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SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549

_________________

FORM 10-KSB

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

| | For
the fiscal year ended December 31, 2001
| | -------------------------------------------

OR

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

| | For
the transition period from _______ to _______
| | -------------------------------------------------

| | Commission
file number 0-22800
| | ------------------------------

NORTH BANCSHARES, INC. (Exact Name of Small Business
Issuer as Specified in its Charter)

|Delaware                        | 36-3915073         
|------------------------------- | -------------------
|(State or other jurisdiction of | (I.R.S. Employer   
|incorporation or organization)  | Identification No.)

|100 W. North Avenue, Chicago, Illinois   | 60610     
|---------------------------------------- | ----------
|(Address of principal executive offices) | (Zip Code)

| | Issuer's
telephone number, including area code: (312) 664-4320
| | --------------------------------------------------------------

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

None

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

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

Check whether the Issuer
(1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act
during the past twelve months (or for such shorter period that the Issuer was required to
file such reports), and (2) has been subject to such requirements for the past 90 days.
YES [X] NO [ ]

Check if there is no
disclosure of delinquent filers in response to Item 405 of Regulation S-B contained in
this form, and no disclosure will be contained, to the best of Issuer's knowledge, in
definitive proxy or information statements incorporated by reference in Part III of this
Form 10-KSB or any amendment to this Form 10-KSB. [X]

The Issuer had $9.6
million in gross income for the year ended December 31, 2001.

As of March 1, 2002,
there were issued and outstanding 1,164,035 shares of the Issuer's Common Stock. The
aggregate market value of the voting stock held by non-affiliates of the Issuer, computed
by reference to the average of the closing bid and asked price of such stock on the
Nasdaq National Market as of March 1, 2002 was approximately $9,900,000. (The exclusion
from such amount of the market value of the shares owned by any person shall not be
deemed an admission by the Issuer that such person is an affiliate of the Issuer.)

DOCUMENTS INCORPORATED BY REFERENCE

PART II of Form 10-KSB--Portions of Annual Report to Stockholders for the
fiscal year ended December 31, 2001PART III of Form 10-KSB--Portions of Proxy Statement
for the Annual Meeting of Stockholders for the fiscal year ended December 31, 2001.

---



INDEX





PART I

PAGE



Item 1.

Description of Business

2



Item 2.

Description of Properties

24



Item 3.

Legal Proceedings

24



Item 4.

Submission of Matters to a Vote of Security Holders

24



PART II



Item 5.

Market for Registrant's Common Equity and Related

Stockholder Matters

24



Item 6.

Management's Discussion and Analysis or Plan of Operation

24



Item 7.

Financial Statements

25



Item 8.

Changes in and Disagreements with Accountants on Accounting

and Financial Disclosures

25



PART III



Item 9.

Directors, Executive Officers, Promoters and Control Person;

Compliance with Section 16 (a) of the Exchange Act

25



Item 10.

Executive Compensation

25



Item 11.

Security Ownership of Certain Beneficial Owners

and Management

25



Item 12.

Certain Relationships and Related Transactions

25



Item 13.

Exhibits and Reports on Form 8-K

26





SIGNATURES

27



1

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PART I

Item 1. Description of Business

General

North
Bancshares, Inc. (the Company or North Bancshares) is a
Delaware corporation which was organized in 1993 by North Federal Savings Bank
(North Federal or the Bank) for the purpose of becoming
the Banks holding company. The Company owns all of the capital stock of
the Bank, which was issued on December 21, 1993 in connection with the
Banks conversion from the mutual to the stock form of organization (the
Conversion). There were 1,156,774 shares of Company common stock
outstanding at December 31, 2001. The Bank was organized in 1886 and converted
to a federal mutual savings bank in 1986. The Bank amended its charter in
December 1993 in connection with the Conversion to become a federal stock
savings bank. All references to the Company, unless otherwise indicated, at or
before December 21, 1993 refer to the Bank. The Companys common stock is
quoted on The Nasdaq Stock Market under the symbol NBSI.

The Company and
the Bank are subject to comprehensive regulation, examination and supervision by
the Office of Thrift Supervision, Department of the Treasury (OTS),
and by the Federal Deposit Insurance Corporation (FDIC). The Bank is
a member of the Federal Home Loan Bank (FHLB) System and its
deposits are backed by the full faith and credit of the United States Government
and are insured by the Savings Association Insurance Fund (SAIF) to
the maximum extent permitted by the FDIC.

The Company
serves the Chicago metropolitan area through its two retail banking offices
located in Chicago and Wilmette, Illinois. The Bank has signed a letter of
intent to lease another branch facility in the Chicago market in a yet to be
constructed shopping center. Lease negotiations are currently ongoing. It is
anticipated that occupancy would occur during the last quarter of 2002 or early
in 2003. At December 31, 2001, the Company had total consolidated assets of
$136.8 million, deposits of $87.4 million, and stockholders equity of
$13.5 million.

The Company is
an independent community-oriented financial institution offering a variety of
financial services to meet the needs of the communities which it serves. The
Company attracts retail deposits from the general public, obtains brokered
deposits or borrows funds from available sources and invests those funds
primarily in first mortgages on owner-occupied and non-owner occupied one-to
four-family residences, multi-family properties, commercial real estate,
consumer loans and mortgage-backed and investment securities. The Company also
originates or acquires participations in multi-family and commercial loans.

The
Companys revenues are derived principally from interest on loans,
investments, mortgage-backed securities and income from fees and service
charges. The Companys operations are affected by general economic
conditions, competition in the Companys market area, the monetary and
fiscal policies of the federal government and the policies of various regulatory
authorities, including the OTS and the Board of Governors of the Federal Reserve
System (Federal Reserve Board). The Companys results of
operations are largely dependent upon net interest income, which is the
difference between the interest received on its loan and investment securities
portfolios and the interest paid on its deposit accounts and borrowings.

The executive
offices of the Company and the Bank are located at 100 W. North Avenue, Chicago,
Illinois 60610-1399. The telephone number at that address is (312) 664-4320. The
Bank maintains a web site at www.northfederal.com.

2

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Forward-Looking Statements

When used in
this annual Report on Form 10-KSB and in other filings with the Securities and
Exchange Commission, in press releases or other public or shareholder
communications, or in oral statements made with the approval of an authorized
executive officer, the words or phrases believe, Will likely
result, are expected to, will continue, is
anticipated, estimate, project, plans,
or similar expressions are intended to identify forward-looking
statements within the meaning of the Private Securities Litigation Reform
Act of 1995. You are cautioned not to place undue reliance on any
forward-looking statements, which speak only as of the date made. By their
nature, these statements are subject to numerous uncertainties that could cause
actual results to differ materially from those anticipated in the statements.

Important
factors that could cause actual results to differ materially from the results
anticipated or projected include, but are not limited to, the following: (1) the
credit risks of lending activities, including changes in the level and direction
of loan delinquencies and write-offs; (2) changes in managementss estimate
of the adequacy of the allowance for loan losses; (3) competitive pressures
among depository institutions; (4) interest rate movements and their impact on
customer behavior and the Companys net interest margin; (5) the impact of
repricing and competitors pricing initiatives on loan and deposit
products; (6) the Companys ability to adapt successfully to technological
changes to meet customers needs and developments in the market place; (7)
the Companys ability to access cost-effective funding; (8) changes in
financial markets and general economic conditions; (9) new legislation or
regulatory changes; (10) changes in accounting principles, policies or
guidelines.

The Company does not undertake any
obligation to update any forward-looking statement to reflect circumstances or
events that occur after the date on which the forward-looking statement is made.

Lending Activities

General.
The Banks loan portfolio consists primarily of conventional first mortgage
loans secured by one- to four-family residences, multi-family properties,
commercial real estate and consumer loans. At December 31, 2001, the Banks
gross loans outstanding totaled $94.0 million, of which $64.6 million, or 68.7%,
were one- to four-family residential mortgage loans. Of the one-to four-family
mortgage loans outstanding at that date, 81.0% were fixed-rate loans (55.7% of
total gross loans receivable), including balloon loans, and 19.0% were
adjustable-rate loans (13.1% of total gross loans receivable). At that same
date, multi-family residential mortgage loans totaled $4.1 million, all of which
were fixed-rate balloon loans. In addition, at that date, commercial real estate
and commercial loans outstanding totaled $19.5 million, of which $4.3 million
were adjustable rate and $15.2 million were fixed rate loans. The balance of the
Banks loans included $5.8 million in consumer loans, which represented
6.2% of the Banks gross loan portfolio.

The Bank also
invests in mortgage-backed securities. At December 31, 2001, mortgage-backed
securities available for sale totaled $11.7 million or 8.6% of total assets. At
such date, all of the mortgage-backed securities portfolio was insured or
guaranteed by Freddie Mac or Fannie Mae.

All loans must
be approved by a committee comprised of four officers, one of whom is a director
of the Bank. Requests for loans greater than $1,000,000 are reviewed and
considered for approval by the Board of Directors of the Bank on a case-by-case
basis.

The aggregate
amount of loans that the Bank is permitted to make under applicable federal
regulations to any one borrower, including related entities, is generally the
greater of 15% of unimpaired capital and surplus or $500,000. See
Regulation  Federal Regulation of Savings Associations. At
December 31, 2001, the maximum amount which the Bank could have lent under this
limit to any one borrower and the borrowers related entities was
approximately $2.0 million. At December 31, 2001, the Bank had no loans or groups of loans to
related borrowers with outstanding balances in excess of this amount. The
Banks largest lending relationship at December 31, 2001 consisted of four
loans to one individual totaling $1.9 million. All loans were secured by a first
mortgage on real estate. The Banks next three largest lending
relationships to a single borrower or a group of related borrowers totaled $1.7
million, $1.6 million and $1.4 million, respectively. Each of these is a loan or
group of loans secured by either a first mortgage on real estate or a first lien
on real property and each of these loans was current as of December 31, 2001.

3

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Loan
Portfolio Composition. The table below sets forth information concerning the
composition of the Banks loan and mortgage-backed securities portfolios in
dollar amounts and in percentages (before deductions for deferred fees and
discounts and allowances for losses) as of the dates indicated.

