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 [FEE REQUIRED]

               FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999

                                       OR

[ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

                FOR THE TRANSITION PERIOD FROM _______ TO _______

     COMMISSION FILE NUMBER 0-22800

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

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

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

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

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

                                      None

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

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

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

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

         The Issuer had $9.3 million in gross income for the year ended December
31, 1999.

         As of March 1, 2000, there were issued and outstanding 1,231,270 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, 2000 was approximately $7,820,688. (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, 1999
PART III of Form 10-KSB--Portions of Proxy Statement for the Annual Meeting of
Stockholders for the fiscal year ended December 31, 1999.



<PAGE>




                                      INDEX


<TABLE>
<CAPTION>

PART I                                                                               PAGE
                                                                                     ----
<S>                                                                                  <C>
         Item 1.  Description of Business                                              2

         Item 2.  Description of Properties                                           26

         Item 3.  Legal Proceedings                                                   26

         Item 4.  Submission of Matters to a Vote of Security Holders                 26

PART II

         Item 5.  Market for Registrant's Common Equity and Related
                  Stockholder Matters                                                 27

         Item 6.  Management's Discussion and Analysis or Plan of Operation           27

         Item 7.  Financial Statements                                                27

         Item 8.  Changes in and Disagreements with Accountants on Accounting
                  and Financial Disclosures                                           27

PART III

         Item 9.  Directors, Executive Officers, Promoters and Control Person;
                  Compliance with Section 16 (a) of the Exchange Act                  27

         Item 10. Executive Compensation                                              27

         Item 11. Security Ownership of Certain Beneficial Owners and Management      27

         Item 12. Certain Relationships and Related Transactions                      28

         Item 13. Exhibits and Reports on Form 8-K                                    28


SIGNATURES                                                                            30


</TABLE>
                                        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"). On December 29, 1997, the
Company's Common Stock was split three-for-two in the form of a 50% stock
dividend. There were 1,231,207 shares of common stock outstanding at December
31, 1999. 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
National 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, 1999,
the Company had total consolidated assets of $130.7 million, deposits of $76.5
million, and stockholders' equity of $11.3 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 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, small apartment buildings, and mortgage-backed and investment
securities. The Company also originates or acquires participations in,
multi-family, consumer and commercial loans.

         The Company's revenues are derived principally from interest on
mortgage loans, investments, mortgage-backed securities, consumer loans,
commercial loans and income from 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 page at www.northfederal.com.


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

                                        2

<PAGE>

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.


YEAR 2000

         The Year 2000 issue arose from the inability of some computer systems
to recognize the year 2000. Many computer programs and systems originally were
programmed with six digit dates that provided only two digits to identify the
calendar year in the date field.

         The Company experienced no problems with hardware or software systems
at the beginning of the year 2000 and continues to experience no problems or
issues related to the millenium issue. The Company is not aware of any borrowers
incurring significant Year 2000 issues or any vendors used by the Company which
have incurred significant Year 2000 issues. The Company spent approximately
$40,000 on Year 2000 related hardware, software and contingency planning over
the past two years.

         A contingency plan, which involves processing transactions at the
third-party data processors back-up recovery site, disaster recovery programs in
the event of electrical failures, manual bookkeeping systems and additional cash
requirements was approved by the board of directors and will be maintained by
management during the year 2000 in the event that unanticipated Year 2000 issues
arise.


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 residences. At December 31, 1999, the Bank's total loans
outstanding totaled $89.4 million, of which $76.3 million, or 85.4%, were one-
to four-family residential mortgage loans. Of the one- to four-family mortgage
loans outstanding at that date, 82.1% were fixed-rate loans (69.2% of total
gross loans receivable), including balloon loans, and 17.9% were adjustable-rate
loans (16.2% of total gross loans receivable). At that same date, multi-family
residential mortgage loans totaled $10.5 million, of which $10.2 million were
fixed-rate balloon loans.

         At December 31, 1999, the balance of the Bank's loans included of $2.6
million in consumer and commercial real estate loans, which represented 2.9% of
the Bank's gross loan portfolio.

         The Bank also invests in mortgage-backed securities. At December 31,
1999, mortgage-backed securities, available for sale totaled $15.3 million or
11.7% of total assets. At such date, all

                                        3

<PAGE>

of the mortgage-backed securities portfolio was insured or guaranteed by Ginnie
Mae, Freddie Mac or Fannie Mae.

