase was primarily the result of an increase in the
effective tax rate which was partially offset by a decrease in pre-tax income.
The Company's effective tax rate was 33% and 26% for the years ended December
31, 1998 and 1997.

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

                                                                              23
<PAGE>


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

The Company's liquidity, represented by cash and cash equivalents, is a result
of its operating, investing and financing activities. These activities are
summarized below for the years ended December 31, 1999, 1998 and 1997,
respectively:

<TABLE>
<CAPTION>
                                                    Years Ended December 31,
                                                   ----------------------------
                                                     1999      1998      1997
                                                   --------  --------  --------
                                                     (Dollars in Thousands)
<S>                                                <C>       <C>       <C>
Net income.......................................  $  1,759  $  2,289  $  3,012
Adjustments to reconcile net income to net cash
 provided (used) by operating activities.........     3,724      (774)   (1,319)
                                                   --------  --------  --------
Net cash provided by operating activities........     5,483     1,515     4,331
Net cash provided (used) by investing activities.   (14,903)  (12,591)   12,078
Net cash provided (used) by financing activities.    (7,477)   13,496   (10,743)
                                                   --------  --------  --------
Net increase (decrease) in cash and cash
 equivalents.....................................   (16,897)    2,420     5,666
Cash and cash equivalents at beginning of period.    46,991    22,826    17,160
Cash acquired with Coal City National Bank.......        --    21,745        --
                                                   --------  --------  --------
Cash and cash equivalents at end of period.......  $ 30,094  $ 46,991  $ 22,826
                                                   ========  ========  ========
</TABLE>

The primary investing activities of the Company are the origination of loans,
the purchase of investment and mortgage-backed securities, and, to a lesser
extent, the purchase of loans and loan participations. During the years ended
December 31, 1999, 1998 and 1997, respectively, the Company's loan
originations totaled $133.5 million, $142.7 million and $94.1 million,
respectively, and purchases of loans totaled $1.4 million, $300,000 and $2.2
million, respectively. Purchases of mortgage-backed securities totaled $7.0
million and $8.8 million for 1999 and 1998, respectively. There were no
purchases of mortgage-backed securities during 1997. Other investment
activities included the purchase of investment securities which totaled $17.0
million, $57.1 million and $3.2 million for 1999, 1998 and 1997, respectively.
During 1999, 1998 and 1997, these activities were funded primarily by
maturities of investment securities totaling $24.0 million, $33.4 million and
$10.2 million, respectively, by principal repayments on loans and mortgage-
backed securities and proceeds from the sale of mortgaged-backed securities
totaling $107.7 million, $133.5 million and $89.4 million, respectively, and,
by sales of investment securities totaling $2.0 million in 1999 and $8.0
million in 1997. There were no sales of investment securities during 1998.

The major source of cash from financing activities during 1999 was an increase
of $8.1 million in deposit accounts. Additionally, financing activities for
1999 included the purchase of common stock totaling $3.5 million, the payment
of dividends to stockholders totaling $634,000 and the net repayment of
borrowings totaling $11.7 million. The major source of cash from financing
activities during 1998 was an increase of $14.8 million in deposit accounts.
Additionally, financing activities for 1998 included the purchase of common
stock totaling $347,000, the payment of dividends to stockholders totaling
$661,000 and the net repayment of borrowings totaling $595,000. The major use
of cash from financing activities during 1997 was a decrease of $11.1 million
in borrowed money. Additionally, financing activities for 1997 included the
repurchase of common stock totaling $1.8 million and the payment of dividends
to stockholders totaling $676,000. Net cash used in financing activities and
investing activities was offset by the net cash provided by operating
activities for 1999. Net cash provided from financing activities was used to
offset the net cash used in investing activities for 1998. Net cash used in
financing activities was offset by the net cash provided by investing
activities for 1997.

The Bank is required to maintain minimum levels of liquid assets as defined by
the OTS regulations. This requirement, which may be waived at the discretion
of the OTS depending upon economic conditions and deposit flows, currently
requires the Bank to maintain, for each calendar quarter, an average daily
balance of liquid assets (including cash and cash equivalent investments)
equal to at least 4% of its liquidity base as of the end of the preceding
calendar quarter or the average daily balance of its liquidity base during the
preceding calendar quarter. The liquidity base

24
<PAGE>


MANAGEMENT'S DISCUSSION AND ANALYSIS
--------------------------------------------------------------------------------
consists of net withdrawable accounts plus borrowings repayable in 12 months or
less. The Bank's regulatory liquidity ratio was 20.0% at December 31, 1999.

The Company's most liquid assets are cash, cash in banks and highly liquid,
short-term investments. The levels of these assets are dependent on the
Company's operating, financing, lending and investing activities during any
given period. At December 31, 1999, 1998 and 1997, these liquid assets totaled
$30.1 million, $47.0 million, and $22.8 million, respectively. The high level
of liquid assets at December 31, 1999 was due, in part, to larger than normal
levels of cash on hand at the Company's offices during the weeks preceding the
Year 2000. The very high level of liquid assets at December 31, 1998 was due to
the net acquisition of cash with the CCNB transaction, loan principal
repayments and loan sales. The high level of liquid assets at December 31, 1997
was due to loan principal repayments and to investment maturities.
Additionally, securities available-for-sale may be utilized to meet liquidity
needs.

Liquidity management for the Company is both a daily and long-term function of
the Company's management strategy. Excess funds are generally invested in
short-term investments such as federal funds. In the event that the Company
should require funds beyond its ability to generate them internally, additional
sources of funds are available, including FHLB advances. At December 31, 1999,
the Company had outstanding borrowings totaling $11.2 million, all of which
were advances from the FHLB.

At December 31, 1999, the Company had outstanding commitments to originate
mortgage loans of $5.1 million, of which 48.8% were at fixed interest rates.
These commitments provided that the loans would be secured by properties
located in the Company's primary market areas. The Company anticipates that it
will have sufficient funds available to meet its current loan commitments.
Certificates of deposit which were scheduled to mature in one year or less from
December 31, 1999, totaled $140.1 million. Based upon the historically stable
nature of the Company's deposit base, management believes that a significant
portion of such deposits will remain with the Company. The Company also had
unused lines of credit provided to customers of $26.1 million and $23.1 million
at December 31, 1999, and 1998, respectively.

At December 31, 1999, the Bank exceeded all of its capital requirements on a
fully phased-in basis. See Note 10 of the Notes to Consolidated Financial
Statements and the discussion of the Company's financial condition above.

Dividends
A federal thrift institution is precluded under current regulations of the OTS
from declaring or paying a dividend or repurchasing any of its common stock if
either of such actions would reduce the institution's core, tangible or risk-
based capital levels below its liquidation account balance or any of the three
current minimum regulatory capital requirements. Under presently effective OTS
regulations, the maximum amount of dividends that a thrift institution will be
permitted to pay in any calendar year without prior OTS approval is limited to
the institution's year-to-date net income plus its retained net income for the
preceding two years. The Bank declared and paid dividends totaling $1.0
million, $1.2 million and $1.8 million to the Company, its sole stockholder,
during 1999, 1998 and 1997, respectively.

The Company paid its first cash dividend since becoming a public company during
the first quarter of 1995. Cash dividends in the total amount of $.48 per share
were paid during 1999, 1998 and 1997, and cash dividends in the total amount of
$.40 per share per year were paid during 1996 and 1995. The Board of Directors
of the Company declared a quarterly cash dividend of $.12 per share payable on
February 29, 2000, to stockholders of record as of February 11, 2000. Future
dividends will depend primarily upon the Company's earnings, financial
condition and need for funds, as well as restrictions imposed by regulatory
authorities regarding dividend payments and net worth requirements.

                                                                              25
<PAGE>


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

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

26
<PAGE>

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

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

We have audited the accompanying consolidated statements of financial condition
of Kankakee Bancorp, Inc. and Subsidiary as of December 31, 1999 and 1998, and
the related consolidated statements of income, stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Kankakee Bancorp, Inc. and Subsidiary as of December 31, 1999 and 1998, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1999, in conformity with generally accepted
accounting principles.