`At December 31,
                                                      --------------------------------------------------------
                                                               2001                                2000
                                                      ------------------------          ----------------------
                                                      Amount           Percent          Amount         Percent
                                                      -------          -------          -------        -------
                                                                        (Dollars in Thousands)
REAL ESTATE LOANS:
 One- to four-family............................      $64,581(1)         68.72%         $73,599          80.68%
 Multi-family...................................        4,099(2)          4.36            4,177           4.58
 Commercial.....................................       17,876(3)         19.02            9,568          10.49
                                                      -------          -------          -------        -------
    Total real estate loans.....................       86,556            92.10           87,344          95.75
                                                      -------          -------          -------        -------

CONSUMER LOANS:
 Deposit account................................          277             0.29              130           0.14
 Automobile.....................................           --             0.00               11           0.01
 Home equity and home
  improvement...................................        5,531             5.89            2,276           2.50
                                                      -------          -------          -------        -------
 Total consumer loans...........................        5,808             6.18            2,417           2.65
                                                      -------          -------          -------        -------


 COMMERCIAL LOANS...............................        1,613             1.72            1,461           1.60
                                                      -------          -------          -------        -------
 Total loans receivable.........................       93,977           100.00%          91,222         100.00%
                                                      -------          =======          -------        =======
 LESS:
 Deferred fees and discounts....................          254                               195
 Allowance for loan losses......................          298                               262
                                                      -------                           -------
   Total loans receivable, net..................      $93,425                           $90,765
                                                      =======                           =======

MORTGAGE-BACKED
SECURITIES:(4)
 Fannie Mae.....................................       $2,717            23.33%          $2,142          15.48%
 Freddie mac....................................        8,928            76.67           11,696          84.52
                                                      -------          -------          -------        -------
    Total mortgage-backed
     securities.................................       11,645           100.00%          13,838         100.00
                                                                       =======                         =======

Net premiums ...................................          109                                89
                                                      -------                           -------

Net mortgage-backed
 securities.....................................      $11,754                           $13,927
                                                      =======                           =======`

__________

(1)This amount includes a total of $2.3 million of
5, 7 and 10 year balloon loans. (2)This amount includes a total of
$4.1 million of 5, 7 and 10 year balloon loans. (3)All of these are
balloon loans.(4) Presented at amortized cost.

4

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The following table shows the
composition of the Banks loan portfolio by fixed- and adjustable-rates at
the dates indicated.

`At December 31,
                                                      --------------------------------------------------------
                                                               2001                                2000
                                                      ------------------------          ----------------------
                                                      Amount           Percent          Amount         Percent
                                                      -------          -------          -------        -------
                                                                        (Dollars in Thousands)
FIXED-RATE LOANS:
 Real estate:
  One- to four-family............................     $52,301(1)         55.65%         $56,185          61.59%
  Multi-family...................................       4,099(2)          4.36            4,177           4.58
  Commercial.....................................      13,544(3)         14.41            6,320           6.93
                                                      -------          -------          -------        -------
   Total fixed-rate real estate loans............      69,944            74.42           66,682          73.10
  Consumer.......................................         897             0.95              909           1.00
  Commercial.....................................       1,613             1.73            1,461           1.60
                                                      -------          -------          -------        -------
   Total fixed-rate loans........................      72,454            77.10           69,052          75.70
                                                      -------          -------          -------        -------

ADJUSTABLE-RATE LOANS:
 Real estate:
  One- to four-family............................      12,280            13.06           17,414          19.09
  Commercial.....................................       4,332(4)          4.61            3,248           3.56
  Consumer.......................................       4,911             5.23            1,508           1.65
                                                      -------          -------          -------        -------
   Total adjustable rate loans...................      21,523            22.90           22,170          24.30
                                                      -------          -------           ------        -------

    Total loans receivable.......................      93,977           100.00%          91,222         100.00%
                                                                       =======                         =======

LESS:
 Deferred fees and discounts.....................         254                               195
 Allowance for loan losses.......................         298                               262
                                                      -------                           -------
  Total loans receivable, net....................     $93,425                           $90,765
                                                      =======                           =======`

__________

(1) This amount includes a total of $2.3 million of 5, 7 and 10 year
balloon loans. (2) This amount includes a total of $4.1 million of 5, 7 and 10 year
balloon loans. (3) All of these are balloon loans. (4) All of these are balloon loans.

5

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The following
schedule illustrates the maturity of the Banks loan portfolio at December
31, 2001. Loans which have adjustable or renegotiable interest rates are shown
as maturing in the period during which the contract is due rather than when
interest rates are next subject to change. The schedule does not reflect the
effects of possible prepayments or enforcement of due-on-sale clauses. The total
amount of loans due after December 31, 2001 which have a pre-determined interest
rate is $72.5 million, while the amount of loans due after such date with
floating rates is $21.5 million.

`Real Estate
                                           -------------------------------------------------------------------------------
                                           One- to Four-family             Multi-family                   Commercial
                                          ----------------------     --------------------------     ----------------------
                                                        Weighted                       Weighted                   Weighted
                                                        Average                        Average                    Average
                                           Amount       Rate         Amount            Rate         Amount        Rate
                                           ------       --------     ------           ----------    ------        --------

                                                                                        (Dollars in Thousands)
        Due During Periods Ending
              December 31,
----------------------------------------

2002(1)                                       $378       7.30%     $    387             8.00%       $3,928          5.93%
2003.....................................       22       9.12           249             8.94           749          6.64
2004.....................................    1,075       7.34           657             8.03           963          7.50
2005 and 2006............................    1,098       7.40         1,730             8.11         6,235          7.80
2007 to 2011.............................    3,319       7.19         1,076             7.82         6,001          7.83
2012 to 2016.............................    5,164       7.04            --             0.00            --          0.00
2017 and following.......................   53,525       7.21           ---             0.00           ---          0.00
                                            ------       ----      --------             ----       -------          ----
                                           $64,581       7.20%       $4,099             8.06%      $17,876          7.33%
                                           =======       ====        ======             ====       =======          ====


[WIDE TABLE CONTINUED FROM ABOVE}


                                                     Consumer                    Commercial                   Total
                                              ----------------------      ------------------------     ---------------------
                                                            Weighted                    Weighted                    Weighted
                                                            Average                     Average                     Average
                                              Amount        Rate          Amount        Rate           Amount       Rate
                                              ------        --------      ------        ----------     -------      ---------
         Due During Periods Ending
              December 31,
----------------------------------------

2002(1)                                      $ 248           8.43%       $1,613          10.00%      $ 6,554          7.23%
2003.....................................      100           4.63           ---           0.00         1,120          7.02
2004.....................................      312           5.17           ---           0.00         3,007          7.32
2005 and 2006............................    4,529           4.84           ---           0.00        13,592          6.82
2007 to 2011.............................       94           7.00           ---           0.00        10,490          7.62
2012 to 2016.............................      459           8.44           ---           0.00         5,623          7.15
2017 and following.......................       66           8.25           ---           0.00        53,591          7.21
                                            ------           ----        ------          -----       -------          ----
                                            $5,808           5.37%       $1,613          10.00%      $93,977          7.20%
                                            ======           ====        ======          =====       =======          ====`

(1) Includes demand loans, loans having no stated maturity, and past due
loans.

6

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One- to Four-Family Residential Real Estate Lending

The cornerstone of the
Bank's lending program has been the origination of permanent loans, to be held in its
portfolio, secured by mortgages on owner-occupied and non-owner-occupied, one- to
four-family residences. Typically, such homes are single family detached houses,
condominiums, townhomes and two- to four-family dwellings. At December 31, 2001, $64.6
million, or 68.7%, of the Banks gross loan portfolio consisted of permanent loans secured
by one- to four-family residences compared with $73.6 million or 80.7% of the portfolio
at December 31, 2000. The decrease is primarily attributable to an emphasis on consumer
and commercial real estate lending begun in the year 2000. The Bank emphasizes the
origination of a variety of residential loans, including conventional 10, 15, 20 and 30
year fixed-rate loans, one, three and five year adjustable-rate mortgage loans ("ARMs")
and 5, 7, and 10 year fixed rate balloon loans.

The Bank's loans are
designed to respond to customer preferences, market dynamics and changes in
asset/liability management objectives. During 2001, the Bank continued to emphasize loans
on non-owner occupied, one- to four-family properties due to the higher yields offered by
such loans, as well as customer demand. These loans are underwritten using similar
criteria as loans secured by owner-occupied one- to four-family residences, but are
provided at higher rates of interest than owner-occupied loans.

The Bank offers one-to
four-family residential ARMs which are fully amortizing loans with contractual maturities
of up to 30 years. The interest rates on all of the ARMs originated by the Bank are
subject to adjustment at one year intervals after the initial adjustment period. The
Bank's ARM products generally carry interest rates which are reset to a stated margin
over an independent index. Increases or decreases in the interest rate of the Bank's ARMs
are generally limited to 2.0% at any adjustment date and 6.0% over the life of the loan.
The Bank's ARMs are not convertible into fixed-rate loans, are not assumable, do not
contain prepayment penalties and do not produce negative amortization. At December 31,
2001, the total balance of one- to four-family ARMs was $12.3 million, or 13.1% of the
Bank's gross loan portfolio.

The Bank evaluates both
the borrower's ability to make principal and interest payments and the value of the
property that will secure the loan. The Bank verifies a borrower's employment history and
the source of the down payment. The Bank underwrites one- to four-family loans in order
to satisfy secondary market requirements and is a qualified Freddie Mac seller/servicer
and is a qualified mortgage originator in the Federal Home Loan Bank of Chicago's
Mortgage Partnership Finance program. Sales of one- to four-family loans totaled $2.3
million during the year ended December 31, 2001 compared with $2.0 million during the
year ended December 31, 2000.

The Bank originates
residential mortgage loans with a loan-to-value ratio up to 90%. On mortgage loans
exceeding an 80% loan-to-value ratio at the time of origination, North Federal requires
private mortgage insurance in an amount intended to reduce the Bank's exposure to 80% of
the appraised value. Property securing a real estate loan made by North Federal is
appraised by independent appraisers. The Bank requires evidence of marketable title and
lien position on all loans secured by real property and requires hazard or fire and
extended coverage and vandalism and malicious mischief casualty insurance in amounts at
least equal to the principal amount of the loan or the value of improvements on the
property, depending on the type of loan. The Bank also requires flood insurance to
protect the property securing its interest if the property is located in a flood zone.

Residential mortgage loan
originations are derived from a number of sources, including mortgage brokers,
advertising, real estate broker referrals, existing borrowers and depositors, builders
and walk-in customers. Loan applications are accepted at both of the Bank's offices.