         All loans must be approved by a committee comprised of four officers,
one of whom is a director of the Bank. Requests for loans greater than
$1,000,000 are reviewed and considered for approval by the Board of Directors 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,
1999, the maximum amount which the Bank could have lent under this limit to any
one borrower and the borrower's related entities was approximately $1.8 million.
At December 31, 1999, 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, 1999 consisted of three loans to one
individual totaling $1.2 million. All three 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 $1.1 million, $1.0
million and $945,000, 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, 1999.








                                        4

<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,
                                         ------------------------------------------------------------
                                                1999                 1998                1997
                                         -------------------    ----------------     ----------------
                                         AMOUNT      PERCENT    AMOUNT   PERCENT     AMOUNT   PERCENT
                                         ------      -------    ------   -------     ------   -------
                                                             (DOLLARS IN THOUSANDS)
<S>                                      <C>          <C>      <C>         <C>      <C>         <C>
REAL ESTATE LOANS:
 One- to four-family...............      $76,287(1)   85.35%   $73,568     89.19%   $71,770     90.49%
 Multi-family......................       10,548(2)   11.80      7,098      8.60      6,459      8.14
                                         -------      -----    -------     -----    -------     -----
    Total real estate loans........       86,835      97.15     80,666     97.79     78,229     98.63
                                         -------      -----    -------     -----    -------     -----

CONSUMER LOANS:
 Deposit account...................          104       0.12        102      0.12        127      0.16
 Automobile........................           16        .02         --        --          1        --
 Home equity and home
  improvement......................        1,485       1.65        714      0.87        154      0.19
                                         -------      -----    -------     -----    -------     -----
 Total consumer loans..............        1,605       1.79        816      0.99        282      0.35
                                         -------      -----    -------     -----    -------     -----


 COMMERCIAL LOANS..................          945       1.06      1,007      1.22        806      1.02
                                         -------      -----    -------     -----    -------     -----
 Total loans receivable............       89,385     100.00%    82,489    100.00%    79,317    100.00%
                                         -------     ======    -------    ======    -------    ======
 LESS:
 Deferred fees and discounts.......          165                   152                   78
 Allowance for loan losses.........          231                   214                  208
                                         -------               -------              -------
   Total loans receivable, net.....      $88,989               $82,123              $79,031
                                         =======               =======              =======

MORTGAGE-BACKED
SECURITIES:
 FNMA..............................        2,373      15.57%     1,638     10.69%       934     16.06%
 GNMA..............................           23        .15        121       .79        182      3.13
 FHLMC.............................       12,842      84.28     13,564     88.52      4,699     80.81
                                         -------      -----    -------     -----    -------     -----
    Total mortgage-backed
     securities....................       15,238     100.00%    15,323    100.00%     5,815    100.00%
                                                     ======               ======               ======

Net premiums ......................           97                   112                   26
                                         -------               -------              -------

Net mortgage-backed                      $15,335               $15,435              $ 5,841
 securities........................      =======               =======              =======


</TABLE>
-----------------------
(1)  This amount includes a total of $4.9 million of 5, 7 and 10 year balloon
     loans.

(2)  This amount includes a total of $10.2 million of 5, 7 and 10 year balloon
     loans.



                                        5

<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,
                                        -------------------------------------------------------------------------
                                                  1999                      1998                    1997
                                        ------------------------    --------------------    ---------------------
                                           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...................    $61,823(1)    69.16%   $58,312       70.69%    $50,707         63.93%
  Multi-family..........................     10,118(2)    11.32      7,098        8.61       6,459          8.14
                                            -------       -----    -------       -----     -------         -----
   Total fixed-rate real estate loans...     71,941       80.48     65,410       79.30      57,166         72.07
  Consumer..............................        511        0.57        341        0.41         222          0.28
  Commercial............................        945        1.06      1,007        1.22         806          1.02
                                            -------       -----    -------       -----     -------         -----
   Total fixed-rate loans...............     73,397       82.11     66,758       80.93      58,194         73.37
                                            -------       -----    -------       -----     -------         -----

ADJUSTABLE-RATE LOANS:
 Real estate:
  One- to four-family...................     14,464       16.18     15,256       18.49      21,063         26.56
  Multi-family..........................        430         .48         --          --          --            --
  Consumer..............................      1,094        1.23        475         .58          60           .07
                                            -------       -----    -------       -----     -------         -----
   Total adjustable rate loans..........     15,988       17.89     15,731       19.07      21,123         26.63
                                            -------       -----    -------       -----     -------         -----

    Total loans receivable..............     89,385      100.00%    82,489      100.00%     79,317        100.00%
                                                         ======                 ======                    ======

LESS:
 Deferred fees and discounts............        165                    152                      78
 Allowance for loan losses..............        231                    214                     208
                                            -------                -------                 -------
  Total loans receivable, net...........    $88,989                $82,123                 $79,031
                                            =======                =======                 =======

</TABLE>

-----------------------
(1)  This amount includes a total of $4.9 million of 5, 7 and 10 year balloon
     loans.

