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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, 2000

                                      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 $10.7 million in gross income for the year ended December
31, 2000.

      As of March 1, 2001, there were issued and outstanding 1,173,253 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, 2001 was approximately $9,200,000. (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, 2000 PART III of Form 10-KSB--Portions of Proxy
Statement for the Annual Meeting of Stockholders for the fiscal year ended
December 31, 2000.

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<PAGE>


                                      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
<PAGE>


                                     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 1,181,253 shares
of common stock outstanding at December 31, 2000. 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. At December 31, 2000,
the Company had total consolidated assets of $134.6 million, deposits of $81.3
million, and stockholders' equity of $12.8 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
<PAGE>


FORWARD-LOOKING STATEMENTS

         When used in this Form 10-KSB, in future filings by the Company with
the SEC, in the Company's press releases or other public or shareholder
communications, and in oral statements made with the approval of an authorized
executive officer, the words or phrases "will likely result", "are expected to",
"will continue", "is anticipated", "estimate", "project" or similar expressions
are intended to identify "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. Such statements are subject to
certain risks and uncertainties, including changes in economic conditions in the
Company's market area, changes in policies by regulatory agencies, fluctuations
in interest rates, demand for loans in the Company's market area and
competition, that could cause actual results to differ materially from
historical results and those presently anticipated or projected. The Company
wishes to caution readers not to place undue reliance on any such
forward-looking statements, which speak only as of the date made. The Company
wishes to advise readers that the factors listed above could affect the
Company's financial performance and could cause the Company's actual results for
future periods to differ materially from any opinions or statements expressed
with respect to future periods in any current statements.

         The Company does not undertake -- and specifically disclaims any
obligation -- to publicly release the result of any revisions which may be made
to any forward-looking statements to reflect events or circumstances after the
date of such statements or to reflect the occurrence of anticipated or
unanticipated events.

LENDING ACTIVITIES

         GENERAL. The Bank's loan portfolio consists primarily of conventional
first mortgage loans secured by one- to four-family residences, and to a lesser
extent, multi-family properties, commercial real estate and consumer loans. At
December 31, 2000, the Bank's gross loans outstanding totaled $91.2 million, of
which $73.6 million, or 80.7%, were one- to four-family residential mortgage
loans. Of the one- to four-family mortgage loans outstanding at that date, 76.3%
were fixed-rate loans (61.6% of total gross loans receivable), including balloon
loans, and 23.7% were adjustable-rate loans (19.1% of total gross loans
receivable). At that same date, multi-family residential mortgage loans totaled
$4.2 million, all of which were fixed-rate balloon loans. In addition, at that
date, commercial real estate and commercial loans outstanding totaled $11.0
million, of which $3.2 million were adjustable rate and $7.8 million were fixed
rate loans. The balance of the Bank's loans included $2.4 million in consumer
loans, which represented 2.7% of the Bank's gross loan portfolio.

         The Bank also invests in mortgage-backed securities. At December 31,
2000, mortgage-backed securities available for sale totaled $13.9 million or
10.3% of total assets. At such date, all of the mortgage-backed securities
portfolio was insured or guaranteed by Freddie Mac (FHLMC) or Fannie Mae (FNMA).

         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 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,
2000, the maximum amount which the Bank could have lent under this limit to any
one borrower and the borrower's related entities was approximately $1.9 million.
At December 31, 2000, 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, 2000 consisted of four loans to one
individual totaling $1.5 million. All four 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 $1.4 million, $1.1
million and $1.0 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, 2000.


                                        3
<PAGE>


         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.

<TABLE>
<CAPTION>
                                                                    AT DECEMBER 31,
                                         --------------------------------------------------------------------
                                                  2000                    1999                   1998
                                         ----------------------    -------------------    -------------------
                                          AMOUNT       PERCENT      AMOUNT    PERCENT      AMOUNT    PERCENT
                                         --------      --------    --------   --------    --------   --------
                                                                 (DOLLARS IN THOUSANDS)
<S>                                      <C>           <C>         <C>        <C>         <C>        <C>
REAL ESTATE LOANS:
 One- to four-family .................   $ 73,599(1)      80.68%   $ 76,039      85.07%   $ 73,303      88.87%
 Multi-family ........................      4,177(2)       4.58       5,109       5.72       4,844       5.87
 Commercial ..........................      9,568(3)      10.49       5,687       6.36       2,519       3.05
                                         --------      --------    --------   --------    --------   --------
    Total real estate loans ..........     87,344         95.75      86,835      97.15      80,666      97.79
                                         --------      --------    --------   --------    --------   --------