Multi-Family Real Estate Lending

In order to enhance the
yield on its assets, North Federal originates or purchases permanent loans secured by
multi-family real estate. At December 31, 2001, the Bank had multi-family real estate
loans totaling $4.1 million, or 4.4% of the Bank's gross loan portfolio. The largest
multi-family loan at December 31, 2001 was $387,000. At December 31, 2001, the Bank had
no multi-family real estate loans which were over 30 days delinquent.

Permanent or construction
multi-family real estate loans currently originated or purchased by the Bank have a
maximum maturity of 10 years, with most permanent loans having maturities ranging from 5
to 10 years while construction loans normally have a maturity of between nine to twelve
months. Most of the multi-family real estate loans amortize over a 25 year period. Rates
on permanent loans are fixed, based on competitive factors, with construction loan rates
normally indexed to the prime rate. Multi-family real estate loans are generally written
in amounts of up to 75% of the appraised value of the property with borrowers or
developers providing a personal guarantee in most cases.

7

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Appraisals on properties
securing multi-family loans are performed by independent appraisers designated by the
Bank at the time the loan is made. All appraisals on multi-family loans are reviewed by
the Bank's loan committee. In addition, the Bank's current underwriting procedures
require verification of the borrower's credit history, income and financial statements,
banking relationships, references and income projections for the property.

Multi-family loans
generally present a higher level of risk than loans secured by one- to four-family
residences. This greater risk is due to several factors, including the concentration of
principal in a limited number of loans and borrowers, the effects of general economic
conditions on income producing properties and the increased difficulty of evaluating and
monitoring these types of loans. Furthermore, the repayment of loans secured by
multi-family real estate is typically dependent upon the successful operation of the
related real estate project. If the cash flow from the project is reduced (for example,
if leases are not obtained or renewed, or a bankruptcy court modifies a lease term), the
borrower's ability to repay the loan may be impaired.

Commercial Real Estate Lending

In order to enhance the
yield on its assets, North Federal originates or purchases commercial real estate loans.
At December 31, 2001, the Bank had commercial real estate loans totaling $17.9 million,
or 19.0% of the Bank's gross loan portfolio compared with $9.6 million, or 10.5% of the
gross loan portfolio at December 31, 2000. The increase is primarily attributable to an
increased emphasis on commercial real estate lending begun during the year 2000 as a
result of the hiring of a commercial real estate lending officer. The largest commercial
real estate loan outstanding at December 31, 2001 was a $1.3 million ten year balloon. At
December 31, 2001, the Bank had no commercial real estate loans which were over 30 days
delinquent.

Construction or permanent
commercial real estate loans currently originated or purchased by the Bank have a variety
of maturity dates with a maximum maturity of 10 years, with most construction loans
having a maturity of nine to twelve months. Most of the permanent commercial real estate
loans amortize over a 25 year period. Rates on permanent loans are fixed, based on
competitive factors. Rates on construction loans are normally indexed to the prime rate.
Permanent commercial real estate loans are generally written in amounts of up to 75% of
the appraised value of the property and borrowers are, in most cases, personally liable
for a portion if not all of the indebtedness.

Appraisals on properties
securing commercial real estate loans are performed by independent appraisers designated
by the Bank at the time the loan is made. All appraisals on commercial real estate loans
are reviewed by the Bank's loan committee. In addition, the Bank's current underwriting
procedures require verification of the borrower's credit history, income and financial
statements, banking relationships, references and income projections for the property.

The Bank has expanded and
intends to continue to expand its commercial real estate lending activities, subject to
customer demand and the existence of qualified borrowers.

Consumer Lending

The Bank originates a
variety of different types of consumer loans, including equity loans, rehabilitation
loans, which are loans that exceed the parameters of a home improvement loan due to the
extent of the remodeling, direct automobile loans, deposit account loans, home
improvement loans and checking account overdraft protection loans. The Bank expanded its
consumer loan department and products during 2001 and plans to continue to emphasize this
type of lending during 2002, particularly home equity and rehabilitation loans, because
of their attractive yields, shorter terms to maturity, and community need. At December
31, 2001, $5.8 million or 6.2% of the Bank's gross loan portfolio, consisted of consumer
loans compared with $2.4 million or 2.7% at December 31, 2000.

The Bank's home
improvement and equity line of credit loans are underwritten such that the total
commitment amount, when combined with the first mortgage lien, may not exceed 90% of the
appraised value of the property. Loans that exceed 80% loan to value are privately
insured. These loans are written with a maximum maturity of five years and an interest
rate that adjusts with changes to the prime rate. At December 31, 2001, the Bank had $5.5
million of home improvement and line of credit loans and $5.6 million in unused credit
line commitments compared with $2.3 million of outstanding home improvement and line of
credit loans and $2.4 million in unused credit line commitments at December 31, 2000.

The underwriting
standards employed by the Bank for consumer loans include a determination of the
applicant's payment history on other debts and the ability to meet existing obligations
and payments on the proposed loan. Although creditworthiness of the applicant is of
primary consideration, the underwriting process also includes a

8

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comparison of the value of the security, if any, in relation to the
proposed loan amount. While consumer loans other than home equity loans generally involve
a higher level of credit risk than one- to four-family residential loans, consumer loans
are typically made at higher interest rates and for shorter terms. The shorter term of
consumer loans increases the interest rate sensitivity of the lending institution's
portfolio.

Consumer loans may entail
greater risk than do residential mortgage loans, particularly in the case of consumer
loans which are secured by rapidly depreciable assets, such as automobiles. In such
cases, any repossessed collateral for a defaulted consumer loan may not provide an
adequate source of repayment of the outstanding loan balance as a result of the greater
likelihood of damage, loss or depreciation. In addition, consumer loan collections are
dependent on the borrower's continuing financial stability, and thus are more likely to
be affected by adverse personal circumstances. Furthermore, the application of various
federal and state laws, including bankruptcy and insolvency laws, may limit the amount
which can be recovered on such loans. Although the Bank had no delinquent consumer loans
at December 31, 2001 there can be no assurance that delinquencies will not occur in the
future.

Commercial Lending

In order to further
enhance the yield on its assets, the Bank issued a commercial line of credit to a
manufactured housing developer to finance the period of time between the delivery of a
unit to closing. This period is usually between 60 to 90 days. The line of credit is
collateralized by a secured interest in the individual units and any related sales
contracts. In addition, the line of credit is personally guaranteed by the developer. The
loan-to-value ratio will range between 50% to 60% at any given time. At December 31,
2001, the outstanding line of credit and the balance of the line amounted to $1.6
million. The line of credit carries a fixed rate of interest on a one-year renewable
basis and was current as of December 31, 2001. The interest is paid monthly and cannot be
drawn from the line of credit. As of December 31, 2001, this commercial line of credit
represented the Bank's sole commercial lending relationship not secured by real estate.

Commercial loans
generally carry a higher rate of interest and are made for shorter periods of time than
fixed- rate or adjustable rate one- to four-family residential loans. Commercial loans
are usually larger and carry a greater degree of risk, in part because the borrower's
ability to repay the debt may be largely dependent on the cash flow from the underlying
business. The Bank analyzes the financial condition of the property and the borrower in
determining whether to extend credit, and generally requires a personal guarantee from
the borrower.

Mortgage-backed Securities

The Bank purchases
mortgage-backed securities to complement its mortgage lending activities. At December 31,
2001, mortgage-backed securities available for sale totaled $11.7 million, or 8.6% of the
Bank's total assets. For information regarding the market values of North Federal's
mortgage-backed securities portfolio, see Note 2 of the Notes to Consolidated Financial
Statements contained in the Annual Report to Stockholders filed as Exhibit 13 hereto.

Under the OTS' risk-based
capital requirements, Ginnie Mae mortgage-backed securities have a zero percent
risk-weighting and Fannie Mae, Freddie Mac and AA- or higher-rated mortgage-backed
securities have a 20% risk- weighting, in contrast to the 50% risk-weighting carried by
one- to four-family performing residential mortgage loans. None of the mortgage-backed
securities held by the Bank at December 31, 2001 had a risk-weight for regulatory capital
purposes above 20%.

All of the Bank's
mortgage-backed securities are backed by federal agencies. Accordingly, management
believes that the Bank's mortgage-backed securities are generally resistant to credit
problems.

9

---

The following table sets
forth the contractual maturities of the Bank's mortgage-backed securities at December 31,
2001. Mortgage-backed securities having adjustable interest rates are shown as maturing
in the period during which the security is repricing. Balances are shown at amortized
cost.

`Due in
                        -------------------------------------------------------------------------------------------
                          6 Months           6 Months                1 to           3 to 5           5 to 10
                             or Less         to 1 Year            3 Years            Years             Years
                        ------------        ----------       ------------       -----------       -----------
                                                            (In Thousands)
      Freddie Mac          $    ---             $111              $  1            $  --              $609

      Fannie Mae              1,083               --                --               --                --
                              -----           ------              ----             ----              ----
         Total               $1,083             $111              $  1            $  --              $609
                             ======             ====              ====            =====              ====


[WIDE TABLE CONTINUED FROM ABOVE]


                                        Due in                         December 31,
                        -----------------------------------               2001
                              10 to 20            Over 20               Balance
                                 Years              Years             Outstanding
                         ---------------      ------------            -----------
                                     (In Thousands)
      Freddie Mac               $8,305           $   --                $ 9,026

      Fannie Mae                 1,645               --                  2,728
                              -------                --                -------
         Total                  $9,950           $   --                $11,754
                                ======           ======                =======`

Loan Origination, Mortgage-Backed Securities Purchases and Sales and
Repayment Activities

The following
table shows the Banks loan originations, loan and mortgage-backed
securities purchases, sales and principal repayments for the periods indicated.
The Bank maintains an approved seller/servicer status with Freddie Mac and is a
qualified participating financial institution with the Illinois Housing
Development Authority and is a participant in the FHLB of Chicagos
Mortgage Partnership Finance program.

