S-4

As filed with the Securities and Exchange Commission on June 27, 2003

Registration No. 333-          

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM S-4

REGISTRATION STATEMENT

Under

The Securities Act of 1933

KANKAKEE BANCORP, INC.

(Exact name of registrant as specified in its charter)

Delaware	6712	36-3846489
(State or other jurisdiction of incorporation or organization)	(Primary Standard Industrial Classification Code Number)	(I.R.S. Employer Identification No.)

310 South Schuyler Avenue, Kankakee, Illinois 60901 (815) 937-4440

(Address, including zip code and telephone number, including area code, of registrant’s principal executive offices)

Carol S. Hoekstra, Executive Vice President

Kankakee Bancorp, Inc.

310 South Schuyler Avenue

Kankakee, Illinois 60901

(815) 937-4440

(name, address, including zip code, and telephone number, including area code, of agent for service)

With copies to:

John E. Freechack, Esq. Karyn L. Doerfler, Esq. Barack Ferrazzano Kirschbaum Perlman & Nagelberg LLC 333 West Wacker Drive, Suite 2700 Chicago, Illinois 60606 Phone: (312) 984-3100 Fax: (312) 984-3150 Thomas A. Litz, Esq. Thomas E. Proost, Esq. Thompson Coburn LLP One US Bank Plaza, Suite 3400 St. Louis, Missouri 63101 Phone: (314) 552-6000 Fax: (314) 552-7000

Approximate date of commencement of proposed sale of securities to the public:    As soon as practicable after this Registration Statement becomes effective.

If the securities being registered on this form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box.  ¨

If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

CALCULATION OF REGISTRATION FEE

Title of Each Class of Securities to be Registered	Amount to be Registered(1)	Proposed Maximum Offering Price Per Share(2)	Proposed Maximum Aggregate Offering Price(2)		Amount of Registration Fee
Common stock, $.01 par value	350,196 shares	$ 21.63 value per share	$	7,574,739	$	613

(1) Represents the estimated maximum number of shares to be issued pursuant to the agreement and plan of merger dated as of May 27, 2003, between Kankakee Bancorp, Inc., a Delaware corporation, and Aviston Financial Corporation, an Illinois corporation.

(2) Estimated solely for the purpose of calculating the registration fee pursuant to Rules 457(c) and (f)(2) of Regulation C under the Securities Act of 1933, as amended, and calculated as the book value per share of Aviston Financial Corporation common stock as of May 31, 2003, for each of the 495,326 shares of Aviston Financial Corporation common stock, the maximum number of shares outstanding at the effective time of the merger, to be exchanged for the common stock of the registrant pursuant to the merger agreement.

DELAYING AMENDMENT: The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

Proxy Statement for the Special Meeting of Stockholders of Kankakee Bancorp, Inc. Proxy Statement for the Special Meeting of Stockholders of Aviston Financial Corporation

Prospectus of Kankakee Bancorp, Inc.

In Connection With an Offering of Up

to 350,196 Shares of its Common Stock

The boards of directors of Kankakee Bancorp, Inc. and Aviston Financial Corporation have approved a merger agreement that would result in Aviston Financial’s tax-free merger with and into Kankakee Bancorp. As a result of the merger, each outstanding share of Aviston Financial common stock will be converted into the right to receive 0.707 shares of Kankakee Bancorp common stock. As soon after the completion of the merger as possible, we will also merge our respective subsidiary depository institutions into a single commercial bank.

Kankakee Bancorp common stock is traded on the American Stock Exchange under the symbol “KNK.” The closing price of Kankakee Bancorp common stock on                         , 2003 was $            .

To complete this merger, we must obtain the necessary government approvals and the approvals of the stockholders of both Kankakee Bancorp and Aviston Financial. Each of our companies will hold a special meeting of our respective stockholders to vote on the agreement and plan of merger and the transactions it contemplates. Your vote is very important. Whether or not you plan to attend your company’s special meeting, please take the time to vote by completing and mailing the enclosed proxy card to us. The dates, times and places of the meetings are as follows:

For Kankakee Bancorp stockholders:                             , 2003     :00     .m., local time Barack Ferrazzano Kirschbaum Perlman & Nagelberg LLC 333 W. Wacker Drive, Suite 2700 Chicago, Illinois 60606	For Aviston Financial stockholders:                             , 2003     :00     .m., local time State Bank of Aviston 101 South Page Street Aviston, Illinois 62216
Kankakee Bancorp’s board of directors unanimously recommends that Kankakee Bancorp stockholders vote FOR approval of the merger agreement and the transactions it contemplates and adoption of the amendments to the certificate of incorporation.	Aviston Financial’s board of directors unanimously recommends that Aviston Financial stockholders vote FOR approval of the merger agreement and the transactions it contemplates.

For a description of the significant considerations in connection with the merger and related matters described in this document, see “Risk Factors” beginning on page     .

We encourage you to read this entire document carefully. This joint proxy statement-prospectus gives you detailed information about the merger and the amendments to Kankakee Bancorp’s certificate of incorporation its board of directors is proposing, and it includes a copy of our merger agreement as Appendix A. In addition to the information contained in this joint proxy statement-prospectus about both of our companies, you also can obtain information about Kankakee Bancorp from publicly available documents it has filed with the Securities and Exchange Commission. See “Where You Can Find More Information” beginning on page     .

Carol S. Hoekstra Executive Vice President Kankakee Bancorp, Inc.

Thomas A. Daiber President Aviston Financial Corporation

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of the securities to be issued under this joint proxy statement-prospectus or determined if this joint proxy statement-prospectus is accurate or adequate. Any representation to the contrary is a criminal offense. The securities we are offering through this document are not savings or deposit accounts or other obligations of any bank or non-bank subsidiary of either of our companies, and they are not insured by the Federal Deposit Insurance Corporation, the Bank Insurance Fund or any other governmental agency.

This joint proxy statement-prospectus is dated                 , 2003 and is first being mailed on or about                 , 2003.

Kankakee Bancorp, Inc.

310 South Schuyler Avenue

Kankakee, Illinois 60901

Notice of Special Meeting of Stockholders

To Be Held On                     , 2003

A special meeting of stockholders of Kankakee Bancorp, Inc., a Delaware corporation, will be held at the offices of Barack Ferrazzano Kirschbaum Perlman & Nagelberg LLC, 333 W. Wacker Drive, Suite 2700, Chicago, Illinois 60606, on             , 2003,         :00     .m., local time, for the following purposes:

1. To consider and vote upon a proposal to approve the Agreement and Plan of Merger dated as of May 27, 2003, between Kankakee Bancorp, Inc. and Aviston Financial Corporation, an Illinois corporation, and the transactions contemplated by the Agreement and Plan of Merger, including the merger of Aviston Financial with and into Kankakee Bancorp.

2. To consider and vote upon three amendments to the certificate of incorporation of Kankakee Bancorp, as previously amended, that would:

• Change the name of Kankakee Bancorp to                                 ;

• Increase the number of authorized shares of Kankakee Bancorp common stock from 3.5 million to 5.5 million; and

• Change the manner in which the certificate of incorporation may be amended in the future, as described more fully in the attached joint proxy statement-prospectus.

3. To transact such other business as may properly be brought before the special meeting, or any adjournments or postponements of the special meeting.

The close of business on                     , 2003, has been fixed as the record date for determining those stockholders entitled to vote at the special meeting and any adjournments or postponements of the special meeting. Accordingly, only stockholders of record on such date are entitled to notice of, and to vote at, the special meeting and any adjournments or postponements of the special meeting.

	By Order of the Board of Directors,
	CAROL S. HOEKSTRA
_____________, 2003	Executive Vice President

YOUR VOTE IS VERY IMPORTANT

Whether or not you plan to attend the special meeting in person, please take the time to vote by completing and mailing the enclosed proxy card in the enclosed postage-paid envelope. If you attend the special meeting, you may vote in person if you wish, even if you have previously returned your proxy card.

Your Board of Directors unanimously recommends that you vote FOR approval of the merger agreement and the transactions it contemplates, FOR adoption of the amendment to Kankakee Bancorp’s certificate of incorporation changing its name to                     , FOR adoption of the amendment to Kankakee Bancorp’s certificate of incorporation increasing the number of authorized shares and FOR adoption of the amendment to Kankakee Bancorp’s certificate of incorporation changing the manner in which the certificate of incorporation may be amended in the future.

Aviston Financial Corporation

101 South Page Street

Aviston, Illinois 62216

Notice of Special Meeting of Stockholders To Be Held On                     , 2003

A special meeting of stockholders of Aviston Financial Corporation, an Illinois corporation, will be held at the main branch office of the State Bank of Aviston, 101 South Page St., Aviston, Illinois 62216, on                 , 2003,     :00     .m., local time, for the following purposes:

1. To consider and vote upon a proposal to approve the Agreement and Plan of Merger dated as of May 27, 2003, between Aviston Financial Corporation and Kankakee Bancorp, Inc., a Delaware corporation, and the transactions contemplated by the Agreement and Plan of Merger, including the merger of Aviston Financial with and into Kankakee Bancorp.

2. To transact such other business as may properly be brought before the special meeting, or any adjournments or postponements of the special meeting.

The close of business on                 , 2003, has been fixed as the record date for determining those stockholders entitled to vote at the special meeting and any adjournments or postponements of the special meeting. Accordingly, only stockholders of record on such date are entitled to notice of, and to vote at, the special meeting and any adjournments or postponements of the special meeting.

	By Order of the Board of Directors,
	THOMAS A. DAIBER
_____________________, 2003	President

YOUR VOTE IS VERY IMPORTANT

Whether or not you plan to attend the special meeting in person, please take the time to vote by completing and mailing the enclosed proxy card in the enclosed postage-paid envelope. If you attend the special meeting, you may vote in person if you wish, even if you have previously returned your proxy card.

Your Board of Directors unanimously recommends that you vote FOR approval of the merger agreement and the transactions it contemplates.

TABLE OF CONTENTS

HOW TO OBTAIN ADDITIONAL INFORMATION	1
QUESTIONS AND ANSWERS ABOUT THE MERGER	2
SUMMARY	5
General	5
The Companies	5
Special Meetings	5
Record Date; Vote Required	6
Recommendations to Stockholders	6
Share Ownership of Management and Significant Stockholders	6
The Merger	7
What You Will Receive in the Merger	7
Effect of the Merger on Options	8
Ownership of the Combined Company After the Merger	8
Material Federal Income Tax Consequences	8
Our Reasons for the Merger	8
Dissenters’ Appraisal Rights	8
Effective Time of the Merger	9
Exchange of Stock Certificates	9
Conditions to Completion of the Merger	9
Regulatory Approvals	10
Waiver, Amendment and Termination	10
Management and Operations After the Merger	10
Interests of Certain Persons in the Merger that Differ From Your Interests	10
Accounting Treatment	10
Expenses and Termination Fees	11
Material Differences in the Rights of Stockholders	11
Common Stock Purchase Rights	11
Amendment of Kankakee Bancorp’s Certificate of Incorporation	12
Authority to Adjourn Special Meetings to Solicit Additional Proxies	12
Comparative Market Prices of Common Stock	12
Comparative Per Share Data	13
Market Price Information	14
Historical Market Prices and Dividend Information	15
Unaudited Pro Forma Consolidated Financial Information	16
Selected Financial Data	22
RISK FACTORS	27
Risks Relating to the Merger	27
Post-Merger Risks	28
A WARNING ABOUT FORWARD-LOOKING STATEMENTS	30
INTRODUCTION	31
KANKAKEE BANCORP SPECIAL MEETING	32
Date, Place, Time and Purpose	32
Record Date, Voting Rights, Required Vote and Revocability of Proxies	32
Solicitation of Proxies	33
Authority to Adjourn Special Meetings to Solicit Additional Proxies	33
Recommendation of Kankakee Bancorp Board	33
AVISTON FINANCIAL SPECIAL MEETING	34
Date, Place, Time and Purpose	34
Record Date, Voting Rights, Required Vote and Revocability of Proxies	34
Solicitation of Proxies	35
Authority to Adjourn Special Meetings to Solicit Additional Proxies	35
Recommendation of Aviston Financial Board	35
DESCRIPTION OF TRANSACTION	35
General	35
Effect of the Merger on Options	36
Material Federal Income Tax Consequences of the Merger	36
Background of the Merger	38
Recommendation of the Kankakee Bancorp Board and Kankakee Bancorp’s Reasons for the Merger	43
Recommendation of the Aviston Financial Board and Aviston Financial’s Reasons for the Merger	44
Effective Time of the Merger	45
Dissenters’ Rights	46
Distribution of Kankakee Bancorp Stock Certificates	47
Representations and Warranties	48
Conditions to Completion of the Merger	49
Regulatory Approvals	50
Waiver, Amendment and Termination	51
Conduct of Business Pending the Merger	52
Management and Operations After the Merger	52
Interests of Certain Persons in the Merger	53
Accounting Treatment	55
Expenses and Termination Fees	55
Resales of Kankakee Bancorp Common Stock	56
EFFECT OF THE MERGER ON RIGHTS OF STOCKHOLDERS	56
General	56
Anti-Takeover Provisions Generally	57
Authorized Capital Stock	57
Voting Rights	58
Rights Plan	58
Common Stock Purchase Rights	60
Classification of Board of Directors	60
Size of the Board of Directors; Vacancies; Removal	60
Stockholder Nominations and Proposals	61
Special Meetings	61
Action by Written Consent	61
Dividends	62
Evaluation of Proposals	62
Amendment of Charter Documents	63
Limitations on Director Liability	63
Indemnification	64
Dissenters’ Rights	65
Restrictions on Purchases of Equity Securities	65
Business Combinations	66
AMENDMENT OF KANKAKEE BANCORP’S CERTIFICATE OF INCORPORATION	66

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General	66
Change in Corporate Name	67
Increase in Authorized Stock	67
Amendment Procedure	68
Recommendation of Kankakee Bancorp Board of Directors	69
BUSINESS OF KANKAKEE BANCORP	69
Lending Activities	69
Loan Origination and Processing	71
BUSINESS OF AVISTON FINANCIAL	71
Business of Aviston Financial	71
Management’s Discussion and Analysis of Financial Condition and Results of Operations	72
Consolidated Financial Statements	78
Legal Proceedings	79
Properties	79
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	79
Quantitative and Qualitative Disclosures About Market Risk	79
REGULATORY CONSIDERATIONS	79
General	79
Holding Company Regulation	80
Financial Institution Regulation	82
DESCRIPTION OF KANKAKEE BANCORP CAPITAL STOCK	85
General	85
Dividends	85
Liquidation Rights	85
Common Stock Purchase Rights	86
OTHER MATTERS	86
STOCKHOLDER PROPOSALS	87
EXPERTS	87
CERTAIN OPINIONS	87
WHERE YOU CAN FIND MORE INFORMATION	87
INFORMATION INCORPORATED BY REFERENCE	88
INDEX TO FINANCIAL STATEMENTS OF AVISTON FINANCIAL CORPORATION AND AVISTON BANCORP, INC.	F-1

Appendix A – Agreement and Plan of Merger

Appendix B – Sections 11.65 and 11.70 of the Illinois Business Corporation Act (Appraisal Rights)

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PLEASE NOTE

We have not authorized anyone to provide you with any information other than the information included in this document and the documents to which we refer you. If someone provides you with other information, please do not rely on it as being authorized by us.

This joint proxy statement-prospectus has been prepared as of                 , 2003. You should not assume that the information contained in this document is accurate as of any date other than such date, and neither the mailing to you of this document nor the issuance to you of shares of common stock of the combined company will create any implication to the contrary. However, if there is a material change to information requiring the filing of a post-effective amendment with the Securities and Exchange Commission, you will receive an updated document and your proxy will be resolicited.

The information contained in this joint proxy statement-prospectus pertaining to Kankakee Bancorp was supplied by Kankakee Bancorp, and the information pertaining to Aviston Financial was supplied by Aviston Financial.

HOW TO OBTAIN ADDITIONAL INFORMATION

This joint proxy statement-prospectus incorporates important business and financial information about us that is not included in or delivered with this document. This information is described on page              under “Where You Can Find More Information.” You can obtain free copies of this information by writing or calling:

For Kankakee Bancorp documents: Lynn O’Brien Secretary Kankakee Bancorp, Inc. 310 South Schuyler Avenue Kankakee, Illinois 60901 (Telephone (815) 937-4440) For Aviston Financial documents: Bryan L. Marsh Secretary Aviston Financial Corporation 101 South Page Street Aviston, Illinois 62216 (Telephone (618) 228-7215)

To obtain timely delivery of the documents, you must request the information by                     , 2003.

QUESTIONS AND ANSWERS ABOUT THE MERGER

Q: On what am I being asked to vote?

A: You are being asked to vote on an Agreement and Plan of Merger, which, if approved, will result in Aviston Financial being merged with and into Kankakee Bancorp.

In addition, Kankakee Bancorp stockholders are being asked to adopt three amendments to the certificate of incorporation of Kankakee Bancorp. One of these amendments would change Kankakee Bancorp’s name to                                         . Another of these amendments would increase the number of authorized shares of common stock from 3.5 million to 5.5 million. The third amendment would change the manner in which the certificate of incorporation may be amended in the future.

The adoption of these amendments is not a condition to the completion of the merger. Approval of the merger agreement and the transactions it contemplates is not a condition to the adoption of the amendments.

We also are soliciting proxies that would grant the authority to vote to adjourn the special meeting of your company, if necessary, to solicit additional proxies for approval of the matters to be voted on.

You may also be asked to consider other matters as may properly come before each of our respective special meetings. Neither Kankakee Bancorp nor Aviston Financial knows of any other matters that will be presented for consideration at its special meeting.

Q: Why do Kankakee Bancorp and Aviston Financial want to merge?

A: Kankakee Bancorp is acquiring Aviston Financial because we both believe that by combining our two companies we can create a stronger and more diversified company that provides significant long-term benefits to stockholders and customers alike. In addition, the merger will allow the combined company to expand its presence within the central Illinois and St. Louis metropolitan area.

Q: What will happen to my shares of Kankakee Bancorp?

A: All shares of Kankakee Bancorp will remain outstanding.

Q: What will I receive for my shares of Aviston Financial?

A: You will receive 0.707 shares of Kankakee Bancorp common stock for each share of Aviston Financial common stock that you own at the effective time of the merger. Each share of Kankakee Bancorp common stock that you receive will include all rights that are inherent in and attached to the outstanding shares of Kankakee Bancorp common stock as described in this joint proxy statement-prospectus. Kankakee Bancorp will not issue any fractional shares. Instead of fractional shares, Aviston Financial stockholders will receive cash in an amount determined as described in this joint proxy statement-prospectus.

Q: When do you expect the merger to be completed?

A: We hope to complete the merger late in the third quarter or during the fourth quarter of 2003, or as soon as possible upon the approval of bank regulatory authorities and the satisfaction of other closing conditions.

Q: When and where will the special meetings take place?

A: The Kankakee Bancorp special meeting will be held on             , 2003, at     :00     .m., local time, at the offices of Barack Ferrazzano Kirschbaum Perlman & Nagelberg LLC, 333 W. Wacker Drive, Suite 2700, Chicago, Illinois 60606.

The Aviston Financial special meeting will be held on             , 2003, at     :00     .m., local time, at the main branch office of the State Bank of Aviston, 101 South Page Street, Aviston, Illinois 62216.

Q: Who must approve the proposals at the special meetings?

A: Holders of a majority of the outstanding shares of Kankakee Bancorp common stock as of the close of business on             , 2003, must approve the merger agreement and the transactions it contemplates and adopt the two amendments to Kankakee Bancorp’s certificate of incorporation changing the corporate name and increasing the number of authorized shares of Kankakee Bancorp common stock. Holders of at least 80% of the

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outstanding shares of Kankakee Bancorp common stock as of the close of business on             , 2003, must adopt the amendment to Kankakee Bancorp’s certificate of incorporation changing the manner in which the certificate of incorporation may be amended in the future.

Holders of at least two-thirds of the outstanding shares of Aviston Financial common stock as of the close of business on             , 2003, must approve the merger agreement and the transactions it contemplates.

Q: What are the recommendations of the Kankakee Bancorp Board of Directors and the Aviston Financial Board of Directors?

A: The board of directors of Kankakee Bancorp recommends and encourages its stockholders to vote “FOR” approval of the merger agreement and the transactions it contemplates and “FOR” the adoption of all three of the amendments to Kankakee Bancorp’s certificate of incorporation.

The board of directors of Aviston Financial recommends and encourages its stockholders to vote “FOR” approval of the merger agreement and the transactions it contemplates.

Q: How do the directors and executive officers of Aviston Financial and the directors of Kankakee plan to vote?

A: All of Aviston Financial’s directors and executive officers have agreed to vote their shares in favor of the merger agreement. These individuals collectively hold, as of the record date for the Aviston Financial special meeting, approximately 140,000 shares, or approximately 28.4% of Aviston Financial common stock eligible to vote. The directors of Kankakee Bancorp have indicated that they intend to vote their shares in favor of all of the proposals. For a description of the interests of certain directors and officers of Aviston Financial and Kankakee Bancorp, see “Description of Transaction—Interests of Certain Persons in the Merger” beginning on page     .

Q: What do I need to do now?

A: After reviewing this document, submit your proxy by executing and returning the enclosed proxy card. By submitting your proxy, you authorize the individuals named in the proxy to represent you and vote your shares at your special meeting in accordance with your instructions. Your proxy vote is important. Whether or not you plan to attend your special meeting, please submit your proxy promptly in the enclosed envelope.

Q: If my shares are held in “street name” by my broker, will my broker vote my shares for me?

A: Your broker will vote your shares only if you instruct your broker on how to vote. Your broker will send you directions on how you can instruct your broker to vote. Your broker cannot vote your shares without instructions from you.

Q: How will my shares be voted if I return a blank proxy card?

A: If you sign, date and send in your proxy card and do not indicate how you want to vote, your proxies will be counted as a vote for the proposals identified in this document and in the discretion of the persons named as proxies in any other matters properly presented for a vote at your special meeting.

Q: What will be the effect if I do not vote?

A: If you abstain or do not return your proxy card or otherwise do not vote at your special meeting, your failure to vote will have the same effect as if you voted against approval of the merger agreement and, if applicable, adoption of the amendments to Kankakee Bancorp’s certificate of incorporation.

Q: Can I vote my shares in person?

A: Yes, if your shares are registered in your own name, you may attend your special meeting and vote your shares in person rather than signing and mailing your proxy card. However, to ensure that your vote is counted at your special meeting, we recommend that you sign, date and promptly mail the enclosed proxy card.

Q: Can I change my mind and revoke my proxy?

A: Yes, you may revoke your proxy and change your vote at any time before the polls close at your special meeting by:

• signing another proxy with a later date,

• giving written notice of the revocation of your proxy to the secretary of either Kankakee Bancorp or Aviston Financial (whichever is applicable) before your special meeting, or

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• voting in person at your special meeting.

Your latest dated proxy or vote will be counted.

Q: What regulatory approvals are required to complete the merger?

A: To complete the merger, Kankakee Bancorp and Aviston Financial must obtain the approval of the Board of Governors of the Federal Reserve System, which we refer to as the Federal Reserve Board, and the approval of the Illinois Office of Banks and Real Estate. The merger of KFS Bank, F.S.B., a wholly owned subsidiary of Kankakee Bancorp, with and into the State Bank of Aviston, a wholly owned subsidiary of Aviston Financial, must be approved by the Federal Deposit Insurance Corporation, which we refer to as the FDIC, and the Illinois Office of Banks and Real Estate. Applications for all of the necessary regulatory approvals have been filed.

Q: What are the tax consequences of the merger to Aviston Financial stockholders?

A: In general, the exchange of your Aviston Financial common stock solely for Kankakee Bancorp common stock will not cause you to recognize any taxable gain or loss for federal income tax purposes. However, you will have to recognize taxable income or gain in connection with cash received in lieu of any fractional shares of common stock of the combined company.

Each of Kankakee Bancorp’s and Aviston Financial’s respective obligations to complete the merger is conditioned upon receipt of an opinion about the federal income tax treatment of the merger. The opinion will not bind the Internal Revenue Service, which could take a different view. To review in greater detail the tax consequences to Aviston Financial stockholders, see “Description of Transaction—Material Federal Income Tax Consequences of the Merger,” beginning on page         . You should consult your own tax advisor for a full understanding of the tax consequences to you of the merger.

Q: What risks should I consider before I vote on the merger?

A: We encourage you to read carefully the detailed information about the merger contained in this joint proxy statement-prospectus, including the section entitled “Risk Factors” beginning on page         .

Q: What if I oppose the merger? Do I have dissenters’ rights?

A: Aviston Financial stockholders who oppose the merger have dissenters’ rights under the Illinois Business Corporation Act. A copy of the provisions of Illinois law relating to dissenters’ rights is attached as Appendix B to this document. See “Description of Transaction—Dissenters’ Rights” beginning on page         .

Kankakee Bancorp stockholders who oppose the merger do not have any dissenters’ rights.

Q: Should I send in my Aviston Financial stock certificate now?

A: No. Once the merger is completed we will send you written instructions for exchanging your stock certificates.

Q: Who can answer my questions about the merger?

A: If you are a stockholder of Kankakee Bancorp, you may contact James M. Lindstrom at (815) 937-4440 to answer your questions about the merger.

If you are a stockholder of Aviston Financial, you may contact Thomas A. Daiber at (618) 228-7215 to answer your questions about the merger.

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Summary

This brief summary highlights selected information from this joint proxy statement-prospectus and may not contain all of the information that is important to you. We urge you to carefully read this entire document and the other documents we refer to in this document. These will give you a more complete description of the transaction we are proposing. For more information about Kankakee Bancorp, see “Where You Can Find More Information.” We have included page references in this summary to direct you to other places in this joint proxy statement-prospectus where you can find a more complete description of the topics we have summarized.

General

This joint proxy statement-prospectus relates to the proposed merger of Aviston Financial with and into Kankakee Bancorp and to three proposed amendments to Kankakee Bancorp’s certificate of incorporation. Kankakee Bancorp and Aviston Financial believe that the merger will enhance stockholder value by allowing Aviston Financial stockholders to receive Kankakee Bancorp common stock in exchange for their shares of Aviston Financial common stock and by permitting Kankakee Bancorp to expand its presence with the addition of new markets in central Illinois and the St. Louis metropolitan area. In addition, Aviston Financial customers will have access to additional products and services, banking centers and ATMs. Kankakee Bancorp believes that the proposed amendments to its certificate of incorporation will increase Kankakee Bancorp’s identification in the marketplace by changing the corporate name, and will create desirable flexibility by creating a reserve of additional authorized stock and by making it easier to make future amendments to its certificate of incorporation.

The Companies

(pages          and         )

Kankakee Bancorp, Inc.

310 South Schuyler Avenue

Kankakee, Illinois 60901

(815) 937-4440

Kankakee Bancorp, a Delaware corporation, is a savings and loan holding company registered under the Home Owner’s Loan Act, as amended. Through KFS Bank, F.S.B., Kankakee Bancorp’s wholly owned subsidiary bank, Kankakee Bancorp conducts a range of commercial and personal banking activities and offers trust, insurance and investment services in Illinois. In addition to Kankakee Bancorp’s main office in Kankakee, Kankakee Bancorp’s subsidiary bank operates 13 branches in Illinois. At March 31, 2003, Kankakee Bancorp reported, on a consolidated basis, total assets of $516.8 million, deposits of $419.8 million and stockholders’ equity of $32.8 million. Kankakee Bancorp common stock is traded on the American Stock Exchange under the symbol “KNK.”

Aviston Financial Corporation

101 South Page Street

Aviston, Illinois 62216

(618) 228-7215

Aviston Financial, an Illinois corporation, is a bank holding company registered under the Bank Holding Company Act, as amended. Through the State Bank of Aviston, Aviston Financial’s wholly owned subsidiary bank, Aviston Financial conducts a range of commercial and personal banking activities in central Illinois. In addition to Aviston Financial’s main office in Aviston, the State Bank of Aviston operates two branches in Illinois. At March 31, 2003, Aviston Financial reported, on a consolidated basis, total assets of $97.5 million, deposits of $79.1 million and stockholders’ equity of $10.4 million. Aviston Financial common stock is not publicly traded.

Special Meetings

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Kankakee Bancorp stockholders. The Kankakee Bancorp meeting will be held on             , 2003, at     :00     .m., local time, at the offices of Barack Ferrazzano Kirschbaum Perlman & Nagelberg LLC, 333 W. Wacker Drive, Suite 2700, Chicago, Illinois 60606. At Kankakee Bancorp’s meeting, you will be asked:

• to approve the merger agreement and the transactions it contemplates;

• to adopt an amendment to the certificate of incorporation of Kankakee Bancorp changing its corporate name to             ;

• to adopt an amendment to the certificate of incorporation of Kankakee Bancorp increasing the number of authorized shares of common stock from 3.5 million to 5.5 million;

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• to adopt an amendment to the certificate of incorporation of Kankakee Bancorp changing the manner in which the certificate of incorporation may be amended in the future; and

• to act on other matters that may properly be submitted to a vote at the meeting.

The adoption of the amendments is not a condition to the completion of the merger. Approval of the merger agreement and the transactions it contemplates is not a condition to the adoption of the amendments.

Aviston Financial stockholders. The Aviston Financial meeting will be held on             , 2003, at     :00     .m., local time, at the main branch office of the State Bank of Aviston, 101 South Page Street, Aviston, Illinois 62216. At Aviston Financial’s meeting, you will be asked:

• to approve the merger agreement and the transactions it contemplates; and

• to act on other matters that may properly be submitted to a vote at the meeting.

Record Date; Vote Required

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Kankakee Bancorp stockholders. You may vote at the meeting of Kankakee Bancorp’s stockholders if you owned Kankakee Bancorp common stock at the close of business on             , 2003. You can cast one vote for each share of Kankakee Bancorp common stock that you owned at that time. To approve the merger agreement and the transactions it contemplates and to adopt the amendments to the certificate of incorporation of Kankakee Bancorp changing its corporate name and increasing the number of authorized shares, the holders of a majority of the outstanding shares of Kankakee Bancorp common stock must vote in favor of doing so. To adopt the amendment to the certificate of incorporation of Kankakee Bancorp changing the manner in which the certificate of incorporation may be amended in the future, the holders of at least 80% of all outstanding shares of Kankakee Bancorp common stock must vote in favor of doing so.

You may vote your shares in person by attending the meeting or by mailing us your proxy if you are unable to or do not wish to attend. You can revoke your proxy at any time before Kankakee Bancorp takes a vote at the meeting by submitting a written notice revoking the proxy or a later-dated proxy to the secretary of Kankakee Bancorp, or by attending the meeting and voting in person.

Aviston Financial stockholders. You may vote at the meeting of Aviston Financial’s stockholders if you owned Aviston Financial common stock at the close of business on             , 2003. You can cast one vote for each share of Aviston Financial common stock that you owned at that time. To approve the merger agreement and the transactions it contemplates, the holders of at least two-thirds of the outstanding shares of Aviston Financial common stock must vote in favor of doing so.

You may vote your shares in person by attending the meeting or by mailing us your proxy if you are unable to or do not wish to attend. You can revoke your proxy at any time before Aviston Financial takes a vote at the meeting by submitting a written notice revoking the proxy or a later-dated proxy to the secretary of Aviston Financial, or by attending the meeting and voting in person.

Recommendations to Stockholders

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Kankakee Bancorp stockholders. Kankakee Bancorp’s board of directors believes that the merger is fair to you and in your best interests, and unanimously recommends that you vote “FOR” the proposal to approve the merger agreement and the transactions it contemplates. Kankakee Bancorp’s board of directors unanimously recommends that you vote “FOR” each proposal to adopt the proposed amendments to the certificate of incorporation of Kankakee Bancorp.

Aviston Financial stockholders. Aviston Financial’s board of directors believes that the merger is fair to you and in your best interests, and unanimously recommends that you vote “FOR” the proposal to approve the merger agreement and the transactions it contemplates.

Share Ownership of Management and Significant Stockholders

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Kankakee Bancorp. On Kankakee Bancorp’s record date, its directors and executive officers, their immediate family members and the entities they control owned              shares, or approximately             % of the outstanding shares of Kankakee Bancorp common stock, including shares

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they may acquire through exercising stock options. All of Kankakee Bancorp’s directors have indicated that they intend to vote their shares in favor of all proposals presented at the special meeting.

Aviston Financial. On Aviston Financial’s record date, its directors and executive officers, their immediate family members and the entities they control owned approximately 140,000 shares, or approximately 28.4% of the outstanding shares of Aviston Financial common stock, including shares they may acquire through exercising stock options. All of Aviston Financial’s directors and executive officers have agreed to vote their shares to approve the merger agreement and the transactions it contemplates.

The Merger

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We have attached a copy of the merger agreement to this document as Appendix A. Please read the merger agreement. It is the legal document that governs the merger.

We propose a combination in which Aviston Financial will merge with and into Kankakee Bancorp. If the amendment to Kankakee Bancorp’s certificate of incorporation is approved, the name of the combined company will be                  from the time the amendment is filed. The combined company’s main office will continue to be located in Kankakee, Illinois. We expect to complete the merger late in the third quarter or early in the fourth quarter of 2003, although delays could occur.

At the same time as or shortly following the merger, we also intend to merge Kankakee Bancorp’s subsidiary thrift, KFS Bank, into the State Bank of Aviston. The resulting institution will be an Illinois chartered commercial bank headquartered in Kankakee, Illinois. We are in the process of deciding on a new name for the resulting bank.

What You Will Receive in the Merger

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Kankakee Bancorp stockholders. You will not need to surrender your stock certificates. Each of your shares of Kankakee Bancorp common stock will remain outstanding, and will represent shares of common stock of the combined company.

Aviston Financial stockholders. Each of your shares of Aviston Financial common stock will automatically become the right to receive 0.707 shares of Kankakee Bancorp common stock. The total number of shares you will have the right to receive will be equal to the number of shares of Aviston Financial common stock you own multiplied by 0.707. For example, if you hold 100 shares of Aviston Financial common stock, you will be entitled to receive 70.7 shares (100 x 0.707) of Kankakee Bancorp common stock. Based on the $             closing price of Kankakee Bancorp common stock on             , 2003, the value of 0.707 of a share of Kankakee Bancorp common stock was $            , and the total value of the merger consideration was $            . However, because the exchange ratio is fixed, the market value of the shares of Kankakee Bancorp common stock you will receive in the merger will fluctuate from time to time, causing the total value of the merger consideration to fluctuate.

Each share of Kankakee Bancorp common stock will include all rights that are attached to or inherent in the then-outstanding shares of Kankakee Bancorp common stock, including preferred stock purchase rights and, if applicable, common stock purchase rights. See “Effect of the Merger on Rights of Stockholders—Rights Plan,” “—Common Stock Purchase Rights” and “Description of Kankakee Bancorp Capital Stock.”

The number of shares of Kankakee Bancorp common stock Aviston Financial stockholders will receive in the merger is subject to adjustments for reorganizations, recapitalizations, stock dividends and similar events that occur before the merger is completed. None of those adjustments would alter the value of the exchange ratio.

You will need to surrender your Aviston Financial common stock certificates to receive new certificates representing common stock of the combined company. However, this will not be necessary until you receive written instructions, which will occur on or around the time of the merger.

Kankakee Bancorp will not issue any fractional shares. Instead, Aviston Financial stockholders will receive cash in lieu of any fractional shares of common stock of the combined company owed to them in exchange for their shares of Aviston Financial common stock. The amount of cash for any fractional shares will be based on the average closing prices of Kankakee Bancorp common stock for the five trading days immediately following the completion of the merger.

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Effect of the Merger on Options

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The merger agreement requires all options to purchase Aviston Financial common stock to be exercised or extinguished prior to the merger. Therefore, there will be no Aviston Financial options outstanding at the time of the merger. All options to purchase Kankakee Bancorp common stock will remain outstanding and will represent options to purchase common stock of the combined company.

Ownership of the Combined Company After the Merger

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Based on the exchange ratio contained in the merger agreement, upon completion of the merger, Kankakee Bancorp will issue 350,196 shares of its common stock to Aviston Financial stockholders. Based on these numbers, after the merger, assuming all outstanding Kankakee Bancorp options are exercised, existing Kankakee Bancorp stockholders would own approximately             %, and former Aviston Financial stockholders would own approximately             %, of the outstanding shares of common stock of the combined company.

Material Federal Income Tax Consequences

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For federal income tax purposes, the exchange of shares of Aviston Financial common stock for shares of Kankakee Bancorp common stock will not cause the holders of Aviston Financial common stock to recognize any gain or loss. Holders of Aviston Financial common stock, however, will recognize income, gain or loss in connection with any cash received to redeem any fractional share interest.

These tax consequences, however, may not apply to each of Aviston Financial’s stockholders. Determining the actual tax consequences of the merger to you may be complicated and will depend on your specific situation and on variables not within our control. You should consult your own tax advisor for a full understanding of the merger’s tax consequences that are particular to you.

Our Reasons for the Merger

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Each of our boards of directors believes the merger will enhance stockholder value by permitting the combined company to expand its presence within the central Illinois and St. Louis metropolitan area.

We expect the merger to strengthen our position as a competitor in the financial services business, which is rapidly changing and growing more competitive.

In addition, Kankakee Bancorp’s board considered Thomas A. Daiber, the President of Aviston Financial, to be a strong candidate to fill the vacant position as Kankakee Bancorp’s President and Chief Executive Officer, because of his experience with bank holding companies located in the Midwest.

Kankakee Bancorp’s board also considered the benefits of converting KFS Bank from a thrift into a commercial bank.

We expect to incur merger-related costs of $0.4 million, before tax, as a result of combining our companies.

You can find a more detailed discussion of the background of the merger and Aviston Financial’s and Kankakee Bancorp’s reasons for the merger in this document under “Description of Transaction—Background of the Merger” beginning on page         , “—Recommendation of the Kankakee Bancorp Board and Kankakee Bancorp’s Reasons for the Merger” beginning on page          and “—Recommendation of the Aviston Financial Board and Aviston Financial’s Reasons for the Merger” beginning on page        .

The discussion of our reasons for the merger includes forward-looking statements about possible or assumed future results of our operations and the performance of the combined company after the merger. For a discussion of factors that could affect these future results, see “A Warning About Forward-Looking Statements” on page             .

Dissenters’ Appraisal Rights

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Kankakee Bancorp stockholders. Delaware law governs the rights of Kankakee Bancorp stockholders. Under Delaware law, as stockholders of the company surviving the merger, Kankakee Bancorp stockholders do not have the right to dissent from the merger.

Aviston Financial stockholders. As more fully described beginning on page         , under Illinois law, Aviston Financial stockholders have the right to dissent from the merger and receive the fair value of their shares of Aviston Financial common stock in cash.

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To dissent and receive the fair value of their shares, Aviston Financial stockholders must follow the procedures outlined in Appendix B, including:

• making a proper demand for appraisal in accordance with Illinois law;

• holding your shares of Aviston Financial common stock until the merger is completed; and

• not voting in favor of the merger (including by appointing a proxy to vote your shares).

If you dissent from the merger and the conditions outlined in Appendix B are met, your shares of Aviston Financial common stock will not be converted into the right to receive Kankakee Bancorp common stock, and your only right will be to receive the fair value of your Aviston Financial shares as determined by mutual agreement between you and the combined company or by appraisal of a court if you are unable to agree. You should be aware that submitting a signed proxy card without indicating a vote with respect to the merger will be deemed a vote “FOR” the merger and a waiver of your dissenters’ rights. A vote “AGAINST” the merger does not dispense with the requirements to request an appraisal under Illinois law.

The appraised value may be more or less than the consideration you would have received under the terms of the merger agreement.

Effective Time of the Merger

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The merger will become final when a certificate of merger is filed with the Secretary of State of the State of Delaware and articles of merger are filed with the Secretary of State of the State of Illinois. If our stockholders approve the merger at their special meetings, and if Kankakee Bancorp obtains all required regulatory approvals, we anticipate that the merger will be completed late in the third quarter or early in the fourth quarter of 2003, although delays could occur.

We cannot assure you that we can obtain the necessary stockholder and regulatory approvals or that the other conditions to completion of the merger can or will be satisfied.

Exchange of Stock Certificates

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On or around the time of the merger, you will receive a letter and instructions on how to surrender your stock certificates representing Aviston Financial common stock in exchange for stock certificates of the combined company. You must carefully review and complete these materials and return them as instructed along with your stock certificates for Aviston Financial common stock. Please do not send to Kankakee Bancorp or Aviston Financial any stock certificates until you receive these instructions.

Conditions to Completion of the Merger

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The completion of the merger depends on a number of conditions being met. These include:

• accuracy of the respective representations and warranties of Kankakee Bancorp and Aviston Financial in the merger agreement, subject to exceptions that would not have a material adverse effect on Kankakee Bancorp or Aviston Financial;

• compliance in all material respects by each of Kankakee Bancorp and Aviston Financial with their respective covenants and agreements in the merger agreement, subject to exceptions that would not have a material adverse effect on Kankakee Bancorp or Aviston Financial;

• approval of regulatory authorities;

• approval of the merger agreement by our stockholders;

• receipt by each of us of an opinion that, for federal income tax purposes, Aviston Financial stockholders who exchange their shares for shares of common stock of the combined company will not recognize any gain or loss as a result of the merger, except in connection with the payment of cash instead of fractional shares or the payment of cash resulting from the exercise of appraisal rights (this opinion will be subject to various limitations and we recommend that you read the more detailed description of tax consequences provided in this document beginning on page         ); and

• the absence of any injunction or legal restraint blocking the merger, or of any proceedings by a government body trying to block the merger.

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A party to the merger agreement could choose to complete the merger even though a condition has not been satisfied, as long as the law allows it to do so. We cannot be certain when or if the conditions to the merger will be satisfied or waived, or that the merger will be completed.

Regulatory Approvals

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We cannot complete the merger unless it is approved by the Federal Reserve Board and the Illinois Office of Banks and Real Estate. Once the Federal Reserve Board approves the merger, we have to wait anywhere from 15 to 30 days before we can complete the merger, during which time the U.S. Department of Justice can challenge the merger on antitrust grounds.

We have filed all of the required applications or notices with the Federal Reserve Board and the Illinois Office of Banks and Real Estate.

We have also filed applications with the Illinois Office of Banks and Real Estate and the FDIC for approval of the merger of KFS Bank and the State Bank of Aviston, resulting in a commercial bank. Notice of the proposed merger of the subsidiaries has also been given to the Office of Thrift Supervision, which we refer to as the OTS, as required by the regulations of that agency.

Waiver, Amendment and Termination

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We may jointly amend the merger agreement and each of us may waive our right to require the other party to adhere to any term or condition of the merger agreement. However, we may not do so after our stockholders approve the merger, if the amendment or waiver would change the conversion ratio or materially and adversely affect the rights of Aviston Financial or Kankakee Bancorp stockholders.

We can mutually agree at any time to terminate the merger agreement without completing the merger. Also, either of us can decide, without the consent of the other, to terminate the merger agreement if the merger has not been completed by April 1, 2004, unless the failure to complete the merger by that time is due to a violation of the merger agreement by the party that wants to terminate the merger agreement.

In addition, either Kankakee Bancorp or Aviston Financial can terminate the merger agreement if the conditions to its respective obligation to consummate the merger have not been satisfied, and Aviston Financial can terminate the merger agreement if its board of directors has approved or recommended to its stockholders a competing takeover proposal from a third party.

Management and Operations After the Merger

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The present management groups of both companies will share the responsibility of managing the combined company after the completion of the merger. The board of directors of the combined company will be comprised of seven members, two of whom will be chosen from among Aviston Financial’s current directors, and five of whom are Kankakee Bancorp’s current directors.

Following the merger, Michael A. Griffith will be Chairman of the Board and Thomas A. Daiber will be President and Chief Executive Officer of the combined company.

Interests of Certain Persons in the Merger that Differ From Your Interests

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Some of our directors and officers have interests in the merger that differ from, or are in addition to, their interests as stockholders in our companies. These interests exist because of employment and severance agreements that certain officers of our companies have. These agreements could provide the officers with severance benefits as a result of the merger.

Additional interests of some of our directors and executive officers are described under “Description of Transaction—Interests of Certain Persons in the Merger” on page     .

The members of our boards of directors knew about these additional interests and considered them when they approved the merger agreement and the transactions it contemplates.

Accounting Treatment

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The merger will be accounted for as a “purchase transaction” in accordance with accounting principles generally accepted in the United States.

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Expenses and Termination Fees

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If we mutually agree to terminate the merger agreement, or if either of us terminates the merger agreement because the merger has not been completed by April 1, 2004, then we will each pay our own fees and expenses.

If:

• Kankakee Bancorp terminates the merger agreement because Aviston Financial breached its obligations under the merger agreement;

• Kankakee Bancorp or Aviston Financial terminates the merger agreement because Aviston Financial’s stockholders fail to approve the merger agreement; or

• Aviston Financial terminates the merger agreement because its board of directors has approved or recommended to its stockholders a competing takeover proposal from a third party,

then, if Kankakee Bancorp is in material compliance with its obligations under the merger agreement, Aviston Financial must pay to Kankakee Bancorp an amount equal to the sum of Kankakee Bancorp’s fees and expenses, up to $500,000, plus an additional termination fee of $300,000. In addition, if a termination described above occurs and within 12 months after the termination Aviston Financial enters into an agreement relating to a competing takeover proposal, Aviston Financial must pay Kankakee Bancorp an additional termination fee of $500,000.

If:

• Aviston Financial terminates the merger agreement because Kankakee Bancorp breached its obligations under the merger agreement; or

• Kankakee Bancorp or Aviston Financial terminates the merger agreement because Kankakee Bancorp’s stockholders fail to approve the merger agreement,

then, if Aviston Financial is in material compliance with its obligations under the merger agreement, Kankakee Bancorp must pay to Aviston Financial an amount equal to the sum of Aviston Financial’s fees and expenses, up to $200,000, plus an additional termination fee of $300,000.

We have agreed to pay these special termination fees to each other to increase the likelihood that we would complete the merger. These fees could discourage other companies from attempting to combine with either of us before we complete the merger.

Material Differences in the Rights of Stockholders

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The rights of Kankakee Bancorp stockholders are governed by Delaware law and Kankakee Bancorp’s certificate of incorporation and by-laws. The rights of Aviston Financial stockholders are governed by Illinois law and Aviston Financial’s articles of incorporation and by-laws. Upon our completion of the merger, Aviston Financial stockholders will become stockholders of the combined company and their rights will be governed by Delaware law and by the combined company’s certificate of incorporation and by-laws, which are the currently effective certificate of incorporation and by-laws of Kankakee Bancorp. As discussed elsewhere in this joint proxy statement-prospectus, Kankakee Bancorp is proposing that its stockholders adopt three amendments to its certificate of incorporation, as currently in effect. There are differences between the rights of the stockholders of Kankakee Bancorp and Aviston Financial. Some of these differences include the requirements to amend the certificate of incorporation and the by-laws, the procedures surrounding potential business combinations and dissenters’ rights of appraisal. These differences, among others, are discussed in detail beginning on page         .

Common Stock Purchase Rights

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As described further in this joint proxy statement-prospectus, Kankakee Bancorp’s board of directors has decided to issue common stock purchase rights to its stockholders, which will be conditionally exercisable on a short-term basis, as a future source of capital. If issued prior to the completion of the proposed merger with Aviston Financial, the rights also will be issued to Aviston Financial’s stockholders. However, it is uncertain at this time whether these rights will be issued prior to completion of the merger. If they are not, no rights will be issued to the Aviston Financial stockholders in the merger. Because of the conditional nature of the rights, it is possible that the rights initially will have no monetary value. See “Description of Kankakee Bancorp Capital Stock—Common Stock Purchase Rights.”

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Amendment of Kankakee Bancorp’s Certificate of Incorporation

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In addition to the merger agreement, the stockholders of Kankakee Bancorp are also being asked to vote on three amendments to the certificate of incorporation of Kankakee Bancorp. One amendment would change Kankakee Bancorp’s name to             . Another amendment would increase the number of authorized shares of Kankakee Bancorp common stock from 3.5 million to 5.5 million. The third amendment would change the manner in which the certificate of incorporation may be amended in the future. The adoption of these amendments is not a condition to, or required for, the completion of the merger. Moreover, the approval of the merger agreement is not a condition to, or required for, the adoption of any of these amendments.

Authority to Adjourn Special Meetings to Solicit Additional Proxies

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We are asking our stockholders to grant full authority for the special meetings to be adjourned, if necessary, to permit solicitation of additional proxies to approve the transactions proposed by this joint proxy statement-prospectus.

Comparative Market Prices of Common Stock

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Shares of Kankakee Bancorp common stock are traded on the American Stock Exchange under the symbol “KNK.” On May 27, 2003, the last trading day before we announced the merger, the last reported trading price of Kankakee Bancorp common stock was $38.50 per share. On             , 2003, the last reported trading price of Kankakee Bancorp common stock was $             per share. We can make no prediction or guarantee at what price Kankakee Bancorp common stock will trade after the completion of the merger. Shares of Aviston Financial common stock are not publicly traded.

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Comparative Per Share Data

The following table presents certain historical per share data of Kankakee Bancorp and Aviston Financial and certain unaudited pro forma per share data that reflect the combination of Kankakee Bancorp using the purchase method of accounting.

The information listed as “equivalent pro forma” was obtained by multiplying the pro forma amounts by the exchange ratio of 0.707. We present this information to reflect the fact that Aviston Financial stockholders will receive 0.707 shares of Kankakee Bancorp common stock for each share of Aviston Financial common stock exchanged in the merger. We expect that we will incur merger and integration charges as a result of combining our companies. We also anticipate that the merger will provide the combined company with financial benefits that include reduced operating expenses and the opportunity to earn more revenue. The pro forma information, while helpful in illustrating the financial characteristics of the combined company under one set of assumptions, does not reflect these expenses or benefits and, accordingly, does not attempt to predict or suggest future results. It also does not necessarily reflect what the historical results of the combined company would have actually been had our companies been combined as of the dates or for the periods presented.

This data should be read in conjunction with Kankakee Bancorp’s audited and unaudited consolidated financial statements and notes thereto, which are incorporated by reference in this joint proxy statement-prospectus and the audited and unaudited financial statements and related notes of Aviston Financial and its predecessor, Aviston Bancorp, Inc., which are included elsewhere in this joint proxy statement-prospectus, along with the unaudited pro forma combined consolidated financial information included elsewhere in this joint proxy statement-prospectus.

	As of and for the Three Months Ended March 31, 2003
					Pro Forma
	Kankakee Bancorp		Aviston Financial		Kankakee Bancorp and Aviston Financial		Aviston Financial Equivalent(1)
	(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)
Net income per common share:
Basic	$	1.28	$	0.78	$	1.21	$	0.86
Diluted	$	1.28	$	0.78	$	1.21	$	0.86
Dividends declared on common stock	$	0.15		—	$	0.15	$	0.11
Book value per common share	$	35.20	$	21.63	$	36.18	$	25.58

	As of and for the Year Ended December 31, 2002
								Pro Forma
	Kankakee Bancorp		Aviston Bancorp, Inc.(2)			Aviston Financial		Kankakee Bancorp and Aviston Financial		Aviston Financial Equivalent(1)
	(Unaudited)		(Unaudited)			(Unaudited)		(Unaudited)
Net income per common share:
Basic	$	1.87	$	347		$	0.44	$	2.18	$	1.54
Diluted	$	1.86	$	347		$	0.44	$	2.18	$	1.54
Dividends declared on common stock	$	0.57	$	1,000	(3)		—	$	0.57	$	0.40
Book value per common share	$	35.26		N/A		$	20.63	$	36.08	$	25.51

(1) The Aviston Financial pro forma equivalent per share amounts are computed by multiplying the Kankakee Bancorp and Aviston Financial pro forma column amounts by 0.707 (the fraction of a share of Kankakee Bancorp common stock to be received by Aviston Financial stockholders in exchange for each share of Aviston Financial common stock).

(2) Aviston Bancorp, Inc. was purchased by Aviston Financial on October 23, 2002.

(3) Represents a special dividend to be used for payment of taxes in connection with the sale of control of Aviston Bancorp, Inc.

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Market Price Information

Kankakee Bancorp common stock is traded on the American Stock Exchange under the symbol “KNK.” Aviston Financial common stock is not publicly traded. On May 27, 2003, the business day immediately preceding the public announcement of the execution of the merger agreement, and             , 2003, the most recent practicable date prior to the mailing of this document, the market prices of Kankakee Bancorp common stock and per share book values of Aviston Financial common stock and the equivalent price per share of Kankakee Bancorp common stock giving effect to the merger were as follows:

	Closing Sales Price/Book Value
	Kankakee Bancorp		Aviston Financial		Equivalent Price Per Share of Kankakee Bancorp Common Stock
Price per share
May 27, 2003	$	38.50	$	21.63	$	27.22
, 2003		_______		_________		_______

The “Equivalent Price Per Share of Kankakee Bancorp Common Stock” at each specified date in the above table represents the product achieved when the closing sales price of a share of Kankakee Bancorp common stock on that date is multiplied by the exchange ratio of 0.707 which is the number of shares of Kankakee Bancorp common stock that an Aviston Financial stockholder would receive for each share of Aviston Financial common stock owned. Stockholders should obtain current market price quotations for shares of Kankakee Bancorp common stock prior to making any decisions with respect to the merger.

By voting to approve the merger agreement and the transactions it contemplates, Aviston Financial stockholders will be choosing to invest in the combined company because they will receive Kankakee Bancorp common stock in exchange for their shares of Aviston Financial common stock. An investment in the combined company’s common stock involves significant risk. In addition to the other information included in this joint proxy statement-prospectus, including the matters addressed in “A Warning About Forwarding-Looking Statements” beginning on page     , Aviston Financial stockholders should carefully consider the matters described below in “Risk Factors” beginning on page      when determining whether to approve the merger agreement and the transactions it contemplates.

The market price of Kankakee Bancorp common stock likely will fluctuate between the date of this document and the date on which the merger is completed and after the merger. Because the market price of Kankakee Bancorp common stock is subject to fluctuations, the value of the shares of Kankakee Bancorp common stock that Aviston Financial stockholders will receive in the merger may increase or decrease prior to and after the merger.

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Historical Market Prices and Dividend Information

Kankakee Bancorp

The following table sets forth, for the calendar quarter indicated, the high and low closing market prices per share of Kankakee Bancorp common stock as reported on the American Stock Exchange and the dividends per share of Kankakee Bancorp common stock, adjusted to reflect previous stock splits:

Quarter Ended	High		Low		Dividends Declared
2003:
Second quarter (through ___, 2003)	$	_______	$	_______	$	0.15
First quarter	$	40.80	$	36.70	$	0.15
2002:
Fourth quarter	$	37.85	$	35.00	$	0.15
Third quarter	$	39.50	$	35.50	$	0.15
Second quarter	$	40.50	$	34.40	$	0.15
First quarter	$	39.40	$	28.27	$	0.12
2001:
Fourth quarter	$	29.30	$	25.20	$	0.12
Third quarter	$	26.90	$	24.70	$	0.12
Second quarter	$	26.00	$	23.00	$	0.12
First quarter	$	24.00	$	22.00	$	0.12

The timing and amount of future dividends on shares of Kankakee Bancorp common stock will depend upon earnings, cash requirements, the financial condition of Kankakee Bancorp and its subsidiaries, applicable government regulations and other factors deemed relevant by Kankakee Bancorp’s board of directors.

Aviston Financial

On October 23, 2002, Aviston Financial was capitalized by an investor group consisting of 115 shareholders with the issuance of 483,826 shares at a price of $20.00 per share. There is no trading market for shares of Aviston Financial common stock and no trades of Aviston Financial common stock have been made subsequent to the initial capitalization of Aviston Financial. Aviston Financial has paid no dividends on its common stock.

15

Unaudited Pro Forma Consolidated Financial Information

The following unaudited Pro Forma Financial Information and related footnotes are presented to show the impact of the merger on the historical financial position and results of operations of Kankakee Bancorp. As a result of the merger, each share of Aviston Financial common stock will be converted into the right to receive 0.707 shares of Kankakee Bancorp common stock.

The unaudited Pro Forma Consolidated Balance Sheet reflects the historical position of Kankakee Bancorp and Aviston Financial at March 31, 2003, with pro forma adjustments based on the assumption that the merger was consummated on March 31, 2003. The pro forma adjustments are based on the purchase method of accounting. Based on the exchange ratio noted above, upon completion of the merger, Kankakee Bancorp will issue 350,196 shares of its common stock to former Aviston Financial stockholders, assuming all outstanding Kankakee Bancorp options are exercised prior to the merger, the existing Kankakee Bancorp stockholders would own approximately         %, and former Aviston Financial stockholders would own approximately         %, of the outstanding shares of common stock of the combined company. As a result of the significantly higher ownership percentage of the combined company by the former holders of Kankakee Bancorp common stock following the merger, Kankakee Bancorp is treated as the acquiror for accounting purposes. Based on the $38.50 closing price of Kankakee Bancorp stock on May 27, 2003, the 350,196 shares of Kankakee Bancorp stock to be issued to Aviston Financial stockholders are valued at approximately $13.5 million. The unaudited Pro Forma Consolidated Income Statement assumes that the merger was completed on the first day of the earliest indicated period, i.e., January 1, 2002. The unaudited pro forma consolidated financial information reflects estimated nonrecurring charges consisting of management’s estimates of legal, accounting and compensation expenses that will be incurred in connection with the merger.

The unaudited pro forma earnings amounts do not reflect any potential earnings enhancements or cost reductions that are expected to result from the consolidation of Kankakee Bancorp’s and Aviston Financial’s operations and are not necessarily indicative of the results expected of the future combined operations. We cannot give any assurances with respect to the ultimate level of earnings enhancements or cost reductions to be realized.

The following information should be read in conjunction with, and is qualified in its entirety by, the consolidated financial statements and accompanying notes of Kankakee Bancorp and Aviston Financial included with or incorporated by reference in this joint proxy statement-prospectus. Results of Kankakee Bancorp and Aviston Financial and Aviston Bancorp, Inc., as applicable, for the interim period ended March 31, 2003 and for the year ended December 31, 2002, are not necessarily indicative of results of operations or the combined financial position that would have resulted had the merger actually been completed at the beginning of the periods indicated.

The unaudited Pro Forma Financial Information is intended for information purposes and is not necessarily indicative of the future financial position or future operating results of the combined company or of the financial position or operating results of the combined company that would have actually occurred had the merger been in effect as of the date or for the period presented.

16

Unaudited Pro Forma Combined Condensed

Consolidated Balance Sheet

March 31, 2003

(dollars in thousands, except share and per share data)

	Kankakee Bancorp, Inc. Historical			Aviston Financial Corporation Historical			Pro Forma Adjustments			Pro Forma Combined Company
Cash and cash equivalents	$	44,891		$	4,507			(410	)(3)	$	48,988
Certificates of deposit		50			—						50
Investment and mortgage backed securities:
Available for sale		76,619			20,702						97,321
Held to maturity		915			—						915
		77,534			20,702			—			98,236
Loans, gross		367,266			66,997						434,263
Less allowance for loan losses		(6,577	)		(1,397	)					(7,974	)
Net loans		360,689			65,600			—			426,289
Loans held for sale		894			—						894
Goodwill		3,066			4,000			(4,000	)(3)
								6,841	(3)		9,907
Other intangible assets		956			—			901	(3)		1,857
Property & equipment		10,446			1,301						11,747
Accrued interest and other assets		18,294			1,066						19,360
Total assets	$	516,820		$	97,176		$	3,332		$	617,328
Deposits	$	419,788		$	79,028						498,816
Borrowings		49,000			7,013						56,013
Trust preferred debentures		10,000			—						10,000
Other liabilities		5,207			669			315	(3)
								(108	)(3)		6,083
Total Liabilities		483,995			86,710			207			570,912
Common stock		17			4,838			(4,838	)(3)
								4	(3)
								115	(3)
								(115	)		21
Additional paid-in capital		15,040			4,838			(4,838	)(3)
								13,479	(3)
								108	(3)
								194	(3)
								(194	)		28,627
Retained earnings		39,713			590			(590	)(3)
								(201	)(3)
								201			39,713
Accumulated other comprehensive income		1,462			200			(200	)(3)		1,462
Treasury stock		(23,407	)		—			—			(23,407	)
Total stockholders’ equity		32,825			10,466			3,125			46,416
Total liabilities & stockholders’ equity	$	516,820		$	97,176		$	3,332		$	617,328
Book value per common share	$	35.20		$	21.63					$	36.18

See accompanying notes to unaudited pro forma combined condensed consolidated financial information.

17

Unaudited Pro Forma Combined Condensed

Consolidated Income Statement

For the Three Months Ended March 31, 2003

(dollars in thousands, except per share and weighted average share data)

	Kankakee Bancorp, Inc. Historical		Aviston Financial Corporation Historical		Pro Forma Adjustments			Pro Forma Combined Company
Interest Income:
Loans	$	6,211	$	1,084				$	7,295
Investment and mortgage backed securities		1,122		313					1,435
Other		—		3					3
Total interest income		7,333		1,400		—			8,733
Interest expense:
Deposits		2,614		534					3,148
Borrowings		728		37					765
Total interest expense		3,342		571		—			3,913
Net interest income		3,991		829		—			4,820
Provision for losses on loans		66		142					208
Net interest income after provision for losses on loans		3,925		687		—			4,612
Other income:
Fee income		633		31					664
Gain on sale of real estate held for sale		26		—					26
Gain on sale of loans		382		43					425
Gain on sale of securities		—		134					134
Gain on sale of branch		478		—					478
Insurance commissions		5		—					5
Other		217		6					223
Total other income		1,741		214		—			1,955
Other expenses:
Compensation and benefits		1,908		202					2,110
Occupancy		339		22					361
Furniture and equipment		176		12					188
Advertising		106		—					106
Data processing		132		25					157
Telephone and postage		138		12					150
Amortization of intangible assets		38		—		45	(4)		83
Other		832		73					905
Total other expense		3,669		346		45			4,060
Income before income taxes		1,997		555		(45	)		2,507
Income taxes		626		176		(16	)(4)		786
Net income	$	1,371	$	379	$	(29	)(4)	$	1,721
Earnings per share:
Basic	$	1.28	$	0.78				$	1.21
Diluted	$	1.28	$	0.78				$	1.21
Weighted average shares outstanding
Basic		1,067,164		483,826					1,417,360
Diluted		1,068,267		487,217					1,418,463

See accompanying notes to unaudited pro forma combined condensed consolidated financial information.

18

Unaudited Pro Forma Combined Condensed

Consolidated Income Statement

For the Year Ended December 31, 2002

(dollars in thousands, except per share and weighted average share data)

	Kankakee Bancorp, Inc. Historical		1/1/02 thru 10/23/2002 Aviston Bancorp, Inc. Historical		10/24/02 thru 12/31/2002 Aviston Financial Corporation Historical		Pro Forma Adjustments			Pro Forma Kankakee Bancorp, Inc.
Interest Income:
Loans	$	27,615	$	3,534	$	840				$	31,989
Investment and mortgage backed securities		2,556		1,303		249					4,108
Other		1,944		30		9					1,983
Total interest income		32,115		4,867		1,098		—			38,080
Interest expense:
Deposits		13,294		2,384		446					16,124
Borrowings		2,793		16		10					2,819
Total interest expense		16,087		2,400		456		—			18,943
Net interest income		16,028		2,467		642		—			19,137
Provision for losses on loans		3,990		220		52					4,262
Net interest income after provision losses on loans		12,038		2,247		590		—			14,875
Other income:
Fee income		2,535		100		53					2,688
Gain on sale of real estate held for sale		52		—		—					52
Gain on sale of loans and securities		1,116		57		9					1,182
Other		849		130		4					983
Total other income		4,552		287		66		—			4,905
Other expenses:
Compensation and benefits		7,151		459		171					7,781
Occupancy		1,249		129		30					1,408
Furniture and equipment		613		39		11					663
Advertising		325		4		3					332
Data processing		417		78		17					512
Telephone and postage		452		37		9					498
Amortization of intangible assets		184		—		—		180	(4)		364
Other		3,082		266		51					3,399
Total other expense		13,473		1,012		292		180			14,957
Income before income taxes		3,117		1,522		364		(180	)		4,823
Income taxes		883		481		153		(63	)(4)		1,454
Net income	$	2,234	$	1,041	$	211	$	(117	)(4)	$	3,369
Earnings per share:
Basic	$	1.87	$	347.00	$	0.44				$	2.18
Diluted	$	1.86	$	347.00	$	0.44				$	2.18
Weighted Average Shares Outstanding
Basic		1,193,555		3,000		483,826					1,543,751
Diluted		1,197,925		3,000		484,315					1,548,121

See accompanying notes to unaudited pro forma combined condensed consolidated financial information.

19

Notes to Unaudited Pro Forma Combined Condensed

Consolidated Financial Information

Note 1. Basis of Presentation of Acquisition of Aviston Financial

The unaudited pro forma combined condensed consolidated financial information has been prepared assuming the acquisition will be accounted for under the purchase method of accounting. The unaudited pro forma combined condensed consolidated income statement for the three months ended March 31, 2003, and for the year ended December 31, 2002, are presented as if the Aviston Financial acquisition occurred at the beginning of the respective periods; the December 31, 2002, year-end information presented for Aviston Financial includes the Aviston Bancorp, Inc. pre-acquisition information combined with the Aviston Financial post-acquisition information. The unaudited pro forma combined condensed consolidated balance sheet as of March 31, 2003, is presented as if the Aviston Financial acquisition occurred as of that date. This information is not intended to reflect the actual results that would have been achieved had the Aviston Financial acquisition actually occurred on that day.

Certain historical data of Aviston Financial have been reclassified on a pro forma basis to conform to Kankakee Bancorp’s classifications and period ends.

Note 2. Purchase Price of Aviston Financial

Pursuant to the merger agreement between Kankakee Bancorp and Aviston Financial, each Aviston Financial stockholder will have the right to receive for each share of Aviston Financial common stock issued and outstanding immediately prior to the merger 0.707 shares of Kankakee Bancorp common stock. These shares are expected to be newly issued.

Based upon a share price of $38.50 for Kankakee Bancorp’s common stock on May 27, 2003, the estimated total consideration to be paid in connection with the Aviston acquisition is $13.5 million—substantially all of which will be in the form of Kankakee Bancorp common stock. In addition, approximately $0.4 million of transaction expenses are estimated to be incurred in connection with the acquisition.

Note 3. Allocation of Purchase Price of Aviston Financial Corporation

Under purchase accounting, Aviston Financial’s assets and liabilities and any identifiable intangible assets are required to be adjusted to their estimated fair values. The estimated fair values have been determined by Kankakee Bancorp based upon available information. Kankakee Bancorp cannot be sure that such estimated values represent the fair value that would ultimately be determined as of the acquisition date. The following are the pro forma adjustments made to record the transaction and to adjust Aviston Financial’s assets and liabilities to their estimated fair values at March 31, 2003:

Purchase price of Aviston Financial (in thousands):

Market value of Kankakee Bancorp stock (as of close on May 27, 2003) to be issued	$	13,483
Cost of acquisition incurred by Kankakee Bancorp in cash		410
	$	13,893
Historical net assets of Aviston Financial	$	10,466
Less previously recognized goodwill, eliminated in acquisition		(4,000	)
Fair market value adjustments as of March 31, 2003:
Goodwill		6,841
Other intangibles		901
Deferred taxes on purchase accounting adjustments		(315	)
	$	13,893

Management determined that no significant market value adjustments were necessary for loans, deposits, property and equipment or borrowings due to the adjustments reflected in the historical amounts resulting from the purchase by Aviston Financial of Aviston Bancorp, Inc. in October 2002.

The purchase price adjustments are subject to further refinement, including the determination of a core deposit intangible and the other intangibles and their lives for amortization purposes. For pro forma presentation purposes only, Kankakee Bancorp has included an estimate of core deposit intangibles calculated as 3% of transaction deposit accounts. In accordance with Statement of Financial Accounting Standards No. 141, Business Combinations and No. 142, Goodwill and Other Intangible Assets, goodwill and intangible assets with indefinite lives are not amortized; therefore, no goodwill amortization is presented in the pro forma financial statements. However, the other intangibles will be amortized over their estimated lives and recorded as charges to operations.

Prior to consummation of the merger, Aviston Financial will issue 11,500 shares of $10 par value common stock in exchange for cancellation of the 45,000 stock options outstanding. Compensation expense of $309,000, net of tax benefit of $108,000, is included in the pro forma balance sheet as a reduction in retained earnings. The pro forma balance sheet also reflects the issuance of common shares with an increase of $115,000 in common stock and $194,000 in additional paid-in capital. The tax benefit of $108,000 resulting from the transaction has been included in the pro forma balance sheet as a reduction of other liabilities.

The issuance of additional shares of Aviston Financial in exchange for stock options requires recognition of compensation expense net of tax benefit and is recognized on the pro forma balance sheet as follows:

Issuance of 11,500 shares of $10.00 par value common stock	$	115
Additional paid in capital based on fair value of shares issued		194
Compensation expense		309
Tax benefit/tax receivable as result of additional compensation expense		(108	)
Net impact on retained earnings	$	201

In conjunction with the merger of Aviston Financial into Kankakee Bancorp and in accordance with current accounting pronouncements, the total amount of Aviston Financial’s stockholder’s equity will be eliminated as follows:

Common stock	$	4,953
Additional paid in capital		5,032
Retained earnings		389
Accumulated other comprehensive income		200
	$	10,574

The purchase price paid by Kankakee Bancorp, in stock, will be recorded as an increase in Common Stock at $0.01 per share of stock issued with the remainder recorded as additional paid in capital (in thousands) as follows:

Issuance of 350,196 shares of $.01 par value common stock	$	4
Additional paid in capital		13,479
Total purchase price	$	13,483

20

Note 4. Pro Forma Condensed Combined Consolidated Income Statement Adjustments

For purposes of determining the pro forma effect of the Aviston Financial acquistion on the statement of income, the following pro forma adjustments have been made as if the acquisition occurred as of January 1 with respect to each period:

	Three Months Ended March 31, 2003			Year Ended December 31, 2002
Amortization of other intangibles	$	(45	)	$	(180	)
Tax benefit of pro forma adjustments		16			63
	$	(29	)	$	(117	)

For purposes of determining the pro forma effect of the Aviston Financial merger, the other intangible assets were assumed to have an average life of five years and to be amortized on a straight-line method. Goodwill will not be amortized, but will be reviewed for impairment at least annually.

21

Selected Financial Data

The following tables present selected consolidated financial data as of March 31, 2002 and 2003 and for the three-month periods then ended, and as of December 31, 1998, 1999, 2000, 2001 and 2002 for each of the five years then ended, for Kankakee Bancorp and selected consolidated financial data as of March 31, 2003 and for the three-month period then ended, and as of December 31, 2002, and for the 69-day period then ended, for Aviston Financial. The information for Kankakee Bancorp is based on the historical financial information that is contained in reports Kankakee Bancorp has previously filed with the Securities and Exchange Commission. Historical financial statements of Kankakee Bancorp can be found in its Form 10-Q for the quarter ended March 31, 2003, and its Annual Report on Form 10-K for the year ended December 31, 2002. These documents are incorporated by reference in this joint proxy statement-prospectus. The information for Aviston Financial is based on the historical consolidated financial statements as of the dates and for the periods indicated. These financial statements are included in this joint proxy statement-prospectus beginning on page F-1. See “Where You Can Find More Information” on page     .

You should read the following tables in conjunction with our consolidated financial statements described above and with the related notes.

Historical results do not necessarily indicate the results that you can expect for any future period. We believe that we have included all adjustments (which include only normal recurring adjustments) necessary to arrive at a fair presentation of our interim results of operations. Results for the interim period ended March 31, 2003, do not necessarily indicate the results that you can expect for the year as a whole.

22

Selected Historical Financial and Other Data

Kankakee Bancorp, Inc.

(dollars in thousands, except per share data)

	At or for the Three Months Ended March 31,				At or for the Years Ended December 31,
	2003		2002		2002		2001		2000		1999		1998
Selected Financial Condition Data:
Total assets	$	516,820	$	531,554	$	546,404	$	490,280	$	459,894	$	404,718	$	411,779
Loans, net, including loans held for sale		361,583		396,292		384,367		394,618		338,956		270,360		247,144
Mortgage-backed securities held-to-maturity		23		32		26		38		67		109		168
Mortgage-backed securities available-for-sale		33,252		40,899		38,179		11,636		16,051		17,491		18,578
Investment securities held-to-maturity (1)		942		1,515		1,117		1,516		1,999		857		893
Investment securities available-for-sale		43,367		36,319		44,459		34,755		57,170		65,132		75,943
Deposits		419,788		422,486		432,032		415,467		388,050		354,977		346,803
Total borrowings		59,000		62,600		69,700		30,000		29,000		11,200		22,900
Stockholders’ equity		32,825		41,316		41,107		41,191		39,289		36,248		39,677
Shares outstanding		932,611		1,223,757		1,165,881		1,216,358		1,263,108		1,243,383		1,367,358
Stockholders’ equity per share	$	35.20	$	33.76	$	35.26	$	33.86	$	31.11	$	29.15	$	29.02
Stockholders’ tangible equity per share (2)		30.88		30.18		31.62		30.22		27.30		24.97		24.93
Selected Operations Data:
Total interest income	$	7,333	$	7,780	$	32,115	$	32,759	$	30,339	$	26,900	$	27,522
Total interest expense		3,342		3,933		16,087		18,729		17,437		15,343		16,126
Net interest income		3,991		3,847		16,028		14,030		12,902		11,557		11,396
Provision for losses on loans		66		148		3,990		502		50		—		—
Net interest income after provision for losses on loans		3,925		3,699		12,038		13,528		12,852		11,557		11,396
Fee income		633		590		2,535		2,353		1,942		1,925		1,532
Gain on sales of loans and securities		409		248		1,168		730		—		365		179
Gain on sale of branch office		478		—		—		—		—		—		—
Other non-interest income		221		121		849		521		572		674		765
Total non-interest income		1,741		959		4,552		3,604		2,514		2,964		2,476
Other expenses		3,669		3,380		13,474		12,231		11,472		11,900		10,432
Income tax expense		626		385		883		1,640		1,310		862		1,151
Total non-interest expense		4,295		3,765		14,357		13,871		12,782		12,762		11,583
Net income	$	1,371	$	893	$	2,233	$	3,261	$	2,584	$	1,759	$	2,289
Earnings per share (basic)	$	1.28	$	0.73	$	1.87	$	2.68	$	2.05	$	1.35	$	1.66
Earnings per share (diluted)	$	1.28	$	0.72	$	1.86	$	2.62	$	1.99	$	1.28	$	1.56
Dividends	$	0.15	$	0.12	$	0.57	$	0.48	$	0.48	$	0.48	$	0.48

(1) Includes certificates of deposit.

(2) Calculated by subtracting goodwill and other intangible assets from stockholders’ equity.

23

Selected Historical Financial and Other Data

Kankakee Bancorp, Inc. (continued)

	At or for the Three Months Ended March 31,				At or for the Years Ended December 31,
	2003		2002		2002		2001		2000		1999		1998
Selected Financial Ratios and Other Data:
Performance Ratios:
Return on assets (ratio of net income to average total assets)	1.04	%	0.72	%	0.42	%	0.69	%	0.60	%	0.43	%	0.57	%
Interest rate spread information:
Average during the year/quarter	3.28	%	3.21	%	3.16	%	3.02	%	3.13	%	2.99	%	2.92	%
End of year/quarter	3.26	%	3.16	%	3.13	%	3.01	%	2.85	%	2.96	%	2.68	%
Net interest margin (1)	3.28	%	3.32	%	3.22	%	3.16	%	3.25	%	3.08	%	3.07	%
Ratio of operating expense to average total assets	2.75	%	2.69	%	2.52	%	2.58	%	2.68	%	2.92	%	2.60	%
Return on equity (ratio of net income to average equity)	14.88	%	8.72	%	5.42	%	8.20	%	6.95	%	4.61	%	5.86	%
Ratio of average interest-earning assets to average interest-bearing liabilities	99.98	%	103.20	%	101.67	%	103.25	%	102.66	%	102.39	%	103.47	%
Quality Ratios:
Non-performing assets to total assets at end of period	2.42	%	1.07	%	2.03	%	0.45	%	0.76	%	0.69	%	0.82	%
Allowance for loan losses to non-performing loans	54.79	%	59.69	%	63.51	%	230.33	%	83.89	%	124.20	%	160.43	%
Classified assets to total assets at end of period (2)	2.83	%	1.91	%	2.93	%	1.80	%	1.29	%	1.20	%	1.70	%
Allowance for loan losses to classified assets	44.96	%	26.91	%	40.76	%	29.32	%	36.34	%	44.84	%	33.95	%
Capital Ratios:
Equity to total assets at end of period	6.35	%	7.77	%	7.52	%	8.40	%	8.54	%	8.96	%	9.64	%
Average equity to average assets	6.99	%	8.28	%	7.70	%	8.41	%	8.70	%	9.38	%	9.75	%
Dividend payout ratio	12.76	%	16.50	%	30.65	%	18.32	%	24.12	%	37.50	%	30.77	%
Other Data:
Number of full service branch offices (including main branch)	14		15		15		15		15		15		15

(1) Net interest income divided by average interest earning assets.

(2) Includes items classified as special mention.

24

Selected Historical Financial and Other Data

Aviston Financial Corporation

(dollars in thousands, except share and per share data)

	As of or for the Three Months Ended March 31, 2003		As of or for the 69 Days Ended December 31, 2002(2)
Selected Financial Condition Data:
Total assets	$	97,176	$	96,434
Loans, net, including loans held for sale		65,600		60,877
Mortgage-backed securities held-to-maturity		—		—
Mortgage-backed securities available-for-sale		99		334
Investment securities held-to-maturity		—		—
Investment securities available-for-sale		20,603		27,285
Deposits		79,028		82,834
Total borrowings		7,013		3,025
Stockholders’ equity		10,466		9,979
Shares outstanding		483,826		483,826
Stockholders’ equity per share	$	21.63	$	20.63
Stockholders’ tangible equity per share (1)		13.36		12.36
Selected Operations Data:
Total interest income		1,400		1,098
Total interest expense		571		456
Net interest income		829		642
Provision for losses on loans		142		52
Net interest income after provision for losses on loans		687		590
Fee income		31		53
Gain on sales of loans and securities		177		9
Other non-interest income		6		4
Total non-interest income		214		66
Other expenses		346		292
Income tax expense		176		153
Total non-interest expense		522		445
Net income		379		211
Earnings per share (basic)	$	0.78	$	0.44
Earnings per share (diluted)	$	0.78	$	0.44
Dividends		—		—

(1) Calculated by subtracting goodwill and other intangible assets from stockholders’ equity.

(2) Aviston Bancorp, Inc. was purchased by Aviston Financial on October 23, 2002.