(2)  This amount includes a total of $10.2 million of 5, 7 and 10 year balloon
     loans.

                                        6

<PAGE>



         The following schedule illustrates the interest rate sensitivity of the
Bank's loan portfolio at December 31, 1999. 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, 2000 which
have a pre-determined interest rate is $71.4 million, while the amount of loans
due after such date with floating rates is $16.0 million.


<TABLE>
<CAPTION>
                                          Real Estate
                                -----------------------------------
                                One- to   four-family  Multi-family          Consumer            Commercial          Total
                                --------- -----------  ------------          --------            ----------          -----
                                           Weighted          Weighted            Weighted             Weighted          Weighted
                                           Average           Average             Average              Average           Average
                                Amount      Rate     Amount   Rate       Amount   Rate       Amount    Rate     Amount   Rate
                                ------      ----     ------   ----       ------   ----       ------    ----     ------   ----
                                                                       (Dollars in Thousands)
<S>                               <C>        <C>   <C>        <C>           <C>   <C>        <C>     <C>      <C>          <C>
   Due During Periods Ending
         December 31,
------------------------------
2000(1).......................    $   620    7.81% $ 1,062    8.40%    $    3     4.83%      $945    10.00%   $ 2,630      8.83%
2001..........................      1,976    7.32      410    8.44         15     4.79         --     0.00      2,401      7.50
2002..........................        408    8.09      629    8.09         46     8.14         --     0.00      1,083      8.09
2003 and 2004.................      1,952    7.50    4,120    7.72      1,150     8.35         --     0.00      7,222      7.76
2005 to 2009..................      5,586    7.51    4,327    7.64         33     8.13         --     0.00      9,946      7.57
2010 to 2014..................      7,341    7.05       --    0.00        358     7.88         --     0.00      7,699      7.09
2015 and following............     58,404    7.26       --    0.00         --     0.00         --     0.00     58,404      7.26
                                  -------    ----  -------    ----     ------     ----       ----    -----    -------      ----
                                  $76,287    7.27% $10,548    7.81%    $1,605     8.19%      $945    10.00%   $89,385      7.39%
                                  =======    ====  =======    ====     ======     ====       ====    =====    =======      ====

</TABLE>

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



                                        7

<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, 1999, $76.3 million, or
85.3%, 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
1999, 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 25 of
these loans totaling $6.8 million during 1999 and plans to continue to emphasize
this type of lending during 2000.

         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, 1999, the total balance of one- to four-family
ARMs, which includes equity lines of credit, was $14.5 million, or 16.2% 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 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.

         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
permanent loans secured by multi-family real estate. At December 31, 1999, the
Bank had multi-family real estate loans totaling $10.6 million, or 11.8% of the
Bank's gross loan portfolio. The largest multi-family loan at December 31, 1999
was $1.0 million and represented a 50% participation with a local financial
institution. At December 31, 1999, the Bank had no multi-family real estate
loans which were over 30 days delinquent.

         Permanent multi-family real estate loans currently originated by the
Bank have a maximum maturity of 10 years, with most having maturities ranging
from 5 to 10 years. Most of the multi-family real estate loans amortize over a
25 year period. Rates on permanent loans are fixed, based



                                        8

<PAGE>



on competitive factors. Multi-family real estate loans are generally written in
amounts of up to 75% of the appraised value of the property, and borrowers are
personally liable for all of the indebtedness.

         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.

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 and home improvement loans. The
Bank placed increased emphasis on consumer loans during 1999 and plans to
continue to emphasize this type of lending during 2000, particularly home equity
and rehabilitation loans, because of their attractive yields, shorter terms to
maturity, and community need. At December 31, 1999, $1.6 million or 1.8% of the
Bank's gross loan portfolio, consisted of consumer loans compared with $816,000
or .99% at December 31, 1998.

         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,
1999, the Bank had $391,000 of home equity loans outstanding, or .44% of the
Bank's gross loan portfolio.