`Year Ended December 31,
                                                                                            ------------------------------------
                                                                                                 2001                   2000
                                                                                            -----------------      -------------
                                                                                                        (In Thousands)

Loans Receivable (Gross) At Beginning of Year......................................             $91,222                $89,385
                                                                                                -------                -------

Originations and Purchases by Type:
----------------------------------
Fixed Rate:
  Real estate - one- to four-family................................................              11,516                  2,146
                  - multi-family...................................................                 922                    919
                  - commercial.....................................................              10,701                  3,460
                  - consumer.......................................................                 665                    796
  Non-real estate - commercial.....................................................                 379                    690
                                                                                              ---------              ---------
    Total fixed rate loans originated..............................................              24,183                  8,011
Adjustable Rate:
  Real estate - one- to four-family................................................               1,965                  4,332
                  - commercial.....................................................               3,818                  2,500
                  - consumer.......................................................               5,640                  1,421
                                                                                               --------               --------
    Total adjustable rate loans originated.........................................              11,423                  8,253

  Sales............................................................................               2,339                  1,975
  Principal repayments.............................................................              30,512                 12,452
                                                                                                -------               --------
    Total loans at end of year.....................................................             $93,977                $91,222
                                                                                                =======                =======

Mortgage-backed securities (net) at beginning of year..............................             $13,580                $14,528

  Purchases........................................................................                 986                    ---
  Repayments.......................................................................             (2,254)                (1,367)
  Sales............................................................................               (924)                   (33)
 Change in unrealized gain on mortgage-
 backed securities available-for-sale..............................................                 300                    460
  Amortization of premiums (discounts).............................................                  19                    (8)
                                                                                             ----------            -----------
     Mortgage-backed securities (net) at end of Year...............................             $11,707                $13,580
                                                                                                =======                =======`

10

---

Asset Quality

When a borrower
fails to make a required payment on a loan, the Bank attempts to cure the
delinquency by contacting the borrower. In the case of residential loans, a late
notice is sent not later than 30 days after the due date. Additional written and
verbal contacts may be made with the borrower between 30 and 90 days after the
due date. If the delinquency continues for a period of 60 days after the due
date, the Bank usually sends a default letter to the borrower and, after 90 days
following the due date, institutes appropriate action to foreclose on the
property. If foreclosed upon, the property is sold at public auction and may be
purchased by the Bank. Delinquent consumer loans are handled in a similar
manner. The Banks procedures for repossession and sale of consumer
collateral are subject to various requirements under Illinois consumer
protection laws. The Bank historically has had few foreclosed assets and, as set
forth below, has had none during the five year period ended December 31, 2001.
The Bank has not charged-off any loans during the five year period ended
December 31, 2001.

Delinquent Loans. At
December 31, 2001, the Bank had no loans more than 60 days delinquent.

Non-Performing
Assets. The table below sets forth the amounts and categories of
non-performing assets in the Banks loan portfolio. Loans are placed on
non-accrual status when the collection of principal or interest becomes
doubtful. For all periods presented, the Bank has had no troubled debt
restructurings. Foreclosed assets are assets acquired in settlement of loans.
There were no foreclosed assets at the dates presented.

`December 31,
                                                                      2001           2000
                                                                 ---------------------------
                                                                         (Dollars in
                                                                           Thousands)
Non-performing loans:
  One- to four-family...........................................     $  --           $  --
                                                                 ---------------------------
     Total Non-performing Assets................................     $  --           $  --
                                                                 ===========================

Total as a Percentage of Total Assets...........................      0.00%            0.00%
                                                                 ===========================`

Other Loans
of Concern. As of December 31, 2001, there were no loans with respect to
which known information about the possible credit problems of the borrowers or
the cash flows of the security properties have caused management to have
concerns as to the ability of the borrowers to comply with present loan
repayment terms and which may result in the future inclusion of such items in
the non-performing asset categories. Management has taken this into
consideration in determining the adequacy of the allowance for losses on loans
as of December 31, 2001.

Classified
Assets. Federal regulations provide for the classification of loans and
other assets, such as debt and equity securities considered by the OTS to be of
lesser quality, as substandard, doubtful or loss. An asset is considered
substandard if it is inadequately protected by the current net worth and paying
capacity of the obligor or of the collateral pledged, if any. Substandard assets
include those characterized by the distinct possibility that the insured
institution will sustain some loss if the deficiencies are not corrected. Assets
classified as doubtful have all of the weaknesses inherent in those classified
substandard, with the added characteristic that the weaknesses present make
collection or liquidation in full, on the basis of currently existing facts,
conditions, and values, highly questionable and improbable. Assets classified as
loss are those considered uncollectible and of such little value that their
continuance as assets without the establishment of a specific loss reserve is
not warranted.

When an insured
institution classifies problem assets as either substandard or doubtful, it may
establish general allowances for loan losses in an amount deemed prudent by
management. General allowances represent loss allowances which have been
established to recognize the inherent risk associated with lending activities,
but which, unlike specific allowances, have not been allocated to particular
problem assets. When an insured institution classifies problem assets as
loss, it is required either to establish a specific allowance for
losses equal to 100% of that portion of the asset so classified or to charge off
such amount. An institutions determination as to the classification of its
assets and the amount of its valuation allowances is subject to review by the
OTS and the FDIC, which may order additional general or specific loss
allowances.

In connection
with the filing of its periodic reports with the OTS and in accordance with its
classification of assets policy, the Bank regularly reviews the problem assets
in its portfolio to determine whether any assets require classification in
accordance with applicable regulations. There were no classified assets at
December 31, 2001.

11

---

Allowance for
Loan Losses. The allowance for loan losses is established through a
provision for loan losses based on managements evaluation of probable
incurred losses in its loan portfolio. This evaluation, which includes a review
of all loans for which full collectibility may not be reasonably assured,
considers among other matters, the estimated fair value of the underlying
collateral, economic conditions, historical loan loss experience and other
factors that warrant recognition in providing for an adequate loan loss
allowance. Allowances also are established for loans considered to be impaired.
The calculation of allowance levels for impaired loans is based upon the
discounted present value of expected cash flows received from the debtor or
other measures of value such as market prices or collateral values. Although
management believes it uses the best information available to make such
determinations, future adjustments to the allowance may be necessary, and net
income could be significantly affected, if circumstances differ substantially
from the assumptions used in making the initial determinations. See Notes 1 and
3 of the Notes to Consolidated Financial Statements contained in the Annual
Report to Stockholders filed as Exhibit 13 hereto, and Regulation.
At December 31, 2001, the Bank had an allowance for loan losses of $298,000,
which was equal to .32% of loans receivable.

The following
table sets forth an analysis of the Banks allowance for loan losses.

`Year Ended
                                                                                              December 31,
                                                                                           2001         2000
                                                                                           ----         ----
                                                                                              (Dollars in
                                                                                               Thousands)

Balance at beginning of year......................................................         $262         $231

Charge-offs:
  One- to four-family.............................................................          ---          ---
  Consumer........................................................................          ---          ---
  Commercial real estate..........................................................          ---          ---

Recoveries........................................................................          ---          ---
                                                                                        -------      -------

Net charge-offs...................................................................          ---          ---
Additions charged to operations...................................................           36           31
                                                                                         ------      -------
Balance at end of year............................................................         $298         $262
                                                                                           ====         ====`

Once the Bank repossesses
property it is classified as real estate owned. Any gains or losses (realized or
reserved for) are treated as real estate owned activity. The Bank had no real
estate owned as of the dates presented.

12

---

The distribution of the
Banks allowance for loan losses at the dates indicated is summarized as
follows:

`At December 31,
                                                 Balance     Allowance

                                                (Dollars in Thousands)

REAL ESTATE LOANS
 One-to four family                              $64,581       $167
 Multi Family                                      4,099         13
 Commercial                                       17,876         96
                                                 -------       ----
   Total Real estate loans                        86,556        276
                                                 -------       ----

CONSUMER LOANS
 Deposit account                                     277          0
 Automobile                                           --         --
 Home equity and home improvement                  5,531         14
                                                 -------       ----
   Total consumer loans                            5,808         14
                                                 -------       ----

COMMERCIAL LOANS                                   1,613          8
                                                 -------       ----

  Total loans receivable                         $93,977       $298
                                                 -------       ----`

The allowance for loan losses
at December 31, 2000 was unallocated. Due to the issuance of Staff Accounting
Bulletin 102, management developed a methodology based on estimated fair value
of the underlying collateral, economic conditions, historical loan loss
experience and other factors.

Investment Activities

North Federal must maintain
minimum levels of investments that qualify as liquid assets under OTS
regulations. Liquidity may increase or decrease depending upon the availability
of funds and comparative yields on investments in relation to the return on
loans. Historically, the Bank has maintained liquid assets at levels
significantly above the minimum requirements imposed by the OTS regulations and
above levels believed adequate to meet the requirements of normal operations,
including potential deposit outflows. Cash flow projections are regularly
reviewed and updated to ensure that adequate liquidity is maintained. See
Regulation - Liquidity.

Federally chartered savings
institutions have the authority to invest in various types of liquid assets,
including United States Treasury obligations, securities of various federal
agencies, certain certificates of deposit of insured banks and savings
institutions, certain bankers acceptances, repurchase agreements and federal
funds. Subject to various restrictions, federally chartered savings institutions
may also invest their assets in commercial paper, investment grade corporate
debt securities and mutual funds whose assets conform to the investments that a
federally chartered savings institution is otherwise authorized to make
directly.

Generally, the investment
policy of the Bank is to invest funds among various categories of investments
and maturities based upon the Banks asset/liability and interest rate risk
management policies, concern for the highest investment quality, liquidity needs
and performance objectives.

At December 31, 2001, the
Companys interest-bearing deposits with banks and dollar denominated money
market accounts totaled $3.5 million, or 2.6% of total assets. Investment
securities, consisting of U.S. government securities, federal agency obligations
and FHLB stock, totaled $9.8 million, or 7.2% of total assets, and investment in
federal funds sold totaled $14.7 million or 10.7% of total assets. The decrease
in investment securities and the increase in federal funds was due primarily to
investment securities called prior to maturity and the funds had not been
reinvested into longer-term securities or loans at December 31, 2001. It is the
Companys general policy to purchase securities which are U.S. Government
securities or federal agency obliga tions. At December 31, 2001, the weighted
average term to maturity or repricing of the investment portfolio, excluding
FHLB stock, was one month.

13

---

The following
table sets forth the composition of the Companys securities portfolio,
excluding its mortgage-backed securities, at the dates indicated.