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Selected Historical Financial and Other Data

Aviston Financial Corporation (continued)

	As of and for the Three Months Ended March 31, 2003		As of and for the 69 Days Ended December 31, 2002(5)
Selected Financial Ratios and Other Data:
Performance Ratios:
Return on assets (ratio of net income to average total assets)	1.59	%	1.18	%
Interest rate spread information:
Average during the year/quarter	3.27	%	3.24	%
End of year/quarter	3.25	%	3.24	%
Net interest margin (1)	3.70	%	3.71	%
Ratio of operating expense to average total assets (2)	1.43	%	1.63	%
Return on equity (ratio of net income to average equity)	14.45	%	11.36	%
Ratio of average interest-earning assets to average interest-bearing liabilities	116.02	%	117.78	%
Quality Ratios:
Non-performing assets to total assets at end of period	0.14	%	0.04	%
Allowance for loan losses to non-performing loans	1011.59	%	2808.89	%
Classified assets to total assets at end of period (3)	0.14	%	0.04	%
Allowance for loan losses to classified assets	1042.54	%	3717.65	%
Capital Ratios:
Equity to total assets at end of period	10.77	%	10.35	%
Average equity to average assets	10.83	%	10.38	%
Dividend payout ratio	0.00	%	0.00	%
Other Data:
Number of full-service branch offices (including main branch)(4)	2		2

(1) Net interest income divided by average interest earning assets.

(2) Operating expense is non-interest expense.

(3) Includes items classified as special mention.

(4) Excludes the Fairview Heights facility that is under construction.

(5) Aviston Bancorp, Inc. was purchased by Aviston Financial on October 23, 2002.

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RISK FACTORS

By voting in favor of the merger, Aviston Financial stockholders will be choosing to invest in the combined company’s common stock to the extent they receive Kankakee Bancorp common stock in exchange for their shares of Aviston Financial common stock. In addition to the information contained elsewhere in this joint proxy statement-prospectus or incorporated in this joint proxy statement-prospectus by reference, as a stockholder of Kankakee Bancorp or Aviston Financial, you should carefully consider the following factors in making your decision as to how to vote on the merger.

Risks Relating to the Merger

The exchange ratio is fixed and will not be adjusted to reflect any changes in the market value of Kankakee Bancorp or Aviston Financial common stock prior to the effective time of the merger.

The precise value of the merger consideration to be paid to Aviston Financial’s stockholders will not be known at the time of the Aviston Financial special meeting. The merger agreement provides that each share of Aviston Financial common stock outstanding at the effective time will be converted into the right to receive 0.707 of a share of Kankakee Bancorp common stock. The exchange ratio is fixed and will not be adjusted to reflect any changes in the value of either Aviston Financial or Kankakee Bancorp common stock between the date of the merger agreement and the effective time of the merger. The value of Kankakee Bancorp common stock, however, will fluctuate prior to the effective time of the merger and may be higher or lower than on the date of the merger agreement or the date of the Aviston Financial special meeting. Stock price changes may result from a variety of factors, including completion of the merger, general market and economic conditions, changes in our respective businesses, operations and prospects and regulatory considerations. Many of these factors are beyond Kankakee Bancorp’s control. Aviston Financial stockholders are urged to obtain current market price quotations for Kankakee Bancorp common stock.

Your interests will be diluted by the merger.

After the merger, Aviston Financial’s stockholders will own less than a majority of the outstanding voting stock of the combined company and could therefore be outvoted by the existing and continuing Kankakee Bancorp stockholders if they all voted together as a group on any issue that is presented to the combined company’s stockholders. Kankakee Bancorp’s stockholders will own approximately         % of the combined company’s outstanding voting stock, but the President and Chief Executive Officer of the combined company and two of the combined company’s seven-member board of directors will be individuals who formerly served as officers or directors of Aviston Financial. There is no single individual stockholder of Kankakee Bancorp or Aviston Financial who controls in excess of 12% of either company’s common stock. Neither group of stockholders will have the same control over the combined company as they currently have over their respective companies.

In addition, if common stock purchase rights are issued to Kankakee Bancorp and Aviston Financial stockholders, any future issuance of shares upon exercise of these rights may dilute your proportional ownership interest in the combined company.

Some directors and executive officers of Aviston Financial will receive benefits in the merger in addition to the merger consideration received by all other stockholders of Aviston Financial.

The President of Aviston Financial, Thomas A. Daiber, has entered into an employment agreement in connection with the merger, and two officers of Aviston Financial, Bryan L. Marsh and Brad Rench, have entered into change of control agreements in connection with the merger. In addition, all of the members of Kankakee Bancorp’s current board of directors and two of the members of Aviston Financial’s board of directors will together serve as the entire board of directors of the combined company after the completion of the merger. Following the merger, they will also serve on the board of the combined bank subsidiary, and receive payments for their service. Accordingly, our directors and some of our executive officers may have interests in the merger that are different from, or in addition to, yours. See “Description of Transaction—Interests of Certain Persons in the Merger.”

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Post-Merger Risks

Difficulties in combining the operations of Aviston Financial and Kankakee Bancorp may prevent the combined company from achieving the expected benefits from its acquisition.

The combined company may not be able to achieve fully the strategic objectives and operating efficiencies it hopes to achieve in the merger. The success of the merger will depend on a number of factors, including (but not limited to), the combined company’s ability to:

• integrate the operations of Aviston Financial and Kankakee Bancorp;

• maintain existing relationships with depositors so as to minimize withdrawals of deposits after the merger;

• maintain and enhance existing relationships with borrowers so as to limit unanticipated losses from loans of Aviston Financial and Kankakee Bancorp;

• control the incremental non-interest expense so as to maintain overall operating efficiencies;

• retain and attract qualified personnel; and

• compete effectively in the communities served by Aviston Financial and Kankakee Bancorp and in nearby communities.

These factors could contribute to the combined company not achieving the expected benefits from the merger within the desired time frames, if at all.

In addition, Kankakee Bancorp’s market is primarily located in central Illinois, while Aviston Financial draws on the St. Louis metropolitan area. Although the acquisition is intended to help Kankakee Bancorp to begin to realize its goal of expanding its market area to cover the region between Chicago and St. Louis, the initial distance between markets may hinder the combined company’s ability to integrate the respective operations. Similarly, although we anticipate that Mr. Daiber’s experience in the St. Louis metropolitan area will help the combined company to expand its market area, his relative inexperience with Kankakee Bancorp’s existing market area may make it more difficult to manage existing relationships and operations.

The combined company may experience difficulties in managing its growth.

As part of its overall growth strategy following the merger, the combined company may decide to acquire banks and related businesses that its board of directors believes provide a strategic fit with its business or to establish de novo branches. To the extent that the combined company does grow, it may not be able to adequately and profitably manage its growth. In addition, the combined company may not obtain regulatory approvals for acquisitions or the establishment of de novo branches that it may undertake in the future. The combined company will account for the proposed merger and possible future acquisitions under the purchase method of accounting, which could adversely affect future results of operations.

The combined company and its stockholders will be subjected to special risks if it effects future acquisitions.

Acquiring other banks and businesses will involve risks commonly associated with acquisition, including:

• potential exposure to liabilities of any banks or other businesses acquired by the combined company;

• difficulty and expense of integrating the operations and personnel of any banks or other businesses acquired by the combined company;

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• possible increases in leverage resulting from borrowings needed to finance an acquisition or augment regulatory capital;

• potential disruption to the combined company’s business;

• potential diversion of the combined company’s management’s time and attention; and

• impairment of relationships with and the possible loss of key employees and customers of any banks or other businesses acquired by the combined company.

The combined company’s stock price may be volatile.

The trading price of the combined company’s common stock may be volatile. The market for the combined company’s common stock may experience significant price and volume fluctuations in response to a number of factors including actual or anticipated quarterly variations in operating results, changes in expectations of future financial performance, changes in estimates made by securities analysts, governmental regulatory actions, banking industry reform measures, client relationship developments and other factors, many of which will be beyond our control.

Furthermore, the stock market in general, and the market for banks and thrifts and their holding companies in particular, has experienced extreme volatility that often has been unrelated to the operating performance of particular companies. These broad market and industry fluctuations may adversely affect the trading price of the combined company’s common stock, regardless of actual operating performance.

Future sales of shares of common stock of the combined company could negatively affect its market price.

Upon completion of the merger, the combined company will have approximately              outstanding shares of common stock. Future sales of substantial amounts of the combined company’s common stock (including shares issued upon the exercise of stock options) by Kankakee Bancorp’s or Aviston Financial’s current stockholders, or the perception that sales could occur, could adversely affect the market price of the combined company’s common stock. We make no prediction as to the effect, if any, that future sales of shares, or the availability of shares for future sale, will have on market price of the combined company’s common stock.

If common stock purchase rights are issued to holders of common stock of Kankakee Bancorp and/or the combined company, future exercises of the rights could negatively affect the combined company’s market price. Further, the rights may have an exercise price below the combined company’s market price at the time the rights are declared exercisable. To the extent that stockholders exercise their rights, this exercise could adversely affect the market price of the combined company’s common stock.

We cannot predict how changes in technology will impact the combined company’s business.

The financial services industry, including the banking sector, is increasingly affected by advances in technology, including developments in:

• telecommunications;

• data processing;

• automation;

• internet banking;

• telebanking; and

• debit cards and so-called “smart cards.”

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The combined company’s ability to compete successfully in the future will depend on whether it can anticipate and respond to technological changes. To develop these and other new technologies, the combined company will likely make additional capital investments. Although both Kankakee Bancorp and Aviston Financial continually invest in new technology and the combined company’s management will continue to do so, we cannot assure you that the combined company will have sufficient resources or access to the necessary technology to remain competitive in the future.

The combined company will be subject to extensive and constantly changing regulation.

The banking industry is heavily regulated under both federal and state law. These regulations are primarily intended to protect depositors and the FDIC, not creditors or stockholders. The combined company, and each of its non-bank subsidiaries, will be subject to the supervision of the Federal Reserve Board, in addition to other regulatory organizations. Regulations affecting banks and financial services companies undergo continuous change, and the ultimate effect of such changes cannot be predicted. Federal and state governments may modify regulations and laws at any time, and may enact new legislation. These modifications or new laws may harm the combined company.

A WARNING ABOUT FORWARD-LOOKING STATEMENTS

We have each made forward-looking statements in this document (and in documents to which we refer you in this document) that are subject to risks and uncertainties. These forward-looking statements include information about possible or assumed future results of our operations or the performance of the combined company after the merger is completed. When we use any of the words “believes,” “expects,” “anticipates,” “estimates” or similar expressions, we are making forward-looking statements. Many possible events or factors could affect the future financial results and performance of each of our companies and the combined company after the merger and could cause those results or performance to differ materially from those expressed in our forward-looking statements.

Factors that could have a material adverse effect on our operations and future prospects include, but are not limited to, the following:

• The strength of the U.S. economy in general and the strength of the local economies in which we conduct our operations which may be less favorable than expected and may result in, among other things, a deterioration in the credit quality and value of our assets.

• The economic impact of any future terrorist attacks, acts of war or threats thereof and the response of the United States to any such threats and attacks.

• The effects of, and changes in, federal, state and local laws, regulations and policies affecting banking, securities, insurance and monetary and financial matters.

• The effects of changes in interest rates and the policies of the Federal Reserve Board.

• Our ability to compete with other financial institutions as effectively as we currently intend due to increases in competitive pressures in the financial services sector.

• Our inability to obtain new customers and to retain existing customers.

• The timely development and acceptance of products and services, including products and services offered through alternative delivery channels such as the internet.

• Technological changes implemented by us and by other parties, including third party vendors, which may be more difficult or more expensive than anticipated or which may have unforeseen consequences to us and its customers.

• Our ability to develop and maintain secure and reliable electronic delivery systems.

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• Our ability to retain key executives and employees and the difficulty that we may experience in replacing in an effective manner key executives and employees.

• Consumer spending and saving habits that may change in a manner that adversely affects our business.

• Business combinations and the integration of acquired businesses that may be more difficult or expensive than expected.

• The costs, effects and outcomes of existing or future litigation.

• Changes in accounting policies and practices, as may be adopted by state and federal regulatory agencies and the Financial Accounting Standards Board.

• Other factors discussed in the “Risk Factors” section of this joint proxy statement-prospectus.

These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements.

The forward-looking earnings estimates included in the joint proxy statement-prospectus have not been examined or compiled by our independent public accountants, nor have our independent accountants applied any procedures to our estimates. Accordingly, our accountants do not express an opinion or any other form of assurance on them. The forward-looking statements included in this joint proxy statement-prospectus are made only as of the date of this joint proxy statement-prospectus. Further information concerning Kankakee Bancorp and its business, including additional factors that could materially affect Kankakee Bancorp’s financial results, is included in Kankakee Bancorp’s filings with the Securities and Exchange Commission.

INTRODUCTION

Kankakee Bancorp is furnishing this joint proxy statement-prospectus to holders of Kankakee Bancorp common stock, $0.01 par value per share, in connection with the proxy solicitation by Kankakee Bancorp’s board of directors. Kankakee Bancorp’s board of directors will use the proxies at the special meeting of stockholders of Kankakee Bancorp to be held on                     , 2003, and at any adjournments or postponements of the meeting.

Aviston Financial is furnishing this joint proxy statement-prospectus to holders of Aviston Financial common stock, $10.00 par value per share, in connection with the proxy solicitation by Aviston Financial’s board of directors. Aviston Financial’s board of directors will use the proxies at the special meeting of stockholders of Aviston Financial to be held on                     , 2003, and at any adjournments or postponements of the meeting.

Our stockholders will be asked at their respective special meetings to vote to approve the Agreement and Plan of Merger, dated as of May 27, 2003, between Aviston Financial and Kankakee Bancorp and the transactions it contemplates. Under the merger agreement, Aviston Financial will merge into Kankakee Bancorp, and each of the outstanding shares of Aviston Financial common stock will be converted into the right to receive 0.707 shares of Kankakee Bancorp common stock. Each share of Kankakee Bancorp common stock issued to the Aviston Financial stockholders in the merger will include all rights that are inherent in or attached to the then-outstanding shares of Kankakee Bancorp common stock, including preferred stock purchase rights and, if issued prior to completion of the merger, common stock purchase rights. See “Effect of the Merger on Rights of Stockholders—Rights Plan,” “—Common Stock Purchase Rights” and “Description of Kankakee Bancorp Capital Stock.” At the Kankakee Bancorp special meeting, stockholders will also be asked to vote to adopt three amendments to Kankakee Bancorp’s certificate of incorporation.

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KANKAKEE BANCORP SPECIAL MEETING

Date, Place, Time and Purpose

The special meeting of Kankakee Bancorp’s stockholders will be held at the offices of Barack Ferrazzano Kirschbaum Perlman & Nagelberg LLC, 333 W. Wacker Drive, Suite 2700, Chicago, Illinois 60606, at         :00     .m. local time, on                     , 2003. At the special meeting, holders of Kankakee Bancorp common stock will be asked to:

• vote upon a proposal to approve the merger agreement and the transactions it contemplates;

• vote upon a proposal to amend the article of incorporation of Kankakee Bancorp to change its name to                             ;

• vote upon a proposal to amend the certificate of incorporation of Kankakee Bancorp to increase the number of authorized shares of Kankakee Bancorp common stock; and

• vote upon a proposal to amend the certificate of incorporation of Kankakee Bancorp to change the manner in which the certificate of incorporation may be amended in the future.

The adoption of the amendments is not a condition to the completion of the merger. Approval of the merger agreement and the transactions it contemplates is not a condition to the adoption of the amendments.

Record Date, Voting Rights, Required Vote and Revocability of Proxies

The Kankakee Bancorp board fixed the close of business on                     , 2003, as the record date for determining those Kankakee Bancorp stockholders who are entitled to notice of and to vote at the special meeting. Only holders of Kankakee Bancorp common stock of record on the books of Kankakee Bancorp at the close of business on the record date have the right to receive notice of and to vote at the special meeting. On the record date, there were                  shares of Kankakee Bancorp common stock issued and outstanding held by approximately                  holders of record.

At the special meeting, Kankakee Bancorp stockholders will have one vote for each share of Kankakee Bancorp common stock owned on the record date. The holders of a majority of the outstanding shares of Kankakee Bancorp common stock entitled to vote at the special meeting must be present in order for a quorum to exist at the special meeting.

To determine if a quorum is present, Kankakee Bancorp intends to count the following:

• shares of Kankakee Bancorp common stock present at the special meeting either in person or by proxy; and

• shares of Kankakee Bancorp common stock for which it has received proxies, but with respect to which holders of shares have abstained on any matter.

Approval of the merger agreement and adoption of the two amendments to the certificate of incorporation to change the corporate name and to increase the authorized shares of Kankakee Bancorp common stock all require the affirmative vote of holders of a majority of the outstanding shares of Kankakee Bancorp common stock.

Adoption of the amendment to the certificate of incorporation to change the manner in which the articles of incorporation may be amended in the future requires the affirmative vote of holders of at least 80% of the outstanding shares of Kankakee Bancorp common stock.

Brokers who hold shares in street name for customers who are the beneficial owners of such shares may not give a proxy to vote those shares without specific instructions from their customers. Any abstention, non-voting

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share or “broker non-vote” will have the same effect as a vote against the approval of the merger agreement and adoption of each of the proposed amendments to the certificate of incorporation.

Properly executed proxies that Kankakee Bancorp receives before the vote at the special meeting that are not revoked will be voted in accordance with the instructions indicated on the proxies. If no instructions are indicated, these proxies will be voted FOR the proposal to approve the merger agreement and the transactions it contemplates, FOR the proposal to amend the certificate of incorporation to change Kankakee Bancorp’s name, FOR the proposal to amend the certificate of incorporation increasing the number of authorized shares, FOR the proposal to amend the certificate of incorporation changing the manner in which the certification of incorporation may be amended in the future and FOR any resolution to adjourn the special meeting, if necessary, to solicit additional proxies, and the proxy holder may vote the proxy in its discretion as to any other matter that may properly come before the special meeting.

A Kankakee Bancorp stockholder who has given a proxy solicited by the Kankakee Bancorp board may revoke it at any time prior to its exercise at the special meeting by (1) giving written notice of revocation to the secretary of Kankakee Bancorp, (2) properly submitting to Kankakee Bancorp a duly executed proxy bearing a later date or (3) attending the special meeting and voting in person. All written notices of revocation and other communications with respect to revocation of proxies should be sent to: Kankakee Bancorp, Inc., 310 South Schuyler Avenue, Kankakee, Illinois 60901, Attention: Lynn O’Brien, Secretary.

On the record date, Kankakee Bancorp’s directors and executive officers, including their immediate family members and affiliated entities, owned                  shares or approximately         % of the outstanding shares of Kankakee Bancorp common stock. All of Kankakee Bancorp’s directors have indicated that they intend to vote in favor of all proposals presented at the special meeting.

Additional information with respect to beneficial ownership of Kankakee Bancorp common stock by persons and entities owning more than 5% of such stock and more detailed information with respect to beneficial ownership of Kankakee Bancorp common stock by directors and executive officers of Kankakee Bancorp is incorporated by reference to Kankakee Bancorp’s Annual Report on Form 10-K for the year ended December 31, 2002. See “Where You Can Find More Information.”

Solicitation of Proxies

Directors, officers and employees of Kankakee Bancorp may solicit proxies by mail, in person or by telephone or facsimile. They will receive no additional compensation for such services. Kankakee Bancorp may make arrangements with brokerage firms and other custodians, nominees and fiduciaries, if any, for the forwarding of solicitation materials to the beneficial owners of Kankakee Bancorp common stock held of record by such persons. Kankakee Bancorp will reimburse any such brokers, custodians, nominees and fiduciaries for the reasonable out-of-pocket expenses incurred by them for such services. Kankakee Bancorp has retained Morrow & Co., Inc. for a fee of $5,000, plus transaction expenses, to assist in the solicitation of proxies from stockholders. Morrow & Co. may solicit proxies by mail, telephone, facsimile or other means. Kankakee Bancorp and Aviston Financial will share all expenses related to the printing and mailing of this joint proxy statement-prospectus, as provided in the merger agreement. See “Description of Transaction—Expenses and Termination Fees.”

Authority to Adjourn Special Meetings to Solicit Additional Proxies

We are asking our stockholders to grant full authority for the special meetings to be adjourned, if necessary, to permit solicitation of additional proxies to approve the transactions proposed by this joint proxy statement-prospectus.

Recommendation of Kankakee Bancorp Board

The Kankakee Bancorp board has unanimously approved the merger agreement and the transactions it contemplates and believes that the proposal to approve the merger agreement and the transactions it contemplates are in the best interests of Kankakee Bancorp and its stockholders. The Kankakee Bancorp board unanimously recommends that the Kankakee Bancorp stockholders vote FOR approval of the merger agreement and the

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transactions it contemplates, FOR adoption of all of the amendments to the certificate of incorporation and FOR any resolution to adjourn the special meeting, if necessary, to solicit additional proxies. See “Description of Transaction—Recommendation of the Kankakee Bancorp Board and Kankakee Bancorp’s Reasons for the Merger” and “Amendment of Kankakee Bancorp’s Certificate of Incorporation.”

AVISTON FINANCIAL SPECIAL MEETING

Date, Place, Time and Purpose

The special meeting of Aviston Financial’s stockholders will be held at the main branch office of the State Bank of Aviston, 101 South Page St., Aviston, Illinois 62216, at     :00     .m. local time, on                     , 2003. At the special meeting, holders of Aviston Financial common stock will be asked to vote upon a proposal to approve the merger agreement and the transactions it contemplates.

Record Date, Voting Rights, Required Vote and Revocability of Proxies

The Aviston Financial board fixed the close of business on                     , 2003, as the record date for determining those Aviston Financial stockholders who are entitled to notice of and to vote at the special meeting. Only holders of Aviston Financial common stock of record on the books of Aviston Financial at the close of business on the record date have the right to receive notice of and to vote at the special meeting. On the record date, there were                      shares of Aviston Financial common stock issued and outstanding held by approximately 115 holders of record.

At the special meeting, Aviston Financial stockholders will have one vote for each share of Aviston Financial common stock owned on the record date. The holders of a majority of the outstanding shares of Aviston Financial common stock entitled to vote at the special meeting must be present in order for a quorum to exist at the special meeting.

To determine if a quorum is present, Aviston Financial intends to count the following:

• shares of Aviston Financial common stock present at the special meeting either in person or by proxy; and

• shares of Aviston Financial common stock for which it has received proxies, but with respect to which holders of shares have abstained on any matter.

Approval of the merger agreement requires the affirmative vote of holders of at least two-thirds of the outstanding shares of Aviston Financial common stock.

Brokers who hold shares in street name for customers who are the beneficial owners of such shares may not give a proxy to vote those shares without specific instructions from their customers. Any abstention, non-voting share or “broker non-vote” will have the same effect as a vote against the approval of the merger agreement.

Properly executed proxies that Aviston Financial receives before the vote at the special meeting that are not revoked will be voted in accordance with the instructions indicated on the proxies. If no instructions are indicated, these proxies will be voted FOR the proposal to approve the merger agreement and the transactions it contemplates, and FOR any resolution to adjourn the special meeting, if necessary, to solicit additional proxies, and the proxy holder may vote the proxy in its discretion as to any other matter that may properly come before the special meeting.

An Aviston Financial stockholder who has given a proxy solicited by the Aviston Financial board may revoke it at any time prior to its exercise at the special meeting by (1) giving written notice of revocation to the secretary of Aviston Financial, (2) properly submitting to Aviston Financial a duly executed proxy bearing a later date or (3) attending the special meeting and voting in person. All written notices of revocation and other communications with respect to revocation of proxies should be sent to: Aviston Financial Corporation, 101 South Page Street, Aviston, Illinois 62216, Attention: Bryan L. Marsh, Secretary.

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On the record date, Aviston Financial’s directors and executive officers, including their immediate family members and affiliated entities, owned approximately 140,000 shares, or approximately 28.4%, of the outstanding shares of Aviston Financial common stock, including shares subject to options to purchase Aviston Financial common stock. These individuals have agreed to vote their shares in favor of approving the merger agreement and the transactions it contemplates.

Solicitation of Proxies

Directors, officers and employees of Aviston Financial may solicit proxies by mail, in person or by telephone or facsimile. They will receive no additional compensation for such services. Aviston Financial may make arrangements with brokerage firms and other custodians, nominees and fiduciaries, if any, for the forwarding of solicitation materials to the beneficial owners of Aviston Financial common stock held of record by such persons. Aviston Financial will reimburse any such brokers, custodians, nominees and fiduciaries for the reasonable out-of-pocket expenses incurred by them for such services. Kankakee Bancorp and Aviston Financial will share all expenses associated with the printing and mailing of this joint proxy statement-prospectus, as provided in the merger agreement. See “Description of Transaction—Expenses and Termination Fees.”

Authority to Adjourn Special Meetings to Solicit Additional Proxies

We are asking our stockholders to grant full authority for the special meetings to be adjourned, if necessary, to permit solicitation of additional proxies to approve the transactions proposed by this joint proxy statement-prospectus.

Recommendation of Aviston Financial Board

The Aviston Financial board has unanimously approved the merger agreement and the transactions it contemplates and believes that the proposal to approve the merger agreement and the transactions it contemplates are in the best interests of Aviston Financial and its stockholders. The Aviston Financial board unanimously recommends that the Aviston Financial stockholders vote FOR approval of the merger agreement and the transactions it contemplates and FOR any resolution to adjourn the special meeting, if necessary, to solicit additional proxies. See “Description of Transaction—Recommendation of the Aviston Financial Board and Aviston Financial’s Reasons for the Merger.”

DESCRIPTION OF TRANSACTION

The following information describes material aspects of the merger and related transactions. This description does not provide a complete description of all the terms and conditions of the merger agreement. It is qualified in its entirety by the Appendices to this document, including the merger agreement, which is attached as Appendix A to this joint proxy statement-prospectus. The merger agreement is incorporated into this joint proxy statement-prospectus by reference. We urge you to read the Appendices in their entirety.

General

The merger agreement provides for the merger of Aviston Financial with and into Kankakee Bancorp. At the time the merger becomes effective, each share of Aviston Financial common stock then issued and outstanding will be converted into and exchanged for the right to receive 0.707 shares of Kankakee Bancorp common stock.

No fractional shares of Kankakee Bancorp common stock will be issued to Aviston Financial’s stockholders. Rather, Kankakee Bancorp will redeem any of these fractional interests for cash (without interest) in an amount equal to the average of the closing sale prices of Kankakee Bancorp common stock for the five trading days immediately following the completion of the merger.

On their respective record dates, Kankakee Bancorp had                      shares of common stock issued and outstanding and Aviston Financial had                      shares of common stock issued and outstanding and options to purchase                      shares. As described below, all of the outstanding options to purchase Aviston Financial common stock will be canceled, and new shares will be issued in connection with the cancellation, such

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that Aviston Financial will have a total of 495,326 shares of common stock outstanding at the time of the merger. Based on the exchange ratio contained in the merger agreement, on completion of the merger, Kankakee Bancorp will issue 350,196 shares of its common stock to former Aviston Financial stockholders. After the merger, former Aviston Financial stockholders would own approximately         % of the outstanding shares of common stock of the combined company.

As described further in this joint proxy statement-prospectus, Kankakee Bancorp’s board of directors has decided to issue common stock purchase rights to its stockholders, which will be conditionally exercisable on a short-term basis, as a future source of capital. If rights are issued to holders of Kankakee Bancorp common stock prior to the completion of the proposed merger with Aviston Financial, then rights will be issued to Aviston Financial’s stockholders as a right attached to the Kankakee Bancorp common stock issued to them in the merger. However, it is uncertain at this time whether any rights will be issued prior to completion of the merger. If they are not, no rights will be included with the common stock issued to the Aviston Financial stockholders in the merger. Because of the conditional nature of the rights, it is possible that the rights will initially have no monetary value. See “Description of Kankakee Bancorp Capital Stock—Common Stock Purchase Rights.”

Effect of the Merger on Options

Under the merger agreement, any outstanding options to purchase shares of Aviston Financial common stock must be exercised or extinguished prior to the effective time of the merger. Aviston Financial has agreed that, prior to the effective time of the merger, it will cancel all of the outstanding options, which, when vested, may be exercised for an aggregate of 45,000 shares of Aviston Financial common stock at an exercise price of $20.00 per share, and will issue new shares of Aviston Financial common stock in an amount based on the difference between the $20.00 exercise price of the outstanding options and the as-converted value of the Kankakee Bancorp common stock to be issued to the Aviston Financial stockholders in the merger, based on a value of Kankakee Bancorp common stock of $38.00 per share. Based on this calculation, Aviston Financial will issue 11,500 new shares of Aviston Financial common stock to its option holders, and there will be a total of 495,326 shares of Aviston Financial common stock, and no options to purchase common stock, outstanding at the time of the merger.

Any outstanding options to purchase shares of Kankakee Bancorp common stock will remain outstanding.

Material Federal Income Tax Consequences of the Merger

We have not requested nor do we intend to request a ruling from the Internal Revenue Service as to the federal income tax consequences of the merger. Instead, we have obtained the opinion of RSM McGladrey, Inc., as to the expected material federal income tax consequences of the merger, a copy of which is attached as an exhibit to the registration statement.

The tax opinion does not address, among other matters:

• state, local, foreign or other federal tax consequences of the merger under circumstances not specifically addressed in the opinion;

• federal income tax consequences to Aviston Financial stockholders who are subject to special rules under the Internal Revenue Code, such as foreign persons, tax-exempt organizations, insurance companies, financial institutions, dealers in stocks and securities and other persons who do not own the stock as a capital asset;

• federal income tax consequences affecting shares of Kankakee Bancorp common stock or Aviston Financial common stock acquired upon the exercise of stock options, stock purchase plan rights or otherwise as compensation;

• tax consequences to holders of warrants, options or other rights to acquire shares of the stock; or

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• tax consequences of Kankakee Bancorp and Aviston Financial of any income and deferred gain recognized pursuant to Treasury Regulations issued under Section 1502 of the Internal Revenue Code.

Subject to the conditions, qualifications, representations and assumptions contained in this document and in the tax opinion, RSM McGladrey, Inc.’s opinion provides the following conclusions:

• The acquisition by Kankakee Bancorp of substantially all of the assets of Aviston Financial in exchange for shares of Kankakee Bancorp common stock and the assumption of liabilities of Kankakee Bancorp and of Aviston Financial pursuant to the merger will constitute a reorganization within the meaning of Section 368(a) of the Internal Revenue Code.

• Kankakee Bancorp and Aviston Financial will each be “a party to a reorganization” within the meaning of Section 368(b) of the Internal Revenue Code.

• No gain or loss will be recognized by either Kankakee Bancorp or Aviston Financial as a result of the merger.

• No gain or loss will be recognized by the stockholders of Aviston Financial as a result of the exchange of Aviston Financial common stock for Kankakee Bancorp common stock pursuant to the merger. Assuming that the Kankakee Bancorp common stock is a capital asset in the hands of the respective Aviston Financial stockholders, any gain or loss recognized as a result of the receipt of cash in lieu of a fractional share will be a capital gain or loss equal to the difference between the cash received and that portion of the holder’s tax basis in the Aviston Financial common stock allocable to the fractional share.

• The tax basis of Kankakee Bancorp common stock to be received by the stockholders of Aviston Financial will be the same as the tax basis of the Aviston Financial common stock surrendered in exchange therefor (reduced by any amount allocable to a fractional share interest for which cash is received).

• The holding period of the Kankakee Bancorp common stock to be received by stockholders of Aviston Financial will include the holding period of the Aviston Financial common stock surrendered in exchange therefore on the date of the exchange.

The tax opinion is based on the Internal Revenue Code, Treasury Regulations issued under the Internal Revenue Code by the Internal Revenue Service, judicial decisions and administrative pronouncements of the Internal Revenue Service, all existing and in effect on the date of this joint proxy statement-prospectus and all of which are subject to change at any time, possibly retroactively. Any such change could have a material impact on the conclusions reached in the tax opinion. The tax opinion represents only the tax advisor’s best judgment as to the expected federal income tax consequences of the merger and is not binding on the Internal Revenue Service or the courts. The Internal Revenue Service may challenge the conclusions stated in the tax opinion or positions taken by stockholders on their income tax returns. Stockholders of Aviston Financial may incur the cost and expense of defending positions taken by them with respect to the merger. A successful challenge by the Internal Revenue Service could have material adverse consequences to the parties to the merger, including stockholders of Aviston Financial.

In rendering the tax opinion, RSM McGladrey, Inc. has relied as to factual matters solely on the continuing accuracy of the following:

• the description of the facts relating to the merger contained in the merger agreement and this joint proxy statement-prospectus;

• the factual representations and warranties contained in the merger agreement and this joint proxy statement-prospectus and related documents and agreements; and

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• factual matters addressed by representations made by executive officers of Kankakee Bancorp and Aviston Financial, as further described in the tax opinion.

Events occurring after the date of the tax opinion could alter the facts upon which the opinion is based. In such case, the conclusions reached in the tax opinion and in this summary could be materially impacted.

Accordingly, stockholders of Aviston Financial are urged to consult their own tax advisors as to the specific tax consequences to them of the merger, including the applicability and effect of federal, state, local and other tax laws.

The conditions relating to the receipt of the tax opinion may be waived by both of us, although neither of us currently intends to do so. If the condition relating to the receipt of the tax opinion were waived and the material federal income tax consequences of the merger were substantially different from those described in this joint proxy statement-prospectus, we would each resolicit the approval of our respective stockholders prior to completing the merger.

Background of the Merger

The boards of directors of each of Kankakee Bancorp and Aviston Financial have regularly reviewed the business strategies of their respective companies in light of general conditions in the banking industry, local competitive and economic conditions, the results of operations and future prospects, legislative changes and other developments affecting the banking industry generally and each of their respective companies specifically.

During the third quarter of 2002, Kankakee Bancorp’s board of directors reviewed its best practice policies in connection with the Sarbanes-Oxley Act, and began considering the advisability of adding an additional independent director to the board. Following a process conducted by the Nominating Committee of the board, which included discussions with several stockholders who owned more than 5% of the common stock of Kankakee Bancorp, the Nominating Committee recommended to the board in early December 2002 that Michael A. Griffith, who was formerly employed as an investment banker, be appointed as a director. Mr. Griffith joined the Kankakee Bancorp and KFS Bank boards in December 2002. In January 2003, our then Chairman, William Cheffer, resigned as Chairman of the Board, and Mr. Griffith was unanimously selected by the full board of directors to serve as Chairman. At this same time, Larry Huffman, the President and Chief Executive Officer of Kankakee Bancorp and KFS Bank, tendered his resignation for personal reasons from these positions in which he had served since April 2001. Accordingly, Kankakee Bancorp began to search for an experienced and qualified candidate to fill the role of Chief Executive Officer. A Search Committee of the board, consisting of four independent directors, was formed and Spencer Stuart, a nationally recognized executive search firm, was retained to assist in the process.

The Kankakee Bancorp board of directors also has considered from time to time the possible benefits of strategic business combinations with other financial institutions, including other bank holding companies, as a part of its ongoing evaluation of available methods to increase stockholder value, to expand its existing service area and to solidify its market position in existing markets. Following a series of strategic planning meetings in early 2003, the focus of the institution became to seek to transform Kankakee Bancorp into the premier financial institution in the central Illinois markets between Chicago and St. Louis and, to this end, the senior management of Kankakee Bancorp has from time to time had informal discussions with senior management of other financial institutions regarding potential business combination transactions. It was also noted by the board of directors that the possibility of recruiting a new Chief Executive Officer in the context of a strategic transaction such as a merger or acquisition should also be explored.

In early February 2003, acting on informal referrals, Mr. Griffith contacted Thomas A. Daiber, the President and Chief Executive Officer of Aviston Financial, and invited him to visit Kankakee Bancorp’s offices, so that the Kankakee Bancorp directors and Mr. Daiber could discuss the possibility of Mr. Daiber’s joining the company as its new Chief Executive Officer. In addition, the parties began informally to discuss the respective interests of the parties in a merger transaction between Kankakee Bancorp and Aviston Financial. During this time, the Search Committee also contacted other potential candidates for the position of Chief Executive Officer, who, together with Mr. Daiber, formed the pool of candidates being evaluated by Spencer Stuart together with the Search Committee.

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Mr. Daiber visited Kankakee Bancorp on February 11, during which time he met with the full Search Committee, as well as each director individually. The following day, Mr. Daiber contacted Mr. Griffith to confirm his interest in the Chief Executive Officer position, and to express his interest in exploring a merger. Mr. Daiber advised Kankakee Bancorp’s board that, because he had organized and led the investor group that acquired control of Aviston Financial in October 2002, he felt an obligation to those investors not to leave his position with Aviston Financial without providing for their interests, which would be addressed by a merger. During the next several weeks, the parties continued to communicate regarding the Chief Executive Officer position and a possible transaction.

On March 13, Mr. Griffith and Mark Smith, a director and the chairman of the Audit Committee of Kankakee Bancorp, visited the offices of Aviston Financial to meet with its management and conduct preliminary business and financial due diligence.

On April 8 and April 9, the Search Committee met with seven candidates, including Mr. Daiber, for the Chief Executive Officer position at the Chicago offices of Spencer Stuart. On April 22 and April 23, Kankakee Bancorp’s directors met in Kankakee with the two leading candidates identified by the Search Committee. On April 24, at a meeting of the board of directors, the board decided to offer the Chief Executive Officer position to Mr. Daiber. In making its determination, the board elected to make Mr. Daiber the offer whether or not a merger transaction with Aviston Financial was pursued or completed. Following this meeting, Mr. Griffith contacted Mr. Daiber by telephone and offered him the Chief Executive Officer position, at which time the parties more firmly began to discuss the specifics of a merger transaction. Mr. Daiber confirmed that he would likely be interested in associating with Kankakee Bancorp only in the event that a merger could be agreed to. These discussions continued throughout the following week, at which time it was decided that the acquisition of Aviston Financial would likely be conducted through a stock-for-stock merger.

On May 2, Mr. Daiber and members of Thompson Coburn, LLP, counsel to Aviston Financial, and members of Barack Ferrazzano, counsel to Kankakee Bancorp, met via teleconference to discuss preliminary matters, including the anticipated timing of the proposed transaction.

On May 5 and May 6, Mr. Griffith and Mr. Daiber continued to discuss the proposed transaction, at which time they outlined many of the general business terms of the stock-for-stock merger that would be submitted to their respective boards of directors.

On May 6, Kankakee Bancorp’s senior management met with attorneys from Barack Ferrazzano to discuss the business and legal implications of engaging in an acquisition of Aviston Financial. In addition, Kankakee Bancorp retained James M. Lindstrom, who had formerly worked as a senior associate for a private equity firm, to act as a consultant to Kankakee Bancorp and provide assistance with respect to the proposed transaction, including evaluating the financial impact of a merger. Also on May 6, following the execution of a mutual confidentiality agreement between Aviston Financial and Kankakee Bancorp, an independent Kankakee Bancorp director met informally in Kankakee with Mr. Daiber to discuss the respective business philosophies of the two organizations. At the conclusion of the discussion, both parties decided to remain open to further discussion, and to begin business and legal due diligence.

Accordingly, on May 7 and May 8, Mr. Daiber and members of Aviston Financial’s senior management visited Kankakee Bancorp and met with members of Kankakee Bancorp’s senior management to conduct a review of Kankakee Bancorp’s business operations. Also on May 7, Mr. Griffith met with S. Kris Jakel, the lead director and a principal stockholder of Aviston Financial, to discuss business strategy, how the two organizations could best combine and how the transition and the combined company should be structured. At that time, members of Kankakee Bancorp’s senior management visited the offices of Aviston Financial to perform additional due diligence, and, during the week of May 12, the parties each continued to conduct their respective legal and business due diligence reviews of one another.

While the discussions between Kankakee Bancorp and Aviston Financial were taking place, Kankakee Bancorp also considered some additional matters that had been discussed by the board of directors for some time. In particular, Kankakee Bancorp, after evaluating the stock price and trading volume of its common stock, determined to pursue a stock split, to be effected in the form of a dividend, following the merger, to enhance the liquidity of the

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trading market for the stock. Because the proposed stock split would require an increase in the number of authorized shares of Kankakee Bancorp common stock, requiring an amendment to its certificate of incorporation that would need to be approved by Kankakee Bancorp’s stockholders, Kankakee Bancorp further reviewed its certificate of incorporation to determine if additional changes should be considered at this time. Ultimately, Kankakee Bancorp determined that the amendment procedure, which requires at least an 80% stockholder vote to amend certain provisions, is unduly restrictive. Therefore, Kankakee Bancorp proposed an amendment to this section as well. See “Amendments to Kankakee Bancorp’s Certificate of Incorporation.” Also at this time, the board began to consider changing Kankakee Bancorp’s corporate name to one that would not be as geographically limited as “Kankakee Bancorp, Inc.,” a change that the board felt would be consistent with its operational objectives and its goal of expanding its market area. Accordingly, the board formed an ad hoc committee to select a new name.

In addition, Kankakee Bancorp began considering alternatives for raising capital in the future. Drawing on his prior investment banking experience, Mr. Griffith proposed to Kankakee Bancorp’s board of directors that it consider the issuance to all current stockholders of Kankakee Bancorp of rights to purchase common stock. If issued prior to the completion of the merger, identical rights would be issued to the Aviston Financial stockholders when they became stockholders of Kankakee Bancorp upon completion of the merger. The rights, which would be conditionally exercisable upon a declaration by Kankakee Bancorp’s board, could be used to raise capital for additional expansion opportunities both before and following the Aviston Financial acquisition. The rights would also reward stockholders by giving them the opportunity to capture value created by the Aviston Financial acquisition and may reduce the need for future underwritten public offerings. The proposed terms of the rights are described below under “Description of Kankakee Bancorp Capital Stock—Common Stock Purchase Rights.”

On May 17, 2003, Barack Ferrazzano distributed a draft definitive merger agreement to Aviston Financial and Thompson Coburn LLP for their review. This draft of the merger agreement was also distributed by Kankakee Bancorp to its board of directors.

On May 21, 2003, Mr. Griffith, Mr. Lindstrom and representatives of Barack Ferrazzano met with Mr. Daiber and a representative of Thompson Coburn to discuss the key business issues and to negotiate the terms of the definitive merger agreement and the related documents, including the proposed voting agreement to be executed by the directors of Aviston Financial and the State Bank of Aviston and Mr. Daiber’s employment agreement with Kankakee Bancorp. Attorneys from Barack Ferrazzano and Thompson Coburn continued to negotiate the terms of the merger agreement and legal due diligence review following the May 21 meeting.

Aviston Financial’s board of directors was briefed on the status of the preliminary negotiations at its meeting on April 17, 2003. As discussions with Kankakee Bancorp became more serious, Mr. Daiber kept the members of Aviston Financial’s board apprised on an informal basis. On May 21, 2003, Mr. Daiber sent the board members a written update on the negotiations and notified them of the scheduling of a special board meeting to consider the proposed merger. On May 23, 2003, a draft of the definitive merger agreement was circulated to the Aviston Financial directors.

On May 27, 2003, Kankakee Bancorp and KFS Bank held a joint meeting of their boards of directors to review the proposed merger agreement and related transactions, including the proposed merger of KFS Bank with the State Bank of Aviston, the proposed amendments to Kankakee Bancorp’s certificate of incorporation and the proposed issuance by Kankakee Bancorp of rights to purchase Kankakee Bancorp common stock. This meeting was attended by representatives of Barack Ferrazzano as well as members of Kankakee Bancorp’s senior management. Mr. Griffith reviewed the process leading up to the proposed transaction, Kankakee Bancorp’s senior management presented reports outlining the results of their due diligence of Aviston Financial and Mr. Lindstrom provided a detailed financial analysis of the proposed transaction. The following is a summary of the material analyses employed by Mr. Lindstrom and the directors of Kankakee Bancorp to evaluate the merger.

Projected Transaction Value. Each share of Aviston Financial would be exchanged for 0.707 shares of Kankakee Bancorp common stock. At the closing price of $38.50 for Kankakee Bancorp stock, this would result in a purchase price of approximately $13.5 million.

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Multiple of Historical Earnings for Aviston Financial. The merger consideration represents a multiple of 10.8 times Aviston Financial’s reported combined net income for the 12 months ended December 31, 2002. The multiple of historical earnings was examined for comparable transactions with the following characteristics:

• bank acquisitions announced since January 1, 2001;

• geographic emphasis on selling companies operating in Midwestern markets; and

• total assets of sellers generally between $50 million and $250 million.

The median multiple of historical earnings for these transactions was 24.0 times.

Multiple of Stated Book Value of Aviston Financial. The consideration represents a multiple of 1.3 times Aviston Financial’s book value as of March 31, 2003. The multiple of book value was examined for comparable transactions with the following characteristics:

• bank acquisitions announced since January 1, 2001;

• geographic emphasis on selling companies operating in Midwestern markets; and

• and total assets of sellers generally between $50 million and $250 million.

The average multiple of stated book value for these transactions was 1.3 times.

Discounted Cash Flow Analysis. Mr. Lindstrom reviewed for the board a discounted cash flow model that was prepared based on financial information provided by the management of Aviston Financial, which was also reviewed by management of Kankakee Bancorp. The model employed a projection of estimated earnings for Aviston Financial on an independent, stand-alone basis through the year 2005. A range of possible future market price/earnings ratios was employed ranging from a minimum of 10 times earnings to a maximum of 15 times earnings to project possible future values for Aviston Financial. Given the model time horizon and a discount rate range of 10% to 16%, these assumptions resulted in a range of present discounted values for Aviston Financial with a minimum value of $15.3 million.

The purpose of a discounted cash flow analysis is not to make a precise estimate of the price at which Aviston Financial might be sold at a precise point in the future. Any future sales price would be based on a number of variables involved, including many which are beyond the control of management and, therefore, it is not possible to make any predictions with precision.

Mr. Lindstrom told the board that the discount factors employed both the concept of a time value of money and risk factors that reflect judgments regarding the uncertainty of the forecasted cash flows and terminal price/earnings multiples. Use of higher discount rates would result in lower discounted present values. Conversely, use of lower discount rates would result in higher discounted present values. Mr. Lindstrom advised the board that although discounted cash flow analysis is a frequently used valuation methodology, it relies on numerous assumptions, including discount rates, terminal values, future earnings performance and asset growth rates. The accurate specification of such assumptions for time periods more than one year in the future entails significant uncertainties and could contain errors despite attempts to be both accurate and conservative. Consequently, any or all of these assumptions may and likely will vary from actual future performance and results and such variations may be material. Any errors made in the selection of assumptions for such an exercise can interact with one another and can lead to conclusions that may demonstrate little resemblance to actual events.

Pro Forma Impact on Kankakee Bancorp Earnings per Share. The board was presented with a pro forma acquisition analysis illustrating the estimated effects on selected projected financial data for Kankakee Bancorp. The projections were based on management assumptions. The model was also reviewed by management of both companies. For the 12 months ended December 31, 2002, the diluted earnings per share of Kankakee Bancorp would have resulted in 17.2% accretion to Kankakee Bancorp’s stockholders. For the projected 12 months ending

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December 31, 2003, the projections indicated dilution of 3.8%. For the projected 12 months ending December 31, 2004, the projections indicated accretion of 10.3%. It was noted that the financial information used for Aviston Financial appeared to be conservative, in that Aviston Financial’s 2003 results had been more favorable than the financial information utilized in Mr. Lindstrom’s analysis. It was also noted that Aviston Financial had obtained more sophisticated and experienced management during the fourth quarter of 2002.

The financial evaluation of a merger is a complex process and is not necessarily susceptible to partial analysis or summary description. Selecting portions of the analyses or of the summary set forth above, without considering the analyses as a whole, could create an incomplete view of the process used to complete the evaluation. In assessing the financial viability of the merger, Mr. Lindstrom and the directors considered the results of all of the analyses. No company or transaction in the analyses used for comparison is identical to Aviston Financial or the merger. The analyses were prepared for the board solely to assist its evaluation of the merger.

Following the financial presentation, the board members discussed the financial implications of the proposed transaction. The board noted that the fixed exchange ratio of 0.707 shares of Kankakee Bancorp common stock for each share of Aviston Financial common stock meant that the transaction value could rise and fall with the trading price of Kankakee Bancorp common stock, and also noted that the announcement of the merger could have an effect on Kankakee Bancorp’s stock price.

This meeting also included a detailed review of the draft merger agreement, including a presentation by Barack Ferrazzano attorneys on the legal aspects of the transaction.

At the conclusion of this meeting, Kankakee Bancorp’s board of directors determined that the proposed transaction with Aviston Financial was in the best interests of its stockholders and unanimously approved the merger agreement and related transactions, including the merger of the subsidiary banks, the entry into an employment agreement with Mr. Daiber pursuant to which he would become the President and Chief Executive Officer of Kankakee Bancorp upon completion of the merger and the entry into change of control agreements with certain senior executives of Aviston Financial. Kankakee Bancorp’s board of directors also unanimously approved the amendments to the certificate of incorporation of Kankakee Bancorp changing the manner in which it may be amended and increasing the number of authorized shares of common stock from 3.5 million to 5.5 million, and the issuance of rights to Kankakee Bancorp’s stockholders to purchase shares of Kankakee Bancorp common stock. KFS Bank’s board of directors also unanimously approved the merger agreement between KFS Bank and the State Bank of Aviston. The board determined to recommend to Kankakee Bancorp’s stockholders that they vote to approve the merger agreement and to adopt the amendments to its certificate of incorporation.

On May 27, 2003, the boards of Aviston Financial and the State Bank of Aviston held a joint special meeting to consider the merger agreement and the related transactions. A representative of Thompson Coburn also attended the meeting. Mr. Daiber updated the board members on recent developments regarding the proposed merger, including the financial and business due diligence review that Aviston Financial personnel had undertaken with respect to Kankakee Bancorp and the course of negotiations between the parties and their respective counsel. The results of the due diligence and discussions with Kankakee’s senior personnel regarding the forecasted financial performance and business strategies to be undertaken by the combined company were discussed. Counsel also reviewed the terms of the proposed merger agreement and related transactions, as well as various legal considerations relative to the process of considering and passing upon the proposed transaction.

The Aviston Financial board members discussed the perceived merits and risks for its stockholders from the merger agreement and the related transactions. The proposed arrangements to be entered into between the combined company and Messrs. Daiber, Marsh and Rench were noted. The board also noted the risks associated with the fixed exchange ratio to determine the consideration payable to Aviston Financial stockholders, including the fact that there was no “collar” or floor which would assure Aviston Financial stockholders a minimum value of the merger consideration to be received by them. At the conclusion of the discussion, the board members in attendance unanimously concluded that the proposed merger was fair to, and in the best interests of Aviston Financial’s stockholders and voted to approve the merger agreement and the transactions it contemplates, including the merger of the State Bank of Aviston and KFS Bank, and to recommend to Aviston Financial’s stockholders that they vote to approve the merger agreement and related transactions at a special meeting.

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The merger agreement was signed by both Kankakee Bancorp and Aviston Financial after the closing of the stock markets on May 27, 2003, and was publicly announced by a joint press release on May 28, 2003.

On June 18, 2003, at a meeting of Kankakee Bancorp’s board of directors, the board of directors unanimously approved a resolution that Kankakee Bancorp change its name to a name acceptable to the ad hoc committee that was formed to select a new name, and to submit the amendment changing the certificate of incorporation to the stockholders. On                     , 2003, the committee indicated that they had selected                          as the new corporate name.

Recommendation of the Kankakee Bancorp Board and Kankakee Bancorp’s Reasons for the Merger

The Kankakee Bancorp board believes that the merger is fair to, and in the best interests of, Kankakee Bancorp and its stockholders. Accordingly, the Kankakee Bancorp board has unanimously approved the merger agreement and unanimously recommends that its stockholders vote FOR the approval of the merger agreement and the transactions it contemplates.

The Kankakee Bancorp board believes that the completion of the merger presents a unique opportunity to take steps toward the organization’s goal of becoming the premier community financial institution serving the central Illinois markets between Chicago and St. Louis. The board believes the combined organization will have the capability to offer a full range of financial products and services through an extensive distribution network over the areas currently served by the two organizations.

In addition, Kankakee Bancorp’s board considers Thomas A. Daiber, the President of Aviston Financial, to be a strong candidate to fill the vacant position as Kankakee Bancorp’s President and Chief Executive Officer, given his experience with Midwest bank holding companies.

In reaching its decision to approve the merger agreement, the Kankakee Bancorp board consulted with Kankakee Bancorp’s management, as well as with its financial and legal advisors, and considered a variety of factors, including the following:

• information concerning the businesses, earnings, operations, financial condition, prospects, capital levels and asset quality of Kankakee Bancorp and Aviston Financial, both individually and as combined; in particular, the Kankakee Bancorp board focused on the strategic fit of the business lines and the operating philosophies of the two institutions;

• the consistency of the merger with Kankakee Bancorp’s long-term business strategy to leverage the commercial banking systems infrastructure that it has developed;

• the advantages of a combination with an institution, such as Aviston Financial, that has already taken steps to develop market share in the central Illinois and St. Louis markets and the opportunities for increased efficiencies and significant cost savings from a combination with Kankakee Bancorp’s current organization, resulting in increased profitability of the combined entity over time as opposed to a possible combination with an institution without a similar market presence;

• the opportunity to attract experienced senior management leadership by adding Thomas A. Daiber as Chief Executive Officer of the combined company;

• the current and prospective economic and competitive environments facing Kankakee Bancorp and other financial institutions characterized by intensifying competition from both banks and nonbank financial services organizations, the increasing necessity for strong fee-based income producing components within a bank holding company and the growing costs associated with regulatory compliance in the banking industry;

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• the high costs of technology and new facilities required to grow deposits in light of the fact that deposit growth for Kankakee Bancorp and the banking industry in general has been difficult and these funding limitations would hamper Kankakee Bancorp’s long-term asset and earnings growth;

• the belief that, following the merger, the combined company would be well positioned to continue to grow through possible future acquisitions or expansion while at the same time increase its attractiveness as a possible acquisition candidate;

• the belief that the merger would result in stockholders of Kankakee Bancorp holding stock in a high quality combined company that should benefit stockholders through enhanced operating efficiencies and better penetration of commercial and consumer banking markets in central Illinois;

• the business, operations, financial condition, earnings and prospects of Aviston Financial;

• the scale, scope, strength and diversity of operations, product lines and delivery systems that could be achieved by combining Kankakee Bancorp and Aviston Financial;

• the complementary nature of the businesses of Kankakee Bancorp and Aviston Financial and the anticipated improved stability of the combined company’s business and earnings in varying economic and market climates relative to Kankakee Bancorp on a stand-alone basis made possible by the merger, as a result of greater geographic, asset and line-of-business diversification;

• the belief of Kankakee Bancorp’s senior management and the Kankakee Bancorp board that Kankakee Bancorp and Aviston Financial share a common vision with respect to delivering financial performance and stockholder value and that their executive officers and employees possess complementary skills and expertise;

• the Kankakee Bancorp board’s belief that, while no assurances could be given, the business and financial advantages contemplated in connection with the merger were likely to be achieved within a reasonable time frame;

• the benefits of converting KFS Bank, Kankakee Bancorp’s thrift subsidiary, into a commercial bank, through its merger with the State Bank of Aviston; and

• the likelihood that the merger will be approved by the appropriate regulatory authorities (see “—Regulatory Approvals”).

The foregoing discussion of the information and factors considered by the Kankakee Bancorp board is not intended to be exhaustive, but includes all material factors considered by the Kankakee Bancorp board. In reaching its determination to approve and recommend the merger, the Kankakee Bancorp board did not assign any relative or specific weights to the foregoing factors, and individual directors may have given differing weights to different factors. The Kankakee Bancorp board is unanimous in its recommendation that its stockholders vote for approval of the merger agreement.

Recommendation of the Aviston Financial Board and Aviston Financial’s Reasons for the Merger

The Aviston Financial board believes that the merger is fair to, and in the best interests of, Aviston Financial and its stockholders. Accordingly, the Aviston Financial board has unanimously approved the merger agreement and unanimously recommends that its stockholders vote FOR the approval of the merger agreement and the transactions it contemplates.

Aviston Financial’s board has concluded that the proposed merger offers the Aviston Financial stockholders an extremely attractive opportunity to achieve the board’s strategic business objectives on a timeframe that is greatly accelerated from that originally contemplated at the time that Aviston Financial acquired Aviston Bancorp, Inc. in October 2002. These objectives include growing the size of the business and enhancing liquidity

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for Aviston Financial’s stockholders, who will gain the benefit of a public trading market for their shares. In addition, the board noted that Mr. Daiber, who enjoys the confidence of the board, would be Chief Executive Officer of the combined company and lead its post-merger activities.

In deciding to approve the merger agreement and the transactions it contemplates, Aviston Financial’s board consulted with Aviston Financial’s management, as well as its legal counsel, and considered numerous factors, including the following:

• information with respect to the businesses, earnings, operations, financial condition, prospects, capital levels and asset quality of Aviston Financial and Kankakee Bancorp, both individually and as a combined company;

• the market value of the Kankakee Bancorp shares to be received by Aviston Financial stockholders, based upon the trading price of Kankakee Bancorp’s common stock before the execution of the merger agreement, that reflected a premium of more than 30% over the $20.00 per share price paid by Aviston Financial’s stockholders in October 2002 in connection with the organization of Aviston Financial and the acquisition of Aviston Bancorp, Inc.;

• the perceived risks and uncertainties attendant to Aviston Financial’s execution of its strategic growth plans as an independent banking organization, including the need to access additional capital and enhance its technology platform on a cost-effective basis to support future growth;

• the belief that the market value of Kankakee Bancorp’s common stock prior to the execution of the merger agreement was very attractive and offered favorable prospects for future appreciation as a result of the proposed merger, due to, among other factors, the engagement of Mr. Daiber to serve as Chief Executive Officer of the combined company and the conversion of Kankakee Bancorp’s banking operations to a commercial bank charter;

• Kankakee Bancorp’s substantial levels of cost-effective deposits that would be available to fund commercial loan growth which will be an emphasis of the combined company’s management;

• the strategic vision of the respective managements of Aviston Financial and Kankakee Bancorp to seek profitable future expansion in the central Illinois market in order to grow stockholder value;

• the fact that Kankakee Bancorp is publicly held and the merger would provide access to a public trading market for Aviston Financial stockholders whose investments currently are in a privately held company, as well as enhanced access to capital markets to finance the combined company’s capital requirements; and

• the likelihood that the merger will be approved by the relevant bank regulatory authorities.

The above discussion of the information and factors considered by the Aviston Financial board is not intended to be exhaustive, but includes all material factors considered by the Aviston Financial board. In arriving at its determination to approve the merger agreement and the transactions it contemplates, and recommend that the Aviston Financial stockholders vote to approve them, the Aviston Financial board did not assign any relative or specific weights to the above factors, and individual directors may have given differing weights to different factors. The Aviston Financial board unanimously recommends that its stockholders vote to approve the merger agreement and the related transactions.

Effective Time of the Merger

Subject to the conditions to our respective obligations to complete the merger, the merger will become effective when a certificate of merger reflecting the merger becomes effective with the Secretary of State of the State of Delaware and articles of merger are filed with the Secretary of State of the State of Illinois, respectively.

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Unless we agree otherwise, we will each use reasonable efforts to cause the merger to become effective 10 business days after the end of the calendar month in which all of the following conditions are satisfied:

• the receipt of all required regulatory approvals or consents for the merger;

• the expiration of all statutory waiting periods relating to any required regulatory approvals; and

• the receipt of the approvals of the stockholders of each of Aviston Financial and Kankakee Bancorp.

We anticipate that the merger will become effective late in the third quarter or during the fourth quarter of 2003, however, delays could occur.

We cannot assure you that the necessary stockholder and regulatory approvals of the merger will be obtained or that other conditions precedent to the merger can or will be satisfied. Either of our boards of directors may terminate the merger agreement if the merger is not completed by April 1, 2004, unless it is not completed because of the failure by the party seeking termination to comply fully with its obligations under the merger agreement. See “—Conditions to Completion of the Merger” and “—Waiver, Amendment and Termination.”

Dissenters’ Rights

All of Aviston Financial’s stockholders have the right under Illinois law to dissent from the merger and to demand and obtain cash payment of the appraised fair value of their shares of Aviston Financial common stock under the circumstances described below. Kankakee Bancorp’s stockholders, whose rights are governed by Delaware law, do not have the right to dissent from the merger and receive cash for the value of their shares.

The appraised value that Aviston Financial’s stockholders obtain for their shares by dissenting may be less than, equal to or greater than the value of the Kankakee Bancorp common stock they would receive under the merger agreement. If Aviston Financial’s stockholders fail to comply with the procedural requirements of Section 11.65 and Section 11.70 of the Illinois Business Corporation Act, they will lose their right to dissent and seek payment of the appraised value of their shares.

The following is a summary of Section 11.65 and Section 11.70 of the Illinois Business Corporation Act, which specify the procedures applicable to dissenting stockholders. This summary is not a complete statement of the law regarding the right of Aviston Financial’s stockholders to dissent under Illinois law, and if you are considering dissenting, we urge you to review the provisions of Section 11.65 and Section 11.70 carefully. The text of Section 11.65 and Section 11.70 is attached to this joint proxy statement-prospectus as Appendix B, and we incorporate that text into this joint proxy statement-prospectus by reference. Among other matters, Aviston Financial’s stockholders should be aware of the following:

• to be entitled to dissent and seek appraisal, you must hold shares of Aviston Financial common stock on the date you make the demand required under Illinois law, you must continually hold those shares until the merger has been completed, you must not vote in favor of the merger and you must otherwise comply with the requirements of Section 11.65 and Section 11.70;

• before the special meeting of Aviston Financial’s stockholders at which you will be asked to vote on the merger, you must deliver a written demand to Aviston Financial for payment for your shares if the merger is completed;

• Aviston Financial stockholders must send this written demand to Bryan L. Marsh, Secretary, Aviston Financial Corporation, 101 South Page Street, P.O. Box 115, Aviston, Illinois 62216;

• simply voting against the merger is not a demand for appraisal rights;

• within 10 days after the effective time of the merger or 30 days after you deliver your written demand for approval, whichever is later, the combined company will send to all of the dissenting Aviston

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Financial stockholders who have complied with Section 11.65 and Section 11.70 and who have not voted in favor of the merger a statement setting forth (1) the combined company’s opinion as to the estimated fair value of the shares, (2) Kankakee Bancorp’s balance sheet as of December 31, 2002, together with the statement of income for that year and the latest available interim financial statements, and (3) a commitment to pay for the dissenting stockholder’s shares at the estimated fair value upon transmittal to the combined company of the share certificates;

• upon completion of the merger, the combined company will pay to each dissenting stockholder who transmits the certificate or other evidence of ownership of the shares the estimated fair value of the shares, plus accrued interest, together with a written explanation of how the interest was calculated;

• if the dissenting stockholder does not agree with the combined company’s determination as to the estimated fair value of the shares or the amount of interest due, the stockholder must within 30 days notify the combined company in writing of the stockholder’s estimated fair value and amount of interest due and demand payment for the difference between the stockholder’s estimate of fair value and interest due and the amount of the payment by the combined company;

• if, within 60 days from delivery to the combined company of the stockholder notification of estimate of fair value of the shares and interest due, the combined company and the dissenting stockholder have not agreed in writing upon the fair value of the shares and interest due, the combined company must either pay the difference in value demanded by the stockholder, with interest, or file a petition in the Circuit Court for Kankakee County, requesting the court to determine the fair value of the shares and interest due;

• each dissenter made a party to the proceeding is entitled to judgment for the amount, if any, by which the court finds that the fair value of his or her shares, plus interest, exceeds the amount paid by the combined company to the stockholder; and

• the court will determine all costs of the proceeding, and if the fair value of the shares as determined by the court materially exceeds the amount that the combined company estimated to be the fair value of the shares, then all or any part of the costs may be assessed against the combined company. If the amount which any dissenter estimated to be the fair value of the shares materially exceeds the fair value of the shares as determined by the court, then all or any part of the costs may be assessed against that dissenter. The court may also assess the fees and expenses of counsel and experts for the respective parties, in amounts the court finds equitable.

Distribution of Kankakee Bancorp Stock Certificates

At or around the time of the merger, stockholders of Aviston Financial will be mailed a letter of transmittal and instructions for the exchange of the certificates representing their shares of Aviston Financial common stock for certificates representing shares of common stock of the combined company. KFS Bank will serve as the exchange agent.

You should not send in your certificates until you receive a letter of transmittal and instructions.

After you surrender to the exchange agent your certificates for shares of Aviston Financial common stock with a properly completed letter of transmittal, the exchange agent will mail you a certificate or certificates representing the number of shares of common stock of the combined company to which you are entitled and a check for the amount to be paid in lieu of any fractional share (without interest), if any, together with all undelivered dividends or distributions in respect of the shares of common stock of the combined company (without interest thereon), if any. The combined company will not be obligated to deliver the consideration to you as a former Aviston Financial stockholder until you have surrendered your Aviston Financial common stock certificates. If any Aviston Financial stockholder’s common stock certificate has been lost, stolen or destroyed, the exchange agent will issue the shares of common stock of the combined company and any cash in lieu of fractional shares upon the stockholder’s submission of an affidavit claiming the certificate to be lost, stolen or destroyed by the stockholder of

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record and the posting of a bond in such amount as the combined company may reasonably direct as indemnity against any claim that may be made against the combined company with respect to the certificate.

Whenever a dividend or other distribution is declared by Kankakee Bancorp on Kankakee Bancorp common stock with a record date after the date on which the merger became effective, the declaration will include dividends or other distributions on all shares of Kankakee Bancorp common stock that may be issued in the merger. However, Kankakee Bancorp will not pay any dividend or other distribution that is payable after the effective date of the merger to any former Aviston Financial stockholder who has not surrendered his or her common stock certificate until the holder surrenders the certificate.

At the time the merger becomes effective, the stock transfer books of Aviston Financial will be closed to their stockholders and no transfer of shares of common stock by any stockholder will thereafter be made or recognized. If certificates for shares of Aviston Financial common stock are presented for transfer after the merger becomes effective, they will be canceled and exchanged for shares of common stock of the combined company, a check for the amount due in lieu of fractional shares, if any, and any undelivered dividends on the common stock of the combined company.

Representations and Warranties

In the merger agreement, Kankakee Bancorp and Aviston Financial made numerous representations and warranties to each other relating to, among other things, the following:

• incorporation, good standing, corporate power and similar corporate matters;

• authorization, execution, delivery and performance and the enforceability of the merger agreement and the absence of violations;

• conflicts under charter documents, required consents or approvals and violations of agreements or laws;

• capitalization;

• financial statements;

• ownership of property and sufficiency of assets;

• allowance for loan losses;

• absence of certain material adverse events, changes, effects, defaults or undisclosed liabilities;

• employee benefit plans and compliance with federal employee benefit laws;

• compliance with laws, including environmental laws;

• litigation;

• the absence of material changes since December 31, 2002 with respect to Aviston Financial and since the date of its latest financial statements with respect to Kankakee Bancorp; and

• the accuracy of documents filed with regulatory agencies.

The foregoing is an outline of the types of representations and warranties made by Kankakee Bancorp and Aviston Financial contained in the merger agreement a copy of which is included at Appendix A. You should carefully review the entire agreement and in particular Sections 4 and 5, containing the detailed representations and warranties of the parties.

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Conditions to Completion of the Merger

Each of us is required to complete the merger only after the satisfaction of various conditions. Kankakee Bancorp is only required to complete the merger if the following conditions are satisfied:

• Aviston Financial’s representations and warranties in the merger agreement must be accurate as of the date of the merger agreement and as of the date the merger becomes effective, except for any untrue or incorrect representations and warranties that do not have a material adverse effect on Aviston Financial on a consolidated basis or on Kankakee Bancorp’s rights under the merger agreement;

• Aviston Financial must have performed and complied with all of its covenants and obligations under the merger agreement, except where any non-performance or non-compliance would not have a material adverse effect on Aviston Financial on a consolidated basis or on Kankakee Bancorp’s rights under the merger agreement;

• the merger agreement and the transactions it contemplates must have been approved by Aviston Financial’s and Kankakee Bancorp’s respective stockholders;

• there must not be pending any proceeding involving any challenge to, or seeking damages or other relief in connection with, the merger, or that may have the effect of preventing, delaying, making illegal or otherwise interfering with the merger, in either case that would reasonably be expected to have a material adverse effect on Aviston Financial on a consolidated basis or on Kankakee Bancorp’s rights under the merger agreement;

• there must not have been since the date of the merger agreement any event or occurrence that would be reasonably likely to have a material adverse effect on Aviston Financial on a consolidated basis or on Kankakee Bancorp’s rights under the merger agreement;

• all consents and approvals required in connection with the merger must have been obtained;

• the completion of the merger must not conflict with or result in a violation of any applicable laws or legal requirements;

• the Securities and Exchange Commission must have declared the registration statement registering the shares of Kankakee Bancorp common stock to be issued to Aviston Financial’s stockholders in the merger, of which this joint proxy statement-prospectus is a part, effective under the Securities Act of 1933, as amended;

• the total number of shares held by Aviston Financial stockholders exercising their dissenters’ rights must be no greater than 5% of the issued and outstanding shares of Aviston Financial common stock immediately prior to the effective time;

• the employment agreement with Thomas A. Daiber, and the change of control agreements with each of Bryan L. Marsh and Brad Rench must be in full force and effect, and each of Messrs. Daiber, Marsh and Rench must be an employee of Aviston Financial;

• Kankakee Bancorp and Aviston Financial must have received the tax opinion from RSM McGladrey, Inc.;

• Aviston Financial must have an adjusted stockholders’ equity, as calculated as of the end of the month immediately prior to the effective time, no less than its adjusted stockholders’ equity as of March 31, 2003; and

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• there must not be any outstanding options to acquire capital stock of Aviston Financial, and the outstanding capital stock of Aviston Financial must consist exclusively of no more than 528,826 shares of common stock.

Aviston Financial is only required to complete the merger if the following conditions are satisfied:

• Kankakee Bancorp’s representations and warranties in the merger agreement must be accurate as of the date of the merger agreement and as of the date the merger becomes effective, except for any untrue or incorrect representations and warranties that do not have a material adverse effect on Kankakee Bancorp on a consolidated basis or on Aviston Financial’s rights under the merger agreement;

• Kankakee Bancorp must have performed and complied with all of its covenants and obligations under the merger agreement, except where any non-performance or non-compliance would not have a material adverse effect on Kankakee Bancorp on a consolidated basis or on Aviston Financial’s rights under the merger agreement;

• the merger agreement and the transactions it contemplates must have been approved by Aviston Financial’s and Kankakee Bancorp’s respective stockholders;

• there must not be pending any proceeding involving any challenge to, or seeking damages or other relief in connection with, the merger, or that may have the effect of preventing, delaying, making illegal or otherwise interfering with the merger, in either case that would reasonably be expected to have a material adverse effect on Kankakee Bancorp on a consolidated basis or on Aviston Financial’s rights under the merger agreement;

• there must not have been since the date of the merger agreement any event or occurrence that would be reasonably likely to have a material adverse effect Kankakee Bancorp on a consolidated basis or on Aviston Financial’s rights under the merger agreement;

• all consents and approvals required in connection with the merger must have been obtained;

• the completion of the merger must not conflict with or result in a violation of any applicable laws or legal requirements;

• the Securities and Exchange Commission must have declared the registration statement registering the shares of Kankakee Bancorp common stock to be issued to Aviston Financial’s stockholders in the merger effective under the Securities Act; and

• Kankakee Bancorp and Aviston Financial must have received the tax opinion from RSM McGladrey, Inc.

Neither of us can assure our stockholders as to when or if all of the conditions to the merger can or will be satisfied or waived by the party permitted to do so. If the merger is not completed by April 1, 2004, either of our boards of directors may terminate the merger agreement and abandon the merger; provided, however, that the party responsible for a condition to be met prior to April 1, 2004, may not terminate the merger agreement if the merger is not completed by April 1, 2004. See “—Waiver, Amendment and Termination.”

Regulatory Approvals

It is a condition to the completion of the merger that we receive all necessary regulatory approvals to the merger.

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Neither of us is aware of any material governmental approvals or actions that are required to complete the merger, except as described below. If any other approval or action is required, both of us have agreed that we will also seek this approval or action.

The merger is subject to the prior approval of the Federal Reserve Board, under Section 3 of the Bank Holding Company Act and Sections 225.11 and 225.15 of Regulation Y of the Federal Reserve Board. Factors considered by the Federal Reserve Board in evaluating the merger are discussed under the heading “Regulatory Considerations—General.” The merger may not be completed until 30 days following the date of the Federal Reserve Board approval, although the Federal Reserve Board may reduce that period to 15 days. During this period, the U.S. Department of Justice is given the opportunity to challenge the transaction on antitrust grounds. The commencement of any antitrust action would stay the effectiveness of the approval of the agencies, unless a court of competent jurisdiction specifically ordered otherwise. Upon completion of the merger, the combined company will cease to be regulated by the OTS as a savings and loan holding company and will file with the OTS a request for deregistration as a savings and loan holding company.

Although we intend to merge our bank and thrift subsidiaries, we may not be able to do so immediately. Accordingly, in addition to obtaining Federal Reserve Board approval of the merger, we must obtain Federal Reserve Board approval for the combined company to retain control following the merger of Kankakee Bancorp’s three existing subsidiaries following the merger. Because Kankakee Bancorp’s wholly-owned thrift subsidiary, KFS Bank, and KFS Bank’s subsidiaries, KFS Service Corp and KFS Insurance Agency, Inc., are non-banking companies under the Bank Holding Company Act, the combined company will be required to file notices with the Federal Reserve Board under Section 4 of the Bank Holding Company Act and Sections 225.21, 225.24 and 225.87 of Regulation Y for approval to retain its investment in these three subsidiaries.

Kankakee Bancorp must also file an application with the Illinois Office of Banks and Real Estate under Section 18 of the Illinois Banking Act for approval to acquire control of the State Bank of Aviston in the merger.

The merger of our two subsidiary banks is subject to the approval of the FDIC under Section 18(c) and Section 5(d)(3) of the Federal Deposit Insurance Act, and we must also file an application with the Office of Banks and Real Estate under Section 22 of the Illinois Banking Act. The State Bank of Aviston must file a notice with the Office of Banks and Real Estate under Section 5(12) of the Illinois Banking Act in connection with its acquisition of KFS Bank’s subsidiaries, KFS Service Corp and KFS Insurance Agency, as a result of the merger with KFS Bank. KFS Bank must file a notice of its merger with the State Bank of Aviston with the OTS under Section 563.22(h)(1) of the OTS’s regulations.

Waiver, Amendment and Termination

To the extent permitted by law, our boards of directors may agree in writing to amend the merger agreement, whether before or after our respective stockholders have approved the merger agreement. However, no amendment agreed to after the merger agreement has been approved by the respective stockholders of Kankakee Bancorp and Aviston Financial may materially and adversely affect our stockholders. In addition, before or at the time the merger becomes effective, either of us, or both, may waive any default in the performance of any term of the merger agreement by the other or may waive or extend the time for the compliance or fulfillment by the other of any of its obligations under the merger agreement. Either of us may also waive any of the conditions precedent to our obligations under the merger agreement, unless a violation of any law or governmental regulation would result. To be effective, a waiver must be in writing and signed by one of our duly authorized officers.

At any time before the merger becomes effective, our boards of directors may mutually agree to terminate the merger agreement. In addition, the merger agreement may be terminated as follows:

• by Kankakee Bancorp, if any of the conditions to its obligation to consummate the merger, as described above, has not been satisfied or has become impossible, and Kankakee Bancorp has not waived the condition;

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• by Aviston Financial, if any of the conditions to its obligation to consummate the merger, as described above, has not been satisfied or has become impossible, and Aviston Financial has not waived the condition;

• by Aviston Financial, if its board of directors has approved or recommended to its stockholders any competing acquisition transaction, or has resolved to do so; and

• by either Kankakee Bancorp or Aviston Financial if the closing of the merger has not occurred, other than through the failure of the party seeking to terminate the merger agreement, by April 1, 2004.

If the merger is terminated, the merger agreement will become void and have no effect, except that certain provisions of the merger agreement, including those relating to the obligation to share some expenses and maintain the confidentiality of certain information obtained, will survive. A termination may trigger the obligation of a party to pay certain expenses and termination fees to the other party. See “—Expenses and Termination Fees.”

Conduct of Business Pending the Merger

The merger agreement obligates each of us to conduct our business diligently before the merger becomes effective only in the usual, regular and ordinary course. It also imposes limitations on the operations, expenditures and other actions of each of us and our respective bank subsidiaries. These items are listed in Articles 6, 7 and 8 of the merger agreement, a copy of which is attached as Appendix A to this joint proxy statement-prospectus.

Aviston Financial has also agreed that neither it nor any of its representatives will directly or indirectly solicit, negotiate or enter into an alternative transaction with an outside third party, or furnish any non-public information concerning Aviston Financial that it is not legally obligated to furnish, except in each case to the extent necessary to comply with the fiduciary duties of its board of directors and as advised by its counsel.

Each of us has also agreed not to take any action that would materially and adversely affect our ability to obtain any consents required for the merger or prevent the merger from qualifying as a tax-free reorganization under the Internal Revenue Code (see “—Material Federal Income Tax Consequences of the Merger”) or materially and adversely affect our ability to perform our respective obligations under the merger agreement.

Management and Operations After the Merger

The merger agreement provides that the board of directors of Kankakee Bancorp immediately prior to the effective time and following the closing will be expanded to seven members. To fill the two vacancies created by this expansion, Kankakee Bancorp agreed to take any action necessary to appoint Thomas A. Daiber and an individual nominated by Aviston Financial and acceptable to Kankakee Bancorp as directors. In addition to the Aviston Financial nominee, who will serve a term expiring in 2005, the combined company’s expanded board would have the following members:

Kankakee Bancorp Directors

Directors	Term Expires
Brenda L. Baird	2004
William Cheffer	2005
Thomas A. Daiber	2006
Michael A. Griffith*	2004
Mark L. Smith	2006
Wesley E. Walker	2006

* Also serves as Chairman of the Board

Following the completion of the merger, the combined company will have the following executive officers:

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Kankakee Bancorp Executive Officers
Thomas A. Daiber	President and Chief Executive Officer
Carol S. Hoekstra	Executive Vice President and Interim Chief Operating Officer
James M. Lindstrom	Interim Chief Financial Officer
Bryan L. Marsh	Regional Vice President
Keith Roseland	Vice President, Commercial Lending

Thomas A. Daiber, 44, is the Chairman, President and Chief Executive Officer of Aviston Financial, and Chief Executive Officer of the State Bank of Aviston. Prior to joining Aviston Financial in 2003, Mr. Daiber served as one of Allegiant Bancorp, Inc.’s Executive Vice Presidents from May 1999 until 2003, and as its Chief Financial Officer from May 1999 until February 2003. Mr. Daiber was employed by Allegiant Bancorp in St. Louis beginning in March 1997 and served as its Director of Internal Auditing prior to becoming Chief Financial Officer.

Bryan L. Marsh, 54, is the Secretary and Treasurer of Aviston Financial. Mr. Marsh has served as the President and a Director of the State Bank of Aviston since 1985 and as a Director of Aviston Financial since October 2002.

James M. Lindstrom, 30, is the Interim Chief Financial Officer of Kankakee Bancorp, and joined Kankakee Bancorp as a consultant in May 2003. Mr. Lindstrom was a principal with Stolberg Equity Partners, LLC, a private equity firm located in Denver, Colorado, from 2001 to 2003. Prior to joining Stolberg Equity Partners, Mr. Lindstrom was employed in various management capacities by ChiRex, Inc., a pharmaceutical services company, since 1996. Mr. Lindstrom began his career as an investment banker at Credit Suisse First Boston in 1994. Mr. Lindstrom received his MBA from the Tuck School of Business at Dartmouth and his BA from Colby College.