CONSUMER LOANS:
 Deposit account .....................        130          0.14         104       0.12         102       0.12
 Automobile ..........................         11          0.01          16       0.02          --         --
 Home equity and home
  improvement ........................      2,276          2.50       1,485       1.65         714       0.87
                                         --------      --------    --------   --------    --------   --------
 Total consumer loans ................      2,417          2.65       1,605       1.79         816       0.99
                                         --------      --------    --------   --------    --------   --------

 COMMERCIAL LOANS ....................      1,461          1.60         945       1.06       1,007       1.22
                                         --------      --------    --------   --------    --------   --------
 Total loans receivable ..............     91,222        100.00%     89,385     100.00%     82,489     100.00%
                                         --------      ========    --------   ========    --------   ========
 LESS:
 Deferred fees and discounts .........        195                       165                    152
 Allowance for loan losses ...........        262                       231                    214
                                         --------                  --------               --------
   Total loans receivable, net .......   $ 90,765                  $ 88,989               $ 82,123
                                         ========                  ========               ========

MORTGAGE-BACKED
SECURITIES: (4)
 FNMA ................................      2,142         15.48%      2,373      15.57%      1,638      10.69%
 GNMA ................................         --            --          23        .15         121        .79
 FHLMC ...............................     11,696         84.52      12,842      84.28      13,564      88.52
                                         --------      --------    --------   --------    --------   --------
    Total mortgage-backed
     securities ......................     13,838        100.00%     15,238     100.00%     15,323     100.00%
                                                       ========               ========               ========
Net premiums .........................         89                        97                    112
                                         --------                  --------               --------

Net mortgage-backed
 securities ..........................   $ 13,927                  $ 15,335               $ 15,435
                                         ========                  ========               ========
</TABLE>

---------------------------
(1) This amount includes a total of $4.6 million of 5, 7 and 10 year balloon
    loans.
(2) This amount includes a total of $3.9 million of 5, 7 and 10 year balloon
    loans.
(3) This amount includes a total of $8.5 million of balloon loans.
(4) Presented at amortized cost.


                                        4
<PAGE>


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

<TABLE>
<CAPTION>
                                                                       AT DECEMBER 31,
                                           ----------------------------------------------------------------------
                                                    2000                     1999                    1998
                                           ----------------------    --------------------    --------------------
                                            AMOUNT       PERCENT      AMOUNT     PERCENT      AMOUNT     PERCENT
                                           --------      --------    --------    --------    --------    --------
                                                                    (DOLLARS IN THOUSANDS)
<S>                                        <C>           <C>         <C>         <C>         <C>         <C>
FIXED-RATE LOANS:
 Real estate:
  One- to four-family ..................   $ 56,185(1)      61.59%   $ 61,575       68.89%   $ 58,047       70.37%
  Multi-family .........................      4,177(2)       4.58       5,109        5.71       4,844        5.87
  Commercial ...........................      6,320(3)       6.93       5,257        5.88       2,519        3.06
                                           --------      --------    --------    --------    --------    --------
   Total fixed-rate real estate loans ..     66,682         73.10      71,941       80.48      65,410       79.30
  Consumer .............................        909          1.00         511        0.57         341        0.41
  Commercial ...........................      1,461          1.60         945        1.06       1,007        1.22
                                           --------      --------    --------    --------    --------    --------
   Total fixed-rate loans ..............     69,052         75.70      73,397       82.11      66,758       80.93
                                           --------      --------    --------    --------    --------    --------

ADJUSTABLE-RATE LOANS:
 Real estate:
  One- to four-family ..................     17,414         19.09      14,464       16.18      15,256       18.49
  Commercial ...........................      3,248(4)       3.56         430        0.48          --          --
  Consumer .............................      1,508          1.65       1,094        1.23         475         .58
                                           --------      --------    --------    --------    --------    --------
   Total adjustable rate loans .........     22,170         24.30      15,988       17.89      15,731       19.07
                                           --------      --------    --------    --------    --------    --------

    Total loans receivable .............     91,222        100.00%     89,385      100.00%     82,489      100.00%
                                                         ========                ========                ========

LESS:
 Deferred fees and discounts ...........        195                       165                     152
 Allowance for loan losses .............        262                       231                     214
                                           --------                  --------                --------
  Total loans receivable, net ..........   $ 90,765                  $ 88,989                $ 82,123
                                           ========                  ========                ========
</TABLE>

---------------------------------
(1) This amount includes a total of $4.6 million of 5, 7 and 10 year balloon
    loans.
(2) This amount includes a total of $3.9 million of 5, 7 and 10 year balloon
    loans.
(3) This amount includes a total of $6.3 million of balloon loans.
(4) This amount includes a total of $2.2 million of balloon loans.