`At December 31,
                                                                            ----------------------------------------------------------------------
                                                                                          2001                               2000
                                                                            ----------------------------------  ----------------------------------
                                                                              Carrying              % of           Carrying           % of
                                                                                Value             Total               Value           Total
                                                                            ------------       -----------         ----------      ----------
                                                                                                    (Dollars in Thousands)
Securities:
  U.S. Government agency securities.....................................         $7,013            71.44%             $16,916          89.66%
  FHLB stock............................................................          2,770            28.22                1,905          10.10
  Other.................................................................             33             0.34                   45           0.24
  Equity Securities.....................................................            ---              ---                  ---            ---
                                                                                 ------           ------              -------         ------
    Total Securities and FHLB Stock.....................................         $9,816           100.00%             $18,866         100.00%
                                                                                 ======           ======              =======         ======

Other Interest-Earning Assets:
  Interest-bearing deposits with banks..................................        $ 2,446                               $ 2,006
  Dollar denominated mutual funds.......................................          1,098                                   903
  Federal Funds Sold ...................................................         14,697                                 4,245
                                                                               --------                               -------
     Total..............................................................       $ 18,241                               $ 7,154
                                                                               ========                               =======

Average remaining life or term to repricing of
securities and other interest-earning
assets, excluding  FHLB stock and equity securities.....................               1 mos.                             1 mos.`

The composition
and contractual maturities of the securities portfolio, excluding FHLB of
Chicago stock, are indicated in the following table.

`At December 31, 2001
                                                 ----------------------------------------------------------------
                                                                                                   Total
                                                  One Year      1 thru 5       Over 5            Investment
                                                  Or Less         Years         Years            Securities
                                                 ---------     ---------      ---------     ---------------------
                                                 Amortized     Amortized      Amortized     Amortized     Fair
                                                   Cost           Cost          Cost           Cost       Value
                                                 ---------     ---------      ---------     ---------   ---------
                                                                       (Dollars in Thousands)

U.S. Government agency securities............       $ --         $  --         $7,000        $7,000      $7,013
OTHER........................................         63            --             --            63          33
                                                 ---------     ---------      ---------     ---------   ---------
    Total Securities.........................       $ 63            --         $7,000        $7,063       7,046
                                                 ---------     ---------      ---------     ---------   ---------
Weighted Average Yield(1)....................       9.00%         0.00%          6.67%         6.69%
                                                 =========     =========      =========     =========`

__________

(1) The weighted average yield is based upon the
interest rate in effect at December 31, 2001.

Sources of Funds

General.
The Banks primary sources of funds are deposits, both retail and brokered,
borrowings, amortization and prepayments of loan principal, maturities and sales
of investment securities, short-term investments and funds provided from
operations.

Deposits.
North Federal offers a variety of deposit accounts having a wide range of
interest rates and terms. The Banks deposits consist of passbook accounts,
NOW and non-interest-bearing checking accounts, money market accounts and
certificate accounts. The Bank relies primarily on advertising, competitive
pricing policies and customer service to attract and retain these deposits.

The flow of
deposits is influenced significantly by general economic conditions, changes in
money market and prevailing interest rates and competition.

The variety of
deposit accounts offered by the Bank has allowed it to be competitive in
obtaining funds and to respond with flexibility to changes in consumer demand.
The Bank has become more susceptible to short-term

14

---

fluctuations in deposit flows, as customers have become more
interest rate conscious. The Bank manages the pricing of its deposits in keeping
with its asset/liability and interest rate risk management, profitability and
growth objectives and has traditionally attempted to retain longer term deposits
for asset/liability and interest rate risk management purposes. Based on its
experience, the Bank believes that its passbook, MMDA, NOW and
non-interest-bearing checking accounts are relatively stable sources of
deposits. However, the ability of the Bank to attract and maintain certificates
of deposit, and the rates paid on these deposits, has been and will continue to
be significantly affected by market conditions. During the year 2001, the Bank
obtained $10.4 million in certificates of deposit by using deposit brokers and
repaid $7.6 million in matured brokered certificates of deposit. The deposits
were used to fund lending and were priced at more attractive rates than could be
obtained locally.

The following
table sets forth the dollar amount of savings deposits in the various types of
deposit programs offered by the Bank during the dates indicated and the rates
offered as of December 31, 2001.

`At December 31,
                                                  -------------------------------------------------------
                                                              2001                          2000
                                                  ------------------------------------------------------
                                                                   Percent                      Percent
                                                     Amount        of Total         Amount      of Total
                                                  ------------------------------------------------------
                                                                    (Dollars in Thousands)
Transaction and Savings Deposits:
--------------------------------

Passbook Accounts 2.00%.........................    $11,646          13.3%         $12,483        15.3%
NOW Accounts 1.25%..............................      8,278           9.5            8,478         10.4
Non-Interest Bearing Demand Accounts............      4,484           5.1            3,153          3.9
Money Market Deposit Accounts 0.00% -2.78%......     18,024          20.6           15,934         19.6
                                                    -------         -----          -------        -----

Total Non-Certificates..........................     42,432          48.5           40,048         49.2
                                                    -------         -----          -------        -----

Total Certificates:
---------------------

 0.00 -  4.99%..................................     17,032          19.5            2,244          2.8
 5.00 -  5.99%..................................     20,588          23.5           20,017         24.6
 6.00 -  6.99%..................................      6,861           7.8           14,335         17.6
 7.00 -  7.99%..................................        199           0.2            4,363          5.4
 8.00 -  8.99%..................................        336           0.5              310          0.4
                                                    -------         -----          -------        -----

Total Certificates..............................     45,016          51.5           41,269         50.8
                                                    -------         -----          -------        -----
Total Deposits..................................    $87,448         100.0%         $81,317        100.0%
                                                    =======         =====          =======        =====`

The following
table sets forth the savings flows at the Bank during the years indicated.

`Year Ended December 31,
                                                        ---------------------------------------

                                                              2001                       2000
                                                        ---------------------------------------
                                                                  (Dollars in Thousands)

Opening balance.................................            $ 81,317                  $ 76,506
Deposits........................................             161,761                   150,074
Withdrawals.....................................             159,236                   148,843
Interest Credited...............................               3,606                     3,580
                                                            --------                  --------
Ending Balance..................................            $ 87,448                  $ 81,317
                                                            ========                  ========

Net Increase ...................................            $  6,131                  $  4,811
                                                            ========                  ========

Percent Increase ...............................                7.54%                     6.29%
                                                             =======                  ========`

15

---

The following table
shows rate and maturity information for the Banks certificates of deposit
as of December 31, 2001.

`0.00-        5.00-        6.00-         7.00-      8.00% or                Percent
                                              4.99%        5.99%        6.99%         7.99%      Greater      Total      of Total
                                           --------     --------     --------      --------    ---------   --------    ----------
                                                                           (Dollars in Thousands)
Certificate accounts maturing
in quarter ending:
----------------------------

March 31, 2002..........................    $ 3,279      $ 3,209       $  488         $138         $ 32      $ 7,146       15.88%
June 30, 2002...........................      4,524          945          327          ---          ---        5,796       12.88
September 30, 2002......................      3,564          739        1,047           20           69        5,439       12.08
December 31, 2002.......................      2,000          255          253           41           52        2,601        5.78
March 31, 2003..........................      1,804          361          341          ---           13        2,519        5.60
June 30, 2003...........................        540        3,187           87          ---          ---        3,814        8.47
September 30, 2003......................        327          398           37          ---          ---          762        1.69
December 31, 2003.......................        232          299           47          ---          ---          578        1.28
March 31, 2004..........................         81          608            8          ---          ---          697        1.55
June 30, 2004...........................        104        2,675          ---          ---          ---        2,779        6.17
September 30, 2004......................         59          154          ---          ---          ---          213        0.47
December 31, 2004.......................         92          374          179          ---          ---          645        1.43
Thereafter..............................        426        7,384        4,047          ---          170       12,027       26.72
                                            -------      -------      -------      -------      -------      -------     -------
   Total................................    $17,032      $20,588       $6,861         $199         $336      $45,016      100.00%
                                            =======      =======      =======      =======      =======      =======     =======
   Percent of Total.....................      37.84%       45.73%       15.24%        0.44%        0.75%      100.00%
                                            =======      =======      =======      =======      =======      =======`

The following
table indicates the amount of the Banks certificates of deposit by time
remaining until maturity as of December 31, 2001.

`Maturity
                                                ------------------------------------------------------
                                                                  Over         Over
                                                  3 Months       3 to 6       6 to 12        Over
                                                   or Less       Months       Months       12 Months        Total
                                                ------------   ----------   -----------  -------------   -----------
                                                                          (In Thousands)
Certificates of deposit of less than
 $100,000...................................       $6,141        $4,799        $6,383       $11,710        $29,033

Certificates of deposit of $100,000
 or greater.................................        1,005           997         1,657        12,324         15,983
                                                  -------       -------       -------       -------        -------

Total certificates of deposit...............       $7,146        $5,796        $8,040       $24,034        $45,016
                                                  =======       =======       =======       =======        =======`

Borrowings

Although
deposits are the Banks primary source of funds, the Banks policy has
been to utilize borrowings, such as advances from the FHLB of Chicago, when they
are a less costly source of funds or can be invested at a positive rate of
return.

The Bank obtains
advances from the FHLB of Chicago secured by its shares of the capital stock of
the FHLB of Chicago and by certain of the Banks mortgage loans. Such
advances are made pursuant to several different credit programs, each of which
has its own interest rate and range of maturities. The maximum amount that the
FHLB of Chicago will advance to member institutions, including the Bank, for
purposes other than meeting withdrawals, fluctuates from time to time in
accordance with the policies of the OTS and the FHLB of Chicago. The maximum
amount of FHLB of Chicago advances to a member institution generally is reduced
by borrowings from any other source. At December 31, 2001, the Banks FHLB
of Chicago advances totaled $31.8 million compared with $38.1 million at
December 31, 2000. The decrease was primarily attributable to the repayment of
higher cost short term FHLB advances.

16

---

During fiscal
2000, the Company obtained a $500,000 unsecured line of credit from an unrelated
financial institution. The purpose of the loan was to fund stock repurchases and
for general corporate purposes. The line of credit renews on an annual basis.
The loan provides for an interest rate, which the Bank selects, of either the
prime rate or 225 basis points over three month LIBOR. The loan requires
quarterly payments of accrued interest and one payment of all outstanding
principal plus accrued interest on February 26, 2002, which was paid ahead of
time. The financing agreements contain covenants that require the Company to
provide quarterly financial information and require the Bank to maintain a
well capitalized regulatory capital level. At December 31, 2001,
there was no outstanding balance in the line of credit and the Company was in
compliance with all the terms of the financing agreement.