[McGladrey & Pullen, LLP Signature]

Champaign, Illinois
January 27, 2000

                                                                              27
<PAGE>

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

<TABLE>
<CAPTION>
                                                            December 31,
                                                      -------------------------
                                                          1999         1998
                                                      ------------ ------------
<S>                                                   <C>          <C>
Assets
  Cash and due from banks............................ $ 19,118,528 $ 15,154,733
  Federal funds sold.................................    6,321,834   18,525,000
  Money market funds.................................    4,653,221   13,310,905
                                                      ------------ ------------
   Cash and cash equivalents.........................   30,093,583   46,990,638
                                                      ------------ ------------
  Certificates of deposit............................       50,000       50,000
                                                      ------------ ------------
  Securities:
   Investment securities:
    Available-for-sale, at fair value................   65,131,965   75,942,836
    Held-to-maturity, at cost (fair value: 1999
     $284,038; 1998 $345,318)........................      306,241      341,647
                                                      ------------ ------------
     Total investment securities.....................   65,438,206   76,284,483
                                                      ------------ ------------
   Mortgage-backed securities:
    Available-for-sale, at fair value................   17,490,841   18,577,927
    Held-to-maturity, at cost (fair value: 1999
     $109,819; 1998 $172,340)........................      108,724      167,741
                                                      ------------ ------------
     Total mortgage-backed securities................   17,599,565   18,745,668
                                                      ------------ ------------
   Nonmarketable equity securities, at cost..........      501,100      501,100
                                                      ------------ ------------
  Loans, net of allowance for losses on loans of
   $2,171,040 in 1999 and $2,375,533 in 1998.........  270,360,059  245,232,781
  Loans held for sale................................           --    1,910,966
  Real estate held for sale..........................      575,164    1,882,324
  Federal Home Loan Bank stock, at cost..............    1,811,400    1,801,100
  Office properties and equipment....................    8,850,579    8,729,971
  Accrued interest receivable........................    2,889,498    2,772,872
  Prepaid expenses and other assets..................    1,352,138    1,289,077
  Intangible assets..................................    5,196,634    5,587,678
                                                      ------------ ------------
Total assets......................................... $404,717,926 $411,778,658
                                                      ============ ============
</TABLE>

28
<PAGE>


<TABLE>
<CAPTION>
                                                          December 31,
                                                    --------------------------
                                                        1999          1998
                                                    ------------  ------------
<S>                                                 <C>           <C>
Liabilities and Stockholders' Equity
  Liabilities
    Deposits
      Noninterest bearing.......................... $ 21,455,669  $ 17,533,020
      Interest bearing.............................  333,521,782   329,269,826
    Other borrowings...............................   11,200,000    22,900,000
    Advance payments by borrowers for taxes and
     insurance.....................................    1,548,998     1,532,482
    Other liabilities..............................      743,750       866,721
                                                    ------------  ------------
  Total liabilities................................  368,470,199   372,102,049
                                                    ------------  ------------
  Stockholders' Equity
    Preferred stock, $.01 par value; authorized,
     500,000 shares; none outstanding..............           --            --
    Common stock, $.01 par value; authorized
     3,500,000 shares; shares issued 1,750,000.....       17,500        17,500
    Additional paid-in capital.....................   16,019,390    16,070,157
    Retained income, partially restricted..........   32,309,425    31,183,528
    Treasury stock (506,617 and 382,642 shares in
     1999 and 1998, respectively), at cost.........  (10,851,899)   (7,621,599)
    Accumulated other comprehensive income (loss)..   (1,095,478)      329,445
                                                    ------------  ------------
  Total stockholders' equity before Employee Stock
   Ownership Plan Loan ............................   36,398,938    39,979,031
    Employee Stock Ownership Plan Loan.............     (151,211)     (302,422)
                                                    ------------  ------------
  Total stockholders' equity.......................   36,247,727    39,676,609
                                                    ------------  ------------
Total liabilities and stockholders' equity......... $404,717,926  $411,778,658
                                                    ============  ============
</TABLE>


          See Accompanying Notes to Consolidated Financial Statements.

                                                                              29
<PAGE>

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

<TABLE>
<CAPTION>
                                                 Years Ended December 31,
                                            -----------------------------------
                                               1999        1998        1997
                                            ----------- ----------- -----------
<S>                                         <C>         <C>         <C>
Interest income:
  Loans.................................... $20,406,989 $20,291,307 $18,893,603
  Mortgage-backed securities...............   1,124,621   1,485,642   2,198,282
  Investment securities and other..........   5,368,712   5,745,120   3,802,714
                                            ----------- ----------- -----------
    Total interest income..................  26,900,322  27,522,069  24,894,599
                                            ----------- ----------- -----------
Interest expense:
  Deposits.................................  14,326,288  14,838,161  12,763,541
  Borrowed funds...........................   1,016,271   1,288,296   1,509,196
                                            ----------- ----------- -----------
    Total interest expense.................  15,342,559  16,126,457  14,272,737
                                            ----------- ----------- -----------
    Net interest income....................  11,557,763  11,395,612  10,621,862
Provision for losses on loans..............          --          --      33,395
                                            ----------- ----------- -----------
    Net interest income after provision for
     losses on loans.......................  11,557,763  11,395,612  10,588,467
                                            ----------- ----------- -----------
Other income:
  Net gain on sales of securities
   available-for-sale......................       1,094          --      34,146
  Net gain on sales of real estate held for
   sale....................................      37,187      20,367      19,008
  Net gain on sales of loans held for sale.      10,880     158,551      58,512
  Net gain on sale of property held for
   expansion...............................     315,596          --          --
  Fee income...............................   1,924,663   1,673,609   1,023,243
  Insurance commissions....................     122,880     130,470     128,184
  Other....................................     551,884     493,151     426,170
                                            ----------- ----------- -----------
    Total other income.....................   2,964,184   2,476,148   1,689,263
                                            ----------- ----------- -----------
Other expenses:
  Compensation and benefits................   6,069,433   5,553,788   4,411,759
  Occupancy................................   1,106,006     906,201     748,084
  Furniture and equipment..................     709,565     593,600     480,930
  Federal insurance premiums...............     168,388     168,322     170,107
  Advertising..............................     377,605     334,659     238,775
  Provision for losses on real estate held
   for sale................................      43,936      20,442       7,534
  Data processing services.................     391,155     382,263     280,054
  Telephone and postage....................     358,887     353,626     246,857
  Amortization of intangible assets........     391,043     407,191     231,682
  Other general and administrative.........   2,284,297   1,711,455   1,368,812
                                            ----------- ----------- -----------
    Total other expenses...................  11,900,315  10,431,547   8,184,594
                                            ----------- ----------- -----------
    Income before income taxes ............   2,621,632   3,440,213   4,093,136
Income taxes...............................     862,150   1,151,047   1,081,500
                                            ----------- ----------- -----------
    Net income............................. $ 1,759,482 $ 2,289,166 $ 3,011,636
                                            =========== =========== ===========
Basic Earnings Per Share................... $      1.35 $      1.66 $      2.13
                                            =========== =========== ===========
Diluted Earnings Per Share................. $      1.28 $      1.56 $      2.00
                                            =========== =========== ===========
</TABLE>

          See Accompanying Notes to Consolidated Financial Statements.