         The Bank's home equity line of credit loans, which were first
introduced in the third quarter of 1997 and the Bank's investor equity line of
credit loans, introduced in the second quarter of 1998, 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, 1999, the Bank had $1.1 million
of outstanding line of credit loans and $1.7 million in unused credit line
commitments compared with $475,000 of outstanding line of credit loans and
$695,000 in unused credit line commitments at December 31, 1998.

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



                                        9

<PAGE>


laws, may limit the amount which can be recovered on such loans. Although the
Bank had no delinquent consumer loans at December 31, 1999 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, 1999, the
outstanding line of credit amounted to $1.5 million and the balance was
$945,000. The line of credit carries a fixed rate of interest on a one-year
renewable basis and was current as of December 31, 1999. 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. The Bank intends to expand its commercial lending activities, subject
to customer demand and the existence of qualified borrowers.

MORTGAGE-BACKED SECURITIES

         The Bank purchases mortgage-backed securities to complement its
mortgage lending activities. At December 31, 1999, mortgage-backed securities
available for sale totaled $15.3 million, or 11.7% 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, 1999 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.





                                       10

<PAGE>



         The following table sets forth the contractual maturities of the Bank's
mortgage-backed securities at December 31, 1999. Mortgage- backed securities
having adjustable interest rates are shown as maturing in the period during
which the security is repricing.




<TABLE>
<CAPTION>

                                                                           DUE IN                                       December 31,
                         --------------------------------------------------------------------------------------------       1999
                         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                  $  --            $ 99          $ 46           $ 3         $ 892         $11,896        $  --       $12,936

   FNMA                    458              --            --            --            --           1,918           --         2,376

   GNMA                     --              --            23            --            --              --           --            23
                         -----            ----          ----            --         -----         -------        -----       -------

   Total                 $ 458            $ 99          $ 69           $ 3         $ 892         $13,814        $  --       $15,335
                         =====            ====          ====           ===         =====         =======        =====       =======


</TABLE>



                                       11

<PAGE>




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,
                                                     -----------------------------------
                                                       1999          1998         1997
                                                     --------      --------     --------
                                                                  (IN THOUSANDS)

<S>                                                  <C>           <C>          <C>
Loans receivable (gross) at beginning of period...   $ 82,489      $ 79,317     $ 73,628
                                                     --------      --------     --------

Originations and purchases by type:
-----------------------------------
Fixed Rate:
  Real estate - one- to four-family...............     13,470        23,889        8,746
                  - multi-family..................      3,464         3,106        2,519
                  - consumer and commercial.......      1,997         1,143          274
  Non-real estate - consumer and commercial.......         54            78           81
                                                     --------      --------     --------
    Total fixed rate loans originated.............     18,985        28,216       11,620
Adjustable Rate:
  Real estate - one- to four-family...............      4,554         2,828        6,473
                  - multi-family..................        430            --           --
                                                     --------      --------     --------
    Total adjustable rate loans originated........      4,984         2,828        6,473
    Sales.........................................         --           230           --

Principal repayments..............................     17,073        27,642       12,404
                                                                   --------     --------
     Total loans at end of period.................   $ 89,385      $ 82,489     $ 79,317
                                                     ========      ========     ========

Mortgage-backed securities (net) at beginning of
period...........................................    $ 15,435      $  5,841     $  7,465

  Purchases......................................       3,627        11,097           --
  Repayments.....................................       1,761         1,354        1,628
  Sales..........................................       2,005            --           --
  Change in unrealized gain (loss) on mortgage-
   backed securities available-for-sale..........        (774)           73           --
  Amortization of premiums and discounts.........           6            76            4
                                                     --------      --------     --------
     Mortgage-backed securities (net) at end of
     period......................................    $ 14,528      $ 15,435     $  5,841
                                                     ========       =======      =======

</TABLE>






                                       12

<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, the Bank usually sends a default letter to the borrower and,
after 90 days, 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, 1999, the Bank had no loans more than
90 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,
                                          -------------------------------------------------
                                          1999       1998       1997       1996       1995
                                          -----      -----      -----      -----      -----
                                                      (DOLLARS IN THOUSANDS)
<S>                                       <C>        <C>        <C>        <C>        <C>
Non-performing loans:
  One- to four-family..................   $  --      $  24      $  --      $  --      $  24
  Consumer.............................      --         --         --          1         --
                                          -----      -----      -----      -----      -----
     Total non-performing assets.......   $  --      $  24      $  --      $   1      $  24
                                          =====      =====      =====      =====      =====

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


         OTHER LOANS OF CONCERN. As of December 31, 1999, 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, 1999.