Effective at the close of business on May 30, 2003, Ronald J. Walters ended his employment as Chief Financial Officer of Kankakee Bancorp and KFS Bank. While Kankakee Bancorp conducts its search for a full time Chief Financial Officer, James M. Lindstrom, who had been serving as an advisor to the board of directors in connection with the merger, is serving as the Interim Chief Financial Officer as a part of his continuing consulting responsibilities.

Information concerning the management of Kankakee Bancorp is included in the documents incorporated by reference in this joint proxy statement-prospectus. See “Where You Can Find More Information.” For additional information regarding the interests of certain persons in the merger, see “—Interests of Certain Persons in the Merger.”

Interests of Certain Persons in the Merger

General. Certain members of our respective management and boards of directors may be deemed to have certain interests in the merger that are in addition to their interests as stockholders of Kankakee Bancorp and stockholders of Aviston Financial generally. Each of our boards of directors was aware of these interests and considered them, among other matters, in approving the merger agreement on behalf of its respective company. See “—Management and Operations After the Merger.”

Share Ownership. The directors and executive officers of Aviston Financial and the State Bank of Aviston collectively own approximately 140,000 shares of Aviston Financial common stock and will, therefore, be entitled to receive approximately 99,000 shares of Kankakee Bancorp common stock in the merger. Assuming 350,196 shares are issued to Aviston Financial stockholders in the merger, this will represent approximately     % of the outstanding common stock of the combined company following completion of the merger.

Agreements with Aviston Financial Executive Officers. Aviston Financial has entered into retention agreements with Thomas A. Daiber, who serves as its Chairman of the Board and Chief Executive Officer, Bryan A. Marsh, who serves as its President, and Brad Rench, who serves as its Senior Vice President and Senior Lending Officer. The retention agreements provide that each of Messrs. Daiber, Marsh and Rench will receive a severance

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payment if terminated after a “change of control” of Aviston Financial. Our pending merger would constitute a change of control triggering the payment of this severance amount. However, Mr. Daiber has entered into an employment agreement with Kankakee Bancorp, and Messrs. Marsh and Rench have entered into change of control agreements with Kankakee Bancorp, which will become effective immediately following the completion of the merger. Each of these agreements contains a provision stating that the retention agreement of its respective signatory will terminate immediately prior to the effective time of the merger.

Mr. Daiber’s employment agreement with Kankakee Bancorp provides for his employment as Kankakee Bancorp’s President and Chief Executive Officer, effective on completion of the merger. The agreement initially provides for a base salary of $250,000, which may be maintained or increased during its term in accordance with Kankakee Bancorp’s established management compensation policies and plans, and an “evergreen” term of three years commencing on the effective date of the merger, unless terminated by either party on 30 days’ prior written notice. The employment agreement also provides for a performance bonus of up to 50% of Mr. Daiber’s base salary, and benefits including the grant of an option to purchase 10,000 shares of common stock of Kankakee Bancorp pursuant to the terms of the Kankakee Bancorp, Inc. 2003 Stock Incentive Plan, which option will have a term of 10 years from the date of the merger and an exercise price equal to the fair market value of Kankakee Bancorp’s stock on the date of the merger. The option vests 20% per year over five years beginning on the first anniversary of the date of the merger.

If Mr. Daiber’s employment is terminated without cause, as defined in the employment agreement, we will be obligated to pay to him an amount equal to three times 125% of his base salary, and to provide health insurance during the continuation period under federal employee benefit laws. We will have no continuing obligation to Mr. Daiber if he voluntarily terminates his employment or if we terminate him for cause, except that we will be obligated to pay him his accrued salary and benefits through the effective date of his termination of employment.

If Mr. Daiber voluntarily terminates his employment, or his employment is involuntarily terminated, within one year after a change of control of Kankakee Bancorp, then Mr. Daiber will be entitled to the same cash payment and benefits he would have been entitled to if terminated by Kankakee Bancorp without cause. In addition, Mr. Daiber will have the right to terminate his employment and receive the same severance as if Kankakee Bancorp had terminated him without cause if he is constructively discharged as described in the agreement. In general, he will have been constructively discharged if he is not re-elected to the board of directors or is removed from his position as our President and Chief Executive Officer, if he is relocated by more than 50 miles or if we commit a material breach of our obligations under the agreement.

If Mr. Daiber becomes subject to the 20% excise tax on “excess parachute payments” under the Internal Revenue Code, then any payments to Mr. Daiber will automatically be reduced to one dollar less than an amount that would subject Mr. Daiber to the excise tax.

Mr. Daiber’s employment agreement includes a covenant limiting his ability to compete with Kankakee Bancorp or its affiliates in an area encompassing a 25-mile radius of the counties in which they operate for a period of one year following a termination of his employment. The geographic area covered by this provision constitutes a portion of Kankakee Bancorp’s primary market area.

The change of control agreements with Messrs. Marsh and Rench are each for a one-year term and they both automatically renew for successive one-year periods unless earlier terminated. The agreements provide that, upon a termination of employment by Kankakee Bancorp or its successor within six months prior, or 12 months following, a change of control, or upon a termination by Mr. Marsh or Mr. Rench, as applicable, following a change in duties within 12 months following a change of control, Mr. Marsh or Mr. Rench, as applicable, will be entitled to a severance payment equal to three times the sum of (1) his base salary; (2) the average of his two prior performance bonuses; and (3) his average retirement plan contributions for the past two years. In the event of such a termination, Mr. Marsh or Mr. Rench, as applicable, would also be entitled to medical benefits for three years. If the payments to Mr. Marsh or Mr. Rench are subject to the 20% excise tax under the Internal Revenue Code as “excess parachute payments,” then Mr. Marsh or Mr. Rench, if and as applicable, will be entitled to receive a tax gross-up so that he will be in the same after-tax position as if there were no excise tax.

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Aviston Financial Noncompetition Agreements. Aviston Financial has entered into noncompetition agreements with each of Cindy Knebel and Chris Maschhoff. Each of these agreements provides that the employee will be entitled to a severance benefit equal to her or his annual salary if Aviston Financial enforces the non-competition provision of the agreement. The non-competition provisions each provide that the employee may not, for the one-year period following termination, compete with Aviston Financial or its subsidiaries in Aviston Financial’s market area, defined as the greater Aviston, Illinois area including an area encompassing a 25-mile radius of any office, branch or location from which Aviston Financial conducts business.

Indemnification for Directors and Officers. Kankakee Bancorp has agreed to honor any of Aviston Financial’s obligations in respect of indemnification currently provided by Aviston Financial in its articles of incorporation in favor of the current and former officers and directors and directors of Aviston Financial and the State Bank of Aviston for at least three years from the effective time of the merger with respect to matters occurring prior to the merger. In addition, Aviston Financial is permitted to purchase an extension of its current insurance policy providing coverage for any claims against its directors and officers that are made prior to the third anniversary of the effective time of the merger.

Accounting Treatment

The merger will be accounted for using the purchase method of accounting under generally accepted accounting principles as applied in the United States. Based on the exchange ratio contained in the merger agreement, after the merger, existing and continuing Kankakee Bancorp stockholders would own approximately     %, and former Aviston Financial stockholders would own approximately     %, of the outstanding shares of common stock of the combined company. Based on these projected ownership percentages, Kankakee Bancorp is treated as the acquiror for financial reporting purposes. Under this method of accounting, we will record the assets and liabilities of Aviston Financial at their fair market values. Any difference between the purchase price and the fair market value of the tangible and identifiable intangible assets and liabilities is recorded as goodwill, which, in accordance with Statement of Financial Accounting Standard No. 142, will not be amortized for financial accounting purposes, but will be evaluated annually for impairment.

Expenses and Termination Fees

Subject to the special circumstances described below, we will each pay our own expenses in connection with the merger, including filing, registration and application fees, printing fees and fees and expenses of our own financial or other consultants, accountants and counsel. The same agreement with respect to the payment of expenses will be in effect if we mutually agree to terminate the merger agreement or if either of us terminates the merger agreement through no fault of the other because the merger has not been completed by April 1, 2004.

If, however, the merger agreement is terminated under the special circumstances described below, either of us will be obligated to pay all or part of the other’s fees and expenses in connection with the merger and also perhaps a special termination fee depending upon the reason for the termination of the merger agreement and subsequent occurrences.

Aviston Financial is obligated to pay Kankakee Bancorp’s fees and expenses in connection with the merger, up to a maximum of $500,000, plus an additional termination fee of $300,000, if:

• Kankakee Bancorp terminates the merger agreement because of Aviston Financial’s breach of the agreement, unless the breach is the result of a failure by Kankakee Bancorp to perform and comply in all material respects with its material obligations under the agreement;

• Kankakee Bancorp or Aviston Financial terminate the merger agreement because Aviston Financial’s stockholders fail to approve the merger agreement prior to April 1, 2004; or

• Aviston Financial terminates the merger agreement because its board of directors has approved or recommended to its stockholders any competing acquisition transaction, or has resolved to do so.

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In addition to those payments, if any such termination occurs and, within 12 months after the termination Aviston Financial enters into a contract providing for a competing acquisition transaction, then Aviston Financial will also be obligated to pay to Kankakee Bancorp an additional $500,000.

Kankakee Bancorp is obligated to pay Aviston Financial’s fees and expenses in connection with the merger, up to a maximum of $200,000, plus an additional termination fee of $300,000, if:

• Aviston Financial terminates the merger agreement because of Kankakee Bancorp’s breach of the agreement, unless the breach is the result of a failure by Aviston Financial to perform and comply in all material respects with its material obligations under the agreement; or

• Kankakee Bancorp or Aviston Financial terminate the merger agreement because Kankakee Bancorp’s stockholders fail to approve the merger agreement prior to April 1, 2004.

Resales of Kankakee Bancorp Common Stock

Kankakee Bancorp common stock to be issued to Aviston Financial stockholders in the merger will be registered under the Securities Act of 1933. All shares of Kankakee Bancorp common stock received by Aviston Financial stockholders in the merger will be freely transferable after the merger by persons who are not considered to be “affiliates” of either of us. “Affiliates” generally are defined as persons or entities who control, are controlled by or are under common control with either of us at the time of our respective special meetings (generally, executive officers, directors and 10%-or-greater stockholders).

Rule 145 promulgated under the Securities Act restricts the sale of Kankakee Bancorp common stock received in the merger by affiliates of Kankakee Bancorp or Aviston Financial and certain of their family members and related entities. Under the rule, during the first calendar year after the merger becomes effective, affiliates of Kankakee Bancorp or Aviston Financial may publicly resell the Kankakee Bancorp common stock they receive in the merger but only within certain limitations as to the amount of Kankakee Bancorp common stock they can sell in any three-month period and as to the manner of sale. After the one-year period, affiliates of Kankakee Bancorp or Aviston Financial who are not affiliates of the combined company may resell their shares without restriction. The combined company must continue to satisfy its reporting requirements under the Securities Exchange Act of 1934, as amended, in order for affiliates to resell, under Rule 145, shares of common stock of the combined company received in the merger. Affiliates would also be permitted to resell common stock of the combined company received in the merger pursuant to an effective registration statement under the Securities Act of 1933, or an available exemption from the registration requirements. This joint proxy statement-prospectus does not cover any resales of Kankakee Bancorp common stock received by persons who may be deemed to be affiliates of Kankakee Bancorp or Aviston Financial.

EFFECT OF THE MERGER ON RIGHTS OF STOCKHOLDERS

General

In the merger, each share of Aviston Financial common stock will be converted into the right to receive 0.707 shares of Kankakee Bancorp common stock. These shares will include all rights attaching to then existing shares of Kankakee Bancorp common stock, which are generally described below under “Description of Kankakee Bancorp Capital Stock.” Aviston Financial is an Illinois corporation governed by Illinois law and Aviston Financial’s articles of incorporation and by-laws. Kankakee Bancorp is a Delaware corporation governed by Delaware law and Kankakee Bancorp’s certificate of incorporation and by-laws. There are significant differences between the rights of Aviston Financial’s stockholders and the rights of Kankakee Bancorp’s stockholders. The following is a summary of the principal differences between the current rights of Aviston Financial’s stockholders and those of Kankakee Bancorp’s stockholders. It should be noted that, if Kankakee Bancorp’s stockholders approve the amendments proposed at the special meeting, Kankakee Bancorp’s certificate of incorporation will be amended in certain respects. These amendments are referenced in this summary, and are described further under “Amendment of Kankakee Bancorp’s Certificate of Incorporation.”

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The following summary is not intended to be complete and is qualified in its entirety by reference to the Delaware General Corporation Law and the Illinois Business Corporation Act, as well as our respective certificate and articles of incorporation and by-laws.

Anti-Takeover Provisions Generally

Kankakee Bancorp’s certificate of incorporation, by-laws and rights plan contain certain provisions designed to assist the Kankakee Bancorp board of directors in playing a meaningful role if any group or person attempts to acquire control of Kankakee Bancorp so that the Kankakee Bancorp board of directors can further protect the interests of Kankakee Bancorp and its stockholders under the circumstances. These provisions may help the Kankakee Bancorp board of directors determine that a sale of control is in the best interests of Kankakee Bancorp’s stockholders or enhance the Kankakee Bancorp board of directors’ ability to maximize the value to be received by the stockholders upon a sale of control of Kankakee Bancorp. The rights plan is described below under “—Rights Plan.”

Although Kankakee Bancorp’s management believes that these provisions are beneficial to Kankakee Bancorp’s stockholders, they may also tend to discourage some takeover bids. As a result, Kankakee Bancorp’s stockholders may be deprived of opportunities to sell some or all of their shares at prices that represent a premium over prevailing market prices. On the other hand, defeating undesirable acquisition offers can be a very expensive and time-consuming process. To the extent that these provisions discourage undesirable proposals, Kankakee Bancorp may be able to avoid these expenditures of time and money.

These provisions may also discourage open market purchases by a company that may desire to acquire Kankakee Bancorp. Those purchases may increase the market price of Kankakee Bancorp’s common stock temporarily, and may enable stockholders to sell their shares at a price higher than they might otherwise obtain. In addition, these provisions may decrease the market price of Kankakee Bancorp common stock by making the stock less attractive to persons who invest in securities in anticipation of price increases from potential acquisition attempts. The provisions may also make it more difficult and time-consuming for a potential acquiror to obtain control of Kankakee Bancorp by replacing its board of directors and management. Furthermore, the provisions may make it more difficult for Kankakee Bancorp to replace its own board of directors or management, even if a majority of the stockholders believe that replacing the board of directors or management is in the best interests of Kankakee Bancorp. Because of these factors, these provisions may tend to perpetuate the incumbent board of directors and management.

Kankakee Bancorp’s certificate of incorporation and by-laws also contain certain anti-takeover provisions that are described below. These provisions may discourage or prevent tender or exchange offers by a corporation or other group that intends to use the acquisition of a substantial number of shares of Kankakee Bancorp to initiate a takeover culminating in a merger or other business combination. These provisions may also have the effect of making the removal of current management more difficult.

Authorized Capital Stock

Kankakee Bancorp. Kankakee Bancorp is authorized to issue 3.5 million shares of common stock, $0.01 par value, and 500,000 shares of preferred stock, $0.01 par value. As of                 , 2003,                      shares of Kankakee Bancorp common stock and no shares of Kankakee Bancorp preferred stock were outstanding. If the amendment to Kankakee Bancorp’s certificate of incorporation is adopted by the stockholders of Kankakee Bancorp, Kankakee Bancorp will increase the number of shares of its authorized common stock to 5.5 million shares.

Under Kankakee Bancorp’s certificate of incorporation, Kankakee Bancorp’s board of directors is authorized to issue preferred stock from time to time in one or more series, subject to applicable provisions of law. The board of directors is authorized to fix the designations, powers, preferences and relative participating, optional and other special rights of such shares, including voting rights and conversion rights. In the event of a proposed merger, tender offer or other attempt to gain control of Kankakee Bancorp that the board of directors does not approve, it may be possible for the board of directors to authorize the issuance of a series of preferred stock with rights and preferences that would impede the completion of such a transaction. If Kankakee Bancorp issued any

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preferred stock that disparately reduced the voting rights of the common stock, the common stock could be required to be delisted from the American Stock Exchange. An effect of the issuance of preferred stock, therefore, may be to deter a future takeover attempt. Under a certificate of designation, 3,500 shares of Kankakee Bancorp preferred stock have been designated as Series A Junior Participating preferred stock. These shares are reserved for issuance under the Kankakee Bancorp rights plan. See “—Rights Plan,” below.

Aviston Financial. Aviston Financial is authorized to issue 750,000 shares of common stock, $10.00 par value. As of                     , 2003,              shares of Aviston Financial common stock were outstanding. Also, options to purchase              shares were outstanding at that date. As discussed in the “Effect of the Merger on Options” section on page     , the options will be cancelled prior to consummation of the merger in exchange for issuance of 11,500 shares of Aviston Financial common stock.

Voting Rights

Kankakee Bancorp. Generally, holders of Kankakee Bancorp common stock are entitled to one vote per share on all matters submitted to a vote of stockholders. However, Kankakee Bancorp’s certificate of incorporation provides that in no event will any record owner of any outstanding Kankakee Bancorp common stock that is beneficially owned, directly or indirectly, by any person who beneficially owns more than 10% of the then-outstanding shares of common stock, be entitled or permitted to any vote in respect of the shares held in excess of 10%. This limit does not inhibit any person from soliciting or voting proxies from other beneficial owners for more than 10% of the common stock. This provision may be enforced by Kankakee Bancorp’s board of directors to limit the voting rights of persons owning more than 10% of Kankakee Bancorp’s common stock, and thus could be used in a proxy contest or other solicitation to defeat a proposal that is desired by a majority of the stockholders.

As stated above, Kankakee Bancorp’s board of directors is authorized to issue up to 500,000 shares of preferred stock, and may designate various characteristics and rights of Kankakee Bancorp preferred stock, including voting and conversion rights. Kankakee Bancorp’s board of directors may also authorize the conversion of shares of other classes of Kankakee Bancorp preferred stock into any number of shares of Kankakee Bancorp common stock, and thus dilute the outstanding shares of Kankakee Bancorp common stock. Subject to the board’s fiduciary duties, Kankakee Bancorp could issue convertible preferred stock with the purpose or effect of deterring or preventing a takeover of Kankakee Bancorp.

Kankakee Bancorp’s certificate of incorporation does not provide for cumulative voting rights in the election of directors.

Aviston Financial. Generally, holders of Aviston Financial common stock are entitled to one vote per share on all matters submitted to a vote of stockholders. However, Aviston Financial’s articles of incorporation provide for cumulative voting in the election of directors; therefore, each stockholder in electing directors has the right to cast as many votes in the aggregate as are equal to the number of votes held by such stockholder, multiplied by the number of directors to be elected.

Rights Plan

Kankakee Bancorp. The board of directors of Kankakee Bancorp adopted a Rights Plan in 1999 under which each share of Kankakee Bancorp common stock is accompanied by one preferred share purchase right. Each right entitles the holder, under certain limited circumstances, to purchase from Kankakee Bancorp one one-thousandth of a share of Series A Junior Participating preferred stock of Kankakee Bancorp at a price of $95.00.

Until the earlier to occur of (a) 10 days following a public announcement that a person or group of affiliated persons (with certain exceptions, an “acquiring person”) has acquired beneficial ownership of 15% or more of the outstanding shares of common stock, or (b) 10 business days (or such later date as may be determined by action of the board of directors prior to such time as any person or group of affiliated persons becomes an acquiring person) following the commencement of, or announcement of an intention to make, a tender offer or exchange offer the completion of which would result in the beneficial ownership by a person or group of 15% or more of the outstanding shares of common stock (the earlier of such dates being called the “distribution date”), the

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rights will be evidenced, with respect to any common stock certificate outstanding as of the record date, by that common stock certificate together with a summary of rights.

The rights are not exercisable until the distribution date. The rights will expire on May 11, 2009, unless the expiration date is advanced or extended or unless the rights are earlier redeemed or exchanged by Kankakee Bancorp.

Because of the nature of the preferred stock’s dividend, liquidation and voting rights, the value of the one one-thousandth interest in a share of preferred stock purchasable upon exercise of each right should approximate the value of one share of common stock.

In the event that any person or group of affiliated or associated persons becomes an acquiring person, each holder of a right, other than rights beneficially owned by the acquiring person (which will thereupon become void), will thereafter have the right to receive upon exercise of a right and the payment of $95.00 per right, that number of shares of common stock having a market value of $190.00.

In the event that, after a person or group has become an acquiring person, Kankakee Bancorp is acquired in a merger or other business combination transaction or 50% or more of its consolidated assets or earning power are sold, proper provisions will be made so that each holder of a right (other than rights beneficially owned by an acquiring person which will become void) will thereafter have the right to receive upon the exercise of a right and the payment of $95.00 per right, that number of shares of common stock of the person with whom Kankakee Bancorp has engaged in the foregoing transaction (or its parent) that at the time of such transaction having a market value of $190.00.

At any time after any person or group becomes an acquiring person and prior to the earlier of one of the events described in the previous paragraph or the acquisition by such acquiring person of 50% or more of the outstanding shares of common stock, the board of directors of Kankakee Bancorp may exchange the rights (other than rights owned by such acquiring person which will have become void), in whole or in part, for shares of common stock or preferred stock (or a series of Kankakee Bancorp’s preferred stock having equivalent rights, preferences and privileges), at an exchange ratio of one share of common stock, or a fractional share of preferred stock (or other preferred stock) equivalent in value thereto, per right.

With certain exceptions, no adjustment in the purchase price will be required until cumulative adjustments require an adjustment of at least 1% in such purchase price. No fractional shares of preferred stock or common stock will be issued (other than fractions of preferred stock which are integral multiples of one one-thousandth of a share of preferred stock, which may, at the election of Kankakee Bancorp, be evidenced by depositary receipts), and in lieu thereof an adjustment in cash will be made based on the current market price of the preferred stock or the common stock.

At any time prior to the time an acquiring person becomes such, the board of directors of Kankakee Bancorp may redeem the rights in whole, but not in part, at a price of $0.01 per right (the “redemption price”). Immediately upon any redemption of the rights, the right to exercise the rights will terminate and the only right of the holders of rights will be to receive the redemption price.

For so long as the rights are then redeemable, Kankakee Bancorp may, except with respect to the redemption price, amend the rights agreement in any manner. After the rights are no longer redeemable, Kankakee Bancorp may, except with respect to the redemption price, amend the rights agreement in any manner that does not adversely affect the interests of holders of the rights.

Until a right is exercised or exchanged, the holder thereof, as such, will have no rights as a stockholder of Kankakee Bancorp, including, without limitation, the right to vote or to receive dividends.

Aviston Financial. Aviston Financial does not have a similar preferred stock purchase plan.

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Common Stock Purchase Rights

Kankakee Bancorp. On May 28, 2003, Kankakee Bancorp announced its intent to file a registration statement with the Securities and Exchange Commission to register rights to purchase common stock that it would distribute as a dividend to all of its stockholders. In the distribution, all holders of Kankakee Bancorp common stock as of the record date set by the board will receive one common stock purchase right per common share that they own. The rights will accompany each share of Kankakee Bancorp common stock, and will not be detachable from or trade separately from the common stock. If the rights are issued to the Kankakee Bancorp stockholders prior to completion of the merger, then rights will be issued to Aviston Financial stockholders together with the common stock issued to them in the merger as a right attached to the shares of Kankakee Bancorp common stock.

The rights are described further in this joint proxy statement-prospectus below under “Description of Kankakee Bancorp Capital Stock—Common Stock Purchase Rights.”

Aviston Financial. Aviston Financial does not have any similar common stock purchase rights.

Classification of Board of Directors

Kankakee Bancorp. Kankakee Bancorp’s certificate of incorporation provides for the division of its board of directors into three classes of approximately equal size. Kankakee Bancorp directors are elected for three-year terms, and the terms of office of approximately one-third of the members of the classified board of directors expire each year. This classification of the board of Kankakee Bancorp may make it more difficult for a stockholder to acquire immediate control of Kankakee Bancorp and remove management by means of a hostile takeover. Because the terms of approximately one-third of the incumbent directors expire each year, at least two annual elections are necessary for the stockholders to replace a majority of directors, whereas a majority of directors of a non-classified board may be replaced in one annual meeting.

Aviston Financial. The Aviston Financial board of directors is classified in the same manner as Kankakee Bancorp’s board of directors and with the same effect.

Size of the Board of Directors; Vacancies; Removal

Kankakee Bancorp. Kankakee Bancorp’s charter documents contain provisions that may impede changes in majority control of the board of directors. Kankakee Bancorp’s by-laws provide that the size of the board of directors may be increased or decreased only by a majority vote of the whole board or by a vote of holders of at least 80% of the shares eligible to be voted at a duly constituted meeting of stockholders called for such purpose. The by-laws also provide that any vacancy occurring in the number of directors will be filled for the remainder of the unexpired term by a majority vote of the directors then in office.

Under the Delaware General Corporation Law, members of a classified board of directors may only be removed for cause, unless the certificate of incorporation provides otherwise. Kankakee Bancorp’s certificate of incorporation provides that a director may only be removed for cause by the affirmative vote of holders of at least 80% of the shares eligible to vote.

Aviston Financial. Aviston Financial’s by-laws provide that the size of the board of directors may be changed from time to time and at any time by amendment of the by-laws. The by-laws also provide that any vacancy occurring in the number of directors will be filled for the remainder of the unexpired term by a majority of the directors then in office.

Under the Illinois Business Corporation Act, if a board is classified, the articles of incorporation may provide that a director may be removed only for cause. Aviston Financial’s articles of incorporation do not contain such a provision. Under the by-laws of Aviston Financial, stockholders may, by the vote of holders of a majority of the shares then entitled to vote, remove any directors from office with or without cause. However, if less than the entire board is to be removed, no director may be removed if the votes cast against removal would be sufficient to elect such director if then cumulatively voted at an election of the entire board. Aviston Financial’s by-laws also

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provide that any director may be removed for cause by action of a majority of the board of directors if such director, at the time of removal, fails to meet the qualifications for election as a director or is in breach of any agreement with Aviston Financial relating to such director’s services as a director or employee.

Stockholder Nominations and Proposals

Kankakee Bancorp. Under Kankakee Bancorp’s by-laws, the only business that may be conducted at an annual meeting of stockholders is the business brought before the meeting by the board of directors or by any stockholder who is entitled to vote and who complied with the notice procedures set forth in Kankakee Bancorp’s by-laws. For business to be brought before an annual meeting by a stockholder, the stockholder must have given timely notice in writing to the secretary of Kankakee Bancorp. To be timely, a stockholder’s notice must be delivered or mailed and received at the principal executive offices of Kankakee Bancorp not less than 30 days prior to the date of the meeting; provided, however, that in the event that less than 40 days’ notice or prior public disclosure of the meeting date is given or made to stockholders, such notice by the stockholder to be timely must be delivered no later than 10 days after the earlier of the date of the notice of the meeting or public disclosure of the date of the meeting.

A stockholder’s notice to the secretary must set forth as to each matter the stockholder proposes to bring before the annual meeting:

• a brief description of the matter the stockholder desires to present;

• the name and record address of the stockholder who proposed the matter;

• the class and number of shares of Kankakee Bancorp’s capital stock that are beneficially owned by the stockholder; and

• any material interest of the stockholder in the matter.

Kankakee Bancorp’s by-laws provide that nominations for election to the Kankakee Bancorp board of directors may be made only by the board of directors or by any stockholder entitled to vote for the election of directors who complies with the notice procedures set forth in the by-laws and described above. The stockholder’s notice must set forth, as to each person the stockholder proposes to nominate for election or re-election as a director, such person’s name and qualifications and, as to the stockholder giving the notice, his or her name and address, and the class and number of shares of Kankakee Bancorp’s capital stock owned by that stockholder.

Aviston Financial. Aviston Financial’s by-laws provide that at the annual meeting of stockholders the stockholders will elect directors and transact such other business as may be desired, whether or not such business was specified in the notice of the meeting.

Special Meetings

Kankakee Bancorp. Kankakee Bancorp’s certificate of incorporation provides that a special meeting of stockholders may be called only by a resolution of the board of directors. Stockholders are not authorized to call special meetings.

Aviston Financial. Aviston Financial’s by-laws provide that special meetings may be called by the board of directors, the chairman of the board, the president, the secretary or by holders of at least 20% of the outstanding shares of stock of Aviston Financial.

Action by Written Consent

Kankakee Bancorp. Kankakee Bancorp’s certificate of incorporation prohibits the stockholders from taking action by written consent.

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Aviston Financial. Aviston Financial’s by-laws provide that, unless otherwise provided in the articles, any action required to be taken, or any action that may be taken at a meeting of stockholders, may be taken without a meeting if consents in writing setting forth the action so taken are signed by all stockholders entitled to vote with respect to such matter. The articles of incorporation do not limit the taking of action by written consent.

Dividends

Kankakee Bancorp. Kankakee Bancorp’s ability to pay dividends is governed by Delaware corporate law. Under Delaware corporate law, unless there are restrictions in the corporation’s certificate of incorporation, dividends may be declared from the corporation’s surplus, or, if there is no surplus, from its net profits for the fiscal year in which the dividend is declared and the preceding years. Dividends may not be declared, however, if the corporation’s capital is less than the amount of all capital represented by the issued and outstanding stock of all classes having a preference upon the distribution of assets.

Kankakee Bancorp stockholders are entitled to dividends as and when declared by the board of directors. The declaration of dividends by the Kankakee Bancorp board of directors is discretionary, and depends on Kankakee Bancorp’s earnings and financial condition, regulatory limitations, tax considerations and other factors, including limitations imposed by the terms of Kankakee Bancorp’s outstanding junior subordinated debentures.

Kankakee Bancorp issued approximately $10.3 million of these debentures in April of 2002 to Kankakee Capital Trust I, which contemporaneously issued $10.0 million of preferred securities to MM Community Funding III, Ltd. in a private placement. All of the common stock of Kankakee Capital Trust I is owned by Kankakee Bancorp and the debentures are the only assets of the trust. The debentures mature April 22, 2032, at which time the preferred securities must be redeemed. The debentures and preferred securities pay interest and dividends, respectively, quarterly. Under the terms of the debentures, Kankakee Bancorp may be prohibited, under certain circumstances, from paying dividends on shares of its common stock. None of these circumstances currently exist.

Most of the revenues of Kankakee Bancorp available for the payment of dividends derive from amounts paid to it by its subsidiaries. There are various statutory limitations that limit the ability of Kankakee Bancorp’s thrift subsidiary to pay dividends to Kankakee Bancorp.

Aviston Financial. Aviston Financial’s ability to pay dividends on its common stock is governed by Illinois corporate law. Under Illinois corporate law, dividends may be paid so long as after giving effect to their payment, the corporation would not be insolvent and the corporation’s net assets would not be less than zero or less than the maximum amount necessary at the time of payment of the dividends to satisfy the preferential rights upon dissolution to stockholders whose preferential rights are superior to those receiving the dividends. Subject to Illinois law, Aviston Financial’s board of directors may declare and pay dividends at any meeting.

Most of the revenues of Aviston Financial available for the payment of dividends derive from amounts paid to it by its banking subsidiary. There are various statutory limitations that limit the ability of this subsidiary to pay dividends to Aviston Financial.

Evaluation of Proposals

Kankakee Bancorp. Kankakee Bancorp’s certificate of incorporation provides that the board, when evaluating any offer by another person to (1) make a tender or exchange offer for any equity security, (2) merge or consolidate Kankakee Bancorp with another corporation or entity or (3) purchase or otherwise acquire all or substantially all of the properties and assets of the corporation, may, in connection with the exercise of its judgment in determining what is in the best interests of the corporation and its stockholders, give consideration to all relevant factors, including the social and economic effect of acceptance of the offer on Kankakee Bancorp’s present and future employees and those of its subsidiaries, on the communities in which Kankakee Bancorp and its subsidiaries operate or are located, on the ability of Kankakee Bancorp to fulfill its corporate objectives and on the ability of its subsidiary financial institution to fulfill its objectives under applicable rules and regulations.

Aviston Financial. The articles of incorporation of Aviston Financial do not contain a similar provision.

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Amendment of Charter Documents

Kankakee Bancorp. The Delaware General Corporation Law provides that amendments to a corporation’s certificate must be approved by holders of a majority of the issued and outstanding shares of a corporation’s voting stock. However, Kankakee Bancorp’s certificate of incorporation provides that any amendments to the certificate of incorporation must be approved by at least two-thirds of the members of the board of directors and also by a majority of the outstanding shares of Kankakee Bancorp’s voting stock. In addition, approval by holders of at least 80% of the then-outstanding shares is required for certain provisions, including provisions relating to the following:

• limits on voting by holders of more than 10% of the then-outstanding common shares to 10% of the vote;

• the prohibition on action by written consent and limits on the manner in which special meetings of stockholders may be called;

• operation of the board of directors;

• amendment of Kankakee Bancorp’s by-laws;

• “interested stockholder” transactions;

• restrictions on the purchase of shares by Kankakee Bancorp from “interested stockholders;”

• indemnification of officers and directors; and

• the manner in which the certificate of incorporation maybe amended.

If the amendment to Kankakee Bancorp’s certificate of incorporation relating to the manner in which the certificate of incorporation may be amended in the future is adopted by Kankakee Bancorp’s stockholders at the special meeting, then the certificate of incorporation may be amended in the future in the manner prescribed by the Delaware General Corporation Law unless a proposed amendment is approved by a resolution of less than two-thirds of the number of directors, in which case the amendment still must be approved by holders of at least 80% of the then-outstanding shares. See “Amendment of Kankakee Bancorp’s Certificate of Incorporation—Amendment Procedure.”

Kankakee Bancorp’s by-laws may be amended by a majority vote of the board of directors or the affirmative vote of holders of at least 80% of the then-outstanding shares.

Aviston Financial. Aviston Financial may amend it articles in the manner permitted by Illinois law. The Illinois Business Corporation Act provides that a corporation’s articles may be amended by holders of two-thirds or more of the shares entitled to be voted on an amendment, unless the corporation’s articles provide otherwise.

Aviston Financial’s by-laws provide that they may be amended only in the manner provided for in the articles of incorporation. The articles provide that the by-laws may be amended in either of the following ways:

• by holders of a majority of the outstanding shares of stock of Aviston Financial; or

• by a majority of the board of directors.

Limitations on Director Liability

Kankakee Bancorp. Kankakee Bancorp’s certificate of incorporation provides that a director will not be personally liable to Kankakee Bancorp or its stockholders for any breach of fiduciary duty as a director, except for liability:

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• for any breach of the director’s duty of loyalty;

• for acts or omissions not in good faith or involving intentional misconduct or a knowing violation of law;

• under Section 174 of the Delaware General Corporation Law, which relates to unlawful payment of dividends or unlawful stock purchase or redemption and expressly sets forth a negligence standard with respect to such liability; and

• for any transaction from which the director derived an improper personal benefit.

If the Delaware General Corporation Law is amended to further limit or eliminate the personal liability of directors, then the liability of directors of Kankakee Bancorp will be limited or eliminated to the fullest extent permitted by the Delaware General Corporation Law as so amended.

Aviston Financial. The by-laws of Aviston Financial provide that no person will be liable to Aviston Financial or its stockholders for any loss or damage suffered by Aviston Financial on account of any action taken or omitted to be taken by that person as a director or officer of Aviston Financial, so long as that person:

• exercised the same degree of care and skill as a prudent person would have exercised under the circumstances in the conduct of his or her own affairs; or

• took or omitted to take the action in reliance upon the advice of counsel for Aviston Financial, or upon statements made or information furnished by directors, officers, employees or agents of Aviston Financial, which the person had no reasonable grounds to disbelieve.

Indemnification

Kankakee Bancorp. Under Delaware law, a Delaware corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation) by reason of the fact that he or she is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him or her in connection with such action, suit or proceeding if he or she acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the corporation, and with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful.

The certificate of incorporation of Kankakee Bancorp provides that Kankakee Bancorp must indemnify, to the fullest extent permitted by the Delaware General Corporation Law, any person made or threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he is or was a director or officer of Kankakee Bancorp or is or was serving at Kankakee Bancorp’s request as a director, officer, employee or agent of another corporation or other enterprise, against liabilities and expenses reasonably incurred or paid by such person in connection with any such action, suit or proceeding.

Kankakee Bancorp may maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of Kankakee Bancorp or another corporation or enterprise against any expense or loss, whether or not Kankakee Bancorp would have the power to indemnify such person under the Delaware General Corporation Law.

Aviston Financial. Under Illinois law, directors, officers, employees and agents of a corporation may be indemnified against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement under certain circumstances. Illinois law is substantially the same as Delaware law in this area, and the articles of

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incorporation of Aviston Financial contain substantially the same provisions governing indemnification as does Kankakee Bancorp’s certificate of incorporation.

Dissenters’ Rights

Kankakee Bancorp. Under Section 262 of the Delaware General Corporation Law, stockholders of a Delaware corporation generally are entitled to dissent from a merger or consolidation and receive payment of the fair value of their stock, as determined by the Delaware Court of Chancery. However, dissenters’ rights are not granted under Delaware law with respect to any transaction involving the sale, lease or exchange of substantially all of the assets of a corporation. In addition, no dissenters’ rights are available with respect to shares of stock that are listed on a national securities exchange, such as the shares of Kankakee Bancorp common stock. Kankakee Bancorp’s certificate of incorporation and by-laws do not provide for any additional dissenters’ rights.

Aviston Financial. Under the Illinois Business Corporation Act, a stockholder is generally entitled to dissent from a corporate action and obtain fair value of his or her shares in certain events. These events generally include:

• mergers, share exchanges and sales or leases of substantially all of the corporation’s assets if the stockholder is entitled to vote on the transaction;

• certain types of amendments of the corporation’s articles that materially and adversely affect a stockholder’s rights; or

• other corporate actions taken pursuant to a stockholder vote, to the extent that the articles, by-laws or a resolution of the board provide for dissenters’ rights.

Aviston Financial’s articles and by-laws do not provide for any additional dissenters’ rights. See “Dissenters’ Rights” for additional information.

Restrictions on Purchases of Equity Securities

Kankakee Bancorp. The certificate of incorporation of Kankakee Bancorp provides that, in certain circumstances, in addition to any vote of stockholders required by law or the certificate of incorporation, any direct or indirect purchase of equity securities, as defined by the certificate of incorporation, from any interested person must be approved by holders of at least 80% of the voting stock of Kankakee Bancorp that is not beneficially owned by the interested person. An interested person is defined in the certificate of incorporation and generally is a person who beneficially owns, directly or indirectly, 5% or more of the voting stock of Kankakee Bancorp. This provision does not apply to:

• purchases or other acquisitions made as a part of a tender or exchange offer by Kankakee Bancorp or a subsidiary made on the same terms to all stockholders and complying with applicable securities laws;

• purchases made in connection with an open market purchase program approved by a majority of the board of directors, including a majority of disinterested directors; and

• any purchase approved by a majority of the board of directors, including a majority of disinterested directors, which is made at no more than the market price on the date that the understanding between Kankakee Bancorp and the interested person is reached with respect to the purchase.

Aviston Financial. The articles of incorporation of Aviston Financial do not contain a similar provision.

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Business Combinations

Kankakee Bancorp. Kankakee Bancorp’s certificate of incorporation requires that certain business combinations, including transactions initiated by management, between Kankakee Bancorp (or any majority-owned subsidiary) and a 10% or more stockholder either:

• be approved by holders of at least 80% of the total number of outstanding voting shares, voting as a single class, of Kankakee Bancorp;

• be approved by at least two-thirds of the continuing board of directors, meaning persons serving prior to the 10% stockholder becoming a 10% stockholder; or

• involve consideration per share generally equal to or greater than that paid by the 10% stockholder when it acquired its block of stock.

In addition, Section 203(d) of the Delaware General Corporation Law prohibits Kankakee Bancorp from engaging in a business combination, as defined by the Delaware General Corporation Law, with an interested stockholder, defined as a person who owns, directly or indirectly, 15% or more of the Kankakee Bancorp voting stock, for a three year period from the date the person became an interested stockholder, referred to as the acquisition date, unless:

• prior to the acquisition date the Kankakee Bancorp board approved the business combination or the transaction that resulted in the stockholder becoming an interested stockholder;

• upon completion of the transaction in which the stockholder became an interested stockholder, the stockholder owns at least 85% of Kankakee Bancorp’s voting stock, excluding stock held by officers and directors and employee stock plans in which the participants do not have the right to determine confidentially whether shares held by the plan will be tendered in an exchange offer or a tender offer; or

• on or after the acquisition date, the business combination is approved by the Kankakee Bancorp board and by the Kankakee Bancorp stockholders, at a meeting duly called, provided that stockholders owning at least two-thirds of Kankakee Bancorp voting stock approve the business combination. When determining whether this two-thirds vote requirement has been satisfied, voting stock held by the interested stockholder is not included.

Aviston Financial. Subject to contrary provisions in a corporation’s articles of incorporation, the Illinois Business Corporation Act provides that a corporation may engage in any merger, consolidation or a sale or lease of all or substantially all of its assets if such transaction is approved by the corporation’s board of directors and ratified by the vote of holders of at least two-thirds of the corporation’s issued and outstanding shares of voting stock. Aviston Financial’s articles do not contain any contrary provisions.

AMENDMENT OF KANKAKEE BANCORP’S CERTIFICATE OF INCORPORATION

General

The Kankakee Bancorp board of directors has unanimously approved the following amendments to Kankakee Bancorp’s certificate of incorporation, as previously amended, and recommends that the Kankakee Bancorp stockholders approve them:

• a change in Kankakee Bancorp’s corporate name from Kankakee Bancorp, Inc. to                         ;

• an increase in the number of authorized shares of Kankakee Bancorp common stock from 3.5 million to 5.5 million; and

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• an amendment changing the manner in which the certificate of incorporation may be amended in the future.

The adoption of these amendments by the requisite vote of Kankakee Bancorp stockholders is not a condition to the completion of the merger. Approval of the merger agreement and the transactions it contemplates by the Kankakee Bancorp stockholders is not a condition to the adoption of the amendments.

Change in Corporate Name

Kankakee Bancorp’s board of directors has approved a proposal to change Kankakee Bancorp’s corporate name to                     . In the event the stockholders adopt the proposed change of name, Kankakee Bancorp expects to introduce its new name on or about                         , 2003.

The board of directors and management of Kankakee Bancorp believe that changing Kankakee Bancorp’s name to                      will increase its identification in its marketplace, which already extends to a number of areas outside of Kankakee. Specifically, it is intended that the name will lead to heightened recognition of the full scope of Kankakee Bancorp’s expanded market area by customers, investors and the general public, by eliminating the limited geographic connotation that is inherent in the name Kankakee Bancorp. Following the merger with Aviston Financial, the combined company will work on promoting an image more consistent with its operational philosophy, which is to transform Kankakee Bancorp into the premier financial institution in the central Illinois markets between Chicago and St. Louis. In addition, whether or not the merger with Aviston Financial is completed, Kankakee Bancorp intends to pursue additional expansion opportunities throughout this market area.

If the proposed amendment is approved and the name is changed, management also intends to change the name of KFS Bank to further promote its operational philosophy.

Increase in Authorized Stock

Kankakee Bancorp is currently authorized to issue 3.5 million shares of Kankakee Bancorp common stock. As of                     , 2003, the record date for the special meeting:

•                      shares of Kankakee Bancorp common stock were issued and outstanding;

•                      shares of Kankakee common stock were reserved for issuance under Kankakee Bancorp’s stock incentive plans;

• 350,196 shares of Kankakee Bancorp common stock were reserved for issuance to Aviston Financial’s stockholders upon completion of the merger; and

• no shares were held in the treasury of Kankakee Bancorp.

Following the completion of the merger,              shares will be issued and outstanding,              shares will be reserved for issuance pursuant to Kankakee Bancorp’s stock incentive plans, and no shares will be held in treasury. In addition, if Kankakee Bancorp issues rights to purchase common stock to Kankakee Bancorp and Aviston Financial stockholders, Kankakee Bancorp will reserve a sufficient number of shares for issuance upon exercise of the rights. An increase in the number of authorized shares of Kankakee Bancorp common stock is therefore not necessary so that Kankakee Bancorp will have a sufficient number of shares available for issuance upon completion of the merger.

The Kankakee Bancorp board believes that the authorization of additional shares of Kankakee Bancorp common stock is advisable to provide Kankakee Bancorp with the flexibility to issue additional shares of Kankakee Bancorp common stock through stock splits and stock dividends in appropriate circumstances, and to take advantage of opportunities to issue stock to raise additional capital to fund possible acquisitions or for other purposes. Although no formal action has been taken, the board of directors of Kankakee Bancorp, after evaluating the stock price and trading volume of the common stock, is considering issuing shares as a dividend in connection with a two-

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for-one stock split following the completion of the merger to enhance the liquidity of the trading market for the stock. Except as described herein, including with respect to the common stock purchase rights, there are, at present, no plans, understandings, agreements or arrangement concerning the issuance of additional shares of Kankakee Bancorp common stock, except for the shares to be issued (1) as a result of the merger and (2) upon the exercise of currently outstanding stock options.

Uncommitted authorized but unissued shares of Kankakee Bancorp common stock may be issued from time to time to those persons and for consideration as the Kankakee Bancorp board of directors may determine, and holders of then-outstanding shares of Kankakee Bancorp common stock may or may not be given the opportunity to vote with respect to the issuance, depending upon the nature of any transaction, applicable law, the rules and regulations of the American Stock Exchange and the judgment of the Kankakee Bancorp board regarding the submission of the issuance to a vote of the Kankakee Bancorp stockholders. Kankakee Bancorp stockholders have no preemptive rights to subscribe for newly issued shares.

Amendment Procedure

Currently, Kankakee Bancorp’s certificate of incorporation contains limitations on the manner in which it may be amended. In particular, in addition to any vote of the holders of any class of securities required by law or otherwise in the certificate of incorporation, the affirmative vote of holders of at least 80% of the then-outstanding shares of Kankakee Bancorp is required to amend or repeal the provisions of the certificate of incorporation relating to:

• limits on voting by holders of more than 10% of the then-outstanding common shares to 10% of the vote;

• the prohibition on action by written consent and limits on the manner in which special meetings of stockholders may be called;

• operation of the board of directors;

• amendment of Kankakee Bancorp’s by-laws;

• “interested stockholder” transactions;

• restrictions on the purchase of shares by Kankakee Bancorp from “interested stockholders;”

• indemnification of officers and directors; and

• the manner in which the certificate of incorporation may be amended.

The Kankakee Bancorp board of directors believes that the 80% voting requirement is unduly restrictive, and does not allow either the board or the stockholders sufficient flexibility to change the certificate of incorporation as necessary to adapt to changing legal and business environments. Accordingly, Kankakee Bancorp’s board of directors believes that it would be in the best interests of Kankakee Bancorp and its stockholders to amend its certificate of incorporation to provide that it may be amended in the manner prescribed by the Delaware General Corporation Law, unless a proposed amendment is approved by a resolution of less than two-thirds of the number of directors, in which case the proposed amendment must also be approved by holders of at least 80% of the then-outstanding shares.

Kankakee Bancorp’s board of directors believes that this proposed amendment will provide Kankakee Bancorp with greater flexibility to amend its certificate of incorporation in the future, while at the same time maintaining its stockholders’ rights as granted under Delaware law. In addition, the heightened approval requirement for actions approved by less than two-thirds of the board of directors will help to protect the interests of the stockholders.

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Recommendation of Kankakee Bancorp Board of Directors

The Kankakee Bancorp board has unanimously approved each of the amendments to the certificate of incorporation of Kankakee Bancorp and believes that the proposals to amend the certificate of incorporation are in the best interests of Kankakee Bancorp and its stockholders. The Kankakee Bancorp board of directors unanimously recommends that its stockholders vote FOR the adoption of the amendment to the certificate of incorporation changing the corporate name from Kankakee Bancorp, Inc. to                         , FOR the adoption of the amendment to the certificate of incorporation increasing the authorized shares of Kankakee Bancorp common stock from 3.5 million to 5.5 million and FOR the adoption of the amendment to the certificate of incorporation changing the manner in with the certificate of incorporation may be amended in the future.

BUSINESS OF KANKAKEE BANCORP

Kankakee Bancorp is a savings and loan holding company registered under the Home Owner’s Loan Act, as amended and is engaged in the banking business through its wholly-owned subsidiary, KFS Bank, F.S.B. The home office for the bank is Kankakee, Illinois, with additional branch locations in the Illinois cities of Ashkum, Bourbonnais, Bradley, Braidwood, Diamond, Champaign, Coal City, Dwight, Herscher, Manteno, Momence and Urbana. KFS Bank has two subsidiaries, KFS Service Corp. and its wholly-owned subsidiary, KFS Insurance Agency, Inc., which engage in the business of providing securities brokerage services and annuity products to its customers and appraisal services to KFS Bank and other lenders in the Kankakee area.

As of March 31, 2003, Kankakee Bancorp reported total consolidated assets of $516.8 million, total consolidated loans, including loans held for sale, of $361.6 million, total consolidated deposits of $419.8 million and total consolidated stockholders’ equity of $32.8 million.

The principal executive offices of Kankakee Bancorp are located at 310 Schuyler Avenue, Kankakee, Illinois 60901, and its telephone number at such address is (815) 937-4440. Additional information with respect to Kankakee Bancorp and its subsidiaries is included elsewhere in this joint proxy statement-prospectus and in documents incorporated by reference in this joint proxy statement-prospectus. See “Where You Can Find More Information.”

Certain information relating to executive compensation, various benefit plans (including stock option plans), voting securities and the principal holders thereof, certain relationships and related transactions and other related matters as to Kankakee Bancorp is incorporated by reference or set forth in Kankakee Bancorp’s Annual Report on Form 10-K for the year ended December 31, 2002, incorporated in this joint proxy statement-prospectus by reference. Stockholders who wish to receive copies of such documents may contact Kankakee Bancorp at its address or telephone number indicated under “Where You Can Find More Information.”

Lending Activities

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

Real Estate Lending. The focus of Kankakee Bancorp’s lending program is the origination of loans secured by mortgages on owner-occupied one- to-four-family residences. At March 31, 2003, $246.1 million, or 61.3% of Kankakee Bancorp’s loan and mortgage-backed securities portfolio, consisted of loans secured by one- to-four-family residences. At that date, the average outstanding residential loan balance was approximately $65,000 and the largest outstanding residential loan had a book value of $869,000. Substantially all of the residential loans originated by Kankakee Bancorp are secured by properties located in Kankakee Bancorp’s primary market area. To reduce its exposure to changes in interest rates, Kankakee Bancorp originates adjustable rate mortgages, referred to

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as ARMs, subject to market conditions and consumer preference. Kankakee Bancorp also originates long-term fixed-rate residential loans.

Most of Kankakee Bancorp’s fixed-rate loans are originated with terms that conform to secondary market standards (e.g., Freddie Mac standards). Most of Kankakee Bancorp’s fixed-rate residential loans have contractual terms to maturity of 15 to 30 years. The origination of fixed-rate loans with terms that conform to secondary market standards allows Kankakee Bancorp the option of either retaining fixed-rate loans for its portfolio or selling them in the secondary market. The option to sell fixed-rate loans has been a part of asset/liability management and interest rate risk management for Kankakee Bancorp since its formation, and was one of KFS Bank’s strategies prior to the formation of Kankakee Bancorp. Kankakee Bancorp continuously reviews its current policy on fixed-rate loan retention, in light of changing local, regional and national economic conditions, and with regard to Kankakee Bancorp’s current interest rate risk and assets/liability positions. Loans originated with certain terms and certain interest rates are designated for sale based on a future date, either the closing date or the application date. All loans either applied for or closed on or after the pre-determined date, which meet the criteria, are designated for sale.

Kankakee Bancorp also makes multi-family and commercial real estate loans in its primary market area. At March 31, 2003, Kankakee Bancorp reported $71.7 million of multi-family and commercial real estate loans, representing 17.8% of Kankakee Bancorp’s total loan and mortgage-backed securities portfolio at that date. Kankakee Bancorp’s multi-family portfolio includes loans secured by residential buildings (including university student housing) located primarily in Kankakee Bancorp’s primary market area. Kankakee Bancorp’s commercial real estate portfolio consists of loans on a variety of non-residential properties including nursing homes, churches and other commercial buildings.

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

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

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

At March 31, 2003, Kankakee Bancorp reported $32.7 million of commercial business loans outstanding (representing 8.1% of Kankakee Bancorp’s total loan and mortgage-backed securities portfolio) with additional commercial business loan commitments totaling $28.8 million, most of which were undrawn lines of credit. In addition, at March 31, 2003, Kankakee Bancorp had 26 letters of credit outstanding, in an aggregate amount of $1.2 million. Most of Kankakee Bancorp’s commercial business loans have terms to maturity of five years or less and adjustable or floating interest rates. At March 31, 2003, Kankakee Bancorp reported 30 commercial business loans with balances of $250,000 or more, in an aggregate amount of $16.8 million.

Consumer Lending. Kankakee Bancorp’s management believes that offering consumer loan products helps to expand Kankakee Bancorp’s customer base and to create stronger ties to its existing customers. In addition, because consumer loans generally have shorter terms to maturity and/or adjustable-rates and carry higher rates of interest than do residential mortgage loans, they can be valuable asset/liability management tools. Kankakee Bancorp currently originates substantially all of its consumer loans in its market area. At March 31, 2003, Kankakee Bancorp’s consumer loans totaled $36.1 million or 9.0% of Kankakee Bancorp’s loan and mortgage-backed securities portfolio.

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

Construction Lending. Historically, construction lending was a relatively minor part of Kankakee Bancorp’s business activities. However, in light of the economic climate in its principal market area and to increase the yield on, and the proportion of, interest rate sensitive loans in its portfolio and to provide more comprehensive financial services to families and community businesses within its market area, Kankakee Bancorp expanded its construction lending. At March 31, 2003, Kankakee Bancorp reported $12.5 million of residential construction loans and $2.8 million of lot loans to borrowers intending to live in the properties upon completion of construction.

On occasion, Kankakee Bancorp also originates construction loans to builders and developers for the construction of one- to-four-family residences, multi-family residences and commercial real estate and the acquisition and development of one- to-four-family lots in Kankakee Bancorp’s primary market area. Construction loans to builders of one- to-four-family residences generally carry terms of up to one year and may provide for the payment of interest and loan fees from loan proceeds. At March 31, 2003, KFS Bank had approximately $4.5 million in loans to builders of residences, and $3.3 million in loans on commercial construction. In addition, on the same date, Kankakee Bancorp had $4.8 million of subdivision loans to developers for the development of one- to-four-family lots.

Loan Origination and Processing

Kankakee Bancorp originates real estate and other loans through employees located at each of Kankakee Bancorp’s offices. Walk-in customers and referrals from real estate brokers and builders are also important sources of loan originations. Kankakee Bancorp does not generally utilize the services of mortgage brokers.

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

As part of its asset/liability management and interest rate risk management, Kankakee Bancorp continuously evaluates its policy on the sale versus retention of its fixed-rate loan production. General economic factors and current strategic objectives are among the factors considered in decisions to retain or sell loans. During the three-year period from 2000 through 2002, there were periods of time during which Kankakee Bancorp retained all fixed-rate loans, no fixed-rate loans and a portion of fixed-rate loans, determined by rate and term. Kankakee Bancorp’s sales during recent years have been made through sales contracts entered into after Kankakee Bancorp committed to fund the loan. When loans are designated for sale, Kankakee Bancorp attempts to limit interest rate risk created by forward commitments by limiting the number of days between the commitment and closing, charging fees for commitments and limiting the amounts of its uncovered commitments outstanding at any one time.

When loans have been sold, Kankakee Bancorp usually retains the responsibility for servicing such loans. At March 31, 2003, excluding mortgage-backed securities, $69,000 of Kankakee Bancorp’s loan portfolio consisting of purchased loans and purchased participations serviced by others and Kankakee Bancorp serviced $108.7 million of loans for others.

BUSINESS OF AVISTON FINANCIAL

Business of Aviston Financial

Aviston Financial is the bank holding company for the State Bank of Aviston, which is headquartered in Aviston, Illinois. Aviston Financial indirectly acquired the outstanding shares of capital stock of the State Bank of

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Aviston on October 23, 2002, when it acquired the outstanding stock of the bank’s former holding company, Aviston Bancorp, Inc., which was dissolved on May 27, 2003, from the stockholders of Aviston Bancorp. The main office of the bank is located at 101 South Page Street, Aviston, Illinois 62216, and its telephone number at that address is (618) 228-7215. The bank has additional branches located in St. Rose, Illinois and Fairview Heights, Illinois. As of March 31, 2003, Aviston Financial reported, on a consolidated basis, total assets of $97.1 million, deposits of $79.0 million, stockholders’ equity of $10.5 million, and together with the bank, employed 20 full-time equivalent employees.

The State Bank of Aviston was chartered as an Illinois state bank on June 14, 1920. The bank offers a full range of banking services to individuals and businesses in the area immediately surrounding Aviston, Illinois, as well as to customers on the Illinois side of the greater St. Louis, Missouri metropolitan area. These services include checking, savings and time deposit accounts; commercial, real estate and personal loans; and other customer services, such as safe deposit facilities.

The largest portion of the bank’s business is serving the needs of small to medium size businesses and local community residents. The bank is subject to vigorous competition with respect to these customers from other banks and financial institutions in its principal service areas, which include Aviston, Illinois and the Illinois side of the greater St. Louis, Missouri metropolitan area.

The State Bank of Aviston is subject to supervision, regulation and examination by the State of Illinois. Deposits of the bank are insured by the FDIC. As a bank holding company, Aviston Financial is regulated by the Federal Reserve Board.

The common stock of Aviston Financial is privately held by 115 stockholders of record. There is no established public trading market for the common stock. As discussed in “Description of Transaction—Interests of Certain Persons in the Merger,” directors and executive officers of Aviston Financial own in the aggregate approximately 28.4% of Aviston Financial’s outstanding capital stock and shares issuable upon exercise of outstanding stock options and upon the completion of the merger will own in the aggregate     % of the outstanding capital stock of the combined company.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

This discussion should be read in conjunction the audited and unaudited financial statements and related notes of Aviston Financial and its predecessor, Aviston Bancorp, Inc., which are included elsewhere in this joint proxy statement-prospectus, and the unaudited pro forma combined consolidated financial information included elsewhere in this joint proxy statement-prospectus.

Overview

Aviston Financial was organized in October 2002 to acquire the outstanding shares of Aviston Bancorp, Inc., the sole shareholder of State Bank of Aviston. As of March 31, 2003, Aviston Financial reported, on a consolidated basis, total assets of $97 million loans of $67 million, and stockholders’ equity of $10 million. In this section, references to “combined 2002” are to the results of Aviston Bancorp, Inc. for the 269-day period ended October 23, 2002 and of Aviston Financial for the 69-day period October 23, 2002, to December 31, 2002, on a combined basis.

Aviston Financial’s primary goal after the October 2002 acquisition was to re-evaluate its position in its market area concerning deposit rate and mix and loan type and customer base. Management believes that one of Aviston Financial’s core strengths is its relationship with the communities it serves. This relationship is critical for Aviston Financial to shift its lending emphasis toward its under-served commercial loan customers and will allow it to concentrate on relationships and loans, which are higher yielding and more loyal to the State Bank of Aviston. Management has begun implementing that strategy. The accompanying rate/volume analysis shows the importance of a strong mix of commercial loans. In a decreasing environment, because they are higher yielding and their rates tend to decline slower than the underlying prime rates, they create an increasing interest rate spread.

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Aviston Financial also realized through this analysis that its deposit rates were overly aggressive for the market area and have begun re-pricing its accounts accordingly. These re-pricing efforts have, in the short term, contributed the most to enforcing its growing interest rate spread.

The primary goal for the management of Aviston Financial during the current year is continued improvement in serving customers, implementing its branch expansion strategy and broadening the customer base. This three-pronged approach will enable Aviston Financial to take advantage of its long-term strength in the quality and attentiveness of employees and the business acumen of the management team.

In the interim period, Aviston Financial will continue to focus its strengths toward establishing a Fairview Heights branch and increasing its market presence in the Fairview Heights/Belleville area. In addition, management will continue to focus on loan growth by continuing to focus on higher yielding commercial loans. This change in direction strengthens Aviston Financial’s net income relative to earning assets and its relationships within the community.

Aviston Financial is also broadening its relationships within the financial community through new loan participation arrangements. By allowing financial institutions in areas outside of its competitive marketplace to participate with Aviston Financial in larger loans, it is delivering community banking service and large bank coverage to the capital needs of its growing business customers.

Critical Accounting Policies

Aviston Financial has established various accounting policies which govern the application of accounting principles generally accepted in the United States in the preparation of its financial statements. Significant accounting policies of Aviston Financial are described in the notes to the consolidated financial statements included with this joint proxy statement-prospectus. Certain accounting policies involve significant judgments and assumptions by management which have a material impact on the carrying value of certain assets and liabilities; management considers such accounting policies to be critical accounting policies. The judgments and assumptions used by management are based on historical experience and other factors, which are believed to be reasonable under the circumstances. Because of the nature of the judgments and assumptions made by management, actual results could differ from these judgments and estimates which could have a material impact on the carrying values of assets and liabilities and the results of operations of Aviston Financial.

Results of Operations

Aviston Financial’s net income for the three months ended March 31, 2003 was $0.38 million. For the three months ended March 31, 2003, basic and diluted earnings per share were $0.78. For the three months ended March 31, 2003, the annualized return on average assets of $96.80 million was 1.59%. The annualized return on average equity of $10.5 million was 14.45% for the first quarter of 2003. Net income for the 69-day period ended December 31, 2002 was $0.21 million. Basic and diluted earnings per share were $0.44. The annualized return on average assets of $94.66 million was 1.18%. The annualized return on average equity of $9.83 million was 11.36%.

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Total assets at March 31, 2003 were $97.18 million compared to $96.43 million as of December 31, 2002. This $0.74 million increase in total assets was due largely to an increase in total loans of $4.7 million, which were funded by sales and maturities of investment securities available for sale. This new loan growth was representative of Aviston Financial’s efforts to increase its market share in the commercial loan market.

Net interest income for the three months ended March 31, 2003, was $0.83 million. This represented annualized growth of 6.7% over the combined 2002 amount of $3.11 million. Net interest income growth in the lower market rate environment was the result of continued declines in interest paid on deposits and borrowed funds in excess of the decline in interest received on loans and investments. Net interest income for the 69-day period ended December 31, 2002, was $0.64 million. Net interest income as a percentage of gross interest income increased eight percentage points from 50% for the 296-day period ended October 23, 2002 to 59% for the 69-day period ended December 31, 2002. The growth in net interest income was the result of an improvement in Aviston Financial’s net interest spread to 3.24% for the 69-day period ended December 31, 2002, from 2.72% for the 296-day period ended October 23, 2002.

Annualized interest expense of $2.2 million for the period ended March 31, 2003, represented a decrease of 20% from the 2002 combined expense of $2.86 million. Interest expense for the 69-day period ended December 31, 2002 was $0.46 million. Net interest expense as a percentage of average deposits declined 0.7 percentage points to 3.1% for the 69-day period ended December 31, 2002 as compared to 3.8% for the 296-day period end October 23, 2002.

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The following table sets forth the condensed average balance sheet for the quarter ended March 31, 2003. Also shown is the average yield on each category of interest earning assets and the average rate paid on interest bearing liabilities for each of the periods reported.

	Average Balance			Interest Paid		Rate (1)
	(dollars in thousands)
Assets:
Interest earning assets:
Loans (2)	$	64,723		$	1,086	6.71	%
Taxable investment securities		18,365			258	5.62	%
Non-taxable investment securities (3)		6,207			45	2.90	%
Federal funds sold and other investments		1,464			9	2.46	%
Interest bearing due from banks		67			3	17.91	%
Total interest earning assets		90,826			1,401	6.26	%
Non-interest earning assets:
Cash and due from banks		1,425
Premises and equipment		1,297
Other assets		4,539
Allowance for loan losses		(1,285	)
Total assets	$	96,802
Liabilities and shareholders’ equity
Interest bearing liabilities:
Money market and NOW accounts	$	15,763			38	0.96	%
Savings deposits		8,655			30	1.39	%
Certificates of deposit		39,524			372	3.76	%
Certificates of deposit over $100,000		6,338			59	3.72	%
IRA accounts		3,691			36	3.90	%
Total interest bearing deposits		73,971			535	2.93	%
FHLB borrowings		3,435			30	3.49	%
Federal funds purchased		253			1	1.58	%
Line of credit		625			6	3.84	%
Total interest bearing liabilities		78,284			572	2.99	%
Non-interest bearing liabilities and equity:
Demand deposits		5,964
Other liabilities		2,061
Shareholders’ equity		10,493
Total liabilities and shareholders’ equity	$	96,802
Net interest income				$	829
Net interest spread						3.27	%

(1) Yields have been annualized.

(2) Average balances include non-accrual loans

(3) Actual yield not tax equivalent yield

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The following table sets forth the condensed average balance sheet for the 69-day period ended December 31, 2002. Also shown is the average yield on each category of interest earning assets and the average rate paid on interest bearing liabilities for period reported.

	Average Balance			Interest Paid		Rate (1)
	(dollars in thousands)
Assets:
Interest earning assets:
Loans (2)	$	58,654		$	840	7.58	%
Taxable investment securities		26,040			225	4.57	%
Non-taxable investment securities (3)		4,355			24	2.92	%
Federal funds sold and other investments		2,361			9	2.02	%
Interest bearing due from banks		—			—	0.00	%
Total interest earning assets		91,410			1,098	6.35	%
Non-interest earning assets:
Cash and due from banks		1,145
Premises and equipment		631
Other assets		2,092
Allowance for loan losses		(615	)
Total assets	$	94,663
Liabilities and shareholders’ equity
Interest bearing liabilities:
Money market and NOW accounts		12,129			35	1.53	%
Savings deposits		8,454			21	1.31	%
Certificates of deposit		45,311			318	3.71	%
Certificates of deposit over $100,000		6,973			48	3.64	%
IRA accounts		3,692			26	3.73	%
Total interest bearing deposits		76,559			448	3.10	%
FHLB borrowings		400			3	3.97	%
Federal funds purchased		26			—	0.00	%
Line of credit		625			5	4.23	%
Total interest bearing liabilities		77,610			456	3.11	%
Non-interest bearing liabilities and equity:
Demand deposits		6,602
Other liabilities		623
Shareholders’ equity		9,828
Total liabilities and shareholders’ equity	$	94,663
Net interest income				$	642
Net interest spread						3.24	%

(1) Yields have been annualized.

(2) Average balances include non-accrual loans

(3) Actual yield not tax equivalent yield

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The following table sets forth for the period indicated, the bank only changes in interest income and interest expense, which were attributable to change in average volume, and changes in average rates. Volume variances are computed using the change in volume multiplied by the previous year’s rate. Rate variances are computed using the changes in rate multiplied by the previous year’s volume.

	Three Months Ended March 31, 2003 Compared to the 69 Days Ended December 31, 2002
Rate/Volume Analysis
	Volume			Rate			Net Change
	(in thousands)
Interest earned on:
Loans	$	111		$	(96	)	$	15
Taxable investment securities		(96	)		25			(72	)
Non-taxable investment securities		20			(24	)		(4	)
Federal funds sold and other investments		(6	)		(0	)		(6	)
Interest bearing due from banks		—			3			3
Total interest income		30			(95	)		(64	)
Interest paid on:
Money market and NOW accounts		14			(23	)		(9	)
Savings deposits		1			(3	)		(2	)
Certificates of deposit		(63	)		(61	)		(125	)
Certificates of deposit over $100,000		(7	)		(9	)		(16	)
IRA accounts		—			(7	)		(7	)
FHLB borrowings		30			(4	)		26
Federal funds purchased		9			(9	)		—
		(16	)		(115	)		(132	)
	$	46		$	20		$	67

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The following table sets forth for the period indicated, the bank only changes in interest income and interest expense, which were attributable to change in average volume, and changes in average rates. Volume variances are computed using the change in volume multiplied by the previous year’s rate. Rate variances are computed using the changes in rate multiplied by the previous year’s volume. The periods compared have been annualized to better represent its results in re-examining competitive deposit rates and shift to higher earning commercial loans.

	Annualized 69 Days Ended December 31, 2002 Compared to the Annualized 296 Days Ended October 23, 2002
Rate/Volume Analysis
	Volume			Rate			Net Change
	(in thousands)
Interest earned on:
Loans	$	39		$	46		$	85
Taxable investment securities		(27	)		(149	)		(176	)
Non-taxable investment securities		(4	)		(110	)		(114	)
Federal funds sold and other investments		—			11			11
Interest bearing due from banks		—			—			—
Total interest income		8			(202	)		(194	)
Interest paid on:
Money market and NOW accounts		17			(19	)		(2	)
Savings deposits		—			(20	)		(20	)
Certificates of deposit		(40	)		(401	)		(441	)
Certificates of deposit over $100,000		(8	)		(57	)		(65	)
IRA accounts		—			(41	)		(41	)
FHLB borrowings		—			(4	)		(4	)
Federal funds purchased		—			(1	)		(1	)
		(31	)		(543	)		(574	)
	$	39		$	341		$	380

Consolidated Financial Statements

On October 23, 2002, Aviston Financial purchased the State Bank of Aviston from the stockholders of Aviston Bancorp, Inc. In connection with the acquisition, Aviston Financial paid cash of $10.0 million, issued a $2.0 million non-interest bearing note to a former stockholder of Aviston Bancorp, Inc. and recorded goodwill of $4.0 million. At the time of the acquisition, Aviston Financial paid $8.7 million in cash, with the remaining $1.3 million paid into a non-interest bearing escrow account. Aviston Financial funded its cash payment by issuing common stock of approximately $9.7 million and borrowing approximately $323,000 from Union Planters Bank. The Union Planters loan is a $2.0 million revolving line of credit with interest due quarterly at a floating rate equal to prime less 0.25%. As of March 31, 2003, the outstanding balance of the Union Planters loan was $625,000. Under the terms of this loan, Aviston Financial and its subsidiaries are required to maintain certain financial ratios and are limited with respect to cash dividends, capital expenditures and the incurrence of additional indebtedness without the prior approval of Union Planters.

For the 69 days ended December 31, 2002, on a consolidated basis, Aviston Financial’s net interest income was $642,000, net income was $211,000 and diluted earnings per share were $0.44. As of December 31, 2002, Aviston Financial’s ratio of non-performing assets to total assets was 0.05%. Net charge-offs for the 69 days ended December 31, 2002, were 0.04% of average loans outstanding. For the three months ended March 31, 2003, on a consolidated basis, Aviston Financial’s net interest income was $829,000, net income was $379,000 and diluted earnings per share were $0.78. As of March 31, 2003, Aviston Financial’s ratio of non-performing assets to total assets was 0.14%. Net charge-offs for the three months ended March 31, 2003, were 0.9% of average loans

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outstanding. Aviston Financial’s audited consolidated financial statements and notes thereto for the 69-day period ended December 31, 2002, are included in this joint proxy statement-prospectus.

Legal Proceedings

Neither Aviston Financial nor the State Bank of Aviston is involved in any material legal proceedings, other than routine proceedings incidental to the operation of the bank. Such proceedings are not expected to result in any materially adverse effect on the operations or earnings of the bank.

Properties

The main office of the State Bank of Aviston is located at 101 South Page Street, Aviston, Illinois 62216, with additional branches located in St. Rose, Illinois and Fairview Heights, Illinois. Aviston Financial owns its main office and the branch office located in St. Rose, Illinois and leases its branch office in Fairview Heights, Illinois. It does not have any outstanding mortgages on these properties.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Quantitative and Qualitative Disclosures About Market Risk

Management of Aviston Financial believes that it is not subject to market risk exposures arising from derivative financial instruments, as well as all other financial instruments, and derivative commodity instruments as defined by Item 305 of Regulation S-K.

REGULATORY CONSIDERATIONS

General

Financial institutions, their holding companies and their affiliates are extensively regulated under federal and state law. As a result, the growth and earnings performance of Kankakee Bancorp, Aviston Financial and their subsidiaries may be affected not only by management decisions and general economic conditions, but also by the requirements of federal and state statutes and by the regulations and policies of various bank regulatory authorities, including the OTS, Federal Reserve Board, the FDIC and the Illinois Commissioner of Banks and Real Estate, which is referred to in this discussion as the Commissioner. Furthermore, taxation laws administered by the Internal Revenue Service and state taxing authorities and securities laws administered by the Securities and Exchange Commission and state securities authorities have an impact on Kankakee Bancorp, Aviston Financial and their subsidiaries. The effect of these statutes, regulations and regulatory policies may be significant, and cannot be predicted with a high degree of certainty.

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

The following is a summary of the material elements of the regulatory framework that applies to Kankakee Bancorp and Aviston Financial and their financial institution subsidiaries. It does not describe all of the statutes, regulations and regulatory policies that apply, nor does it restate all of the requirements of those that are described. As such, the following is qualified in its entirety by reference to applicable law.

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Holding Company Regulation

General. Kankakee Bancorp, as the sole stockholder of KFS Bank, is a savings and loan holding company. As a savings and loan holding company, Kankakee Bancorp is registered with, and is subject to regulation by, the OTS under the Home Owners’ Loan Act, as amended, which is referred to in this discussion as the HOLA. Under the HOLA, Kankakee Bancorp is subject to periodic examination by the OTS. Kankakee Bancorp is also required to file with the OTS periodic reports of Kankakee Bancorp’s operations and such additional information regarding Kankakee Bancorp and KFS Bank as the OTS may require. Kankakee Bancorp has filed an application with the Federal Reserve Board for approval to become a bank holding company as a result of the merger of Aviston Financial with and into Kankakee Bancorp. Assuming Kankakee Bancorp receives Federal Reserve Board approval to become a bank holding company, and the merger of Aviston Financial into Kankakee Bancorp is completed, Kankakee Bancorp will be regulated as a bank holding company rather than a savings and loan holding company following completion of the merger. Accordingly, all of the information set forth below with respect to the supervision and regulation of Aviston Financial will apply to Kankakee Bancorp following completion of the merger.

Aviston Financial, as the sole stockholder of the State Bank of Aviston, is a bank holding company. As a bank holding company, Aviston Financial is registered with, and is subject to regulation by, the Federal Reserve Board under the Bank Holding Company Act of 1956, as amended, which is referred to in this discussion as the BHCA. In accordance with Federal Reserve Board policy, a bank holding company is expected to act as a source of financial strength to its bank subsidiaries and to commit resources to support its bank subsidiaries in circumstances where the holding company might not otherwise do so. Under the BHCA, bank holding companies are subject to periodic examination by the Federal Reserve Board. Bank holding companies are also required to file with the Federal Reserve Board periodic reports of their operations and such additional information as the Federal Reserve Board may require.

Acquisitions, Activities and Change in Control. The primary purpose of a bank holding company is to control and manage banks. The BHCA generally requires the prior approval of the Federal Reserve Board for any merger involving a bank holding company or any acquisition by a bank holding company of another bank or bank holding company acquisition. Subject to certain conditions (including certain deposit concentration limits established by the BHCA), the Federal Reserve Board may allow a bank holding company to acquire banks located in any state of the United States. In approving interstate acquisitions, the Federal Reserve Board is required to give effect to applicable state law limitations on the aggregate amount of deposits that may be held by the acquiring bank holding company and its insured depository institution affiliates in the state in which the target bank is located (provided that those limits do not discriminate against out-of-state depository institutions or their holding companies) and state laws that require that the target bank have been in existence for a minimum period of time (not to exceed five years) before being acquired by an out-of-state bank holding company.

Because Kankakee Bancorp controls only one savings association subsidiary and because Kankakee Bancorp acquired control of KFS Bank, and thus became a savings and loan holding company, before May 4, 1999, Kankakee Bancorp is generally not subject to any restrictions on the types of non-financial activities that Kankakee Bancorp may conduct either directly or through a non-banking subsidiary, so long as KFS Bank, meets the qualified thrift lender requirements of the HOLA. Following the completion of the merger of Aviston Financial into Kankakee Bancorp, however, Kankakee Bancorp will become subject to the activities restrictions of the BHCA. The BHCA generally prohibits bank holding companies from acquiring direct or indirect ownership or control of more than 5% of the voting shares of any company that is not a bank and from engaging in any business other than that of banking, managing and controlling banks or furnishing services to banks and their subsidiaries. This general prohibition is subject to a number of exceptions. One of these exceptions allows bank holding companies to engage in, and to own shares of companies engaged in, certain businesses found by the Federal Reserve Board to be “so closely related to banking as to be a proper incident thereto.” This authority would permit a bank holding company to engage in a variety of banking-related businesses, including the operation of a thrift, consumer finance, equipment leasing, the operation of a computer service bureau (including software development) and mortgage banking and brokerage. The BHCA generally does not place territorial restrictions on the domestic activities of non-bank subsidiaries of bank holding companies.

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Additionally, bank holding companies that meet certain eligibility requirements prescribed by the BHCA and elect to operate as financial holding companies may engage in, or own shares in companies engaged in, a wider range of nonbanking activities, including securities and insurance underwriting and agency activities, merchant banking and any other activity that the Federal Reserve Board, in consultation with the Secretary of the Treasury, determines to be financial in nature or incidental to a financial activity. Aviston Financial has neither applied for nor received approval to operate as a financial holding company. However, Kankakee Bancorp has submitted a request to the Federal Reserve Board to become a financial holding company upon completion of the merger of Aviston Financial with and into Kankakee Bancorp.

Federal law also prohibits any person or company from acquiring “control” of a bank, savings association or its holding company without prior notice to the target company’s primary federal regulator (the OTS, in the case of Kankakee Bancorp and KFS Bank, and the Federal Reserve Board, in the case of Aviston Financial and the State Bank of Aviston). “Control” is conclusively presumed to exist upon the acquisition of 25% or more of the outstanding voting stock of the target company, but may arise under certain circumstances at 5% ownership.

Capital Requirements. Bank holding companies are required to maintain minimum levels of capital in accordance with Federal Reserve Board capital adequacy guidelines. If capital levels fall below the minimum required levels, a bank holding company, among other things, may be denied approval to acquire or establish additional banks or non-bank businesses.

The Federal Reserve Board’s capital guidelines establish the following minimum regulatory capital requirements for bank holding companies: (1) a risk-based requirement expressed as a percentage of total assets weighted according to risk; and (2) a leverage requirement expressed as a percentage of total assets. The risk-based requirement consists of a minimum ratio of total capital to total risk-weighted assets of 8%, and a minimum ratio of Tier 1 capital to total risk-weighted assets of 4%. The leverage requirement consists of a minimum ratio of Tier 1 capital to total assets of 3% for the most highly rated companies, with a minimum requirement of 4% for all others. For purposes of these capital standards, Tier 1 capital consists primarily of permanent stockholders’ equity less goodwill and other intangible assets (other than certain loan servicing rights and purchased credit card relationships). Total capital consists primarily of Tier 1 capital plus certain other debt and equity instruments that do not qualify as Tier 1 capital and a portion of the company’s allowance for loan and lease losses.