30
<PAGE>

                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                  Years Ended December 31, 1999, 1998 and 1997
             -----------------------------------------------------
                     KANKAKEE BANCORP, INC. AND SUBSIDIARY

<TABLE>
<CAPTION>
                                                                           Accumulated  Employee     Bank
                                  Additional                                  Other       Stock    Incentive      Total
                          Common    Paid-In     Retained      Treasury    Comprehensive Ownership  Plans and  Stockholders'
                           Stock    Capital      Income        Stock      Income (Loss) Plan Loan   Trusts       Equity
                          ------- -----------  -----------  ------------  ------------- ---------  ---------  -------------
<S>                       <C>     <C>          <C>          <C>           <C>           <C>        <C>        <C>
Balance, December 31,
 1996...................  $17,500 $16,181,726  $27,219,741   $(5,876,509)  $  (409,353) $(604,844) $(34,040)   $36,494,221
Comprehensive income:
 Net income.............       --          --    3,011,636            --            --         --        --      3,011,636
 Unrealized gain on
  securities available-
  for-sale arising
  during the period, net
  of tax of $291,098....       --          --           --            --       460,316         --        --        460,316
 Less: Reclassifications
  adjustment for gains
  included in net
  income, net of tax of
  $13,228...............       --          --           --            --        20,918         --        --         20,918
                                                                                                               -----------
                                                                                                                   481,234
                                                                                                               -----------
Comprehensive income....                                                                                         3,492,870
Purchase of 55,000
 shares of treasury
 stock..................       --          --           --    (1,790,253)           --         --        --     (1,790,253)
Exercise of stock
 options................       --          --           --       115,735            --         --        --        115,735
Adjustment to paid-in
 capital due to exercise
 of stock options.......       --     (91,487)          --        91,487            --         --        --             --
Dividends paid on common
 stock--$.48 per share..       --          --     (676,457)           --            --         --        --       (676,457)
Principal payment on
 ESOP loan..............       --          --           --            --            --    151,211        --        151,211
Amortization of award of
 Bank Incentive Plan
 stock..................       --          --           --            --            --         --    34,040         34,040
                          ------- -----------  -----------  ------------   -----------  ---------  --------    -----------
Balance, December 31,
 1997...................   17,500  16,090,239   29,554,920    (7,459,540)       71,881   (453,633)       --     37,821,367
Comprehensive income:
 Net income.............       --          --    2,289,166            --            --         --        --      2,289,166
 Unrealized gain on
  securities available-
  for-sale arising
  during the period, net
  of tax of $162,880....       --          --           --            --       257,564         --        --        257,564
                                                                                                               -----------
                                                                                                                   257,564
                                                                                                               -----------
Comprehensive income....                                                                                         2,546,730
Purchase of 13,650
 shares of treasury
 stock..................       --          --           --      (346,995)           --         --        --       (346,995)
Exercise of stock
 options................       --          --           --        92,529            --         --        --         92,529
Adjustment to paid-in
 capital due to exercise
 of stock options.......       --     (20,082)          --        92,407            --         --        --         72,325
Dividends paid on common
 stock--$.48 per share..       --          --     (660,558)           --            --         --        --       (660,558)
Principal payment on
 ESOP loan..............       --          --           --            --            --    151,211        --        151,211
                          ------- -----------  -----------  ------------   -----------  ---------  --------    -----------
Balance, December 31,
 1998...................   17,500  16,070,157   31,183,528    (7,621,599)      329,445   (302,422)       --     39,676,609
Comprehensive income:
 Net income.............       --          --    1,759,482            --            --         --        --      1,759,482
 Unrealized loss on
  securities available-
  for-sale arising
  during the period, net
  of tax of $(705,677)..       --          --           --            --    (1,425,645)        --        --     (1,425,645)
 Less: Reclassifications
  adjustment for gains
  included in net
  income, net of tax of
  $372..................       --          --           --            --           722         --        --            722
                                                                                                               -----------
                                                                                                                (1,424,923)
                                                                                                               -----------
Comprehensive income....                                                                                           334,559
Purchase of 136,000
 shares of treasury
 stock..................       --          --           --    (3,472,591)           --         --        --     (3,472,591)
Exercise of stock
 options................       --          --           --       118,747            --         --        --        118,747
Adjustment to paid-in
 capital due to exercise
 of stock options.......       --     (50,767)          --       123,544            --         --        --         72,777
Dividends paid on common
 stock--$.48 per share..       --          --     (633,585)           --            --         --        --       (633,585)
Principal payment on
 ESOP loan..............       --          --           --            --            --    151,211        --        151,211
                          ------- -----------  -----------  ------------   -----------  ---------  --------    -----------
Balance, December 31,
 1999...................  $17,500 $16,019,390  $32,309,425  $(10,851,899)  $(1,095,478) $(151,211)       --    $36,247,727
                          ======= ===========  ===========  ============   ===========  =========  ========    ===========
</TABLE>

          See Accompanying Notes to Consolidated Financial Statements.

                                                                              31
<PAGE>

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

<TABLE>
<CAPTION>
                                             Years Ended December 31,
                                     ------------------------------------------
                                         1999           1998           1997
                                     -------------  -------------  ------------
<S>                                  <C>            <C>            <C>
Cash Flows from Operating
 Activities
 Net income........................  $   1,759,482  $   2,289,166  $  3,011,636
 Adjustments to reconcile net
  income to net cash provided by
  operating activities:
    Provision for losses on loans..             --             --        33,395
    Provision for losses on real
     estate held for sale..........         43,936         20,442         7,534
    Depreciation and amortization..      1,287,009      1,064,712       763,483
    Amortization of investment
     premiums and discounts, net...        250,846        299,937       139,640
    Accretion of loan fees and
     discounts, net................         41,295        (45,066)      (33,971)
    Deferred income tax provision
     (benefit).....................        100,107        (33,968)      (28,728)
    Origination of loans held for
     sale..........................     (9,091,292)   (38,590,159)   (6,673,198)
    Proceeds from sales of loans...     11,013,138     37,092,150     7,117,165
    (Increase) decrease in interest
     receivable....................       (116,626)           196       172,472
    Increase (decrease) in interest
     payable on deposits...........         71,234         86,190       (28,120)
    Net gain on sales of loans.....        (10,880)      (158,551)      (58,512)
    Net gain on sales of securities
     available-for-sale............         (1,094)            --       (34,146)
    Net gain on sales of real
     estate held for sale..........        (37,187)       (20,367)      (19,008)
    Net gain on sale of property
     held for expansion............       (315,596)            --            --
    Other, net.....................        488,978       (489,956)      (38,494)
                                     -------------  -------------  ------------
Net cash from operating activities.      5,483,350      1,514,726     4,331,148
                                     -------------  -------------  ------------
Cash Flow from Investing Activities
 Investment securities:
   Available-for-sale:
    Purchases......................    (16,972,198)   (55,944,227)   (3,194,888)
    Proceeds from sales............      2,001,094             --     8,024,060
    Proceeds from calls and
     maturities....................     24,000,000     32,295,000    10,189,000
   Held-to-maturity:
    Purchases......................             --     (1,150,000)           --
    Proceeds from maturities.......         33,797      1,056,629         2,471
 Mortgage-backed securities:
   Available-for-sale:
    Purchases......................     (6,991,551)    (8,771,840)           --
    Proceeds from maturities and
     paydowns......................      7,453,485     18,473,627     6,295,394
   Held-to-maturity:
    Proceeds from maturities and
     paydowns......................         59,017         35,921        42,641
 Purchases of certificates of
  deposit..........................             --       (765,692)   (2,357,500)
 Proceeds from maturities of
  certificates of deposit..........             --      2,317,692       805,500
 Proceeds from sales of real
  estate...........................      3,409,153        323,492       209,351
 Deferred loan fees and costs, net.        (79,600)        23,210      (179,669)
 Loans originated..................   (124,417,009)  (104,134,300)  (87,475,090)
 Loans purchased...................     (1,366,276)      (300,000)   (2,180,000)
 Principal collected on loans......    100,159,376    115,028,208    83,047,771
 Purchases of office properties and
  equipment, net...................     (1,845,158)    (2,665,242)   (1,151,147)
 Acquisition of Coal City National
  Bank.............................             --     (8,084,596)           --
 Payments for improvements on real
  estate...........................       (347,623)      (328,986)           --
                                     -------------  -------------  ------------
Net cash from investing activities.    (14,903,493)   (12,591,104)   12,077,894
                                     -------------  -------------  ------------
</TABLE>
                                                                     (continued)