         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




                                       13

<PAGE>




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, 1999.

         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 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 1999, a provision for loss in the amount of $17,000 increased the
allowance for loan losses due to increased 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(f) 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, 1999,
the Bank had an allowance for loan losses of $231,000, which was equal to .26%
of loans receivable.


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


                                            Year Ended December 31,
                                    ----------------------------------------
                                    1999     1998     1997     1996     1995
                                    ----     ----     ----     ----     ----
                                             (DOLLARS IN THOUSANDS)

Balance at beginning of year ..     $214     $208     $208     $200     $160

Charge-offs:
  One- to four-family .........       --       --       --       --       --
  Consumer ....................       --       --       --       --       --

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

Net charge-offs ...............       --       --       --       --       --
Additions charged to operations       17        6       --        8       40
                                    ----     ----     ----     ----     ----
Balance at end of year ........     $231     $214     $208     $208     $200
                                    ====     ====     ====     ====     ====



         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.







                                       14

<PAGE>



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


<TABLE>
<CAPTION>
                                                        AT DECEMBER 31,
                                       ------------------------------------------------
                                       1999       1998      1997         1996      1995
                                       ----       ----      ----         ----      ----
                                                    (Dollars in Thousands)
<S>                                    <C>        <C>       <C>          <C>       <C>
Unallocated.........................   $231       $214      $208         $208      $200
                                       ----       ----      ----         ----      ----
     Total..........................   $231       $214      $208         $208      $200
                                       ====       ====      ====         ====      ====
</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
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 assure 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, 1999, the Company's interest-bearing deposits with
banks and dollar denominated money market accounts totaled $1.7 million, or 1.3%
of total assets. Investment securities, consisting of U.S. government
securities, federal agency obligations and FHLB stock, totaled $19.3 million, or
14.8% of total assets, and investment in federal funds sold totaled $2.4 million
or 1.8% 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, 1999, the weighted average term to maturity or
repricing of the investment portfolio, excluding FHLB stock, equity securities
and mortgage-backed securities, was two months.




                                       15

<PAGE>




         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,
                                                 ------------------------------------------------------------------------------
                                                           1999                     1998                        1997
                                                 ------------------------------------------------------------------------------
                                                  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 ..........   $   16,436        85.36%   $   13,922        83.95%   $   22,630        90.69%
  FHLB stock .................................        2,205        11.45         1,705        10.28         1,705         6.83
  Other ......................................           63         0.33           100         0.60           200         0.80
  Equity securities ..........................          551         2.86           858         5.17           420         1.68
                                                 ----------   ----------    ----------   ----------    ----------   ----------

    Total investment securities and FHLB stock   $   19,255       100.00%   $   16,585       100.00%   $   24,955       100.00%
                                                 ==========   ==========    ==========   ==========    ==========   ==========

Other Interest-Earning Assets:
  Interest-bearing deposits with banks .......   $    1,260                 $    2,413                 $    2,937
  Dollar denominated mutual funds ............          466                        801                      1,477
  Federal funds sold .........................        2,439                      5,722                      5,976
                                                 ----------                 ----------                 ----------
     Total ...................................   $    4,165                 $    8,936                 $   10,390
                                                 ==========                 ==========                 ==========

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

</TABLE>

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


<TABLE>
<CAPTION>
                                                          AT DECEMBER 31, 1999
                                     -----------------------------------------------------------
                                                                                  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     $    --     $   503      $17,443      $17,946      $16,436
Other ...........................          --          63           --           63           63
                                      -------     -------      -------      -------      -------
    Total investment securities .     $    --         566      $17,443      $18,009       16,499
                                      =======     =======      =======      =======      =======
Weighted average yield(1) .......          --%       7.22%        6.64%        6.66%
                                                  =======      =======      =======
</TABLE>

-----------------------
(1)  The weighted average yield is based upon the interest rate in effect at
     December 31, 1999.


SOURCES OF FUNDS

         GENERAL. The Bank's primary sources of funds are deposits, borrowings,
amortization and prepayment 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.
North Federal solicits deposits from its market area only.



                                       16

<PAGE>


         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.