                                        5
<PAGE>


         The following schedule illustrates the interest rate sensitivity of the
Bank's loan portfolio at December 31, 2000. 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 $69.0 million, while the amount of loans
due after such date with floating rates is $22.2 million.

<TABLE>
<CAPTION>
                                           Real Estate
                     -------------------------------------------------------
                     One- to four-family   Multi-family       Commercial          Consumer          Commercial           Total
                     -------------------   ------------       ----------          --------          ----------           -----
                              Weighted           Weighted           Weighted           Weighted           Weighted          Weighted
                              Average            Average            Average            Average            Average           Average
                      Amount    Rate    Amount     Rate    Amount     Rate    Amount     Rate    Amount     Rate    Amount    Rate
                     -------  -------   -------  -------   -------  -------   -------  -------   -------  -------   ------  -------

                                                              (Dollars in Thousands)
Due During Periods
Ending December 31,
--------------------
<S>                  <C>      <C>       <C>      <C>       <C>      <C>       <C>      <C>       <C>      <C>       <C>      <C>
2001(1) ............ $ 1,609     7.24%  $    --     8.40%  $ 2,021     9.96%  $     8     5.65%  $ 1,461    10.00%  $ 5,099    9.11%
2002 ...............     153     7.88       619     8.44       312    10.06        52     9.19        --     0.00     1,136    8.65
2003 ...............     338     7.35       285     8.09     2,513     9.04       253     9.02        --     0.00     3,389    8.88
2004 and 2005 ......   2,255     7.57     1,616     8.13     2,568     8.61     1,336     9.26        --     0.00     7,775    8.32
2006 to 2010 .......   4,930     7.42     1,657     8.28     2,154     7.55        31     8.13        --     0.00     8,772    7.62
2011 to 2015 .......   6,682     7.13        --     0.00        --     0.00       737     8.58        --     0.00     7,419    7.27
2016 and following .  57,632     7.33        --     0.00        --     0.00        --     0.00        --     0.00    57,632    7.33
                     -------  -------   -------  -------   -------  -------   -------  -------   -------  -------   -------  ------
                     $73,599     7.32%  $ 4,177     8.25%  $ 9,568     8.82%  $ 2,417     9.00%  $ 1,461    10.00%  $91,222    7.61%
                     =======  =======   =======  =======   =======  =======   =======  =======   =======  =======   =======  ======
</TABLE>

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


                                        6
<PAGE>


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, 2000, $73.6 million, or
80.7%, of the Banks gross loan portfolio consisted of permanent loans secured by
one- to four-family residences. 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
2000, 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 originated 33 of
these loans totaling $7.1 million during 2000 and plans to continue to emphasize
this type of lending during 2001.

         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, 2000, the total balance of one- to four-family
ARMs was $17.4 million, or 19.1% 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
$2.0 million during the year ended December 31, 2000 compared with $425,000
during the year ended December 31, 1999.

         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, 2000, the Bank had multi-family real estate loans totaling $4.2 million, or
4.6% of the Bank's gross loan portfolio. The largest multi-family loan at
December 31, 2000 was $390,000. At December 31, 2000, 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
<PAGE>


         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, 2000, the Bank had
commercial real estate loans totaling $9.6 million, or 10.5% of the Bank's gross
loan portfolio. The largest commercial real estate loan outstanding at December
31, 2000 was a $1.1 million construction loan on a retail shopping center in
Highwood, Illinois. At December 31, 2000, 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 intends 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 placed increased emphasis
on consumer loans during 2000 and plans to continue to emphasize this type of
lending during 2001, particularly home equity and rehabilitation loans, because
of their attractive yields, shorter terms to maturity, and community need. At
December 31, 2000, $2.4 million or 2.7% of the Bank's gross loan portfolio,
consisted of consumer loans compared with $1.6 million or 1.79% at December 31,
1999.

         The Bank's home equity loans are underwritten such that the total
commitment amount, when combined with the balance of the first mortgage lien,
may not exceed 80% of the appraised value of the property. These loans are
written with fixed terms and carry fixed rates of interest. At December 31,
2000, the Bank had $768,000 of home equity loans outstanding, or 0.8% of the
Bank's gross loan portfolio.

         The Bank's equity line of credit loans are underwritten such that the
total commitment amount, when combined with the first mortgage lien, may not
exceed 80% of the appraised value of the property. 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, 2000, the Bank had $1.5 million of
outstanding line of credit loans and $2.4 million in unused credit line
commitments compared with $1.1 million of outstanding line of credit loans and
$1.7 million in unused credit line commitments at December 31, 1999.