32
<PAGE>

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

<TABLE>
<CAPTION>
                                              Years Ended December 31,
                                       ----------------------------------------
                                           1999          1998          1997
                                       ------------  ------------  ------------
<S>                                    <C>           <C>           <C>
Cash Flows from Financing Activities
 Net increase (decrease) in non-
  certificate of deposit accounts....       448,994     7,039,825    (1,072,434)
 Net increase in certificate of
  deposit accounts...................     7,654,377     7,790,818     3,774,086
 Increase (decrease) in advance
  payments by borrowers for taxes and
  insurance..........................        34,369       103,172       (43,940)
 Proceeds from short-term borrowings.     3,000,000            --    66,430,000
 Repayments of short-term borrowings.    (3,000,000)   (8,220,000)  (85,030,000)
 Proceeds from other borrowings......            --     8,000,000    34,550,000
 Repayments of other borrowings......   (11,700,000)     (375,000)  (27,000,000)
 Proceeds from exercise of stock
  options............................       191,524       164,854       115,735
 Dividends paid......................      (633,585)     (660,558)     (676,457)
 Purchase of treasury stock..........    (3,472,591)     (346,995)   (1,790,253)
                                       ------------  ------------  ------------
Net cash from financing activities...    (7,476,912)   13,496,116   (10,743,263)
                                       ------------  ------------  ------------
Increase (decrease) in cash and cash
 equivalents.........................   (16,897,055)    2,419,738     5,665,779
Cash and cash equivalents:
 Beginning of year...................    46,990,638    22,825,892    17,160,113
 Cash acquired with Coal City
  National Bank......................            --    21,745,008            --
                                       ------------  ------------  ------------
 End of year.........................  $ 30,093,583  $ 46,990,638  $ 22,825,892
                                       ============  ============  ============
Supplemental Disclosures of Cash Flow
 Information
 Cash paid during the year for:
  Interest on deposits...............  $ 14,326,300  $ 14,924,400  $ 12,735,400
                                       ============  ============  ============
  Interest on borrowed funds.........  $  1,068,200  $  1,308,500  $  1,580,700
                                       ============  ============  ============
  Income taxes.......................  $    632,072  $  1,177,335  $  1,386,969
                                       ============  ============  ============
Supplemental Disclosures of Noncash
 Investing Activities:
 Real estate acquired through
  foreclosure........................  $    534,936  $    550,603  $  1,314,939
                                       ============  ============  ============
 Reduction of Employee Stock
  Ownership Plan loan................  $    151,211  $    151,211  $    151,211
                                       ============  ============  ============
Acquisition of Coal City National
 Bank
 Cash paid...........................  $         --  $ (8,084,596) $         --
 Assets acquired:
  Cash...............................            --    21,745,008            --
  Investments........................            --    15,538,921            --
  Loans..............................            --    17,560,127            --
  Accrued interest receivable........            --       307,474            --
  Premises and equipment.............            --       696,288            --
  Other assets.......................            --       122,646            --
 Liabilities assumed:
  Non-certificates of deposit........            --   (28,996,351)           --
  Certificates of deposit............            --   (22,691,676)           --
  Accrued interest payable...........            --      (176,247)           --
  Other liabilities..................            --      (459,339)           --
  Equity.............................            --    (3,646,851)           --
                                       ------------  ------------  ------------
                                       $         --  $ (8,084,596) $         --
                                       ============  ============  ============
</TABLE>

          See Accompanying Notes to Consolidated Financial Statements.

                                                                              33
<PAGE>


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

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

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

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

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

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

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

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

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

34
<PAGE>


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

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

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

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

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

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

Allowance for Losses on Loans
The allowance for losses on loans ("allowance") is established through a
provision for losses on loans charged to operating expenses. Loans are charged
against the allowance when management believes that the collectibility of the
principal is unlikely. The allowance is an amount that management believes will
be adequate to absorb losses on existing loans that may become uncollectible,
based on evaluations of the collectibility of loans and prior loan loss
experience. The evaluations take into consideration such factors as changes in
the nature and volume of the loan portfolio, overall portfolio quality, review
of specific problem loans and current economic conditions that may affect the
borrowers' ability to pay. While management uses the best information available
to make its evaluation, future adjustments to the allowance may be necessary if
there are significant changes in economic conditions. In addition, various
regulatory agencies periodically review the allowance. These agencies may
require the Bank to make additions to the allowance based on their judgments of
collectibility based on information available to them at the time of their
examination.

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

                                                                              35
<PAGE>


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

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

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

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

Earnings Per Share
Basic earnings per share is computed by dividing net income for the year by
the average number of shares outstanding of 1,312,235, 1,375,553 and 1,412,136
for 1999, 1998 and 1997, respectively.

Diluted earnings per share is determined by dividing net income for the year
by the average number of shares of common stock and dilutive potential common
shares outstanding. Dilutive potential common shares assume exercise of stock
options and use of proceeds to purchase treasury stock at the average market
price for the period. The average shares outstanding were 1,383,613, 1,464,029
and 1,502,639 for 1999, 1998 and 1997, respectively.

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

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

Emerging Accounting Standards
Accounting for Derivative Instruments and Hedging Activities Statement of
Financial Accounting Standard No. 133, "Accounting for Derivative Instruments
and Hedging Activities" (FAS 133) establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts and for hedging activities. It requires that an
entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value.
The accounting for changes in the fair value of a derivative depends on the
intended use of the derivative and the resulting designation. This Statement
applies to all entities. FAS 133 is effective for all fiscal quarters of
fiscal years beginning after June 15, 1999. Earlier application is encouraged.
The Statement is not to be applied retroactively to financial statements of
prior periods. In June 1999, Statement of Financial Accounting Standard No.
137 was issued to extend the effective date by one year to all fiscal quarters
of fiscal years beginning after June 15, 2000. The Company does not believe
the adoption of FAS 133, as amended by FAS 137, will have a material impact on
the consolidated financial statements.

36
<PAGE>


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

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

The following information presents a summary of consolidated operations for
unaudited pro forma results of operations for the years ended December 31, 1998
and 1997 as though Coal City National Bank had been acquired as of January 1,
1997:

<TABLE>
<CAPTION>
                                                                 1998    1997
                                                                ------- -------
                                                                (in thousands)
<S>                                                             <C>     <C>
Interest income................................................ $27,737 $28,827
Interest expense...............................................  16,155  16,116
Net income.....................................................   2,166   3,322
Basic earnings per share.......................................    1.57    2.35
Diluted earnings per share.....................................    1.48    2.21
</TABLE>

These unaudited pro forma results have been prepared for comparative purposes
only and include certain adjustments, such as additional amortization expense
as a result of goodwill and additional depreciation expense on the revaluation
of purchased assets. They do not purport to be indicative of the results of
operations that actually would have resulted had the combination occurred on
January 1, 1997 or of future results of operations of the consolidated
entities.

                                                                              37
<PAGE>


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

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

<TABLE>
<CAPTION>
                                               Available-for-sale
                                  ---------------------------------------------
                                                Gross      Gross
                                   Amortized  Unrealized Unrealized
                                     Cost       Gains      Losses   Fair Value
                                  ----------- ---------- ---------- -----------
<S>                               <C>         <C>        <C>        <C>
December 31, 1999
U. S. government and agency
 securities...................... $66,059,685  $  4,939   1,309,264 $64,755,360
Mutual fund shares...............     409,040        --      32,435     376,605
                                  -----------  --------  ---------- -----------
  Total investment securities....  66,468,725     4,939   1,341,699  65,131,965
Mortgage-backed securities.......  17,813,775    61,365     384,299  17,490,841
                                  -----------  --------  ---------- -----------
  Total.......................... $84,282,500  $ 66,304  $1,725,998 $82,622,806
                                  ===========  ========  ========== ===========
December 31, 1998
U. S. government and agency
 securities...................... $75,186,187  $485,222     116,501 $75,554,908
Mutual fund shares...............     387,040       888          --     387,928
                                  -----------  --------  ---------- -----------
  Total investment securities....  75,573,227   486,110     116,501  75,942,836
Mortgage-backed securities.......  18,477,002   127,403      26,478  18,577,927
                                  -----------  --------  ---------- -----------
  Total.......................... $94,050,229  $613,513  $  142,979 $94,520,763
                                  ===========  ========  ========== ===========