         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, 1999. 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,
                                               ----------------------------------------------------------------------------
                                                        1999                   1998                     1997
                                               ----------------------------------------------------------------------------
                                                                 PERCENT              PERCENT                      PERCENT
                                                    AMOUNT       OF TOTAL   AMOUNT    OF TOTAL      AMOUNT         OF TOTAL
                                               ----------------------------------------------------------------------------
                                                                        (DOLLARS IN THOUSANDS)
TRANSACTION AND SAVINGS DEPOSITS:
---------------------------------

<S>                                                 <C>            <C>      <C>         <C>         <C>               <C>
Passbook Accounts 2.75%........................     $13,088        17.1%    $13,642      17.9%      $15,282           20.4%
NOW Accounts 2.02%.............................       8,592        11.2       8,740      11.5         8,429           11.2

Non-Interest Bearing Demand Accounts...........       2,278         3.0       1,789       2.3         1,208            1.6

Money Market Deposit Accounts 0.00% -5.25%.....      15,704        20.5      10,143      13.3         5,544            7.4
                                                    -------       -----     -------     -----       -------          -----

Total Non-Certificates.........................      39,662        51.8      34,314      45.0        30,463           40.6
                                                    -------       -----     -------     -----       -------          -----

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

 0.00 -  4.99%.................................      13,074        17.1       6,076       8.0           885            1.2
 5.00 -  5.99%.................................      14,728        19.3      24,714      32.4        30,775           41.0
 6.00 -  6.99%.................................       5,460         7.1       6,889       9.0         9,043           12.1
 7.00 -  7.99%.................................       3,297         4.3       3,919       5.2         3,764            5.0
 8.00 -  8.99%.................................         285         0.4         310       0.4           111            0.1
                                                    -------       -----     -------     -----       -------          -----

Total Certificates.............................      36,844        48.2      41,908      55.0        45,578           59.4
                                                    -------       -----     -------     -----       -------          -----
Total Deposits.................................     $76,506       100.0%    $76,222     100.0%      $75,041          100.0%
                                                    =======       =====     =======    ======       =======         ======

</TABLE>




                                       17

<PAGE>

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



<TABLE>
<CAPTION>
                                                  YEAR ENDED DECEMBER 31,
                                        ------------------------------------

                                          1999          1998         1997
                                        ------------------------------------
                                                (DOLLARS IN THOUSANDS)
<S>                                     <C>           <C>           <C>
Opening balance ...................     $ 76,222      $ 75,041      $ 73,611
Deposits ..........................      134,200       117,369       108,398
Withdrawals .......................      137,136       119,251       110,169
Interest credited .................        3,220         3,063         3,201
                                        --------      --------      --------
Ending balance ....................     $ 76,506      $ 76,222      $ 75,041
                                        ========      ========      ========

Net increase (decrease) ...........     $    284      $  1,181      $  1,430
                                        ========      ========      ========

Percent increase (decrease) .......         0.37%         1.57%         1.94%
                                        ========      ========      ========
</TABLE>


         The following table shows rate and maturity information for the Bank's
certificates of deposit as of December 31, 1999.



<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, 2000 ..........     $ 5,512      $ 1,110      $    --      $ 1,464      $    --      $ 8,086          21.95%
June 30, 2000 ...........       4,896          479          353        1,614           --        7,342          19.93
September 30, 2000 ......         945        5,439          930           --           --        7,314          19.85
December 31, 2000 .......         292        2,266          443           24           --        3,025           8.21
March 31, 2001 ..........         718          696           --           --           --        1,414           3.84
June 30, 2001 ...........         296          412           12           14           --          734           1.99
September 31, 2001 ......         189           67          188           --           --          444           1.20
December 31, 2001 .......          75          283          400            6           --          764           2.07
March 31, 2002 ..........          99          557          408          120           27        1,211           3.29
June 30, 2002 ...........          29          379          294           --           --          702           1.91
September 30, 2002 ......          --           71        1,189           20           59        1,339           3.63
December 31, 2002 .......          --           69          301           35           43          448           1.22
Thereafter ..............          23        2,900          942           --          156        4,021          10.91
                              -------      -------      -------      -------      -------      -------         ------
   Total ................     $13,074      $14,728      $ 5,460      $ 3,297      $   285      $36,844         100.00%
                              =======      =======      =======      =======      =======      =======         ======
   Percent of total .....       35.49%       39.97%       14.82%        8.95%        0.77%      100.00%
                              =======      =======      =======      =======      =======      =======
</TABLE>



                                       18

<PAGE>



         The following table indicates the amount of the Bank's certificates of
deposit by time remaining until maturity as of December 31, 1999.