         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


                                        8
<PAGE>


loan. Although creditworthiness of the applicant is of primary consideration,
the underwriting process also includes a 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 or 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, 2000 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, 2000, the
outstanding line of credit and the balance of the line amounted to $1.4 million.
The line of credit carries a fixed rate of interest on a one-year renewable
basis and was current as of December 31, 2000. The interest is paid monthly and
cannot be drawn from the line of credit.

         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, 2000, mortgage-backed securities
available for sale totaled $13.9 million, or 10.3% of the Bank's total assets.
For information regarding the amortized cost and market values of North
Federal's mortgage-backed securities portfolio, see Note 4 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, GNMA mortgage-backed
securities have a zero percent risk- weighting and FNMA, FHLMC 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, 2000 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
<PAGE>


         The following table sets forth the contractual maturities of the Bank's
mortgage-backed securities at December 31, 2000. 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.

<TABLE>
<CAPTION>
                                                 DUE IN                                      DECEMBER 31,
               ---------------------------------------------------------------------------      2000
               6 MONTHS   6 MONTHS    1 TO       3 TO 5      5 TO 10   10 TO 20   OVER 20      BALANCE
               OR LESS    TO 1 YEAR  3 YEARS     YEARS        YEARS      YEARS     YEARS     OUTSTANDING
               --------   --------   --------   --------    --------   --------   --------   -----------
                                             (IN THOUSANDS)
<S>            <C>        <C>        <C>        <C>         <C>        <C>        <C>         <C>
FHLMC          $     --   $    101   $     27   $     --    $    744   $ 10,911   $     --    $ 11,783

FNMA                369         --         --         --          --      1,775         --       2,144
               --------   --------   --------   --------    --------   --------   --------    --------

Total          $    369   $    101   $     27   $     --    $    744   $ 12,686   $     --    $ 13,927
               ========   ========   ========   ========    ========   ========   ========    ========
</TABLE>


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.

<TABLE>
<CAPTION>
                                                                            YEAR ENDED DECEMBER 31,
                                                                      ----------------------------------
                                                                        2000         1999         1998
                                                                      --------     --------     --------
                                                                                (IN THOUSANDS)
<S>                                                                   <C>          <C>          <C>
Loans receivable (gross) at beginning of year ....................    $ 89,385     $ 82,489     $ 79,317
                                                                      --------     --------     --------

Originations and purchases by type:
                                                                                                --------
Fixed Rate:
  Real estate - one- to four-family ..............................       2,146       13,470       23,619
              - multi-family .....................................         919          705          846
              - consumer and commercial ..........................       4,256        3,186        2,831
  Non-real estate - commercial ...................................         690          493          297
                                                                      --------     --------     --------
    Total fixed rate loans originated ............................       8,011       17,854       27,593
Adjustable Rate:
  Real estate - one- to four-family ..............................       4,332        4,554        2,828
              - multi-family .....................................          --           --           --
              - consumer and commercial ..........................       3,921        1,561          623
                                                                      --------     --------     --------
    Total adjustable rate loans originated .......................       8,253        6,115        3,451

  Sales ..........................................................       1,975          425          230
  Principal repayments ...........................................      12,452       16,648       27,642
                                                                                   --------     --------
    Total loans at end of year ...................................    $ 91,222     $ 89,385     $ 82,489
                                                                      ========     ========     ========

Mortgage-backed securities (net) at beginning of
year .............................................................    $ 14,528     $ 15,435     $  5,841

  Purchases ......................................................          --        3,627       11,097
  Repayments .....................................................      (1,367)      (1,761)      (1,354)
  Sales ..........................................................         (33)      (2,005)          --
 Change in unrealized gain (loss) on mortgage-
    backed securities available-for-sale .........................         460         (774)          73
  Amortization of premiums and discounts .........................          (8)           6           76
                                                                      --------     --------     --------
     Mortgage-backed securities (net) at end of
      Year .......................................................    $ 13,580     $ 14,528     $ 15,435
                                                                      ========     ========     ========
</TABLE>


                                       10
<PAGE>


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 has historically had few foreclosed assets and, as set
forth below, has had none during the past five years. The Bank has not
charged-off any loans during the past five years.

         DELINQUENT LOANS. At December 31, 2000, 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.