<CAPTION>
                                                Held-to-maturity
                                  ---------------------------------------------
                                                Gross      Gross
                                   Amortized  Unrealized Unrealized
                                     Cost       Gains      Losses   Fair Value
                                  ----------- ---------- ---------- -----------
<S>                               <C>         <C>        <C>        <C>
December 31, 1999
Municipal bonds.................. $   306,241  $     --  $   22,203 $   284,038
Mortgage-backed securities.......     108,724     1,095          --     109,819
                                  -----------  --------  ---------- -----------
  Total.......................... $   414,965     1,095  $   22,203 $   393,857
                                  ===========  ========  ========== ===========
December 31, 1998
Municipal bonds.................. $   341,647  $  3,739  $       68 $   345,318
Mortgage-backed securities.......     167,741     4,599          --     172,340
                                  -----------  --------  ---------- -----------
  Total.......................... $   509,388  $  8,338  $       68 $   517,658
                                  ===========  ========  ========== ===========
</TABLE>

The amortized cost and fair value of securities classified as held-to-maturity
and available-for-sale at December 31, 1999, by contractual maturity, are
shown below. Expected maturities may differ from contractual maturities
because borrowers may have the right to prepay obligations without prepayment
penalties, and certain securities require principal repayments prior to
maturity. Therefore, these securities and mutual fund shares are not included
in the maturity categories in the following maturity summary.

<TABLE>
<CAPTION>
                                       Held-to-Maturity    Available-for-Sale
                                      ------------------ -----------------------
                                      Amortized   Fair    Amortized
                                        Cost     Value      Cost     Fair Value
                                      --------- -------- ----------- -----------
<S>                                   <C>       <C>      <C>         <C>
Due within 1 year.................... $ 34,486  $ 33,883 $17,007,841 $16,936,515
Due after 1 year through 5 years.....   40,307    37,496  44,051,844  43,109,995
Due after 5 through 10 years.........  167,121   148,332   5,000,000   4,708,850
Due after 10 years...................   64,327    64,327          --          --
Mortgage-backed securities...........  108,724   109,819  17,813,775  17,490,841
Mutual fund shares...................       --        --     409,040     376,605
                                      --------  -------- ----------- -----------
  Total.............................. $414,965  $393,857 $84,282,500 $82,622,806
                                      ========  ======== =========== ===========
</TABLE>

38
<PAGE>


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

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

U. S. government and agency securities with a carrying value of approximately
$19,695,000 and $17,126,000 at December 31, 1999 and 1998, respectively, were
pledged to collateralize certain deposit accounts with balances in excess of
$100,000 for other purposes as required or permitted by law.

Realized gains and losses were as follows:

<TABLE>
<CAPTION>
                                                             Year Ended December
                                                                     31,
                                                             -------------------
                                                              1999  1998  1997
                                                             ------ ---- -------
<S>                                                          <C>    <C>  <C>
Realized gains.............................................. $1,094 $ -- $34,146
Realized losses.............................................     --   --      --
                                                             ------ ---- -------
  Net gain (loss)........................................... $1,094 $ -- $34,146
                                                             ====== ==== =======
</TABLE>

Note 4. Loans
Loans consist of the following:

<TABLE>
<CAPTION>
                                                            December 31,
                                                      -------------------------
                                                          1999         1998
                                                      ------------ ------------
<S>                                                   <C>          <C>
Real estate mortgage loans:
  One-to-four family................................. $165,088,747 $158,044,604
  Multifamily........................................    8,923,474    5,556,309
  Commercial.........................................   28,868,801   21,291,086
  Construction and development.......................   14,235,389   13,937,820
Consumer loans:
  Mobile home loans..................................    2,157,624    2,825,500
  Student loans......................................      151,055      231,319
  Home improvement loans.............................        2,396        6,915
  Home equity loans..................................   17,027,560   17,215,139
  Credit card loans..................................    1,285,937    1,376,329
  Motor vehicle loans................................    5,541,134    3,830,236
  Personal loans.....................................    7,945,906    6,900,189
  Loans secured by savings accounts..................      788,276      826,849
Commercial loans.....................................   22,012,684   17,365,311
                                                      ------------ ------------
Gross loans..........................................  274,028,983  249,407,606
Less:
  Unearned discounts.................................          882          904
  Deferred loan fees, net............................      102,707      126,860
  Undisbursed portion of loan proceeds...............    1,394,295    1,671,528
  Allowance for losses on loans......................    2,171,040    2,375,533
                                                      ------------ ------------
                                                      $270,360,059 $245,232,781
                                                      ============ ============
</TABLE>

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

                                                                              39
<PAGE>


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

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

Loans serviced by the Company for others approximated $70,545,000, $71,322,000
and $36,999,000 at December 31, 1999, 1998 and 1997.

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

<TABLE>
<CAPTION>
                                                 Year Ended December 31,
                                             ----------------------------------
                                                1999        1998        1997
                                             ----------  ----------  ----------
<S>                                          <C>         <C>         <C>
Balance at beginning of year................ $2,375,533  $2,130,146  $2,359,889
Balance acquired............................         --     398,178         --
Provision for losses on loans...............         --          --      33,395
Charge-offs.................................   (287,719)   (223,869)   (296,432)
Recoveries..................................     83,226      71,078      33,294
                                             ----------  ----------  ----------
Balance at end of year...................... $2,171,040  $2,375,533  $2,130,146
                                             ==========  ==========  ==========
</TABLE>

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

<TABLE>
<CAPTION>
                                                             December 31,
                                                        -----------------------
                                                           1999        1998
                                                        ----------- -----------
<S>                                                     <C>         <C>
Office properties:
  Land................................................. $ 1,751,039 $ 1,667,011
  Building.............................................   7,036,809   5,936,174
  Leasehold improvements...............................     444,902     205,826
Parking facilities:
  Land.................................................     340,862     340,862
  Improvements.........................................     133,418     133,418
Land acquired for future use...........................   1,020,074   1,493,634
Furniture and equipment................................   5,471,423   5,495,194
                                                        ----------- -----------
                                                         16,198,527  15,272,119
Less: Accumulated depreciation and amortization........   7,347,948   6,542,148
                                                        ----------- -----------
                                                        $ 8,850,579 $ 8,729,971
                                                        =========== ===========
</TABLE>

Depreciation and amortization expense amounted to $895,966, $657,521 and
$531,801 for the years ended December 31, 1999, 1998 and 1997, respectively.

The Company leases space inside three grocery stores, which are the locations
of the Bank's Braidwood and Bradley offices, and one of its Coal City offices.
The leases on the Braidwood and Coal City locations expire in 2000 with
options to renew for three additional periods of five years. The lease on the
Bradley location expires in 2013, but the lease terms provide for early
termination in either 2003 or 2008, providing certain advance notice
requirements are met.

40
<PAGE>


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

The total minimum rental commitment including all option periods, at December
31, 1999, under the leases mentioned above is as follows:

<TABLE>
<CAPTION>
                                                                        Amount
Year of Maturity                                                      ----------
<S>                                                                   <C>
2000................................................................. $   81,449
2001.................................................................     84,067
2002.................................................................     84,067
2003.................................................................     85,911
2004.................................................................     93,593
Thereafter...........................................................    955,601
                                                                      ----------
                                                                      $1,384,688
                                                                      ==========
</TABLE>

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

Note 7. Deposits
As of December 31, 1999, certificates of deposit had scheduled maturity dates
as follows:

<TABLE>
<CAPTION>
                                                                       Amount
Year of Maturity                                                    ------------
<S>                                                                 <C>
2000............................................................... $140,060,987
2001...............................................................   64,928,780
2002...............................................................    5,878,290
2003...............................................................    2,796,646
2004 and thereafter................................................    4,392,710
                                                                    ------------
                                                                    $218,057,413
                                                                    ============
</TABLE>

The aggregate amount of time certificates of deposit in denominations of
$100,000 or more was $26,427,470 and $24,717,651 at December 31, 1999 and 1998,
respectively.