<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 ..........................     $ 7,116     $ 5,945     $ 8,694     $ 9,155     $30,910

CERTIFICATES OF DEPOSIT OF $100,000
 OR GREATER ........................         970       1,397       1,645       1,922       5,934
                                         -------     -------     -------     -------     -------

TOTAL CERTIFICATES OF DEPOSIT ......     $ 8,086     $ 7,342     $10,339     $11,077     $36,844
                                         =======     =======     =======     =======     =======
</TABLE>

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
capital stock in the FHLB of Chicago and certain of its 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, 1999, the Bank's FHLB of
Chicago advances totaled $41.1 million.

         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,
                                                             -------------------------------------------------
                                                                 1999                1998               1997
                                                              ------------------------------------------------
                                                                            (DOLLARS IN THOUSANDS)

FHLB OF CHICAGO ADVANCES

<S>                                                            <C>                 <C>                  <C>
Average balance outstanding.........................           $ 38,292            $ 32,792           $ 28,192
Maximum amount outstanding at any month
         end during the year........................             41,100              37,100             34,100
Balance outstanding at end of year..................             41,100              34,100             29,100
Weighted average interest rate during the
         year.......................................               5.39%               5.61%              6.29%
Weighted average interest rate at end of
         year.......................................               5.48%               5.34%              5.82%

</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, 1999 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



                                       19

<PAGE>



its subsidiary was $12 at December 31, 1999. For the year ended December 31,
1999, North Financial Corporation had net income of $1.



                                   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 March 31, 1998 and November 10, 1990, respectively. Under agency
scheduling guidelines, it is likely that another examination will be initiated
in the near future. When examinations are conducted by the OTS and the FDIC, the
examiners may require an association to provide for higher general or specific
loan loss reserves. All savings associations are subject to a semi-annual
assessment, based upon the savings association's total assets, to fund the
operations of the OTS.

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

         The Bank's general permissible lending limit for loans-to-one-borrower
is equal to the greater of $500,000 or 15% of unimpaired capital and surplus
(except for loans fully secured by certain readily marketable collateral, in
which case this limit is increased to 25% of unimpaired capital and surplus). At
December 31, 1999, the Bank's lending limit under this restriction was $3.1
million. North Federal is in compliance with the loans-to-one-borrower
limitation.


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



                                       20

<PAGE>


premium. Risk classification of all insured institutions will be made by the
FDIC for each semi-annual assessment period. At December 31, 1999, the Bank was
classified as a well-capitalized institution.

         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, in the amount equal to 6.48 basis points for each $100 in domestic
deposits, while BIF-insured institutions pay an assessment equal to 1.52 basis
points for each $100 in domestic deposits. It is expected that the assessment
will soon be changed to approximately 2 basis points for all insured
institutions regardless of fund. These assessments, which may be revised based
upon the level of BIF and SAIF deposits, will continue until the bonds mature in
2017.

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, 1999, the Bank
had tangible capital of $11.9 million, or 9.0% of adjusted total assets, which
is approximately $9.9 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, 1999, North Federal had core capital equal to $11.9
million, or 9.0% of adjusted total assets, which is $8.0 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, 1999.

         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 the Fannie Mae or Freddie
Mac.

         On December 31, 1999, North Federal had total capital of $12.1 million
(including $11.9 million in core capital and $231,000 in qualifying
supplementary capital) and risk-weighted assets of $56.9 million or total
capital of 21.4% of risk-weighted assets. This amount was $7.6 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. 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.




                                       21

<PAGE>


         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.


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, 1999, 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.


                                       22

<PAGE>


An unsatisfactory rating may be used as the basis for the denial of an
application by the OTS. The Bank received a satisfactory CRA rating on its most
recent CRA compliance examination.


HOLDING COMPANY REGULATION

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

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

         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, 1999, the Bank had $2.2 million in FHLB
stock, which was in compliance with this requirement.

         For the year ended December 31, 1999, dividends paid by the FHLB of
Chicago to North Federal totaled $129,000. The $40,000 dividend received for the
quarter ended December 31, 1999 reflects an annualized rate of 7.50%.


                                       23

<PAGE>


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.


RECENT 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


                                       24

<PAGE>



negates the deferral of income resulting from the regular tax treatment of those
items. Thus, the Bank's AMTI is increased by an amount equal to 75% of the
amount by which the Bank's adjusted current earnings exceeds its AMTI
(determined without regard to this adjustment and prior to reduction for net
operating losses). In addition, for taxable years beginning after December 31,
1986 and before January 1, 1996, an environmental tax of 0.12% of the excess of
AMTI (with certain modifications) over $2 million is imposed on corporations,
including the Bank, whether or not an AMT is paid. Under pending legislative
proposals, the environmental tax would be extended to taxable years beginning
before January 1, 2007. The Bank does not expect to be subject to the AMT, but
may be subject to the environmental tax liability.