<TABLE>
<CAPTION>
                                                                   DECEMBER 31,
                                                --------------------------------------------------
                                                 2000       1999       1998       1997       1996
                                                ------     ------     ------     ------     ------
                                                              (DOLLARS IN THOUSANDS)
<S>                                             <C>        <C>        <C>        <C>        <C>
Non-performing loans:
  One- to four-family ......................    $   --     $   --     $   24     $   --     $   --
  Consumer .................................        --         --         --         --          1
                                                ------     ------     ------     ------     ------
     Total non-performing assets ...........    $   --     $   --     $   24     $   --     $    1
                                                ======     ======     ======     ======     ======

Total as a percentage of total assets ......      0.00%      0.00%      0.02%      0.00%      0.00%
                                                ======     ======     ======     ======     ======
</TABLE>

         OTHER LOANS OF CONCERN. As of December 31, 2000, 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, 2000.

         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, 2000.

         ALLOWANCE FOR LOAN LOSSES. The allowance for loan losses is established
through a provision for loan losses based on management's evaluation of the risk
inherent in its loan portfolio and changes in the nature and volume of its loan
activity. This evaluation, which includes a review of all loans for which full
collectibility may not be reasonably


                                       11
<PAGE>


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 reserve 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 the
Company did not identify any loans considered impaired in 2000, a provision for
loss in the amount of $31,000 increased the allowance for loan losses due to
increased commercial real estate lending and the perceived risk in the
portfolio. Although management believes it uses the best information available
to make such determinations, future adjustments to reserves 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(e) and 5 of the Notes to Consolidated Financial Statements contained
in the Annual Report to Stockholders filed as Exhibit 13 hereto, and
"Regulation." At December 31, 2000, the Bank had an allowance for loan losses of
$262,000, which was equal to .29% of loans receivable.

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

<TABLE>
<CAPTION>
                                                           YEAR ENDED DECEMBER 31,
                                                ----------------------------------------------
                                                 2000      1999      1998      1997      1996
                                                ------    ------    ------    ------    ------
                                                           (DOLLARS IN THOUSANDS)
<S>                                             <C>       <C>       <C>       <C>       <C>
Balance at beginning of year ...............    $  231    $  214    $  208    $  208    $  200

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

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

Net charge-offs ............................        --        --        --        --        --
Additions charged to operations ............        31        17         6        --         8
                                                ------    ------    ------    ------    ------
Balance at end of year .....................    $  262    $  231    $  214    $  208    $  208
                                                ======    ======    ======    ======    ======
</TABLE>

         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.

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

<TABLE>
<CAPTION>
                                                                AT DECEMBER 31,
                                                ----------------------------------------------
                                                 2000      1999      1998      1997      1996
                                                ------    ------    ------    ------    ------
                                                             (Dollars in Thousands)
<S>                                             <C>       <C>       <C>       <C>       <C>
Unallocated ................................    $  262    $  231    $  214    $  208    $  208
                                                ------    ------    ------    ------    ------
     Total .................................    $  262    $  231    $  214    $  208    $  208
                                                ======    ======    ======    ======    ======
</TABLE>


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

                                       12
<PAGE>


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, 2000, the Company's interest-bearing deposits with
banks and dollar denominated money market accounts totaled $2.9 million, or 2.2%
of total assets. Investment securities, consisting of U.S. government
securities, federal agency obligations and FHLB stock, totaled $18.9 million, or
14.0% of total assets, and investment in federal funds sold totaled $4.2 million
or 3.2% of total assets. It is the Company's general policy to purchase
investment securities which are U.S. Government securities or federal agency
obligations. At December 31, 2000, the weighted average term to maturity or
repricing of the investment portfolio, excluding FHLB stock, was one month.

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

<TABLE>
<CAPTION>
                                                                                      AT DECEMBER 31,
                                                           ----------------------------------------------------------------------
                                                                   2000                     1999                     1998
                                                           --------------------     --------------------     --------------------
                                                           CARRYING     % OF        CARRYING     % OF        CARRYING     % OF
                                                             VALUE      TOTAL         VALUE      TOTAL         VALUE      TOTAL
                                                           --------    --------     --------    --------     --------    --------
                                                                                   (DOLLARS IN THOUSANDS)
<S>                                                        <C>            <C>       <C>            <C>       <C>            <C>
Investment Securities:
  U.S. Government agency securities ....................   $ 16,916       89.66%    $ 16,436       85.36%    $ 13,922       83.95%
  FHLB stock ...........................................      1,905       10.10        2,205       11.45        1,705       10.28
  Other ................................................         45        0.24           63        0.33          100        0.60
  Equity securities ....................................         --          --          551        2.86          858        5.17
                                                           --------    --------     --------    --------     --------    --------
    Total investment securities and FHLB stock .........   $ 18,866      100.00%    $ 19,255      100.00%    $ 16,585      100.00%
                                                           ========    ========     ========    ========     ========    ========