Note 8. Other Borrowings
Other borrowings at December 31, 1999 and 1998 consisted of advances from the
FHLB of $11,200,000 and $22,900,000, respectively. The weighted average
maturity date was approximately 60 months and 60 months, respectively, and the
weighted average interest rates were approximately 5.37% and 5.34%,
respectively.

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

Future payments at December 31, 1999, for all other borrowings were as follows:

<TABLE>
<CAPTION>
                                                                       Amount
Year Ended                                                           -----------
<S>                                                                  <C>
2000................................................................ $        --
2001................................................................          --
2002................................................................   6,200,000
2003................................................................          --
2004................................................................          --
Thereafter..........................................................   5,000,000
                                                                     -----------
  Total............................................................. $11,200,000
                                                                     ===========
</TABLE>

                                                                              41
<PAGE>


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

Note 9. Income Taxes
Under provisions of the Internal Revenue Code and similar sections of the
Illinois income tax law that apply to tax years beginning before December 31,
1995, qualifying thrifts were allowed to claim bad debt deductions based on
the greater of (1) a specified percentage of taxable income, as defined, or
(2) actual loss experience. If, in the future, any of the accumulated bad debt
deductions are used for any purpose other than to absorb bad debt losses,
gross taxable income may result and income taxes may be payable.

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

Retained earnings at December 31, 1999 and 1998 includes approximately
$8,998,000 of the tax reserve which accumulated prior to 1988, for which no
deferred income tax liability has been recognized. This amount represents an
allocation of income to bad debt deductions for tax purposes only. Reduction
of amounts so allocated for purposes other than tax bad debt losses or
adjustments arising from carryback of net operating losses would create income
for tax purposes only, which would be subject to the then-current corporate
income tax rate. The unrecorded deferred income tax liability on the above
amounts was approximately $3,059,000 as of December 31, 1999 and 1998.

As of December 31, 1999, the Bank had State net operating loss carryforwards
of approximately $4,356,243 for income tax purposes. The difference between
book and tax net operating income results from interest income from certain
investments which is exempt from income tax for state income tax purposes. For
financial reporting purposes, a valuation allowance of $545,521 based on the
effective state tax rate of 4.8% has been recognized to offset the deferred
tax assets related to those carryforwards. The net operating loss
carryforwards expire through 2007.

Income taxes consist of:

<TABLE>
<CAPTION>
                                                   Year Ended December 31,
                                                -------------------------------
                                                  1999      1998        1997
                                                -------- ----------  ----------
<S>                                             <C>      <C>         <C>
Current........................................ $762,043 $1,185,015  $1,110,228
Deferred.......................................  100,107    (33,968)    (28,728)
                                                -------- ----------  ----------
                                                $862,150 $1,151,047  $1,081,500
                                                ======== ==========  ==========
</TABLE>

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

<TABLE>
<CAPTION>
                                                 Year Ended December 31,
                                              --------------------------------
                                                1999       1998        1997
                                              --------  ----------  ----------
<S>                                           <C>       <C>         <C>
Expected income taxes........................ $917,571  $1,204,075  $1,432,598
Income tax effect of:
  State income tax (carryforward), net of
   federal benefit...........................  (46,246)      9,816      65,399
  Income taxed at lower rate.................  (26,216)    (34,402)    (40,932)
  Utilization of (addition to) state net
   operating loss carryforwards..............   46,246      (9,816)    (65,399)
  Bank Incentive Plan........................       --      (3,329)    (31,168)
  Other......................................  (29,205)    (15,297)   (278,998)
                                              --------  ----------  ----------
                                              $862,150  $1,151,047  $1,081,500
                                              ========  ==========  ==========
</TABLE>

42
<PAGE>


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

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

<TABLE>
<CAPTION>
                                                            December 31,
                                              ---------------------------------
                                                           1999        1998
<S>                                                     <C>         <C>
                                                        ----------  ----------
Deferred tax assets:
  Allowance for losses on loans........................ $  743,560  $  811,472
  State net operating loss carryforwards...............    545,521     432,324
  Accrued benefits.....................................    138,863     125,256
  Intangible assets....................................     27,627      43,454
  Unrealized loss on assets available for sale.........    564,216          --
  Other................................................    108,595      37,511
                                                        ----------  ----------
    Total deferred tax assets..........................  2,128,382   1,450,017
  Valuation allowance for deferred tax assets..........    545,521     432,324
                                                        ----------  ----------
    Total deferred tax assets, net of valuation
     allowance.........................................  1,582,861   1,017,693
                                                        ----------  ----------
Deferred tax liabilities:
  Unrealized gain in assets available-for-sale.........         --    (141,089)
  Loan fees deferred for income tax purposes...........    (63,607)    (79,850)
  Excess of tax accumulated provision for losses over
   base year...........................................    (73,165)   (109,747)
  Stock dividend on FHLB stock.........................    (50,280)    (50,280)
  Loan costs deferred for book purposes................   (215,760)   (171,923)
  Mortgage servicing rights............................   (146,161)   (105,465)
  Other................................................    (87,161)    (40,832)
                                                        ----------  ----------
    Total deferred tax liabilities.....................   (636,134)   (699,186)
                                                        ----------  ----------
Net deferred tax assets................................ $  946,727  $  318,507
                                                        ==========  ==========
</TABLE>

The Company believes that it is more likely than not that the deferred tax
asset will be realized based upon historical taxable income levels. The Company
has reported federal taxable income and pretax book income amounts totaling
approximately $8.4 million and $10.2 million over the past three years,
respectively.

Note 10. Stockholders' Equity and Regulatory Capital
The Bank is subject to various regulatory capital requirements administered by
the federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory--and possibly additional discretionary--actions by
regulators that, if undertaken, could have a direct material effect on the
Bank's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet specific
capital guidelines that involve quantitative measures of assets, liabilities,
and certain off-balance-sheet items as calculated under regulatory accounting
practices. The Bank's capital amounts and classifications are also subject to
qualitative judgments by the regulators about components, risk weightings, and
other factors.

Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the table
below) of Tangible and Core capital (as defined by the regulations) to tangible
assets (as defined) and Total and Tier I capital (as defined) to risk-weighted
assets (as defined). Management believes, as of December 31, 1999, that the
Bank meets all capital adequacy requirements to which it is subject.

As of December 31, 1999, the most recent notification from the Office of Thrift
Supervision (the "OTS"), categorized the Bank as well capitalized under the
regulatory framework for prompt corrective action. To be categorized as well
capitalized, the Bank must maintain minimum total

                                                                              43
<PAGE>


                                               NOTES TO CONSOLIDATED STATEMENTS
-------------------------------------------------------------------------------
risk-based, Tier I risk-based and Tier I leverage ratios as set forth in the
table below. There are no conditions or events since that notification that
management believes have changed the Bank's category.

<TABLE>
<CAPTION>
                                                                    To be Well
                                                                   Capitalized
                                                                   Under Prompt
                                                                    Corrective
                                                   For Capital        Action
                                     Actual     Adequacy Purposes   Provisions
                                 -------------- --------------------------------
                                 Amount  Ratio   Amount    Ratio  Amount  Ratio
                                 ------- ------ --------- --------------- ------
                                             (Dollars in thousands)
<S>                              <C>     <C>    <C>       <C>     <C>     <C>
As of December 31, 1999
Tangible Capital to Tangible
 Assets Kankakee Federal
 Savings Bank..................  $29,525  7.40% $   5,982   1.50%     N/A

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

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

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

As of December 31, 1998
Tangible Capital to Tangible
 Assets Kankakee Federal
 Savings Bank..................  $27,832  6.95% $   6,011   1.50%     N/A

Core Capital to Tangible Assets
 Kankakee Federal Savings Bank.   27,832  6.95%    16,030   4.00% $20,037  5.00%

Tier I Capital to Risk Weighted
 Assets Kankakee Federal
 Savings Bank..................   27,832 12.61%       N/A          13,239  6.00%

Total Capital to Risk Weighted
 Assets Kankakee Federal
 Savings Bank..................   30,045 13.62%    17,653   8.00%  22,066 10.00%
</TABLE>

A liquidation account in the amount of $17,720,139 was established for the
benefit of eligible deposit account holders who continue to maintain their
deposit accounts in the Bank after the December 30, 1992 conversion from a
mutual savings and loan association to a stock savings bank. In the unlikely
event of a complete liquidation of the Bank, each eligible deposit account
holder would be entitled to receive a liquidation distribution from the
liquidation account, in the proportionate amount of the then-current adjusted
balance for deposit accounts held, before any distribution may be made with
respect to the Bank's capital stock. The Bank may not declare or pay a cash
dividend to the Company on, or repurchase any of, its capital stock if the
effect thereof would cause the net worth of the Bank to be reduced below the
amount required for the liquidation account. Due to various natural events,
such as death, relocation and general attrition of accounts, the balance in
the liquidation account has been reduced to $2,405,944 as of December 31,
1999.