The following table sets forth
certain information regarding borrowings at and for the dates indicated:

`At and For the Years Ended
                                                                  --------------------------
                                                                        December 31,
                                                                        ------------
                                                                   2001               2000
                                                              ---------------------------------
                                                                   (Dollars in Thousands)


Average balance outstanding.................................     $ 37,858           $ 37,824
Maximum amount outstanding at any month
         end during the year................................       39,100             41,100
Balance outstanding at end of year..........................       31,750             38,200
Weighted average interest rate during the
         year...............................................        5.74%              5.94%
Weighted average interest rate at end of
         year...............................................        5.36%              6.05%`

Subsidiary and Other Activities

As a federally
chartered savings bank, North Federal is permitted by OTS regulations to invest
up to 2% of its assets in the stock of, or unsecured loans to, service
corporation subsidiaries. North Federal may invest an additional 1% of its
assets in service corporations where such additional funds are used for
inner-city or community development purposes.

At December 31,
2001, North Federal had one active subsidiary, North Financial Corporation,
which provides general insurance services to the customers of the Bank. The
Banks investment in its subsidiary was $14,564 at December 31, 2001. For
the year ended December 31, 2001, North Financial Corporation had net
income of $1,315.

17

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SUPERVISION AND REGULATION

General

North Federal is
a federally chartered savings bank, the deposits of which are federally insured
and backed by the full faith and credit of the United States Government.
Accordingly, the Bank is subject to broad federal regulation and oversight
extending to all its operations. The Bank is a member of the FHLB of Chicago and
is subject to certain limited regulation by the Federal Reserve Board. As the
savings and loan holding company of North Federal, the Company also is subject
to federal regulation and oversight.

Federal Regulation of Savings Associations

The OTS has
extensive authority over the operations of savings associations. As part of this
authority, North Federal is required to file periodic reports with the OTS and
is subject to periodic examinations by the OTS and the FDIC. The last regular
OTS and FDIC examinations of North Federal were as of June 30, 2001 and November
10, 1990, respectively. Under agency scheduling guidelines, it is likely that
another examination will be initiated in the near future. When examinations are
conducted by the OTS and the FDIC, the examiners may require an association to
provide for higher general or specific loan loss reserves. All savings
associations are subject to a semi-annual assessment, based upon the savings
associations total assets, to fund the operations of the OTS.

The OTS also has
extensive enforcement authority over all savings institutions and their holding
companies, including the Bank and the Company. This enforcement authority
includes, among other things, the ability to assess civil money penalties, to
issue cease-and-desist or removal orders and to initiate injunctive actions.

The Banks
general permissible lending limit for loans-to-one-borrower is equal to the
greater of $500,000 or 15% of unimpaired capital and surplus (except for loans
fully secured by certain readily marketable collateral, in which case this limit
is increased to 25% of unimpaired capital and surplus). At December 31, 2001,
the Banks lending limit under this restriction was $2.0 million. North
Federal was in compliance with the loans-to-one-borrower limitation as of that
date.

Insurance of Accounts and Regulation by the FDIC

As insurer, the
FDIC imposes deposit insurance premiums and is authorized to conduct
examinations of and to require reporting by FDIC-insured institutions. It also
may prohibit any FDIC-insured institution from engaging in any activity the FDIC
determines by regulation or order to pose a serious risk to the Savings
Association Insurance Fund (SAIF) or the Bank Insurance fund
(BIF). The FDIC also has the authority to initiate enforcement
actions against savings associations, after giving the OTS an opportunity to
take action, and may terminate deposit insurance if it determines that the
institution has engaged in unsafe or unsound practices or is in an unsafe or
unsound condition.

The FDICs
deposit insurance premiums are assessed through a risk-based system under which
all insured depository institutions are placed into one of nine categories and
assessed insurance premiums based upon their level of capital and supervisory
evaluation. Under the system, institutions classified as well capitalized
(i.e., a core capital ratio of at least 5%, a ratio of Tier 1 or core
capital to risk-weighted assets (Tier 1 risk-based capital) of at
least 6% and a risk-based capital ratio of at least 10%) and considered healthy
pay the lowest premium while institutions that are less than adequately
capitalized (i.e., core or Tier 1 risk-based capital ratios of less than
4% or a risk-based capital ratio of less than 8%) and considered of substantial
supervisory concern pay the highest premium. Risk classification of all insured
institutions will be made by the FDIC for each semi-annual assessment period. At
December 31, 2001, the Bank was classified as a well-capitalized institution.
During the year ended December 31, 2001, the Bank was not assessed a deposit
insurance premium.

SAIF-insured
institutions are also required to pay an assessment for the repayment of
interest on obligations issued by a federally chartered corporation to provide
financing (FICO) for resolving the thrift crisis in the 1980s.
These FICO assessments are addition to amounts assesses by the FDIC for deposit
insurance. Between January 1, 2000, and the final maturity of the outstanding
FICO obligations in 2019, BIF members and SAIF members will share the cost of
the interest on the FICO bonds on a pro rata basis. During the year ended
December 31, 2001, the FICO assessment rate for SAIF members ranged between
approximately 2.1 basis points of deposits and approximately 5.9 basis points of
deposits, while the FICO assessment rate for BIF members ranged between approximately
1.2 basis points of deposits and approximately 2.1 basis points of deposits. During
the year ended December 31, 2001, the Bank paid FICO assessments totaling approximately
$15,700.

18

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Regulatory Capital Requirements

All federally
insured savings institutions are required to maintain minimum levels of capital,
including a tangible capital level, a leverage ratio (or core capital level) and
a risk-based capital level. The OTS is also authorized to impose capital
requirements in excess of these standards on individual associations on a
case-by-case basis.

The capital
regulations require tangible capital of at least 1.5% of adjusted total assets
(as defined by regulation). At December 31, 2001, the Bank had tangible capital
of $12.9 million, or 9.5% of adjusted total assets, which is approximately $10.8
million above the minimum requirement of 1.5% of adjusted total assets in effect
on that date.

The capital
standards also require core capital equal to 4% of adjusted total assets,
depending on an institutions supervisory rating. Core capital generally
consists of tangible capital plus certain intangible assets. At December 31,
2001, North Federal had core capital equal to $12.9 million, or 9.5% of adjusted
total assets, which was $7.4 million above the minimum leverage ratio
requirement of 4.0% as in effect on that date.

The OTS risk-based requirement
requires savings associations to have total capital of at least 8% of
risk-weighted assets. Total capital consists of core capital, as defined above,
and supplementary capital. Supplementary capital consists of certain permanent
and maturing capital instruments that do not qualify as core capital and general
valuation loan and lease loss allowances up to a maximum of 1.25% of
risk-weighted assets. Supplementary capital may be used to satisfy the
risk-based requirement only to the extent of core capital.

Certain
exclusions from capital and assets are required to be made for the purpose of
calculating total capital. Such exclusions consist of equity investments (as
defined by regulation) and that portion of land loans and nonresidential
construction loans in excess of an 80% loan-to-value ratio and reciprocal
holdings of qualifying capital instruments. North Federal had no such exclusions
from capital and assets at December 31, 2001.

In determining
the amount of risk-weighted assets, all assets, including certain off-balance
sheet items, will be multiplied by a risk weight, ranging from 0% to 100%, based
on the risk inherent in the type of asset. For example, the OTS has assigned a
risk weight of 50% for prudently underwritten permanent one- to four-family
first lien mortgage loans not more than 90 days delinquent and having a loan to
value ratio of not more than 80% at origination unless insured to such ratio by
an insurer approved by Fannie Mae or Freddie Mac.

On December 31,
2001, North Federal had total capital of $13.2 million (including $12.9 million
in core capital and $298,000 in qualifying supplementary capital) and
risk-weighted assets of $66.1 million or total capital of 19.9% of risk-weighted
assets. This amount was $7.9 million above the 8.0% requirement in effect on
that date.

The OTS is also
authorized to impose capital requirements in excess of these standards on
individual associations on a case-by-case basis. Submission of a capital
restoration plan and various limitations on an institutions growth and
operation may be imposed. In severe cases, the FDIC or the OTS may appoint a
conservator or receiver for the institution. The OTS is also generally
authorized to reclassify an institution into a lower capital category and impose
the restrictions applicable to such category if the institution is engaged in
unsafe or unsound practices or is in an unsafe or unsound condition.

The imposition
by the OTS or the FDIC of any of these measures on North Federal may have a
material adverse effect on the Banks operations and profitability. The
Companys shareholders do not have preemptive rights, and therefore, if the
Company is directed by the OTS or the FDIC to issue additional shares of Common
Stock, such issuance may result in the dilution in the percentage of ownership
of the Company.

Limitations on Dividends and Other Capital Distributions

OTS regulations
impose various restrictions on savings associations with respect to their
ability to make distributions of capital, which include dividends, stock
redemptions or repurchases, cash-out mergers and other transactions charged to
the capital account. OTS regulations also prohibit a savings association from
declaring or paying any dividends or from repurchasing any of its stock if, as a
result, the regulatory capital of the association would be reduced below the
amount required to be maintained for the liquidation account established in
connection with its mutual to stock conversion.

19

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Accounting

An OTS policy
statement applicable to all savings associations requires that the investment
activities of a savings institution comply with approved and documented
investment policies and strategies, and be accounted for in accordance with
generally accepted accounting principles. Under the policy statement, management
must support its classification of and accounting for loans and securities
(i.e., whether held for investment, sale or trading) with appropriate
documentation. North Federal is in compliance with these amended rules.

OTS accounting
regulations, which may be made more stringent than Generally Accepted Accounting
Principles, require that transactions be reported in a manner that best reflects
their underlying economic substance and inherent risk and that financial reports
must incorporate any other accounting regulations or orders prescribed by the
OTS.

Qualified Thrift Lender Test

All savings
institutions are required to meet a qualified thrift lender (QTL)
test to avoid certain restrictions on their operations. This test requires a
savings institution to have at least 65% of its portfolio assets (as defined by
regulation) in qualified thrift investments on a monthly average for nine out of
every 12 months on a rolling basis. As an alternative, the savings institution
may maintain 60% of its assets in those assets specified in Section 7701 (a)
(19) of the Internal Revenue Code. Under either test, these assets primarily
consist of residential housing related loans and investments. At December 31,
2001, the Bank met the test and has always met the test since its effectiveness.