Other Interest-Earning Assets:
  Interest-bearing deposits with banks .................   $  2,006                 $  1,260                 $  2,413
  Dollar denominated mutual funds ......................        903                      466                      801
  Federal funds sold ...................................      4,245                    2,439                    5,722
                                                           --------                 --------                 --------
     Total .............................................   $  7,154                 $  4,165                 $  8,936
                                                           ========                 ========                 ========

Average remaining life or term to repricing of
investment securities and other interest-earning
assets, excluding FHLB stock and equity securities .....          1 mos.                   2 mos.                   3 mos.
</TABLE>


                                       13
<PAGE>


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

<TABLE>
<CAPTION>
                                                                 AT DECEMBER 31, 2000
                                            ------------------------------------------------------------
                                                                                           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)
<S>                                          <C>         <C>          <C>          <C>          <C>
U.S. Government agency securities .......    $     --    $     --     $ 17,445     $ 17,445     $ 16,916
Other ...................................          --          63           --           63           45
                                             --------    --------     --------     --------     --------
    Total investment securities .........    $     --          63     $ 17,445     $ 17,508       16,961
                                             ========    ========     ========     ========     ========
Weighted average yield(1) ...............          --%       9.00%        6.64%        6.65%
                                             ========    ========     ========     ========
</TABLE>

----------------------
(1) The weighted average yield is based upon the interest rate in effect at
December 31, 2000.


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 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 2000 the Bank obtained $7.6 million in short-term
certificates of deposit by using deposit brokers. The deposits were used to fund
short term lending and were priced at more attractive rates than could be
obtained locally.


                                       14
<PAGE>


         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, 2000. See Note 8 of Notes to
Consolidated Financial Statements contained in the Annual Report to Stockholders
filed as Exhibit 13 hereto for weighted average nominal rates.

<TABLE>
<CAPTION>
                                                                              AT DECEMBER 31,
                                                   ----------------------------------------------------------------------
                                                           2000                    1999                    1998
                                                   ----------------------------------------------------------------------
                                                               PERCENT                  PERCENT                  PERCENT
                                                    AMOUNT     OF TOTAL      AMOUNT     OF TOTAL      AMOUNT     OF TOTAL
                                                   --------    --------     --------    --------     --------    --------
                                                                           (DOLLARS IN THOUSANDS)
<S>                                                <C>         <C>          <C>         <C>          <C>         <C>
TRANSACTION AND SAVINGS DEPOSITS:
---------------------------------

Passbook Accounts 2.75% .......................    $ 12,483        15.3%    $ 13,088        17.1%    $ 13,642        17.9%
NOW  Accounts  2.02% ..........................       8,478        10.4        8,592        11.2        8,740        11.5
Non-Interest Bearing Demand Accounts ..........       3,153         3.9        2,278         3.0        1,789         2.3
Money Market Deposit Accounts 0.00% -5.75% ....      15,934        19.6       15,704        20.5       10,143        13.3
                                                   --------    --------     --------    --------     --------    --------

Total Non-Certificates ........................      40,048        49.2       39,662        51.8       34,314        45.0
                                                   --------    --------     --------    --------     --------    --------

TOTAL CERTIFICATES:
-------------------

 0.00 - 4.99% .................................       2,244         2.8       13,074        17.1        6,076         8.0
 5.00 - 5.99% .................................      20,017        24.6       14,728        19.3       24,714        32.4
 6.00 - 6.99% .................................      14,335        17.6        5,460         7.1        6,889         9.0
 7.00 - 7.99% .................................       4,363         5.4        3,297         4.3        3,919         5.2
 8.00 - 8.99% .................................         310         0.4          285         0.4          310         0.4
                                                   --------    --------     --------    --------     --------    --------

Total Certificates ............................      41,269        50.8       36,844        48.2       41,908        55.0
                                                   --------    --------     --------    --------     --------    --------
Total Deposits ................................    $ 81,317       100.0%    $ 76,506       100.0%    $ 76,222       100.0%
                                                   ========    ========     ========    ========     ========    ========
</TABLE>


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

<TABLE>
<CAPTION>
                                                                 YEAR ENDED DECEMBER 31,
                                                       ------------------------------------------
                                                         2000             1999             1998
                                                       ------------------------------------------
                                                                 (DOLLARS IN THOUSANDS)
<S>                                                    <C>              <C>              <C>
Opening balance ...............................        $ 76,506         $ 76,222         $ 75,041
Deposits ......................................         150,074          134,200          117,369
Withdrawals ...................................         148,843          137,136          119,251
Interest credited .............................           3,580            3,220            3,063
                                                       --------         --------         --------
Ending balance ................................        $ 81,317         $ 76,506         $ 76,222
                                                       ========         ========         ========

Net increase ..................................        $  4,811         $    284         $  1,181
                                                       ========         ========         ========

Percent increase ..............................            6.29%            0.37%            1.57%
                                                       ========         ========         ========
</TABLE>


                                       15
<PAGE>


         The following table shows rate and maturity information for the Bank's
certificates of deposit as of December 31, 2000.