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

44
<PAGE>


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

Note 11. Officer, Director and Employee Plans

Money Purchase Pension Plan and Trust
The Bank sponsors a Money Purchase Pension Plan and Trust (the "Money Purchase
Plan") for the benefit of its employees meeting certain age and service
requirements. The Bank contributes to the Money Purchase Plan on behalf of each
Participant an amount equal to 7% of the Participant's compensation, as defined
by the Money Purchase Plan. Expense related to the Money Purchase Plan amounted
to approximately $267,000, $245,000 and $210,000, for the years ended December
31, 1999, 1998 and 1997, respectively.

401(k) Savings Plan
The Bank established a qualified, tax-exempt pension plan qualifying under
section 401(k) of the Internal Revenue Code (the "401(k) Plan"). Virtually all
employees are eligible to participate after meeting certain age and service
requirements. Eligible employees are permitted to contribute 1% to 10% of their
compensation to the 401(k) Plan. Expense related to the 401(k) Plan, including
plan administration, amounted to approximately $12,700, $15,400 and $14,700,
for the years ended December 31, 1999, 1998 and 1997, respectively.

Bank Incentive Plans and Trusts
The 52,500 shares of Company common stock in the Bank Incentive Plans and
Trusts (the "BIPs") were available for issuance to officers, directors, and
employees of the Bank. The awards were earned over a three- or five-year period
depending on age and years of service. The aggregate purchase price of these
shares was amortized to expense as the persons became vested in their stock
awards. The unamortized cost was reflected as a reduction of stockholders'
equity. The BIPs were fully amortized at December 31, 1997. Expense relating to
the BIPs was approximately $34,040 for the year ended December 31, 1997.

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

The ESOP operates as a leveraged employee stock ownership plan. These shares
are held in trust and allocated to participants' accounts in the ESOP as the
related loan obligation is repaid.

The following table reflects the shares held by the ESOP:

<TABLE>
<CAPTION>
                                                           December 31
                                                  -----------------------------
                                                    1999      1998      1997
                                                  --------- --------- ---------
<S>                                               <C>       <C>       <C>
Shares allocated to participants.................  93,552.5  82,172.0  70,833.5
Unallocated shares (grandfathered under SOP 93-
 6)..............................................  15,312.5  30,625.0  45,937.5
                                                  --------- --------- ---------
  Total.......................................... 108,865.0 112,797.0 116,771.0
                                                  ========= ========= =========
</TABLE>

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

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

Interest expense recognized by the ESOP was $18,523, $29,108 and $39,693 for
the years ended December 31, 1999, 1998 and 1997, respectively. The Bank
contributed $162,883, $158,061 and $165,764 to the ESOP to fund principal and
interest payments for the years ended December 31, 1999, 1998 and 1997,
respectively.

                                                                              45
<PAGE>


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

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

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

<TABLE>
<CAPTION>
                                1999               1998               1997
                          ------------------ ------------------ ------------------
                                   Weighted-          Weighted-          Weighted-
                                    Average            Average            Average
                                   Exercise           Exercise           Exercise
                          Shares     Price   Shares     Price   Shares     Price
Fixed Options             -------  --------- -------  --------- -------  ---------
<S>                       <C>      <C>       <C>      <C>       <C>      <C>
Outstanding at beginning
 of year................  127,635   $9.952   137,005   $9.947   148,725   $9.941
Granted.................       --       --        --       --        --       --
Exercise................  (12,025)   9.875    (9,370)   9.875   (11,720)   9.875
Forfeited...............       --       --        --       --        --       --
                          -------            -------            -------
Outstanding at end of
 year...................  115,610    9.960   127,635    9.952   137,005    9.947
                          =======            =======            =======
Options exercisable at
 year-end...............  115,610            127,635            137,005
                          =======            =======            =======
Weighted-average fair
 value
 of options granted
 during
 the year...............                --                 --                 --
                                    ======             ======             ======
</TABLE>

Grants under the Stock Option Plan are accounted for following APB Opinion No.
25 and related interpretations. Accordingly, no compensation cost has been
recognized for grants under the Stock Option Plan.

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

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

Note 12. Commitments and Contingencies
In the normal course of business, there are outstanding various contingent
liabilities such as claims and legal action, which are not reflected in the
consolidated financial statements. In the opinion of management, the ultimate
resolution of these matters is not expected to have a material effect on the
financial position or on the results of operations of the Company and its
subsidiary.

46
<PAGE>


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

Note 13. Financial Instruments
The Bank is party to financial instruments with off-balance-sheet risk in the
normal course of business to meet the financing needs of its customers. These
financial instruments include commitments to extend credit, standby letters of
credit, and financial guarantees. Those instruments involve, to varying
degrees, elements of credit and interest rate risk. The contract or notional
amounts of those instruments reflect the extent of involvement the Bank has in
particular classes of financial instruments.

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

Financial instruments whose contract represent credit risk at December 31, 1999
and 1998 follows:

<TABLE>
<CAPTION>
                                                             December 31,
                                                        -----------------------
                                                           1999        1998
                                                        ----------- -----------
<S>                                                     <C>         <C>
Commitments to originate new loans..................... $16,944,000 $14,184,000
Commitments to extend credit...........................  26,080,000  23,055,000
Standby letters of credit..............................   2,093,000   2,212,000
</TABLE>

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

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

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

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

                                                                              47
<PAGE>


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

Note 14. Fair Value of Financial Instruments
The following table reflects a comparison of carrying amounts and the fair
values of the financial instruments:

<TABLE>
<CAPTION>
                                               December 31,
                            ---------------------------------------------------
                                      1999                      1998
                            ------------------------- -------------------------
                              Carrying                  Carrying
                               Amount     Fair Value     Amount     Fair Value
                            ------------ ------------ ------------ ------------
<S>                         <C>          <C>          <C>          <C>
Assets:
  Cash and cash
   equivalents............. $ 30,093,583 $ 30,093,583 $ 46,990,638 $ 46,990,638
  Certificates of deposit..       50,000       50,000       50,000       50,000
  Investment and mortgage-
   backed securities.......   83,037,771   83,016,663   95,030,151   95,038,421
  Nonmarketable equity
   securities..............      501,100      501,100      501,100      501,100
  Loans....................  272,531,099  269,036,875  247,608,314  248,188,723
  Loans held for sale......           --           --    1,910,966    1,936,844
  FHLB stock...............    1,811,400    1,811,400    1,801,100    1,801,100
  Accrued interest
   receivable..............    2,889,498    2,889,498    2,772,872    2,772,872
Liabilities:
  Deposits................. $354,977,451 $355,501,883 $346,802,846 $348,206,411
  Borrowed funds...........   11,200,000   11,157,454   22,900,000   22,883,988
  Advance payments by
   borrowers for taxes and
   insurance...............    1,548,998    1,548,998    1,532,482    1,532,482
  Accrued interest payable.      404,781      404,781      385,442      385,442
</TABLE>