The risk-based and leverage standards described above are minimum requirements. Higher capital levels will be required if warranted by the particular circumstances or risk profiles of individual banking organizations. For example, the Federal Reserve Board’s capital guidelines contemplate that additional capital may be required to take adequate account of, among other things, interest rate risk, or the risks posed by concentrations of credit, nontraditional activities or securities trading activities. Further, any banking organization experiencing or anticipating significant growth would be expected to maintain capital ratios, including tangible capital positions (i.e., Tier 1 capital less all intangible assets), well above the minimum levels.

As of March 31, 2003, Aviston Financial reported regulatory capital in excess of the Federal Reserve Board’s minimum requirements. Kankakee Bancorp is not presently subject to these capital requirements, but will become subject to them upon completion of the merger. Kankakee Bancorp’s consolidated capital ratios, calculated in accordance with Federal Reserve Board requirements, on a pro forma basis at March 31, 2003, would likewise have exceeded the Federal Reserve Board’s minimum requirements, with a ratio of total capital to total risk-weighted assets of 15.23%, a ratio of Tier 1 capital to total risk-weighted assets of 13.97%, and a ratio of Tier 1 capital to average assets of 9.63%.

Dividend Payments. Kankakee Bancorp’s ability to pay dividends to its stockholders may be affected by both general corporate law considerations and, following completion of the merger of Aviston Financial into Kankakee Bancorp, the policies of the Federal Reserve Board applicable to bank holding companies. As a Delaware corporation, Kankakee Bancorp is subject to the limitations of the Delaware General Corporation Law, which allows Kankakee Bancorp to pay dividends only out of its surplus (as defined and computed in accordance with the provisions of the Delaware General Corporation Law) or if Kankakee Bancorp has no such surplus, out of its net profits for the fiscal year in which the dividend is declared and/or the preceding fiscal year. Additionally, policies of the Federal Reserve Board caution that a bank holding company should not pay cash dividends that exceed its net income or that can only be funded in ways that weaken the bank holding company’s financial health, such as by

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borrowing. The Federal Reserve Board also possesses enforcement powers over bank holding companies and their non-bank subsidiaries to prevent or remedy actions that represent unsafe or unsound practices or violations of applicable statutes and regulations. Among these powers is the ability to proscribe the payment of dividends by banks and bank holding companies.

Federal Securities Regulation. Kankakee Bancorp’s common stock is registered with the Securities and Exchange Commission under the Securities Exchange Act. Consequently, Kankakee Bancorp is subject to the information, proxy solicitation, insider trading and other restrictions and requirements of the Securities and Exchange Commission under the Securities Exchange Act.

Financial Institution Regulation

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

The State Bank of Aviston is an Illinois-chartered bank, the deposit accounts of which are insured by the Bank Insurance Fund, which is referred to as BIF. As an Illinois-chartered bank, the State Bank of Aviston is primarily subject to the examination, supervision, reporting and enforcement requirements of the Commissioner, the chartering authority for Illinois banks, and the FDIC, designated by federal law as the primary federal regulator of state-chartered, FDIC-insured banks that, like the State Bank of Aviston, are not members of the Federal Reserve Board.

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

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

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

Supervisory Assessments. All Federal savings associations are required to pay supervisory assessments to the OTS to fund the operations of the OTS. The amount of the assessment is calculated using a formula that takes into account the institution’s size, its supervisory condition (as determined by the composite rating assigned to the institution as a result of its most recent OTS examination) and the complexity of its operations. All Illinois-chartered banks are likewise required to pay supervisory assessments to the Commissioner to fund the operations of the Commissioner, the amount of which is calculated on the basis of an institution’s total assets, including consolidated subsidiaries, as reported to the Commissioner.

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Capital Requirements. Financial institutions such as the State Bank of Aviston and KFS Bank are generally required to maintain capital levels in excess of other businesses. The FDIC has established the following minimum capital standards for state-chartered insured non-member banks, such as the State Bank of Aviston: (1) a leverage requirement consisting of a minimum ratio of Tier 1 capital to total assets of 3% for the most highly-rated banks with a minimum requirement of at least 4% for all others; and (2) a risk-based capital requirement consisting of a minimum ratio of total capital to total risk-weighted assets of 8%, and a minimum ratio of Tier 1 capital to total risk-weighted assets of 4%. For purposes of these capital standards, the components of Tier 1 capital and total capital are the same as those for bank holding companies discussed above. Similar capital requirements apply to KFS Bank under the HOLA and OTS regulations.

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

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

Federal law provides the federal banking regulators with broad power to take prompt corrective action to resolve the problems of undercapitalized institutions. The extent of the regulators’ powers depends on whether the institution in question is “adequately capitalized,” “undercapitalized,” “significantly undercapitalized” or “critically undercapitalized,” in each case as defined by regulation. Depending upon the capital category to which an institution is assigned, the regulators’ corrective powers include: (1) requiring the institution to submit a capital restoration plan; (2) limiting the institution’s asset growth and restricting its activities; (3) requiring the institution to issue additional capital stock (including additional voting stock) or to be acquired; (4) restricting transactions between the institution and its affiliates; (5) restricting the interest rate the institution may pay on deposits; (6) ordering a new election of directors of the institution; (7) requiring that senior executive officers or directors be dismissed; (8) prohibiting the institution from accepting deposits from correspondent banks; (9) requiring the institution to divest certain subsidiaries; (10) prohibiting the payment of principal or interest on subordinated debt; and (11) ultimately, appointing a receiver for the institution.

As of March 31, 2003: (1) neither the State Bank of Aviston nor KFS Bank was subject to a directive from its primary federal regulator to increase its capital to an amount in excess of the minimum regulatory capital requirements; (2) each of the State Bank of Aviston and KFS Bank exceeded its minimum regulatory capital requirements under applicable capital adequacy guidelines; and (3) both the State Bank of Aviston and KFS Bank were “well-capitalized”, as defined by applicable regulations.

Dividend Payments. Dividends from KFS Bank and the State Bank of Aviston constitute the primary source of funds for Kankakee Bancorp and Aviston Financial, respectively. OTS regulations require prior OTS approval for any dividend or other capital distribution by a savings association that is not eligible for expedited processing under the OTS’s application processing regulations. To qualify for expedited processing, a savings association must: (1) have a composite examination rating of 1 or 2; (2) have a Community Reinvestment Act rating of satisfactory or better; (3) have a compliance rating of 1 or 2; (4) meet all applicable regulatory capital requirements; and (5) not have been notified by the OTS that it is a problem association or an association in troubled condition. Savings associations that qualify for expedited processing are not required to obtain OTS approval prior to making a capital distribution unless: (a) the amount of the proposed capital distribution, when aggregated with all other capital distributions during the same calendar year, will exceed an amount equal to the association’s year-to-date net income plus its retained net income for the preceding two years; (b) after giving effect to the distribution, the association will not be at least “adequately capitalized” (as defined by OTS regulation); or (c) the distribution would violate a prohibition contained in an applicable statute, regulation or agreement with the OTS or the FDIC or violate a condition imposed in connection with an OTS-approved application or notice. The OTS must be given

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prior notice of certain types of capital distributions, including any capital distribution by a savings association that, like KFS Bank, is a subsidiary of a savings and loan holding company, or by a savings association that, after giving effect to the distribution, would not be “well-capitalized” (as defined by OTS regulation).

Under the Illinois Banking Act, Illinois-chartered banks, such as the State Bank of Aviston, generally may not pay dividends in excess of their net profits.

The payment of dividends by any financial institution or its holding company is affected by the requirement to maintain adequate capital pursuant to applicable capital adequacy guidelines and regulations, and a financial institution generally is prohibited from paying any dividends if, following payment thereof, the institution would be undercapitalized. As described above, each of KFS Bank and the State Bank of Aviston exceeded its minimum capital requirements under applicable guidelines as of March 31, 2003. Further, under applicable regulations of the OTS, KFS Bank may not pay dividends in an amount that would reduce its capital below the amount required for the liquidation account established in connection with its conversion from the mutual to the stock form of ownership in 1992. As of March 31, 2003, $6.8 million was available to be paid as dividends to Kankakee Bancorp by KFS Bank, and $984,000 was available to be paid as dividends to Aviston Financial by the State Bank of Aviston. Notwithstanding the availability of funds for dividends, however, the OTS and the FDIC may prohibit the payment of any dividends by KFS Bank or the State Bank of Aviston, respectively, if the agency determines such payment would constitute an unsafe or unsound practice.

Affiliate and Insider Transactions. Federally-insured financial institutions, such as KFS Bank and the State Bank of Aviston, are subject to certain restrictions imposed by federal law on extensions of credit to affiliates, on investments in the stock or other securities of affiliates and the acceptance of the stock or other securities of affiliates as collateral for loans made by the Bank. For purposes of these restrictions, an institution’s “affiliates” include its parent holding company. Certain limitations and reporting requirements are also placed on extensions of credit by a federally-insured financial institution to its directors and officers, to directors and officers of its parent holding company, to its principal stockholders and/or the principal stockholders of its parent holding company, and to “related interests” of such directors, officers and principal stockholders. In addition, federal law and regulations generally affects the terms upon which any person becoming an insider of a federally-insured financial institution may obtain credit from the institution’s correspondent banks.

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

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

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

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Federal Reserve Board. Each of KFS Bank and the State Bank of Aviston is in compliance with the foregoing requirements.

DESCRIPTION OF KANKAKEE BANCORP CAPITAL STOCK

Kankakee Bancorp’s certificate of incorporation currently authorizes the issuance of 3.5 million shares of Kankakee Bancorp common stock and 500,000 shares of Kankakee Bancorp preferred stock. On the date of this joint proxy statement-prospectus,              shares of Kankakee Bancorp common stock were outstanding and no shares of preferred stock, were outstanding. Kankakee Bancorp expects to issue up to 350,196 shares of Kankakee Bancorp common stock in connection with the merger. If Kankakee Bancorp issues common stock purchase rights to its stockholders and the stockholders of Aviston Financial in the merger, Kankakee Bancorp will reserve a sufficient number of shares of Kankakee Bancorp common stock for the exercise of the rights.

The capital stock of Kankakee Bancorp does not represent or constitute a deposit account and is not insured by the FDIC, BIF, SAIF or any governmental agency.

General

Shares of Kankakee Bancorp common stock may be issued at such time or times and for such consideration (not less than the par value thereof) as the Kankakee Bancorp board of directors may deem advisable, subject to such limitations as may be set forth in the laws of the State of Delaware or Kankakee Bancorp’s certificate of incorporation or by-laws. LaSalle Bank N.A., is the Registrar, Transfer Agent and Dividend Disbursing Agent for shares of Kankakee Bancorp’s common stock. Its address is 135 S. LaSalle Street, Suite 1960, Chicago, Illinois 60603.

Dividends

Subject to the preferential rights of any outstanding shares of Kankakee Bancorp preferred stock, the holders of Kankakee Bancorp common stock are entitled to receive, to the extent permitted by law, only such dividends as may be declared from time to time by Kankakee Bancorp’s board of directors. Currently, it is anticipated that Kankakee Bancorp will pay dividends to its stockholders, however, there can be no guarantee that dividends will be paid, or, if so, how much will be paid.

Kankakee Bancorp has the right to, and may from time to time, enter into borrowing arrangements or issue other debt instruments, the provisions of which may contain restrictions on payment of dividends and other distributions on Kankakee Bancorp common stock and Kankakee Bancorp preferred stock. Kankakee Bancorp issued approximately $10.3 million in junior subordinated debentures in April 2002 to Kankakee Capital Trust I, which contemporaneously issued $10.0 million of preferred securities to MM Community Funding III, Ltd. in a private placement. All of the common stock of Kankakee Capital Trust I is owned by Kankakee Bancorp and the debentures are the only assets of the trust. The debentures mature April 22, 2032, at which time the preferred securities must be redeemed. The debentures and preferred securities pay interest and dividends, respectively, quarterly. Under the terms of the debentures, Kankakee Bancorp may be prohibited, under certain circumstances, from paying dividends on shares of its common stock. None of these circumstances currently exist. As of the date hereof, Kankakee Bancorp has not entered into any other arrangements that contain restrictions on the payment of dividends.

Liquidation Rights

In the event of the voluntary or involuntary liquidation, dissolution, distribution of assets or winding-up of Kankakee Bancorp, after distribution in full of the preferential amounts required to be distributed to holders of any Kankakee Bancorp preferred stock, holders of Kankakee Bancorp common stock will be entitled to receive all of the remaining assets of Kankakee Bancorp, of whatever kind, available for distribution to stockholders ratably in proportion to the number of shares of Kankakee Bancorp common stock held. The Kankakee Bancorp board of directors may distribute in kind to the holders of Kankakee Bancorp common stock such remaining assets of Kankakee Bancorp or may sell, transfer or otherwise dispose of all or any part of such remaining assets to any other

85

person or entity and receive payment therefor in cash, stock or obligations of such other person or entity, and may sell all or any part of the consideration so received and distribute any balance thereof in kind to holders of Kankakee Bancorp common stock.

Because Kankakee Bancorp is a holding company, its right and the rights of its creditors and stockholders, including the holders of Kankakee Bancorp preferred stock, if any, and of Kankakee Bancorp common stock, to participate in the distribution of assets of a subsidiary on its liquidation or recapitalization may be subject to prior claims of such subsidiary’s creditors except to the extent that Kankakee Bancorp itself may be a creditor having recognized claims against such subsidiary.

Common Stock Purchase Rights

On May 28, 2003, Kankakee Bancorp announced its intent to file a registration statement with the Securities and Exchange Commission to register rights to purchase common stock that it would distribute as a dividend to all of its stockholders. Kankakee Bancorp’s board of directors view this potential issuance of common stock purchase rights as a possible source of future financing. In the distribution, all holders of Kankakee Bancorp common stock as of the record date set by the board will receive one right per common share that they own. If rights are issued to holders of Kankakee Bancorp common stock prior to completion of the merger, then rights will be granted to Aviston Financial’s stockholders as a right attached to the common stock issued to them in the merger. However, it is uncertain at this time whether any rights will be issued prior to completion of the merger. If they have not been issued, no rights will be included with the common stock issued to the Aviston Financial stockholders in the merger.

General. Kankakee Bancorp expects to issue one right per share of Kankakee Bancorp common stock. The rights will be issued as a dividend to all holders of Kankakee Bancorp common stock as of the record date, and, from the time of issuance will represent a right attached to the common stock. The rights will not be detachable from, or trade separately from, the common stock.

Until they are exercised, the rights will be evidenced, with respect to each then-outstanding common stock certificate, by such common stock certificate.

Exercise of Rights. Every four rights will entitle the holder to purchase one share of Kankakee Bancorp common stock at the exercise price, but only following a declaration by Kankakee Bancorp’s board that the rights are exercisable. Rights may not be used to purchase any fractional shares.

The initial exercise price of the rights will be $42.35 per share, subject to adjustment for changes in Kankakee Bancorp’s capital structure such as stock splits, and/or Kankakee Bancorp board action increasing the exercise price. The board may not decrease the exercise price.

Expiration. The rights will expire on December 31, 2004, unless the expiration date is advanced or extended by Kankakee Bancorp for any reason. Rights not exercised by the expiration date will be null and void.

Treatment of Right Holders. Until a right is exercised, the holder of a right will not have any separate rights as a stockholder of Kankakee Bancorp. However, the right holder’s rights with respect to Kankakee Bancorp common stock also owned by such holder will remain unchanged. Rights do not include any voting, dividend, liquidation or similar rights.

For a further description of Kankakee Bancorp common stock, see “Effect of the Merger on Rights of Stockholders.”

OTHER MATTERS

As of the date of this joint proxy statement-prospectus, each of our boards of directors knows of no matters that will be presented for consideration at the special meeting of our respective stockholders other than as described

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in this joint proxy statement-prospectus. However, if any other matters properly come before the Kankakee Bancorp or Aviston Financial special meeting or any adjournment or postponement of the special meeting and are voted upon, the enclosed proxy will be deemed to confer authority to vote for adjournment to solicit additional votes and discretionary authority on the individuals named as proxies to vote the shares represented by such proxy as to any such matters.

STOCKHOLDER PROPOSALS

Kankakee Bancorp expects to hold its next annual meeting of stockholders in April, 2004, after the merger. Under the rules of the Securities and Exchange Commission, proposals of Kankakee Bancorp stockholders intended to be presented at that meeting and included in Kankakee Bancorp’s proxy statement must be received by Kankakee Bancorp at its principal executive offices at 310 South Schuyler Avenue, Kankakee, Illinois 60901, no later than November 14, 2003. It is not currently anticipated that Aviston Financial will hold its annual meeting in 2004, unless the merger has not been completed or the merger agreement has been terminated.

EXPERTS

The consolidated financial statements of Kankakee Bancorp and its subsidiaries incorporated by reference in this joint proxy statement-prospectus, have been audited by McGladrey & Pullen, LLP, independent auditors, to the extent and for the periods indicated in their report, which is also incorporated herein by reference and have been so incorporated in reliance upon the report of such firm given upon its authority as an expert in accounting and auditing.

The consolidated financial statements of Aviston Financial and its subsidiary and of Aviston Bancorp, Inc. and its subsidiary included with this joint proxy statement-prospectus, have been audited by Hauk, Fasani, Ramsey, Kruse and Company, independent auditors, to the extent and for the periods indicated in their report, which is also included herein and have been included in reliance upon the report of such firm given upon its authority as an expert in accounting and auditing.

CERTAIN OPINIONS

The legality of the Kankakee Bancorp common stock to be issued as a result of the merger will be passed upon for Kankakee Bancorp by Barack Ferrazzano Kirschbaum Perlman & Nagelberg LLC, 333 West Wacker Drive, Chicago, Illinois 60606.

RSM McGladrey, Inc. has delivered an opinion to us concerning material federal income tax consequences of the Merger. See “Description of Transaction—Material Federal Income Tax Consequences of the Merger.”

WHERE YOU CAN FIND MORE INFORMATION

Kankakee Bancorp files annual, quarterly and current reports and other information with the Securities and Exchange Commission under the Securities Exchange Act. You may read and copy this information at the Public Reference Section at the Securities and Exchange Commission at 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Room by calling the Securities and Exchange Commission at 1-800-SEC-0330. The Securities and Exchange Commission maintains an internet site that contains reports, proxy and information statements and other information about issuers that file electronically with the Securities and Exchange Commission. The address of that site is http://www.sec.gov. In addition, you can read and copy this information at the regional offices of the Securities and Exchange Commission at The Woolworth Building, 233 Broadway, New York, New York 10027, and at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.

Kankakee Bancorp filed a registration statement with the Securities and Exchange Commission under the Securities Act relating to the Kankakee Bancorp common stock offered to our stockholders. The registration

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statement contains additional information about Kankakee Bancorp and the Kankakee Bancorp common stock. The Securities and Exchange Commission allows Kankakee Bancorp to omit certain information included in the registration statement from this joint proxy statement-prospectus. The registration statement may be inspected and copied at the Securities and Exchange Commission’s public reference facilities described above. The registration statement is also available on the Securities and Exchange Commission’s internet site.

INFORMATION INCORPORATED BY REFERENCE

This joint proxy statement-prospectus incorporates important business and financial information about us that is not included in or delivered with this joint proxy statement-prospectus. The following documents filed with the Securities and Exchange Commission by Kankakee Bancorp are incorporated by reference in this joint proxy statement-prospectus (Securities and Exchange Commission File No. 1-13676):

(1) Kankakee Bancorp’s Annual Report on Form 10-K (file no. 001-15025) for the fiscal year ended December 31, 2002;

(2) Kankakee Bancorp’s Proxy Statement to Stockholders on Schedule 14(a) (file no. 001-15025) for the 2003 Annual Meeting;

(3) Kankakee Bancorp’s Quarterly Report on Form 10-Q (file no. 001-15025) for the three months ended March 31, 2003;

(4) Kankakee Bancorp’s Current Report on Form 8-K (file no. 001-15025) dated April 24, 2003;

(5) Kankakee Bancorp’s Current Report on Form 8-K (file no. 001-15025) dated April 30, 2003; and

(6) Kankakee Bancorp’s Current Report on Form 8-K (file no. 001-15025) dated May 28, 2003.

You may obtain copies of the information incorporated by reference in this joint proxy statement-prospectus upon written or oral request. The inside front cover of this joint proxy statement-prospectus contains information about how such requests should be made.

All information contained in this joint proxy statement-prospectus or incorporated herein by reference with respect to Kankakee Bancorp was supplied by Kankakee Bancorp, and all information contained in this joint proxy statement-prospectus or incorporated herein by reference with respect to Aviston Financial was supplied by Aviston Financial.

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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

	Page
AVISTON BANCORP, INC. AND SUBSIDIARY
As of December 31, 2001 and for the year then ended:
Report of Independent Accountants	F-2
Consolidated Balance Sheet	F-3
Consolidated Statement of Income	F-4
Consolidated Statement of Shareholders’ Equity	F-5
Consolidated Statement of Cash Flows	F-6
Notes to Consolidated Statements	F-7
For the 296-day period ended October 23, 2002:
Report of Independent Accountants	F-19
Consolidated Statement of Income	F-20
Consolidated Statement of Cash Flows	F-21
Notes to Consolidated Statements	F-22
AVISTON FINANCIAL CORPORATION AND SUBSIDIARIES
As of December 31, 2002 and for the 69-day period then ended:
Report of Independent Accountants	F-28
Consolidated Balance Sheet	F-29
Consolidated Statement of Income	F-30
Consolidated Statement of Shareholders’ Equity	F-31
Consolidated Statement of Cash Flows	F-32
Notes to Consolidated Statements	F-33
As of March 31, 2002 and for the three months then ended:
Consolidated Balance Sheet	F-53
Consolidated Statement of Income	F-54
Consolidated Statement of Shareholders’ Equity	F-55
Consolidated Statement of Cash Flows	F-56
Notes to Consolidated Statements	F-57

F-1

REPORT OF INDEPENDENT ACCOUNTANTS

Shareholders and Board of Directors

Aviston Financial Corporation

We have audited the accompanying consolidated balance sheet of Aviston Bancorp, Inc. (the “Company”) and Subsidiary as of December 31, 2001 and the related consolidated statements of income, shareholders’ equity and cash flows for the year then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Aviston Bancorp, Inc. at December 31, 2001, and the consolidated results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.

/s/ Hauk, Fasani, Ramsey and Company

St. Louis, Missouri

May 30, 2003

F-2

CONSOLIDATED BALANCE SHEET

DECEMBER 31, 2001

	2001
	(In thousands)
Assets:
Cash and due from banks	$	935
Federal funds sold		3,850
Investment securities:
Held to maturity (at cost)		32,735
Available-for-sale (at estimated market value)		123
Loans, net of allowance for loan losses of $426		56,832
Premises and equipment		489
Accrued interest and other assets		1,443
Total assets	$	96,407
Liabilities and shareholders’ equity:
Deposits:
Non interest-bearing	$	6,156
Interest-bearing		70,081
Certificates of deposit over $100,000		8,836
Total deposits		85,073
Federal Home Loan Bank advances		400
Accrued expenses and other liabilities		625
Total liabilities		86,098
Shareholders’ equity:
Common stock, $1000 par value—authorized 3,000 shares; issued and outstanding 3,000 shares		300
Capital surplus		2,373
Retained earnings		7,652
Accumulated other comprehensive income		(16	)
Total shareholders’ equity		10,309
Total liabilities and shareholders’ equity	$	96,407

See accompanying notes to consolidated financial statements.

F-3

CONSOLIDATED STATEMENT OF INCOME

FOR THE PERIOD ENDED DECEMBER 31, 2001

	2001
	(In thousands)
Interest income:
Interest and fees on loans	$	4,600
Investment securities		1,909
Federal funds sold		298
Total interest income		6,807
Interest expense:
Deposits		4,428
Borrowings		28
Total interest expense		4,456
Net interest income		2,351
Provision for loan losses		252
Net interest income after provision for loan losses		2,099
Non-interest income:
Service charges on deposits		87
Net gain on sale of loans		33
Other income		27
Total non-interest income		147
Non-interest expense:
Salaries and employee benefits		478
Occupancy		163
Furniture and equipment		80
Data processing expense		87
Other expenses		473
Total non-interest expense		1,281
Income before income taxes		965
Provision for income taxes		260
Net income	$	705

See accompanying notes to consolidated financial statements.

F-4

CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY

FOR THE PERIOD ENDED DECEMBER 31, 2001

	Common Stock			Capital Surplus		Retained Earnings		Comprehensive Income(Loss)			Accumulated Other Shareholders’ Equity
	Shares	Par
	(In thousands)
Balance December 31, 2000	3,000	$	300	$	2,373	$	6,947	$	(17	)	$	9,603
Net income	—		—		—		705		—			705
Change in net unrealized gain on available-for-sale securities, net of tax	—		—		—		—		1			1
Prior period adjustment
Cash dividends declared	—		—		—		—		—			—
Balance December 31, 2001	3,000	$	300	$	2,373	$	7,652	$	(16	)	$	10,309

See accompanying notes to consolidated financial statements.

F-5

CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE PERIOD ENDED DECEMBER 31, 2001

	2001
	(In thousands)
Operating Activities:
Net income	$	705
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		80
Provision for loan losses		252
Other changes in assets and liabilities:
Accrued interest receivable and other assets		108
Accrued expenses and other liabilities		14
Cash provided by operating activities		1,159
Investing Activities:
Proceeds from maturities of securities available-for-sale		3,819
Loans made to customers, net of repayments		(3,348	)
Loans made to Federal Reserve, net of repayments		(500	)
Additions to premises and equipment, net		(13	)
Cash (used) in investing activities		(42	)
Financing Activities:
Net (decrease) in deposits		(2,646	)
Net (decrease) in short-term borrowings		(200	)
Cash (used) by financing activities		(2,846	)
Net (decrease) in cash and cash equivalents		(1,729	)
Cash and cash equivalents, beginning of period		6,514
Cash and cash equivalents, end of year	$	4,785

See accompanying notes to consolidated financial statements.

F-6

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Accounting Policies:

Basis of Presentation. The accompanying Consolidated Financial Statements include the accounts of Aviston Bancorp, Inc. and its subsidiary, State Bank of Aviston. The financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and reporting practices applicable to the banking industry. All significant intercompany transactions and balances have been eliminated. The significant accounting policies are summarized below.

Business. Our bank subsidiary, State Bank of Aviston, operates within one segment, the banking industry, and provides a full range of banking services to individual and corporate customers primarily in the immediate area surrounding Aviston, Illinois as well as to customers in the greater St. Louis, Missouri metropolitan area. Our bank is subject to intense competition from other financial institutions. Our bank is also subject to the regulations of certain federal and state agencies and undergoes periodic examinations by those regulatory authorities.

Accounting Estimates. The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from estimates.

Investment Securities. Securities may be classified as held-to-maturity or available-for-sale. Only those securities which management has the intent and ability to hold to maturity are classified as held-to-maturity and are reported at amortized cost. Securities that are purchased with the intent to hold for an indefinite period of time, including securities that management intends to use as part of its asset/liability strategy or that may be sold to meet liquidity needs, are classified as available-for-sale securities. Available-for-sale securities are reported at fair value with unrealized gains and losses, net of related deferred income taxes, reported in other comprehensive income. Interest and dividends on securities, including amortization of premium and accretion of discounts, are reported in interest income using the interest method. Realized securities gains or losses are reported in the Consolidated Statements of Income. Gains and losses on securities are determined based on the specific identification method. As of December 31, 2001, all of our investment securities that are being used in our asset/liability strategy were classified as held-to-maturity. Only our mutual fund investment was classified as available-for-sale.

Loans. Interest income on loans is generally accrued on a simple interest basis. Loan fees and direct costs of loan originations represent the actual recoupment of costs incurred with the loan origination process and were recorded as the income was received or the expense was incurred.

When, in management’s opinion, interest on a loan will not be collected in the normal course of business or when either principal or interest is past due over 90 days, that loan is generally placed on non-accrual status. When a loan is placed on non-accrual status, accrued interest for the current year is reversed and charged against current earnings, and accrued interest from prior years is charged against the allowance for loan losses. Interest payments received on

F-7

non-accrual loans are applied to principal if there is doubt as to the collectibility of such principal; otherwise, these receipts are recorded as interest income. A loan remains on non-accrual status until the loan is current as to payment of both principal and interest and/or the borrower demonstrates the ability to pay and remain current.

Allowance for Loan Losses. We maintain an allowance to absorb losses inherent in the loan portfolio. Credit losses are charged and recoveries are credited to the allowance. Provisions for credit losses are credited to the allowance in an amount that we consider necessary to maintain an appropriate allowance given the risk identified in the portfolio. The allowance is based on ongoing monthly assessments of the estimated losses inherent in the loan portfolio. Our monthly evaluation of the adequacy of the allowance is comprised of the following elements.

Larger commercial loans and any additional loans that exhibit potential or observed credit weaknesses are subject to individual review. Where appropriate, specific allowances are made for individual loans based on our estimate of the borrower’s ability to repay the loan given the availability of collateral, other sources of cash flow and collection options available to us.

Included in the review of individual loans are those that are impaired and we consider all non-accrual and renegotiated loans to be impaired. Any reserves for impaired loans are measured based on the present value of expected future cash flows discounted at the loans’ effective interest rate or fair value of the underlying collateral, if the loan is collateral dependent. We evaluate the collectibility of both principal and interest when assessing the need for loss accrual.

Loans are graded on a risk-rating system that encompasses seven categories. Collateral protection and the borrower’s ability to repay loan obligations define each category. Historic loss rates and observed industry standards are utilized to determine the appropriate allocation percentage for each loan grade.

Homogenous loans, such as consumer installment or home equity credit, are given a standard risk rating that is adjusted on a delinquency basis. Residential mortgage loans are not individually risk-rated, but are identified as a “pool” of loans. Delinquent mortgage loans are segregated and allowance allocations are determined based on the same factors utilized for risk-rated loans.

An unallocated allowance is maintained to recognize the imprecision in estimating and measuring loss when evaluating reserves for individual loans or pool of loans and to provide for the Company’s exposure to inherent but undetected losses within the overall loan portfolio.

Historical loss rates for commercial and consumer loans may be adjusted for significant factors that, in our judgment, reflect the impact of any current conditions on loss recognition. Factors that we consider in the analysis include the effects of the national and local economies, trends in the nature and volume of loans (delinquencies, charge-offs, non-accrual and problem loans), changes in the internal lending policies and credit standards, collection practices and examination results from bank regulatory agencies and our internal loan reviews.

F-8

Allowances for individual loans are reviewed monthly and adjusted as necessary based on changing borrower and/or collateral conditions and actual collection and charge-off experience.

Premises and Equipment. Premises and equipment are stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the individual assets for book purposes and accelerated methods for tax purposes. Ordinary maintenance and repairs are charged to expense as incurred.

Real Estate Owned. Real estate acquired in foreclosure or other settlement of loans is initially recorded at the lower of fair market value of the assets received (less estimated selling costs) or the recorded investment in the loan at the date of transfer. Any adjustment to fair market value at the date of transfer is charged against the allowance for loan losses. Subsequent write-downs are charged to operating expense including charges relating to operating, holding or disposing of the property.

Income Taxes. Income taxes are accounted for under the liability method, in which deferred income taxes are recognized as a result of temporary differences between the financial reporting basis and the tax basis of our assets and liabilities.

Cash and Cash Equivalents. For purposes of the Consolidated Statements of Cash Flows, we consider cash and due from banks, federal funds sold and other overnight investments to be cash equivalents. Cash balances in excess of Federal Depositors Insurance Corporation limits at December 31, 2001 were $537,312.

Critical Accounting Policies. We have established various accounting policies that govern the application of accounting principles generally accepted in the United States of America in the preparation of our financial statements. Our significant accounting policies are described in these footnotes to the Consolidated Financial Statements. Certain accounting policies involve significant judgments and assumptions by management that have a material impact on the carrying value of certain assets and liabilities; management considers such accounting policies to be critical accounting policies. The judgments and assumptions used by management are based on historical experience and other factors, which are believed to be reasonable under the circumstances. Because of the nature of the judgments and assumptions made by management, actual results could differ from these judgments and estimates that could have a material impact on the carrying values of assets and liabilities and the results of operations of our company.

We believe the allowance for loan losses is our critical accounting policy that requires the most significant judgments and estimates used in the preparation of our Consolidated Financial Statements. The information included above in this footnote details our estimation processes and methodology related to the allowance for loan losses.

F-9

Note 2. Investment Securities:

All of the Company’s investment securities have been classified in the Consolidated Balance Sheet as held-to-maturity with the exception of their mutual fund investment which is classified as available-for-sale. The following chart summarizes the company’s investment securities at December 31, 2001 had they been classified as available-for-sale:

	December 31, 2001
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
	(In thousands)
Securities Held-to-Maturity
U.S. government and agency securities	$	24,446	$	258	$	—	$	24,704
State and municipal securities		5,050		69		—		5,119
Mortgage-backed securities		114		—		—		114
Federal Home Loan Bank stock		299		—		—		299
Other securities and mutual funds		2,976		7		—		2,956
Subtotal	$	32,735	$	334	$	—	$	33,069
Securities Available-For-Sale
Mutual funds		150		—		27		123
Total	$	32,885	$	334	$	27	$	33,192

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

Investment securities with a carrying value of $4.0 million at December 31, 2001 were pledged to secure public deposits and short-term borrowings.

F-10

The contractual maturities of securities at December 31, 2001 were as follows:

	December 31, 2001
	Amortized Cost		Fair Value
	(In thousands)
Due in one year or less	$	4,256	$	4,334
Due from one year to five years		15,676		15,752
Due from five years to ten years		12,090		12,268
Due after ten years		300		302
Subtotal		32,322		32,656
Federal Home Loan stock		299		299
Mutual Funds		150		123
Mortgage-backed securities		114		114
Total	$	32,885	$	33,192

Note 3. Loans:

The components of loans in the Consolidated Balance Sheets were as follows:

	December 31, 2001
	(In thousands)
Commercial	$	5,014
Real estate-construction		3,179
Real estate-mortgage:
One-to four-family residential		24,608
Multi-family and commercial		8,204
Agricultural		8,930
Consumer and other		7,323
Total loans		57,258
Allowance for loan losses		(426	)
Net loans	$	56,832

F-11

An analysis of the change in the allowance for loan losses follows:

	December 31, 2001
	(In thousands)
Balance, December 31, 2000	$	391
Loans charged off		(287	)
Recoveries		70
Net loans charged off		(217	)
Provision for loan losses		252
Balance, end of year	$	426

We feel that the allowance for loan losses is adequate relative to the inherent risk in the loan portfolio. In reviewing the adequacy of allowance for loan losses, we considered the factors described in Note 1 to these consolidated financial statements as well as our loan growth and our strategic intention to increase the amount of larger commercial real estate loans.

The recorded investment in loans that were considered to be impaired was $218,000 at December 31, 2001, all of which have had the accrual of interest discontinued. The related allowance for these impaired loans was $32,700. Interest income that would have been recognized for non-accrual loans and cash basis income on non-accrual loans was not significant in 2001.

Aviston Bancorp, Inc. and State Bank of Aviston have entered into transactions with our directors, significant shareholders and affiliates (related parties). Such transactions were made in the ordinary course of business on substantially the same terms and conditions, including interest rates and collateral, as those prevailing at the same time for comparable transactions with other customers and did not, in the opinion of management, involve more than normal credit risk or present other unfavorable features. The aggregate amount of loans outstanding to such related parties at December 31, 2001, totaled $671,000. In addition, there were unfunded loan commitments to related parties of $1,117,000. Related party loans increased $458,000, net of repayments, in 2001. As of December 31, 2001, no related party loans were past due 30 days or more.

F-12

Note 4. Premises and Equipment:

Components of premises and equipment as of December 31, 2001 were as follows:

	December 31, 2001
	(In thousands)
Land	$	17
Bank premises		523
Furniture and equipment		303
Total cost		843
Less accumulated depreciation		(354	)
Net book value	$	489

At December 31, 2001, there were no material leases on any premises or equipment.

Note 5. Deposits:

Deposits consisted of the following:

	December 31, 2001
	(In thousands)
Non interest-bearing	$	6,156
Interest-bearing demand		5,775
Money market accounts		2,014
Savings		8,441
Time and IRA certificates under $100,000		53,851
Total core deposits		76,237
Time and IRA certificates over $100,000		8,836
Total deposits	$	85,073

Amounts and Maturities of Certificates of Deposit

	December 31, 2001
	(In thousands)
Due in one year or less	$	46,711
Due from one year to three years		9,010
Over three years		6,966
Total	$	62,687

F-13

Note 6. Income Taxes:

Our results include income tax expense (benefit) as follows:

	Period Ended December 31, 2001
	(In thousands)
Current
Federal	$	242
State and local		—
Deferred		18
Total	$	260

The tax effects of temporary differences that gave rise to the net deferred tax liability of $94,000 at December 31, 2001 was primarily related to the depreciation expensed in computing tax basis net income but not currently deducted for book purposes.

Income tax expense as reported differs from the amounts computed by applying the statutory federal income tax rate to pre-tax income as follows:

	Period Ended December 31, 2001
	(In thousands)
Computed expected tax expense	$	332
Tax-exempt income		(72	)
Total income tax expense	$	260

Note 7. Federal Home Loan Bank Advances:

Federal Home Loan Bank (FHLB) advances consisted of the following at year-end:

	December 31, 2001
	(In thousands)
Notes payable to FHLB, interest payable monthly at rates of 5.85% and 5.97%, principal balance due at maturity of April 1, 2003 and April 1, 2005, secured by stock in FHLB and certain loans	$	400

F-14

A summary of projected annual principal reductions of Federal Home Loan Bank advances as of December 31, 2001 is as follows:

Year	Annual Principal Reductions
	(In thousands)
2003	$	200
2004		—
2005		200
Total	$	400

As collateral for the Federal Home Loan Bank advances, State Bank of Aviston has entered into a blanket agreement that pledges first mortgage loans, commercial real estate loans and specific investment securities with advance rates of 135%, 175% and 105%, respectively, of the collateral.

Note 8. Employee Benefits:

The Bank has a profit sharing plan in effect for virtually all full-time employees. Salaries and employee benefits expense included $30,195 for the period ended December 31, 2001 for such plan. Contributions under the profit sharing plan are made at the discretion of management and the Board of Directors and therefore will never become an unfunded liability.

Note 9. Officers Bonus:

The Bank has an officer bonus plan in effect for executive management. Salaries and employee benefits expense included $110,328 for the period ended December 31, 2001 for the plan. Payments under the bonus plan are made at the discretion of management and the Board of Directors and will therefore never become an unfunded liability.

Note 10. Concentrations of Credit:

Substantially all of our loans, commitments and commercial and standby letters of credit have been granted to customers that are customers of our subsidiary bank in our market area and we are thereby subject to this significant concentration of credit risk. The concentrations of credit by type of loan are set forth in Note 4. The distribution of commitments to extend credit approximates the distribution of loans outstanding. Commercial and standby letters of credit were granted primarily to commercial borrowers. Investments in state and municipal securities also involve governmental entities within our market area.

F-15

Note 11. Regulatory Matters:

Aviston Bancorp, Inc. and State Bank of Aviston are subject to various regulatory capital requirements administered by federal and state banking agencies. Failure to meet minimum capital requirements can result in mandatory, and possibly additional discretionary actions by regulators that, if undertaken, could have a direct, material effect on our financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, we and our subsidiary bank must meet specific capital guidelines that involve quantitative measures of our and the bank’s assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. We and our subsidiary bank’s capital amounts and classifications also are subject to qualitative judgments by the regulators about components, risk weightings and other factors.

Quantitative measures established by regulators to ensure capital adequacy require our subsidiary bank to maintain minimum amounts and ratios (set forth in the table below) of total and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier 1 capital (as defined) to average assets (as defined). Management believes that, as of December 31, 2001, our subsidiary bank met all applicable capital adequacy requirements. Because consolidated assets are less than $150 million, regulators monitor the capital adequacy of the subsidiary bank and do not measure the holding company’s capital adequacy.

The FDIC completed their examination of the Bank. Although we have not received their written report from their exam as of September 30, 2001, we believe that our subsidiary bank was categorized as well capitalized under the regulatory framework.

The actual and required capital amounts and ratios as of December 31, 2001, for the State Bank of Aviston are listed in the following table:

	Actual				For Capital Adequacy Purposes				To Be Well Capitalized Under Prompt Corrective Action Provisions
	Amount		Ratio		Amount		Ratio		Amount		Ratio
	(Dollars in thousands)
As of December 31, 2001:
Total Capital (to Risk-Weighted Assets)	$	10,700	18.59	%	$	4,605	8.00	%	$	5,756	10.00	%
Tier 1 Capital (to Risk-Weighted Assets)		10,274	17.85			2,302	4.00			3,454	6.00
Tier 1 Capital (to Average Assets)		10,274	10.59			3,881	4.00			4,851	5.00

F-16

Note 12. Parent Company Condensed Financial Information:

Following are our condensed financial statements (parent company only) for the period indicated:

Balance Sheet

	December 31, 2001
	(In thousands)
Assets:
Cash and cash equivalents	$	11
Investment in subsidiary		10,277
Other assets		21
Total assets	$	10,309
Liabilities and shareholders’ equity:
Total shareholders’ equity	$	10,308
Total liabilities and shareholders’ equity	$	10,308

F-17

Statement of Income

	Period Ended December 31, 2001
	(In thousands)
Income:
Total income	$	—
Expenses:
Other operating expenses		42
Total expenses		42
Loss before income tax benefit and equity in undistributed income of subsidiary		(42	)
Income tax benefit		15
Loss before equity in undistributed income of subsidiary		(27	)
Equity in undistributed income of subsidiary		731
Net income	$	705

Statement of Cash Flows

	Period Ended December 31, 2001
	(In thousands)
Operating Activities:
Net income	$	705
Adjustment to reconcile net income to net cash used in operating activities:
Net income of subsidiary		(731	)
Other, net		(16	)
Cash used in operating activities		(42	)
Net decrease in cash and cash equivalents		(42	)
Cash and cash equivalents, beginning of period		53
Cash and cash equivalents, end of year	$	11

F-18

REPORT OF INDEPENDENT ACCOUNTANTS

Shareholders and Board of Directors

Aviston Financial Corporation

We have audited the consolidated statements of income and cash flows for the 296 day period ended October 23, 2002 of Aviston Bancorp, Inc. (the “Company”) and its Subsidiary. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

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

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated results of the operations and cash flows of Aviston Bancorp, Inc. for the 296 day period ended October 23, 2002, in conformity with accounting principles generally accepted in the United States of America.

/s/ Hauk, Fasani, Ramsey and Company

St. Louis, Missouri

June 6, 2003

F-19

CONSOLIDATED STATEMENT OF INCOME

FOR THE 296 DAY PERIOD ENDED

OCTOBER 23, 2002

	296 Day Period Ended October 23, 2002
	(In thousands)
Interest income:
Interest and fees on loans	$	3,534
Investment securities		1,303
Federal funds sold		30
Total interest income		4,867
Interest expense:
Deposits		2,384
Borrowings		16
Total interest expense		2,400
Net interest income		2,467
Provision for loan losses		220
Net interest income after provision for loan losses		2,247
Non-interest income:
Service charges on deposits		100
Net gain on sale of loans and securities		57
Other income		130
Total non-interest income		287
Non-interest expense:
Salaries and employee benefits		459
Occupancy		129
Telephone and postage		37
Advertising		4
Furniture and equipment		39
Data processing expense		78
Other expense		266
Total non-interest expense		1,012
Income before income taxes		1,522
Provision for income taxes		481
Net income	$	1,041

See accompanying notes to consolidated financial statements.

F-20

CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE 296 DAY PERIOD ENDED OCTOBER 23, 2002

	296 Day Period Ended October 23, 2002
	(In thousands)
Operating Activities
Net income	$	1,041
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		39
Provision for loan loss		220
Other changes in assets and liabilities:
Accrued interest receivable		10
Other assets		338
Accrued interest payable		(184	)
Other accrued liabilities		(49	)
Other assets		(5	)
Cash provided by operating activities		1,409
Investing Activities:
Proceeds from sales and maturities of securities held-to-maturity		4,837
Loans made to customers, net of repayments		(6,131	)
Loans made to Federal Reserve, net of repayments		(810	)
Additions to premises and equipment, net		(91	)
Cash (used) by investing activities		(2,195	)
Financing Activities:
Net (decrease) increase in deposits		339
Cash provided by financing activities		339
Net (decrease) increase in cash and cash equivalents		(447	)
Cash and cash equivalents, beginning of year		4,785
Cash and cash equivalents, end of year	$	4,338
Supplemental information:
Cash paid for interest expense	$	2,585
Cash paid for income taxes	$	455

See accompanying notes to consolidated financial statements.

F-21

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Accounting Policies:

Basis of Presentation. The accompanying Consolidated Financial Statements include the accounts of Aviston Bancorp, Inc. and its subsidiary State Bank of Aviston. The financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and reporting practices applicable to the banking industry. All significant intercompany transactions and balances have been eliminated. The significant accounting policies are summarized.

All amounts disclosed in schedules and not within the footnote itself are in thousands. Balances referenced within the footnote are rounded to whole dollars unless otherwise noted.

Business. The bank subsidiary, State Bank of Aviston, operates within one segment, the banking industry, and provides a full range of banking services to individual and corporate customers primarily in the immediate area surrounding Aviston, Illinois as well as to customers in the greater St. Louis, Missouri metropolitan area. The bank is subject to intense competition from other financial institutions. The bank is also subject to the regulations of certain federal and state agencies and undergoes periodic examinations by those regulatory authorities.

Accounting Estimates. The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from estimates.

Investment Securities. Securities may be classified as held-to-maturity or available-for-sale. Only those securities which management has the intent and ability to hold to maturity are classified as held-to-maturity and are reported at amortized cost. Securities that are purchased with the intent to hold for an indefinite period of time, including securities that management intends to use as part of its asset/liability strategy or that may be sold to meet liquidity needs, are classified as available-for-sale securities. Available-for-sale securities are reported at fair value with unrealized gains and losses, net of related deferred income taxes, reported in other comprehensive income. Interest and dividends on securities, including amortization of premium and accretion of discounts, are reported in interest income using the interest method. Realized securities gains or losses are reported in the Consolidated Statements of Income. Gains and losses on securities are determined based on the specific identification method.

Loans. Interest income on loans is generally accrued on a simple interest basis. Loan fees charged by the bank represent an estimate of direct out-of-pocket costs associated with the loan and therefore have not been capitalized by the Bank. Loan fees and direct costs of loan originations during the 296 day period ended October 23, 2002 were immaterial and recorded as the income was received or the expense was incurred.

F-22

When, in management’s opinion, interest on a loan will not be collected in the normal course of business or when either principal or interest is past due over 90 days, that loan is generally placed on non-accrual status. When a loan is placed on non-accrual status, accrued interest for the current year is reversed and charged against current earnings, and accrued interest from prior years is charged against the allowance for loan losses. Interest payments received on non-accrual loans are applied to principal if there is doubt as to the collectibility of such principal; otherwise, these receipts are recorded as interest income. A loan remains on non-accrual status until the loan is current as to payment of both principal and interest and/or the borrower demonstrates the ability to pay and remain current.

Allowance for Loan Losses. We maintain an allowance to absorb losses inherent in the loan portfolio. Credit losses are charged and recoveries are credited to the allowance. Provisions for credit losses are credited to the allowance in an amount that we consider necessary to maintain an appropriate allowance given the risk identified in the portfolio. The allowance is based on ongoing monthly assessments of the estimated losses inherent in the loan portfolio. Our monthly evaluation of the adequacy of the allowance is comprised of the following elements.

Larger commercial loans and any additional loans that exhibit potential or observed credit weaknesses are subject to individual review. Where appropriate, specific allowances are made for individual loans based on our estimate of the borrower’s ability to repay the loan given the availability of collateral, other sources of cash flow and collection options available to us.

Included in the review of individual loans are those that are impaired and we consider all non-accrual and renegotiated loans to be impaired. Any reserves for impaired loans are measured based on the present value of expected future cash flows discounted at the loans’ effective interest rate or fair value of the underlying collateral, if the loan is collateral dependent. We evaluate the collectibility of both principal and interest when assessing the need for loss accrual.

Loans are graded on a risk-rating system that encompasses seven categories. Collateral protection and the borrower’s ability to repay loan obligations define each category. Historic loss rates and observed industry standards are utilized to determine the appropriate allocation percentage for each loan grade.

Homogenous loans, such as consumer installment or home equity credit, are given a standard risk rating that is adjusted on a delinquency basis. Residential mortgage loans are not individually risk-rated, but are identified as a “pool” of loans. Delinquent mortgage loans are segregated and allowance allocations are determined based on the same factors utilized for risk-rated loans.

An unallocated allowance is maintained to recognize the imprecision in estimating and measuring loss when evaluating reserves for individual loans or pool of loans and to provide for the Company’s exposure to inherent but undetected losses within the overall loan portfolio.

Historical loss rates for commercial and consumer loans may be adjusted for significant factors that, in our judgment, reflect the impact of any current conditions on loss recognition. Factors that we consider in the analysis include the effects of the national and local economies, trends in the nature and volume of loans (delinquencies, charge-offs, non-accrual and problem

F-23

loans), changes in the internal lending policies and credit standards, collection practices and examination results from bank regulatory agencies and our internal loan reviews.

Allowances for individual loans are reviewed monthly and adjusted as necessary based on changing borrower and/or collateral conditions and actual collection and charge-off experience.

Premises and Equipment. Premises and equipment are stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the individual assets for book purposes and accelerated methods for tax purposes. Ordinary maintenance and repairs are charged to expense as incurred.

Income Taxes. Income taxes are accounted for under the liability method, in which deferred income taxes are recognized as a result of temporary differences between the financial reporting basis and the tax basis of our assets and liabilities.

Cash and Cash Equivalents. For purposes of the Consolidated Statements of Cash Flows, we consider cash and due from banks, federal funds sold and other overnight investments to be cash equivalents.

Critical Accounting Policies. We have established various accounting policies, which govern the application of accounting principles generally accepted in the United States of America in the preparation of our financial statements. Our significant accounting policies are described in these footnotes to the Consolidated Financial Statements. Certain accounting policies involve significant judgments and assumptions by management, which have a material impact on the carrying value of certain assets and liabilities; management considers such accounting policies to be critical accounting policies. The judgments and assumptions used by management are based on historical experience and other factors, which are believed to be reasonable under the circumstances. Because of the nature of the judgments and assumptions made by management, actual results could differ from these judgments and estimates, which could have a material impact on the carrying values of assets and liabilities and the results of operations of our company.

We believe the allowance for loan losses is our critical accounting policy that requires the most significant judgments and estimates used in the preparation of our Consolidated Financial Statements. The information included above in this footnote details our estimation processes and methodology related to the allowance for loan losses.

Recently Issued Accounting Pronouncements. In November 2002, the Financial Accounting Standards Board (FASB) issued Interpretation No. 45, Guarantor’s Accounting and Disclosure for Guarantees, Including Indirect Guarantees of Indebtedness of Others (FIN 45). FIN 45 requires certain guarantees to be recorded at fair value and applies to contracts or indemnification agreements that contingently require the guarantor to make payments to the guaranteed party based on changes in an underlying account related to an asset, liability or equity security of the guaranteed party. The recognition requirements of FIN 45 are to be applied prospectively to guarantees issued or modified subsequent to December 31, 2002. FIN 45 also expands the disclosures to be made by guarantors, effective as of December 15, 2002, to include the nature of the guarantee, the maximum potential amount of future payments that the guarantor could be required to make under the guarantee, and the current amount of the liability, if any, for the guarantor’s obligation under the guarantee. Guarantees for standby letters of credit entered into

F-24

by the Company are disclosed in Footnote 14. The Company does not expect the requirements of FIN 45 to have a material impact on its results of operations, financial position or liquidity.

Note 2. Acquisition:

On October 23, 2002, we were acquired by Aviston Financial Corporation. Aviston Bancorp, Inc. ceased operations on the date of the acquisition and was dissolved on June 3, 2003. The operations of the Bank are included in our consolidated Statements of Income for the 296 days ended October 23, 2002 and in acquirers’ consolidated Statements of Income for the 69 day period ended December 31, 2002.

The following table summarizes the estimated fair market values of the Bank’s unaudited assets and liabilities at the date of the acquisition.

	October 23, 2002
	(In thousands)
Cash and cash equivalents	$	4,338
Investment securities		29,782
Net loans		58,848
Premises and equipment		1,295
Intangible assets		4,000
Other assets		680
Total assets acquired	$	98,943
Deposits	$	85,920
FHLB advances		400
Other liabilities		42
Total liabilities assumed		86,362
Net assets acquired or (liabilities) assumed	$	12,581

The purchase price of Aviston Bancorp, Inc. was $12 million. The payment of the purchase was for $8.7 million in cash at close, a non-interest bearing note to our shareholders of $2.0 million payable in equal semi-annual installments of $100,000 beginning in April of 2003, and a non-interest bearing escrow account of $1.3 million for repayment to the Bank in the event certain specific loans are charged-off.

The $1.3 million of the original purchase price was placed in escrow as a part of the acquisition of the Bank. The escrow was deemed necessary to cover potential losses on specific loans identified during our pre-acquisition due diligence. The escrow funds are to be held until specific loans have been paid off or restructured. If in the event that these loans result in a charge-off or are restructured to the detriment to the Bank, then the escrowed funds will be returned to us. The funds can then be used to increase the capital of the Bank by offsetting the loan loss provision expense that would be necessary if a loss were to be recognized on these loans.

F-25

The Bank was founded in 1909. The Bank’s longevity, community service and goodwill within the community and outlying areas created goodwill in excess of the fair market value of the Bank’s underlying assets.

Note 3. Subsequent Event:

On May 27, 2003, Aviston Financial Corporation and Kankakee Bancorp (KNK) announced a proposed merger of Aviston Financial Corporation with and into Kankakee Bancorp. After the completion of the merger, the name of the company will be Kankakee Bancorp, Inc.

At the same time as or shortly following the merger of Aviston Financial Corporation into KNK, it is proposed that the KNK subsidiary thrift, KFS Bank, F.S.B. be merged into the State Bank of Aviston.

The proposed merger would exchange one share of Aviston Financial Corporation stock for .707 shares of KNK.

The Board of Directors of Aviston Financial Corporation has agreed to allow those employees with options outstanding the chance to exercise their options, as all options outstanding at the time of the merger will be extinguished. The approximate net value to the employee after exercise price of $20 per share is $7 per share.

Note 4. Income Taxes:

The results include income tax expense (benefit) as follows:

	296-Day Period Ended October 23,2002
	(In thousands)
Current
Federal	$	489
State and local		8
Deferred		(16	)
Total	$	481

Income tax expense as reported differs from the amounts computed by applying the statutory federal income tax rate to pre-tax income as follows:

	296-Day Period Ended October 23, 2002
	(In thousands)
Computed expected tax expense	$	534
Tax-exempt income		(53	)
Total income tax expense	$	481

F-26

Note 5. Employee Benefits:

We have a profit sharing plan in effect for substantially all full-time employees. Salaries and employee benefits expense included $20,319 for the 296 day period ended October 23, 2002 for such plan. Contributions under the profit sharing plan are made at the discretion of our management and Board of Directors and therefore will never become an un-funded liability.

F-27

REPORT OF INDEPENDENT ACCOUNTANTS

Shareholders and Board of Directors

Aviston Financial Corporation

We have audited the accompanying consolidated balance sheet of Aviston Financial Corporation (the “Company”) and its Subsidiaries as of December 31, 2002 and the related consolidated statements of income, shareholders’ equity and cash flows for the 69 day period ended December 31, 2002. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

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

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Aviston Financial Corporation at December 31, 2002, and the consolidated results of its operations and its cash flows for the 69 day period ended December 31, 2002, in conformity with accounting principles generally accepted in the United States.

/s/ Hauk, Fasani, Ramsey and Company

St. Louis, Missouri

February 21, 2003

Except for Note 2 as for which the date is June 6, 2003

F-28

CONSOLIDATED BALANCE SHEET

DECEMBER 31, 2002

	2002
	(In thousands)
Assets:
Cash and due from banks	$	1,399
Federal funds sold		660
Investment securities:
Available-for-sale (at estimated market value)		27,619
Loans, net of allowance for loan losses of $1,264		60,877
Premises and equipment		1,284
Accrued interest and other assets		595
Goodwill		4,000
Total assets	$	96,434
Liabilities and shareholders’ equity:
Deposits:
Non interest-bearing	$	7,852
Interest-bearing		68,483
Certificates of deposit over $100,000		6,499
Total deposits		82,834
Federal Home Loan Bank advances		400
Notes payable		2,625
Accrued expenses and other liabilities		596
Total liabilities		86,455
Shareholders’ equity:
Common stock, $10 par value—authorized 750,000
shares; issued and outstanding 483,826 shares		4,838
Capital surplus		4,838
Retained earnings		211
Accumulated other comprehensive income		92
Total shareholders’ equity		9,979
Total liabilities and shareholders’ equity	$	96,434

See accompanying notes to consolidated financial statements.

F-29

CONSOLIDATED STATEMENT OF INCOME

FOR THE 69 DAY PERIOD ENDED DECEMBER 31, 2002

	(In thousands)
Interest income:
Interest and fees on loans	$	840
Investment securities		249
Federal funds sold		9
Total interest income		1,098
Interest expense:
Deposits		446
Borrowings		10
Total interest expense		456
Net interest income		642
Provision for loan losses		52
Net interest income after provision for loan losses		590
Non-interest income:
Service charges on deposits		20
Mortgage banking revenue		33
Net gain on sale of securities		9
Other income		4
Total non-interest income		66
Non-interest expense:
Salaries and employee benefits		171
Occupancy		30
Advertising		3
Telephone and postage		9
Furniture and equipment		11
Data processing expense		17
Other expenses		51
Total non-interest expense		292
Income before income taxes		364
Provision for income taxes		153
Net income	$	211

See accompanying notes to consolidated financial statements.

F-30

CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY

FOR THE 69 DAY PERIOD ENDED DECEMBER 31, 2002

	Common Stock			Capital Surplus		Retained Earnings		Comprehensive Income(Loss)		Total Shareholders’ Equity		Accumulated Other Comprehensive Income
	Shares	Par
	(In thousands)
Balance October 23, 2002		$	—	$	—	$	—	$	—	$	—
Issuance of stock	483,826		4,838		4,838		—		—		9,676
Net income	—		—		—		211		—		211	$	211
Change in net unrealized gain on available-for-sale securities, net of tax	—		—		—		—		92		92		92
Comprehensive income												$	303
Cash dividends declared	—		—		—		—		—		—
Balance December 31, 2002	483,826	$	4,838	$	4,838	$	211	$	92	$	9,979

See accompanying notes to consolidated financial statements.

F-31

CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE 69 DAY PERIOD ENDED DECEMBER 31, 2002

	(In thousands)
Operating Activities:
Net income	$	211
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		14
Provision for loan losses		52
Gain on sales of stock held-available-for-sale		(9	)
Other changes in assets and liabilities:
Accrued interest receivable and other assets		85
Accrued expenses and other liabilities		819
Cash provided by operating activities		1,172
Investing Activities:
Purchase of Subsidiary common stock		(8,700	)
Proceeds from maturities of securities held-to-maturity		3,000
Proceeds from sales of securities held available-for-sale		11
Loans made to customers, net of repayments		(4,430	)
Loans made to Federal Reserve, net of repayments		4,000
Additions to premises and equipment, net		(3	)
Cash (used) in investing activities		(6,122	)
Financing Activities:
Net (decrease) in deposits		(3,292	)
Net increase in short-term borrowings		625
Sale of common stock to shareholders		9,676
Cash provided by financing activities		7,009
Net increase in cash and cash equivalents		2,059
Cash and cash equivalents, beginning of period		0
Cash and cash equivalents, end of year	$	2,059
Supplemental information:
Cash paid for interest expense	$	492
Cash paid for income taxes	$	140
Non-cash investing and financing activities:
Issuance of note payable in connection with purchase of subsidiary	$	2,000

See accompanying notes to consolidated financial statements.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Accounting Policies:

Basis of Presentation. The accompanying Consolidated Financial Statements include the accounts of Aviston Financial Corporation and its subsidiaries, Aviston Bancorp, Inc. and State Bank of Aviston. The financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and reporting practices applicable to the banking industry. All significant intercompany transactions and balances have been eliminated. The significant accounting policies are summarized.

All amounts disclosed in schedules and not within the footnote itself are in thousands. Balances referenced within the footnote are rounded to whole dollars unless otherwise noted.

Business. Our bank subsidiary, State Bank of Aviston, operates within one segment, the banking industry, and provides a full range of banking services to individual and corporate customers primarily in the immediate area surrounding Aviston, Illinois as well as to customers in the greater St. Louis, Missouri metropolitan area. Our bank is subject to intense competition from other financial institutions. Our bank is also subject to the regulations of certain federal and state agencies and undergoes periodic examinations by those regulatory authorities.

Aviston Bancorp, Inc. is the original holding company owner of State Bank of Aviston. This holding company was created in 1972 to allow greater flexibility in raising capital for the Bank. Aviston Bancorp, Inc. has been dormant since the acquisition.

Accounting Estimates. The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from estimates.

Transfers of financial assets. Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities was issued in September 2000 and provides accounting and reporting standards for transfers and servicing of financial assets and extinguishments of liabilities. SFAS No. 140 is effective for transfers and servicing of financial assets and extinguishments of liabilities after March 31, 2001. Also, it is effective for recognition and reclassification of collateral and for disclosures relating to securitization transactions and collateral for fiscal years ending after December 15, 2000. The effect of this new standard on the 2002 consolidated financial statements was immaterial.

Comprehensive Income. Accounting principles generally require that recognized revenue, expenses, gains and losses be included in net income. Although certain changes in assets and liabilities, such as unrealized gains and losses on available-for-sale securities, are reported as a separate component of the equity section of the balance sheet, such items, along with net income, are components of comprehensive income.

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Investment Securities. Securities may be classified as held-to-maturity or available-for-sale. Only those securities which management has the intent and ability to hold to maturity are classified as held-to-maturity and are reported at amortized cost. Securities that are purchased with the intent to hold for an indefinite period of time, including securities that management intends to use as part of its asset/liability strategy or that may be sold to meet liquidity needs, are classified as available-for-sale securities. Available-for-sale securities are reported at fair value with unrealized gains and losses, net of related deferred income taxes, reported in other comprehensive income. Interest and dividends on securities, including amortization of premium and accretion of discounts, are reported in interest income using the interest method. Realized securities gains or losses are reported in the Consolidated Statements of Income. Gains and losses on securities are determined based on the specific identification method. As of December 31, 2002, all of our investment securities that are being used in our asset/liability strategy were classified as available-for-sale.

Loans. Interest income on loans is generally accrued on a simple interest basis. Loan fees charged by the bank represent an estimate of direct out-of-pocket costs associated with the loan and therefore have not been capitalized by the Bank. Loan fees and direct costs of loan originations during the 69-day period ended December 31, 2002 were immaterial and recorded as the income was received or the expense was incurred.

When, in management’s opinion, interest on a loan will not be collected in the normal course of business or when either principal or interest is past due over 90 days, that loan is generally placed on non-accrual status. When a loan is placed on non-accrual status, accrued interest for the current year is reversed and charged against current earnings, and accrued interest from prior years is charged against the allowance for loan losses. Interest payments received on non-accrual loans are applied to principal if there is doubt as to the collectibility of such principal; otherwise, these receipts are recorded as interest income. A loan remains on non-accrual status until the loan is current as to payment of both principal and interest and/or the borrower demonstrates the ability to pay and remain current.

Allowance for Loan Losses. We maintain an allowance to absorb losses inherent in the loan portfolio. Credit losses are charged and recoveries are credited to the allowance. Provisions for credit losses are credited to the allowance in an amount that we consider necessary to maintain an appropriate allowance given the risk identified in the portfolio. The allowance is based on ongoing monthly assessments of the estimated losses inherent in the loan portfolio. Our monthly evaluation of the adequacy of the allowance is comprised of the following elements.

Larger commercial loans and any additional loans that exhibit potential or observed credit weaknesses are subject to individual review. Where appropriate, specific allowances are made for individual loans based on our estimate of the borrower’s ability to repay the loan given the availability of collateral, other sources of cash flow and collection options available to us.

Included in the review of individual loans are those that are impaired and we consider all non-accrual and renegotiated loans to be impaired. Any reserves for impaired loans are measured based on the present value of expected future cash flows discounted at the loans’ effective interest rate or fair value of the underlying collateral, if the loan is collateral dependent. We evaluate the collectibility of both principal and interest when assessing the need for loss accrual.

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Loans are graded on a risk-rating system that encompasses seven categories. Collateral protection and the borrower’s ability to repay loan obligations define each category. Historic loss rates and observed industry standards are utilized to determine the appropriate allocation percentage for each loan grade.

Homogenous loans, such as consumer installment or home equity credit, are given a standard risk rating that is adjusted on a delinquency basis. Residential mortgage loans are not individually risk-rated, but are identified as a “pool” of loans. Delinquent mortgage loans are segregated and allowance allocations are determined based on the same factors utilized for risk-rated loans.

An unallocated allowance is maintained to recognize the imprecision in estimating and measuring loss when evaluating reserves for individual loans or pool of loans and to provide for the Company’s exposure to inherent but undetected losses within the overall loan portfolio.

Historical loss rates for commercial and consumer loans may be adjusted for significant factors that, in our judgment, reflect the impact of any current conditions on loss recognition. Factors that we consider in the analysis include the effects of the national and local economies, trends in the nature and volume of loans (delinquencies, charge-offs, non-accrual and problem loans), changes in the internal lending policies and credit standards, collection practices and examination results from bank regulatory agencies and our internal loan reviews.

Allowances for individual loans are reviewed monthly and adjusted as necessary based on changing borrower and/or collateral conditions and actual collection and charge-off experience.

Premises and Equipment. Premises and equipment are stated at cost less accumulated depreciation. The book value of our premises and equipment was adjusted to the fair market value at the closing of the bank acquisition. Depreciation is computed using the straight-line method over the estimated useful lives of the individual assets for book purposes and accelerated methods for tax purposes. Ordinary maintenance and repairs are charged to expense as incurred.

Real Estate Owned. Real estate acquired in foreclosure or other settlement of loans is initially recorded at the lower of fair market value of the assets received (less estimated selling costs) or the recorded investment in the loan at the date of transfer. Any adjustment to fair market value at the date of transfer is charged against the allowance for loan losses. Subsequent write-downs are charged to operating expense including charges relating to operating, holding or disposing of the property.

Goodwill. In 2001, the Financial Accounting Standards Board (FASB) issued two new Statements of Financial Accounting Standards (SFAS), SFAS No. 141, Business Combinations and SFAS No. 142, Goodwill and Other Intangible Assets. The Company adopted these statements in 2001, however, there was no Goodwill on the balance sheet at that time. In 2002, the Company has implemented these statements in conjunction with the purchase of the Bank. In accordance with SFAS No. 142, goodwill deemed to have an indefinite life will no longer be amortized but will be subject to impairment tests in accordance with this statement. In 2003, the Company will perform the required impairment tests of goodwill and will determine if any impairment exists as of the valuation date relative to the fair value of the Company’s net assets compared to the cost basis. If for any future period we determine that there has been impairment

F-35

in the carrying value of our goodwill balances, we will record a charge to our earnings, which could have a material adverse effect on our net income.

The October 2002 acquisition of the Bank resulted in $4.0 million in goodwill that will not be amortized. There were no core deposit intangible assets to be recorded on the acquisition due to the historically low interest rate environment and since the rates being paid on the bank’s deposits plus the related costs associated with servicing the deposits exceeded the cost of alternative funding sources. There were no deferred tax assets recorded as a result of the acquisition. In the unlikely event that there is a future impairment and subsequent write-down in our goodwill, we will not be able to recognize any tax benefit from the impairment recognition.

Income Taxes. Income taxes are accounted for under the liability method, in which deferred income taxes are recognized as a result of temporary differences between the financial reporting basis and the tax basis of our assets and liabilities.

Cash and Cash Equivalents. For purposes of the Combined Statements of Cash Flows, we consider cash and due from banks, federal funds sold and other overnight investments to be cash equivalents. Cash balances in excess of Federal Depositors Insurance Corporation limits at December 31, 2002 were $962,451.

Critical Accounting Policies. We have established various accounting policies, which govern the application of accounting principles generally accepted in the United States of America in the preparation of our financial statements. Our significant accounting policies are described in these footnotes to the Consolidated Financial Statements. Certain accounting policies involve significant judgments and assumptions by management, which have a material impact on the carrying value of certain assets and liabilities; management considers such accounting policies to be critical accounting policies. The judgments and assumptions used by management are based on historical experience and other factors, which are believed to be reasonable under the circumstances. Because of the nature of the judgments and assumptions made by management, actual results could differ from these judgments and estimates, which could have a material impact on the carrying values of assets and liabilities and the results of operations of our company.

We believe the allowance for loan losses is our critical accounting policy that requires the most significant judgments and estimates used in the preparation of our Consolidated Financial Statements. The information included above in this footnote details our estimation processes and methodology related to the allowance for loan losses.

Recently Issued Accounting Pronouncements. In November 2002, the Financial Accounting Standards Board (FASB) issued Interpretation No. 45, Guarantor’s Accounting and Disclosure for Guarantees, Including Indirect Guarantees of Indebtedness of Others (FIN 45). FIN 45 requires certain guarantees to be recorded at fair value and applies to contracts or indemnification agreements that contingently require the guarantor to make payments to the guaranteed party based on changes in an underlying account related to an asset, liability or equity security of the guaranteed party. The recognition requirements of FIN 45 are to be applied prospectively to guarantees issued or modified subsequent to December 31, 2002. FIN 45 also expands the disclosures to be made by guarantors, effective as of December 15, 2002, to include the nature of the guarantee, the maximum potential amount of future payments that the guarantor could be required to make under the guarantee, and the current amount of the liability, if any, for

F-36

the guarantor’s obligation under the guarantee. Guarantees for standby letters of credit entered into by the Company are disclosed in Footnote 15. The Company does not expect the requirements of FIN 45 to have a material impact on its results of operations, financial position or liquidity.

Accounting for Stock-Based Compensation. In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based Compensation – Transition and Disclosure, which provides transition guidance from accounting under APB Opinion No. 25, Accounting for Stock Issued to Employees, to SFAS No. 123’s, Accounting for Stock-Based Compensation, which provides for a fair value method of accounting, if a company elects. We have elected to continue to account for stock-based employee compensation under APB Opinion No. 25.

At December 31, 2002, the Company had a stock-based employee compensation plan, which is described more in Note 13. The Company accounts for those plans under the recognition and measurement principles of APB Opinion No. 25 and related interpretations. No stock option based employee compensation cost is reflected in net income, as all options granted under the plan had an exercise price equal to the market value of the underlying common stock on the date of the grant. The following table illustrates the effect on net income and earnings per share if the company has applied the fair value recognition provisions of SFAS No. 123 to stock option based employee compensation. As discussed in Footnote 2, the fair value of the stock options issued as of December 31, 2002 will reflect the tentative offer by KNK.

	(Dollars in thousands, except per share data)
Net income as reported	$	211
Deduct: Total stock-based employee compensation expense determined under fair value based methods for all awards, net of related tax expense benefit		(7	)
Pro forma net income	$	204
Shares outstanding:
Issued		483,826
Dillutive effect of options outstanding		489
Fully diluted shares		484,315
Earnings per share:
Basic-as reported	$	0.44
Basic-pro forma	$	0.42
Diluted-as reported	$	0.44
Diluted-pro forma	$	0.42

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Note 2: Subsequent Event:

On May 27, 2003, Aviston Financial Corporation and Kankakee Bancorp (KNK) announced a proposed merger of Aviston Financial Corporation with and into Kankakee Bancorp. After the completion of the merger, the name of the company will be Kankakee Bancorp, Inc.

At the same time as or shortly following the merger of Aviston Financial Corporation into KNK, it is proposed that the KNK subsidiary thrift, KFS Bank, F.S.B. be merged into the State Bank of Aviston.

The proposed merger would exchange one share of Aviston Financial Corporation stock for .707 shares of KNK.

The Board of Directors of Aviston Financial Corporation has agreed to allow those employees with options outstanding the chance to exercise their options, as all options outstanding at the time of the merger will be extinguished. The approximate net value after exercise price of $20 per share, to the employee is $7 per share.

Note 3. Acquisition:

On October 23, 2002, we completed the 100% acquisition of Aviston Bancorp, Inc., the 100% parent of the State Bank of Aviston (the Bank). Aviston Bancorp, Inc. ceased operations on the date of the acquisition and was dissolved June 3, 2003. The operations of the Bank are included in our consolidated Statements of Income from the date of acquisition. The acquisition of the Bank will allow our shareholders the opportunity to participate in the unique experience of running a successful community bank and participating in the growth of its operations.

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The following table summarizes the estimated fair market values of the Bank’s unaudited assets and liabilities at the date of the acquisition.

	October 23, 2002
	(In thousands)
Cash and cash equivalents	$	4,338
Investment securities		29,782
Net loans		58,848
Premises and equipment		1,295
Intangible assets		4,000
Other assets		680
Total assets acquired	$	98,943
Deposits	$	85,920
FHLB advances		400
Other liabilities		42
Total liabilities assumed		86,362
Net assets acquired or (liabilities) assumed	$	12,581

The purchase price of the Bank was $12 million. The payment of the purchase was for $8.7 million in cash at close, a non-interest bearing note to the seller of $2.0 million non-interest bearing payable in equal semi-annual installments of $100,000 beginning in April of 2003, and a non-interest bearing escrow account of $1.3 million for repayment to the Bank in the event certain specific loans are charged-off.

The $1.3 million of the original purchase price was placed in escrow as a part of the acquisition of the Bank. The escrow was deemed necessary to cover potential losses on specific loans identified during our pre-acquisition due diligence. The escrow funds are to be held until specific loans have been paid off or restructured. If in the event that these loans result in a charge-off or are restructured to the detriment to the Bank, then the escrowed funds will be returned to us. The funds can then be used to increase the capital of the Bank by offsetting the loan loss provision expense that would be necessary if a loss were to be recognized on these loans.

The Bank was founded in 1909. The Bank’s longevity, community service, and goodwill within the community and outlying areas created goodwill in excess of the fair market value of the Bank’s underlying assets.

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Note 4. Investment Securities:

All of the Company’s investment securities have been classified in the Consolidated Balance Sheet as available for sale with the exception of the Federal Home Loan Bank stock. The following chart summarizes the company’s investment securities at December 31, 2002:

	December 31, 2002
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
	(In thousands)
U.S. government and agency securities	$	19,412	$	137	$	—	$	19,549
State and municipal securities		4,121		16		—		4,137
Mortgage-backed securities		334		—		—		334
Federal Home Loan Bank stock		315		—		—		315
Other securities		3,284		—		—		3,284
Total	$	27,466	$	153	$	—	$	27,619

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

During the 69-day period ending December 31, 2002, the Company sold only one security holding. The Bank’s investments in FarmerMac securities were sold for $11,000. The Company realized gains on the security sale of $9,000.

Investment securities with a carrying value of $6.9 million at December 31, 2002 were pledged to secure public deposits and short-term borrowings as required or permitted by law.

The contractual maturities of securities at December 31, 2002 were as follows:

	December 31, 2002
	Amortized Cost		Fair Value
	(In thousands)
Due in one year or less	$	3,360	$	3,360
Due from one year to five years		13,394		13,481
Due from five years to ten years		10,053		10,119
Due after ten years		—		—
Subtotal		26,807		26,960
Federal Home Loan stock		315		315
Mortgage-backed securities		344		344
Total	$	27,466	$	27,619

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Note 5. Loans:

The components of loans in the Consolidated Balance Sheet were as follows:

	December 31, 2002
	(In thousands)
Commercial	$	7,599
Real estate-construction		2,013
Real estate-mortgage:
One-to four-family residential		20,664
Multi-family and commercial		13,945
Agricultural		9,841
Consumer and other		8,079
Total loans		62,141
Allowance for loan losses		(1,264	)
Net loans	$	60,877

An analysis of the change in the allowance for loan losses follows:

	(In thousands)
Beginning balance October 24, 2002	$	—
Purchase of Bank		1,263
Loan value activity
Loans charged off		(89	)
Recoveries		38
Net loans charged off		(51	)
Provision for loan loss		52
Ending balance December 31, 2002	$	1,264

We believe that our allowance for loan losses is adequate relative to the inherent risk in our loan portfolio and in conjunction with the loan escrow held by the Parent Company. In reviewing the adequacy of allowance of loan losses, we considered the factors described in Note 1 to these consolidated financial statements as well as our loan growth and our strategic intention to increase the amount of larger commercial real estate loans.

The recorded investment in loans that were considered to be impaired was $38,000 at December 31, 2002, all of which have had the accrual of interest discontinued. The related allowance for these impaired loans was $25,000. Interest income that would have been recognized for non-accrual loans and cash basis income on non-accrual loans was not significant in 2002. Other real estate owned and foreclosed assets were $22,700 at December 31, 2002.

Our subsidiary bank and we have entered into transactions with our directors, significant shareholders and affiliates (related parties). Such transactions were made in the ordinary course of

F-41

business on substantially the same terms and conditions, including interest rates and collateral, as those prevailing at the same time for comparable transactions with other customers and did not, in the opinion of management, involve more than normal credit risk or present other unfavorable features. The aggregate amount of loans outstanding to such related parties at December 31, 2002, totaled $387,000. In addition, there were unfunded loan commitments to related parties of $900,000 at December 31, 2002. During 2002, $197,000 of new loans and $118,000 of repayments were made on related party loans. As of December 31, 2002, no related party loans were past due 30 days or more.

Note 6. Premises and Equipment:

Components of premises and equipment as of December 31, 2002 were as follows:

	December 31, 2002
	(In thousands)
Land	$	90
Bank premises		1,146
Furniture and equipment		62
Total cost		1,298
Less accumulated depreciation		(14	)
Net book value	$	1,284

At December 31, 2002, we do not have any material leases on any premises or equipment.

Note 7. Goodwill:

Our goodwill of $4 million from the acquisition on October 23, 2002 of our subsidiary bank, and in accordance with guidance of SFAS 142, this goodwill will not be amortized but will be subject to annual impairment tests. There was no deferred tax assets recorded as a result of the recognition of goodwill. In the unlikely event that there is a future impairment and subsequent write-down in our goodwill, we will not be able to recognize any tax benefit from the impairment recognition.

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Note 8. Deposits:

Deposits consisted of the following:

	December 31, 2002
	(In thousands)
Non interest-bearing	$	7,852
Interest-bearing demand		7,135
Money market accounts		8,712
Savings		8,456
Time and IRA certificates under $100,000		44,180
Total core deposits		76,335
Time and IRA certificates over $100,000		6,499
Total deposits	$	82,834

Amounts and Maturities of Certificates of Deposit

	December 31, 2002
	(In thousands)
Due in one year or less	$	30,129
Due from one year to three years		17,142
Due from three years to five years		3,408
Due after five years		—
Total	$	50,679

Note 9. Income Taxes:

Our results include income tax expense (benefit) as follows:

	Period Ended December 31, 2002
	(In thousands)
Current
Federal	$	151
State and local		2
Deferred		—
Total	$	153

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The tax effects of temporary differences that gave rise to the net deferred tax liability of $481,552 at December 31, 2002 is presented below:

	(In thousands)
Deferred tax assets:
Allowance for loan losses	$	161
Purchase accounting adjustment related to deposit liabilites purchased		300
Total deferred tax assets		461
Deferred tax liabilities
Depreciation (Includes purchase price accounting)		(380	)
Purchase accounting adjustment related to security valuations		(330	)
Investments in debt and equity securities		(64	)
Section 481(a) adjustment on accrual converion		(13	)
Other		(117	)
Total deferred tax liabilities		(904	)
Net deferred tax liability	$	(443	)

A valuation allowance would be provided on deferred tax assets when it is more likely than not that some portion of the assets will not be realized. We had not established a valuation allowance as of December 31, 2002, due to management’s belief that all criteria for recognition had been met, including the existence of a history of taxes paid sufficient to support the realization of the deferred tax assets.