Any savings
institution that fails to meet the QTL test must convert to a national bank
charter, unless it requalifies as a QTL and remains a QTL. If an institution
does not requalify and converts to a national bank charter, it must remain
SAIF-insured until the FDIC permits it to transfer to the BIF. If such an
institution has not yet requalified or converted to a national bank, its new
investments and activities are limited to those permissible for both a savings
institution and a national bank, and it is limited to national bank branching
rights in its home state. In addition, the institution is immediately ineligible
to receive any new FHLB borrowings and is subject to national bank limits for
payment of dividends. If the institution has not requalified or converted to a
national bank within three years after the failure, it must get rid of all
investments and stop all activities not permissible for a national bank. In
addition, it must repay promptly any outstanding FHLB borrowings, which may
result in prepayment penalties. If any institution that fails the QTL test is
controlled by a holding company, then within one year after the failure, the
holding company must register as a bank holding company and become subject to
all restrictions on bank holding companies. See - Holding Company
Regulation.

Community Reinvestment Act

Under the
Community Reinvestment Act (CRA), every FDIC insured institution has
a continuing and affirmative obligation consistent with safe and sound banking
practices to help meet the credit needs of its entire community, including low
and moderate income neighborhoods. The CRA requires the OTS, in connection with
the examination of North Federal, to assess the institutions record of
meeting the credit needs of its community and to take this record into account
in its evaluation of certain applications, such as a merger or the establishment
of a branch, by the Bank. An unsatisfactory rating may be used as the basis for
the denial of an application by the OTS. The Bank received a satisfactory CRA
rating on its most recent CRA compliance examination.

Holding Company Regulation

The Company is a
unitary savings and loan holding company subject to regulatory oversight by the
OTS. The Company is required to register and file reports with the OTS and is
subject to regulation and examination by the OTS. In addition, the OTS has
enforcement authority over the Company and its non-savings association
subsidiaries which also permits the OTS to restrict or prohibit activities that
are determined to be a serious risk to the subsidiary savings association.

As a unitary
savings and loan holding company, the Company generally is not subject to
activity restrictions. If the Company acquires control of another savings
association as a separate subsidiary, it would become a multiple savings and
loan holding company, and the activities of the Company and any of its
subsidiaries (other than North Federal or any other SAIF-insured savings
association) would generally become subject to additional restrictions.

20

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If North Federal
fails the QTL test, within one year, the Company must register as, and will
become subject to, the significant restrictions applicable to bank holding
companies.

Federal Securities Law

The Common Stock
of the Company is registered with the SEC under the Securities Exchange Act of
1934, as amended (the Exchange Act). The Company is subject to the
information, proxy solicitation, insider trading restrictions and other
requirements of the SEC under the Exchange Act.

Company stock
held by persons who are affiliates (generally executive officers, directors and
10% or more stockholders) of the Company may not be resold without registration
or unless sold in accordance with certain resale restrictions. If the Company
meets specified current public information requirements, each affiliate of the
Company is able to sell in the public market, without registration, a limited
number of shares in any three-month period.

Federal Reserve System

The Federal
Reserve Board requires all depository institutions to maintain non-interest
bearing reserves at specified levels against their transaction accounts
(primarily checking, NOW and Super NOW checking accounts).

Savings
institutions are authorized to borrow from the Federal Reserve Bank
discount window, but Federal Reserve Board regulations require
institutions to exhaust other reasonable alternative sources of funds, including
FHLB borrowings, before borrowing from the Federal Reserve Bank.

Federal Home Loan Bank System

North Federal is
a member of the FHLB of Chicago, which is one of 12 regional FHLBs that
administers the home financing credit function of savings institutions. Each
FHLB serves as a reserve or central bank for its members within its assigned
region. It makes loans to members (i.e., advances) in accordance with
policies and procedures, established by the board of directors of the FHLB,
which are subject to the oversight of the Federal Housing Finance Board. All
advances from the FHLB are required to be fully secured by sufficient collateral
as determined by the FHLB. In addition, all long-term advances must be used to
provide funds for residential home financing.

As a member,
North Federal is required to purchase and maintain stock in the FHLB of Chicago.
At December 31, 2001, the Bank had $2.8 million in FHLB stock, which was in
compliance with this requirement.

For the year
ended December 31, 2001, dividends paid by the FHLB of Chicago to North Federal
totaled $150,000. The $42,000 dividend received for the quarter ended
December 31, 2001 reflects an annualized rate of 5.75%.

Federal and State Taxation

Federal Taxation

General. The
following is a discussion of material tax matters and does not purport to be a
comprehensive description of the tax rules applicable to the Bank or the
Company. The Company and Bank have not been audited by the IRS during the last
12 years. For federal income tax purposes, the Company and the Bank file
consolidated income tax returns and report their income on a calendar year basis
using the accrual method of accounting and are subject to federal income
taxation in the same manner as other corporations with some exceptions, such as
the Banks tax reserve for bad debts, discussed below.

Tax Legislation Regarding Tax Bad Debt Reserves

Prior to the
enactment, on August 20, 1996, of the Small Business Job Protection Act of 1996
(the Small Business Act), for federal income tax purposes, thrift
institutions such as the Bank, which met certain definitional tests primarily
relating to their assets and nature of their business, were permitted to
establish tax reserves for bad debts and to make annual additions thereto, which
additions could, within specified limitations, be deducted in arriving at their
taxable income. The Banks deduction with respect to qualifying
loans, which are generally loans secured by certain interests in real
property, could be computed using the Experience Method which would
be the greater of an amount based on a six-year moving average of the
Banks actual loss experience or an amount which would increase the
Banks reserve for losses on qualifying real property loans to the base
year percentage, or a percentage equal to 8.0% of the Banks taxable income
(the PTI Method), computed without regard to this deduction and with
additional modifications and reduced by the amount of any permitted addition to
the non-qualifying reserve.

21

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Under the Small
Business Act, the PTI Method was repealed and the Bank has been required to use
the Experience Method of computing additions to its bad debt reserve for taxable
years beginning with the Banks taxable year beginning January 1, 1996. In
addition, the Bank is required to recapture (i.e., take into taxable income)
over six-year period, beginning with the Banks taxable year beginning
January 1, 1996, the excess of the balance of its bad debt reserves (other than
the supplemental reserve) as of December 31, 1995 over the greater of (a) its
base year reserve, i.e., the balance of such reserves as of December
31, 1987 or (b) an amount that would have been the balance of such reserves as
of December 31, 1995 had the Bank always computed the additions to its reserves
using the Experience Method. However, under the Small Business Act such
recapture requirements will be suspended for each of the two successive taxable
years beginning January 1, 1996 in which the Bank originates a minimum amount of
certain residential loans during such years that is not less than the average of
the principal amounts of such loans made by the Bank during its six taxable
years preceding January 1, 1996.

Distributions.
To the extent that the Bank makes nondividend distributions to
shareholders, such distributions will be considered to result in distributions
from the Banks base year reserve to the extent thereof and then from its
supplemental reserve for losses on loans, and an amount based on the amount
distributed will be included in the Banks taxable income. Nondividend
distributions include distributions in excess of the Banks current and
accumulated earnings and profits, distributions in redemption of stock and
distributions in partial or complete liquidation. However, dividends paid out of
the Associations current or accumulated earnings and profits, as
calculated for federal income tax purposes, will not constitute nondividend
distributions and, therefore, will not be included in the Banks income.

The amount of
additional taxable income created from a nondividend distribution is equal to
the lesser of the Banks base year reserve and supplemental reserve for
losses on loans; or an amount that, when reduced by the tax attributable to the
income, is equal to the amount of the distribution. Thus, approximately one and
one-half times the nondividend distribution would be includable in gross income
for federal income tax purposes, assuming a 34% federal corporate income tax
rate.

Corporate
Alternative Minimum Tax. The Internal Revenue Code of 1986, as amended (the
Code), imposes a tax (AMT) on alternative minimum
taxable income (AMTI) at a rate of 20%. Only 90% of AMTI can be
offset by net operating loss carryovers of which the Bank currently has none.
AMTI is also adjusted by determining the tax treatment of certain items in a
manner that negates the deferral of income resulting from the regular tax
treatment of those items. Thus, the Banks AMTI is increased by an amount equal to 75% of the
amount by which the Banks adjusted current earnings exceeds its AMTI
(determined without regard to this adjustment and prior to reduction for net
operating losses). In addition, for taxable years beginning after December 31,
1986 and before January 1, 1996, an environmental tax of 0.12% of the excess of
AMTI (with certain modifications) over $2 million is imposed on corporations,
including the Bank, whether or not an AMT is paid. Under pending legislative
proposals, the environmental tax would be extended to taxable years beginning
before January 1, 2007. The Bank does not expect to be subject to the AMT, but
may be subject to the environmental tax liability.

Elimination of
Dividends. Dividends Received Deduction. The Company may exclude from its income
100% of dividends received from the Bank as a member of the same affiliated
group of corporations. A 70% dividends received deduction generally applies with
respect to dividends received from domestic corporations that are not members of
such affiliated group, except that an 80% dividends received deduction applies
if the Company and the Bank own more than 20% of the stock of a corporation
paying a dividend. Under pending legislative proposals, the 70% dividends
received deduction would be reduced to 50% with respect to dividends paid after
enactment of such legislation.

State and Local Taxation

State of
Illinois. The Company and the Bank file a combined unitary Illinois income
tax return. For Illinois income tax purposes the Company and the Bank are taxed
at an effective rate equal to 7.18% of Illinois Taxable Income. For these
purposes, Illinois Taxable Income generally means federal taxable
income, subject to certain adjustments (including the addition of interest
income on state and municipal obligations and the exclusion of interest income
on United States Treasury obligations). The exclusion of income on United States
Treasury obligations has the effect of reducing the Illinois Taxable Income of
the Company and the Bank.

22

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As a Delaware
holding company, the Company has registered as a foreign corporation authorized
to transact business in Illinois. As such, it files an Illinois Foreign
Corporation Annual Report and pays an annual franchise tax to the State of
Illinois.

State of
Delaware. As a Delaware holding company not earning income in Delaware, the
Company is exempted from Delaware corporate income tax but it files an annual
report with and pays an annual franchise tax to the State of Delaware.