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

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

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

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

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

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

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

48
<PAGE>


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

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

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

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

Note 15. Condensed Parent Company Only Financial Statements

<TABLE>
<CAPTION>
                                                           December 31,
                                                     -------------------------
                                                         1999         1998
                                                     ------------  -----------
<S>                                                  <C>           <C>
Statement of financial condition
Assets:
  Cash and cash equivalents......................... $  1,284,825  $ 4,272,790
  Certificate of deposit............................       50,000       50,000
  Investment securities, available-for-sale.........      376,605      387,928
  Equity in net assets of Kankakee Federal Savings
   Bank.............................................   34,413,574   34,868,336
  Other assets......................................      203,161      156,640
                                                     ------------  -----------
                                                     $ 36,328,165  $39,735,694
                                                     ============  ===========
Liabilities and stockholders' equity:
  Other liabilities................................. $     80,438  $    59,085
  Common stock......................................       17,500       17,500
  Additional paid-in capital........................   16,019,390   16,070,157
  Retained income...................................   32,309,425   31,183,528
  Accumulated comprehensive income (loss)...........   (1,095,478)     329,445
  Treasury stock....................................  (10,851,899)  (7,621,599)
  Employee Stock Ownership Plan loan................     (151,211)    (302,422)
                                                     ------------  -----------
                                                     $ 36,328,165  $39,735,694
                                                     ============  ===========
</TABLE>

                                                                              49
<PAGE>


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

<TABLE>
<CAPTION>
                                                  Year Ended December 31,
                                             ----------------------------------
                                                1999         1998       1997
                                             -----------  ---------- ----------
<S>                                          <C>          <C>        <C>
Statement of operations
Dividends from subsidiary..................  $ 1,011,253  $1,210,525 $1,776,237
Interest income............................      170,631     259,616    308,308
                                             -----------  ---------- ----------
  Operating income.........................    1,181,884   1,470,141  2,084,545
                                             -----------  ---------- ----------
Equity in undistributed earnings of
 Kankakee Federal Savings Bank.............      948,175   1,155,542  1,195,689
Other noninterest income...................           --         400      2,641
                                             -----------  ---------- ----------
  Total other income.......................      948,175   1,155,942  1,198,330
Other expenses.............................      473,577     404,670    403,739
                                             -----------  ---------- ----------
  Income before income tax benefit.........    1,656,482   2,221,413  2,879,136
Income tax benefit.........................      103,000      67,753    132,500
                                             -----------  ---------- ----------
  Net income...............................  $ 1,759,482  $2,289,166 $3,011,636
                                             ===========  ========== ==========
Comprehensive income
Net income.................................  $ 1,759,482  $2,289,166 $3,011,636
Unrealized gain (loss) on securities
 available-for-sale arising during the
 period, net of tax of $(705,677),
 $162,880, and $291,098 in 1999, 1998 and
 1997, respectively........................   (1,425,645)    257,564    460,316
Less: Reclassification adjustment for gains
 included in net income, net of tax of
 $372, $0, and $13,228 in 1999, 1998 and
 1997, respectively........................          722          --     20,918
                                             -----------  ---------- ----------
                                              (1,424,923)    257,564    481,234
                                             -----------  ---------- ----------
  Comprehensive income.....................  $   334,559  $2,546,730 $3,492,870
                                             ===========  ========== ==========

</TABLE>

50
<PAGE>


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

<TABLE>
<CAPTION>
                                               Year Ended December 31,
                                         -------------------------------------
                                            1999         1998         1997
                                         -----------  -----------  -----------
<S>                                      <C>          <C>          <C>
Statement of cash flows
Operating activities:
  Net income............................ $ 1,759,482  $ 2,289,166  $ 3,011,636
  Adjustments to reconcile net income to
   net cash provided by operating
   activities:
    Equity in undistributed earnings of
     Kankakee Federal Savings Bank......    (948,175)  (1,155,542)  (1,195,689)
    Other...............................     (13,253)      41,956     (161,650)
                                         -----------  -----------  -----------
      Net cash provided by operating
       activities.......................     798,054    1,175,580    1,654,297
                                         -----------  -----------  -----------
Investing activities:
  Available-for-sale investment and
   mortgage backed securities:
    Purchase............................     (21,999)     (23,118)     (23,064)
    Proceeds from maturities and
     paydowns...........................          --      109,593      661,429
  Purchase of equipment.................        (579)          --           --
                                         -----------  -----------  -----------
      Net cash provided by (used in)
       investing activities.............     (22,578)      86,475      638,365
                                         -----------  -----------  -----------
Financing activities:
  Principal collected on ESOP loan......     151,211      151,211      151,211
  Purchase of treasury stock............  (3,472,591)    (346,995)  (1,790,253)
  Dividends paid to stockholders........    (633,585)    (660,558)    (676,457)
  Proceeds from exercise of stock
   options..............................     191,524      164,854      115,735
                                         -----------  -----------  -----------
      Net cash used in financing
       activities.......................  (3,763,441)    (691,488)  (2,199,764)
                                         -----------  -----------  -----------
Increase (decrease) in cash and cash
 equivalents............................  (2,987,965)     570,567       92,898
Cash and cash equivalents:
  Beginning of period...................   4,272,790    3,702,223    3,609,325
                                         -----------  -----------  -----------
  End of period......................... $ 1,284,825  $ 4,272,790  $ 3,702,223
                                         ===========  ===========  ===========
</TABLE>

                                                                              51
<PAGE>


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

Note 16. Quarterly Results of Operations (Unaudited)

<TABLE>
<CAPTION>
                                          Year Ended December 31, 1999
                                 ----------------------------------------------
                                               Three Months Ended
                                 December 31 September 30  June 30    March 31
                                 ----------- ------------ ---------- ----------
<S>                              <C>         <C>          <C>        <C>
Interest income................. $6,771,650   $6,737,789  $6,752,705 $6,638,178
Interest expense................  3,815,453    3,804,947   3,837,556  3,884,603
                                 ----------   ----------  ---------- ----------
  Net interest income...........  2,956,197    2,932,842   2,915,149  2,753,575
Provision for losses on loans...         --           --          --         --
                                 ----------   ----------  ---------- ----------
  Net interest income after
   provision for losses on
   loans........................  2,956,197    2,932,842   2,915,149  2,753,575
Other income....................    942,170      605,044     631,285    785,685
Other expense...................  3,163,023    2,964,017   2,903,529  2,869,746
                                 ----------   ----------  ---------- ----------
  Income before income taxes....    735,344      573,869     642,905    669,514
Income taxes....................    241,800      188,600     204,108    227,642
                                 ----------   ----------  ---------- ----------
  Net income.................... $  493,544   $  385,269  $  438,797 $  441,872
                                 ==========   ==========  ========== ==========
Basic earnings per share........ $     0.40   $     0.29  $     0.33 $     0.33
                                 ==========   ==========  ========== ==========
Diluted earnings per share...... $     0.38   $     0.28  $     0.31 $     0.31
                                 ==========   ==========  ========== ==========

<CAPTION>
                                          Year Ended December 31, 1998
                                 ----------------------------------------------
                                               Three Months Ended
                                 December 31 September 30  June 30    March 31
                                 ----------- ------------ ---------- ----------
<S>                              <C>         <C>          <C>        <C>
Interest income................. $6,778,534   $6,972,569  $7,034,029 $6,736,937
Interest expense................  4,077,632    4,145,011   4,050,591  3,853,223
                                 ----------   ----------  ---------- ----------
  Net interest income...........  2,700,902    2,827,558   2,983,438  2,883,714
Provision for losses on loans            --           --          --         --
                                 ----------   ----------  ---------- ----------
  Net interest income after
   provision for losses on
   loans........................  2,700,902    2,827,558   2,983,438  2,883,714
Other income....................    638,495      595,299     642,886    599,468
Other expense...................  2,809,506    2,611,673   2,720,990  2,289,378
                                 ----------   ----------  ---------- ----------
  Income before income taxes....    529,891      811,184     905,334  1,193,804
Income taxes....................    175,837      271,030     303,052    401,128
                                 ----------   ----------  ---------- ----------
  Net income.................... $  354,054   $  540,154  $  602,282 $  792,676
                                 ==========   ==========  ========== ==========
Basic earnings per share........ $     0.26   $     0.39  $     0.44 $     0.57
                                 ==========   ==========  ========== ==========
Diluted earnings per share...... $     0.24   $     0.37  $     0.41 $     0.54
                                 ==========   ==========  ========== ==========
</TABLE>

52