Income tax expense as reported differs from the amounts computed by applying the statutory federal income tax rate to pre-tax income as follows:

	Period Ended December 31, 2002
	(In thousands)
Computed expected tax expense	$	165
Tax-exempt income		(12	)
Total income tax expense	$	153

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Note 10. Notes payable:

Notes payable were as follows at year-end:

	December 31, 2002
	(In thousands)
Bank loan	$	625
Note payable		2,000
Total notes payable	$	2,625

The Bank loan with Union Planters Bank is a $2 million revolving line of credit with interest due quarterly at a floating rate equal to prime less 0.25%. Under the terms of the current notes payable to bank, we and/or our subsidiaries are required to maintain certain financial ratios and are limited with respect to cash dividends, capital expenditures and the incurrence of additional indebtedness without prior approval.

The $2 million note payable is due to the shareholders of Aviston Bancorp, from whom we bought the Bank. The note is for a ten-year term with no separately stated or payable interest. The note is payable in twenty semi-annual installments of $100,000 each, the first such payment being due on April 23, 2003. This note is backed by a letter of credit issued by an unaffiliated bank for the benefit of Aviston Bancorp’s shareholders.

Note 11. Federal Home Loan Bank Advances:

Federal Home Loan Bank (FHLB) advances consisted of the following at year-end:

	December 31, 2002
	(In thousands)
Notes payable to FHLB, interest payable monthly at rates of 5.85% and 5.97%, principal balance due at maturity of April 1, 2003 and April 1, 2005, secured by stock in FHLB and certain loans	$	400

A summary of projected annual principal reductions of Federal Home Loan Bank advances as of December 31, 2002 is as follows:

Year	Annual Principal Reductions
	(In thousands)
2003	$	200
2004		—
2005		200
Total	$	400

F-45

As collateral for the Federal Home Loan Bank advances, State Bank of Aviston has entered into a blanket agreement that pledges first mortgage loans, commercial real estate loans and specific investment securities with advance rates of 135%, 175% and 105%, respectively, of the collateral. As of December 31, 2002, the Bank had pledged $400,000 of securities to fully collateralize its borrowings.

Note 12. Employee Benefits:

We have a profit sharing plan in effect for substantially all full-time employees. Salaries and employee benefits expense included $20,319 and $4,000 for the period ended October 23, 2002 and December 31, 2002 respectively for such plan. Contributions under the profit sharing plan are made at the discretion of our management and Board of Directors and therefore will never become an un-funded liability.

Note 13. Stock Option Plan:

Subsequent to the acquisition we began offering a stock option plan to our directors and certain of our key employees. Our shareholders approved the plan for the issuance of options to purchase 75,000 shares of our common stock as a part of our private placement offering completed in 2002 to acquire the Bank. Options are granted, by action of our Board of Directors, to acquire stock at no less than 100% of fair market value at the date of the grant, for a term of up to ten years.

At December 31, 2002, 59,000 shares remained available for option grants under this program. The following table summarizes option activity to date and the current options outstanding and exercisable:

	Period Ended December 31, 2002
	Shares	Weighted- Average Option Price
Outstanding, beginning of period	—		—
Granted	16,000	$	20.00
Exercised	—		—
Canceled	—		—
Outstanding, end of year	16,000	$	20.00

Since the options were issued at the same time and price as the closing of the offering, weighted-average fair value of options granted during the year were not significantly more than the issuance price. The Company’s common stock is not actively traded on any exchange. Accordingly, the availability of fair value information for the Company’s common stock is limited.

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Note 14. Concentrations of Credit:

Substantially all of our loans, commitments and commercial and standby letters of credit have been granted to customers that are customers of our subsidiary bank in our market area and we are thereby subject to this significant concentration of credit risk. The concentrations of credit by type of loan are set forth in Note 5. The distribution of commitments to extend credit approximates the distribution of loans outstanding. Commercial and standby letters of credit were granted primarily to commercial borrowers. Investments in state and municipal securities also involve governmental entities within our market area.

Note 15. Financial Instruments:

We are a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of our customers. These financial instruments include commitments to extend credit, standby letters of credit and financial guarantees. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the Consolidated Balance Sheets. The contract or notional amounts of these instruments reflect the extent of our involvement in particular classes of financial instruments.

Our exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit, standby letters of credit and financial guarantees written is represented by the contractual or notional amount of those instruments. We use the same credit policies in making commitments and conditional obligations as we do for on-balance sheet instruments.

A summary of the unaudited notional amounts of our financial instruments with off-balance sheet risk at December 31, 2002 follows:

	December 31, 2002
	(In thousands)
Commitments to extend credit	$	2,088
Standby letters of credit		90

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. We evaluate each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if it is deemed necessary by the bank upon extension of credit, is based on management’s credit evaluation of the counterparties. Collateral held varies but may include accounts receivable, inventory, property, plant, equipment and real estate.

Standby letters of credit and financial guarantees written are conditional commitments issued by our bank to guarantee the performance of a customer to a third party. Those guarantees

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are primarily issued to support contractual obligations of our customers. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers.

The carrying amount and unaudited estimated fair values of our financial instruments were as follows:

	December 31, 2002
	Carrying Amount		Fair Value (Unaudited)
	(In thousands)
Financial Assets:
Cash and due from banks, federal funds sold and other overnight investments	$	2,059	$	2,059
Securities available-for-sale		27,619		27,619
Loans, net of allowance		60,877		61,627
Accrued interest receivable		565		565
Financial Liabilities:
Deposits	$	82,834	$	82,377
Notes payable		2,625		2,200
Federal Home Loan Bank advances		400		365
Accrued interest payable		295		295

We used the following methods and assumptions in estimating fair values of financial instruments as disclosed herein:

Cash and Short-Term Instruments: The carrying amounts of cash and due from banks and federal funds sold approximate their fair value.

Securities: Fair values for available-for-sale securities are based on quoted market prices or dealer quotes, where available. If quoted market prices are not available for a specific security, fair values are based on quoted market prices of comparable instruments.

Loans: For variable-rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values. The fair values for fixed-rate loans are estimated using discounted cash flow analyses and applying interest rates currently being offered for loans with similar terms to borrowers of similar credit quality. The fair values for nonperforming loans are estimated using assumptions regarding current assessments of collectibility and historical loss experience.

Deposits: The fair values disclosed for deposits generally payable on demand, such as non interest-bearing checking accounts, savings accounts, NOW accounts and market rate deposit accounts, are by definition, equal to the amount payable on demand at the reporting date. The carrying amounts for variable-rate, fixed-term market rate deposit accounts and certificates of deposit approximate their fair values at the reporting date. Fair values for fixed-rate certificates of

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deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates of similar remaining maturities to a schedule of aggregated monthly maturities on time deposits.

Notes Payable: The carrying amounts of notes payable are estimated using discounted cash flow analyses and applying interest rates currently being offered for loans with similar terms.

Federal Home Loan Debt: The fair values of our Federal Home Loan Bank advances are based on estimates using discounted cash flow analyses, based on our current incremental borrowing rates for similar types of debt instruments.

Off-Balance Sheet Financial Instruments: The fair values of commitments to extend credit and standby letters of credit are estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements, the likelihood of the counter parties drawing on such financial instruments and the present creditworthiness of such counter parties. We believe such commitments have been made on terms which are competitive in the markets in which we operate; however, no premium or discount is offered thereon and accordingly, we have assigned a fair value of such instruments which equals carrying value for the purposes of this disclosure.

Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time our entire holdings of a particular financial instrument. Because no market exists for a significant portion of our financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

Fair value estimates are based on existing on- and off-balance sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. In addition, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in many of the estimates.

Note 16. Regulatory Matters:

Our subsidiary bank and we are subject to various regulatory capital requirements administered by federal and state banking agencies. Failure to meet minimum capital requirements can result in mandatory, and possibly additional discretionary actions by regulators that, if undertaken, could have a direct, material effect on our financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, we and our subsidiary bank must meet specific capital guidelines that involve quantitative measures of our and the bank’s assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. We and our subsidiary bank’s capital amounts and classifications also are

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subject to qualitative judgments by the regulators about components, risk weightings and other factors.

Quantitative measures established by regulators to ensure capital adequacy require our subsidiary bank to maintain minimum amounts and ratios (set forth in the table below) of total and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier 1 capital (as defined) to average assets (as defined). Management believes that, as of December 31, 2002, our subsidiary bank met all applicable capital adequacy requirements. Since our consolidated assets are less than $150 million, our regulators monitor the capital adequacy of our subsidiary bank and do not measure our holding company’s capital adequacy.

The actual and required capital amounts and ratios as of December 31, 2002, for the State Bank of Aviston are listed in the following table:

	Actual				For Capital Adequacy Purposes				To Be Well Capitalized Under Prompt Corrective Action Provisions
	Amount		Ratio		Amount		Ratio		Amount		Ratio
	(Dollars in thousands)
As of December 31, 2002:
Total Capital (to Risk-Weighted Assets)	$	9,313	15.36	%	$	4,836	8.00	%	$	6,046	10.00	%
Tier 1 Capital (to Risk-Weighted Assets)		8,551	14.11			2,418	4.00			3,627	6.00
Tier 1 Capital (to Average Assets)		8,551	9.15			3,740	4.00			4,675	5.00

Note 17. Parent Company Condensed Financial Information:

Following are the condensed financial statements for Aviston Financial Corporation (parent company only) for the period indicated:

Balance Sheet

	December 31, 2002
	(In thousands)
Assets:
Cash and cash equivalents	$	41
Investment in subsidiary		12,643
Total assets	$	12,684
Liabilities and shareholders’ equity:
Notes payable	$	2,625
Other liabilities		80
Total liabilities		2,705
Total shareholders’ equity		9,979
Total liabilities and shareholders’ equity	$	12,684

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Statement of Income

	69 Days Ended December 31, 2002
	(In thousands)
Income:
Total income	$	—
Expenses:
Interest on debt		10
Other operating expenses		8
Total expenses		18
Loss before income tax benefit and equity in undistributed income of subsidiary		(18	)
Income tax benefit		—
Loss before equity in undistributed income of subsidiary		(18	)
Equity in undistributed income of subsidiary		229
Net income	$	211

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Statement of Cash Flows

	69 Days Ended December 31, 2002
	(In thousands)
Operating Activities:
Net income	$	211
Adjustment to reconcile net income to net cash used in operating activities:
Net income of subsidiary		(229	)
Other, net		10
Cash used in operating activities		(8	)
Investing Activities:
Net cash paid on the purchase of subsidiary		(10,253	)
Issuance of note payable		(2,000	)
Cash (used in) investing activities		(12,253	)
Financing Activities:
Proceeds from issuance of common stock		9,677
Net increase in borrowings		2,625
Cash provided by financing activities		12,302
Net increase in cash and cash equivalents		41
Cash and cash equivalents, beginning of period		—
Cash and cash equivalents, end of year	$	41

Note 18. Restrictions on Subsidiary Dividends:

Dividends from our subsidiary bank are the principal source of funds for payment of dividends by us to our shareholders. The payment of dividends by our subsidiary bank is subject to regulation by the Federal Deposit Insurance Corporation and the Illinois Commissioner of Banks. These payments are not restricted as to the amount of dividends that can be paid, other than what prudent and sound banking principles permit and what must be retained to meet minimum legal capital requirements. Accordingly, approximately $605,000 at December 31, 2002, in addition to net income in 2003, could be paid without prior regulatory approval.

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CONSOLIDATED BALANCE SHEET

MARCH 31, 2003

(UNAUDITED)

	March 31, 2003
	(In thousands)
Assets:
Cash and due from banks	$	1,794
Federal funds sold		2,713
Investment securities:
Available-for-sale (at estimated market value)		20,702
Loans, net of allowance for loan losses of $1,397		65,600
Premises and equipment		1,301
Accrued interest and other assets		1,066
Cost in excess of fair value of net assets acquired		4,000
Total assets	$	97,176
Liabilities and shareholders’ equity:
Deposits:
Non interest-bearing	$	5,845
Interest-bearing		66,463
Certificates of deposit over $100,000		6,720
Total deposits		79,028
Federal Home Loan Bank advances		4,388
Notes payable		2,625
Accrued expenses and other liabilities		669
Total liabilities		86,710
Shareholders’ equity:
Common stock, $10 par value—authorized 750,000 shares; issued and outstanding 483,826 shares		4,838
Capital surplus		4,838
Retained earnings		590
Accumulated other comprehensive income		200
Total shareholders’ equity		10,466
Total liabilities and shareholders’ equity	$	97,176

See accompanying notes to consolidated financial statements.

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CONSOLIDATED STATEMENT OF INCOME

FOR THE THREE MONTHS ENDED MARCH 31, 2003

(UNAUDITED)

	March 31, 2003
	(In thousands)
Interest income:
Interest and fees on loans	$	1,084
Investment securities		313
Federal funds sold		3
Total interest income		1,400
Interest expense:
Deposits		534
Borrowings		37
Total interest expense		571
Net interest income		829
Provision for loan losses		142
Net interest income after provision for loan losses		687
Non-interest income:
Service charges on deposits		31
Net gain on sale of loans and securities		177
Other income		6
Total non-interest income		214
Non-interest expense:
Salaries and employee benefits		202
Occupancy		22
Telephone and postage		12
Furniture and equipment		12
Data processing expense		25
Other expense		73
Total non-interest expense		346
Income before income taxes		555
Provision for income taxes		176
Net income	$	379

See accompanying notes to consolidated financial statements.

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CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY

FOR THE THREE MONTHS ENDED MARCH 31, 2003

(UNAUDITED)

	Common Stock			Capital Surplus		Retained Earnings		Comprehensive Income(Loss)		Accumulated Other Shareholders’ Equity		Total Comprehensive Income
	Shares	Par
	(Dollars in thousands)
Balance December 31, 2002	483,826	$	4,838	$	4,838	$	211	$	92	$	9,676
Net income	—		—		—		379		—		379	$	379
Change in net unrealized gain on available-for-sale securities, net of tax	—		—		—		—		108		108		108
Comprehensive income												$	487
Cash dividends declared	—		—		—		—		—		—
Balance March 31, 2003	483,826	$	4,838	$	4,838	$	590	$	200	$	10,466

See accompanying notes to consolidated financial statements.

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CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE THREE MONTHS ENDED MARCH 31, 2003

(UNAUDITED)

	(In thousands)
Operating Activities
Net income	$	379
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		15
Provision for loan loss		133
Other changes in assets and liabilities:
Accrued interest receivable		40
Other assets		8
Accrued interest payable		(26	)
Other accrued liabilities		(33	)
Other assets (Holding Company)		(6	)
Cash provided (used) by operating activities		509
Investing Activities:
Proceeds from sales and maturities of securities		5,907
Loans made to customers, net of repayments		(4,856	)
Additions to premises and equipment, net		(32	)
Net purchase accounting adjustments		—
Goodwill from purchase of subsidiary		—
Cash provided (used) by investing activities		1,019
Financing Activities:
Net (decrease) increase in deposits		(3,068	)
Net (decrease) increase in short-term borrowings		3,988
Cash (used) provided by financing activities		920
Net (decrease) increase in cash and cash equivalents		2,448
Cash and cash equivalents, beginning of year		2,059
Cash and cash equivalents, end of year	$	4,507
Supplemental information:
Cash paid for interest expense	$	597
Cash paid for income taxes	$	245

See accompanying notes to consolidated financial statements.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Accounting Policies:

Basis of Presentation. The accompanying Consolidated Financial Statements include the accounts of Aviston Financial Corporation and its subsidiaries, Aviston Bancorp, Inc. and its subsidiary State Bank of Aviston. The financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and reporting practices applicable to the banking industry. All significant intercompany transactions and balances have been eliminated. The significant accounting policies are summarized below.

All amounts disclosed in schedules and not within the footnote itself are in thousands. Balances referenced within the footnote are rounded to whole dollars unless otherwise noted.

Business. Our bank subsidiary, State Bank of Aviston, operates within one segment, the banking industry, and provides a full range of banking services to individual and corporate customers primarily in the immediate area surrounding Aviston, Illinois as well as to customers in the greater St. Louis, Missouri metropolitan area. Our bank is subject to intense competition from other financial institutions. Our bank is also subject to the regulations of certain federal and state agencies and undergoes periodic examinations by those regulatory authorities.

Aviston Bancorp, Inc. is the original holding company owner of State Bank of Aviston. Created in 1972 to allow greater flexibility in raising capital for the Bank, Aviston Bancorp, Inc. was dissolved on June 3, 2003. There was no tax affect to the dissolution.

Accounting Estimates. The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from estimates.

Comprehensive Income. Accounting principles generally require that recognized revenue, expenses, gains and losses be included in net income. Although certain changes in assets and liabilities, such as unrealized gains and losses on available-for-sale securities, are reported as a separate component of the equity section of the balance sheet, such items, along with net income, are components of comprehensive income.

Investment Securities. Securities may be classified as held-to-maturity or available-for-sale. Only those securities which management has the intent and ability to hold to maturity are classified as held-to-maturity and are reported at amortized cost. Securities that are purchased with the intent to hold for an indefinite period of time, including securities that management intends to use as part of its asset/liability strategy or that may be sold to meet liquidity needs, are classified as available-for-sale securities. Available-for-sale securities are reported at fair value with unrealized gains and losses, net of related deferred income taxes, reported in other comprehensive income. Interest and dividends on securities, including amortization of premium and accretion of discounts, are reported in interest income using the interest method. Realized securities gains or losses are reported in the Consolidated Statements of Income. Gains and losses

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on securities are determined based on the specific identification method. As of March 31, 2003, all of our investment securities that are being used in our asset/liability strategy were classified as available-for-sale.

Loans. Interest income on loans is generally accrued on a simple interest basis. Loan fees charged by the bank represent an estimate of direct out-of-pocket costs associated with the loan and therefore have not been capitalized by the Bank. Loan fees and direct costs of loan originations during the period ended March 31, 2003 were immaterial and recorded as the income was received or the expense was incurred.

When, in management’s opinion, interest on a loan will not be collected in the normal course of business or when either principal or interest is past due over 90 days, that loan is generally placed on non-accrual status. When a loan is placed on non-accrual status, accrued interest for the current year is reversed and charged against current earnings, and accrued interest from prior years is charged against the allowance for loan losses. Interest payments received on non-accrual loans are applied to principal if there is doubt as to the collectibility of such principal; otherwise, these receipts are recorded as interest income. A loan remains on non-accrual status until the loan is current as to payment of both principal and interest and/or the borrower demonstrates the ability to pay and remain current.

Allowance for Loan Losses. We maintain an allowance to absorb losses inherent in the loan portfolio. Credit losses are charged and recoveries are credited to the allowance. Provisions for credit losses are credited to the allowance in an amount that we consider necessary to maintain an appropriate allowance given the risk identified in the portfolio. The allowance is based on ongoing monthly assessments of the estimated losses inherent in the loan portfolio. Our monthly evaluation of the adequacy of the allowance is comprised of the following elements.

Larger commercial loans and any additional loans that exhibit potential or observed credit weaknesses are subject to individual review. Where appropriate, specific allowances are made for individual loans based on our estimate of the borrower’s ability to repay the loan given the availability of collateral, other sources of cash flow and collection options available to us.

Included in the review of individual loans are those that are impaired and we consider all non-accrual and renegotiated loans to be impaired. Any reserves for impaired loans are measured based on the present value of expected future cash flows discounted at the loans’ effective interest rate or fair value of the underlying collateral, if the loan is collateral dependent. We evaluate the collectibility of both principal and interest when assessing the need for loss accrual.

Loans are graded on a risk-rating system that encompasses seven categories. Collateral protection and the borrower’s ability to repay loan obligations define each category. Historic loss rates and observed industry standards are utilized to determine the appropriate allocation percentage for each loan grade.

Homogenous loans, such as consumer installment or home equity credit, are given a standard risk rating that is adjusted on a delinquency basis. Residential mortgage loans are not individually risk-rated, but are identified as a “pool” of loans. Delinquent mortgage loans are segregated and allowance allocations are determined based on the same factors utilized for risk-rated loans.

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An unallocated allowance is maintained to recognize the imprecision in estimating and measuring loss when evaluating reserves for individual loans or pool of loans and to provide for the Company’s exposure to inherent but undetected losses within the overall loan portfolio.

Historical loss rates for commercial and consumer loans may be adjusted for significant factors that, in our judgment, reflect the impact of any current conditions on loss recognition. Factors that we consider in the analysis include the effects of the national and local economies, trends in the nature and volume of loans (delinquencies, charge-offs, non-accrual and problem loans), changes in the internal lending policies and credit standards, collection practices and examination results from bank regulatory agencies and our internal loan reviews.

Allowances for individual loans are reviewed monthly and adjusted as necessary based on changing borrower and/or collateral conditions and actual collection and charge-off experience.

Premises and Equipment. Premises and equipment are stated at cost less accumulated depreciation. The book value of our premises and equipment was adjusted to the fair market value at the closing of the bank acquisition. Depreciation is computed using the straight-line method over the estimated useful lives of the individual assets for book purposes and accelerated methods for tax purposes. Ordinary maintenance and repairs are charged to expense as incurred.

Real Estate Owned. Real estate acquired in foreclosure or other settlement of loans is initially recorded at the lower of fair market value of the assets received (less estimated selling costs) or the recorded investment in the loan at the date of transfer. Any adjustment to fair market value at the date of transfer is charged against the allowance for loan losses. Subsequent write-downs are charged to operating expense including charges relating to operating, holding or disposing of the property.

Goodwill. In 2002, the Company implemented Financial Accounting Standards Board Statement of Financial Accounting Standards (SFAS) No. 141, Business Combinations and SFAS No. 142, Goodwill and Other Intangible Assets. In accordance with SFAS No. 142, goodwill deemed to have an indefinite life will no longer be amortized but will be subject to impairment tests in accordance with this statement. In 2003, the Company will perform the required impairment tests of goodwill and will determine if any impairment exists as of the valuation date relative to the fair value of the Company’s net assets compared to the cost basis. If for any future period we determine that there has been impairment in the carrying value of our goodwill balances, we will record a charge to our earnings, which could have a material adverse effect on our net income.

The October 2002 acquisition of the Bank resulted in $4.0 million in goodwill that will not be amortized. There were no core deposit intangible assets to be recorded on the acquisition due to the historically low interest rate environment and since the rates being paid on the bank’s deposits plus the related costs associated with servicing the deposits exceeded the cost of alternative funding sources. There were no deferred tax assets recorded as a result of the goodwill. In the unlikely event that there is a future impairment and subsequent write-down in our goodwill, we will not be able to recognize any tax benefit from the impairment recognition.

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Income Taxes. Income taxes are accounted for under the liability method, in which deferred income taxes are recognized as a result of temporary differences between the financial reporting basis and the tax basis of our assets and liabilities.

Cash and Cash Equivalents. For purposes of the Combined Statements of Cash Flows, we consider cash and due from banks, federal funds sold and other overnight investments to be cash equivalents. There were 91 cash balances in excess of Federal Depositors Insurance Corporation limits at March 31, 2003 totaling $17,319,000.

Recently Issued Accounting Pronouncements. In November 2002, the Financial Accounting Standards Board (FASB) issued Interpretation No. 45, Guarantor’s Accounting and Disclosure for Guarantees, Including Indirect Guarantees of Indebtedness of Others (FIN 45). FIN 45 requires certain guarantees to be recorded at fair value and applies to contracts or indemnification agreements that contingently require the guarantor to make payments to the guaranteed party based on changes in an underlying account related to an asset, liability or equity security of the guaranteed party. The recognition requirements of FIN 45 are to be applied prospectively to guarantees issued or modified subsequent to December 31, 2002. FIN 45 also expands the disclosures to be made by guarantors, effective as of December 15, 2002, to include the nature of the guarantee, the maximum potential amount of future payments that the guarantor could be required to make under the guarantee, and the current amount of the liability, if any, for the guarantor’s obligation under the guarantee. Guarantees for standby letters of credit entered into by the Company are disclosed in Footnote 14. The Company does not expect the requirements of FIN 45 to have a material impact on its results of operations, financial position or liquidity.

Critical Accounting Policies. We have established various accounting policies, which govern the application of accounting principles generally accepted in the United States of America in the preparation of our financial statements. Our significant accounting policies are described in these footnotes to the Consolidated Financial Statements. Certain accounting policies involve significant judgments and assumptions by management, which have a material impact on the carrying value of certain assets and liabilities; management considers such accounting policies to be critical accounting policies. The judgments and assumptions used by management are based on historical experience and other factors, which are believed to be reasonable under the circumstances. Because of the nature of the judgments and assumptions made by management, actual results could differ from these judgments and estimates, which could have a material impact on the carrying values of assets and liabilities and the results of operations of our company.

We believe the allowance for loan losses is our critical accounting policy that requires the most significant judgments and estimates used in the preparation of our Consolidated Financial Statements. The information included above in this footnote details our estimation processes and methodology related to the allowance for loan losses.

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Note 2. Investment Securities:

All of the Company’s investment securities have been classified in the Consolidated Balance Sheet as available for sale with the exception of the Federal Home Loan Bank stock. The following chart summarizes the company’s investment securities at March 31, 2003:

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
	(In thousands)
U.S. government and agency securities	$	16,542	$	163	$	—	$	16,705
State and municipal securities		3,619		171		—		3,790
Mortgage-backed securities		99		—		—		99
Federal Home Loan Bank stock		320		—		—		320
Other securities		108		—		—		108
Total	$	20,688	$	334	$	—	$	21,022

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

Proceeds from the sale of securities by the Company during the period ended March 31, 2003 were $3,022,000. Investment securities with a carrying value of $5.1 million at March 31, 2003 were pledged to secure public deposits and short-term borrowings as required or permitted by law.

The contractual maturities of securities at March 31, 2003 were as follows:

	Amortized Cost		Fair Value
	(In thousands)
Due in one year or less	$	2,501	$	2,501
Due from one year to five years		9,956		10,136
Due from five years to ten years		7,704		7,858
Due after ten years		—		—
Subtotal		20,161		20,495
Federal Home Loan stock		320		320
Mortgage-backed securities		99		99
Mutual funds		108		108
Total	$	20,688	$	21,022

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Note 3. Loans:

The components of loans in the Consolidated Balance Sheets as of March 31, 2003 were as follows:

	Cost
	(In thousands)
Commercial	$	8,130
Real estate-construction		1,647
Real estate-mortgage:
One—to four-family residential		20,530
Multi-family and commercial		21,255
Agricultural		6,983
Consumer and other		8,452
Total loans		66,997
Allowance for loan losses		(1,397	)
Net loans	$	65,600

An analysis of the change in the allowance for loan losses follows:

	(In thousands)
Ending balance December 31, 2002	$	1,264
Loans charged off		(19	)
Recoveries		10
Net loans charged off		(9	)
Provision for loan loss		142
Ending balance March 31, 2003	$	1,397

In addition to the Bank’s allowance for loan losses of $1,397,000, $1.3 million of the original purchase price was placed in escrow as a part of the acquisition of the Bank. The escrow was deemed necessary to cover potential losses on specific loans identified during our pre-acquisition due diligence. As of March 31, 2003, none of the specific loans had been charged off, however, two loans have been identified subsequent to that date, which will be restructured and charged-off. The escrow funds will be utilized to reimburse the Bank for these write-offs.

We believe that our allowance for loan losses is adequate relative to the inherent risk in our loan portfolio. In reviewing the adequacy of allowance of loan losses, we considered the factors described in Note 1 to these consolidated financial statements as well as our loan growth and our strategic intention to increase the amount of larger commercial real estate loans.

The recorded investment in loans that were considered to be impaired was $134,000 at March 31, 2003, all of which have had the accrual of interest discontinued. The related allowance for these impaired loans was $87,000. Interest income that would have been recognized for non-accrual loans and cash basis income on non-accrual loans was not significant in 2003.

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As of March 31, 2003, the Bank did not have any other real estate owned and foreclosed.

Our subsidiary bank and we have entered into transactions with our directors, significant shareholders and affiliates (related parties). Such transactions were made in the ordinary course of business on substantially the same terms and conditions, including interest rates and collateral, as those prevailing at the same time for comparable transactions with other customers and did not, in the opinion of management, involve more than normal credit risk or present other unfavorable features. The aggregate amount of loans outstanding to such related parties at March 31, 2003, totaled $350,000. In addition, there were unfunded loan commitments to related parties of $900,000 at March 31, 2003. During 2003 no new loans have been made to related parties. As of March 31, 2003, no related party loans were past due 30 days or more.

Note 4. Premises and Equipment:

Components of premises and equipment, net of accumulated depreciation were as follows as of March 31, 2003:

	(In thousands)
Land	$	90
Bank premises		1,152
Furniture and equipment		59
Net book value	$	1,301

At March 31, 2003, we do not have any material leases on any premises or equipment.

Note 5. Goodwill:

Goodwill of $4 million was booked as a result of the acquisition on October 23, 2002 of our subsidiary bank. No event has occurred which would leave us to believe that impairment in the goodwill has occurred. We anticipate subjecting the goodwill to impairment tests in the third quarter of the current year. In the unlikely event that there is a future impairment and subsequent write-down in our goodwill, we will not be able to recognize any tax benefit from the impairment recognition.

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Note 6. Deposits:

Deposits consisted of the following at March 31, 2003:

	(In thousands)
Non interest-bearing	$	5,845
Interest-bearing demand		4,727
Money market accounts		10,584
Savings		8,852
Time and IRA certificates under $100,000		42,300
Total core deposits		72,308
Time and IRA certificates over $100,000		6,720
Total deposits	$	79,028

Amounts and Maturities of Certificates of Deposit at March 31, 2003 were as follows:

	(In thousands)
Due in one year or less	$	29,388
Due from one year to three years		16,025
Due from three years to five years		3,607
Due after five years		—
Total	$	49,020

Note 7. Income Taxes:

Our results include income tax expense (benefit) as follows for the period ending March 31, 2003:

	(In thousands)
Current
Federal	$	185
State and local		21
Deferred		(30	)
Total	$	176

The tax effects of temporary differences that gave rise to the net deferred tax liability of $230,000 at March 31, 2003 was primarily related to non-deductible purchase price adjustments to pre-acquisition book balances.

A valuation allowance would be provided on deferred tax assets when it is more likely than not that some portion of the assets will not be realized. We had not established a valuation allowance as of March 31, 2003, due to management’s belief that all criteria for recognition had been met, including the existence of a history of taxes paid sufficient to support the realization of the deferred tax assets.

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Note 8. Notes payable:

Notes payable were as follows at March 31, 2003:

	(In thousands)
Bank loan	$	625
Note payable		2,000
Total notes payable	$	2,625

The Bank loan is a $2 million revolving line of credit with interest due quarterly at a floating rate equal to prime less 0.25%. Under the terms of the current notes payable to bank, we and/or our subsidiaries are required to maintain certain financial ratios and are limited with respect to cash dividends, capital expenditures and the incurrence of additional indebtedness without prior approval.

The $2 million note payable is due to the shareholders of Aviston Bancorp, from whom we bought the Bank. The note is for a ten-year term with no separately stated or payable interest. The note is payable in twenty semi-annual installments of $100,000 each, the first such payment was paid on April 23, 2003. This note is backed by a letter of credit issued by an unaffiliated bank for the benefit of Aviston Bancorp’s shareholders.

Note 9. Federal Home Loan Bank Advances:

Federal Home Loan Bank (FHLB) advances consisted of the following at March 31, 2003:

	(In thousands)
Notes payable to FHLB, interest payable monthly at rates of 5.85% and 5.97%, principal balance due at maturity of April 1, 2003 and April 1, 2005, secured by stock in FHLB and certain loans	$	4,388

A summary of projected annual principal reductions of Federal Home Loan Bank advances as of March 31, 2003 is as follows:

Year	Annual Principal Reductions
	(In thousands)
2003	$	200
2004		—
2005		4,188
Total	$	4,388

As collateral for the Federal Home Loan Bank advances, State Bank of Aviston has entered into a blanket agreement that pledges first mortgage loans, commercial real estate loans

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and specific investment securities with advance rates of 135%, 175% and 105%, respectively, of the collateral. Because of the economic advantage of utilizing this form of borrowing the Bank will undergo loan collateral examination testing in support of their blanket pledge of loans in the third quarter of the year.

Note 10. Employee Benefits:

We have a profit sharing plan in effect for substantially all full-time employees. Salaries and employee benefits expense included $6,096 for the period ended March 31, 2003 for the plan. Contributions under the profit sharing plan are made at the discretion of our management and Board of Directors and therefore will never become an un-funded liability.

Note 11. Stock Option Plans:

Subsequent to the acquisition we began offering a stock option plan to our directors and certain of our key employees. Our shareholders approved the plan for the issuance of options to purchase 75,000 shares of our common stock as a part of our private placement offering completed in 2002 to acquire the Bank. Options are granted, by action of our Board of Directors, to acquire stock at no less than 100% of fair market value at the date of the grant for a term of up to ten years.

At March 31, 2003, 45,000 shares were issued and outstanding and 30,000 shares remained available for issuance under this program.

In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based Compensation-Transition and Disclosure, which provides transition guidance from accounting under APB Opinion No. 25, Accounting for Stock Issued to Employees, to SFAS No. 123, Accounting for Stock-Based Compensation, which provides for a fair value method of accounting, if a company elects. We have elected to continue to account for stock-based employee compensation under APB Opinion No. 25. Accordingly, no stock option based employee compensation cost is reflected in net income, as all options granted under our plan had an exercise price equal to the market value of the underlying common stock on the date of the grant.

The following table illustrates the effect on net income and earnings per share if the company applied the fair value recognition provisions of SFAS No. 123 to stock options based employee compensation. The fair market value of the outstanding shares is assumed to be the exercise price on the proposed merger with Kankakee Bancorp or $38.

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	(Dollars in thousands, except per share data)
Net income, as reported	$	379
Deduct: Total stock-based employee compensation expense determined under fair value based methods for all awards, net of related tax expense benefit		(31	)
Pro forma net income	$	348
Shares outstanding:
Issued		483,826
Dilutive effect of options outstanding		3,391
Fully diluted shares		487,217
Earnings per share:
Basic-as reported	$	0.78
Basic-pro forma	$	0.72
Diluted-as reported	$	0.78
Diluted-pro forma	$	0.71

Pursuant to the adoption of the merger agreement with Kankakee Bancorp, any outstanding options to purchase shares of Aviston Financial common stock must be exercised or extinguished prior to the completion of the merger. It is assumed that all options will be exercised prior to the completion of the merger.

Note 12. Concentrations of Credit

Substantially all of our loans, commitments and commercial and standby letters of credit have been granted to customers that are customers of our subsidiary bank in our market area and we are thereby subject to this significant concentration of credit risk. The concentrations of credit by type of loan are set forth in Note 4. The distribution of commitments to extend credit approximates the distribution of loans outstanding. Commercial and standby letters of credit were granted primarily to commercial borrowers. Investments in state and municipal securities also involve governmental entities within our market area.

Note 13. Financial Instruments:

We are a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of our customers. These financial instruments include commitments to extend credit, standby letters of credit and financial guarantees. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount

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recognized in the Consolidated Balance Sheets. The contract or notional amounts of these instruments reflect the extent of our involvement in particular classes of financial instruments.

Our exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit, standby letters of credit and financial guarantees written is represented by the contractual or notional amount of those instruments. We use the same credit policies in making commitments and conditional obligations as we do for on-balance sheet instruments.

A summary of the unaudited notional amounts of our financial instruments with off-balance sheet risk at March 31, 2003 follows:

	(In thousands)
Commitments to extend credit	$	2,210
Standby letters of credit		94

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. We evaluate each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if it is deemed necessary by the bank upon extension of credit, is based on management’s credit evaluation of the counterparties. Collateral held varies but may include accounts receivable, inventory, property, plant, equipment and real estate.

Standby letters of credit and financial guarantees written are conditional commitments issued by our bank to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support contractual obligations of our customers. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers.

Note 14. Regulatory Matters:

Our subsidiary bank and we are subject to various regulatory capital requirements administered by federal and state banking agencies. Failure to meet minimum capital requirements can result in mandatory, and possibly additional discretionary actions by regulators that, if undertaken, could have a direct, material effect on our financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, we and our subsidiary bank must meet specific capital guidelines that involve quantitative measures of our and the bank’s assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. We and our subsidiary bank’s capital amounts and classifications also are subject to qualitative judgments by the regulators about components, risk weightings and other factors.

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Quantitative measures established by regulators to ensure capital adequacy require our subsidiary bank to maintain minimum amounts and ratios (set forth in the table below) of total and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier 1 capital (as defined) to average assets (as defined). Management believes that, as of March 31, 2003, our subsidiary bank met all applicable capital adequacy requirements. Since our consolidated assets are less than $150 million, our regulators monitor the capital adequacy of our subsidiary bank and do not measure our holding company’s capital adequacy.

The actual and required capital amounts and ratios as of March 31, 2003, for the State Bank of Aviston are listed in the following table:

	Actual				For Capital Adequacy Purposes				To Be Well Capitalized Under Prompt Corrective Action Provisions
	Amount		Ratio		Amount		Ratio		Amount		Ratio
	(Dollars in thousands)
Total Capital (to Risk-Weighted Assets)	$	9,747	15.23	%	$	5,119	8.00	%	$	6,399	10.00	%
Tier 1 Capital (to Risk-Weighted Assets)		8,940	13.97			2,560	4.00			3,839	6.00
Tier 1 Capital (to Average Assets)		8,940	9.63			3,712	4.00			4,640	5.00

Note 15. Parent Company Condensed Financial Information:

Following are our condensed financial statements (parent company only) for the period indicated:

Balance Sheet

	March 31, 2003
	(In thousands)
Assets:
Cash and cash equivalents	$	25
Investment in subsidiary		13,140
Other assets		6
Total assets	$	13,171
Liabilities and shareholders’ equity:
Notes payable	$	2,625
Other liabilities		80
Total liabilities		2,705
Total shareholders’ equity		10,466
Total liabilities and shareholders’ equity	$	13,171

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Statement of Income

	Three Months Ended March 31, 2003
	(In thousands)
Income:
Total income	$	0
Expenses:
Interest on debt		6
Other operating expenses		10
Total expenses		16
Loss before income tax benefit and equity in undistributed income of subsidiary		(16	)
Income tax benefit		6
Loss before equity in undistributed income of subsidiary		(10	)
Equity in undistributed income of subsidiary		389
Net income	$	379

Statement of Cash Flows

	Three Months Ended March 31, 2003
	(In thousands)
Operating Activities:
Net income	$	379
Adjustment to reconcile net income to net cash used in operating activities:
Net income of subsidiaries		(389	)
Other, net		(6	)
Cash used in operating activities		(16	)
Net decrease in cash and cash equivalents		(16	)
Cash and cash equivalents, beginning of period		41
Cash and cash equivalents, end of year	$	25

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APPENDIX A

AGREEMENT AND PLAN OF MERGER

BETWEEN

KANKAKEE BANCORP, INC.

AND

AVISTON FINANCIAL CORPORATION

MAY 27, 2003

AGREEMENT AND PLAN OF MERGER

THIS AGREEMENT AND PLAN OF MERGER (together with all exhibits and schedules, this “Agreement”) is entered into as of May 27, 2003, between KANKAKEE BANCORP, INC., a Delaware corporation (“KNK”), and AVISTON FINANCIAL CORPORATION, an Illinois corporation (“AFC”).

RECITALS

A. The parties to this Agreement desire to effect a reorganization whereby KNK desires to acquire control of AFC through the merger (the “Merger”) of AFC with and into KNK, with KNK being the surviving corporation (the “Surviving Corporation”).

B. Pursuant to the terms of this Agreement, each outstanding share of the capital stock of AFC, which is comprised of one class of common stock, $10.00 par value per share (“AFC Common Stock”), shall be converted at the effective time of the Merger into the right to receive 0.707 shares of common stock of KNK, $0.01 par value per share (“KNK Common Stock”).

C. The parties desire to make certain representations, warranties and agreements in connection with the Merger and also agree to certain prescribed conditions to the Merger.

AGREEMENTS

In consideration of the foregoing premises and the following mutual promises, covenants and agreements, the parties hereby agree as follows:

ARTICLE 1

DEFINITIONS

Section 1.1 Definitions. In addition to those terms defined throughout this Agreement, the following terms, when used herein, shall have the following meanings.

(a) “Acquisition Transaction” shall have the meaning set forth in Section 6.7(b).

(b) “Adjusted Shareholders’ Equity” means the consolidated shareholders’ equity of AFC, calculated in accordance with GAAP and reflecting the recognition of or accrual for all expenses paid or incurred or projected to be paid or incurred by AFC or the Bank in connection with this Agreement and the Contemplated Transactions (including all fees and expenses incurred in connection with obtaining shareholder approval and of any attorneys, accountants, brokers, finders, investment bankers or consultants), but adjusted to exclude any expenses incurred or accounting or other adjustments made pursuant to Section 2.11 or Section 6.12 of this Agreement. AFC’s Adjusted Shareholders’ Equity shall be calculated by AFC’s independent certified public accountants as of the close of business at the last day of the month immediately preceding the Closing Date, using reasonable estimates of revenues and expenses

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where actual amounts are not available. Such calculation shall be subject to verification and approval prior to the Closing by certified public accountants selected by KNK, which approval shall not be unreasonably withheld.

(c) “AFC” shall have the meaning set forth in the Preamble.

(d) “AFC Common Stock” shall have the meaning set forth in the Recitals.

(e) “AFC Employee Benefit Plans” shall have the meaning set forth in Section 4.18(m).

(f) “AFC Financial Statements” shall have the meaning set forth in Section 4.7.

(g) “AFC Loans” shall have the meaning set forth in Section 4.11.

(h) “AFC Real Estate” shall have the meaning set forth in Section 6.5.

(i) “AFC Schedules” shall have the meaning set forth in Section 1.2(b).

(j) “AFC Stock Option” means each of the 45,000 stock options granted to a Person by AFC, under the AFC Stock Option Plan or otherwise, prior to the date of this Agreement that is outstanding on the date hereof.

(k) “AFC Stock Option Plan” means the Aviston Financial Corporation 2002 Stock Incentive Plan.

(l) “AFC Subsidiary” means any Subsidiary of AFC.

(m) “AFC Termination” shall have the meaning set forth in Section 11.3(b).

(n) “Affiliate” means with respect to:

(i) a particular individual: (A) each other member of such individual’s Family; (B) any Person that is directly or indirectly controlled by such individual or one or more members of such individual’s Family; (C) any Person in which such individual or members of such individual’s Family hold (individually or in the aggregate) a Material Interest; and (D) any Person with respect to which such individual or one or more members of such individual’s Family serves as a director, officer, partner, executor or trustee (or in a similar capacity); and

(ii) a specified Person other than an individual: (A) any Person that directly or indirectly controls, is directly or indirectly controlled by, or is directly or indirectly under common control with such specified Person; (B) any Person that holds a Material Interest in such specified Person; (C) each Person that serves as a director, officer, partner, executor or trustee of such specified Person (or in a similar capacity); (D) any Person in which such specified Person holds a Material Interest; (E) any Person

A-2

with respect to which such specified Person serves as a general partner or a trustee (or in a similar capacity); and (F) any Affiliate of any individual described in clause (B) or (C) of this subsection (ii).

(o) “Agreement” shall have the meaning set forth in the Preamble.

(p) “AMEX Rules” shall have the meaning set forth in Section 4.4.

(q) “Applicable Contract” means any Contract: (i) under which a Person has or has the right to acquire any rights; (ii) under which such Person has or has the right to become subject to any obligation or liability; or (iii) by which such Person or any of the assets owned or used by such Person is or has the right to become bound.

(r) “Bank” means the State Bank of Aviston, an Illinois chartered commercial bank with its main office located in Aviston, Illinois, and a wholly-owned subsidiary of AFC.

(s) “Bank Merger” means the merger of KFS Bank with and into and under the charter of the Bank.

(t) “Bank Shares” shall have the meaning set forth in Section 4.6.

(u) “Best Efforts” means the efforts that a prudent Person desirous of achieving a result would use in similar circumstances to ensure that such result is achieved as expeditiously as possible, provided, however, that an obligation to use Best Efforts under this Agreement does not require the Person subject to that obligation to take actions that would result in a materially adverse change in the benefits to such Person of this Agreement and the Contemplated Transactions.

(v) “BHCA” shall have the meaning set forth in Section 4.1.

(w) “Breach” means with respect to a representation, warranty, covenant, obligation or other provision of this Agreement or any instrument delivered pursuant to this Agreement: (i) any inaccuracy in or breach of, or any failure to perform or comply with, such representation, warranty, covenant, obligation or other provision; or (ii) any claim (by any Person) or other occurrence or circumstance that is or was inconsistent with such representation, warranty, covenant, obligation or other provision, and the term “Breach” means any such inaccuracy, breach, failure, claim, occurrence or circumstance.

(x) “Business Day” means any day on which the trading of stock occurs on the American Stock Exchange.

(y) “Call Reports” means the quarterly reports of income and condition required to be filed with the Federal Deposit Insurance Corporation.

(z) “Certificates” shall have the meaning set forth in Section 3.2(a).

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(aa) “Change of Control Agreements” means the agreements between KNK and each of Bryan L. Marsh and Brad Rench in the form attached as Exhibit B and Exhibit C , respectively, to this Agreement.

(bb) “Closing” shall have the meaning set forth in Section 2.2(a).

(cc) “Closing Date” shall have the meaning set forth in Section 2.2(a).

(dd) “Code” means the Internal Revenue Code of 1986, as amended.

(ee) “Commissioner” means the Commissioner of the Office of Banks and Real Estate for the State of Illinois.

(ff) “Contemplated Transactions” means all of the transactions contemplated by this Agreement, including: (i) the Merger; (ii) the Bank Merger; (iii) the performance by KNK and AFC of their respective covenants and obligations under this Agreement; (iv) KNK’s acquisition of control of AFC and, indirectly, the Bank; and (v) KNK’s issuance of shares of KNK Common Stock pursuant to the Registration Statement in exchange for shares of AFC Common Stock.

(gg) “Contract” means any agreement, contract, obligation, promise or understanding (whether written or oral and whether express or implied) that is legally binding.

(hh) “CRA” means the Community Reinvestment Act, as amended.

(ii) “DGCL” means the Delaware General Corporation Law, as amended.

(jj) “Dissenting Shares” shall have the meaning set forth in Section 3.4.

(kk) “Effective Time” shall have the meaning set forth in Section 2.2(b).

(ll) “Employment Agreement” means the agreement between KNK and Thomas A. Daiber providing for possible employment of Mr. Daiber upon the consummation of the Contemplated Transactions in the form attached as Exhibit A to this Agreement.

(mm) “Environment” shall have the meaning set forth in Section 4.21.

(nn) “ERISA” means the Employee Retirement Income Security Act of 1974, as amended.

(oo) “Exchange Act” means the Securities Exchange Act of 1934, as amended.

(pp) “Exchange Agent” shall have the meaning set forth in Section 3.2(a).

(qq) “Exchange Ratio” shall have the meaning set forth in Section 3.1(b).

(rr) “Exchange Shares” shall have the meaning set forth in Section 3.1(b).

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(ss) “Expenses” shall have the meaning set forth in Section 11.3(a).

(tt) “Family” means with respect to an individual: (i) the individual; (ii) the individual’s spouse and any former spouse; (iii) any other natural person who is related to the individual or the individual’s spouse within the second degree; and (iv) any other individual who resides with such individual.

(uu) “FDI Act” shall have the meaning set forth in Section 4.4.

(vv) “FDIC” means the Federal Deposit Insurance Corporation.

(ww) “Federal Reserve” means the Board of Governors of the Federal Reserve System.

(xx) “GAAP” means generally accepted accounting principles in the United States, consistently applied.

(yy) “Hazardous Materials” shall have the meaning set forth in Section 4.21.

(zz) “HOLA” shall have the meaning set forth in Section 5.1.

(aaa) “IBCA” means the Illinois Business Corporation Act of 1983, as amended.

(bbb) “Illinois Banking Act” shall have the meaning set forth in Section 4.4.

(ccc) “Illinois Statutes” shall have the meaning set forth in Section 4.4.

(ddd) “Intellectual Property Assets” shall have the meaning set forth in Section 4.18(g).

(eee) “KFS Bank” means KFS Bank, F.S.B., a federal savings bank with its main office located in Kankakee, Illinois, and a wholly-owned subsidiary of KNK.

(fff) “KFS Bank Shares” shall have the meaning set forth in Section 5.6.

(ggg) “KNK” shall have the meaning set forth in the Preamble.

(hhh) “KNK Common Stock” shall have the meaning set forth in the Recitals.

(iii) “KNK Financial Statements” shall have the meaning set forth in Section 5.7.

(jjj) “KNK Loans” shall have the meaning set forth in Section 5.11.

(kkk) “KNK Schedules” shall have the meaning set forth in Section 1.2(b).

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(lll) “KNK SEC Reports” means the annual, quarterly and other reports, schedules, forms, statements and other documents (including exhibits and all other information incorporated therein) filed by KNK with the SEC.

(mmm) “KNK Subsidiary” means any Subsidiary of KNK.

(nnn) “Knowledge” with respect to:

(i) an individual means that such person will be deemed to have “Knowledge” of a particular fact or other matter if: (A) such individual is actually aware of such fact or other matter; or (B) a prudent individual could be expected to discover or otherwise become aware of such fact or other matter in the course of conducting a reasonably comprehensive investigation concerning the existence of such fact or other matter; and

(ii) a Person (other than an individual) means that such Person will be deemed to have “Knowledge” of a particular fact or other matter if any individual who is serving as a director, officer, manager, partner, executor or trustee of such Person (or in any similar capacity) has Knowledge of such fact or other matter.

(ooo) “Legal Requirement” means any federal, state, local, municipal, foreign, international, multinational or other Order, constitution, law, ordinance, regulation, rule, policy statement, directive, statute or treaty.

(ppp) “Letter of Transmittal” shall have the meaning set forth in Section 3.2(a).

(qqq) “Material Adverse Effect” with respect to a Person (other than an individual) means, a material adverse effect (whether or not required to be accrued or disclosed under Statement of Financial Accounting Standards No. 5): (i) on the condition (financial or otherwise), properties, assets, liabilities, businesses or results of operations of such Person; or (ii) on the ability of such Person to perform its obligations under this Agreement on a timely basis.

(rrr) “Material Interest” means the direct or indirect beneficial ownership (as currently defined in Rule 13d-3 under the Exchange Act) of voting securities or other voting interests representing at least 10% of the outstanding voting power of a Person or equity securities or other equity interests representing at least 10% of the outstanding equity securities or equity interests in a Person.

(sss) “Merger” shall have the meaning set forth in the Recitals.

(ttt) “Order” means any award, decision, injunction, judgment, order, ruling, extraordinary supervisory letter, policy statement, memorandum of understanding, resolution, agreement, directive, subpoena or verdict entered, issued, made, rendered or required by any court, administrative or other governmental agency, including any Regulatory Authority, or by any arbitrator.

A-6

(uuu) “Ordinary Course of Business” means any action taken by a Person only if such action:

(i) is consistent with the past practices of such Person and is taken in the ordinary course of the normal day-to-day operations of such Person;

(ii) is not required to be authorized by the board of directors of such Person (or by any Person or group of Persons exercising similar authority), other than loan approvals for customers of a financial institution; and

(iii) is similar in nature and magnitude to actions customarily taken, without any authorization by the board of directors (or by any Person or group of Persons exercising similar authority), other than loan approvals for customers of a financial institution, in the ordinary course of the normal day-to-day operations of other Persons that are in the same line of business as such Person.

(vvv) “OTS” means the Office of Thrift Supervision.

(www) “Person” means any individual, corporation (including any non-profit corporation), general or limited partnership, limited liability company, joint venture, estate, trust, association, organization, labor union or other entity or Regulatory Authority.

(xxx) “Proceeding” means any action, arbitration, audit, hearing, investigation, litigation or suit (whether civil, criminal, administrative, investigative or informal) commenced, brought, conducted or heard by or before, or otherwise involving, any judicial or governmental authority, including a Regulatory Authority, or arbitrator.

(yyy) “Proxy Statement-Prospectus” shall have the meaning set forth in Section 8.2.

(zzz) “Registration Statement” shall have the meaning set forth in Section 8.2.

(aaaa) “Regulatory Authority” means any federal, state or local governmental body, agency, court or authority that, under applicable Legal Requirements: (i) has supervisory, judicial, administrative, police, enforcement, taxing or other power or authority over AFC, KNK, or any of their respective Subsidiaries; (ii) is required to approve, or give its consent to the Contemplated Transactions; or (iii) with which a filing must be made in connection therewith, including, in any case, the Federal Reserve, the OTS, the FDIC and the Commissioner.

(bbbb) “Representative” means with respect to a particular Person, any director, officer, manager, employee, agent, consultant, advisor or other representative of such Person, including legal counsel, accountants and financial advisors.

(cccc) “Schedules” shall have the meaning set forth in Section 1.2(b).

(dddd) “SEC” means the Securities and Exchange Commission.

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(eeee) “SEC Filings” shall have the meaning set forth in Section 7.3.

(ffff) “Securities Act” means the Securities Act of 1933, as amended.

(gggg) “Significant Subsidiary” shall have the meaning set forth in Section 6.7(b).

(hhhh) “Subsequent AFC Financial Statements” shall have the meaning set forth in Section 6.4.

(iiii) “Subsequent KNK Financial Statements” shall have the meaning set forth in Section 7.3.

(jjjj) “Subsidiary” means with respect to any Person (the “Owner”), any corporation or other Person of which securities or other interests having the power to elect a majority of that corporation’s or other Person’s board of directors or similar governing body, or otherwise having the power to direct the business and policies of that corporation or other Person (other than securities or other interests having such power only upon the happening of a contingency that has not occurred) are held by the Owner or one or more of its Subsidiaries.

(kkkk) “Surviving Corporation” shall have the meaning set forth in the Recitals.

(llll) “Tax” means any tax (including any income tax, capital gains tax, value-added tax, sales tax, property tax, gift tax or estate tax), levy, assessment, tariff, duty (including any customs duty), deficiency or other fee, and any related charge or amount (including any fine, penalty, interest or addition to tax), imposed, assessed or collected by or under the authority of any Regulatory Authority or payable pursuant to any tax-sharing agreement or any other Contract relating to the sharing or payment of any such tax, levy, assessment, tariff, duty, deficiency or fee.

(mmmm) “Tax Return” means any return (including any information return), report, statement, schedule, notice, form or other document or information filed with or submitted to, or required to be filed with or submitted to, any Regulatory Authority in connection with the determination, assessment, collection or payment of any Tax or in connection with the administration, implementation, or enforcement of or compliance with any Legal Requirement relating to any Tax.

(nnnn) “Termination Date” shall have the meaning set forth in Section 11.1(d).

(oooo) “TFR” means the quarterly Thrift Financial Report of Condition required to be filed with the OTS.

(pppp) “Threatened” means a claim, Proceeding, dispute, action or other matter for which any demand or statement has been made (orally or in writing) or any notice has been given (orally or in writing), or if any other event has occurred or any other circumstances exist, that would lead a prudent Person with knowledge of such event or circumstances to conclude that

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such a claim, Proceeding, dispute, action or other matter is likely to be asserted, commenced, taken or otherwise pursued in the future.

Section 1.2 Principles of Construction.

(a) In this Agreement, unless otherwise stated or the context otherwise requires, the following uses apply: (i) actions permitted under this Agreement may be taken at any time and from time to time in the actor’s sole discretion; (ii) references to a statute shall refer to the statute and any successor statute, and to all regulations promulgated under or implementing the statute or its successor, as in effect at the relevant time; (iii) in computing periods from a specified date to a later specified date, the words “from” and “commencing on” (and the like) mean “from and including,” and the words “to,” “until” and “ending on” (and the like) mean “to, but excluding”; (iv) references to a governmental or quasi-governmental agency, authority or instrumentality shall also refer to a regulatory body that succeeds to the functions of the agency, authority or instrumentality; (v) indications of time of day mean Kankakee, Illinois time; (vi) “including” means “including, but not limited to”; (vii) all references to sections, schedules and exhibits are to sections, schedules and exhibits in or to this Agreement unless otherwise specified; (viii) all words used in this Agreement will be construed to be of such gender or number as the circumstances and context require; (ix) the captions and headings of articles, sections, schedules and exhibits appearing in or attached to this Agreement have been inserted solely for convenience of reference and shall not be considered a part of this Agreement nor shall any of them affect the meaning or interpretation of this Agreement or any of its provisions; and (x) any reference to a document or set of documents in this Agreement, and the rights and obligations of the parties under any such documents, shall mean such document or documents as amended from time to time, and any and all modifications, extensions, renewals, substitutions or replacements thereof.

(b) The schedules of each of AFC and KNK referred to in this Agreement (the “AFC Schedules” and the “KNK Schedules,” respectively, and collectively the “Schedules”) shall consist of the agreements and other documentation described and referred to in this Agreement with respect to such party, which Schedules were delivered by each of AFC and KNK to the other before the date of this Agreement. Any item or matter disclosed on any Schedule shall be deemed to be disclosed for all purposes on all other Schedules, to the extent that it should have been disclosed on such other Schedule, to the extent that sufficient details are set forth so that the purpose for which disclosure is made is reasonably clear. In the event of any inconsistency between the statements in the body of this Agreement and those in the Schedules (other than an exception expressly set forth as such in the Schedules), the statements in the body of this Agreement will control.

(c) All accounting terms not specifically defined herein shall be construed in accordance with GAAP.

(d) With regard to each and every term and condition of this Agreement and any and all agreements and instruments subject to the terms hereof, the parties hereto understand and agree that the same have or has been mutually negotiated, prepared and drafted, and that if at any time the parties hereto desire or are required to interpret or construe any such term or

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condition or any agreement or instrument subject hereto, no consideration shall be given to the issue of which party hereto actually prepared, drafted or requested any term or condition of this Agreement or any agreement or instrument subject hereto.

ARTICLE 2

THE MERGER

Section 2.1 The Merger. Provided that this Agreement shall not prior thereto have been terminated in accordance with its express terms, upon the terms and subject to the conditions of this Agreement and in accordance with the applicable provisions of the DGCL and the IBCA, at the Effective Time (as defined below), AFC shall be merged with and into KNK pursuant to the provisions of, and with the effects provided in, the DGCL and the IBCA, the separate corporate existence of AFC shall cease and KNK will be the Surviving Corporation. As a result of the Merger, each share of AFC Common Stock issued and outstanding immediately prior to the Effective Time, other than Dissenting Shares (as defined below), will be converted into the right to receive 0.707 shares of KNK Common Stock as provided in Section 3.2.

Section 2.2 Effective Time; Closing.

(a) Provided that this Agreement shall not prior thereto have been terminated in accordance with its express terms, the closing of the Merger (the “Closing”) shall occur through the mail or at a place that is mutually acceptable to KNK and AFC, or if they fail to agree, at the offices of Barack Ferrazzano Kirschbaum Perlman & Nagelberg LLC, located at 333 W. Wacker Drive, Suite 2700, Chicago, Illinois 60606, at 10:00 a.m. on the date that is ten Business Days after the latest to occur of the receipt of all required approvals or consents of the Regulatory Authorities for the Contemplated Transactions, the expiration of all statutory waiting periods relating to such regulatory approvals and the receipt of the approvals of the shareholders of AFC and the stockholders of KNK, or at such other time and place as AFC and KNK may agree in writing (the “Closing Date”). Subject to the provisions of Article 11, failure to consummate the Merger on the date and time and at the place determined pursuant to this Section will not result in the termination of this Agreement and will not relieve any party of any obligation under this Agreement.

(b) The parties hereto agree to file on the Closing Date: (i) an appropriate certificate of merger, as contemplated by Section 252 of the DGCL, with the Secretary of State of the State of Delaware; and (ii) appropriate articles of merger, as contemplated by Section 11.25 of the IBCA, with the Secretary of State of the State of Illinois. The Merger shall be effective upon the close of business on the day the certificate and articles of merger have been duly filed with and accepted by the Secretary of State of the States of Delaware and Illinois (the “Effective Time”).

Section 2.3 Effects of Merger. At the Effective Time, the effect of the Merger shall be as provided in Sections 251, 252, 259, 260 and 261 of the DGCL and Section 11.50 of the IBCA. Without limiting the generality of the foregoing, at the Effective Time, all the property, rights, privileges, powers and franchises of KNK and AFC shall be vested in the Surviving

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Corporation, and all debts, liabilities and duties of KNK and AFC shall become the debts, liabilities and duties of the Surviving Corporation.

Section 2.4 Certificate of Incorporation. Subject to Section 7.2 at the Effective Time, the certificate of incorporation of KNK as in effect immediately prior to the Effective Time shall be the certificate of incorporation of the Surviving Corporation.

Section 2.5 Bylaws. Subject to Section 7.2 at the Effective Time, the bylaws of KNK as in effect immediately prior to the Effective Time shall be the bylaws of the Surviving Corporation until thereafter amended in accordance with applicable law.

Section 2.6 Board of Directors. From and after the Effective Time, until duly changed in compliance with applicable law and the certificate of incorporation and bylaws of the Surviving Corporation and, subject to Section 7.12, the board of directors of the Surviving Corporation shall consist of the directors of KNK immediately prior to the Effective Time.

Section 2.7 Management. From and after the Effective Time, the officers of KNK shall be the officers of KNK immediately prior to the Effective Time, and, in addition, Thomas A. Daiber shall be the Chief Executive Officer and President of KNK.

Section 2.8 KNK’s Deliveries at Closing. At the Closing, KNK shall deliver or cause to be delivered the following items to or on behalf of AFC:

(a) evidence of the delivery by KNK or its agents to the Exchange Agent (as defined below) of: (i) certificates representing the number of shares of KNK Common Stock to be issued in exchange for the shares of AFC Common Stock pursuant to the terms of this Agreement; and (ii) an aggregate amount of cash equal to the total fractional shares of KNK Common Stock that former holders of AFC Common Stock would be entitled to receive;

(b) a good standing certificate for KNK issued by each of the Secretary of State of the States of Delaware and Illinois, and dated in each case not more than ten Business Days prior to the Closing Date;

(c) a copy of the certificate of incorporation of KNK certified not more than ten Business Days prior to the Closing Date by the Secretary of State of the State of Delaware;

(d) a certificate of the Secretary or any Assistant Secretary of KNK dated the Closing Date certifying a copy of the bylaws of Acquiror;

(e) copies of resolutions of the board of directors and stockholders of KNK authorizing and approving this Agreement and the consummation of the Contemplated Transactions certified as of the Closing Date by the Secretary or any Assistant Secretary of Acquiror;

(f) a certificate executed by KNK dated the Closing Date stating that: (i) all of the representations and warranties of KNK set forth in this Agreement are true and correct with the same force and effect as if all of such representations and warranties were made at the

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Closing Date (provided, however, that to the extent such representations and warranties expressly relate to an earlier date, such representations and warranties shall be true and correct on and as of such earlier date), except for any untrue or incorrect representations or warranties that individually or in the aggregate do not have a Material Adverse Effect on KNK on a consolidated basis or on AFC’s or its shareholders’ rights or interests under this Agreement; and (ii) KNK has performed or complied with all of the covenants and obligations to be performed or complied with by it under the terms of this Agreement on or prior to the Closing Date, except where any non-performance or noncompliance would not have a Material Adverse Effect on KNK on a consolidated basis or on AFC’s or its shareholders’ rights or interests under this Agreement; and

(g) a copy of the tax opinion described in Section 10.10.

All of such items shall be reasonably satisfactory in form and substance to AFC and its counsel.

Section 2.9 AFC’s Deliveries at Closing. At the Closing, AFC shall deliver the following items to KNK:

(a) a good standing certificate for AFC issued by the Secretary of State of the State of Illinois and dated not more than ten Business Days prior to the Closing Date;

(b) a copy of the articles of incorporation of AFC certified not more than ten Business Days prior to the Closing Date by the Secretary of State of the State of Illinois;

(c) a certificate of the Secretary or any Assistant Secretary of AFC dated the Closing Date certifying a copy of the bylaws of AFC;

(d) copies of resolutions of the board of directors and shareholders of AFC authorizing and approving this Agreement and the consummation of the Contemplated Transactions certified as of the Closing Date by the Secretary or any Assistant Secretary of AFC;

(e) a good standing certificate for the Bank issued by the Commissioner and dated not more than ten Business Days prior to the Closing Date;

(f) a copy of the charter of the Bank certified by the Commissioner and dated not more than ten Business Days prior to the Closing Date;

(g) a certificate of the Secretary of the Bank dated the Closing Date certifying a copy of the bylaws of the Bank and stating that there have been no further amendments to the charter of the Bank delivered pursuant to the immediately preceding paragraph of this Section;

(h) a certificate executed by AFC dated the Closing Date stating that: (i) all of the representations and warranties of AFC set forth in this Agreement are true and correct with the same force and effect as if all of such representations and warranties were made at the Closing Date (provided, however, that to the extent such representations and warranties expressly relate to an earlier date, such representations and warranties shall be true and correct on and as of such earlier date), except for any untrue or incorrect representations or warranties that

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individually or in the aggregate do not have a Material Adverse Effect on AFC on a consolidated basis or on KNK’s or its stockholders’ rights or interests under this Agreement; and (ii) AFC has performed or complied with all of the covenants and obligations to be performed or complied with by it under the terms of this Agreement on or prior to the Closing Date, except where any non-performance or noncompliance would not have a Material Adverse Effect on AFC on a consolidated basis or on KNK’s or its stockholders’ rights or interests under this Agreement;

(i) a list of all holders of AFC Common Stock as of the Closing Date and a list of all Persons as of the Closing Date who have the right at any time to acquire shares of AFC Common Stock, certified in each case by the Secretary or any Assistant Secretary of AFC;

(j) a certificate of each of AFC’s legal counsel, accountants and financial advisor or investment banker, if any, representing that all fees and expenses relating to the Contemplated Transactions incurred by AFC prior to and including the Effective Time have been paid or otherwise accrued, in full for purposes of calculating the Adjusted Shareholders’ Equity;

(k) at and pursuant to the request of KNK, a resignation from each of the directors and officers of AFC from such individual’s position as a director and an officer of AFC, as the case may be; and

(l) such other documents as KNK may reasonably request.

All of such items shall be reasonably satisfactory in form and substance to KNK and its counsel.

Section 2.10 Bank Merger. The parties understand that it is the present intention of KNK at or after the Effective Time to effect the Bank Merger. KNK and AFC agree to cooperate and to take such steps as may be necessary to obtain all requisite regulatory, corporate and other approvals to effect the Bank Merger, subject to the consummation of, and to be effective concurrently with, the Merger or as soon as practicable thereafter. The resulting bank shall be the Bank. In furtherance of such agreement, each of KNK and AFC agrees:

(a) respectively, to cause the board of directors of each of KFS Bank and the Bank to approve the Bank Merger and to submit the same to its respective sole stockholder for approval;

(b) respectively, to vote the shares of stock of KFS Bank and the Bank owned by them in favor of the Bank Merger; and

(c) to take, or cause to be taken, all steps necessary to consummate the Bank Merger at the Effective Time or as soon thereafter as reasonably practicable.

The Bank Merger shall be accomplished pursuant to a merger agreement containing such terms and conditions as are ordinary and customary for affiliated bank merger transactions of such type. Notwithstanding anything contained herein to the contrary: (x) the Bank Merger will be effective no earlier than the Effective Time; and (y) none of KNK’s actions in connection with the Bank Merger will unreasonably interfere with any of the operations of AFC or the Bank prior to the Effective Time.

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Section 2.11 Alternative Structure. Notwithstanding anything contained herein to the contrary, upon receipt of AFC’s prior written consent (which consent shall not be unreasonably withheld), KNK may specify, for any reasonable business, tax or regulatory purpose, that, before the special meeting of shareholders of AFC held pursuant to Section 6.9, KNK and AFC shall enter into transactions other than those described in this Agreement to effect the purposes of this Agreement, including the merger of AFC with any Affiliate of KNK, and the parties to this Agreement shall take all action necessary and appropriate to effect, or cause to be effected, such transactions; provided, however, that no such proposed change on the structure of the transactions contemplated in this Agreement shall delay the Closing Date (if such a date has already been firmly established) by more than thirty Business Days or adversely affect the economic benefits, the form of consideration or the tax effect of the Merger at the Effective Time to the holders of AFC Common Stock or AFC Stock Options.

Section 2.12 Absence of Control. Subject to any specific provisions of this Agreement, it is the intent of the parties to this Agreement that neither KNK nor AFC by reason of this Agreement shall be deemed (until consummation of the Contemplated Transactions) to control, directly or indirectly, the other party or any of its respective Subsidiaries and shall not exercise, or be deemed to exercise, directly or indirectly, a controlling influence over the management or policies of such other party or any of its respective Subsidiaries.

ARTICLE 3

CONVERSION OF SECURITIES IN THE MERGER

Section 3.1 Manner of Merger.

(a) By virtue of the Merger and without any action on the part of KNK, each share of KNK Common Stock issued and outstanding immediately prior to the Effective Time shall be unaffected by the Merger and shall thereafter represent one share of stock of the Surviving Corporation.

(b) Subject to the provisions of this Article, by virtue of the Merger and without any action on the part of KNK or AFC, or the holder of any AFC Common Stock or KNK Common Stock, each share of AFC Common Stock issued and outstanding immediately prior to the Effective Time, other than shares held by Persons seeking appraisal rights under Sections 11.65 and 11.70 of the IBCA, shall become and automatically be converted into 0.707 shares of KNK Common Stock (the “Exchange Ratio”), each of which shares shall include one preferred stock purchase right containing the terms set forth in KNK’s Rights Agreement dated as of May 11, 1999, as amended from time to time, and shall thereafter represent the right to receive and be exchangeable for such number of shares, rounded to the nearest thousandth of a share of KNK Common Stock (the “Exchange Shares”); provided, however, that all shares of AFC Common Stock held by AFC as treasury stock shall not be converted into shares of KNK Common Stock, but instead shall be canceled as a result of the Merger.

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(c) After the Effective Time, no holder of AFC Common Stock that is issued and outstanding immediately prior to the Effective Time will have any rights in respect of such AFC Common Stock except: (i) to receive shares of KNK Common Stock for the shares of AFC Common Stock converted as provided in this Section, plus an amount in cash, as provided below, for any fractional share of KNK Common Stock that such holder would have been entitled to receive; or (ii) to receive payment for such shares of AFC Common Stock, in the manner and to the extent provided in Sections 11.65 and 11.70 of the IBCA.

(d) If KNK declares a stock dividend, stock split or other general distribution of KNK Common Stock to holders of KNK Common Stock and the ex-dividend or ex-distribution date for such stock dividend, stock split or distribution occurs at any time after the date of this Agreement and prior to the Closing, then the Exchange Ratio shall be adjusted by multiplying it by a fraction: (i) the numerator of which shall be the total number of shares of KNK Common Stock outstanding immediately after such dividend, split or distribution; and (ii) the denominator of which shall be the total number of shares of KNK Common Stock outstanding immediately prior to such dividend, split, or distribution. Notwithstanding the foregoing, no adjustment shall be made to the Exchange Ratio: (A) in the event of the issuance of additional shares of KNK Common Stock pursuant to the grant or sale of shares to, or for the account of, employees of KNK pursuant to KNK’s stock option, qualified and non-qualified retirement and dividend reinvestment plans; or (B) in the event of the issuance of additional shares of KNK Common Stock or other securities pursuant to a public offering, private placement or an acquisition of one or more banks, corporations or business assets for consideration which the board of directors, or a duly authorized committee of the board of directors, of KNK in its reasonable business judgment determines to be fair and reasonable.

(e) Subject only to making any adjustment to the Exchange Ratio and related computations prescribed by this Section 3.1, nothing contained in this Agreement is intended to preclude KNK from amending its certificate of incorporation to change its capital structure or from issuing additional shares of KNK Common Stock, preferred stock, shares of other capital stock or securities that are convertible into shares of capital stock, in a manner that would not be expected to have a Material Adverse Effect on the interests of AFC’s shareholders.

Section 3.2 Steps of Transaction.

(a) KNK shall appoint KFS Bank or its successor to serve as exchange agent (the “Exchange Agent”) for the parties to effect the surrender of certificates representing outstanding shares of AFC Common Stock (the “Certificates”) in exchange for KNK Common Stock and/or cash in redemption of fractional shares. The Exchange Agent shall serve under the terms of an exchange agent agreement reasonably acceptable to both parties. No later than five Business Days after the Effective Time, the Exchange Agent shall mail or cause to be mailed to each then current holder of record of a Certificate or Certificates a form of transmittal letter (the “Letter of Transmittal”) providing instructions for the transmittal of the Certificates and shall specify that delivery shall be effected, and risk of loss and title to the Certificates shall pass, only upon delivery of the Certificates (or a lost certificate affidavit and a bond in a form reasonably acceptable to KNK).

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(b) KNK shall cause the Exchange Agent to deliver promptly to each holder of AFC Common Stock who submits a properly completed Letter of Transmittal accompanied by the Certificates covered by such Letter of Transmittal: (i) certificates representing the number of whole shares of KNK Common Stock into which the shares of AFC Common Stock previously represented by the Certificates so surrendered were converted; plus (ii) an amount in cash, as provided below, for any fractional share of KNK Common Stock that such holder would have been entitled to receive.

(c) Within sixty days after the Effective Time, KNK shall cause the Exchange Agent to send to each holder of record of AFC Common Stock immediately prior to the Effective Time who has not previously submitted his or her Certificates, additional transmittal materials for use in surrendering Certificates to the Exchange Agent and instructions for use in effecting such surrender in exchange for shares of KNK Common Stock and cash for any fractional shares.

(d) No dividends or other distributions declared after the Effective Time with respect to KNK Common Stock and payable in respect of shares of AFC Common Stock held by any former shareholder of record of AFC shall be paid to a former shareholder of AFC who holds any unsurrendered Certificate with respect to AFC Common Stock until the shareholder shall surrender the Certificate. Until so surrendered and exchanged, each outstanding Certificate shall for all purposes, other than the payment of dividends or other distributions, if any, in respect of shares of AFC Common Stock held by former holders of record of shares of AFC Common Stock represent the shares of KNK Common Stock into and for which such shares have been so converted; provided, however, that upon surrender of a Certificate, there shall be paid to the record holder or holders of the Certificate, the amount, without interest thereon, of such dividends and other distributions, if any, which previously have become payable with respect to the number of whole shares of KNK Common Stock represented by such Certificate.

(e) No fractional shares of KNK Common Stock shall be issued upon the surrender for exchange of Certificates; no dividend or distribution of KNK shall relate to any fractional share interest; and such fractional share interests will not entitle the owner thereof to vote or to any rights of a stockholder of KNK. Instead, each holder of shares of AFC Common Stock having a fractional interest in shares of KNK Common Stock arising upon the conversion of such shares of AFC Common Stock shall, at the time of surrender of the Certificates, be paid by KNK an amount in cash, without interest, determined by multiplying such fractional share of KNK Common Stock by the average of the closing sale prices of KNK Common Stock for the five trading days immediately following the Closing Date.

(f) All shares of KNK Common Stock, and any required cash payments for fractional shares, into and for which shares of AFC Common Stock shall have been converted and exchanged pursuant to this Agreement, shall be deemed to have been issued in full satisfaction of all rights pertaining to such converted and exchanged shares of AFC Common Stock.

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(g) At the Effective Time, AFC shall deliver to the Exchange Agent a certified copy of a list of its shareholders, after which there shall be no further registration or transfers on the stock transfer books of AFC of the shares of AFC Common Stock, all of which were outstanding immediately prior to the Effective Time. If after the Effective Time Certificates representing shares of AFC Common Stock are presented to the Exchange Agent or KNK, they shall be canceled and converted into shares of KNK Common Stock as provided in this Agreement.

(h) If a certificate representing shares of KNK Common Stock is to be issued in a name other than that in which the Certificate surrendered in exchange therefor is registered, it shall be a condition of the issuance thereof that the Certificate so surrendered shall be properly endorsed, accompanied by all documents required to evidence and effect such transfer and otherwise in proper form for transfer and that the Person requesting such exchange shall pay to KNK any transfer or other taxes required by reason of the issuance of a certificate representing shares of KNK Common Stock in any name other than that of the registered holder of the Certificate surrendered, or otherwise required, or shall establish to the satisfaction of KNK that such tax has been paid or is not payable.

Section 3.3 Tax Free Reorganization. The parties to this Agreement intend for the Merger to qualify as a nontaxable reorganization within the meaning of Section 368(a)(1)(A) and related sections of the Code and agree to cooperate and to take such actions as may be reasonably necessary to ensure such result and no party shall file any tax return or take any action or position inconsistent therewith, except as required pursuant to any Legal Requirement.

Section 3.4 Dissenting Shares. Notwithstanding anything to the contrary contained in this Agreement, to the extent appraisal rights are available to shareholders of AFC pursuant to the provisions of any applicable Legal Requirements, any shares of AFC Common Stock held by a Person who objects to the Merger, whose shares were not voted in favor of the Merger and who complies with and satisfies all of the provisions of the applicable Legal Requirements concerning the rights of such Person to dissent from the Merger and to require appraisal of such Person’s shares and who has not withdrawn such objection or waived such rights prior to the Effective Time (collectively with respect to all such AFC shareholders, the “Dissenting Shares”), shall not be converted pursuant to Section 3.1, but shall become the right to receive such consideration as may be determined to be due to the holder of such Dissenting Shares pursuant to the applicable Legal Requirements, including, if applicable, any costs determined to be payable by AFC to the holders of Dissenting Shares pursuant to an order of any court pursuant to any applicable Legal Requirements; provided, however, that each Dissenting Share held by a Person at the Effective Time who shall, after the Effective Time, withdraw the demand for appraisal or lose the right of appraisal, in either case pursuant to applicable Legal Requirements shall be deemed to have been converted, as of the Effective Time, into the right to receive the number of shares of KNK Common Stock as is determined in accordance with Section 3.1.

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ARTICLE 4

REPRESENTATIONS AND WARRANTIES OF AFC

AFC hereby represents and warrants to KNK as follows:

Section 4.1 AFC Organization. AFC: (a) is a corporation duly organized, validly existing and in good standing under the laws of the State of Illinois and is also in good standing in each other jurisdiction in which the nature of the business conducted or the properties or assets owned or leased by it makes such qualification necessary, except where any failure to qualify would not be expected to have a Material Adverse Effect on AFC on a consolidated basis; (b) is registered with the Federal Reserve as a bank holding company under the federal Bank Holding Company Act of 1956, as amended (the “BHCA”); and (c) has full power and authority, corporate and otherwise, to operate as a bank holding company and to own, operate and lease its properties as presently owned, operated and leased, and to carry on its business as it is now being conducted. The copies of the articles of incorporation and bylaws of AFC and all amendments thereto set forth on Schedule 4.1 are complete and correct. AFC has no Subsidiaries other than the Bank, except as set forth on Schedule 4.1.