Competition

North Federal
faces strong competition, both in originating real estate and other loans and in
attracting deposits. Competition in originating real estate loans comes
primarily from other savings institutions, commercial banks, credit unions and
mortgage bankers making loans secured by real estate located in the Banks
market area. Other savings institutions, commercial banks and credit unions
provide vigorous competition in consumer lending.

The Bank
attracts deposits through its two offices, primarily from the communities in
which those offices are located; therefore, competition for those deposits is
principally from other savings institutions, commercial banks, credit unions
located in the same communities, as well as mutual funds and other investment
alternatives. The Bank competes for these deposits by offering a variety of
deposit accounts at highly competitive rates, convenient business hours, with
interbranch deposit and withdrawal privileges at each branch and access to
automated teller machines. During the year 2000 the Bank entered into an
agreement with a broker to obtain certificates of deposit.

Employees

At December 31,
2001, the Company had a total of 36 employees, including three part-time
employees. Management considers its employee relations to be excellent.

Executive Officers Who Are Not Directors

The following is
a description of the business experience of the Companys and the
Banks current executive officers who are not also directors.

Victor E. Caputo  Mr.
Caputo, age 57, joined the Bank as Senior Vice President for Operations in January 1995.
He was appointed Executive Vice President and Corporate Secretary of the Company and the
Bank in April 1995. He was appointed Chief Operating Officer in August 1998. Mr. Caputo
formerly was Senior Vice President and Chief Operations Officer of Argo Federal Savings
Bank. Mr. Caputo has also served as an audit supervisor at KPMG LLP in Chicago. He has
over 25 years experience in the thrift industry. He is a member of the American Institute
of Certified Public Accountants, the Financial Managers Society and the Illinois Society
of Certified Public Accountants.

Joseph M.
Perri  Mr. Perri, age 53, joined the Bank as Senior Vice President and
Loan Department Manager in March 2000. He has been involved in loan origination,
operations and management for over 25 years. Prior to joining the Bank he was
Senior Vice President of LaSalle National Bank of Chicago where he was
responsible for nationwide commercial mortgage production. He has also held
executive level lending positions at Savings of America and Exchange National
Bank of Chicago. He is a graduate of the University of Illinois and has attended
the University of Wisconsin and Ohio State University.

Martin W. Trofimuk  Mr.
Trofimuk, age 41, was appointed as Vice President and Treasurer of the Company and the
Bank in 1993. Mr. Trofimuk has served in various capacities since joining the Bank in
1985. He is a past President of the Chicago Chapter of the Financial Managers Society and
a member of the Institute of Financial Education.

Mark F.
Metzger  Mr. Metzger, age 49, joined the Bank as Vice President in
2001. Mr. Metzger previously worked for Liberty Federal Bank as Vice President
of Consumer Lending. He also worked for Balcor Mortgage and Regency Federal Bank
where he focused on residential and commercial lending. He received an
Associates Degree from the College of DuPage and has attended Northern Illinois
University. He is actively involved in the Boy Scouts of America and has
received the Scoutmaster Presidential Award of Distinction and Silver Beaver
award. Mr. Metzger will focus on developing new consumer loan products and
expanding the current consumer loan department.

23

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Item 2. Description of Property

The Bank owns
its main office building and leases space for its branch office. Both offices
have ATM facilities. As of December 31, 2001, the net book value of the
Banks investment in premises, equipment and leaseholds was $743,000. The
Bank has signed a letter of intent to lease approximately 2,000 square feet in
an as yet to be completed shopping center for a new branch facility in Chicago.
Lease negotiations are currently ongoing. The new facility is anticipated to
open during the last quarter of 2002 or early in 2003.

Item 3. Legal Proceedings

The Company and
its subsidiary are involved as plaintiff or defendant in various legal actions
arising in the normal course of their businesses. While the ultimate outcome of
the various legal proceedings involving the Company and its subsidiary cannot be
predicted with certainty, it is the opinion of management, after consultation
with counsel, that the resolution of these legal actions should not have a
material effect on the Companys consolidated financial position or results
of operations.

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

No matter was
submitted to a vote of security holders, through the solicitation of proxies or
otherwise, during the quarter ended December 31, 2001.

PART II

Item 5. Market for Registrants Common Equity and Related
Stockholder Matters

Page 39 of the
Companys 2001 Annual Report to Stockholders is incorporated by reference.

Item 6. Managements Discussion and Analysis or Plan of Operation

Pages 4 through 12 of the
Companys 2001 Annual Report to Stockholders are incorporated by reference.

Item 7. Financial Statements

Pages 13 through 38 of the
Companys 2001 Annual Report to Stockholders are incorporated by reference.

Item 8. Changes in and Disagreements With Accountants On Accounting
and Financial Disclosure

The information
required by this item has previously been reported on Current Reports on Forms
8-K and 8-K/A filed with the SEC on October 23, 2000 and November 1, 2000.

PART III

Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance With Section 16(a) of the               Exchange Act

Directors

Information
concerning Directors of the Company is incorporated by reference from the
Companys definitive Proxy Statement for the Annual Meeting of Stockholders
to be held in 2002, a copy of which has been filed with the Securities and
Exchange Commission.

Information
concerning the Companys and the Banks executive officers who are not
also directors is contained in Item 1 of this report under Executive
Officers who are not Directors.

24

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Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of
the Exchange Act requires the Companys directors and executive officers,
and persons who own more than 10% of a registered class of the Companys
equity securities, to file with the SEC reports of ownership and reports of
changes in ownership of common stock and other equity securities of the Company.
Officers, directors and greater than 10% stockholders are required by SEC
regulation to furnish the Company with copies of all Section 16(a) forms they
file.

To the
Companys knowledge, based solely on a review of the copies of such reports
furnished to the Company and written representations that no other reports were
required, during the fiscal year ended December 31, 2001, all Section 16(a)
filing requirements applicable to the Companys officers, directors and
greater than 10% beneficial owners were met.

Item 10. Executive Compensation

Information
concerning executive compensation is incorporated by reference from the
Companys definitive Proxy Statement for the Annual Meeting of Stockholders
to be held in 2002, a copy of which has been filed with the Securities and
Exchange Commission.

Item 11. Security Ownership of Certain Beneficial Owners and Management

Information
concerning security ownership of certain beneficial owners and management is
incorporated by reference from the definitive Proxy Statement for the Annual
Meeting of Stockholders to be held in 2002, a copy of which has been filed with
the Securities and Exchange Commission.

Item 12. Certain Relationships and Related Transactions

Information
concerning certain relationships and related transactions is incorporated by
reference from the Companys definitive Proxy Statement for the Annual
Meeting of Stockholders to be held in 2002, a copy of which has been filed with
the Securities and Exchange Commission.

Item 13. Exhibits and Reports on Form 8-K

(a) Exhibits

`Reference to
                                                                       Prior Filing
                                                                        or Exhibit
       Regulation                                                         Number
       S-B Exhibit                                                       Attached
         Number                          Document                         Hereto
     --------------- ----------------------------------------------- ---------------
            2        Plan of acquisition, reorganization,                  None
                     arrangement, liquidation or succession
          3(i)       Certificate of Incorporation                            *
          3(ii)      Amended and Restated By-Laws                           **
            4        Instruments defining the rights of holders,             *
                     including indentures
            9        Voting trust agreement                                None
          10.1       1993 Stock Option and Incentive Plan                  ****
          10.2       Recognition and Retention Plan                        ****
          10.3       Supplemental Employee Stock Retirement Plan             *
          10.4       Form of employment agreement with Joseph A.             *
                     Graber, Victor E. Caputo and Martin W.
                     Trofimuk
           11        Statement regarding computation of per share          None
                     earnings
           13        Annual report to security holders                      13
           16        Letter on change in certifying accountant             *****
           18        Letter on change in accounting principles             None
           21        Subsidiaries of Registrant                             ***
           22        Published report regarding matters submitted to       None
                     vote
          23.1       Consent of Independent Auditors                        23.1
          23.2       Independent Auditors' Report                           23.2
           24        Power of attorney                                 Not required
           99        Additional exhibits                               Not required`

25

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__________

`*      Filed as exhibits to the Registrant's Form S-1 registration statement (File No. 33-69444) and
       incorporated herein by reference.
**     Filed as an exhibit to the Registrants Quarterly Report on form 10-QSB for the quarter ended
       June 30, 2001 and incorporated herein by reference.
***    Filed as an exhibit to the Registrant's Annual Report on Form 10-KSB for the year ended
       December 31, 1996 and incorporated herein by reference.
****   Filed as an exhibit to the Registrant's Quarterly Report on Form 10-QSB for the quarter
       ended March 31, 1997 and incorporated herein by reference.
*****  Filed as an exhibit to Registrants Form 8-K and 8-K/A filed on October 23, 2000 and
       November 1, 2000.`

(b) Reports On Form 8-K

26

---

SIGNATURES

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

`NORTH BANCSHARES, INC.


                                   By:/s/ Mary Ann Hass
                                      ----------------------------
                                      Mary Ann Hass, Chairman
                                      (DULY AUTHORIZED REPRESENTATIVE)`

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

`/s/ Mary Ann Hass
------------------------------                  /s/ James L. Ferstel
Mary Ann Hass, Chairman                         ------------------------------
                                                James L. Ferstel, Director
Date:  March 29, 2002
       -----------------------                  Date:  March 29, 2002
                                                       -----------------------


/s/ Robert H. Rusher                            /s/ Elmer L. Hass
------------------------------                  ------------------------------
Robert H. Rusher, Director                      Elmer L. Hass, Director

Date:  March 29, 2002                           Date:  March 29, 2002
       -----------------------                         -----------------------


/s/ Gregory W. Rose                             /s/ Frank J. Donati
------------------------------                  ------------------------------
Gregory W. Rose, Director                       Frank J. Donati, Director

Date:  March 29, 2002                           Date:  March 29, 2002
       -----------------------                         -----------------------


/s/ Joseph A. Graber                            /s/ Martin W. Trofimuk
------------------------------                  ------------------------------
Joseph A. Graber, President and Chief           Martin W. Trofimuk, Vice President and
Executive Officer and Director                  Treasurer (Principal Financial and Accounting
                                                Officer)
Date:  March 29, 2002
       -----------------------                  Date:  March 29, 2002
                                                       -----------------------`