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


STATE AND LOCAL TAXATION

         STATE OF ILLINOIS. The Company and the Bank file a combined unitary
Illinois income tax return. For Illinois income tax purposes the Company and the
Bank are taxed at an effective rate equal to 7.3% 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 all of its 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.


EMPLOYEES

         At December 31, 1999, the Company had a total of 37 employees,
including two part-time employees. Management considers its employee relations
to be excellent.

                                       25

<PAGE>


EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS

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

         VICTOR E. CAPUTO - Mr. Caputo, age 55, 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 51, joined the Bank as Senior Vice
President and Loan Department Manager in March 2000. He has been involved in
loan origination, operations and management for over 25 years. Prior to joining
the Bank he was Senior Vice President of LaSalle National Bank of Chicago where
he was responsible for nationwide commercial mortgage production. He has also
held executive level lending positions at Savings of America and Exchange
National Bank of Chicago. He is a graduate of the University of Illinois and has
attended the University of Wisconsin and Ohio State University.

         MARTIN W. TROFIMUK - Mr. Trofimuk, age 39, 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 32, 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. The Bank also owns a parking lot at 1635 N. Clark St., Chicago,
Illinois. As of December 31, 1999, the net book value of the Bank's investment
in premises, equipment and leaseholds was approximately $1,020,706. On February
25, 2000, the Bank entered into an agreement to sell the parking lot at 1635 N.
Clark St. for $1.5 million. The transaction is expected to close in the second
quarter of 2000.


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.


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,
1999.


                                       26

<PAGE>



                                     PART II

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

         Page 47 of the Company's 1999 Annual Report to Stockholders is
incorporated by reference.

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

         Pages 4 through 15 of the Company's 1999 Annual Report to Stockholders
are incorporated by reference.

ITEM 7.  FINANCIAL STATEMENTS

         Pages 16 through 46 of the Company's 1999 Annual Report to Stockholders
are incorporated by reference.

ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE

         There has been no Current Report on Form 8-K filed within 24 months
prior to the date of the most recent financial statements reporting a change of
accountants and/or reporting disagreements on any matter of accounting principle
or financial statement disclosure.

                                    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 2000, 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, 1999, 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 2000, 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 2000, a copy of which will
has been filed with the Securities and Exchange Commission.


                                       27

<PAGE>


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 2000, a copy of which has been filed with
the Securities and Exchange Commission.

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

         (a)   EXHIBITS



<TABLE>
<CAPTION>
                                                                             REFERENCE TO
                                                                             PRIOR FILING
                                                                              OR EXHIBIT
    REGULATION                                                                  NUMBER
   S-B EXHIBIT                                                                 ATTACHED
      NUMBER                              DOCUMENT                              HERETO
--------------------------------------------------------------------------------------
<S>               <C>                                                            <C>
        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
        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
        27        Financial data schedule                                         27
        28        Information from reports furnished to state                    None
                  insurance regulatory authorities
        99        Additional exhibits                                        Not required

</TABLE>

-----------------------
*        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, 1999 regarding
the release of earnings for September 30, 1999 and a quarterly dividend.

                                       28

<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
-----------------------------------
Mary Ann Hass, Chairman

Date:    March 30, 2000
         --------------------------



/s/ James L. Ferstel
-----------------------------------
James L. Ferstel, Director

Date:    March 30, 2000
         --------------------------



/s/ Robert H. Rusher
-----------------------------------
 Robert H. Rusher, Director

Date:    March 30, 2000
         --------------------------



/s/ Elmer L. Hass
-----------------------------------
 Elmer L. Hass, Director

Date:    March 30, 2000
         --------------------------



/s/ Gregory W. Rose
-----------------------------------
Gregory W. Rose, Director

Date:    March 30, 2000
         --------------------------



/s/ Joseph A. Graber
-----------------------------------
Joseph A. Graber, President and Chief
Executive Officer and Director

Date:    March 30, 2000
         --------------------------



/s/ Frank J. Donati
-----------------------------------
Frank J. Donati, Director

Date:    March 30, 2000
         --------------------------


/s/ Martin W. Trofimuk
-----------------------------------
Martin W. Trofimuk, Vice President and
Treasurer(PRINCIPAL FINANCIAL AND ACCOUNTING
OFFICER)

Date:    March 30, 2000
         --------------------------