Section 4.2 AFC Subsidiary Organization. The Bank is an Illinois commercial bank duly organized, validly existing and in good standing under the laws of the State of Illinois. Each other AFC Subsidiary is duly organized, validly existing and in good standing in its state or jurisdiction of organization. Each AFC Subsidiary has full power and authority, corporate and otherwise, to own, operate and lease its properties as presently owned, operated and leased, and to carry on its business as it is now being conducted, and is duly qualified to do business and is in good standing in each jurisdiction in which the nature of the business conducted or the properties or assets owned or leased by it makes such qualification necessary, except where any failure to qualify would not be expected to have a Material Adverse Effect on AFC on a consolidated basis. The copies of the charter (or similar organizational documents) and bylaws of each AFC Subsidiary and all amendments thereto set forth on Schedule 4.2 are complete and correct.

Section 4.3 Authorization; Enforceability.

(a) AFC has the requisite corporate power and authority to enter into and perform its obligations under this Agreement. The execution, delivery and performance of this Agreement by AFC, and the consummation by it of its obligations under this Agreement, have been authorized by all necessary corporate action, subject to shareholder approval, and this Agreement constitutes a legal, valid and binding obligation of AFC enforceable in accordance with its terms, except as such enforcement may be limited by bankruptcy, insolvency, reorganization or other laws affecting creditors’ right generally and subject to general principles of equity.

(b) Except for ordinary corporate requirements, no “business combination,” “moratorium,” “control share” or other state anti-takeover statute or regulation or any provisions contained in the articles of incorporation or bylaws of AFC: (i) prohibits or restricts AFC’s ability to perform its obligations under this Agreement, or its ability to consummate the Contemplated Transactions; (ii) would have the effect of invalidating or voiding this Agreement,

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or any provision hereof; or (iii) would subject KNK to any material impediment or condition in connection with the exercise of any of its rights under this Agreement. The board of directors of AFC has unanimously approved the execution of, and performance by AFC of its obligations under, this Agreement.

Section 4.4 No Conflict. Neither the execution nor delivery of this Agreement nor the consummation or performance of any of the Contemplated Transactions will, directly or indirectly (with or without notice or lapse of time): (a) contravene, conflict with or result in a violation of any provision of the articles of incorporation or charter (or similar organizational documents) or bylaws, each as in effect on the date hereof, or any currently effective resolution adopted by the board of directors or shareholders of, AFC or any AFC Subsidiary; (b) contravene, conflict with or result in a violation of, or give any Regulatory Authority or other Person the valid and enforceable right to challenge any of the Contemplated Transactions or to exercise any remedy or obtain any relief under, any Legal Requirement or any Order to which AFC or any AFC Subsidiary, or any of their respective assets that are owned or used by them, may be subject, except for any contravention, conflict or violation that is permissible by virtue of obtaining the regulatory approvals necessitated by the Contemplated Transactions, including any such approvals under the Federal Deposit Insurance Act, as amended (the “FDI Act”), the BHCA, the Securities Act, the Exchange Act and the laws of the State of Illinois (the “Illinois Statutes”), including the Illinois Banking Act (the “Illinois Banking Act”), and the listing rules of the American Stock Exchange (the “AMEX Rules”); (c) except as set forth on Schedule 4.4, contravene, conflict with or result in a violation or breach of any provision of, or give any Person the right to declare a default or exercise any remedy under, or to accelerate the maturity or performance of, or to cancel, terminate or modify any material Applicable Contract to which AFC or any AFC Subsidiary is a party or by which any of their respective assets is bound; or (d) result in the creation of any lien, charge or encumbrance upon or with respect to any of the assets owned or used by AFC or any AFC Subsidiary; except, in the case of each of clause (c) and (d), where any such contravention, conflict, violation, breach, lien, charge or encumbrance would not be expected to have a Material Adverse Effect on AFC on a consolidated basis. Except for the approvals referred to in Section 8.1 and the requisite approval of its shareholders, neither AFC nor any AFC Subsidiary is or will be required to give any notice to or obtain any consent from any Person in connection with the execution and delivery of this Agreement or the consummation or performance of any of the Contemplated Transactions, except in either case where the failure to give such notice or obtain such consent would not be expected to have a Material Adverse Effect or AFC on a consolidated basis.

Section 4.5 AFC Capitalization. The authorized capital stock of AFC currently consists exclusively of 750,000 shares of AFC Common Stock, of which: (i) 483,826 shares are duly issued, fully paid and non-assessable; and (ii) 45,000 shares have been reserved for issuance in respect of outstanding AFC Stock Options. The maximum number of shares of AFC Common Stock that would be outstanding immediately prior to the Effective Time (excluding treasury shares) is 528,826 shares. To the Knowledge of AFC and except as disclosed in this Agreement or on the AFC Schedules, none of the shares of authorized capital stock of AFC are, nor on the Closing Date will they be, subject to any claim of right inconsistent with this Agreement. Except as contemplated in this Agreement or as set forth in Schedule 4.5, there are, as of the date of this

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Agreement, no outstanding subscriptions, contracts, conversion privileges, options, warrants, calls or other rights obligating AFC or any AFC Subsidiary to issue, sell or otherwise dispose of, or to purchase, redeem or otherwise acquire, any shares of capital stock of AFC or any AFC Subsidiary. There are no outstanding securities of AFC that are convertible into, or exchangeable for, any shares of capital stock, and except as provided in this Section or otherwise disclosed in this Agreement, AFC is not a party to any Contract relating to the issuance, sale or transfer of any equity securities or other securities of AFC. None of the shares of AFC Common Stock were issued in violation of any federal or state securities laws or any other Legal Requirement. AFC does not own or have any Contract to acquire any equity securities or other securities of any Person or any direct or indirect equity or ownership interest in any other business except for the capital stock of the Bank and as set forth in Schedule 4.5. Except as disclosed in or permitted by this Agreement or as provided on Schedule 4.5, no shares of AFC capital stock have been purchased, redeemed or otherwise acquired, directly or indirectly, by AFC or any AFC Subsidiary and no dividends or other distributions payable in any equity securities of AFC or any AFC Subsidiary have been declared, set aside, made or paid to the shareholders of AFC.

Section 4.6 AFC Subsidiary Capitalization. The authorized capital stock of the Bank consists, and immediately prior to the Effective Time, will consist exclusively of 3,000 shares of capital stock, $150.00 par value per share, all of which shares are, and immediately prior to the Closing will be, duly authorized, validly issued and outstanding, fully paid and nonassessable (the “Bank Shares”). AFC is, and will be on the Closing Date, the record and beneficial owner of 100% of the Bank Shares and all of the issued and outstanding shares of capital stock of each other AFC Subsidiary, free and clear of any lien or encumbrance whatsoever. The Bank Shares are, and will be on the Closing Date, freely transferable and are, and will be on the Closing Date, subject to no claim of right inconsistent with this Agreement and as set forth on Schedule 4.6. There are no unexpired or pending preemptive rights with respect to any shares of capital stock of any AFC Subsidiary. There are no outstanding securities of any AFC Subsidiary that are convertible into or exchangeable for any shares of such AFC Subsidiary’s capital stock, and no AFC Subsidiary is a party to any Contract relating to the issuance, sale or transfer of any equity securities or other securities of such AFC Subsidiary. Neither AFC nor any AFC Subsidiary owns or has any Contract to acquire, any equity securities or other securities of any Person or any direct or indirect equity or ownership interest in any other business, except as set forth on Schedule 4.6.

Section 4.7 Financial Statements and Reports. True, correct and complete copies of the following financial statements and reports are included in Schedule 4.7:

(a) unaudited Consolidated Balance Sheets for AFC as of December 31, 2002, and the related Consolidated Statements of Income, Statements of Cash Flows and Consolidated Statements of Changes in Shareholders’ Equity of AFC for the 69-day period ended December 31, 2002;

(b) Independent Accountants’ Report on Applying Agreed-upon Procedures as of March 15, 2000 and Directors’ Examination Report on Agreed-upon Procedures as of August 21, 2001;

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(c) Consolidated Balance Sheet for AFC as of March 31, 2003, and the related Consolidated Statement of Income for the three months ended March 31, 2003; and

(d) Call Reports for the Bank as of the close of business on December 31, 2000, 2001 and 2002, and on March 31, 2003.

The financial statements described in clauses (a) and (c) have been prepared in conformity with GAAP, except as otherwise set forth therein. The reports described in clause (b) and (c) above have been prepared on a basis consistent with past accounting practices and as required by applicable Legal Requirements and fairly present the consolidated financial condition and results of operations at the dates and for the periods presented. Taken together, the financial statements and reports described in clauses (a), (b), (c) and (d) above (collectively, the “AFC Financial Statements”) are complete and correct in all respects and fairly and accurately present in all material respects the respective financial position, assets, liabilities and results of operations of AFC and the AFC Subsidiaries as at the respective dates of and for the periods referred to in the AFC Financial Statements. The AFC Financial Statements do not include any material assets or omit to state any material liabilities, absolute or contingent, or other facts, which inclusion or omission would render the AFC Financial Statements misleading in any material respect.

Section 4.8 Books and Records. The books of account, minute books, stock record books and other records of AFC and each AFC Subsidiary are complete and correct in all material respects and have been maintained in accordance with sound business practices and all applicable Legal Requirements, including the maintenance of any adequate system of internal controls. The minute books of AFC and each AFC Subsidiary contain accurate and complete records in all material respects of all meetings held of, and corporate action taken by, its respective stockholders, board of directors and committees of the board of directors. At the Closing, all of those books and records will be in the possession of AFC and the AFC Subsidiaries.

Section 4.9 Title to Properties. AFC and each AFC Subsidiary has good and marketable title to all assets and properties, whether real or personal, tangible or intangible, that it purports to own, subject to no valid liens, mortgages, security interests, encumbrances or charges of any kind except: (a) as noted in the most recent AFC Financial Statement or on Schedule 4.9; (b) statutory liens for Taxes not yet delinquent or being contested in good faith by appropriate Proceedings and for which appropriate reserves have been established and reflected on the AFC Financial Statements; (c) pledges or liens required to be granted in connection with the acceptance of government deposits, granted in connection with repurchase or reverse repurchase agreements or otherwise incurred in the Ordinary Course of Business; and (d) minor defects and irregularities in title and encumbrances that do not materially impair the use thereof for the purposes for which they are held. Except as set forth on Schedule 4.9. To the Knowledge of AFC, AFC and each AFC Subsidiary as lessee has the right under valid and existing leases to occupy, use, possess and control any and all of the respective property leased by it. Except where any failure would not be expected to have a Material Adverse Effect on AFC on a consolidated basis, all buildings and structures owned by AFC and each AFC Subsidiary lie wholly within the

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boundaries of the real property owned or validly leased by it, do not encroach upon the property of, or otherwise conflict with the property rights of, any other Person

Section 4.10 Condition and Sufficiency of Assets. The buildings, structures and equipment of AFC and each AFC Subsidiary are structurally sound, are in good operating condition and repair, and are adequate for the uses to which they are being put, and none of such buildings, structures or equipment is in need of maintenance or repairs except for ordinary, routine maintenance and repairs that are not material in the aggregate in nature or in cost. Except where any failure would not reasonably be expected to have a Material Adverse Effect on AFC on a consolidated basis, the real property, buildings, structures and equipment owned or leased by AFC and each AFC Subsidiary are in compliance with the Americans with Disabilities Act of 1990, as amended, and the regulations promulgated thereunder, and all other building and development codes and other restrictions, including subdivision regulations, building and construction regulations, drainage codes, health, fire and safety laws and regulations, utility tariffs and regulations, conservation laws and zoning laws and ordinances. The assets and properties, whether real or personal, tangible or intangible, that AFC or any AFC Subsidiary purport to own or lease are sufficient for the continued conduct of the business of AFC and each AFC Subsidiary after the Closing in substantially the same manner as conducted prior to the Closing.

Section 4.11 Loans; Loan Loss Reserve. All loans and loan commitments extended by any AFC Subsidiary and any extensions, renewals or continuations of such loans and loan commitments (the “AFC Loans”) were made in accordance with the lending policies of such AFC Subsidiary in the Ordinary Course of Business. The AFC Loans are evidenced by appropriate and sufficient documentation and constitute valid and binding obligations to such AFC Subsidiary enforceable in accordance with their terms, except (a) for such deficiencies that would not be expected to have a Material Adverse Effect on AFC on a consolidated basis, and (b) as enforceability may be limited by bankruptcy, insolvency, reorganization or other laws affecting creditors’ rights generally and subject to general principles of equity. All such AFC Loans are, and at the Closing will be, free and clear of any encumbrance or other charge and each AFC Subsidiary has complied, and at the Closing will have complied with all Legal Requirements relating to such AFC Loans, except where any such failure to comply would not reasonably be expected to have a Material Adverse Effect on AFC or any AFC Subsidiary. The allowance for possible loan and lease losses of each AFC Subsidiary is and will be on the Closing Date adequate in all material respects to provide for possible or specific losses, net of recoveries relating to loans previously charged off, and contains and will contain an additional amount of unallocated reserves for unanticipated future losses at an adequate level. None of the AFC Loans is subject to any offset or claim of offset, and the aggregate loan balances in excess of such AFC Subsidiary’s reserve for loan and lease losses are, based on past loan loss experience, collectible in accordance with their terms and all uncollectible loans have been charged off, except, in either case, that would not be expected to have a Material Adverse Effect on KNK on a consolidated basis.

Section 4.12 Undisclosed Liabilities; Adverse Changes. Except as set forth on Schedule 4.12, neither AFC nor any AFC Subsidiary has any material liabilities or obligations of any nature (whether absolute, accrued, contingent or otherwise), except for liabilities or

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obligations reflected or reserved against in the AFC Financial Statements and current liabilities incurred in the Ordinary Course of Business since the respective dates thereof. Since the date of the latest AFC Financial Statement, there has not been any change in the business, operations, properties, prospects, assets or condition of AFC or any AFC Subsidiary, and, to AFC’s Knowledge, no event has occurred or circumstance exists, that has had or would reasonably be expected to have a Material Adverse Effect on AFC on a consolidated basis.

Section 4.13 Taxes. AFC and each AFC Subsidiary has duly filed all material Tax Returns required to be filed by it, and each such Tax Return is complete and accurate in all material respects. AFC and each AFC Subsidiary has paid, or made adequate provision for the payment of, all Taxes (whether or not reflected in Tax Returns as filed or to be filed) due and payable by AFC or any AFC Subsidiary, or claimed to be due and payable by any Regulatory Authority, and is not delinquent in the payment of any Tax, except such Taxes as are being contested in good faith and as to which adequate reserves have been provided. There is no claim or assessment pending or, to the Knowledge of AFC, Threatened against AFC or any AFC Subsidiary for any Taxes owed by any of them. No audit, examination or investigation related to Taxes paid or payable by AFC or any AFC Subsidiary is presently being conducted or, to the Knowledge of AFC, Threatened by any Regulatory Authority. AFC has delivered to KNK true, correct and complete copies of all Tax Returns previously filed with respect to the last three fiscal years by AFC and each AFC Subsidiary and any tax examination reports and statements of deficiencies assessed or agreed to for any of AFC or any AFC Subsidiary for any such time period.

Section 4.14 Compliance with ERISA. Except as set forth on Schedule 4.14, all employee benefit plans (as defined in Section 3(3) of ERISA) established or maintained by AFC or any AFC Subsidiary or to which AFC or any AFC Subsidiary contributes, are in compliance with all applicable requirements of ERISA, and are in compliance with all applicable requirements (including qualification and non-discrimination requirements in effect as of the Closing) of the Code for obtaining the tax benefits the Code thereupon permits with respect to such employee benefit plans. No such employee benefit plan has any amount of unfunded benefit liabilities (as defined in Section 4001(a)(18) of ERISA) for which AFC or any AFC Subsidiary would be liable to any Person under Title IV of ERISA if any such employee benefit plan were terminated as of the Closing. Such employee benefit plans are funded in accordance with Section 412 of the Code (if applicable). There would be no obligations of AFC or any AFC Subsidiary under Title IV of ERISA relating to any such employee benefit plan that is a multi-employer plan if any such plan were terminated or if AFC or such AFC Subsidiary withdrew from any such plan as of the Closing. All contributions and premium payments due prior to the date hereof have been made, and all contributions and premium payments due prior to Closing will be made, by AFC or an AFC Subsidiary, as applicable, on a timely basis.

Section 4.15 Compliance with Legal Requirements. AFC and each AFC Subsidiary holds all licenses, certificates, permits, franchises and rights from all appropriate Regulatory Authorities necessary for the conduct of its respective business. Except as set forth on Schedule 4.15, each of AFC and each AFC Subsidiary is, and at all times since January 1, 2000, has been, in compliance with each Legal Requirement that is or was applicable to it or to the conduct or operation of its respective businesses or the ownership or use of any of its respective

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assets, except where the failure to comply would not reasonably be expected to have a Material Adverse Effect on AFC or any AFC Subsidiary. No event has occurred or circumstance exists that (with or without notice or lapse of time): (a) may constitute or result in a violation by AFC or any AFC Subsidiary of, or a failure on the part of AFC or any AFC Subsidiary to comply with, any Legal Requirement; or (b) may give rise to any obligation on the part of AFC or any AFC Subsidiary to undertake, or to bear all or any portion of the cost of, any remedial action of any nature in connection with a failure to comply with any Legal Requirement; except where the failure to comply would not reasonably be expected to have a Material Adverse Effect on AFC or any AFC Subsidiary. Except as set forth on Schedule 4.15, neither AFC nor any AFC Subsidiary has received, at any time since January 1, 2000, any notice or other communication (whether oral or written) from any Regulatory Authority or any other Person regarding: (x) any actual, alleged, possible, or potential violation of, or failure to comply with, any Legal Requirement; or (y) any actual, alleged, possible, or potential obligation on the part of AFC or any AFC Subsidiary to undertake, or to bear all or any portion of the cost of, any remedial action of any nature in connection with a failure to comply with any Legal Requirement.

Section 4.16 Legal Proceedings; Orders.

(a) Schedule 4.16 is a true and correct list of all Proceedings and Orders pending, entered into or, to the Knowledge of AFC, Threatened against or affecting AFC or any AFC Subsidiary or any of their respective assets or businesses, or the Contemplated Transactions, since January 1, 2000, that had, or would reasonably be expected to have, a Material Adverse Effect on AFC on a consolidated basis or that would impair AFC’s ability to consummate any of the Contemplated Transactions, and there is no fact to AFC’s Knowledge that would provide a basis for any other Proceeding or Order. To the Knowledge of AFC, no officer, director, agent or employee of AFC or any AFC Subsidiary is subject to any Order that prohibits such officer, director, agent or employee from engaging in or continuing any conduct, activity or practice relating to the businesses of AFC or any AFC Subsidiary as currently conducted.

(b) Neither AFC nor any AFC Subsidiary is subject to any cease-and-desist or other Order or enforcement action issued by, or is a party to any written agreement, consent agreement or memorandum of understanding with, or is a party to any commitment letter or similar undertaking to, or is subject to any order or directive by, or has been since January 1, 2000, a recipient of any supervisory letter from, or has been ordered to pay any civil money penalty by, or has adopted any policies, procedures or board resolutions at the request of any Regulatory Authority that currently restricts in any material respect the conduct of its business or that in any material manner relates to its capital adequacy, its ability to pay dividends, its credit or risk management policies, its management or its business, nor has AFC or any AFC Subsidiary been advised by any Regulatory Authority that it is considering issuing, initiating, ordering or requesting any of the foregoing.

Section 4.17 Absence of Certain Changes and Events. Except as set forth on Schedule 4.17, since December 31, 2002, AFC and each AFC Subsidiary has conducted its respective businesses only in the Ordinary Course of Business. Without limiting the foregoing, with respect to each there has not been any:

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(a) change in its authorized or issued capital stock; grant of any stock option or right to purchase shares of its capital stock; issuance of any security convertible into such capital stock or evidences of indebtedness (except in connection with customer deposits); grant of any registration rights; purchase, redemption, retirement or other acquisition by it of any shares of any such capital stock; or declaration or payment of any dividend or other distribution or payment in respect of shares of its capital stock;

(b) amendment to its articles of incorporation, charter or bylaws or adoption of any resolutions by its board of directors or shareholders with respect to the same;

(c) payment or increase of any bonus, salary or other compensation to any of its shareholders, directors, officers or employees, except for normal increases in the Ordinary Course of Business or in accordance with any then existing AFC Employee Benefit Plan (as defined below), or entry by it into any employment, consulting, non-competition, change in control, severance or similar Contract with any shareholder, director, officer or employee;

(d) adoption, amendment (except for any amendment necessary to comply with any Legal Requirement) or termination of, or increase in the payments to or benefits under, any AFC Employee Benefit Plan;

(e) damage to or destruction or loss of any of its assets or property, whether or not covered by insurance and where the resulting diminution in value individually or in the aggregate is greater than $50,000;

(f) entry into, termination or extension of, or receipt of notice of termination of any joint venture or similar agreement pursuant to any Contract or any similar transaction;

(g) except for this Agreement, entry into any new, or modification, amendment, renewal or extension (through action or inaction) of the terms of any existing, lease, Contract or license that has a term of more than one year or that involves the payment by AFC or any AFC Subsidiary of more than $50,000 in the aggregate, except for expenses incurred in connection with the proposed branch for Fairview Heights, Illinois, as described in Schedule 4.17;

(h) AFC Loan or commitment to make any AFC Loan other than in the Ordinary Course of Business;

(i) AFC Loan or commitment to make, renew, extend the term or increase the amount of any Loan to any Person if such AFC Loan or any other AFC Loans to such Person or an Affiliate of such Person is on the “watch list” or similar internal report of AFC or any AFC Subsidiary, or has been classified as “substandard,” “doubtful,” “loss,” or “other loans specially mentioned” or listed as a “potential problem loan”; provided, however, that nothing in this Section 4.17(i) shall prohibit AFC or any AFC Subsidiary from honoring any contractual obligation in existence on the date of this Agreement;

(j) sale (other than any sale in the Ordinary Course of Business), lease or other disposition of any of its assets or properties or mortgage, pledge or imposition of any lien

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or other encumbrance upon any of its material assets or properties except for tax and other liens that arise by operation of law and with respect to which payment is not past due and except for pledges or liens: (i) required to be granted in connection with the acceptance by the Bank of government deposits; (ii) granted in connection with repurchase or reverse repurchase agreements; or (iii) otherwise incurred in the Ordinary Course of Business;

(k) incurrence by it of any obligation or liability (fixed or contingent) other than in the Ordinary Course of Business;

(l) cancellation or waiver by it of any claims or rights with a value in excess of $50,000;

(m) any investment by it of a capital nature exceeding $15,000 or aggregate investments of a capital nature exceeding $50,000;

(n) except for the Contemplated Transactions, merger or consolidation with or into any other Person, or acquisition of any stock, equity interest or business of any other Person;

(o) transaction for the borrowing or loaning of monies, or any increase in any outstanding indebtedness, other than in the Ordinary Course of Business;

(p) material change in any policies and practices with respect to liquidity management and cash flow planning, marketing, deposit origination, lending, budgeting, profit and tax planning, accounting or any other material aspect of its business or operations, except for such changes as may be required in the opinion of the management of AFC to respond to then current market or economic conditions or as may be required by any Regulatory Authorities;

(q) filing of any applications for additional branches, opening of any new office or branch, closing of any current office or branch, or relocation of operations from existing locations;

(r) discharge or satisfaction of any material lien or encumbrance on its assets or repayment of any material indebtedness for borrowed money, except for obligations incurred and repaid in the Ordinary Course of Business;

(s) entry into any Contract or agreement to buy, sell, exchange or otherwise deal in any assets or series of assets in a single transaction in excess of $50,000 in aggregate value, except for sales of AFC “other real estate owned” and other repossessed properties or the acceptance of a deed in lieu of foreclosure;

(t) purchase or other acquisition of any investments, direct or indirect, in any derivative securities, financial futures or commodities or entry into any interest rate swap, floors and option agreements, or other similar interest rate management agreements;

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(u) hiring of any employee with an annual salary in excess of $30,000, except for employees at will who are hired to replace employees who have resigned or whose employment has otherwise been terminated; or

(v) agreement, whether oral or written, by it to do any of the foregoing.

Section 4.18 Properties, Contracts and Employee Benefit Plans. Except for Contracts evidencing Loans made by the Bank in the Ordinary Course of Business, Schedule 4.18 lists or describes the following with respect to AFC and each AFC Subsidiary:

(a) all real property owned by AFC and each AFC Subsidiary and the principal buildings and structures located thereon, together with the address of such real estate, and each lease of real property to which AFC and each AFC Subsidiary is a party, identifying the parties thereto, the annual rental payable, the expiration date thereof and a brief description of the property covered, and in each case of either owned or leased real property, the proper identification, if applicable, of each such property as a branch or main office or other office of AFC or such AFC Subsidiary;

(b) all loan and credit agreements, conditional sales contracts or other title retention agreements or security agreements relating to money borrowed by AFC or any AFC Subsidiary, exclusive of deposit agreements with customers of the Bank entered into in the Ordinary Course of Business, agreements for the purchase of federal funds and repurchase agreements;

(c) each Applicable Contract that involves performance of services or delivery of goods or materials by AFC or any AFC Subsidiary of an amount or value in excess of $50,000;

(d) each Applicable Contract that was not entered into in the Ordinary Course of Business and that involves expenditures or receipts of AFC or any AFC Subsidiary in excess of $50,000;

(e) each Applicable Contract not referred to elsewhere in this Section that:

(i) relates to the future purchase of goods or services that materially exceeds the requirements of its respective business at current levels or for normal operating purposes; or

(ii) materially affects the business or financial condition of AFC or any AFC Subsidiary;

(f) each lease, rental, license, installment and conditional sale agreement and other Applicable Contract affecting the ownership of, leasing of, title to or use of, any personal property (except personal property leases and installment and conditional sales agreements having a value per item or aggregate payments of less than $50,000 or with terms of less than one year);

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(g) each licensing agreement or other Applicable Contract with respect to patents, trademarks, copyrights, or other intellectual property (collectively, “Intellectual Property Assets”), including agreements with current or former employees, consultants or contractors regarding the appropriation or the non-disclosure of any of the Intellectual Property Assets of AFC or any AFC Subsidiary;

(h) each collective bargaining agreement and other Applicable Contract to or with any labor union or other employee representative of a group of employees;

(i) each joint venture, partnership and other Applicable Contract (however named) involving a sharing of profits, losses, costs or liabilities by AFC or any AFC Subsidiary with any other Person;

(j) each Applicable Contract containing covenants that in any way purport to restrict the business activity of AFC or any AFC Subsidiary or any Affiliate of any of the foregoing, or limit the ability of AFC or any AFC Subsidiary or any Affiliate of the foregoing to engage in any line of business or to compete with any Person;

(k) each Applicable Contract providing for payments to or by any Person based on sales, purchases or profits, other than direct payments for goods;

(l) the name and annual salary of each director, officer or employee of AFC and each AFC Subsidiary, and the profit sharing, bonus or other form of compensation (other than salary) paid or payable by AFC, each AFC Subsidiary or a combination of any of them to or for the benefit of each such person in question for the year ended December 31, 2002, and for the current year, and any employment agreement, consulting agreement, non-competition, severance or change in control agreement or similar arrangement or plan with respect to each such person;

(m) a summary of each profit sharing, group insurance, hospitalization, stock option, pension, retirement, bonus, severance, change of control, deferred compensation, stock bonus, stock purchase, employee stock ownership or other employee welfare or benefit agreements, plans or arrangements established, maintained, sponsored or undertaken by AFC or any AFC Subsidiary for the benefit of the officers, directors or employees of AFC or any AFC Subsidiary, including each trust or other agreement with any custodian or any trustee for funds held under any such agreement, plan or arrangement, and all other Contracts or arrangements under which pensions, deferred compensation or other retirement benefits are being paid or may become payable by AFC or any AFC Subsidiary for the benefit of the employees of AFC or any AFC Subsidiary (collectively, the “AFC Employee Benefit Plans”), and, in respect to any of them, the latest reports or forms, if any, filed with the Department of Labor and Pension Benefit Guaranty Corporation under ERISA, any current financial or actuarial reports and any currently effective Internal Revenue Service private rulings or determination letters obtained by or for the benefit of AFC or any AFC Subsidiary;

(n) the name of each Person who is or would be entitled pursuant to any Contract or AFC Employee Benefit Plan to receive any payment from AFC or any AFC Subsidiary as a result of the consummation of the Contemplated Transactions (including any

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payment that is or would be due as a result of any actual or constructive termination of a Person’s employment or position following such consummation) and the maximum amount of such payment;

(o) each holder of a AFC Stock Option and the number of underlying shares to which each such holder may be entitled;

(p) each Applicable Contract entered into other than in the Ordinary Course of Business that contains or provides for an express undertaking by AFC or any AFC Subsidiary to be responsible for consequential damages;

(q) each Applicable Contract for capital expenditures in excess of $50,000;

(r) each written warranty, guaranty or other similar undertaking with respect to contractual performance extended by AFC or any AFC Subsidiary other than in the Ordinary Course of Business; and

(s) each amendment, supplement and modification (whether oral or written) in respect of any of the foregoing.

Copies of each document, plan or Contract listed and described on Schedule 4.18 are appended to such Schedule.

Section 4.19 No Defaults. Except as set forth on Schedule 4.19, to the Knowledge of AFC, each Contract identified or required to be identified on Schedule 4.18 is in full force and effect and is valid and enforceable in accordance with its terms. AFC and each AFC Subsidiary is, and at all times since January 1, 2000, has been, in full compliance with all applicable terms and requirements of each Contract under which either AFC or any AFC Subsidiary has or had any obligation or liability or by which AFC or any AFC Subsidiary or any of their respective assets owned or used by them is or was bound, except where the failure to be in full compliance would not reasonably be expected to have a Material Adverse Effect on AFC or any AFC Subsidiary. To the Knowledge of AFC, each other Person that has or had any obligation or liability under any such Contract under which AFC or any AFC Subsidiary has or had any rights is, and at all times since January 1, 2000, has been, in full compliance with all applicable terms and requirements of such Contract, except where the failure to be in full compliance would not reasonably be expected to have a Material Adverse Effect on AFC or any AFC Subsidiary. No event has occurred or circumstance exists that (with or without notice or lapse of time) may contravene, conflict with or result in a material violation or breach of, or give AFC, any AFC Subsidiary or other Person the right to declare a default or exercise any remedy under, or to accelerate the maturity or performance of, or to cancel, terminate or modify, any Applicable Contract. Except in the Ordinary Course of Business with respect to any AFC Loan, neither AFC nor any AFC Subsidiary has given to or received from any other Person, at any time since January 1, 2000, any notice or other communication (whether oral or written) regarding any actual, alleged, possible or potential violation or breach of, or default under, any Contract. Other than in the Ordinary Course of Business in connection with workouts and restructured loans, there are no renegotiations of, attempts to renegotiate or outstanding rights to renegotiate, any

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material amounts paid or payable to AFC or any AFC Subsidiary under current or completed Contracts with any Person and no such Person has made written demand for such renegotiation.

Section 4.20 Insurance. Except for insurance under any AFC Employee Benefit Plan, Schedule 4.20 lists the policies and material terms of insurance (including bankers’ blanket bond and insurance providing benefits for employees) owned or held by AFC or any AFC Subsidiary on the date hereof. Each policy is in full force and effect (except for any expiring policy which is replaced by coverage at least as extensive). All premiums due on such policies have been paid in full.

Section 4.21 Compliance with Environmental Laws. Except as set forth on Schedule 4.21, (i) there are no Proceedings or Orders against AFC or any AFC Subsidiary, or, to the Knowledge of AFC any predecessor thereof, with respect to alleged violation of, or liability under, Environmental Laws; (ii) to the Knowledge of AFC, there is no Threatened Proceeding or Order against AFC or any AFC Subsidiary, or any predecessor thereof, with respect to the alleged violation of, or liability under, Environmental Laws; (iii) to the Knowledge of AFC, there is no factual basis for the assertion or commencement of a Proceeding or Order against AFC or is no factual basis for the assertion or commencement of a Proceeding or Order against AFC or any AFC Subsidiary, or any predecessor thereof, with respect to the violation of, or liability under, Environmental Laws; and (iv) to the Knowledge of AFC, there are no pending or Threatened Proceedings or Orders against or involving the assets of AFC or any AFC Subsidiary. For purposes of this Section 4.21 and Section 5.20 herein: “Environmental Laws” means any federal, stat or local law, statute, ordinance, rule, regulation, code, order, permit or other legally binding requirement applicable to the business or assets of AFC or any AFC Subsidiary that imposes liability or standards of conduct with respect to the Environment and/or Hazardous Materials. “Environment” means surface or subsurface soil or strata, surface waters and sediments, navigable waters, groundwater, drinking water supply and ambient air. “Hazardous Materials” means any hazardous, toxic or dangerous substance, waste, contaminant, pollutant, gas or other material that is classified as such under Environmental Laws or is otherwise regulated under Environmental Laws.

Section 4.22 Regulatory Filings. AFC and each AFC Subsidiary has filed in a timely manner all required filings with all Regulatory Authorities, including the Federal Reserve, the FDIC and the Commissioner. All such filings were accurate and complete in all material respects as of the dates of the filings, and no such filing has made any untrue statement of a material fact or omitted to state a material fact necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading.

Section 4.23 Fiduciary Accounts. The Bank has properly administered in all material respects all accounts for which it acts as fiduciary, including accounts for which it serves as trustee, agent, custodian or investment advisor, in accordance with the material terms of the governing documents and applicable state and federal law and regulations and common law. None of the Bank or any of its directors, officers or employees has committed any breach of trust with respect to any such fiduciary account, and the accountings for each such fiduciary account are true and correct in all material respects and accurately reflect the assets of such fiduciary account.

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Section 4.24 Indemnification Claims. To AFC’s Knowledge, no action or failure to take action by any director, officer, employee or agent of AFC or any AFC Subsidiary has occurred that may give rise to a claim or a potential claim by any such Person for indemnification against AFC or any AFC Subsidiary under any agreement with, or the corporate indemnification provisions of, AFC or any AFC Subsidiary, or under any Legal Requirements.

Section 4.25 Insider Interests. Except as set forth on Schedule 4.25, no officer or director of AFC or any AFC Subsidiary, any member of the Family of any such Person, and no entity that any such Person “controls” within the meaning of Regulation O of the Federal Reserve, has any loan, deposit account or any other agreement with AFC or any AFC Subsidiary, any interest in any material property, real, personal or mixed, tangible or intangible, used in or pertaining to the business of AFC or any AFC Subsidiary.

Section 4.26 Brokerage Commissions. None of AFC, any AFC Subsidiary or any of their respective Representatives has incurred any obligation or liability, contingent or otherwise, for brokerage or finders’ fees or agents’ commissions or other similar payment in connection with this Agreement.

Section 4.27 Approval Delays. To the Knowledge of AFC, there is no reason why the granting of any of the regulatory approvals referred to in Section 8.1 would be denied or unduly delayed. The Bank’s CRA rating is “satisfactory” or better.

Section 4.28 Disclosure. Neither any representation nor warranty of AFC in, nor any schedule to, this Agreement contains any untrue statement of a material fact, or omits to state a material fact necessary to make the statements herein or therein, in light of the circumstances in which they were made, not misleading. No notice given pursuant to Section 6.6 will contain any untrue statement or omit to state a material fact necessary to make the statements therein or in this Agreement, in light of the circumstances in which they were made, not misleading.

ARTICLE 5

REPRESENTATIONS AND WARRANTIES OF KNK

KNK hereby represents and warrants to AFC as follows:

Section 5.1 KNK Organization. KNK: (a) is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and is also in good standing in each other jurisdiction in which the nature of business conducted or the properties or assets owned or leased by it makes such qualification necessary, except where any failure to qualify would not be expected to have a Material Adverse Effect on KNK on a consolidated basis; (b) is registered with the OTS as a savings and loan holding company under the Home Owners’ Loan Act, as amended (the “HOLA”); and (c) has full power and authority, corporate and otherwise, to operate as a savings and loan holding company and to own, operate and lease its properties as presently owned, operated and leased, and to carry on its business as it is now being conducted. The copies of the certificate of incorporation and bylaws of KNK and all amendments thereto set forth in the KNK SEC Reports are complete and correct. KNK has no Subsidiaries other than KFS Bank, except as set forth in the KNK SEC Reports.

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Section 5.2 Bank Organization. KFS Bank is a federal savings bank duly organized, validly existing and in good standing under the laws of the United States. KFS Bank has full power and authority, corporate and otherwise, to own, operate and lease its properties as presently owned, operated and leased, and to carry on its business as it is now being conducted, and is duly qualified to do business and is in good standing in each jurisdiction in which the nature of the business conducted or the properties or assets owned or leased by it makes such qualification necessary, except where any failure to qualify would not be expected to have a Material Adverse Effect on KNK on a consolidated basis. The copies of the charter and bylaws of KFS Bank and all amendments thereto set forth in Schedule 5.2 are complete and correct.

Section 5.3 Authorization; Enforceability.

(a) KNK has the requisite corporate power and authority to enter into and perform its obligations under this Agreement. The execution, delivery and performance of this Agreement by KNK, and the consummation by it of its obligations under this Agreement, have been authorized by all necessary corporate action, subject to stockholder approval, and this Agreement constitutes a legal, valid and binding obligation of KNK enforceable in accordance with its terms, except as such enforcement may be limited by bankruptcy, insolvency, reorganization or other laws affecting creditors’ rights generally and subject to general principles of equity.

(b) Except for ordinary corporate requirements, no “business combination,” “moratorium,” “control share” or other state anti-takeover statute or regulation or any provisions contained in the certificate of incorporation or bylaws of KNK: (i) prohibits or restricts KNK’s ability to perform its obligations under this Agreement, or its ability to consummate the Contemplated Transactions; (ii) would have the effect of invalidating or voiding this Agreement, or any provision hereof; or (iii) would subject AFC to any material impediment or condition in connection with the exercise of any of its rights under this Agreement. The board of directors of KNK has unanimously approved the execution of, and performance by KNK of its obligations under, this Agreement.

Section 5.4 No Conflict. Except as set forth on Schedule 5.4, neither the execution nor delivery of this Agreement nor the consummation or performance of any of the Contemplated Transactions will, directly or indirectly (with or without notice or lapse of time): (a) contravene, conflict with or result in a violation of any provision of the certificate of incorporation or charter, the bylaws, each as in effect on the date hereof, or any currently effective resolution adopted by the board of directors or stockholders of, KNK or any KNK Subsidiary; or (b) contravene, conflict with or result in a violation of, or give any Regulatory Authority or other Person the valid and enforceable right to challenge any of the Contemplated Transactions or to exercise any remedy or obtain any relief under, any Legal Requirement or any Order to which KNK or KNK Subsidiary, or any of their respective assets that are owned or used by them, may be subject, except for any contravention, conflict or violation that is permissible by virtue of obtaining the regulatory approvals necessitated by the Contemplated Transactions, including any such approvals under the HOLA, the FDI Act, the BHCA, the Securities Act, the Exchange Act, the Illinois Banking Act, the Illinois Statutes, the AMEX Rules and the laws of the state of Delaware. Except for the regulatory approvals referred to in Section 8.1, neither KNK nor any

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KNK Subsidiary is or will be required to give any notice to or obtain any consent from any Person in connection with the execution and delivery of this Agreement or the consummation or performance of any of the Contemplated Transactions, except in either case, where the failure to give such notice or obtain such consent would not be expected to have a Material Adverse Effect on KNK on a consolidated basis.

Section 5.5 KNK Capitalization. The authorized capital stock of KNK at May 13, 2003, consisted of: (a) 3,500,000 shares of common stock, $0.01 par value per share, of which: (i) 932,611 shares were duly issued and outstanding, fully paid and non-assessable; (ii) 817,000 shares were held in the treasury of KNK as of that date; and (iii) 136,250 shares have been reserved for issuance in respect of outstanding stock options that have been or may be granted under existing option plans of KNK by KNK or otherwise; and (b) 500,000 shares of preferred stock, $0.01 par value per share, none of which shares were issued and outstanding. The maximum number of shares of KNK Common Stock that would be outstanding immediately prior to the Effective Time (excluding treasury shares) if all options, warrants, conversion rights and other rights with respect thereto were exercised and the restrictions on any restricted stock were no longer applicable is 1,068,861 shares. To the Knowledge of KNK and except as disclosed in this Agreement or on the KNK Schedules, none of the shares of authorized capital stock of KNK are, nor on the Closing Date will they be, subject to any claim of right inconsistent with this Agreement. Except as contemplated in this Agreement or as set forth in Schedule 5.5 or the KNK SEC Reports, there are, as of the date of this Agreement, no outstanding subscriptions, contracts, conversion privileges, options, warrants, calls or other rights obligating KNK or any KNK Subsidiary to issue, sell or otherwise dispose of, or to purchase, redeem or otherwise acquire, any shares of capital stock of KNK or any KNK Subsidiary. There are no outstanding securities of KNK that are convertible into, or exchangeable for, any shares of KNK’s capital stock, and except as provided in this Section or otherwise disclosed in this Agreement, KNK is not a party to any Contract relating to the issuance, sale or transfer of any equity securities or other securities of KNK. None of the shares of KNK Common Stock were issued in violation of any federal or state securities laws or any other Legal Requirement. KNK does not own or have any Contract to acquire any equity securities or other securities of any Person or any direct or indirect equity or ownership interest in any other business except for the capital stock of KFS Bank and as set forth in Schedule 5.5 or the KNK SEC Reports. Except as disclosed in or permitted by this Agreement or as provided on Schedule 5.5 or the KNK SEC Reports, no shares of KNK capital stock have been purchased, redeemed or otherwise acquired, directly or indirectly, by KNK or any KNK Subsidiary and no dividends or other distributions payable in any equity securities of KNK or any KNK Subsidiary have been declared, set aside, made or paid to the stockholders of KNK.

Section 5.6 KFS Bank Capitalization. The authorized capital stock of KFS Bank consists, and at the Effective Time will consist, exclusively of 1,750,000 shares of common stock, $0.01 par value per share, all of which shares are, and immediately prior to the Closing will be, duly authorized, validly issued and outstanding, fully paid and nonassessable (the “KFS Bank Shares”). Except as set forth on Schedule 5.6, KNK is, and will be on the Closing Date, the record and beneficial owner of 100% of KFS Bank Shares, free and clear of any lien or encumbrance whatsoever. The KFS Bank Shares are, and will be on the Closing Date, freely transferable and are, and will be on the Closing Date, subject to no claim of right inconsistent

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with this Agreement and as set forth in Schedule 5.6. There are no unexpired or pending preemptive rights with respect to any shares of capital stock of KFS Bank. There are no outstanding securities of KFS Bank that are convertible into, or exchangeable for, any shares of KFS Bank’s capital stock, and KFS Bank is not a party to any Contract relating to the issuance, sale or transfer of any equity securities or other securities of KFS Bank. KFS Bank does not own, or have any Contract to acquire, any equity securities or other securities of any Person or any direct or indirect equity or ownership interest in any other business, except as set forth in Schedule 5.6.

Section 5.7 Financial Statements and Reports. True, correct and complete copies of the TFRs for KFS Bank at the close of business on December 31, 2000, 2001 and 2002, and on March 31, 2003 are included in Schedule 5.7, which TFRs have been prepared on a basis consistent with past accounting practices and as required by applicable Legal Requirements and fairly present the consolidated financial condition and results of operations at the dates and for the periods presented. Taken together, the TFRs described in the preceding sentence and the financial statements and reports of KNK included with each of the Forms 10-K filed with the SEC for the years ended December 31, 2000, 2001 and 2002 (collectively, the “KNK Financial Statements”) are complete and correct in all respects and fairly and accurately present in all material respects the respective financial position, assets, liabilities and results of operations of KNK and the KNK Subsidiaries at the respective dates of, and for the periods referred to in, the KNK Financial Statements. The KNK Financial Statements do not include any material assets or omit to state any material liabilities, absolute or contingent, or other facts, which inclusion or omission would render the KNK Financial Statements misleading in any material respect.

Section 5.8 Books and Records. The books of account, minute books, stock record books and other records of KNK and each KNK Subsidiary are complete and correct in all material respects and have been maintained in accordance with sound business practices and all applicable Legal Requirements, including the maintenance of any adequate system of internal controls. The minute books of KNK and each KNK Subsidiary contain accurate and complete records in all material respects of all meetings held of, and corporate action taken by, its respective stockholders, board of directors and committees of the board of directors. At the Closing, all of those books and records will be in the possession of KNK and the KNK Subsidiaries.

Section 5.9 Title to Properties. KNK and each KNK Subsidiary has good and marketable title to all assets and properties, whether real or personal, tangible or intangible, that it purports to own, subject to no valid liens, mortgages, security interests, encumbrances or charges of any kind except: (a) as noted in the most recent KNK Financial Statement, the KNK SEC Reports or Schedule 5.9; (b) statutory liens for Taxes not yet delinquent or being contested in good faith by appropriate Proceedings and for which appropriate reserves have been established and reflected on the KNK Financial Statements; (c) pledges or liens required to be granted in connection with the acceptance of government deposits, granted in connection with repurchase or reverse repurchase agreements or otherwise incurred in the Ordinary Course of Business; and (d) minor defects and irregularities in title and encumbrances that do not materially impair the use thereof for the purposes for which they are held. Except as set forth on Schedule 5.9, to the Knowledge of KNK, KNK and each KNK Subsidiary as lessee has the right

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under valid and existing leases to occupy, use, possess and control any and all of the respective property leased by it. Except where any failure would not reasonably be expected to have a Material Adverse Effect on KNK on a consolidated basis, all buildings and structures owned by KNK and each KNK Subsidiary lie wholly within the boundaries of the real property owned or validly leased by it, do not encroach upon the property of, or otherwise conflict with the property rights of, any other Person.

Section 5.10 Condition and Sufficiency of Assets. The buildings, structures and equipment of KNK and each KNK Subsidiary are structurally sound, are in good operating condition and repair, and are adequate for the uses to which they are being put, and none of such buildings, structures or equipment is in need of maintenance or repairs except for ordinary, routine maintenance and repairs that are not material in the aggregate in nature or in cost. Except where any failure would not reasonably be expected to have a Material Adverse Effect on KNK on a consolidated basis, the real property, buildings, structures and equipment owned or leased by KNK and each KNK Subsidiary are in compliance with the Americans with Disabilities Act of 1990, as amended, and the regulations promulgated thereunder, and all other building and development codes and other restrictions, including subdivision regulations, building and construction regulations, drainage codes, health, fire and safety laws and regulations, utility tariffs and regulations, conservation laws and zoning laws and ordinances. The assets and properties, whether real or personal, tangible or intangible, that KNK or any KNK Subsidiary purport to own or lease are sufficient for the continued conduct of the business of KNK and each KNK Subsidiary after the Closing in substantially the same manner as conducted prior to the Closing.

Section 5.11 Loan Loss Reserve. All loans and loan commitments extended by KFS Bank and any extensions, renewals or continuations of such loans and loan commitments (the “KNK Loans”) were made in accordance with the lending policies of KFS Bank in the Ordinary Course of Business. The KNK Loans are evidenced by appropriate and sufficient documentation and constitute valid and binding obligations to KFS Bank enforceable in accordance with their terms, except (a) for such deficiencies that would not be expected to have a Material Adverse Effect on KNK on a consolidated basis, and (b) as enforceability may be limited by any bankruptcy, insolvency, reorganization or other laws affecting creditors’ rights generally and subject to general principles of equity. All such KNK Loans are, and at the Closing will be, free and clear of any encumbrance or other charge and KFS Bank has complied, and at the Closing will have complied with, all Legal Requirements relating to such KNK Loans, except where any such failure to comply would not reasonably be expected to have a Material Adverse Effect on KNK or any KNK Subsidiary. The reserve for possible loan and lease losses of KFS Bank is, and will be on the Closing Date, adequate in all material respects to provide for probable or specific losses, net of recoveries relating to loans previously charged off, and continuous and contains and will contain an additional amount of unallocated reserves for unanticipated future losses at an adequate level. None of the KNK Loans is subject to any material offset or claim of offset, and the aggregate loan balances in excess of KNK’s consolidated reserve for loan and lease losses are based on past loan loss experience, collectible in accordance with their terms (except as limited above) and all uncollectible loans have been charged off, except, in either case, that would not be expected to have a Material Adverse Effect on KNK on a consolidated basis.

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Section 5.12 Undisclosed Liabilities; Adverse Changes. Except as set forth in Schedule 5.12 or the KNK SEC Reports, neither KNK nor any KNK Subsidiary has any material liabilities or obligations of any nature (whether absolute, accrued, contingent or otherwise), except for liabilities or obligations reflected or reserved against in the KNK Financial Statements, and current liabilities incurred in the Ordinary Course of Business since the respective dates thereof. Since the date of the latest KNK Financial Statement, there has not been any change in the business, operations, properties, prospects, assets or condition of KNK or any KNK Subsidiary, and, to KNK’s Knowledge, no event has occurred or circumstance exists, that has had, or would reasonably be expected to have, a Material Adverse Effect on KNK on a consolidated basis.

Section 5.13 Taxes. KNK and each KNK Subsidiary has duly filed all material Tax Returns required to be filed by it, and each such Tax Return is complete and accurate in all material respects. KNK and each KNK Subsidiary has paid, or made adequate provision for the payment of, all Taxes (whether or not reflected in Tax Returns as filed or to be filed) due and payable by KNK or any KNK Subsidiary, or claimed to be due and payable by any Regulatory Authority, and is not delinquent in the payment of any Tax, except such Taxes as are being contested in good faith and as to which adequate reserves have been provided. There is no claim or assessment pending or, to the Knowledge of KNK, Threatened against KNK or any KNK Subsidiary for any Taxes owed by any of them. No audit, examination or investigation related to Taxes paid or payable by KNK or any KNK Subsidiary is presently being conducted or, to the Knowledge of AFC, Threatened by any Regulatory Authority. KNK has delivered to AFC true, correct and complete copies of all Tax Returns previously filed with respect to the last three fiscal years by KNK and each KNK Subsidiary and any tax examination reports and statements of deficiencies assessed or agreed to for any of KNK or any KNK Subsidiary for any such time period.

Section 5.14 Compliance With ERISA. Except as set forth on Schedule 5.14, all employee benefit plans (as defined in Section 3(3) of ERISA) established or maintained by KNK or any KNK Subsidiary or to which KNK or any KNK Subsidiary contributes, are in compliance with all applicable requirements of ERISA, and are in compliance with all applicable requirements (including qualification and non-discrimination requirements in effect as of the Closing) of the Code for obtaining the tax benefits the Code thereupon permits with respect to such employee benefit plans. No such employee benefit plan has any amount of unfunded benefit liabilities (as defined in Section 4001(a)(18) of ERISA) for which KNK or any KNK Subsidiary would be liable to any Person under Title IV of ERISA if any such employee benefit plan were terminated as of the Closing. Such employee benefit plans are funded in accordance with Section 412 of the Code (if applicable). There would be no obligations of KNK or any KNK Subsidiary under Title IV of ERISA relating to any such employee benefit plan that is a multi-employer plan if any such plan were terminated or if KNK or such KNK Subsidiary withdrew from any such plan as of the Closing. All contributions and premium payments due prior to the date hereof have been made, and all contributions and premium payments due prior to Closing will be made by KNK or an KNK Subsidiary, as applicable, on a timely basis.

Section 5.15 Compliance With Legal Requirements. KNK and each KNK Subsidiary holds all licenses, certificates, permits, franchises and rights from all appropriate Regulatory

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Authorities necessary for the conduct of its respective business. Except as set forth in Schedule 5.15 or the KNK SEC Reports, KNK and each KNK Subsidiary is, and at all times since January 1, 2000, has been, in compliance with each Legal Requirement that is or was applicable to it or to the conduct or operation of its respective businesses or the ownership or use of any of its respective assets, except where the failure to comply would not reasonably be expected to have a Material Adverse Effect on KNK or any KNK Subsidiary. No event has occurred or circumstance exists that (with or without notice or lapse of time): (a) may constitute or result in a violation by KNK or any KNK Subsidiary of, or a failure on the part of KNK or any KNK Subsidiary to comply with, any Legal Requirement; or (b) may give rise to any obligation on the part of KNK or any KNK Subsidiary to undertake, or to bear all or any portion of the cost of, any remedial action of any nature in connection with a failure to comply with any Legal Requirement; except where the failure to comply would not reasonably be expected to have a Material Adverse Effect on KNK or any KNK Subsidiary. Except as set forth on Schedule 5.15 or the KNK SEC Reports, neither KNK nor any KNK Subsidiary has received, at any time since January 1, 2000, any notice or other communication (whether oral or written) from any Regulatory Authority or any other Person, nor does KNK have any Knowledge, regarding: (x) any actual, alleged, possible or potential violation of, or failure to comply with, any Legal Requirement; or (y) any actual, alleged, possible, or potential obligation on the part of KNK or any KNK Subsidiary to undertake, or to bear all or any portion of the cost of, any remedial action of any nature in connection with a failure to comply with any Legal Requirement.

Section 5.16 Legal Proceedings; Orders.

(a) Schedule 5.16 is a true and correct list of all Proceedings and Orders pending, entered into or, to the Knowledge of KNK, Threatened against, affecting or involving KNK or any KNK Subsidiary or any of their respective assets or businesses, or the Contemplated Transactions that would impair KNK’s ability to consummate any of the Contemplated Transactions, and there is no fact to KNK’s Knowledge that would provide a basis for any such Proceeding or Order. To the Knowledge of KNK, no officer, director, agent or employee of KNK or any KNK Subsidiary is subject to any Order that prohibits such officer, director, agent or employee from engaging in or continuing any conduct, activity or practice relating to the businesses of KNK or any KNK Subsidiary as currently conducted.

(b) Neither KNK nor any KNK Subsidiary is subject to any cease-and-desist or other Order or enforcement action issued by, or is a party to any written agreement, consent agreement or memorandum of understanding with, or is a party to any commitment letter or similar undertaking to, or is subject to any order or directive by, or has been since January 1, 2000, a recipient of any supervisory letter from, or has been ordered to pay any civil money penalty by, or has adopted any policies, procedures or board resolutions at the request of any Regulatory Authority that currently restricts in any material respect the conduct of its business or that in any material manner relates to its capital adequacy, its ability to pay dividends, its credit or risk management policies, its management or its business, nor has KNK or any KNK Subsidiary been advised by any Regulatory Authority that it is considering issuing, initiating, ordering or requesting any of the foregoing.

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Section 5.17 Absence of Certain Changes and Events. Since December 31, 2002, except as disclosed in Schedule 5.17 and the KNK SEC Reports (and except in connection with the negotiation and execution and delivery of this Agreement and the consummation of the Contemplated Transactions) (i) KNK and each KNK Subsidiary has conducted its respective business only in the Ordinary Course of Business, and (ii) there has not been any event or events (whether or not covered by insurance), individually or in the aggregate, that have had, or would reasonably be expected to have, a Material Adverse Effect on KNK, impair the ability of KNK to perform its obligations under this Agreement and/or prevent the consummation of the Contemplated Transactions.

Section 5.18 Material Contracts. Except as disclosed in Schedule 5.18 or the KNK SEC Reports, neither KNK nor any KNK Subsidiary is a party to, and none of their respective properties or assets are bound by, (i) any “material contract,” as such term is defined in Item 601(b)(10) of Regulation S-K of the SEC; or (ii) any Applicable Contract containing covenants that in any way purport to restrict the business activity of KNK or any KNK Subsidiary or any Affiliate of any of the foregoing, or limit the ability of KNK or any KNK Subsidiary or any Affiliate of any of the foregoing to engage in any line of business or to compete with any Person. Copies of each document, plan or Contract listed and described in Schedule 5.18 are appended to such Schedule.

Section 5.19 No Defaults. Except as set forth in Schedule 5.19, to the Knowledge of KNK, each Contract identified or required to be identified in Schedule 5.18 or in the KNK SEC Reports is in full force and effect and is valid and enforceable in accordance with its terms. KNK and each KNK Subsidiary is, and at all times since January 1, 2000, has been, in full compliance with all applicable terms and requirements of each Contract under which KNK or any KNK Subsidiary has or had any obligation or liability or by which KNK or any KNK Subsidiary or any of their respective assets owned or used by them is or was bound, except where the failure to be in full compliance would not reasonably be expected to have a Material Adverse Effect on KNK or any KNK Subsidiary. To the Knowledge of KNK, each other Person that has or had any obligation or liability under any such Contract under which KNK or any KNK Subsidiary has or had any rights is, and at all times since January 1, 2000, has been in compliance with applicable terms and requirements of such Contract, except where the failure to be in full compliance would not reasonably be expected to have a Material Adverse Effect on KNK or any KNK Subsidiary. No event has occurred or circumstance exists that (with or without notice or lapse of time) may contravene, conflict with or result in a material violation or breach of, or give KNK, any KNK Subsidiary or other Person the right to declare a default or exercise any remedy under, or to accelerate the maturity or performance of, or to cancel, terminate or modify, any Applicable Contract. Except in the Ordinary Course of Business with respect to any KNK Loan, neither KNK nor any KNK Subsidiary has given to or received from any other Person, at any time since January 1, 2000, any notice or other communication (whether oral or written) regarding any actual, alleged, possible or potential material violation or breach of, or default under, any Contract. Other than in the Ordinary Course of Business in connection with workouts and restructured loans, there are no renegotiations of, attempts to renegotiate or outstanding rights to renegotiate any material amounts paid or payable to KNK or any KNK Subsidiary under current or completed Contracts with any Person, and no such Person has made written demand for such renegotiation.

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Section 5.20 Compliance with Environmental Laws. Except as set forth on Schedule 5.20, (i) there are no Proceedings or Orders against KNK or any KNK Subsidiary, or, to the Knowledge of KNK, any predecessor thereof, with respect to alleged violation of, or liability under, Environmental Laws; (ii) to the Knowledge of KNK, there is no Threatened Proceeding or Order against KNK or any KNK Subsidiary, or any predecessor thereof, with respect to the alleged violation of, or liability under, Environmental Laws; (iii) to the Knowledge of KNK, there is no factual basis for the assertion or commencement of a Proceeding or Order against KNK or any KNK Subsidiary, or any predecessor thereof, with respect tot the violation of, or liability under, Environmental Laws; and (iv) to the Knowledge of KNK there are no pending or Threatened Proceedings or Orders against or involving the assets of KNK or any KNK Subsidiary.

Section 5.21 Regulatory Filings. KNK and each KNK Subsidiary has filed in a timely manner all required filings with all Regulatory Authorities, including the SEC, the Federal Reserve, the FDIC and the OTS. All such filings were accurate and complete in all material respects as of the dates of the filings, and no such filing has made any untrue statement of a material fact or omitted to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading.

Section 5.22 Fiduciary Accounts. KFS Bank has properly administered in all material respects all accounts for which it acts as fiduciary, including accounts for which it serves as trustee, agent, custodian or investment advisor, in accordance with the material terms of the governing documents and applicable state and federal law and regulations and common law. None of KFS Bank or any of its directors, officers or employees has committed any breach of trust with respect to any such fiduciary account, and the accountings for each such fiduciary account are true and correct in all material respects and accurately reflect the assets of such fiduciary account.

Section 5.23 Indemnification Claims. To KNK’s Knowledge, no action or failure to take action by any director, officer, employee or agent of KNK or any KNK Subsidiary has occurred that may give rise to a claim or a potential claim by any such Person for indemnification against KNK or any KNK Subsidiary under any agreement with, or the corporate indemnification provisions of, KNK or any KNK Subsidiary, or under any Legal Requirements.

Section 5.24 Insider Interests. Except as set forth on Schedule 5.24 or the KNK SEC Reports, no officer or director of KNK or any KNK Subsidiary, any member of the Family of any such Person, and no entity that any such Person “controls” within the meaning of Regulation O of the Federal Reserve, has any loan, deposit account or any other agreement with KNK or any KNK Subsidiary, any interest in any material property, real, personal or mixed, tangible or intangible, used in or pertaining to the business of KNK or any KNK Subsidiary.

Section 5.25 Brokerage Commissions. None of KNK or any KNK Subsidiary or any of their respective Representatives has incurred any obligation or liability, contingent or otherwise, for brokerage or finders’ fees or agents’ commissions or other similar payment in connection with this Agreement.

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Section 5.26 Approval Delays. To the Knowledge of KNK, there is no reason why the granting of any of the regulatory approvals referred to in Section 8.1 would be denied or unduly delayed. The CRA Rating of KFS Bank is at least “satisfactory” or better.

Section 5.27 Disclosure. Neither any representation nor of KNK in, nor any schedule to, this Agreement by KNK contains any untrue statement of a material fact, or omits to state a material fact necessary to make the statements contained herein or therein, in light of the circumstances under which they were made, not misleading. No notice given pursuant to Section 7.5 will contain any untrue statement or omit to state a material fact necessary to make the statements therein, or in this Agreement, in light of the circumstances in which they were made, not misleading.

ARTICLE 6

AFC’S COVENANTS

Section 6.1 Access and Investigation.

(a) KNK and its Representatives shall, at all times during normal business hours and with reasonable advance notice prior to the Closing Date, have full and continuing access to the facilities, operations, records and properties of AFC and each AFC Subsidiary in accordance with the provisions of this Section. KNK and its Representatives may, prior to the Closing Date, make or cause to be made such reasonable investigation of the operations, records and properties of AFC and each AFC Subsidiary and of their respective financial and legal conditions as KNK shall deem necessary or advisable to familiarize itself with such records, properties and other matters; provided, however, that such access or investigation shall not interfere materially with the normal operations of AFC or any AFC Subsidiary. Upon request, AFC and each AFC Subsidiary will furnish KNK or its Representatives, attorneys’ responses to auditors’ requests for information regarding AFC or such AFC Subsidiary, as the case may be, and such financial and operating data and other information reasonably requested by KNK (provided, with respect to attorneys, such disclosure would not result in the waiver by AFC or any AFC Subsidiary of any claim of attorney-client privilege), and will permit KNK and its Representatives to discuss such information directly with any individual or firm performing auditing or accounting functions for AFC or such AFC Subsidiary, and such auditors and accountants shall be directed to furnish copies of any reports or financial information as developed to KNK or its Representatives. No investigation by KNK or any of its Representatives shall affect the representations and warranties made by AFC. This Section shall not require the disclosure of any information the disclosure of which to KNK would be prohibited by any Legal Requirement.

(b) AFC shall allow a representative of KNK reasonably acceptable to AFC to attend as an observer: (i) all meetings of the board of directors of AFC and each AFC Subsidiary; and (ii) all meetings of the committees thereof, except for any such meeting if and to the extent that any amendment to this Agreement or the merits of any Acquisition Transaction described in Section 6.7 is discussed; or AFC is advised by its counsel that the participation by such observer would result in a waiver of AFC’s attorney-client privilege. AFC shall give

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reasonable notice to KNK of any such meeting and, if known, the agenda for or business to be discussed at such meeting. AFC shall provide to KNK all information provided to the directors on all such boards and committees in connection with all such meetings or otherwise provided to the directors. It is understood by the parties that KNK’s representative will not have any voting rights with respect to matters discussed at these meetings and that KNK is not managing the business or affairs of AFC. All information obtained by KNK at these meetings shall be treated in confidence.

Section 6.2 Operation of AFC and AFC Subsidiaries. Except with the prior written consent of KNK, between the date of this Agreement and the Closing Date, AFC will, and will cause each AFC Subsidiary, to

(a) conduct its business only in the Ordinary Course of Business;

(b) use its Best Efforts to preserve intact its current business organization, keep available the services of its current officers, employees and agents, and maintain the relations and goodwill with its suppliers, customers, landlords, creditors, employees, agents and others having business relationships with it;

(c) confer with KNK concerning operational matters of a material nature;

(d) enter into loan and deposit transactions only in accordance with sound credit practices and only on terms and conditions that are not materially more favorable than those available to the borrower or depositor, as the case may be, from competitive sources in arm’s-length transactions;

(e) consistent with past practice, maintain an allowance for possible loan and lease losses which is adequate in all material respects under the requirements of GAAP to provide for possible losses, net of recoveries relating to loans previously charged off, on loans outstanding (including accrued interest receivable);

(f) maintain all of its assets necessary for the conduct of its business in good operating condition and repair, reasonable wear and tear and damage by fire or unavoidable casualty excepted, and maintain policies of insurance upon its assets and with respect to the conduct of its business in amounts and kinds comparable to that in effect on the date hereof and pay all premiums on such policies when due;

(g) not buy or sell any security held, or intended to be held, for investment, but such restriction shall not affect the buying and selling by the Bank of Federal Funds or the reinvestment of dividends paid on any securities owned by the Bank as of the date of this Agreement;

(h) file in a timely manner all required filings with all Regulatory Authorities and cause such filings to be true and correct in all material respects; and

(i) maintain its books, accounts and records in the usual, regular and ordinary manner, on a basis consistent with prior years and comply with all Legal Requirements.

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Section 6.3 Negative Covenant. Except as otherwise expressly permitted by this Agreement, and as contemplated by Schedule 4.17, between the date of this Agreement and the Closing Date, AFC will not, and will cause each AFC Subsidiary not to, without the prior written consent of KNK, take any affirmative action, or fail to take any reasonable action within its control, as a result of which any of the changes or events listed in Section 4.17 is likely to occur.

Section 6.4 Subsequent AFC Financial Statements. As soon as available after the date hereof, AFC will furnish KNK copies of the quarterly unaudited consolidated balance sheets and consolidated statements of income of AFC prepared for its internal use, and the Bank’s Call Reports for each quarterly period completed after March 31, 2003, and all other financial reports or statements submitted after the date hereof by AFC or the Bank to Regulatory Authorities, to the extent permitted by law (collectively, the “Subsequent AFC Financial Statements”). Except as may be required by changes in GAAP effective after the date hereof, the Subsequent AFC Financial Statements shall be prepared on a basis consistent with past accounting practices and shall fairly present in all material respects the consolidated financial condition and results of operations for the dates and periods presented. The Subsequent AFC Financial Statements will not include any material assets or omit to state any material liabilities, absolute or contingent, or other facts, which inclusion or omission would render such Subsequent AFC Financial Statements misleading in any material respect.

Section 6.5 Title to Real Estate. As soon as practical after the date hereof, but in any event no later than sixty days after the date hereof, AFC shall obtain at its own expense and deliver to KNK, with respect to all real estate owned by AFC or the Bank (the “AFC Real Estate”), an owner’s preliminary report of title covering a date subsequent to the date hereof, issued by Chicago Title Insurance Company or such other title insurance company as is reasonably acceptable to KNK, showing fee simple title in AFC or the Bank in such real estate subject to no liens, mortgages, security interests, encumbrances or charges of any kind except: (a) as noted in the most recent AFC Financial Statement or on Schedule 4.9; (b) statutory liens for Taxes not yet delinquent or being contested in good faith by appropriate Proceedings and for which appropriate reserves have been established and reflected on the AFC Financial Statements; (c) pledges or liens required to be granted in connection with the acceptance of government deposits, granted in connection with repurchase or reverse repurchase agreements or otherwise incurred in the Ordinary Course of Business; and (d) minor defects and irregularities in title and encumbrances that do not materially impair the use thereof for the purposes for which they are held.

Section 6.6 Advice of Changes. Between the date of this Agreement and the Closing Date, AFC will promptly notify KNK in writing if AFC or any AFC Subsidiary becomes aware of any fact or condition that causes or constitutes a Breach of any of AFC’s representations and warranties as of the date of this Agreement, or if AFC or any AFC Subsidiary becomes aware of the occurrence after the date of this Agreement of any fact or condition that would (except as expressly contemplated by this Agreement) cause or constitute a Breach of any such representation or warranty had such representation or warranty been made as of the time of occurrence or discovery of such fact or condition. If any such fact or condition would require any change in the Schedules if such Schedules were dated the date of the occurrence or discovery of any such fact or condition, AFC will promptly deliver to KNK a supplement to the Schedules

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specifying such change. During the same period, AFC will promptly notify KNK of the occurrence of any Breach of any covenant of AFC in this Article or of the occurrence of any event that might reasonably be expected to make the satisfaction of the conditions in Article 9 impossible or unlikely.

Section 6.7 Other Offers.

(a) Until such time, if any, as this Agreement is terminated pursuant to Article 11, AFC will not, and will cause each AFC Subsidiary and their respective Representatives not to, directly or indirectly solicit, initiate or encourage any inquiries or proposals from, discuss or negotiate with, provide any non-public information to, or consider the merits of any unsolicited inquiries or proposals from, any Person (other than KNK) relating to any Acquisition Transaction (as defined below) or a potential Acquisition Transaction involving AFC or any AFC Subsidiary. Notwithstanding the foregoing in this Section, AFC may provide information at the request of, or enter into negotiations with, a third party with respect to an Acquisition Transaction if the board of directors of AFC determines, in good faith, that the exercise of its fiduciary duties to AFC’s shareholders under applicable law, as advised in writing by its counsel, requires it to take such action, and, provided further, that AFC may not, in any event, provide to such third party any information which it has not provided to KNK. AFC shall promptly notify KNK orally, confirmed in writing, in the event it receives any such inquiry or proposal and shall provide reasonable detail of all relevant facts relating to such inquiries, along with a summary of the advice provided by its counsel.

(b) “Acquisition Transaction” shall, with respect to AFC, mean any of the following: (i) a merger or consolidation, or any similar transaction (other than the Merger) of any company with either AFC or any significant subsidiary, as defined in Rule 1.2 of Regulation S-X of the SEC (a “Significant Subsidiary”), of AFC; (ii) a purchase, lease or other acquisition of all or substantially all the assets of either AFC or any Significant Subsidiary of AFC; (iii) a purchase or other acquisition of “beneficial ownership” by any “person” or “group” (as such terms are defined in Section 13(d)(3) of the Exchange Act) (including by way of merger, consolidation, share exchange or otherwise) that would cause such person or group to become the beneficial owner of securities representing 10% or more of the voting power of either AFC or any Significant Subsidiary of AFC; (iv) a tender or exchange offer to acquire securities representing 10% or more of the voting power of AFC; (v) a public proxy or consent solicitation made to shareholders of AFC seeking proxies in opposition to any proposal relating to any aspect of the Contemplated Transactions that has been recommended by the board of directors of AFC; (vi) the filing of an application or notice with any Regulatory Authority (which application has been accepted for processing) seeking approval to engage in one or more of the transactions referenced in clauses (i) through (iv) above; or (vii) the making of a bona fide proposal to AFC or its shareholders, by public announcement or written communication, that is or becomes the subject of public disclosure, to engage in one or more of the transactions referenced in clauses (i) through (v) above.

Section 6.8 Voting Agreement. Concurrently with the execution and delivery of this Agreement, AFC shall deliver to KNK a voting agreement in the form of Exhibit D, signed by all

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directors of AFC and the Bank who are holders of AFC Common Stock, other than Gary Davis, whose signature shall be delivered as promptly as possible after the execution of this Agreement.

Section 6.9 Shareholders’ Meeting. AFC shall cause a meeting of its shareholders for the purpose of acting upon this Agreement to be held at the earliest practicable date after the Registration Statement (as defined below) has been declared effective by the SEC. AFC shall mail to its shareholders at least twenty Business Days prior to such meeting, notice of such meeting together with the Proxy Statement-Prospectus (as defined below), which shall include a copy of this Agreement and a copy of Sections 11.65 and 11.70 of the IBCA governing the rights of dissenting shareholders. Subject to its fiduciary duties, AFC and its board of directors shall recommend to shareholders the approval of this Agreement and shall solicit proxies voting only in favor thereof from the shareholders of AFC.

Section 6.10 Information Provided to KNK. AFC agrees that the information concerning AFC or any AFC Subsidiary that is provided or to be provided by AFC to KNK for inclusion or that is included in the Registration Statement or Proxy Statement-Prospectus and any other documents to be filed with any Regulatory Authority in connection with the Contemplated Transactions will, at the respective times such documents are filed and, in the case of the Registration Statement, when it becomes effective and, with respect to the Proxy Statement-Prospectus, when mailed, will not be false or misleading with respect to any material fact, or omit to state any material fact necessary in order to make the statements therein not misleading or, in the case of the Proxy Statement-Prospectus, or any amendment thereof or supplement thereto, at the time of the meeting of AFC’s shareholders referred to above, be false or misleading with respect to any material fact, or omit to state any material fact necessary to correct any statement in any earlier communication with respect to the solicitation of any proxy for the meeting in connection with which the Proxy Statement-Prospectus shall be mailed. Notwithstanding the foregoing, AFC shall have no responsibility for the truth or accuracy of any information with respect to KNK or any KNK Subsidiary or any of their Affiliates contained in the Registration Statement or the Proxy Statement-Prospectus or in any document submitted to, or other communication with, any Regulatory Authority.

Section 6.11 Termination of Employee Benefit Plans. To the extent permitted by applicable Legal Requirements, upon the written request of KNK, AFC shall take such action as may be necessary to terminate any AFC Employee Benefit Plan of AFC or any AFC Subsidiary on or before the Closing on terms reasonably acceptable to KNK; provided, however, that AFC or the Bank shall not be obligated to take any such requested action that is irrevocable until immediately prior to the Closing.

Section 6.12 Accounting and Other Adjustments. AFC agrees that it shall, and shall cause each AFC Subsidiary, to: (a) make any accounting adjustments or entries to its books of account and other financial records; (b) make additional provisions to any allowance for loan and lease losses; (c) sell or transfer any investment securities held by it; (d) charge-off any loan or lease; (e) create any new reserve account or make additional provisions to any other existing reserve account; (f) make changes in any accounting method; (g) accelerate, defer or accrue any anticipated obligation, expense or income item; and (h) make any other adjustments that would affect the financial reporting of KNK, on a consolidated basis after the Effective Time, in any

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case as KNK shall reasonably request, provided, however, that neither AFC nor any AFC Subsidiary shall be obligated to take any such requested action until immediately prior to the Closing and at such time as AFC shall have received reasonable assurances that all conditions precedent to AFC’s obligations under this Agreement (except for the completion of actions to be taken at the Closing) have been satisfied.

Section 6.13 Capital Stock.

(a) Except as otherwise permitted in or contemplated by this Agreement and without the prior written consent of KNK, from the date of this Agreement to the earlier of the Effective Time or the termination of this Agreement, AFC shall not, and shall not enter into any agreement to, issue, sell or otherwise permit to become outstanding any additional shares of AFC Common Stock or any other capital stock of AFC, or any stock appreciation rights, or any option, warrant, conversion or other right to acquire any such stock, or any security convertible into any such stock, other than pursuant to the AFC Stock Option Plan, the aggregate number of shares of AFC Common Stock covered by all existing grants being no more than 45,000 shares. No additional shares of AFC Common Stock shall become subject to new grants of employee stock options, stock appreciation rights or similar stock based employee compensation rights.

(b) AFC shall take such action necessary to ensure that all AFC Stock Options have been exercised for shares of AFC Common Stock or have been extinguished prior to the Closing, such that no AFC Stock Options are outstanding at the Effective Time.

ARTICLE 7

KNK’S COVENANTS

Section 7.1 Access and Investigation.

(a) AFC and its Representatives shall, at all times during normal business hours and with reasonable advance notice prior to the Closing Date, have full and continuing access to the facilities, operations, records and properties of KNK and each KNK Subsidiary in accordance with the provisions of this Section. AFC and its Representatives may, prior to the Closing Date, make or cause to be made such reasonable investigation of the operations, records and properties of KNK and each KNK Subsidiary and of their respective financial and legal conditions as AFC shall deem necessary or advisable to familiarize itself with such records, properties and other matters, provided, however, that such access or investigation shall not interfere materially with the normal operations of KNK or any KNK Subsidiary. Upon request, KNK and each KNK Subsidiary will furnish AFC or its Representatives, attorneys’ responses to auditors’ requests for information regarding KNK or such KNK Subsidiary, as the case may be, and such financial and operating data and other information reasonably requested by AFC (provided, with respect to attorneys, such disclosure would not result in the waiver by KNK or the Bank of any claim of attorney-client privilege), and will permit AFC and its Representatives to discuss such information directly with any individual or firm performing auditing or accounting functions for KNK or such KNK Subsidiary, and such auditors and accountants shall be directed to furnish copies of any reports or financial information as developed to AFC or its Representatives. No investigation by AFC or any of its Representatives shall affect the

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representations and warranties made by KNK. This Section shall not require the disclosure of any information the disclosure of which to AFC would be prohibited by any Legal Requirement.

(b) KNK shall allow a representative of AFC to attend as an observer: (i) all meetings of the board of directors of KNK and each KNK Subsidiary; and (ii) all meetings of the committees thereof, except for any such meeting if and to the extent that any of the Contemplated Transactions is discussed; or KNK is advised by its counsel that the participation by such observer would result in a waiver of KNK’s attorney-client privilege. KNK shall give reasonable notice to AFC of any such meeting and, if known, the agenda for or business to be discussed at such meeting. KNK shall provide to AFC all information provided to the directors on all such boards and committees in connection with all such meetings or otherwise provided to the directors. It is understood by the parties that AFC’s representative will not have any voting rights with respect to matters discussed at these meetings and that AFC is not managing the business or affairs of KNK. All information obtained by AFC at these meetings shall be treated in confidence.

Section 7.2 Carry on in Regular Course. KNK and each KNK Subsidiary shall carry on its business diligently and substantially in the same manner as is presently being conducted and shall not make or institute any unusual or material change in its methods of doing business without the prior written consent of AFC, which consent shall not be unreasonably withheld or delayed. Notwithstanding the foregoing, subject to any stockholder approval required by the DGCL or its certificate of incorporation, KNK shall be permitted to amend its certificate of incorporation as described on Exhibit E, and to amend and restate its bylaws so long as such amendment and restatement would not be expected to have a Material Adverse Effect on the rights of AFC’s shareholders as stockholders of KNK after the Effective Time.

Section 7.3 Subsequent KNK Financial Statements; Securities Reports. As soon as available after the date hereof, KNK will furnish AFC copies of the quarterly unaudited consolidated balance sheets, consolidated statements of income, consolidated statements of cash flow and consolidated statements of changes in stockholders’ equity, of KNK prepared for its internal use, and KFS’s TFR Reports for each quarterly period completed after March 31, 2003, and all other financial reports or statements submitted after the date hereof by KNK or KFS Bank to Regulatory Authorities, to the extent permitted by law (collectively, the “Subsequent KNK Financial Statements”). Without limitation of the foregoing, as soon as available, if at all, KNK will deliver to AFC complete copies of any reports filed with the SEC after March 31, 2003 (collectively, the “SEC Filings”). Except as may be required by changes in GAAP effective after the date hereof, the Subsequent KNK Financial Statements shall be prepared on a basis consistent with past accounting practices and shall fairly present in all material respects the consolidated financial condition and results of operations for the dates and periods presented. The Subsequent KNK Financial Statements will not include any material assets or omit to state any material liabilities, absolute or contingent, or other facts, which inclusion or omission would render such Subsequent KNK Financial Statements misleading in any material respect. The SEC Filings will not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements contained therein not misleading.