<TABLE>
<CAPTION>
                                       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:
-----------------
<S>                                   <C>        <C>        <C>        <C>        <C>        <C>          <C>
March 31, 2001 ....................   $ 1,247    $ 4,397    $   191    $    --    $    --    $ 5,835      14.14%
June 30, 2001 .....................       310      4,756         13      4,215         --      9,294      22.52
September 30, 2001 ................       166      3,552      6,141         --         --      9,859      23.89
December 31, 2001 .................       103        836      2,078         --         --      3,017       7.31
March 31, 2002 ....................       366      1,418        214        128         30      2,156       5.22
June 30, 2002 .....................        28        890        308         --         --      1,226       2.97
September 30, 2002 ................        --        238      1,021         20         63      1,342       3.25
December 31, 2002 .................        --        273        326         --         48        647       1.57
March 31, 2003 ....................        --        351        301         --         12        664       1.61
June 30, 2003 .....................        --        392         71         --         --        463       1.12
September 30, 2003 ................        --        380         38         --         --        418       1.01
December 31, 2003 .................        --        317         20         --         --        337        .82
Thereafter ........................        24      2,217      3,613         --        157      6,011      14.57
                                      -------    -------    -------    -------    -------    -------    -------
   Total ..........................   $ 2,244    $20,017    $14,335    $ 4,363    $   310    $41,269     100.00%
                                      =======    =======    =======    =======    =======    =======    =======
   Percent of total ...............      5.44%     48.50%     34.74%     10.57%      0.75%    100.00%
                                      =======    =======    =======    =======    =======    =======
</TABLE>


         The following table indicates the amount of the Bank's certificates of
deposit by time remaining until maturity as of December 31, 2000.

<TABLE>
<CAPTION>
                                                                  MATURITY
                                                 --------------------------------------------
                                                              OVER        OVER
                                                 3 MONTHS    3 TO 6      6 TO 12      OVER
                                                 OR LESS     MONTHS      MONTHS     12 MONTHS     TOTAL
                                                 --------    -------     -------    --------     -------
                                                                     (IN THOUSANDS)
<S>                                              <C>         <C>         <C>         <C>         <C>
Certificates of deposit of less than
 $100,000 ..................................     $ 5,183     $ 4,235     $ 7,507     $11,133     $28,058

Certificates of deposit of $100,000
  or greater ...............................         652       5,059       5,369       2,131      13,211
                                                 -------     -------     -------     -------     -------

Total certificates of deposit ..............     $ 5,835     $ 9,294     $12,876     $13,264     $41,269
                                                 =======     =======     =======     =======     =======
</TABLE>


                                       16
<PAGE>


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, 2000, the Bank's
FHLB of Chicago advances totaled $38.1 million compared with $41.1 million at
December 31, 1999.

         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 general corporate purposes. The loan provides for an
interest rate of 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, 2001, which was paid
on 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, 2000, the outstanding
balance of the line of credit was $100,000 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:

<TABLE>
<CAPTION>
                                                    AT AND FOR THE YEARS ENDED DECEMBER 31,
                                                    ---------------------------------------
                                                       2000          1999          1998
                                                    ---------------------------------------
                                                           (DOLLARS IN THOUSANDS)
<S>                                                  <C>           <C>           <C>
Average balance outstanding ....................     $ 37,824      $ 38,446      $ 32,792
Maximum amount outstanding at any month
          end during the year ..................       41,100        41,100        37,100
Balance outstanding at end of year .............       38,200        41,100        34,100
Weighted average interest rate during the
          year .................................         5.94%         5.37%         5.61%
Weighted average interest rate at end of
         year ..................................         6.05%         5.48%         5.34%
</TABLE>


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, 2000 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 $12,000 at
December 31, 2000. For the year ended December 31, 2000, North Financial
Corporation had net income of $674.


                                       17
<PAGE>


                           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 January 10, 2000 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. During the year ended December 31, 2000, the Bank paid
supervisory assessments to the OTS totaling $36,510.

         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, 2000, the Bank's lending limit under this restriction was $1.9
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 SAIF or the 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, 2000, the Bank was classified as a well-capitalized institution.
During the year ended December 31, 2000, 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, 2000, 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


                                       18
<PAGE>


1.2 basis points of deposit and approximately 2.1 basis points of deposits.
During the year ended December 31, 2000, the Bank paid FICO assessments totaling
approximately $12,000.