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Section 7.4 Advice of Changes. Between the date of this Agreement and the Closing Date, KNK will promptly notify AFC in writing if KNK or any KNK Subsidiary becomes aware of any fact or condition that causes or constitutes a Breach of any of KNK’s representations and warranties as of the date of this Agreement, or if KNK or any KNK Subsidiary becomes aware of the occurrence after the date of this Agreement of any fact or condition that would (except as expressly contemplated by this Agreement) cause or constitute a Breach of any such representation or warranty had such representation or warranty been made as of the time of occurrence or discovery of such fact or condition. If any such fact or condition would require any change in the Schedules if such Schedules were dated the date of the occurrence or discovery of any such fact or condition, KNK will promptly deliver to AFC a supplement to the Schedules specifying such change. During the same period, KNK will promptly notify AFC of the occurrence of any Breach of any covenant of KNK in this Article or of the occurrence of any event that might reasonably be expected to make the satisfaction of the conditions in Article 10 impossible or unlikely.

Section 7.5 Stockholders’ Meeting. KNK shall cause a meeting of its stockholders for the purpose of acting upon this Agreement, and, in KNK’s discretion, for the purpose of amending and restating its certificate of incorporation and bylaws as set forth herein, to be held at the earliest practicable date after the Registration Statement has been declared effective by the SEC. KNK shall mail to its stockholders at least twenty Business Days prior to such meeting, notice of such meeting together with the Proxy Statement-Prospectus, which shall include a copy of this Agreement. Subject to its fiduciary duties, KNK and its board of directors shall recommend to stockholders the approval of this Agreement and shall solicit proxies voting only in favor thereof from the stockholders of KNK.

Section 7.6 Information Provided to KNK. KNK agrees that none of the information concerning KNK or any KNK Subsidiary that is provided or to be provided by KNK to AFC for inclusion or that is included in the Registration Statement or Proxy Statement-Prospectus and any other documents to be filed with any Regulatory Authority in connection with the Contemplated Transactions will, at the respective times such documents are filed and, in the case of the Registration Statement, when it becomes effective and, with respect to the Proxy Statement-Prospectus, when mailed, be false or misleading with respect to any material fact, or omit to state any material fact necessary in order to make the statements therein not misleading or, in the case of the Proxy Statement-Prospectus, or any amendment thereof or supplement thereto, at the time of the meeting of KNK’s shareholders referred to above, be false or misleading with respect to any material fact, or omit to state any material fact necessary to correct any statement in any earlier communication with respect to the solicitation of any proxy for the meeting in connection with which the Proxy Statement-Prospectus shall be mailed. Notwithstanding the foregoing, KNK shall have no responsibility for the truth or accuracy of any information with respect to AFC or any AFC Subsidiary or any of their Affiliates contained in the Registration Statement or the Proxy Statement-Prospectus or in any document submitted to, or other communication with, any Regulatory Authority.

Section 7.7 Indemnification. Except as may be limited by applicable Legal Requirements, KNK shall honor any of AFC’s obligations in respect of indemnification and advancement of expenses currently provided by AFC in its articles of incorporation in favor of

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the current and former directors and officers of AFC and the Bank for not less than three years from the Effective Time with respect to matters occurring prior to the Effective Time. Notwithstanding any provision of Section 6.2 to the contrary, AFC shall be permitted to purchase an extension of its current policy (tail coverage) providing coverage for any claims made prior to the third anniversary of the Effective Time against AFC’s directors and officers.

Section 7.8 Employee Benefits. KNK agrees that all former employees of AFC or the Bank who become employees of KNK or any of its Subsidiaries shall receive credit for their past service with AFC or the Bank for purposes of eligibility and vesting under KNK’s profit sharing plan.

Section 7.9 Authorization and Reservation of KNK Common Stock. The board of directors of KNK shall, as of the date hereof, authorize and reserve the maximum number of shares of KNK Common Stock to be issued pursuant to this Agreement and take all other necessary corporate action to consummate the Contemplated Transactions.

Section 7.10 Stock Exchange Listing. KNK shall use its Best Efforts to list on the American Stock Exchange, subject to official notice of issuance, the shares of KNK Common Stock to be issued in the Merger.

Section 7.11 Dividends. The parties hereto acknowledge that KNK may declare and pay dividends or other distributions or payments in respect of shares of its capital stock in the Ordinary Course of Business. The parties further acknowledge that KNK may issue warrants to its stockholders; provided, however, that any such issuance shall, upon consummation of the Merger, include the shareholders of AFC as if their shares of AFC Common Stock had been exchanged for shares of KNK Common Stock in accordance with the provisions of Article 3; and provided, further that the exercise price of any such warrants shall be no less than the closing price for KNK Common Stock as reported by AMEX on the Business Day immediately preceding the record date fixed to determine the stockholders entitled to receive such warrants.

Section 7.12 KNK Board. Immediately following the Closing, KNK shall expand its board of directors to seven members, and KNK’s board shall take such action necessary to appoint as directors Thomas A. Daiber and an individual nominated by AFC, which nominee shall be acceptable to KNK in its sole discretion.

ARTICLE 8

COVENANTS OF ALL PARTIES

Section 8.1 Regulatory Approvals. By no later than thirty days after the date of this Agreement, KNK shall make all appropriate filings with Regulatory Authorities for approval of the Contemplated Transactions, including the preparation of an application or any amendment thereto or any other required statements or documents filed or to be filed by any party with: (a) the Federal Reserve pursuant to the BHCA; (b) the OTS pursuant to the HOLA; (c) the Commission pursuant to the Illinois Banking Act; (d) the FDIC pursuant to the FDI Act; and (e) any other Person or Regulatory Authority pursuant to any applicable Legal Requirement, for authority to consummate the Contemplated Transactions. KNK shall pursue in good faith the

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regulatory approvals necessary to consummate the Contemplated Transactions. In advance of any filing made under this Section, AFC and its counsel shall be provided with the opportunity to comment thereon, and KNK agrees promptly to advise AFC and its counsel of any material communication received by it or its counsel from any Regulatory Authorities with respect to such filings.

Section 8.2 SEC Registration. By no later than forty-five days after the date of this Agreement, KNK shall file with the SEC a registration statement on an appropriate form under the Securities Act covering the shares of KNK Common Stock to be issued pursuant to this Agreement and shall use all reasonable efforts to cause the same to become effective and thereafter, until the Effective Time or lawful termination of this Agreement, to keep the same effective and, if necessary, amend and supplement the same (such registration statement, and any amendments and supplements thereto, is referred to as the “Registration Statement”). The Registration Statement shall include a proxy statement-prospectus prepared by KNK and AFC (the “Proxy Statement-Prospectus”), for use in connection with the meetings of the stockholders of KNK and the shareholders of AFC referred to in Section 6.9 and Section 7.5, respectively, all in accordance with the rules and regulations of the SEC. KNK shall, as soon as practicable after the execution of this Agreement, make all filings required to obtain all permits, authorizations, consents or approvals required under any applicable Legal Requirements (including all state securities laws) for the issuance of the shares of KNK Common Stock to shareholders of AFC. In advance of any filing made under this Section, KNK and AFC and their respective counsel shall be provided with the opportunity to comment thereon, and KNK and AFC each agree promptly to advise each other and each other’s counsel of any material communication received by it or its counsel from the SEC or any other Regulatory Authorities with respect to such filings.

Section 8.3 Necessary Approvals. KNK and AFC agree that KNK’s counsel will have primary responsibility for preparation of the Registration Statement and KNK will have primary responsibility for the preparation of the necessary applications for regulatory approval of the Contemplated Transactions. Each of KNK and AFC and their respective Subsidiaries agree fully and promptly to cooperate with each other and their respective counsels and accountants in connection with any steps to be taken as part of their obligations under this Agreement.

Section 8.4 Additional Agreements. Concurrently with the execution and delivery of this Agreement, (a) KNK shall deliver to AFC a counterpart to the Employment Agreement, duly executed by KNK, and AFC shall deliver to KNK a counterpart to the Employment Agreement, duly executed by Thomas A. Daiber; and (b) KNK shall deliver to AFC counterparts to each of the Change of Control Agreements, each duly executed by KNK, and AFC shall deliver to KNK counterparts to each of the Change of Control Agreements, duly executed by each of Bryan L. Marsh and Brad Rench.

Section 8.5 Customer and Employee Relationships. Each of KNK and AFC agrees that its respective Representatives may jointly:

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(a) participate in meetings or discussions with officers and employees of AFC and KNK and their Subsidiaries in connection with employment opportunities with KNK after the Effective Time; and

(b) contact Persons having dealings with AFC or KNK or any of its respective Subsidiaries for the purpose of informing such Persons of the services to be offered by KNK after the Effective Time.

Section 8.6 Expenses. Except as otherwise provided herein, all costs and expenses incurred by a party to this Agreement shall be borne by such party, including the fees of their respective accountants and attorneys.

Section 8.7 Publicity. Prior to the Effective Time, the parties to this Agreement will consult with each other before issuing any press releases or otherwise making any public statements with respect to this Agreement or the Contemplated Transactions and shall not issue any such press release or make any such public statement without the prior consent of the other parties, except as may be required by law.

Section 8.8 Best Efforts; Cooperation. Each of KNK and AFC agrees to exercise good faith and use its Best Efforts to satisfy the various covenants and conditions to Closing in this Agreement, and to consummate the transactions contemplated hereby as promptly as possible. Neither KNK nor AFC will intentionally take or intentionally permit to be taken any action that would be a Breach of the terms or provisions of this Agreement. Between the date of this Agreement and the Closing Date, each of KNK and AFC will, and will cause each KNK Subsidiary and AFC Subsidiary, respectively, and all of their respective Affiliates and Representatives to, cooperate with respect to all filings that any party is required by Legal Requirements to make in connection with the Contemplated Transactions.

ARTICLE 9

CONDITIONS PRECEDENT TO OBLIGATIONS OF KNK

The obligations of KNK to consummate the Contemplated Transactions and to take the other actions required to be taken by KNK at the Closing are subject to the satisfaction, at or prior to the Closing, of each of the following conditions (any of which may be waived by KNK, in whole or in part):

Section 9.1 Accuracy of Representations and Warranties. All of the representations and warranties of AFC set forth in this Agreement shall be true and correct with the same force and effect as if all of such representations and warranties were made at the Closing Date (provided, however, that to the extent such representations and warranties expressly relate to an earlier date, such representations shall be true and correct on and as of such earlier date), except for any untrue or incorrect representations or warranties that individually or in the aggregate do not have a Material Adverse Effect on AFC on a consolidated basis or on KNK’s rights under this Agreement.

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Section 9.2 AFC’s Performance. AFC shall have performed or complied with all of the covenants and obligations to be performed or complied with by it under the terms of this Agreement on or prior to the Closing Date, except where any non-performance or noncompliance would not have a Material Adverse Effect on AFC on a consolidated basis or on KNK’s rights under this Agreement.

Section 9.3 Documents Satisfactory. All proceedings, corporate or other, to be taken by AFC in connection with the Contemplated Transactions, and all documents incident thereto, shall be reasonably satisfactory in form and substance to counsel for KNK.

Section 9.4 Corporate Approval. This Agreement and the Contemplated Transactions shall have been duly and validly approved as necessary under applicable Legal Requirements by the stockholders of KNK and the shareholders of AFC.

Section 9.5 No Proceedings. Since the date of this Agreement, there must not have been commenced or Threatened against AFC or any AFC Subsidiary any Proceeding: (a) involving any challenge to, or seeking damages or other relief in connection with, any of the Contemplated Transactions; or (b) that may have the effect of preventing, delaying, making illegal or otherwise interfering with any of the Contemplated Transactions, in either case that would reasonably be expected to have a Material Adverse Effect on AFC or its shareholders or KNK’s rights under this Agreement.

Section 9.6 Absence of Material Adverse Changes. From the date hereof to the Closing, there shall be and have been no event or occurrence that had or would reasonably be expected to have a Material Adverse Effect on AFC or any AFC Subsidiary.

Section 9.7 Consents and Approvals. Any consents or approvals required to be secured by either party by the terms of this Agreement shall have been obtained and shall be reasonably satisfactory to KNK, and all applicable waiting periods shall have expired.

Section 9.8 No Prohibition. Neither the consummation nor the performance of any of the Contemplated Transactions will, directly or indirectly (with or without notice or lapse of time), contravene, or conflict with or result in a violation of: (a) any applicable Legal Requirement or Order; or (b) any Legal Requirement or Order that has been published, introduced, or otherwise proposed by or before any Regulatory Authority.

Section 9.9 Registration Statement. The Registration Statement shall have become effective and no stop order suspending such effectiveness shall have been issued or threatened by the SEC that suspends the effectiveness of the Registration Statement and no Proceeding shall have been commenced or be pending or Threatened for such purpose.

Section 9.10 Dissenting Shares. The total number of Dissenting Shares shall be no greater than five percent (5%) of the number of shares of AFC Common Stock issued and outstanding immediately prior to the Effective Time.

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Section 9.11 Additional Agreements. Each of the Employment Agreement and Change of Control Agreements shall be in full force and effect, and each of Thomas A. Daiber, Bryan L. Marsh and Brad Rench shall be an employee of AFC.

Section 9.12 Tax Opinion. KNK and AFC shall have received the opinion described in Section 10.10 hereof.

Section 9.13 Minimum Shareholders’ Equity. AFC’s Adjusted Shareholders’ Equity (as calculated immediately prior to the Closing Date) shall not be less than its Adjusted Shareholders’ Equity as of March 31, 2003.

Section 9.14 AFC Capitalization. There shall be no AFC Stock Options outstanding, and the authorized and outstanding capital stock of AFC shall consist exclusively of no more than 528,826 shares of AFC Common Stock.

ARTICLE 10

CONDITIONS PRECEDENT TO THE OBLIGATIONS OF AFC

AFC’s obligation to consummate the Contemplated Transactions and to take the other actions required to be taken by AFC at the Closing is subject to the satisfaction, at or prior to the Closing, of each of the following conditions (any of which may be waived by AFC, in whole or in part):

Section 10.1 Accuracy of Representations and Warranties. All of the representations and warranties of KNK set forth in this Agreement shall be true and correct with the same force and effect as if all of such representations and warranties were made at the Closing Date (provided, however, that to the extent such representations and warranties expressly relate to an earlier date, such representations shall be true and correct on and as of such earlier date), except for any untrue or incorrect representations or warranties that individually or in the aggregate do not have a Material Adverse Effect on KNK on a consolidated basis or on AFC’s rights under this Agreement.

Section 10.2 KNK’s Performance. KNK shall have performed or complied with all of the covenants and obligations to be performed or complied with by it under the terms of this Agreement on or prior to the Closing Date, except where any non-performance or noncompliance would not have a Material Adverse Effect on KNK on a consolidated basis or on AFC’s rights under this Agreement.

Section 10.3 Documents Satisfactory. All proceedings, corporate or other, to be taken by KNK in connection with the Contemplated Transactions, and all documents incident thereto, shall be reasonably satisfactory in form and substance to counsel for AFC.

Section 10.4 Corporate Approval. This Agreement and the Contemplated Transactions shall have been duly and validly approved as necessary under applicable Legal Requirements by the stockholders of KNK and the shareholders of AFC.

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Section 10.5 No Proceedings. Since the date of this Agreement, there must not have been commenced or Threatened against KNK or any KNK Subsidiary any Proceeding: (a) involving any challenge to, or seeking damages or other relief in connection with, any of the Contemplated Transactions; or (b) that may have the effect of preventing, delaying, making illegal or otherwise interfering with any of the Contemplated Transactions, in either case that would reasonably be expected to have a Material Adverse Effect on KNK or its stockholders or AFC’s rights under this Agreement.

Section 10.6 Absence of Material Adverse Changes. From the date hereof to the Closing, there shall be and have been no event or occurrence that had or would reasonably be expected to have a Material Adverse Effect on KNK or any KNK Subsidiary.

Section 10.7 Consents and Approvals. Any consents or approvals required to be secured by either party by the terms of this Agreement shall have been obtained and shall be reasonably satisfactory to AFC, and all applicable waiting periods shall have expired.

Section 10.8 No Prohibitions. Neither the consummation nor the performance of any of the Contemplated Transactions will, directly or indirectly (with or without notice or lapse of time), contravene, or conflict with or result in a violation of: (a) any applicable Legal Requirement or Order; or (b) any Legal Requirement or Order that has been published, introduced, or otherwise proposed by or before any Regulatory Authority.

Section 10.9 Registration Statement. The Registration Statement shall have become effective and no stop order suspending such effectiveness shall have been issued or threatened by the SEC that suspends the effectiveness of the Registration Statement and no Proceeding shall have been commenced or be pending or Threatened for such purpose.

Section 10.10 Tax Opinion. At KNK’s expense, KNK and AFC shall have received a written opinion of McGladrey & Pullen, LLP, in form and substance reasonably satisfactory to KNK and AFC, dated as of the date of the Registration Statement and updated through the Closing Date, substantially to the effect that: (i) the Merger will constitute a tax-free reorganization under Section 368(a)(1)(A) of the Code; (ii) no gain or loss will be recognized by AFC as a result of the merger; and (iii) no gain or loss will be recognized by the shareholders of AFC who exchange all their AFC common stock solely for KNK common stock pursuant to the merger (except with respect to any cash paid in lieu of fractional shares or in respect of Dissenting Shares).

ARTICLE 11

TERMINATION

Section 11.1 Reasons for Termination and Abandonment. This Agreement, by prompt written notice given to the other parties prior to or at the Closing, may be terminated:

(a) by mutual consent of the boards of directors of KNK and AFC;

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(b) by KNK if: (i) any of the conditions in Article 9 has not been satisfied as of the Closing Date or if satisfaction of such a condition is or becomes impossible (other than through the failure of KNK to comply with its obligations under this Agreement); and (ii) KNK has not waived such condition on or before the Closing Date;

(c) by AFC if: (i)(A) any of the conditions in Article 10 has not been satisfied as of the Closing Date or if satisfaction of such a condition is or becomes impossible (other than through the failure of AFC to comply with its obligations under this Agreement), and (B) AFC has not waived such condition on or before the Closing Date; or (ii) the board of directors of AFC shall have approved or recommended to the shareholders of AFC any Acquisition Transaction (other than the Contemplated Transactions) or shall have resolved to do so; provided, however, that the effectiveness of any such termination pursuant to this clause (ii) shall be effective only upon receipt by KNK of the amounts then due to it pursuant to Section 11.3.

(d) by either KNK or AFC if the Closing has not occurred (other than through the failure of any party seeking to terminate this Agreement to comply fully with its obligations under this Agreement) by April 1, 2004, or such later date as the parties may agree (the “Termination Date”).

Section 11.2 Effect of Termination. Except as provided in Section 11.3, if this Agreement is terminated pursuant to Section 11.1, this Agreement shall forthwith become void, there shall be no liability under this Agreement on the part of KNK, AFC or any of their respective Representatives, and all rights and obligations of each party hereto shall cease; provided, however, that, subject to Section 11.3, nothing herein shall relieve any party from liability for the Breach of any of its representations and warranties or the Breach of any of its covenants or agreements set forth in this Agreement.

Section 11.3 Expenses.

(a) Except as provided below, all Expenses (as defined below) incurred in connection with this Agreement and the Contemplated Transactions shall be paid by the party incurring such expenses, whether or not the Merger is consummated. “Expenses” as used in this Agreement shall consist of all out-of-pocket expenses (including all fees and expenses of counsel, accountants, investment bankers, experts and consultants to a party hereto and its Affiliates) incurred by a party or on its behalf in connection with or related to the authorization, preparation, negotiation, execution and performance of this Agreement, the solicitation of stockholder and shareholder approvals and all other matters related to the consummation of the Merger.

(b) If this Agreement is terminated by: (i) KNK because AFC committed a Breach of its obligations under this Agreement, unless such Breach is a result of the failure by KNK to perform and comply in all material respects with any of its material obligations under this Agreement which are to be performed or complied with by it prior to or on the date required hereunder; (ii) KNK or AFC because AFC’s shareholders fail to approve the Contemplated Transactions and this Agreement on or before the Termination Date; or (iii) by AFC pursuant to

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clause (ii) of Section 11.1(c) (in each case described in clauses (i), (ii) or (iii), an “AFC Termination”), and provided KNK is in material compliance with all of its material obligations under this Agreement, then AFC shall pay to KNK, upon its written demand, an amount equal to the sum of KNK’s actually and reasonably incurred Expenses, but not in excess of $500,000, plus an amount equal to $300,000. Such sums shall constitute liquidated damages and the receipt thereof shall be KNK’s sole and exclusive remedy under this Agreement for all Breaches of this Agreement by AFC or such failure to approve. In addition to these payments, if there is an AFC Termination, and within twelve months after the termination of this Agreement AFC enters into a Contract with any party other than KNK providing for any Acquisition Transaction, then AFC shall pay to KNK, upon its written demand, the additional sum of $500,000; provided, however, that the provisions of this Section shall in no way limit KNK’s rights against any such third party.

(c) If this Agreement is terminated by: (i) AFC because KNK committed a Breach of its obligations under this Agreement, unless such Breach is a result of the failure by AFC to perform and comply in all material respects with any of its material obligations under this Agreement which are to be performed or complied with by it prior to or on the date required hereunder; or (ii) AFC or KNK because KNK’s stockholders fail to approve the Contemplated Transactions and this Agreement on or before the Termination Date, and provided that AFC is in material compliance with all of its material obligations under this Agreement, KNK shall pay to AFC, upon its written demand, an amount equal to the sum of AFC’s actually and reasonably incurred Expenses, but not in excess of $200,000 plus an amount equal to $300,000. Such sums shall constitute liquidated damages and the receipt thereof shall be AFC’s sole and exclusive remedy under this Agreement for all Breaches of this Agreement by KNK or such failure to approve.

ARTICLE 12

MISCELLANEOUS

Section 12.1 Governing Law. All questions concerning the construction, validity and interpretation of this Agreement and the performance of the obligations imposed by this Agreement shall be governed by the internal laws of the State of Illinois applicable to Contracts made and wholly to be performed in such state without regard to conflicts of laws.

Section 12.2 Assignments, Successors and No Third Party Rights. None of the parties to this Agreement may assign any of its rights under this Agreement without the prior consent of the other parties. Subject to the preceding sentence, this Agreement and every representation, warranty, covenant, agreement and provision hereof shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns. Nothing expressed or referred to in this Agreement will be construed to give any Person other than the parties to this Agreement any legal or equitable right, remedy or claim under or with respect to this Agreement or any provision of this Agreement, other than Section 7.7, which is intended to be for the benefit of the individuals covered thereby.

Section 12.3 Waiver. Except as provided in Section 11.3, the rights and remedies of the parties to this Agreement are cumulative and not alternative. Neither the failure nor any

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delay by any party in exercising any right, power or privilege under this Agreement or the documents referred to in this Agreement will operate as a waiver of such right, power or privilege, and no single or partial exercise of any such right, power or privilege will preclude any other or further exercise of such right, power or privilege or the exercise of any other right, power or privilege. To the maximum extent permitted by applicable law: (a) no claim or right arising out of this Agreement or the documents referred to in this Agreement can be discharged by one party, in whole or in part, by a waiver or renunciation of the claim or right unless in writing signed by the other party; (b) no waiver that may be given by a party will be applicable except in the specific instance for which it is given; and (c) no notice to or demand on one party will be deemed to be a waiver of any obligation of such party or of the right of the party giving such notice or demand to take further action without notice or demand as provided in this Agreement or the documents referred to in this Agreement.

Section 12.4 Confidentiality. Between the date of this Agreement and the Closing Date, each of KNK and AFC will maintain in confidence, and will cause each of its respective Representatives to maintain in confidence, and not use to the detriment of the other or its Subsidiaries any written, oral, or other information obtained in confidence from the other of any of its Subsidiaries in connection with this Agreement or the Contemplated Transactions, unless: (a) such information is already known to such party or to others not bound by a duty of confidentiality or such information becomes publicly available through no fault of such party; (b) the use of such information is necessary or appropriate in making any filing or obtaining any consent or approval required for the consummation of the Contemplated Transactions; or (c) the furnishing or use of such information is required by or necessary or appropriate in connection with any legal proceedings. If the Contemplated Transactions are not consummated, each party will return or destroy as much of such written information as the other party may reasonably request.

Section 12.5 Notices. All notices, consents, waivers and other communications under this Agreement must be in writing (which shall include telecopier communication) and will be deemed to have been duly given if delivered by hand or by nationally recognized overnight delivery service (receipt requested), mailed by registered or certified U.S. mail (return receipt requested) postage prepaid or telecopied, if confirmed immediately thereafter by also mailing a copy of any notice, request or other communication by U.S. mail as provided in this Section:

If to KNK, to:

Kankakee Bancorp, Inc.

310 South Schuyler Avenue

P.O. Box 3

Kankakee, Illinois 60901-0003

Telephone: (815) 937-4440

Telecopier: (815) 937-3674

Attention: Mr. Michael A. Griffith, Chairman

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with copies to:

Barack Ferrazzano Kirschbaum Perlman & Nagelberg LLC

333 West Wacker Drive, Suite 2700

Chicago, Illinois 60606

Telephone: (312) 984-3100

Telecopier: (312) 984-3193

Attention: John E. Freechack, Esq.

If to AFC, to:

Aviston Financial Corporation

101 S. Page Street

P.O. Box 115

Aviston, Illinois 62216

Telephone: (618) 228-7215

Telecopier: (618) 228-7363

Attention: Mr. Thomas A. Daiber

with copies to:

Thompson & Coburn LLP

One US Bank Plaza, Suite 3400

St. Louis, Missouri 63101

Telephone: (314) 552-6000

Telecopier: (314) 552-7000

Attention: Thomas A. Litz, Esq.

or to such other Person or place as AFC shall furnish to KNK or KNK shall furnish to AFC in writing. Except as otherwise provided herein, all such notices, consents, waivers and other communications shall be effective: (a) if delivered by hand, when delivered; (b) if mailed in the manner provided in this Section, five Business Days after deposit with the United States Postal Service; (c) if delivered by overnight express delivery service, on the next Business Day after deposit with such service; and (d) if by telecopier, on the next Business Day if also confirmed by mail in the manner provided in this Section.

Section 12.6 Entire Agreement. This Agreement and any documents executed by the parties pursuant to this Agreement and referred to herein, and that certain Confidentiality Agreement dated as of May 6, 2003, between KNK and AFC, constitute the entire understanding and agreement of the parties hereto and supersede all other prior agreements and understandings, written or oral, relating to such subject matter between the parties.

Section 12.7 Modification. This Agreement may not be amended except by a written agreement signed by each of AFC and KNK. Without limiting the foregoing, AFC and KNK may by written agreement signed by each of them: (a) extend the time for the performance of any of the obligations or other acts of the parties hereto; (b) waive any inaccuracies in the

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representations or warranties contained in this Agreement or in any document delivered pursuant to this Agreement; and (c) waive compliance with or modify, amend or supplement any of the conditions, covenants, agreements, representations or warranties contained in this Agreement or waive or modify performance of any of the obligations of any of the parties hereto, which are for the benefit of the waiving party; provided, however, that no such modification, amendment or supplement agreed to after authorization of this Agreement by the shareholders of AFC and the stockholders of KNK shall affect the rights of AFC’s shareholders or KNK’s stockholders, respectively in any manner which is materially adverse to such Persons.

Section 12.8 Severability. Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be prohibited by or invalid under applicable law, such provision will be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement unless the consummation of the Contemplated Transactions is adversely affected thereby.

Section 12.9 Further Assurances. The parties agree: (a) to furnish upon request to each other such further information; (b) to execute and deliver to each other such other documents; and (c) to do such other acts and things, all as the other party may reasonably request for the purpose of carrying out the intent of this Agreement and the documents referred to in this Agreement.

Section 12.10 Survival. The representations, warranties and covenants contained herein shall not survive beyond the Closing.

Section 12.11 Counterparts. This Agreement and any amendments thereto may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same agreement.

* * * * *

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers on the day and year first written above.

ATTEST		KANKAKEE BANcORP, INC.
By:	/s/    LYNN O’BRIEN	By:	/s/    KEITH M. ROSELAND
Name:	Lynn O’Brien	Name:	Keith M. Roseland
Title:	Secretary	Title:	Vice President

ATTEST		AVISTON FINANCIAL CORPORATION
By:	/s/    BRYAN L. MARSH	By:	/s/    THOMAS A. DAIBER
Name:	Bryan L. Marsh	Name:	Thomas A. Daiber
Title:	Secretary/Treasurer	Title:	Chairman, President and CEO

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APPENDIX B

ILLINOIS DISSENTERS’ RIGHTS LAW

UNDER THE ILLINOIS BUSINESS CORPORATION ACT OF 1983

5/11.65. RIGHT TO DISSENT

SECTION 11.65. Right to dissent. (a) A shareholder of a corporation is entitled to dissent from, and obtain payment for his or her shares in the event of any of the following corporate actions:

(1) consummation of a plan of merger or consolidation or a plan of share exchange to which the corporation is a party if (i) shareholder authorization is required for the merger or consolidation or the share exchange by Section 11.20 or the articles of incorporation or (ii) the corporation is a subsidiary that is merged with its parent or another subsidiary under Section 11.30;

(2) consummation of a sale, lease or exchange of all, or substantially all, of the property and assets of the corporation other than in the usual and regular course of business;

(3) an amendment of the articles of incorporation that materially and adversely affects rights in respect of a dissenter’s shares because it:

(i) alters or abolishes a preferential right of such shares;

(ii) alters or abolishes a right in respect of redemption, including a provision respecting a sinking fund for the redemption or repurchase, of such shares;

(iii) in the case of a corporation incorporated prior to January 1, 1982, limits or eliminates cumulative voting rights with respect to such shares; or

(4) any other corporate action taken pursuant to a shareholder vote if the articles of incorporation, by-laws, or a resolution of the board of directors provide that shareholders are entitled to dissent and obtain payment for their shares in accordance with the procedures set forth in Section 11.70 or as may be otherwise provided in the articles, by-laws or resolution.

(b) A shareholder entitled to dissent and obtain payment for his or her shares under this Section may not challenge the corporate action creating his or her entitlement unless the action is fraudulent with respect to the shareholder or the corporation or constitutes a breach of a fiduciary duty owed to the shareholder.

(c) A record owner of shares may assert dissenters’ rights as to fewer than all the shares recorded in such person’s name only if such person dissents with respect to all shares beneficially owned by any one person and notifies the corporation in writing of the name and address of each person on whose behalf the record owner asserts dissenters’ rights. The rights of a partial dissenter are determined as if the shares as to which dissent is made and the other shares were recorded in the names of different shareholders. A beneficial owner of shares who is not the record owner may assert dissenters’ rights as to shares held on such person’s behalf

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only if the beneficial owner submits to the corporation the record owner’s written consent to the dissent before or at the same time the beneficial owner asserts dissenters’ rights.

5/11.70. PROCEDURE TO DISSENT

SECTION 11.70. Procedure to Dissent. (a) If the corporate action giving rise to the right to dissent is to be approved at a meeting of shareholders, the notice of meeting shall inform the shareholders of their right to dissent and the procedure to dissent. If, prior to the meeting, the corporation furnishes to the shareholders material information with respect to the transaction that will objectively enable a shareholder to vote on the transaction and to determine whether or not to exercise dissenters’ rights, a shareholder may assert dissenters’ rights only if the shareholder delivers to the corporation before the vote is taken a written demand for payment for his or her shares if the proposed action is consummated, and the shareholder does not vote in favor of the proposed action.

(b) If the corporate action giving rise to the right to dissent is not to be approved at a meeting of shareholders, the notice to shareholders describing the action taken under Section 11.30 or Section 7.10 shall inform the shareholders of their right to dissent and the procedure to dissent. If, prior to or concurrently with the notice, the corporation furnishes to the shareholders material information with respect to the transaction that will objectively enable a shareholder to determine whether or not to exercise dissenters’ rights, a shareholder may assert dissenter’s rights only if he or she delivers to the corporation within 30 days from the date of mailing the notice a written demand for payment for his or her shares.

(c) Within 10 days after the date on which the corporate action giving rise to the right to dissent is effective or 30 days after the shareholder delivers to the corporation the written demand for payment, whichever is later, the corporation shall send each shareholder who has delivered a written demand for payment a statement setting forth the opinion of the corporation as to the estimated fair value of the shares, the corporation’s latest balance sheet as of the end of a fiscal year ending not earlier than 16 months before the delivery of the statement, together with the statement of income for that year and the latest available interim financial statements, and either a commitment to pay for the shares of the dissenting shareholder at the estimated fair value thereof upon transmittal to the corporation of the certificate or certificates, or other evidence of ownership, with respect to the shares, or instructions to the dissenting shareholder to sell his or her shares within 10 days after delivery of the corporation’s statement to the shareholder. The corporation may instruct the shareholder to sell only if there is a public market for the shares at which the shares may be readily sold. If the shareholder does not sell within that 10 day period after being so instructed by the corporation, for purposes of this Section the shareholder shall be deemed to have sold his or her shares at the average closing price of the shares, if listed on a national exchange, or the average of the bid and asked price with respect to the shares quoted by a principal market maker, if not listed on a national exchange, during that 10 day period.

(d) A shareholder who makes written demand for payment under this Section retains all other rights of a shareholder until those rights are cancelled or modified by the consummation of the proposed corporate action. Upon consummation of that action, the corporation shall pay to each dissenter who transmits to the corporation the certificate or other evidence of ownership of

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the shares the amount the corporation estimates to be the fair value of the shares, plus accrued interest, accompanied by a written explanation of how the interest was calculated.

(e) If the shareholder does not agree with the opinion of the corporation as to the estimated fair value of the shares or the amount of interest due, the shareholder, within 30 days from the delivery of the corporation’s statement of value, shall notify the corporation in writing of the shareholder’s estimated fair value and amount of interest due and demand payment for the difference between the shareholder’s estimate of fair value and interest due and the amount of the payment by the corporation or the proceeds of sale by the shareholder, whichever is applicable because of the procedure for which the corporation opted pursuant to subsection (c).

(f) If, within 60 days from delivery to the corporation of the shareholder notification of estimate of fair value of the shares and interest due, the corporation and the dissenting shareholder have not agreed in writing upon the fair value of the shares and interest due, the corporation shall either pay the difference in value demanded by the shareholder, with interest, or file a petition in the circuit court of the county in which either the registered office or the principal office of the corporation is located, requesting the court to determine the fair value of the shares and interest due. The corporation shall make all dissenters, whether or not residents of this State, whose demands remain unsettled parties to the proceeding as an action against their shares and all parties shall be served with a copy of the petition. Nonresidents may be served by registered or certified mail or by publication as provided by law. Failure of the corporation to commence an action pursuant to this Section shall not limit or affect the right of the dissenting shareholders to otherwise commence an action as permitted by law.

(g) The jurisdiction of the court in which the proceeding is commenced under subsection (f) by a corporation is plenary and exclusive. The court may appoint one or more persons as appraisers to receive evidence and recommend decision on the question of fair value. The appraisers have the power described in the order appointing them, or in any amendment to it.

(h) Each dissenter made a party to the proceeding is entitled to judgment for the amount, if any, by which the court finds that the fair value of his or her shares, plus interest, exceeds the amount paid by the corporation or the proceeds of sale by the shareholder, whichever amount is applicable.

(i) The court, in a proceeding commenced under subsection (f), shall determine all costs of the proceeding, including the reasonable compensation and expenses of the appraisers, if any, appointed by the court under subsection (g), but shall exclude the fees and expenses of counsel and experts for the respective parties. If the fair value of the shares as determined by the court materially exceeds the amount which the corporation estimated to be the fair value of the shares or if no estimate was made in accordance with subsection (c), then all or any part of the costs may be assessed against the corporation. If the amount which any dissenter estimated to be the fair value of the shares materially exceeds the fair value of the shares as determined by the court, then all or any part of the costs may be assessed against that dissenter. The court may also assess the fees and expenses of counsel and experts for the respective parties, in amounts the court finds equitable, as follows:

(1) Against the corporation and in favor of any or all dissenters if the court finds that the corporation did not substantially comply with the requirements of subsections (a), (b), (c), (d), or (f).

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(2) Against either the corporation or a dissenter and in favor of any other party if the court finds that the party against whom the fees and expenses are assessed acted arbitrarily, vexatiously, or not in good faith with respect to the rights provided by this Section.

If the court finds that the services of counsel for any dissenter were of substantial benefit to other dissenters similarly situated and that the fees for those services should not be assessed against the corporation, the court may award to that counsel reasonable fees to be paid out of the amounts awarded to the dissenters who are benefited. Except as otherwise provided in this Section, the practice, procedure, judgment and costs shall be governed by the Code of Civil Procedure.

(j) As used in this Section:

(1) “Fair value”, with respect to a dissenter’s shares, means the value of the shares immediately before the consummation of the corporate action to which the dissenter objects excluding any appreciation or depreciation in anticipation of the corporate action, unless exclusion would be inequitable.

(2) “Interest” means interest from the effective date of the corporate action until the date of payment, at the average rate currently paid by the corporation on its principal bank loans or, if none, at a rate that is fair and equitable under all the circumstances.

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PART II. INFORMATION NOT REQUIRED IN PROSPECTUS

Item 20. Indemnification of Directors and Officers

Under Delaware law, a Delaware corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation) by reason of the fact that he or she is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him or her in connection with such action, suit or proceeding if he or she acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the corporation, and with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful.

Under Delaware law, a Delaware corporation may also indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that he or she is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise against expenses (including attorneys’ fees) actually and reasonably incurred by him or her in connection with the defense or settlement of such action or suit if he or she acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the corporation; except that no indemnification will be made in respect of any claim, issue or matter as to which the person shall have been adjudged to be liable to the corporation unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, the person is fairly and reasonably entitled to indemnity for his or her expenses which the Court of Chancery or such other court shall deem proper.

Indemnification under Delaware law is not exclusive of other rights to indemnification to which a person may be entitled under the corporation’s certificate of incorporation, by-laws or any contractual agreement. Unless otherwise specified when authorized or ratified, the indemnification provided for under Delaware law continues as to a person who ceases to be a director, officer, employee or agent of the corporation.

Delaware law permits a corporation to purchase insurance on behalf of its directors, officers, employees and agents (or those holding such positions with another enterprise at the request of the corporation) against liabilities arising out of their positions, whether or not such liabilities would be within the above described indemnification provisions.

Kankakee Bancorp has agreed to honor any of Aviston Financial’s obligations in respect of indemnification currently provided by Aviston Financial in its articles of incorporation in favor of the current and former officers and directors and directors of Aviston Financial and the State Bank of Aviston for at least three years from the effective time of the merger with respect to matters occurring prior to the merger. In addition, Aviston Financial is permitted to purchase an extension of its current insurance policy providing coverage for any claims against its directors and officers made prior to the third anniversary of the effective time of the merger.

Kankakee Bancorp’s certificate and by-laws provide for the indemnification of its directors and officers, and of any person serving at the request of Kankakee Bancorp as a director, officer or partner of another enterprise, to the fullest extent permitted by Delaware law.

Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling Kankakee Bancorp under the provisions described above, Kankakee Bancorp has been informed that, in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Securities Act, and is therefore unenforceable.

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Item 21. Exhibits and Financial Statement Schedules

The exhibits filed pursuant to this Item 21 immediately follow the Exhibit Index. The following is a description of the applicable exhibits required for Form S-4 as provided by Item 601 of Regulation S-K.

Exhibit Number	Description
2.1	Agreement and Plan of Merger, pursuant to the merger of Aviston Financial Corporation into Kankakee Bancorp, Inc. This document is filed as Appendix A to the joint proxy statement-prospectus forming a part of this Registration Statement.
3.1	Certificate of Incorporation of Kankakee Bancorp, Inc.(1)
3.3	By-laws of Kankakee Bancorp, Inc.(1)
4.1	Form of Rights Agreement of Kankakee Bancorp, Inc.(2)
5.1	Opinion of Barack Ferrazzano Kirschbaum Perlman & Nagelberg LLC regarding legality of Kankakee Bancorp, Inc. Common Stock to be issued in the Merger.
8.1	Opinion of RSM McGladrey, Inc., regarding material Federal income tax consequences of the merger.
10.1	Stock Option Plan(3)
10.2	Management Recognition Plan and Trusts(3)
10.3	Employee Stock Ownership Plan(1)
10.4	Money Purchase Pension Plan(1)
10.5	401(k) Plan(1)
10.6	Kankakee Bancorp, Inc. Bank Incentive Plan and Trust(4)
10.7	Form of Employment Agreement between Thomas A. Daiber and Kankakee Bancorp, Inc.
10.8	Form of Change of Control Agreement between each of Bryan L. Marsh and Brad Rench and Kankakee Bancorp, Inc.
10.9	Form of Change of Control Agreements for Carol S. Hoekstra and Terry L. Ralston.(5)
10.10	Consulting Agreement between Kankakee Bancorp, Inc. and Larry D. Huffman.
10.11	Consulting Agreement between Kankakee Bancorp, Inc. and James M. Lindstrom.
10.12	Kankakee Bancorp, Inc. 2003 Stock Incentive Plan.(6)
10.13	Business Loan Agreement between Kankakee Bancorp, Inc. and LaSalle Bank National Association.
10.14	Master Repurchase Agreement between Kankakee Bancorp, Inc. and Salomon Smith Barney, Inc.
10.15	Consulting Agreement between Kankakee Bancorp, Inc. and Ronald J. Walters.

II-2

13.1	Kankakee Bancorp, Inc.’s Annual Report to Stockholders on Form 10-K filed with the Securities and Exchange Commission on March 26, 2003.
13.2	Kankakee Bancorp, Inc.’s Quarterly Report to Stockholders on Form 10-Q filed with the Securities and Exchange Commission on May 13, 2003.
23.1	Consent of McGladrey & Pullen, LLP.
23.2	Consent of Hauk, Fasani, Ramsey, Kruse and Company.
23.3	Consent of RSM McGladrey, Inc. (included in Exhibit 8.1).
23.4	Consent of Barack Ferrazzano Kirschbaum Perlman & Nagelberg (included in Exhibit 5.1).
24.1	Power of Attorney (contained on the signature page).
99.1	Form of Proxy to be delivered to the stockholders of Kankakee Bancorp, Inc.
99.2	Form of Proxy to be delivered to the stockholders of Aviston Financial Corporation.
99.3	Consent of Thomas A. Daiber to be named as future director of Kankakee Bancorp, Inc.

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

⁽²⁾ Filed on May 21, 1999, as an exhibit to Kankakee Bancorp’s Form 8-K. Such previously filed document is hereby incorporated herein by reference in accordance with Item 601 of Regulation S-K.

⁽³⁾ Filed on March 19, 1993, as exhibits to Kankakee Bancorp’s Annual Report on Form 10-K. Such previously filed documents are hereby incorporated herein by reference in accordance with Item 601 of Regulation S-K.

⁽⁴⁾ Filed on March 30, 1994, as an exhibit to Kankakee Bancorp’s Annual Report on Form 10-K. Such previously filed document is hereby incorporated herein by reference in accordance with Item 601 of Regulation S-K.

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

⁽⁶⁾ Filed on May 1, 2003, as an exhibit to Kankakee Bancorp’s Form 8-K. Such previously filed document is hereby incorporated herein by reference in accordance with Item 601 of Regulation S-K.

Item 22. Undertakings

The undersigned registrant hereby undertakes:

(a) To file during any period in which offers and sales are being made, a post-effective amendment to this registration statement:

(i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933, as amended (the “Act”);

(ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof), which individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement; notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement; and

II-3

(iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement.

(b) That for the purpose of determining any liability under the Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

(c) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.

The undersigned registrant hereby undertakes that, for purposes of determining any liability under the Act each filing of the registrant’s annual report pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan’s annual report pursuant to Section 15(d) of the Securities and Exchange Act of 1934) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

The undersigned registrant hereby undertakes to deliver or cause to be delivered with the prospectus, to each person to whom the prospectus is sent or given, the latest annual report to security holders that is incorporated by reference in the prospectus and furnished pursuant to, and meeting the requirements of, Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of 1934; and, where interim financial information required to be presented by Article 3 of Regulation S-X is not set forth in the prospectus, to deliver, or cause to be delivered to each person to whom the prospectus is sent or given, the latest quarterly report that is specifically incorporated by reference in the prospectus to provide such interim financial information.

The undersigned registrant hereby undertakes as follows: that prior to any public reoffering of the securities registered hereunder through use of a prospectus which is a part of this registration statement, by any person or party who is deemed to be an underwriter within the meaning of Rule 145(c), the issuer undertakes that such reoffering prospectus will contain the information called for by the applicable registration form with respect to reofferings by persons who may be deemed underwriters, in addition to the information called for by the other items of the applicable form.

The undersigned registrant hereby undertakes that every prospectus: (i) that is filed pursuant to the immediately preceding paragraph, or (ii) that purports to meet the requirements of Section 10(a)(3) of the Act and is used in connection with an offering of securities subject to Rule 415, will be filed as a part of an amendment to the registration statement and will not be used until such amendment is effective, and that, for purposes of determining any liability under the Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

Insofar as indemnification for liabilities arising under the Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.

The undersigned registrant hereby undertakes to respond to requests for information that is incorporated by reference into the joint proxy statement-prospectus pursuant to items 4, 10(b), 11, or 13 of this form, within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally

II-4

prompt means. This includes information contained in the documents filed subsequent to the effective date of this registration statement through the date of responding to the request.

The undersigned registrant hereby undertakes to supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in this registration statement when it became effective.

II-5

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, Kankakee Bancorp, Inc. has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Kankakee, State of Illinois, this 27th day of June, 2003.

KANKAKEE BANCORP, INC.
By:	/s/    CAROL S. HOEKSTRA
	Carol S. Hoekstra Executive Vice President

POWER OF ATTORNEY

The undersigned officers and directors of Kankakee Bancorp, Inc. do hereby constitute and appoint Carol S. Hoekstra and Keith Roseland, as their attorneys-in fact with power and authority to do any and all acts and things and to execute any and all instruments which said attorneys-in-fact, and either one of them, determine may be necessary or advisable or required to enable said corporation to comply with the Securities Act of 1933, as amended, and any rules or regulations or requirements of the Securities and Exchange Commission in connection with this Registration Statement. Without limiting the generality of the foregoing power and authority, the powers granted include the power and authority to sign the names of the undersigned officers and directors in the capacities indicated below to the Registration Statement, to any and all amendments, both pre-effective and post-effective, and supplements to this Registration Statement, and to any and all instruments or documents filed as part of or in conjunction with this Registration Statement or amendments or supplements thereto, and each of the undersigned hereby ratifies and confirms all that said attorneys-in-fact or any of them shall do or cause to be done by virtue hereof. This Power of Attorney may be signed in several counterparts.

Pursuant to the requirements of the Securities Act of 1933, this Registration Statement and Power of Attorney has been signed on June 27, 2003, by the following persons in their capacities indicated.

Signature	Capacity
/s/    CAROL S. HOEKSTRA Carol S. Hoekstra	Executive Vice President and Principal Executive Officer
/s/    THOMAS G. HENRY Thomas G. Henry	Vice President, Controller and Principal Accounting Officer
/s/    JAMES M. LINDSTROM James M. Lindstrom	Interim Chief Financial Officer and Principal Financial Officer

S-1

Signature	Capacity
/S/    MICHAEL A. GRIFFITH Michael A. Griffith	Chairman of the Board of Directors
/S/    BRENDA BAIRD Brenda Baird	Director
/S/    WILLIAM CHEFFER William Cheffer	Director
/S/    MARK L. SMITH Mark L. Smith	Director
/S/    WESLEY E. WALKER Wesley E. Walker	Director

S-2

EX-5.1

                                                                     EXHIBIT 5.1

      [LETTERHEAD OF BARACK FERRAZZANO KIRSCHBAUM PERLMAN & NAGELBERG LLC]

                                  June 27, 2003

Kankakee Bancorp, Inc.
310 South Schuyler Avenue
Kankakee, Illinois  60901

Ladies and Gentlemen:

          We have acted as special counsel to Kankakee Bancorp, Inc., a Delaware
corporation (the "Company"), in connection with the merger of Aviston Financial
Corporation, an Illinois corporation ("AFC"), with and into the Company, as
described in the Form S-4 Registration Statement to be filed by the Company with
the Securities and Exchange Commission (the "SEC") under the Securities Act of
1933, as amended (together with all amendments thereto, the "Registration
Statement"). Capitalized terms used, but not defined, herein shall have the
meanings given such terms in the Registration Statement. You have requested our
opinion concerning certain matters in connection with the Registration
Statement.

          We have made such legal and factual investigation as we deemed
necessary for purposes of this opinion. In our investigation, we have assumed
the genuineness of all signatures, the proper execution of all documents
submitted to us as originals, the conformity to the original documents of all
documents submitted to us as copies and the authenticity of the originals of
such copies.

          In arriving at the opinions expressed below, we have reviewed and
examined the following documents:

          (a)  the Certificate of Incorporation and Bylaws of the Company;

          (b)  the Agreement and Plan of Merger by and between the Company and
               AFC, dated as of May 27, 2003 (the "Merger Agreement");

          (c)  the Registration Statement, including the proxy
               statement-prospectus constituting a part thereof (the "Proxy
               Statement-Prospectus"); and

          (d)  resolutions of the Board of Directors of the Company relating to
               the merger transaction.



BARACK FERRAZZANO KIRSCHBAUM PERLMAN & NAGELBERG

Kankakee Bancorp, Inc.
June 27, 2003
Page 2

          We call your attention to the fact that we are qualified to practice
law in the State of Illinois and express no opinion concerning any law other
than the General Corporation Law of the State of Delaware and the laws of the
United States of America.

          Based upon the foregoing, but assuming no responsibility for the
accuracy or the completeness of the data supplied by the Company and subject to
the qualifications, assumptions and limitations set forth herein, it is our
opinion that:

          (1)  The shares of the Company's common stock, $0.01 par value per
               share, to be issued to the stockholders of AFC as a result of the
               Merger, when issued by the Company pursuant to the Merger
               Agreement, in connection with the Merger, will be legally issued,
               fully paid and non-assessable shares of the Company; provided
               that the Merger has been consummated in accordance with the terms
               and conditions contained in the Merger Agreement.

          (2)  Provided that the Merger has been consummated in accordance with
               the terms and conditions contained in the Merger Agreement, the
               Merger will qualify as a merger under the laws of the States of
               Delaware and Illinois.

          We express no opinion with respect to any specific legal issues other
than those explicitly addressed herein. We assume no obligation to advise you of
any change in the foregoing subsequent to the date of this opinion (even though
the change may affect the legal conclusion stated in this opinion letter).

          We hereby consent to the reliance by the accounting firm of RSM
McGladrey, Inc. on our opinion stated above in paragraph numbered 2 solely with
respect to the issuance by such firm of an opinion with respect to the federal
income tax consequences of the Merger.

          We hereby consent to the use in the Proxy Statement-Prospectus of our
name, the statements with respect to us as appearing under the heading "Certain
Opinions" in the Proxy Statement-Prospectus and to the use of this opinion as an
exhibit to the Registration Statement.

                                      Very truly yours,

                                      /s/ Barack Ferrazzano Kirschbaum Perlman &
                                      Nagelberg LLC

                                      BARACK FERRAZZANO KIRSCHBAUM
                                      PERLMAN & NAGELBERG LLC

EX-8.1

                                                                     EXHIBIT 8.1

[LOGO OF RSM MCGLADREY]

                                      DRAFT

                                               RSM McGladrey, Inc.
                                               401 Main Street, Suite 1200
                                               Peoria, Illinois 61602
                                               O (309) 671-8715 F (309) 673-2620

June 26, 2003

Board of Directors
Kankakee Bancorp, Inc.
310 South Schuyler
Kankakee, Illinois 60901

Re:       Tax Opinion Concerning Consequences of Reorganization under the
          Internal Revenue Code

Ladies and Gentlemen:

          You have requested our opinion as to certain federal income tax
consequences under the Internal Revenue Code of 1986, as amended ("the Code"),
of a merger ("the Merger") of Aviston Financial Corporation ("Aviston") into
Kankakee Bancorp, Inc. ("Kankakee") effected under the laws of Delaware and
Illinois. These transactions are described in the Agreement and Plan of Merger
Between Kankakee Bancorp, Inc. and Aviston Financial Corporation (the "Plan of
Merger").

          In connection with your request, you have provided us with the Plan of
Merger adopted by the Boards of Directors of both Kankakee and Aviston on May
27, 2003.

STATEMENT OF FACTS

          Kankakee is a savings and loan holding company organized under the
laws of the State of Delaware, registered under the Home Owner's Loan Act, and
subject to regulation by the Office of Thrift Supervision. It owns 100 percent
of the capital stock of KFS Bank, F.S.B. ("KFS Bank"). At March 13, 2003, it had
issued and outstanding 932,611 shares of common stock. It's stock is widely held
and traded on the American Stock Exchange.

          Aviston is a bank holding company organized under the laws of the
State of Illinois, registered with, and subject to regulation by, the Federal
Reserve. It owns 100 percent of the capital stock of State Bank of Aviston. At
March 31, 2003, it had issued and outstanding 483,826 shares of common stock
owned by 115 stockholders. Prior to any transaction as described below, Aviston
will issue an additional 11,500 shares of common stock to employees holding
stock options on 45,000 shares of Aviston common stock.

          The Kankakee Board of Directors ("the Kankakee Board") has determined
that a strategic combination with Aviston, would create a stronger and more
diversified company that will provide long-term benefits to its stockholders and
customers. The merger will allow Kankakee to expand its presence within the
central Illinois and St. Louis metropolitan area. When approached by Kankakee,
the Aviston Board of Directors concluded that their customers and stockholders
would also benefit from the combination with Kankakee.

RSM McGladrey, Inc. is an independent member firm of
RSM International, an affiliation of independent accounting
and consulting firms.



                                      DRAFT

PROPOSED TRANSACTION

          Kankakee will acquire complete control of Aviston by merger, in
accordance with the applicable provisions of the Delaware General Corporation
Law, as amended` and the Illinois Business Corporation Act of 1983, of Aviston
with and into Kankakee, the surviving corporation. As a result of the Merger,
each share of Aviston common stock issued and outstanding immediately prior to
the effective time of the Merger, except for Aviston shares owned by
stockholders dissenting to the transaction in accordance with the provisions of
the applicable state law concerning the rights of such dissenting stockholders
and the appraisal of such stockholders' stock ("dissenter's shares"), will be
converted into the right to receive .707 shares of Kankakee common stock.

          Dissenter's shares shall be converted into the right to receive such
consideration as may be determined to be due to such stockholder pursuant to the
applicable state law.

          Each share of Kankakee common stock issued and outstanding immediately
prior to the effective time of the Merger shall be unaffected by the Merger and
shall represent one share of stock of the surviving corporation.

REPRESENTATIONS UPON WHICH WE ARE RELYING

          We have received, and rely upon, the following representations made by
officers of Kankakee and / or Aviston with regard to the Merger:

..    To the extent not inconsistent with the following representations, the
     Merger will be consummated in accordance with the Plan of Merger.

..    A bona fide business purpose to complete the Merger exists for both
     Kankakee and Aviston.

..    The fair market value of Kankakee common stock and other consideration to
     be received by each Aviston shareholder under the Plan of Merger will be
     approximately equal to the fair market value of the Aviston common stock
     surrendered in the exchange.

..    The fair market value of Kankakee common stock received by all Aviston
     shareholders in the Merger will exceed 50 percent of the fair market value
     of all the consideration received by all Aviston shareholders in exchange
     for their Aviston shares surrendered in the Merger.

..    Kankakee has no plan or intention to reacquire any of its stock issued in
     the Merger to Aviston shareholders.

..    Kankakee has no plan or intention to sell or otherwise dispose of any of
     the assets of Aviston acquired in the transaction, except for dispositions
     made in the ordinary course of business or transfers described in Section
     368(a)(2)(C) of the Code.

..    The liabilities of Aviston assumed by Kankakee, and the liabilities to
     which the transferred assets of Aviston are subject, were incurred by
     Aviston in the ordinary course of its business.

..    Following the transaction, Kankakee will continue the historic business of
     Aviston or use a significant portion of Aviston's historic business assets
     in a business.

..    Kankakee, Aviston, and the shareholders of Aviston will pay their
     respective expenses, if any, incurred in connection with the transaction.

..    No party to the transaction is an investment company as defined in Section
     368(a)(2)(F)(iii) or (iv) of the Code.

..    Aviston is not under the jurisdiction of a court in a Title 11 or similar
     case within the meaning of Section 368(a)(3)(A) of the Code.



                                      DRAFT

..    The tax basis of assets of Aviston transferred to Kankakee will equal or
     exceed the sum of the liabilities assumed by Kankakee plus the amount of
     liabilities, if any, to which the transferred assets are subject.

As part of the S-4 Registration Statement, attorneys for Kankakee are issuing an
opinion regarding the legality of the stock issued in the merger. This opinion
also contains a statement that, assuming the merger is consummated in accordance
with the merger agreement, it will qualify as a valid merger under the laws of
Delaware and Illinois.

APPLICABLE LAW

     Section 368(a)(1)(A) of the Code provides that the term "reorganization"
includes a merger conducted in accordance with state statute.

     Section 368(b) of the Code provides that the term "a party to a
reorganization" includes both corporations in the case of a reorganization
resulting from the acquisition by one corporation of stock or properties of
another.

     Section 361(a) of the Code provides that no gain or loss will be recognized
if a corporation a party to a reorganization exchanges property, in pursuance of
the plan of reorganization, solely for stock or securities in another
corporation, a party to the reorganization.

     Reg. Section 1.368-1(b) provides additional two requirements for a valid
reorganization: a continuity of business enterprise and a continuity of
interest. The continuity of business enterprise requires that the acquiring
corporation either continue the historic business of the acquired corporation or
use a significant portion of the acquired corporation's business assets in a
business. The continuity of interest requires that a substantial part of the
value of the proprietary interests in the acquired corporation be exchanged for
proprietary interest in the acquiring corporation.

     Reorganizations under Section 368 require a valid non-tax business purpose
under judicially established tax law principles.

     Section 354(a) provides that no gain or loss shall be recognized by
shareholders if stock or securities in a corporation a party to a reorganization
are, in pursuance of the plan of reorganization, exchanged solely for stock or
securities in such corporation.

     Section 357(a) of the Code provides, in part, that an assumption of a
liability in a reorganization described in Section 368(a) of the Code will not
be treated as money or other property and will not prevent the exchange from
being within the provisions of Section 361 of the Code.

     Section 362(b) of the Code provides that the tax basis of the property
acquired by a corporation in connection with a reorganization is a basis equal
to the transferor's basis, increased by the amount of gain recognized by the
transferor on such transfer.

     Section 358(a) of the Code provides that, in the case of an exchange to
which Section 361 of the Code applies, the basis of property permitted to be
received without the recognition of gain or loss shall be the same as that of
the property exchanged, decreased by the fair market value of any other
property, except money, received by the taxpayer, the amount of any money
received by the taxpayer, and the amount of loss to the taxpayer which was
recognized on such exchange, and increased by the amount which was treated as a
dividend, and the amount of gain to the taxpayer which was recognized on such
exchange.

     Section 1223(1) of the Code provides that, in determining the period for
which the taxpayer has held property received in an exchange, the period for
which the taxpayer held the property exchanged is included if the property



                                      DRAFT

received in the exchange has the same basis in whole or in part as the property
exchanged, and the property exchanged was a capital asset as defined in Section
1221 of the Code.

OPINION

     The following summary of federal income tax consequences is based upon the
opinion of RSM McGladrey, Inc., which is based in part on representations made
by executive officers of Kankakee and Aviston. Our opinion is not binding on the
Internal Revenue Service or courts. Our opinion is not intended to be a complete
statement of all income tax consequences pertaining to the transactions and is
limited to the specific statements of income tax consequences enumerated in
items 1 through 6 below. The opinion does not address, among other matters, the
following:

..    State, local, or foreign tax consequences, if any, of the Merger;

..    Federal income tax consequences to Aviston stockholders who are subject to
     special rules under the Code, such as foreign persons, tax-exempt
     organizations, insurance companies, financial institutions, dealers in
     stocks and securities, and other persons who do not own the stock as a
     capital asset;

..    Federal income tax consequences affecting shares of Kankakee common stock
     or Aviston common stock acquired through the exercise of stock options,
     purchase plan rights, or otherwise as compensation;

..    Federal income tax consequences to holders of warrants, options, or other
     rights to acquire shares of stock; and

..    Federal income tax consequences of Kankakee and Aviston of any income and
     deferred gain recognized pursuant to Treasury Regulations issued under
     Section 1502 of the Code.

     Based on our review of the relevant sections of the Code, the regulations
promulgated thereunder, cases, rulings, and other authorities, as well as the
facts set forth herein and in the Plan of Merger, and the representations made
by executive officers of Kankakee and Aviston shown above, it is our opinion
that the Merger will be treated in the following manner for federal income tax
purposes:

1.   The acquisition by Kankakee of substantially all of the assets of Aviston
     in exchange for shares of Kankakee common stock, and the assumption of
     liabilities of Aviston by Kankakee pursuant to the Plan of Merger will
     constitute a reorganization within the meaning of Section 368(a) of the
     Code.

2.   Kankakee and Aviston will each be a "party to a reorganization" within the
     meaning of Section 368(b) of the Code.

3.   No gain or loss will be recognized by Kankakee or Aviston as a result of
     the Merger under Section 361(a) of the Code.

4.   No gain or loss will be recognized by the stockholders of Aviston as a
     result of the exchange of Aviston common stock for Kankakee common stock
     pursuant to the Plan of Merger under Section 354(a) of the Code. Assuming
     that the Aviston common stock is a capital asset in the hands of the
     respective Aviston stockholders, any gain or loss recognized as a result of
     the receipt of cash in lieu of a fractional share will be a capital gain or
     loss equal to the difference between the cash received and that portion of
     the holder's tax basis in the Aviston common stock allocable to the
     fractional share.

5.   The tax basis of Kankakee common stock received by the stockholders of
     Aviston will be the same as the tax basis of the Aviston common stock
     surrendered in exchange therefor, reduced by any amount allocable to a
     fractional share interest for which cash is received. Section 358(a) of the
     Code.



                                      DRAFT

6.   The holding period of the Kankakee common stock to be received by
     stockholders of Aviston will include the holding period of the Aviston
     common stock surrendered in exchange therefor under Section 1223(2) of the
     Code.

     We undertake no obligation to update this opinion for changes in facts or
law occurring subsequent to the date of this opinion. This opinion is effective
as of closing date of the transactions as indicated in Section 2.2 of the Plan
of Merger.

     We hereby consent to the inclusion of our draft opinion as an exhibit to
the Form S-4 Registration Statement to be filed with the Securities and Exchange
Commission.

EX-10.7

                                                                    EXHIBIT 10.7

                                THOMAS A. DAIBER

                              EMPLOYMENT AGREEMENT

         This Employment Agreement (this "Agreement"), is made and entered into
as of May 27, 2003 by and between Kankakee Bancorp, Inc., a Delaware corporation
(the "Employer"), and Thomas A. Daiber (the "Executive") and is joined in by
State Bank of Aviston solely for purposes of Section 10 below.

                                    RECITALS

         A.       The Executive is currently serving as an executive of Aviston
Financial Corporation, an Illinois corporation ("Aviston"), and its wholly-owned
subsidiary, State Bank of Aviston.

         B.       Pursuant to the terms of that certain Agreement and Plan of
Merger of even date herewith (the "Merger Agreement") between the Employer and
Aviston, the Employer desires to acquire control of Aviston, and if the Closing
(as defined in the Merger Agreement) occurs, further desires to employ the
Executive as an executive of the Employer.

         C.       The Employer recognizes that future circumstances may arise
that might lead to a Change of Control (as defined below) of the Employer and
that this possibility could cause the Executive uncertainty with respect to
continued employment, regardless of the Executive's competence or past
contributions.

         NOW, THEREFORE, in consideration of the premises and of the covenants
and agreements hereinafter contained, it is covenanted and agreed by and between
the parties hereto as follows:

                                   AGREEMENTS

         Section 1.        Term With Automatic Renewal Provisions. The term of
this Agreement and the Executive's employment hereunder shall commence, if at
all, upon the occurrence of the Closing (the "Effective Date") and shall be for
a continuous and self-renewing three (3) year "evergreen" term (calculated on a
day to day basis), unless sooner terminated at any time by either party, with or
without Cause, such termination to be effective as of thirty (30) days after
written notice to that effect is delivered to the other party.

         Section  2.       Position and Duties. The Employer hereby employs the
Executive as the President and Chief Executive Officer of the Employer or in
such other senior executive capacity or capacities as shall be mutually agreed
between the Employer and the Executive. As President and Chief Executive Officer
of Employer, Executive shall also serve as President and Chief Executive Officer
of its subsidiary, KFS Bank (the "Bank"). During the period of the Executive's
employment hereunder, the Executive shall devote his best efforts and full
business time, energy, skills and attention to the business and affairs of the
Employer, the Bank, and the other direct and indirect subsidiaries of the
Employer (together with the Bank, the "Subsidiaries" or "Subsidiary"). The
Executive's duties and authority shall consist of and include all duties and
authority customarily performed and held by persons holding equivalent



positions with business organizations similar in nature and size to the
Employer, as such duties and authority are reasonably defined, modified and
delegated from time to time by the Board of Directors of the Employer to which
the Executive shall report during the term of this Agreement (the "Board"). The
Executive shall have the powers necessary to perform the duties assigned to him
and shall be provided such supporting services, staff, secretarial and other
assistance, office space and accoutrements as shall be reasonably necessary and
appropriate in the light of such assigned duties.

         Section  3.       Compensation. As compensation for the services to be
provided by the Executive hereunder, the Executive shall receive the following
compensation, expense reimbursement and other benefits:

                  (a)      Base Compensation. The Executive shall receive an
aggregate annual minimum Base Salary of two hundred and fifty thousand dollars
($250,000) payable in installments in accordance with the regular payroll
schedule of the Bank ("Base Salary"). Such Base Salary shall be subject to
review annually commencing in 2004 and shall be maintained or increased during
the term of this Agreement in accordance with the Employer's established
management compensation policies and plans.

                  (b)      Performance Bonus. The Executive shall be eligible to
receive an annual performance bonus, payable within sixty (60) days after the
end of the fiscal year of the Employer, in an amount not to exceed fifty percent
(50%) of the Executive's Base Salary for the applicable year. The amount, if
any, shall be determined by the Board, or the appropriate committee thereof, and
shall generally be based on a combination of organization-wide and individual
performance criteria.

                  (c)      Stock Option Grant. At the Effective Date, the Board,
or the appropriate committee thereof, shall grant the Executive an option to
purchase ten thousand (10,000) shares of common stock of the Employer (the
"Stock Option") pursuant to the terms of the Kankakee Bancorp, Inc. 2003 Stock
Incentive Plan (the "Stock Incentive Plan"). The Stock Option shall (i) have an
exercise price per share equal to the Fair Market Value (as defined in the Stock
Incentive Plan) of the shares on the date of grant; (ii) have a term of ten (10)
years; (iii) be an "Incentive Stock Option" (as defined in the Stock Incentive
Plan), and (iv) vest twenty percent (20%) on each anniversary of the date of
grant (fully vested on the fifth anniversary of the Effective Date).

                  (d)      Relocation Expenses. If the Executive relocates his
household to the Kankakee, Illinois, area, the Employer agrees to reimburse the
Executive for moving expenses of up to ten thousand dollars ($10,000) to move
the Executive and his family to the Kankakee, Illinois, area. In addition, the
Employer agrees to reimburse the Executive in a maximum amount of one thousand
one hundred dollars ($1,100) per month for temporary rental housing expenses
until the earlier of: (i) the date the Executive relocates his family to the
Kankakee, Illinois, area; or (ii) September 1, 2004 (the last such reimbursement
to reflect rental expenses for August, 2004).

                  (e)      Reimbursement of Expenses. The Executive shall be
reimbursed, upon submission of appropriate vouchers and supporting
documentation, for all travel, entertainment and other out-of-pocket expenses
reasonably and necessarily incurred by the Executive in the

                                        2



performance of his duties hereunder and shall be entitled to attend seminars,
conferences and meetings relating to the business of the Employer consistent
with the Employer's or the Bank's established policies in that regard.

                  (f)      Car Allowance. The Employer will pay Executive a car
allowance of one thousand dollars ($1,000.00) per month. The car allowance will
be subject to annual review by the Board starting in 2004 and will be maintained
or increased as the Board deems appropriate.

                  (g)      Other Benefits. The Executive shall be entitled to
all benefits specifically established for him and, when and to the extent he is
eligible therefor, to participate in all plans and benefits generally accorded
to senior executives of the Employer and the Bank, including, but not limited
to, pension, profit-sharing, supplemental retirement, incentive compensation,
bonus, disability income, group life medical and hospitalization insurance, and
similar or comparable plans, and also to perquisites extended to similarly
situated senior executives, provided, however, that such plans, benefits and
perquisites shall be no less than those made available to all other employees of
the Employer and the Bank.

                  (h)      Vacations. The Executive shall be entitled to an
annual vacation which shall accrue in full on the first day of each calendar
year and which vacation shall be taken at a time or times mutually agreeable to
the Employer and the Executive; provided, however, that the Executive shall be
entitled to at least twenty (20) days of paid vacation annually.

                  (i)      Withholding. The Employer shall be entitled to
withhold from amounts payable to the Executive hereunder, any federal, state or
local withholding or other taxes which it is from time to time required to
withhold. The Employer shall be entitled to rely upon the opinion of its legal
counsel with regard to any question concerning the amount or requirement of any
such withholding.

         Section  4.       Confidentiality and Loyalty. The Executive
acknowledges that during the course of his employment he may produce and have
access to material, records, data, trade secrets and information not generally
available to the public regarding the Employer and its Subsidiaries
(collectively, "Confidential Information"). Accordingly, during and subsequent
to termination of this Agreement, the Executive shall hold in confidence and not
directly or indirectly disclose, use, copy or make lists of any such
Confidential Information, except to the extent that such information is or
thereafter becomes lawfully available from public sources, or such disclosure is
authorized in writing by the Employer, required by a law or any competent
administrative agency or judicial authority, or otherwise as reasonably
necessary or appropriate in connection with the performance by the Executive of
his duties hereunder. All records, files, documents and other materials or
copies thereof relating to the business of the Employer and its Subsidiaries
which the Executive shall prepare or use, shall be and remain the sole property
of the Employer, shall not be removed from the premises of the Employer or its
Subsidiaries, as the case may be, without the written consent of the Employer's
Chairman of the Board, except as reasonably necessary or appropriate in
connection with the performance by the Executive of his duties hereunder, and
shall be promptly returned to the Employer upon termination of the Executive's
employment hereunder. The Executive agrees to abide by the reasonable policies
of the Employer, as in effect from time to time, respecting avoidance of
interests conflicting with those of the Employer and its Subsidiaries.

                                        3



         Section  5.       Termination.

                  (a)      Termination Without Cause. Either the Employer or the
Executive may terminate this Agreement and the Executive's employment hereunder
for any reason by delivering written notice of termination to the other party no
less than thirty (30) days before the effective date of termination, which date
will be specified in the notice of termination.

                  (b)      Voluntary Termination by Executive. If the Executive
voluntarily terminates his employment under this Agreement other than pursuant
to Section 5(d) (Constructive Discharge) or Section 5(h) (Termination Upon
Change of Control), then the Employer shall only be required to pay the
Executive such Base Salary as shall have accrued through the effective date of
such termination plus the amount of any expense reimbursements for expenses
incurred prior to the effective date of such termination, provided that
Executive shall have submitted all reimbursement requests within ten (10)
business days of the effective date of such termination, and none of the
Employer or any of its Subsidiaries shall have any further obligations to the
Executive.

                  (c)      Premature Termination.

                           (i)      In the event of the termination of this
Agreement by the Employer prior to the last day of the then current term for any
reason other than a termination in accordance with the provisions of Section
5(e) (Termination for Cause), then notwithstanding any mitigation of damages by
the Executive, the Employer shall pay the Executive a sum equal to three (3)
times one hundred-twenty-five percent (125%) of the amount of the Executive's
then-current annual Base Salary. In addition, the Employer shall reimburse the
Executive for continued coverage (COBRA continuation coverage) for the Executive
and the Executive's dependents (if applicable) under the health insurance
programs maintained by the Employer during the period of the Executive's COBRA
eligibility; provided, however, that the continued payment of these amounts by
the Employer shall not offset or diminish any compensation or benefits accrued
as of the date of termination.

                           (ii)     Payment to the Executive will be made on a
monthly basis over the thirty-six (36) month period immediately following the
Executive's termination of employment. At the election of the Employer, payments
may be made in a lump sum. Payment of the amounts due under Section 5(c)(i)
shall not be reduced in the event the Executive obtains other employment
following the termination of employment by the Employer.

                           (iii)    If the Employer is not in compliance with
its minimum capital requirements or if the payments required under subsection
(i) above would cause the Employer's capital to be reduced below its minimum
capital requirements, such payments shall be deferred until such time as the
Employer is in capital compliance.

                  (d)      Constructive Discharge. If at any time during the
term of this Agreement, except in instances where Employer has valid grounds to
terminate Executive's employment pursuant to Section 5(e) (Termination for
Cause), the Executive is Constructively Discharged (as hereinafter defined),
then the Executive shall have the right, by written notice given to the Employer
not later than ninety (90) days after such Constructive Discharge, to terminate
his services hereunder, effective as of thirty (30) days after the date of such
notice, and

                                        4



the Executive shall have no rights or obligations under this Agreement other
than as provided in this Section 5(d), Section 4 (Confidentiality and Loyalty)
and Section 6 (Non-Competition Covenant). In such event, the Executive shall be
entitled to a lump sum payment in an amount equal to the aggregate cash payments
due to the Executive under Section 5(c)(i) and reimbursement of COBRA premiums
as if such termination of his employment were pursuant to Section 5(c)
(Premature Termination).

For purposes of this Agreement, the Executive shall be "Constructively
Discharged" upon the occurrence of any one of the following events:

                           (i)      The Executive is not re-elected or is
removed from the positions with the Employer set forth in Section 2 (Position
and Duties); or

                           (ii)     The Employer changes the primary employment
location of the Executive without the Executive's consent to a place that is
more than fifty (50) miles from the main office of the Employer; or

                           (iii)    The Employer otherwise commits a material
breach of its obligations under this Agreement.

                  (e)      Termination for Cause. This Agreement may be
terminated for Cause as hereinafter defined. "Cause" shall mean: (i) the
Executive's death; (ii) the Executive's Permanent Disability, which shall mean
the Executive's inability, as a result of physical or mental incapacity,
substantially to perform his duties hereunder for a period of six (6)
consecutive months; (iii) a material violation by the Executive of any
applicable material law or regulation respecting the business of the Employer;
(iv) the Executive being found guilty of a felony or an act of dishonesty in
connection with the performance of his duties as an officer of the Employer, or
which disqualifies the Executive from serving as an officer or director of the
Employer or any one of its Subsidiaries; (v) the willful or negligent failure of
the Executive to perform his duties hereunder in any material respect; (vi) the
Executive engages in one or more violations of Employer's policies or procedures
or directives of the Board and that have a material financial adverse effect on
the Employer or any one of its Subsidiaries; or (vii) the Executive is removed
or suspended from banking pursuant to Section 8(e) of the Federal Deposit
Insurance Act, as amended (the "FDIA"), or any other applicable state or federal
law. The Executive shall be entitled to at least thirty (30) days' prior written
notice of the Employer's intention to terminate his employment for any cause
(except the Executive's death) specifying the grounds for such termination and
shall be provided a reasonable opportunity to present to the Board his position
regarding any dispute relating to the existence of such cause. In the event of a
dispute regarding the Executive's Permanent Disability, each of the Executive
and the Employer shall choose a physician who together will choose a third
physician to make a final determination thereof. Upon a termination of the
Executive's employment with the Employer for Cause, the Executive shall be
entitled to receive from the Employer only such payments as are due and owing to
the Executive as of the effective date of such termination. If the Executive's
employment is terminated for Cause pursuant to this Section, then the Employer
shall only be required to pay the Executive such Base Salary as shall have
accrued through the effective date of such termination and neither the Employer
nor any of its Subsidiaries shall have any further obligations to the Executive.

                                        5



                  (f)      Payments Upon Death. In the event payments are due
and owing under this Agreement at the death of the Executive, payment shall be
made to such beneficiary as the Executive may designate in writing, or failing
such designation, to the executor of his estate, in full settlement and
satisfaction of all claims and demands on behalf of the Executive.

                  (g)      Payments Prior to Permanent Disability. The Executive
shall be entitled to the compensation and benefits provided for under this
Agreement for any period during the term of this Agreement and prior to the
establishment of the Executive's Disability during which the Executive is unable
to work due to a physical or mental infirmity. Notwithstanding anything
contained in this Agreement to the contrary, until the date specified in a
notice of termination relating to the Executive's Disability, the Executive
shall be entitled to return to his positions with the Employer as set forth in
this Agreement in which event no Disability of the Executive will be deemed to
have occurred.

                  (h)      Termination Upon Change of Control.

                           (i)      In the event of a Change of Control (as
defined below) of the Employer and the termination of the Executive's employment
under either A or B below, subject to Section 5(h)(iii) below, the Executive
shall be entitled to receive in lieu of any other payments provided for in this
Agreement a lump sum payment equal to the amount determined pursuant to Section
5(c) (Premature Termination), and the continuation of benefits as provided in
Section 5(c). Either of the following shall constitute termination of the
Executive's employment within the meaning of this Section 5(h):

                                    A.       The Executive voluntarily
terminates his employment within the one (1) year period immediately following
the Change of Control.

                                    B.       This Agreement and the Executive's
employment is terminated by the Employer or its successor within the one (1)
year period immediately following the Change of Control.

                           (ii)     For purposes of this Section, the term
"Change of Control" shall mean the following:

                                    A.       The consummation of the acquisition
by any person (as such term is defined in Section 13(d) or 14(d) of the
Securities Exchange Act of 1934, as amended (the "1934 Act")) of beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the 1934 Act) of
fifty percent (50%) or more of the combined voting power of the then outstanding
voting securities of the Employer; or

                                    B.       Consummation of: (1) a merger or
consolidation to which the Employer is a party if the stockholders immediately
before such merger or consolidation do not, as a result of such merger or
consolidation, own, directly or indirectly, more than sixty-seven percent (67%)
of the combined voting power of the then outstanding voting securities of the
entity resulting from such merger or consolidation in substantially the same
proportion as their ownership of the combined voting power of the Employer's
voting securities outstanding immediately before such merger or consolidation;
or (2) a complete liquidation or dissolution or

                                        6



an agreement for the sale or other disposition of all or substantially all of
the assets of the Employer or the Bank.

Notwithstanding the foregoing, a Change of Control shall not be deemed to occur
solely because fifty percent (50%) or more of the combined voting power of the
Employer's then outstanding securities is acquired by: (1) a trustee or other
fiduciary holding securities under one or more employee benefit plans maintained
for employees of the entity; or (2) any corporation which, immediately prior to
such acquisition, is owned directly or indirectly by the stockholders in the
same proportion as their ownership of stock immediately prior to such
acquisition.