REGULATORY CAPITAL REQUIREMENTS

         All federally insured savings institutions are required to maintain
minimum capital standards, including a tangible capital, a leverage ratio (or
core capital) and a risk-based capital. 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, 2000, the Bank
had tangible capital of $12.8 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 at least 3% 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, 2000, North Federal had core capital equal to $12.5
million, or 9.5% of adjusted total assets, which was $8.7 million above the
minimum leverage ratio requirement of 3.0% 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, 2000.

         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, 2000, North Federal had total capital of $13.1 million
(including $12.8 million in core capital and $264,000 in qualifying
supplementary capital) and risk-weighted assets of $59.7 million or total
capital of 21.5% of risk-weighted assets. This amount was $8.0 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 substantial 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.


                                       19
<PAGE>


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.

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, 2000, 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 institutions 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


                                       20
<PAGE>


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.

         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, 2000, the Bank had $1.9 million in FHLB
stock, which was in compliance with this requirement.

         For the year ended December 31, 2000, dividends paid by the FHLB of
Chicago to North Federal totaled $145,000. The $36,000 dividend received for the
quarter ended December 31, 2000 reflects an annualized rate of 8.00%.

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.


                                       21
<PAGE>


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.

         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%


                                       22
<PAGE>


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 7.3% 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.

         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, 2000, 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 56, 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 52, 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.


                                       23
<PAGE>


         MARTIN W. TROFIMUK - Mr. Trofimuk, age 40, 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.

         KARLA A. LAUER - Ms. Lauer, age 33, rejoined the Bank as Vice President
in 1997. Ms. Lauer previously worked for the Bank as an Assistant Branch Manager
and a New Accounts Officer in 1994 and 1995. Ms. Lauer has served as a Branch
Manager for the Harris Bank and for Cragin Federal Savings and Loan Association.
She is currently serving as Treasurer for the Old Town Chamber of Commerce.


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, 2000, the net book
value of the Bank's investment in premises, equipment and leaseholds was
$803,099.


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,
2000.

                                     PART II

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

         Page 47 of the Company's 2000 Annual Report to Stockholders is
incorporated by reference.

ITEM 6.     MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

         Pages 4 through 13 of the Company's 2000 Annual Report to Stockholders
are incorporated by reference.

ITEM 7.     FINANCIAL STATEMENTS

         Pages 14 through 46 of the Company's 2000 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 be reported on
Current Reports on Forms 8-K and 8-K/A filed with the SEC on October 23, 2000
and November 1, 2000.


                                       24
<PAGE>


                                    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 2001, 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."

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, 2000, the
Registrant complied with all Section 16(a) filing requirements applicable to its
officers, directors and greater than 10% beneficial owners.

ITEM 10.    EXECUTIVE COMPENSATION

         Information concerning executive compensation is incorporated by
reference from the definitive Proxy Statement for the Annual Meeting of
Stockholders to be held in 2001, 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 2001, 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 definitive Proxy Statement for the Annual
Meeting of Stockholders to be held in 2001, 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)       By-Laws                                                *
        4         Instruments defining the rights of holders,            *
                  including indentures


                                       25
<PAGE>




        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             None
        18        Letter on change in accounting principles             None
        21        Subsidiaries of Registrant                             **
        22        Published report regarding matters submitted to       None
                  vote
        23        Consent of independent accountants                     23
        24        Power of attorney                                 Not required
        28        Information from reports furnished to state           None
                  insurance regulatory authorities
        99        Additional exhibits                               Not required

---------------------
*        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 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.


         (b)  REPORTS ON FORM 8-K

         The Company filed a report on Form 8-K on October 15, 2000 regarding
the release of earnings for September 30, 2000 and a quarterly dividend. The
Company filed reports on Form 8-K on October 23, 2000 and 8-K/A on November 1,
2000 regarding a change in independent accountants.


                                       26
<PAGE>


                                   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 19, 2001                        Date:  March 19, 2001
       ----------------------------                 ----------------------------


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

Date:  March 19, 2001                        Date:  March 19, 2001
       ----------------------------                 ----------------------------


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

Date:  March 19, 2001                        Date:  March 19, 2001
       ----------------------------                 ----------------------------


/s/ Joseph A. Graber                         /s/ Martin W. Trofimuk
-----------------------------------          -----------------------------------
Joseph A. Graber, President and Chief        Martin W. Trofimuk, Vice President
Executive Officer and Director               and Treasurer (PRINCIPAL FINANCIAL
                                             AND ACCOUNTING OFFICER)

Date:  March 19, 2001                        Date:  March 19, 2001
       ----------------------------                 ----------------------------