                           (iii)    It is the intention of the Employer and the
Executive that no portion of any payment under this Agreement, or payments to or
for the benefit of the Executive under any other agreement or plan, be deemed to
be an "Excess Parachute Payment" as defined in Section 280G of the Internal
Revenue Code of 1986, as amended (the "Code"), or its successors. It is agreed
that the present value of and payments to or for the benefit of the Executive in
the nature of compensation, receipt of which is contingent on the Change of
Control of the Employer, and to which Section 280G of the Code applies (in the
aggregate "Total Payments") shall not exceed an amount equal to one dollar
($1.00) less than the maximum amount which the Employer may pay without loss of
deduction under Section 280G(a) of the Code. Present value for purposes of this
Agreement shall be calculated in accordance with Section 280G(d)(4) of the Code.
Within ninety (90) days following the earlier of (A) the giving of the notice of
termination or (B) the giving of notice by the Employer to the Executive of its
belief that there is a payment or benefit due the Executive which will result in
an excess parachute payment as defined in Section 280G of the Code, the
Executive and the Employer, at the Employer's expense, shall obtain the opinion
of such legal counsel and certified public accountants as the Executive may
choose (notwithstanding the fact that such persons have acted or may also be
acting as the legal counsel or certified public accountants for the Employer),
which opinions need not be unqualified, which sets forth (I) the amount of the
Base Period Income of the Executive, (II) the present value of Total Payments
and (III) the amount and present value of any excess parachute payments. In the
event that such opinions determine that there would be an excess parachute
payment, the payment hereunder or any other payment determined by such counsel
to be includable in Total Payments shall be modified, reduced or eliminated as
specified by the Executive in writing delivered to the Employer within sixty
(60) days of the Executive's receipt of such opinions or, if the Executive fails
to so notify the Employer, then as the Employer shall reasonably determine, so
that under the bases of calculation set forth in such opinions there will be no
excess parachute payment. The provisions of this subparagraph, including the
calculations, notices and opinions provided for herein shall be based upon the
conclusive presumption that (y) the compensation and benefits provided for in
Section 3 hereof and (z) any other compensation earned by the Executive pursuant
to the Employer's compensation programs which would have been paid in any event,
are reasonable compensation for services rendered, even though the timing of
such payment is triggered by the Change of Control; provided, however, that in
the event such legal counsel so requests in connection with the opinion required
by this subparagraph, the Executive and the Employer shall obtain, at the
Employer's expense, and the legal counsel may rely on in providing the opinion,
the advice of a firm of recognized executive compensation consultants as to the
reasonableness of any item of compensation to be received by the Executive. In
the event that the provisions of

                                       7



Sections 280G and 4999 of the Code are repealed without succession, this
subparagraph shall be of no further force or effect.

                  (i)      Regulatory Suspension and Termination.

                           (i)      If the Executive is suspended from office
and/or temporarily prohibited from participating in the conduct of the
Employer's affairs by a notice served under Section 8(e)(3) (12 U.S.C. Section
1818(e)(3)) or 8(g) (12 U.S.C. Section 1818(g)) of the FDIA, the Employer's
obligations under this contract shall be suspended as of the date of service,
unless stayed by appropriate proceedings. If the charges in the notice are
dismissed, the Employer may in its discretion (A) pay the Executive all or part
of the compensation withheld while their contract obligations were suspended and
(B) reinstate (in whole or in part) any of the obligations which were suspended.

                           (ii)     If the Executive is removed and/or
permanently prohibited from participating in the conduct of the Employer's
affairs by an order issued under Section 8(e) (12 U.S.C. Section 1818(e)) or
8(g) (12 U.S.C. Section 1818(g)) of the FDIA, all obligations of the Employer
under this contract shall terminate as of the effective date of the order, but
vested rights of the contracting parties shall not be affected.

                           (iii)    If the Employer is in default as defined in
Section 3(x) (12 U.S.C. Section 1813(x)(1)) of the FDIA, all obligations of the
Employer under this contract shall terminate as of the date of default, but this
paragraph shall not affect any vested rights of the contracting parties.

                           (iv)     All obligations of the Employer under this
contract shall be terminated, except to the extent determined that continuation
of the contract is necessary for the continued operation of the institution by
the Federal Deposit Insurance Corporation (the "FDIC"), at the time the FDIC
enters into an agreement to provide assistance to or on behalf of the Employer
under the authority contained in Section 13(c) (12 U.S.C. Section 1823(c)) of
the FDIA, or when the Employer is determined by the FDIC to be in an unsafe or
unsound condition. Any rights of the parties that have already vested, however,
shall not be affected by such action.

         Section 6.        Non-Competition Covenant.

                  (a)      Restrictive Covenant. The Employer and the Executive
have jointly reviewed the customer lists and operations of the Employer and its
Subsidiaries and have agreed that the primary service area of the Employer's and
its Subsidiaries' lending and deposit taking functions in which the Employer and
its Subsidiaries have and will actively participate extends separately to each
area which encompasses the counties in which the Employer and its Subsidiaries
have an office or branch and the area within twenty-five (25) miles of the
border of each such county (the "Restrictive Area"). Therefore, as an essential
ingredient of and in consideration of this Agreement and the payment of the
amounts described in Section 3, the Executive hereby agrees that, except with
the express prior written consent of the Employer, for a period of one (1) year
after the termination of the Executive's employment with the Employer (the
"Restrictive Period"):

                                        8



                           (i)      The Executive will not, directly or
indirectly, engage or invest in, own, manage, operate, finance, control, or
participate in the ownership, management, operation or control of, be employed
by, associated with, or in any manner connected with, lend the Executive's name
or any similar name to, lend the Executive's credit to, or render services or
advice to, any person, firm, partnership, corporation or trust which owns or
operates, a bank, savings and loan association, credit union or similar
financial institution (a "Financial Institution") within the Restrictive Area;
provided however, that the ownership by the Executive of shares of the capital
stock which are listed on a securities exchange or quoted on the National
Association of Securities Dealers Automated Quotation System which do not
represent more than five percent (5%) of the outstanding capital stock of any
Financial Institution, shall not violate any terms of this Agreement.

                           (ii)     The Executive will not, directly or
indirectly, either for himself, or any other Financial Institution: (A) induce
or attempt to induce any employee of the Employer or its Subsidiaries to leave
the employ of the Employer or its Subsidiaries; (B) in any way interfere with
the relationship between Employer or its Subsidiaries and any employee of
Employer or its Subsidiaries; (C) employ, or otherwise engage as an employee,
independent contractor or otherwise, any employee of Employer or its
Subsidiaries; or (D) induce or attempt to induce any customer, supplier,
licensee, or business relation of Employer or its Subsidiaries to cease doing
business with the Employer or its Subsidiaries or in any way interfere with the
relationship between any customer, supplier, licensee or business relation of
Employer or its Subsidiaries.

                           (iii)    The Executive will not, directly or
indirectly, either for himself, or any other Financial Institution, solicit the
business of any person or entity known to the Executive to be a customer of the
Employer or its Subsidiaries, whether or not such Executive had personal contact
with such person or entity, with respect to products or activities which compete
in whole or in part with the products or activities of the Employer or its
Subsidiaries.

                           (iv)     The Executive will not, directly or
indirectly, serve as the agent, broker or representative of, or otherwise
assist, any person or entity in obtaining services or products from any
Financial Institution within the Restrictive Area.

                           (v)      The Executive expressly agrees that the
covenants contained in this Section 6(a) are reasonable with respect to their
duration, geographical area, and scope.

                  (b)      Violation of Restrictive Covenant. If the Executive
violates the restrictions contained in Section 6(a) and the Employer brings
legal action for injunctive or other relief, the Employer shall not, as a result
of the time involved in obtaining such relief, be deprived of the benefit of the
full period of the Restrictive Period. Accordingly, the Restrictive Period shall
be deemed to have the duration specified in Section 6(a) computed from the date
the relief is granted but reduced by the time between the period when the
Restrictive Period began to run and the date of the first violation of the
restrictions contained in Section 6(a) by the Executive. In the event that a
successor assumes and agrees to perform this Agreement, the restrictions
contained in Section 6(a) shall continue to apply only to the primary service
area of the Employer as it existed immediately before such assumption and shall
not apply to any of the successor's other offices.

                                        9



                  (c)      Remedies for Breach of Restrictive Covenant. The
Executive acknowledges that the restrictions contained in Sections 4 and 6(a) of
this Agreement are reasonable and necessary for the protection of the legitimate
business interests of the Employer, that any violation of these restrictions
would cause substantial injury to the Employer and such interests, that the
Employer would not have entered into this Agreement with the Executive without
receiving the additional consideration offered by the Executive in binding
himself to these restrictions and that such restrictions were a material
inducement to the Employer to enter into this Agreement. In the event of any
violation or threatened violation of these restrictions, the Employer, in
addition to and not in limitation of, any other rights, remedies or damages
available to the Employer under this Agreement or otherwise at law or in equity,
shall be entitled to preliminary and permanent injunctive relief to prevent or
restrain any such violation by the Executive and any and all persons directly or
indirectly acting for or with him, as the case may be.

         Section 7.        Intercorporate Transfers. If the Executive shall be
voluntarily transferred to a Subsidiary of the Employer, such transfer shall not
be deemed to terminate or modify this Agreement and the employing corporation to
which the Executive shall have been transferred shall, for all purposes of this
Agreement, be construed as standing in the same place and stead as the Employer
as of the date of such transfer, provided however, that this Section 7 shall not
modify Employer's obligations under Section 2, 3 and 5 hereof.

         Section 8.        Interest in Assets. Neither the Executive nor his
estate shall acquire hereunder any rights in funds or assets of the Employer,
otherwise than by and through the actual payment of amounts payable hereunder;
nor shall the Executive or his estate have any power to transfer, assign,
anticipate, hypothecate or otherwise encumber in advance any of said payments;
nor shall any of such payments be subject to seizure for the payment of any
debt, judgment, alimony, separate maintenance or be transferable by operation of
law in the event of bankruptcy, insolvency or otherwise of the Executive.

         Section 9.        Indemnification. The Employer shall provide the
Executive (including his heirs, personal representatives, executors and
administrators) for the term of this Agreement with coverage under a standard
directors' and officers' liability insurance policy at its expense.

         Section 10.       Termination of Retention Agreement. State Bank of
Aviston joins this Agreement solely for purposes of this Section 10. State Bank
of Aviston, Executive and Employer all hereby agree that that certain State Bank
of Aviston Thomas A. Daiber Executive Retention Agreement between Executive and
State Bank of Aviston dated October 23, 2002 shall terminate immediately prior
to the Effective Time (as defined in the Merger Agreement).

         Section 11.       General Provisions.

                  (a)      Successors; Assignment. This Agreement shall
be binding upon and inure to the benefit of the Executive, his heirs, legatees
and personal representatives, the Employer and its successors and assigns, and
any successor or assign of the Employer shall be deemed the "Employer"
hereunder. The Employer shall require any successor to all or substantially all
of the business and/or assets of the Employer, whether directly or indirectly,
by purchase, merger, consolidation, acquisition of stock, or otherwise, by an
agreement in form and substance satisfactory to the Executive, expressly to
assume and agree to perform this Agreement in the

                                       10



same manner and to the same extent as the Employer would be required to perform
if no such succession had taken place.

                  (b)      Entire Agreement; Modifications. This
Agreement constitutes the entire agreement between the parties respecting the
subject matter hereof, and supersedes all prior negotiations, undertakings,
agreements and arrangements with respect thereto, whether written or oral.
Except as otherwise explicitly provided herein, this Agreement may not be
amended or modified except by written agreement signed by the Executive and the
Employer.

                  (c)      Survival. The provisions of Sections 4 and 6 shall
survive the expiration or termination of this Agreement, in each case for the
period set forth in such section.

                  (d)      Enforcement and Governing Law. The provisions of this
Agreement shall be regarded as divisible and separate; if any of said provisions
should be declared invalid or unenforceable by a court of competent
jurisdiction, the validity and enforceability of the remaining provisions shall
not be affected thereby. This Agreement shall be construed and the legal
relations of the parties hereto shall be determined in accordance with the laws
of the State of Illinois without reference to the law regarding conflicts of
law.

                  (e)      Arbitration. Any dispute or controversy arising under
or in connection with this Agreement shall be settled exclusively by
arbitration, conducted before a panel of three arbitrators sitting in a location
selected by the Executive within twenty-five (25) miles from the location of the
main office of the Employer, in accordance with the employment rules of the
American Arbitration Association then in effect. Judgment may be entered on the
arbitrator's award in any court having jurisdiction; provided, however, that the
Executive shall be entitled to seek specific performance of his right to be paid
through the date of termination during the pendency of any dispute or
controversy arising under or in connection with this Agreement.

                  (f)      Legal Fees. All reasonable legal fees paid or
incurred by the Executive pursuant to any dispute or question of interpretation
relating to this Agreement shall be paid or reimbursed by the Employer if the
Executive is successful on the merits pursuant to a legal judgment, arbitration
or settlement.

                  (g)      Waiver. No waiver by either party at any time of any
breach by the other party of, or compliance with, any condition or provision of
this Agreement to be performed by the other party, shall be deemed a waiver of
any similar or dissimilar provisions or conditions at the same time or any prior
or subsequent time.

                  (h)      Notices. Notices pursuant to this Agreement shall be
in writing and shall be deemed given when received; and, if mailed, shall be
mailed by United States registered or certified mail, return receipt requested,
postage prepaid; and if to the Employer, addressed to the principal headquarters
of the Employer, attention: Chairman of the Board; or, if to the Executive, to
the address set forth below the Executive's signature on this Agreement, or to
such other address as the party to be notified shall have given to the other.

                                       11



         IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.

KANKAKEE BANCORP, INC.                               THOMAS A. DAIBER

By:  /s/ Keith M. Roseland                            /s/ Thomas A. Daiber
    -----------------------------                    -------------------------
    Its: Vice President                              Address:
                                                      4 Almont Acres
                                                      St. Louis, MO 63124

STATE BANK OF AVISTON,
Solely for purposes of Section 10

By:  /s/ Bryan L. Marsh
    -----------------------------
    Its: President

EX-10.8

                                                                    EXHIBIT 10.8

                                   [EXECUTIVE]
                           CHANGE OF CONTROL AGREEMENT

         This Change of Control Agreement (this "Agreement") is made as of the
___ day of May, 2003, by and between Kankakee Bancorp, Inc., a Delaware
corporation (the "Company") and [Executive] ("Executive") and is joined in by
State Bank of Aviston solely for purposes of Section 15 below.

                                    RECITALS

         A. Executive is currently serving as an executive of State Bank of
Aviston, an Illinois banking corporation ("Bank") and a wholly owned Subsidiary
of Aviston Financial Corporation, an Illinois corporation ("Aviston").

         B. Pursuant to the terms of that certain Agreement and Plan of Merger
of even date herewith (the "Merger Agreement") between the Employer and Aviston,
the Employer desires to acquire control of Aviston and if the Closing (as
defined in the Merger Agreement) occurs, further desires to employ the Executive
as an executive of the Employer.

         C. Company recognizes that future circumstances could arise that might
lead to a Change of Control (as defined below) of Company and that this
possibility could cause Executive uncertainty with respect to continued
employment, regardless of Executive's competence or past contributions.

         D. The board of directors of Company (the "Board") has determined that
if the Closing occurs, it is in the best interests of Company and its
stockholders to assure that Company and its Affiliates (as defined below) will
enjoy the continued dedication of Executive to Executive's duties and
responsibilities, notwithstanding the possibility, threat or occurrence of a
Change of Control (as defined below) of Company.

         NOW, THEREFORE, in consideration of the premises and of the covenants
and agreements hereinafter contained, it is covenanted and agreed by and between
the parties hereto as follows:

                                   AGREEMENTS

         1.       Term With Automatic Renewal Provisions. The term of this
Agreement shall commence, if at all, upon the occurrence of the Closing (the
"Effective Date") and shall continue for a period of one (1) year. This
Agreement shall automatically extend for one (1) year on each anniversary of the
Effective Date, unless terminated by either party effective as of the last day
of the then current one (1) year extension by written notice to that effect
delivered to the other not fewer than ninety (90) days prior to the anniversary
of the Effective Date; provided, however, no termination of this Agreement shall
be effective if a Change of Control occurs within twelve (12) months of such
termination. In the event of a Change of Control during the term of this
Agreement, this Agreement shall remain in effect for the one (1) year period
following the Change of Control.



         2.       Payment of Severance Amount. If Executive's employment by the
Company, or any Affiliate or successor of the Company, is terminated by either
the Company or Executive during the time periods set forth in subparagraphs (a)
and (b) below, then the Company shall pay Executive an amount equal to the
Severance Amount, payable in one (1) lump sum within fifteen (15) days after the
Termination Date:

                  (a)      Termination by the Company, or any Affiliate or
         successor of the Company, without Cause, within either six (6) months
         prior to a Change of Control or twelve (12) months immediately
         following a Change of Control; or

                  (b)      Termination by Executive, other than as a result of
         death, disability, or normal retirement pursuant to a retirement plan
         to which Executive was subject prior to any Change of Control, and
         following a Change in Duties, which Change in Duties and termination
         shall occur within twelve (12) months immediately following a Change of
         Control.

         3.       Definitions. All of the terms defined in this Section 3 shall
have the meanings given below throughout this Agreement.

                  (a)      "Affiliate" shall mean any entity which owns or
         controls, is owned by or is under common ownership or control with, the
         Company, including without limitation, Kankakee Federal Savings Bank.

                  (b)      "Annual Base Salary" shall, as determined on the
         Termination Date, be equal to the greater of:

                           (i)      Executive's annual salary, excluding
                                    bonuses, benefits and special incentive
                                    payments, on the date of the earliest event
                                    which constitutes a Change of Control; or

                           (ii)     Executive's annual salary, excluding
                                    bonuses, benefits and special incentive
                                    payments, as of the Termination Date.

                  (c)      "Bank" shall mean Kankakee Federal Savings Bank.

                  (d)      "Cause" shall mean the termination of Executive's
         employment as a result of:

                           (i)      fraud, misappropriation of or intentional
                                    material damage to the property or business
                                    of the Company (including its Affiliates),

                           (ii)     substantial and material failure by
                                    Executive to fulfill the duties and
                                    responsibilities of his or her regular
                                    position and/or comply with the Company's or
                                    its Affiliates' policies, rules or
                                    regulations, or

                           (iii)    Executive's conviction of a felony.

                                        2



                  (e)      "Change in Duties" shall mean any one or more of the
         following occurring after a Change of Control:

                           (i)      a significant change in the nature or scope
                                    of Executive's authority or duties from
                                    those applicable to Executive immediately
                                    prior to the date on which a Change of
                                    Control occurs;

                           (ii)     a reduction in Executive's Annual Base
                                    Salary (within the meaning of Section
                                    3(b)(i)) from that provided to Executive
                                    immediately prior to the date on which a
                                    Change of Control occurs;

                           (iii)    Executive's eligibility to participate, and
                                    participation, in bonus, stock option,
                                    incentive award and other compensation plans
                                    which provide opportunities to receive
                                    compensation are not the same or greater
                                    than that of executives of the successor of
                                    the Company (including its Affiliates) with
                                    comparable duties;

                           (iv)     executive benefits (including but not
                                    limited to medical, dental, life insurance
                                    and long-term disability plans) and
                                    perquisites applicable to Executive are not
                                    the same as or greater than that of the
                                    executive benefits and perquisites provided
                                    to executives of the successor of the
                                    Company (including its Affiliates) with
                                    comparable duties; or

                           (v)      a change, without Executive's written
                                    agreement, in the location of Executive's
                                    principal place of employment with the
                                    Company (including its Affiliates) by more
                                    than fifty (50) miles from the location
                                    where Executive was principally employed
                                    immediately prior to the date on which a
                                    Change of Control occurs.

                  (f)      "Change of Control" shall mean the following:

                           (i)      The consummation of the acquisition by any
                                    person (as such term is defined in Section
                                    13(d) or 14(d) of the Securities Exchange
                                    Act of 1934, as amended (the "1934 Act")) of
                                    beneficial ownership (within the meaning of
                                    Rule 13d-3 promulgated under the 1934 Act)
                                    of twenty-five percent (25%) or more of the
                                    combined voting power of the then
                                    outstanding Voting Securities of the
                                    Company;

                           (ii)     The individuals who, as of the date hereof,
                                    are members of the Board cease for any
                                    reason to constitute a majority of the
                                    Board, unless the election, or nomination
                                    for election by the stockholders, of any new
                                    director was approved by a vote of a
                                    majority of the Board, and such new director
                                    shall, for purposes of this Agreement, be
                                    considered as a member of the Board; or

                                        3



                           (iii)    Consummation of: (1) a merger or
                                    consolidation to which the Company is a
                                    party if the stockholders of the Company
                                    immediately before such merger or
                                    consolidation do not, as a result of such
                                    merger or consolidation, own, directly or
                                    indirectly, more than sixty-seven percent
                                    (67%) of the combined voting power of the
                                    then outstanding Voting Securities of the
                                    entity resulting from such merger or
                                    consolidation in substantially the same
                                    proportion as their ownership of the
                                    combined voting power of the Company's
                                    Voting Securities outstanding immediately
                                    before such merger or consolidation; or (2)
                                    a complete liquidation or dissolution or
                                    sale or other disposition of all or
                                    substantially all of the assets of the
                                    Company or the Bank.

                  Notwithstanding the foregoing, a Change of Control shall not
         be deemed to occur solely because twenty-five percent (25%) or more of
         the combined voting power of the Company's then outstanding Voting
         Securities is acquired by: (1) a trustee or other fiduciary holding
         securities under one or more employee benefit plans maintained for
         employees of the entity; or (2) any corporation which, immediately
         prior to such acquisition, is owned directly or indirectly by the
         stockholders in the same proportion as their ownership of stock
         immediately prior to such acquisition.

                  (g)      "Severance Amount" shall mean the amount equal to all
         amounts earned or accrued through the Termination Date, including
         Annual Base Salary (within the meaning of Section 3(b)(i)) and vacation
         pay, plus an amount equal to three (3) times the sum of: (i)
         Executive's Annual Base Salary; (ii) the average of the two (2) most
         recent annual performance bonuses received by the Executive as of the
         date of the Change of Control; and (iii) the average of the
         contributions made by the Company to tax-qualified retirement plans for
         the benefit of the Executive for the two (2) years immediately
         preceding the date of the Change of Control.

                  (h)      "Termination Date" shall mean the date of employment
         termination indicated in the written notice provided by the Company or
         Executive to the other.

                  (i)      "Voting Securities" shall mean any securities which
         ordinarily possess the power to vote in the election of directors
         without the happening of any pre-condition or contingency.

         4.       Golden Parachute Payment Adjustment. If it is determined, in
the opinion of the Company's independent accountants, in consultation, if
necessary, with the Company's independent legal counsel, that any Severance
Amount payments under this Agreement, either separately or in conjunction with
any other payments, benefits and entitlements received by Executive in respect
of a Change of Control under any other plan or agreement under which Executive
participates or to which the Executive is a party, would constitute an "Excess
Parachute Payment" within the meaning of Section 280G of the Internal Revenue
Code of 1986, as amended (the "Code"), and thereby be subject to the excise tax
imposed by Section 4999 of the Code (the "Excise Tax"), then in such event the
Company shall pay to Executive a

                                        4



"grossing-up" amount equal to the amount of such Excise Tax, plus all federal
and state income or other taxes with respect to the payment of the amount of
such Excise Tax, including all such taxes with respect to any such grossing-up
amount. If, at a later date, the Internal Revenue Service assesses a deficiency
against Executive for the Excise Tax which is greater than that which was
determined at the time such amounts were paid, then the Company shall pay to
Executive the amount of such unreimbursed Excise Tax plus any interest,
penalties and reasonable professional fees or expenses incurred by Executive as
a result of such assessment, including all such taxes with respect to any such
additional amount. The highest marginal tax rate applicable to individuals at
the time of the payment of such amounts will be used for purposes of determining
the federal and state income and other taxes with respect thereto. The Company
shall withhold from any amounts paid under this Agreement the amount of any
Excise Tax or other federal, state or local taxes then required to be withheld.
Computations of the amount of any grossing-up supplemental compensation paid
under this subparagraph shall be conclusively made by the Company's independent
accountants, in consultation, if necessary, with the Company's independent legal
counsel. If, after Executive receives any gross-up payments or other amount
pursuant to this Section 4, Executive receives any refund with respect to the
Excise Tax, Executive shall promptly pay the Company the amount of such refund
within ten (10) days of receipt by Executive.

         5.       Medical Benefits. If Executive's employment by the Company or
any Affiliate or successor of the Company is terminated and Executive is
entitled to a Severance Amount pursuant to Section 2 above, then to the extent
that Executive or any of Executive's dependents may be covered under the terms
of any medical plans of the Company (or any Affiliate) for active employees
immediately prior to the Termination Date, the Company will provide Executive
and those dependents with equivalent coverages for the period of three (3) years
from the Termination Date. The coverages may be procured directly by the Company
(or any Affiliate, if appropriate) apart from, and outside of the terms of the
plans themselves; provided that Executive and Executive's dependents comply with
all of the conditions of the medical plans. In consideration for these benefits,
Executive must make contributions equal to those required from time to time from
employees for equivalent coverages under the medical plans.

         6.       Regulatory Suspension and Termination.

                  (a)      If Executive is suspended from office and/or
         temporarily prohibited from participating in the conduct of the
         Company's affairs by a notice served under Section 8(e)(3) (12 U.S.C.
         Section 1818(e)(3)) or 8(g) (12 U.S.C. Section 1818(g)) of the Federal
         Deposit Insurance Act, as amended, the Company's obligations under this
         contract shall be suspended as of the date of service, unless stayed by
         appropriate proceedings. If the charges in the notice are dismissed,
         the Company may in its discretion (i) pay Executive all or part of the
         amounts withheld while the contract obligations were suspended and (ii)
         reinstate (in whole or in part) any of the obligations which were
         suspended.

                  (b)      If Executive is removed and/or permanently prohibited
         from participating in the conduct of the Company's affairs by an order
         issued under Section 8(e) (12 U.S.C. Section 1818(e)) or 8(g) (12
         U.S.C. Section 1818(g)) of the Federal Deposit Insurance Act, as
         amended, all obligations of the Company under this contract shall
         terminate as of the

                                        5



         effective date of the order, but vested rights of the contracting
         parties shall not be affected.

                  (c)      If the Company is in default as defined in Section
         3(x) (12 U.S.C. Section 1813(x)(1)) of the Federal Deposit Insurance
         Act, as amended, all obligations of the Company under this contract
         shall terminate as of the date of default, but this Section 6(c) shall
         not affect any vested rights of the contracting parties.

                  (d)      All obligations of the Company under this contract
         shall be terminated, except to the extent determined that continuation
         of the contract is necessary for the continued operation of the
         institution by the Federal Deposit Insurance Corporation (the "FDIC"),
         at the time the FDIC enters into an agreement to provide assistance to
         or on behalf of the Company under the authority contained in Section
         13(c) (12 U.S.C. Section 1823(c)) of the Federal Deposit Insurance Act,
         as amended, or when the Company is determined by the FDIC to be in an
         unsafe or unsound condition. Any rights of the parties that have
         already vested, however, shall not be affected by such action.

                  (e)      Any payments made to Executive pursuant to this
         Agreement, or otherwise, are subject to and conditioned upon their
         compliance with Section 18(k) (12 U.S.C. Section 1828(k)) of the
         Federal Deposit Insurance Act, as amended, and any regulations
         promulgated thereunder.

         7.       Notices. Notices and all other communications under this
Agreement shall be in writing and shall be deemed given when mailed by United
States registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:

                           If to the Company to:

                           Kankakee Bancorp, Inc.
                           Attention:  Chairman of the Board
                           310 South Schuyler Avenue
                           P. O. Box 3
                           Kankakee, Illinois 60901-0003

                           If to Executive to:

                           [Executive]

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

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

or to such other address as either party may furnish to the other in writing,
except that notices of changes of address shall be effective only upon receipt.

         8.       Applicable Law. This Agreement is entered into under, and
shall be governed for all purposes by, the laws of the state of Illinois.

                                        6



         9.       Severability. If a court of competent jurisdiction determines
that any provision of this Agreement is invalid or unenforceable, then the
invalidity or unenforceability of that provision shall not affect the validity
or enforceability of any other provision of this Agreement and all other
provisions shall remain in full force and effect.

         10.      Withholding of Taxes. The Company may withhold from any
benefits payable under this Agreement all federal, state, city or other taxes as
may be required pursuant to any law, governmental regulation or ruling.

         11.      Not an Employment Agreement. Nothing in this Agreement shall
give Executive any rights (or impose any obligations) to continued employment by
the Company or any Affiliate or successor of the Company, nor shall it give the
Company any rights (or impose any obligations) for the continued performance of
duties by Executive for the Company or any Affiliate or successor of the
Company.

         12.      No Assignment. Executive's rights to receive payments or
benefits under this Agreement shall not be assignable or transferable whether by
pledge, creation of a security interest or otherwise, other than a transfer by
will or by the laws of descent or distribution. In the event of any attempted
assignment or transfer contrary to this Section 12, the Company shall have no
liability to pay any amount so attempted to be assigned or transferred. This
Agreement shall inure to the benefit of and be enforceable by Executive's
personal or legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees.

         13.      Successors. This Agreement shall be binding upon and inure to
the benefit of the Company, its successors and assigns (including, without
limitation, any company into or with which the Company may merge or
consolidate). The Company agrees that it will not effect the sale or other
disposition of all or substantially all of its assets or the Bank's assets
unless either (a) the person or entity acquiring the assets, or a substantial
portion of the assets, shall expressly assume by an instrument in writing all
duties and obligations of the Company under this Agreement, or (b) the Company
shall provide, through the establishment of a separate reserve, for the payment
in full of all amounts which are or may reasonably be expected to become payable
to Executive under this Agreement.

         14.      Legal Fees. All reasonable legal fees and related expenses
(including the costs of experts, evidence and counsel) paid or incurred by
Executive pursuant to any dispute relating to this Agreement shall be paid or
reimbursed by the Company if Executive is successful on the merits pursuant to a
legal judgment, arbitration or settlement.

         15.      Termination of Retention Agreement. State Bank of Aviston
joins this Agreement solely for purposes of this Section 15. State Bank of
Aviston and Executive hereby agree that that certain State Bank of Aviston
[Executive] Executive Retention Agreement between Executive and State Bank of
Aviston dated [Date] shall terminate immediately prior to the Effective Time (as
defined in the Merger Agreement).

                                        7



         16.      Entire Agreement Modifications. This Agreement constitutes the
entire agreement between the parties respecting the subject matter hereof, and
supercedes all prior negotiations, undertakings, agreements and arrangements
with respect thereto, whether written or oral. This Agreement may not be amended
or modified except by written agreement signed by Executive and the Company.

                [Remainder of this page intentionally left blank]

                                        8



         IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered as of the day and year first written.

KANKAKEE BANCORP, INC.                               [EXECUTIVE]

By:
   -------------------------------------             ---------------------------
   Its:  Chairman of the Board                       Address:

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

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

STATE BANK OF AVISTON,
Solely for purposes of Section 15

By:
   -------------------------------------
   Its:
       ---------------------------------

EX-10.10

                                                                   EXHIBIT 10.10

                  RESIGNATIONS, WAIVER AND CONSULTING AGREEMENT

         This Resignations, Waiver and Consulting Agreement (this "Agreement")
is made by and between Kankakee Bancorp, Inc., a Delaware corporation (the
"Company"), and Larry D. Huffman ("Mr. Huffman").

                                    RECITALS

         WHEREAS, Mr. Huffman has resigned from his positions as President and
CEO of the Company and KFS Bank, F.S.B. (the "Bank");

         WHEREAS, the Company desires to have the benefit of Mr. Huffman's
experience and expertise during a period of transition and Mr. Huffman has
agreed to provide consulting services to the Company for a limited period of
time;

         NOW, THEREFORE, in consideration of the premises and of the covenants
and agreements hereinafter contained, it is covenanted and agreed by and between
the parties as follows:

                                   AGREEMENTS

         1.       Resignations. Mr. Huffman resigned, effective January 14,
2003, from his positions as President and CEO of the Company and the Bank. The
Company and the Bank have accepted his resignations. Mr. Huffman's resignations
were pursuant to Section 3(g) of that certain Employment Agreement by and
between the Company and Mr. Huffman dated April 1, 2001 (the "Employment
Agreement"). Mr. Huffman agrees to resign from the Board of Directors of the
Company and the Bank effective upon election of his successor to the Board of
Directors of the Company and the Bank. The Company and the Bank have also
accepted these resignations from the Boards of Directors. Consistent with his
obligations to the Company under the Employment Agreement, Mr. Huffman
acknowledges that the terms of Section 4 (Confidentiality and Loyalty) and
Section 5 (Non-Competition Covenant), in particular, survive his resignations
under Section 3(g) of the Employment Agreement. In addition, Mr. Huffman
acknowledges that his resignation terminates that certain Change of Control
Agreement by and between the Company and Mr. Huffman dated October 15, 2001.

         2.       Waiver of All Claims. Mr. Huffman agrees that his resignation
precludes him from asserting any claims of unlawful discrimination, and Mr.
Huffman, on his own behalf and that of his heirs, executors, attorneys,
administrators, successors, and assigns, fully releases and discharges the
Company, its predecessors, successors, subsidiaries, affiliates, and assigns,
and its and their directors, officers, trustees, general and limited partners,
employees, and agents, whether in their individual or official capacities and
the current and former trustees or administrators of any retirement or other
benefit plan applicable to the employees or former employees of the Company, in
their official and individual capacities from any and all liability, claims and
demands, including, but not limited to, claims, demands or actions arising under
the Company's policies and procedures, whether formal or informal, United States
or State of



Illinois Constitutions; Title VII of the Civil Rights Act of 1964, as amended;
the Civil Rights Act of 1991; the Illinois Human Rights Act; the Employee
Retirement Income Security Act of 1974, as amended; the Age Discrimination in
Employment Act, as amended; the Americans With Disabilities Act, as amended;
Executive Order 11246; and any other federal, state or local statute, ordinance
or regulation with respect to employment, and in addition thereto, from any
other claims, demands or actions with respect to Mr. Huffman's employment with
the Company or other association with the Company, including, but not limited
to, Mr. Huffman's resignation from employment with the Company, any right of
payment for disability or any other statutory or contractual right of payment of
any nature or any claim for relief on the basis of any alleged tort or breach of
contract under the common law of the State of Illinois or any other state
including, but not limited to, defamation, intentional or negligent infliction
of emotional distress, breach of the covenant of good faith and fair dealing,
promissory estoppel and negligence.

         3.       Representations. Mr. Huffman acknowledges that he has been
advised to and afforded the opportunity to be advised by legal counsel regarding
the terms of this Agreement, including the release of all claims and waiver of
rights set forth in Section 2. Mr. Huffman acknowledges that he has been offered
at least twenty-one (21) days to consider this Agreement. After having been so
advised, and without coercion of any kind, Mr. Huffman freely, knowingly and
voluntarily enters into this Agreement. Mr. Huffman further acknowledges that he
may revoke this Agreement within seven (7) days after execution and further
understands that this Agreement shall not become effective or enforceable until
seven (7) days after execution (the "Effective Date"). Any revocation must be in
writing and directed to Kankakee Bancorp, Inc., 310 S. Schuyler Ave., Kankakee,
IL 60901, Attention: Chairman of the Board. If sent by mail, any revocation must
be postmarked within the 7-day period and sent by certified mail, return receipt
requested.

         4.       Consulting Agreement.

                  (a)      Consulting Services. During the months of May, June
and July, 2003, Mr. Huffman shall provide such oral consulting services to the
Company with respect to information he has concerning the Company and shall
assist with those matters related to the retention and transition of a new Chief
Executive Officer of the Company.

                  (b)      Independent Contractor. Mr. Huffman and Company agree
that Mr. Huffman shall act as an independent contractor in the performance of
his duties under this Section 4. Accordingly, Mr. Huffman shall be responsible
for payment of all taxes, including federal, state and local taxes arising out
of Mr. Huffman's activities in accordance with this Section 4, including by way
of illustration, but not limitation, federal and state personal income tax and
social security tax, all as may be required by applicable law or regulation. Mr.
Huffman shall have the full authority to select the means, manner and method of
performing the services to be performed under this Section 4. Mr. Huffman shall
not be considered by reason of the provisions of this Section 4 or otherwise as
being an employee of the Company.

                  (c)      Consulting Compensation. Company agrees to pay to Mr.
Huffman, and Mr. Huffman agrees to accept, a consulting fee of ten thousand
dollars ($10,000) per month for each of May, June and July 2003, payable in
monthly installments in arrears on the last business day of each month ("Fee").

                                        2



                  (d)      Termination by Mr. Huffman. If Mr. Huffman
voluntarily terminates his engagement under this Section 4 or dies during the
period of his services hereunder, then Company shall only be required to pay Mr.
Huffman his Fee as shall have accrued through the effective date of such
termination and the Company shall have no further obligations to Mr. Huffman.

                  (e)      Termination for Good Cause. Prior to the expiration
of the three month period during which Mr. Huffman shall provide services
pursuant to this Section 4, the Company may terminate Mr. Huffman's engagement
hereunder for "Good Cause," which for the purposes of this Section 4 shall
exclusively mean:

                           (i)      the continued failure of Mr. Huffman to
                                    perform material duties assigned to Mr.
                                    Huffman as set forth in subsection 4(a)
                                    hereof, but only after a written notice is
                                    delivered by Company to Mr. Huffman which
                                    notice specifically identifies the manner in
                                    which Company believes Mr. Huffman has not
                                    performed his duties and Mr. Huffman's
                                    subsequent failure to cure the identified
                                    problem within a reasonable time;

                           (ii)     Mr. Huffman's death; or

                           (iii)    Mr. Huffman's willful and intentional
                                    commission of a felony, fraud or dishonesty
                                    against the Company.

         5.       Governing Law. All questions concerning the construction,
validity and interpretation of this Agreement, and the performance of the
obligations imposed by this Agreement shall be governed by the internal laws of
the State of Illinois applicable to contracts made and wholly to be performed in
such state without regard to conflicts of laws.

         6.       Assignment, Successors and No Third Party Rights. No party may
assign any of its rights under this Agreement to any other person without the
prior written consent of the other party. This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective successors,
heirs and permitted assigns. Except as expressly provided herein, nothing in
this Agreement shall be construed to give any person other than the parties to
this Agreement any legal or equitable right, remedy or claim under or with
respect to this Agreement or any provision of this Agreement.

         7.       Waiver. The rights and remedies of the parties to this
Agreement are cumulative and not alternative. Neither the failure nor any delay
by any party in exercising any right, power or privilege under this Agreement or
the documents referred to in this Agreement will operate as a waiver of such
right, power or privilege, and no single or partial exercise of any such right,
power or privilege will preclude any other or further exercise of such right,
power or privilege or the exercise of any other right, power or privilege.

         8.       Modification. This Agreement may only be amended by a written
agreement executed by both parties.

                                        3



         9.       Notices. All notices and other communications under this
Agreement must be in writing and will be deemed to have been duly given if
delivered by hand or by nationally recognized overnight delivery service
(receipt requested) or mailed by certified mail (return receipt requested) with
first class postage prepaid:

                  (a)      if to Company, to:

                           Kankakee Bancorp, Inc.
                           310 S. Schuyler Ave.
                           Kankakee, Illinois  60901
                           Attention: Chairman of the Board

                           with a copy to:

                           John E. Freechack, Esq.
                           Barack, Ferrazzano
                           333 W. Wacker Drive, Suite 2700
                           Chicago, Illinois  60606

                  (b)      if to Mr. Huffman, to:

                           Mr. Larry Huffman
                           1235 Tower Rd.
                           Bourbonnais, Illinois 60914

or to such other person or place as either party shall furnish to the other in
writing. Except as otherwise provided herein, all such notices and other
communications shall be effective: (x) if delivered by hand, when delivered; (y)
if mailed in the manner provided in this Section, five (5) business days after
deposit with the United States Postal Service; or (z) if delivered by overnight
express delivery service, on the next business day after deposit with such
service.

         10.      Entire Agreement. This Agreement and any documents executed by
the parties pursuant to this Agreement and referred to herein constitute a
complete and exclusive statement of the entire understanding and agreement of
the parties hereto with respect to their subject matter and supersede all other
prior agreements and understandings, written or oral, relating to such subject
matter between the parties.

         11.      Severability. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision will be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of such provision or the remaining provisions of this Agreement. Without
limiting the generality of the foregoing, if the scope of any provision
contained in this Agreement is too broad to permit enforcement to its full
extent, but may be made enforceable by limitations thereon, such provision shall
be enforced to the maximum extent permitted by law, and Mr. Huffman hereby
agrees that such scope may be judicially modified accordingly.

                                        4



         12.      Counterparts. This Agreement and any amendments hereto may be
executed in any number of counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same agreement.

         IN WITNESS WHEREOF, the undersigned have set their hands the day and
year set forth below their respective signatures.

KANKAKEE BANCORP, INC.                      LARRY D. HUFFMAN

By:    /s/ Michael A. Griffith               /s/ Larry D. Huffman
   ------------------------------           ----------------------------
Title: Chairman of the Board

Date:  5/6/03                               Date:   5/1/2003
     ----------------------------                ------------------------

                                        5

EX-10.11

                                                                   Exhibit 10.11

                              CONSULTING AGREEMENT

     THIS CONSULTING AGREEMENT (this "Agreement") is made and entered into as of
May 6, 2003, by and between KANKAKEE BANCORP, INC., a Delaware corporation (the
"Company"), and JAMES M. LINDSTROM (the "Consultant").

                                    RECITALS

     WHEREAS, the Company is exploring a certain proposed merger or acquisition
opportunity and desires the expertise the Consultant can provide in connection
with the opportunity; and

     WHEREAS, the Consultant has agreed to provide his services to the Company
on the terms and conditions hereinafter set forth;

     NOW, THEREFORE, effective as of May 6, 2003, the Company and the Consultant
hereby agree as follows:

                                   AGREEMENTS

     1. Engagement, Period of Engagement.

        (a) The Company offers to engage the Consultant and the Consultant
hereby accepts such engagement, to provide services to the Company as a
consultant for the period established under this Section 1 (the "Period of
Engagement"). The Period of Engagement commences on May 6, 2003 and shall end on
September 15, 2003.

        (b) Notwithstanding anything contained herein to the contrary, the
Period of Engagement shall end upon any termination of this Agreement pursuant
to Section 5.

     2. Services. During the Period of Engagement, the Consultant shall provide
the following services:

        (a) perform financial analyses of the Company and any organization with
which the Company may merge or which the Company may acquire;

        (b) advise the Company as to the structure and form of any proposed
merger or acquisition;

        (c) be a liaison with the Company's attorneys and accountants with
respect to any proposed merger or acquisition;

        (d) be the overall coordinator for the Company concerning the proposed
merger or acquisition, including matters of systems integration and personnel
integration; and

        (e) make such presentations and reports to the Board of Directors of the
Company (the "Board") and the Chairman of the Board (the "Chairman") as and when
the Board or the Chairman may request.



     3. Compensation. In consideration for any services to be provided under
Section 2, the Company shall pay to the Consultant a consulting fee of Two
thousand five hundred dollars ($2,500.00) per week, payable within ten (10)
business days of the end of each month in which services are rendered hereunder
by the Consultant to the Company. Within five (5) business days of the end of
each month, the Consultant shall provide to the Company a report detailing the
services provided during the previous month by the Consultant pursuant to this
Agreement, such report to be in form and content reasonably acceptable to the
Company.

     4. Expenses. If in connection with the performance of service hereunder at
the request of the Company, the Consultant incurs out-of-pocket costs for
expenses for travel, meals and lodging or other reasonable expenses of a type
for which other providers of professional services to the Company would be
reimbursed by the Company, the Consultant shall be entitled to reimbursement
therefor by the Company in accordance with the reasonable standards and
procedures established by the Company and communicated to the Consultant.

     5. Termination of Agreement. This Agreement and the Period of Engagement
established hereunder shall terminate immediately upon the occurrence of any of
the following events: (i) the Consultant's death; (ii) the Consultant's material
breach of the Consultant's obligations under Section 2 and subsequent failure to
substantially cure such breach after notice of such breach; or (iii) the
Consultant's voluntary termination, upon thirty (30) days written notice to the
Company, of this Agreement. Following the termination of this Agreement, the
Company shall have no further obligations hereunder. The provisions of Sections
6 and 7 shall survive the termination of this Agreement.

     6. Nonsolicitation. In consideration of the compensation to be paid to the
Consultant pursuant to Section 3, the Consultant hereby covenants and agrees
that for a period of twelve (12) months following the termination of this
Agreement for any reason, the Consultant will not directly or indirectly
(including, without limitation, any action by any corporation, partnership or
other entity for which the Consultant acts as officer, employer, or consultant
or in which the Consultant directly or indirectly holds a shareholder or other
ownership position greater than five percent(5%)) offer employment to, hire,
engage or assist another in offering employment to, hiring or engaging (without
regard to whether it would be in competition with the Company's business) a
person who is or was an employee, commissioned sales person or consultant or who
performed similar services of or for the Company at any time during the then
preceding twelve (12) month period or undertake any business with or solicit the
business of any person, firm or company who shall have been a customer of the
Company during the then preceding twelve (12) month period, in any such case
without the prior written consent of the Company.

     7. Confidential Information. The Consultant shall maintain Confidential
Information (as defined below) in strict confidence and secrecy and shall not at
any time, directly or indirectly, use, publish, make lists of, communicate,
divulge or disclose to any person or business entity or use for any purpose any
Confidential Information or assist any third parties in doing so, except on
behalf of and for the benefit of the Company. The Consultant agrees, upon demand
by the Company, to promptly return all Confidential Information (including any
copies, extracts thereof or materials reflecting any such information) which is
in the Consultant's possession.

                                        2



     For purposes of this Agreement, "Confidential Information" shall include,
but not be limited to, materials, records, data or trade secrets regarding the
assets, condition, business, financial information, business affairs, business
matters or other matters related to the Company and to its direct and indirect
subsidiaries and affiliates which the Consultant has knowledge of as a result of
the Consultant's services for the Company. Confidential Information shall not
include information that becomes generally available to the public other than as
a result of disclosure by the Consultant. Nothing in this Agreement modifies or
reduces the Consultant's obligations to comply with applicable laws related to
trade secrets, confidential information or unfair competition.

     8. No Employment Relationship Created. The relationship between the Company
and the Consultant shall be that of client and independent contractor. The
Company shall not assume, and specifically disclaims, any obligations of an
employer to an employee which may exist under applicable law. The Consultant
shall be treated as an independent contractor for all purposes of federal, state
and local income taxes and payroll taxes and the Company shall report on the
appropriate IRS Form 1099 all compensation paid to the Consultant. The
Consultant shall be responsible for payment of all taxes, including federal,
state and local taxes, arising out of the Consultant's activities in accordance
with this Agreement, including by way of illustration, but not limitation,
federal and state personal income tax and social security tax, all as may be
required by applicable law or regulation. The Consultant shall have the full
authority to select the means, manner and method of performing the services to
be performed under this Agreement. The Consultant shall not be considered by
reason of the provisions of this Agreement or otherwise as being an employee of
the Company. The Consultant shall not be eligible to participate in any employee
benefit plans offered by the Company or any of its subsidiaries to their
respective employees.

     9. Successors and Assigns. This Agreement will inure to the benefit of and
be binding upon the Consultant, the Consultant's legal representatives and
testate or intestate distributees, and the Company, and its successors and
assigns, including, in the case of the Company, any successor by merger or
consolidation or a statutory receiver or any other person or firm or corporation
to which all or substantially all of the respective assets and business of the
Company may be sold or otherwise transferred. The Consultant may not assign any
of his rights under this Agreement without the prior written consent of the
Company. Except as expressly provided herein, nothing in this Agreement shall be
construed to give any person other than the parties to this Agreement any legal
or equitable right, remedy or claim under or with respect to this Agreement or
any provision of this Agreement.

     10. Waiver. The rights and remedies of the parties to this Agreement are
cumulative and not alternative. Neither the failure nor any delay by any party
in exercising any right, power or privilege under this Agreement or the
documents referred to in this Agreement will operate as a waiver of such right,
power or privilege, and no single or partial exercise of any such right, power
or privilege will preclude any other or further exercise of such right, power or
privilege or the exercise of any other right, power or privilege.

     11. Modification. This Agreement may only be amended by a written agreement
executed by both parties.

                                        3



     12. Notices. All notices and other communications under this Agreement must
be in writing and will be deemed to have been duly given if delivered by hand or
by nationally recognized overnight delivery service (receipt requested) or
mailed by certified mail (return receipt requested) with first class postage
prepaid:

         (a) if to the Company, to:

             Kankakee Bancorp, Inc.
             310 S. Schuyler Ave.
             Kankakee, Illinois  60901
             Attention: Chairman of the Board

             with a copy to:

             John E. Freechack, Esq.
             Barack, Ferrazzano
             333 W. Wacker Drive, Suite 2700
             Chicago, Illinois  60606

         (b) if to Consultant, to:

             Mr. James M. Lindstrom
             1726 Champa St., Apt. 4D
             Denver, CO 80202

or to such other person or place as either party shall furnish to the other in
writing. Except as otherwise provided herein, all such notices and other
communications shall be effective: (x) if delivered by hand, when delivered; (y)
if mailed in the manner provided in this Section, five (5) business days after
deposit with the United States Postal Service; or (z) if delivered by overnight
express delivery service, on the next business day after deposit with such
service.

     13. Entire Agreement. This Agreement and any documents executed by the
parties pursuant to this Agreement and referred to herein constitute a complete
and exclusive statement of the entire understanding and agreement of the parties
hereto with respect to their subject matter and supersede all other prior
agreements and understandings, written or oral, relating to such subject matter
between the parties.

     14. Severability. Whenever possible, each provision of this Agreement shall
be interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement is held to be prohibited by or invalid
under applicable law, such provision will be ineffective only to the extent of
such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Agreement. Without limiting the
generality of the foregoing, if the scope of any provision contained in this
Agreement is too broad to permit enforcement to its full extent, but may be made
enforceable by limitations thereon, such provision shall be enforced to the
maximum extent permitted by law, and the Consultant hereby agrees that such
scope may be judicially modified accordingly.

                                        4



     15. Counterparts. This Agreement and any amendments hereto may be executed
in any number of counterparts, each of which shall be deemed an original, but
all of which together shall constitute one and the same agreement.

     IN WITNESS WHEREOF, the Company has caused this Agreement to be executed
and the Consultant has hereunto set his hand, all as of the day and year first
above written.

KANKAKEE BANCORP, INC.

By:      /s/ Michael A. Griffith                         /s/ James M. Lindstrom
     ----------------------------------------          -------------------------
         Michael A. Griffith,                             James M. Lindstrom
         Chairman of the Board




                                        5

EX-10.13

                                                                   EXHIBIT 10.13

                             BUSINESS LOAN AGREEMENT

Borrower:  KANKAKEE BANCORP, INC.     Lender:  LASALLE BANK NATIONAL ASSOCIATION
           310 S. Schuyler Avenue              MAIN OFFICE
           Kankakee, IL 60901                  135 SOUTH LASALLE STREET
                                               CHICAGO, IL 60603

THIS BUSINESS LOAN AGREEMENT dated February 28, 2003, is made and executed
between KANKAKEE BANCORP, INC. ("Borrower") and LASALLE BANK NATIONAL
ASSOCIATION ("Lender") on the following terms and conditions. Borrower has
received prior commercial loans from Lender or has applied to Lender for a
commercial loan or loans or other financial accommodations, including those
which may be described on any exhibit or schedule attached to this Agreement
("Loan"). Borrower understands and agrees that: (A) in granting, renewing, or
extending any Loan, Lender is relying upon Borrower's representations,
warranties, and agreements as set forth in this Agreement; (B) the granting,
renewing, or extending of any Loan by Lender at all times shall be subject to
Lender's sole judgment and discretion; and (C) all such Loans shall be and
remain subject to the terms and conditions of this Agreement.

TERM. This Agreement shall be effective as of February 28, 2003, and shall
continue in full force and effect until such time as all of Borrower's Loans in
favor of Lender have been paid in full, including principal, interest, costs,
expenses, attorneys' fees, and other fees and charges, or until such time as the
parties may agree in writing to terminate this Agreement.

CONDITIONS PRECEDENT TO EACH ADVANCE. Lender's obligation to make the initial
Advance and each subsequent Advance under this Agreement shall be subject to the
fulfillment to Lender's satisfaction of all of the conditions set forth in this
Agreement and in the Related Documents.

        Loan Documents. Borrower shall provide to Lender the following documents
        for the Loan: (1) the Note; (2) Security Agreements granting to Lender
        security interests in the Collateral; (3) financing statements and all
        other documents perfecting Lender's Security Interests; (4) evidence of
        insurance as required below; (5) together with all such Related
        Documents as Lender may require for the Loan; all in form and substance
        satisfactory to Lender and Lender's counsel.

        Borrower's Authorization. Borrower shall have provided in form and
        substance satisfactory to Lender properly certified resolutions, duly
        authorizing the execution and delivery of this Agreement, the Note and
        the Related Documents. In addition, Borrower shall have provided such
        other resolutions, authorizations, documents and instruments as Lender
        or its counsel, may require.

        Payment of Fees and Expenses. Borrower shall have paid to Lender all
        fees, charges, and other expenses which are then due and payable as
        specified in this Agreement or any Related Document.

        Representations and Warranties. The representations and warranties set
        forth in this Agreement, in the Related Documents, and in any document
        or certificate delivered to Lender under this Agreement are true and
        correct.

        No Event of Default. There shall not exist at the time of any Advance a
        condition which would constitute an Event of Default under this
        Agreement or under any Related Document.

REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to Lender, as
of the date of this Agreement, as of the date of each disbursement of loan
proceeds, as of the date of any renewal, extension or modification of any Loan,
and at all times any Indebtedness exists:

        Organization. Borrower is a corporation for profit which is, and at all
        times shall be, duly organized, validly existing, and in good standing
        under and by virtue of the laws of the State of Delaware. Borrower is
        duly authorized to transact business in the State of Illinois and all
        other states in which Borrower is doing business, having obtained all
        necessary filings, governmental licenses and approvals for each state in
        which Borrower is doing business. Specifically, Borrower is, and at all
        times shall be, duly qualified as a foreign corporation in all states in
        which the failure to so qualify would have a material adverse effect on
        its business or financial condition. Borrower has the full power and
        authority to own its properties and to transact the business in which it
        is presently engaged or presently proposes to engage. Borrower maintains
        an office at 310 S. Schuyler Avenue, Kankakee, IL 60901. Unless Borrower
        has designated otherwise in writing, the principal office is the office
        at which Borrower keeps its books and records including its records
        concerning the Collateral. Borrower will notify Lender prior to any
        change in the location of Borrower's state of organization or any change
        in Borrower's name. Borrower shall do all things necessary to preserve
        and to keep in full force and effect its existence, rights and
        privileges, and shall comply with all regulations, rules, ordinances,
        statutes, orders and decrees of any governmental or quasi-governmental
        authority or court applicable to Borrower and Borrower's business
        activities.

        Assumed Business Names. Borrower has filed or recorded all documents or
        filings required by law relating to all assumed business names used by
        Borrower. Excluding the name of Borrower, the following is a complete
        list of all assumed business names under which Borrower does business:
        None.

        Authorization. Borrower's execution, delivery, and performance of this
        Agreement and all the Related Documents have been duly authorized by all
        necessary action by Borrower and do not conflict with, result in a
        violation of, or constitute a default under (1) any provision of
        Borrower's articles of incorporation or organization, or bylaws, or any
        agreement or other instrument binding upon Borrower or (2) any law,
        governmental regulation, court decree, or order applicable to Borrower
        or to Borrower's properties.

        Financial Information. Each of Borrower's financial statements supplied
        to Lender truly and completely disclosed Borrower's financial condition
        as of the date of the statement, and there has been no material adverse
        change in Borrower's financial condition subsequent to the date of the
        most recent financial statement supplied to Lender. Borrower has no
        material contingent obligations except as disclosed in such financial
        statements.

        Legal Effect. This Agreement constitutes, and any instrument or
        agreement Borrower is required to give under this Agreement when
        delivered will constitute legal, valid, and binding obligations of
        Borrower enforceable against Borrower in accordance with their
        respective terms.

        Properties. Except as contemplated by this Agreement or as previously
        disclosed in Borrower's financial statements or in writing to Lender and
        as accepted by Lender, and except for property tax liens for taxes not
        presently due and payable, Borrower owns and has good title to all of
        Borrower's properties free and clear of all Security Interests, and has
        not executed any security documents or financing statements relating to
        such properties. All of Borrower's properties are titled in Borrower's
        legal name, and Borrower has not used or filed a financing statement
        under any other name for at least the last five (5) years.

        Hazardous Substances. Except as disclosed to and acknowledged by Lender
        in writing, Borrower represents and warrants that: (1) During the period
        of Borrower's ownership of Borrower's Collateral, there has been no use,
        generation, manufacture, storage, treatment, disposal, release or
        threatened release of any Hazardous Substance by any person on, under,
        about or from any of the Collateral. (2) Borrower has no knowledge of,
        or reason to believe that there has been (a) any breach or violation of
        any Environmental Laws; (b) any use, generation, manufacture, storage,
        treatment, disposal, release or threatened release of any Hazardous
        Substance on, under, about or from the Collateral by any prior owners or
        occupants of any of the Collateral; or (c) any actual or threatened
        litigation or claims of any kind by any



                             BUSINESS LOAN AGREEMENT
Loan No: NEW                       (Continued)                            Page 2

        person relating to such matters. (3) Neither Borrower nor any tenant,
        contractor, agent or other authorized user of any of the Collateral
        shall use, generate, manufacture, store, treat, dispose of or release
        any Hazardous Substance on, under, about or from any of the Collateral;
        and any such activity shall be conducted in compliance with all
        applicable federal, state, and local laws, regulations, and ordinances,
        including without limitation all Environmental Laws. Borrower authorizes
        Lender and its agents to enter upon the Collateral to make such
        inspections and tests as Lender may deem appropriate to determine
        compliance of the Collateral with this section of the Agreement. Any
        inspections or tests made by Lender shall be at Borrower's expense and
        for Lender's purposes only and shall not be construed to create any
        responsibility or liability on the part of Lender to Borrower or to any
        other person. The representations and warranties contained herein are
        based on Borrower's due diligence in investigating the Collateral for
        hazardous waste and Hazardous Substances. Borrower hereby (1) releases
        and waives any future claims against Lender for indemnity or
        contribution in the event Borrower becomes liable for cleanup or other
        costs under any such laws, and (2) agrees to indemnify and hold harmless
        Lender against any and all claims, losses, liabilities, damages,
        penalties, and expenses which Lender may directly or indirectly sustain
        or suffer resulting from a breach of this section of the Agreement or as
        a consequence of any use, generation, manufacture, storage, disposal,
        release or threatened release of a hazardous waste or substance on the
        Collateral. The provisions of this section of the Agreement, including
        the obligation to indemnify, shall survive the payment of the
        Indebtedness and the termination, expiration or satisfaction of this
        Agreement and shall not be affected by Lender's acquisition of any
        interest in any of the Collateral, whether by foreclosure or otherwise.

        Litigation and Claims. No litigation, claim, investigation,
        administrative proceeding or similar action (including those for unpaid
        taxes) against Borrower is pending or threatened, and no other event has
        occurred which may materially adversely affect Borrower's financial
        condition or properties, other than litigation, claims, or other events,
        if any, that have been disclosed to and acknowledged by Lender in
        writing.

        Taxes. To the best of Borrower's knowledge, all of Borrower's tax
        returns and reports that are or were required to be filed, have been
        filed, and all taxes, assessments and other governmental charges have
        been paid in full, except those presently being or to be contested by
        Borrower in good faith in the ordinary course of business and for which
        adequate reserves have been provided.

        Lien Priority. Unless otherwise previously disclosed to Lender in
        writing, Borrower has not entered into or granted any Security
        Agreements, or permitted the filing or attachment of any Security
        Interests on or affecting any of the Collateral directly or indirectly
        securing repayment of Borrower's Loan and Note, that would be prior or
        that may in any way be superior to Lender's Security Interests and
        rights in and to such Collateral.

        Binding Effect. This Agreement, the Note, all Security Agreements (if
        any), and all Related Documents are binding upon the signers thereof, as
        well as upon their successors, representatives and assigns, and are
        legally enforceable in accordance with their respective terms.

AFFIRMATIVE COVENANTS. Borrower covenants and agrees with Lender that, so long
as this Agreement remains in effect, Borrower will:

        Notices of Claims and Litigation. Promptly inform Lender in writing of
        (1) all material adverse changes in Borrower's financial condition, and
        (2) all existing and all threatened litigation, claims, investigations,
        administrative proceedings or similar actions affecting Borrower or any
        Guarantor which could materially affect the financial condition of
        Borrower or the financial condition of any Guarantor.

        Financial Records. Maintain its books and records in accordance with
        GAAP, applied on a consistent basis, and permit Lender to examine and
        audit Borrower's books and records at all reasonable times.

        Financial Statements. Furnish Lender with such financial statements and
        other related information at such frequencies and in such detail as
        Lender may reasonably request.

        Additional Information. Furnish such additional information and
        statements, as Lender may request from time to time.

        Insurance. Maintain fire and other risk insurance, public liability
        insurance, and such other insurance as Lender may require with respect
        to Borrower's properties and operations, in form, amounts, coverages and
        with insurance companies acceptable to Lender. Borrower, upon request of
        Lender, will deliver to Lender from time to time the policies or
        certificates of insurance in form satisfactory to Lender, including
        stipulations that coverages will not be cancelled or diminished without
        at least thirty (30) days prior written notice to Lender. Each insurance
        policy also shall include an endorsement providing that coverage in
        favor of Lender will not be impaired in any way by any act, omission or
        default of Borrower or any other person. In connection with all policies
        covering assets in which Lender holds or is offered a security interest
        for the Loans, Borrower will provide Lender with such lender's loss
        payable or other endorsements as Lender may require.

        Insurance Reports. Furnish to Lender, upon request of Lender, reports on
        each existing insurance policy showing such information as Lender may
        reasonably request, including without limitation the following: (1) the
        name of the insurer; (2) the risks insured; (3) the amount of the
        policy; (4) the properties insured; (5) the then current property values
        on the basis of which insurance has been obtained, and the manner of
        determining those values; and (6) the expiration date of the policy. In
        addition, upon request of Lender (however not more often than annually),
        Borrower will have an independent appraiser satisfactory to Lender
        determine, as applicable, the actual cash value or replacement cost of
        any Collateral. The cost of such appraisal shall be paid by Borrower.

        Other Agreements. Comply with all terms and conditions of all other
        agreements, whether now or hereafter existing, between Borrower and any
        other party and notify Lender immediately in writing of any default in
        connection with any other such agreements.

        Loan Proceeds. Use all Loan proceeds solely for Borrower's business
        operations, unless specifically consented to the contrary by Lender in
        writing.

        Taxes, Charges and Liens. Pay and discharge when due all of its
        indebtedness and obligations, including without limitation all
        assessments, taxes, governmental charges, levies and liens, of every
        kind and nature, imposed upon Borrower or its properties, income, or
        profits, prior to the date on which penalties would attach, and all
        lawful claims that, if unpaid, might become a lien or charge upon any of
        Borrower's properties, income, or profits.

        Performance. Perform and comply, in a timely manner, with all terms,
        conditions, and provisions set forth in this Agreement, in the Related
        Documents, and in all other instruments and agreements between Borrower
        and Lender. Borrower shall notify Lender immediately in writing of any
        default in connection with any agreement.

        Operations. Maintain executive and management personnel with
        substantially the same qualifications and experience as the present
        executive and management personnel; provide written notice to Lender of
        any change in executive and management personnel; conduct its business
        affairs in a reasonable and prudent manner.

        Environmental Studies. Promptly conduct and complete, at Borrower's
        expense, all such investigations, studies, samplings and testings as may
        be requested by Lender or any governmental authority relative to any
        substance, or any waste or by-product of any substance defined as toxic
        or a hazardous substance under applicable federal, state, or local law,
        rule, regulation, order or directive, at or affecting any property or
        any facility owned, leased or used by Borrower.



                             BUSINESS LOAN AGREEMENT
Loan No: NEW                       (Continued)                            Page 3

        Compliance with Governmental Requirements. Comply with all laws,
        ordinances, and regulations, now or hereafter in effect, of all
        governmental authorities applicable to the conduct of Borrower's
        properties, businesses and operations, and to the use or occupancy of
        the Collateral, including without limitation, the Americans With
        Disabilities Act. Borrower may contest in good faith any such law,
        ordinance, or regulation and withhold compliance during any proceeding,
        including appropriate appeals, so long as Borrower has notified Lender
        in writing prior to doing so and so long as, in Lender's sole opinion,
        Lender's interests in the Collateral are not jeopardized. Lender may
        require Borrower to post adequate security or a surety bond, reasonably
        satisfactory to Lender, to protect Lender's interest.

        Inspection. Permit employees or agents of Lender at any reasonable time
        to inspect any and all Collateral for the Loan or Loans and Borrower's
        other properties and to examine or audit Borrower's books, accounts, and
        records and to make copies and memoranda of Borrower's books, accounts,
        and records. If Borrower now or at any time hereafter maintains any
        records (including without limitation computer generated records and
        computer software programs for the generation of such records) in the
        possession of a third party, Borrower, upon request of Lender, shall
        notify such party to permit Lender free access to such records at all
        reasonable times and to provide Lender with copies of any records it may
        request, all at Borrower's expense.

        Compliance Certificates. Unless waived in writing by Lender, provide
        Lender within ninety (90) days after the end of each fiscal year, with a
        certificate executed by Borrower's chief financial officer, or other
        officer or person acceptable to Lender, certifying that the
        representations and warranties set forth in this Agreement are true and
        correct as of the date of the certificate and further certifying that,
        as of the date of the certificate, no Event of Default exists under this
        Agreement.

        Environmental Compliance and Reports. Borrower shall comply in all
        respects with any and all Environmental Laws; not cause or permit to
        exist, as a result of an intentional or unintentional action or omission
        on Borrower's part or on the part of any third party, on property owned
        and/or occupied by Borrower, any environmental activity where damage may
        result to the environment, unless such environmental activity is
        pursuant to and in compliance with the conditions of a permit issued by
        the appropriate federal, state or local governmental authorities; shall
        furnish to Lender promptly and in any event within thirty (30) days
        after receipt thereof a copy of any notice, summons, lien, citation,
        directive, letter or other communication from any governmental agency or
        instrumentality concerning any intentional or unintentional action or
        omission on Borrower's part in connection with any environmental
        activity whether or not there is damage to the environment and/or other
        natural resources.

        Additional Assurances. Make, execute and deliver to Lender such
        promissory notes, mortgages, deeds of trust, security agreements,
        assignments, financing statements, instruments, documents and other
        agreements as Lender or its attorneys may reasonably request to evidence
        and secure the Loans and to perfect all Security Interests.

RECOVERY OF ADDITIONAL COSTS. If the imposition of or any change in any law,
rule, regulation or guideline, or the interpretation or application of any
thereof by any court or administrative or governmental authority (including any
request or policy not having the force of law) shall impose, modify or make
applicable any taxes (except federal, state or local income or franchise taxes
imposed on Lender), reserve requirements, capital adequacy requirements or other
obligations which would (A) increase the cost to Lender for extending or
maintaining the credit facilities to which this Agreement relates, (B) reduce
the amounts payable to Lender under this Agreement or the Related Documents, or
(C) reduce the rate of return on Lender's capital as a consequence of Lender's
obligations with respect to the credit facilities to which this Agreement
relates, then Borrower agrees to pay Lender such additional amounts as will
compensate Lender therefor, within five (5) days after Lender's written demand
for such payment, which demand shall be accompanied by an explanation of such
imposition or charge and a calculation in reasonable detail of the additional
amounts payable by Borrower, which explanation and calculations shall be
conclusive in the absence of manifest error.

LENDER'S EXPENDITURES. If any action or proceeding is commenced that would
materially affect Lender's interest in the Collateral or if Borrower fails to
comply with any provision of this Agreement or any Related Documents, including
but not limited to Borrower's failure to discharge or pay when due any amounts
Borrower is required to discharge or pay under this Agreement or any Related
Documents, Lender on Borrower's behalf may (but shall not be obligated to) take
any action that Lender deems appropriate, including but not limited to
discharging or paying all taxes, liens, security interests, encumbrances and
other claims, at any time levied or placed on any Collateral and paying all
costs for insuring, maintaining and preserving any Collateral. All such
expenditures incurred or paid by Lender for such purposes will then bear
interest at the rate charged under the Note from the date incurred or paid by
Lender to the date of repayment by Borrower. All such expenses will become a
part of the Indebtedness and, at Lender's option, will (A) be payable on demand;
(B) be added to the balance of the Note and be apportioned among and be payable
with any installment payments to become due during either (1) the term of any
applicable insurance policy; or (2) the remaining term of the Note; or (C) be
treated as a balloon payment which will be due and payable at the Note's
maturity.

NEGATIVE COVENANTS. Borrower covenants and agrees with Lender that while this
Agreement is in effect, Borrower shall not, without the prior written consent of
Lender:

        Indebtedness and Liens. (1) Except for trade debt incurred in the normal
        course of business and indebtedness to Lender contemplated by this
        Agreement, create, incur or assume indebtedness for borrowed money,
        including capital leases, (2) sell, transfer, mortgage, assign, pledge,
        lease, grant a security interest in, or encumber any of Borrower's
        assets (except as allowed as Permitted Liens), or (3) sell with recourse
        any of Borrower's accounts, except to Lender.

        Continuity of Operations. (1) Engage in any business activities
        substantially different than those in which Borrower is presently
        engaged, (2) cease operations, liquidate, merge, transfer, acquire or
        consolidate with any other entity, change its name, dissolve or transfer
        or sell Collateral out of the ordinary course of business, or (3) pay
        any dividends on Borrower's stock (other than dividends payable in its
        stock), provided, however that notwithstanding the foregoing, but only
        so long as no Event of Default has occurred and is continuing or would
        result from the payment of dividends, if Borrower is a "Subchapter S
        Corporation" (as defined in the Internal Revenue Code of 1986, as
        amended), Borrower may pay cash dividends on its stock to its
        shareholders from time to time in amounts necessary to enable the
        shareholders to pay income taxes and make estimated income tax payments
        to satisfy their liabilities under federal and state law which arise
        solely from their status as Shareholders of a Subchapter S Corporation
        because of their ownership of shares of Borrower's stock, or purchase or
        retire any of Borrower's outstanding shares or alter or amend Borrower's
        capital structure.

        Loans, Acquisitions and Guaranties. (1) Loan, invest in or advance money
        or assets, (2) purchase, create or acquire any interest in any other
        enterprise or entity, or (3) incur any obligation as surety or guarantor
        other than in the ordinary course of business.

CESSATION OF ADVANCES. If Lender has made any commitment to make any Loan to
Borrower, whether under this Agreement or under any other agreement, Lender
shall have no obligation to make Loan Advances or to disburse Loan proceeds if:
(A) Borrower or any Guarantor is in default under the terms of this Agreement or
any of the Related Documents or any other agreement that Borrower or any
Guarantor has with Lender; (B) Borrower or any Guarantor dies, becomes
incompetent or becomes insolvent, files a petition in bankruptcy or similar
proceedings, or is adjudged a bankrupt; (C) there occurs a material adverse
change in Borrower's financial condition, in the financial condition of any
Guarantor, or in the value of any Collateral securing any Loan; or (D) any
Guarantor seeks, claims or otherwise attempts to limit, modify or revoke such
Guarantor's guaranty of the Loan or any other loan with Lender; or (E) Lender in
good faith deems itself insecure, even though no Event of Default shall have
occurred.



                             BUSINESS LOAN AGREEMENT
Loan No: NEW                       (Continued)                            Page 4

RIGHT OF SETOFF. To the extent permitted by applicable law, Lender reserves a
right of setoff in all Borrower's accounts with Lender (whether checking,
savings, or some other account). This includes all accounts Borrower holds
jointly with someone else and all accounts Borrower may open in the future.
However, this does not include any IRA or Keogh accounts, or any trust accounts
for which setoff would be prohibited by law. Borrower authorizes Lender, to the
extent permitted by applicable law, to charge or setoff all sums owing on the
Indebtedness against any and all such accounts.

DEFAULT. Each of the following shall constitute an Event of Default under this
Agreement:

        Payment Default. Borrower fails to make any payment when due under the
        Loan.

        Other Defaults. Borrower fails to comply with or to perform any other
        term, obligation, covenant or condition contained in this Agreement or
        in any of the Related Documents or to comply with or to perform any
        term, obligation, covenant or condition contained in any other agreement
        between Lender and Borrower.

        Default in Favor of Third Parties. Borrower or any Grantor defaults
        under any loan, extension of credit, security agreement, purchase or
        sales agreement, or any other agreement, in favor of any other creditor
        or person that may materially affect any of Borrower's or any Grantor's
        property or Borrower's or any Grantor's ability to repay the Loans or
        perform their respective obligations under this Agreement or any of the
        Related Documents.

        False Statements. Any warranty, representation or statement made or
        furnished to Lender by Borrower or on Borrower's behalf under this
        Agreement or the Related Documents is false or misleading in any
        material respect, either now or at the time made or furnished or becomes
        false or misleading at any time thereafter.

        Insolvency. The dissolution or termination of Borrower's existence as a
        going business, the insolvency of Borrower, the appointment of a
        receiver for any part of Borrower's property, any assignment for the
        benefit of creditors, any type of creditor workout, or the commencement
        of any proceeding under any bankruptcy or insolvency laws by or against
        Borrower.

        Defective Collateralization. This Agreement or any of the Related
        Documents ceases to be in full force and effect (including failure of
        any collateral document to create a valid and perfected security
        interest or lien) at any time and for any reason.

        Creditor or Forfeiture Proceedings. Commencement of foreclosure or
        forfeiture proceedings, whether by judicial proceeding, self-help,
        repossession or any other method, by any creditor of Borrower or by any
        governmental agency against any collateral securing the Loan. This
        includes a garnishment of any of Borrower's accounts, including deposit
        accounts, with Lender. However, this Event of Default shall not apply if
        there is a good faith dispute by Borrower as to the validity or
        reasonableness of the claim which is the basis of the creditor or
        forfeiture proceeding and if Borrower gives Lender written notice of the
        creditor or forfeiture proceeding and deposits with Lender monies or a
        surety bond for the creditor or forfeiture proceeding, in an amount
        determined by Lender, in its sole discretion, as being an adequate
        reserve or bond for the dispute.

        Events Affecting Guarantor. Any of the preceding events occurs with
        respect to any Guarantor of any of the Indebtedness or any Guarantor
        dies or becomes incompetent, or revokes or disputes the validity of, or
        liability under, any Guaranty of the Indebtedness.

        Change in Ownership. Any change in ownership of twenty-five percent
        (25%) or more of the common stock of Borrower.

        Adverse Change. A material adverse change occurs in Borrower's financial
        condition, or Lender believes the prospect of payment or performance of
        the Loan is impaired.

        Insecurity. Lender in good faith believes itself insecure.

EFFECT OF AN EVENT OF DEFAULT. If any Event of Default shall occur, except where
otherwise provided in this Agreement or the Related Documents, all commitments
and obligations of Lender under this Agreement or the Related Documents or any
other agreement immediately will terminate (including any obligation to make
further Loan Advances or disbursements), and, at Lender's option, all
Indebtedness immediately will become due and payable, all without notice of any
kind to Borrower, except that in the case of an Event of Default of the type
described in the "Insolvency" subsection above, such acceleration shall be
automatic and not optional. In addition, Lender shall have all the rights and
remedies provided in the Related Documents or available at law, in equity, or
otherwise. Except as may be prohibited by applicable law, all of Lender's rights
and remedies shall be cumulative and may be exercised singularly or
concurrently. Election by Lender to pursue any remedy shall not exclude pursuit
of any other remedy, and an election to make expenditures or to take action to
perform an obligation of Borrower or of any Grantor shall not affect Lender's
right to declare a default and to exercise its rights and remedies.

NON-USE FEE. Borrower shall pay to Lender a non-use fee equal to .25% times the
maximum principal amount of this Note minus the daily average of the aggregate
outstanding principal amount of the loan. The non-use fee shall be calculated on
the basis of a year consisting of 360 days for actual days elapsed and shall be
payable quarterly in arrears on the 28th day of each May, August, November and
at maturity.

CONDITION SUBSEQUENT. In addition to the Events of Default set forth elsewhere
herein, an Event of Default shall occur hereunder if, within thirty days of the
date of this Agreement, Borrower shall have failed to deliver to Lender
corporate resolution(s) (i) empowering Larry D. Huffman, President and CEO, and
Ronald J. Walters, Treasurer and CFO, to execute and deliver this Agreement and
the Related Documents, and (ii) ratifying and confirming any and all actions
taken by Messrs. Huffman and Walters in furtherance of the transactions
contemplated herein and therein.

BANK HOLDING COMPANY RIDER. An exhibit, titled "Rider," is attached to this
Agreement and by this reference is made a part of this Agreement just as if all
the provisions, terms and conditions of the Exhibit had been fully set forth in
this Agreement.

MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Agreement:

        Amendments. This Agreement, together with any Related Documents,
        constitutes the entire understanding and agreement of the parties as to
        the matters set forth in this Agreement. No alteration of or amendment
        to this Agreement shall be effective unless given in writing and signed
        by the party or parties sought to be charged or bound by the alteration
        or amendment.

        Attorneys' Fees; Expenses. Borrower agrees to pay upon demand all of
        Lender's costs and expenses, including Lender's attorneys' fees and
        Lender's legal expenses, incurred in connection with the enforcement of
        this Agreement. Lender may hire or pay someone else to help enforce this
        Agreement, and Borrower shall pay the costs and expenses of such
        enforcement. Costs and expenses include Lender's attorneys' fees and
        legal expenses whether or not there is a lawsuit, including attorneys'
        fees and legal expenses for bankruptcy proceedings (including efforts to
        modify or vacate any automatic stay or injunction), appeals, and any
        anticipated post-judgment collection services. Borrower also shall pay
        all court costs and such additional fees as may be directed by the
        court.

        Caption Headings. Caption headings in this Agreement are for convenience
        purposes only and are not to be used to interpret or define the
        provisions of this Agreement.

        Consent to Loan Participation. Borrower agrees and consents to Lender's
        sale or transfer, whether now or later, of one or more participation
        interests in the Loan to one or more purchasers, whether related or
        unrelated to Lender. Lender may provide, without any



                             BUSINESS LOAN AGREEMENT
Loan No: NEW                       (Continued)                            Page 5

        limitation whatsoever, to any one or more purchasers, or potential
        purchasers, any information or knowledge Lender may have about Borrower
        or about any other matter relating to the Loan, and Borrower hereby
        waives any rights to privacy Borrower may have with respect to such
        matters. Borrower additionally waives any and all notices of sale of
        participation interests, as well as all notices of any repurchase of
        such participation interests. Borrower also agrees that the purchasers
        of any such participation interests will be considered as the absolute
        owners of such interests in the Loan and will have all the rights
        granted under the participation agreement or agreements governing the
        sale of such participation interests. Borrower further waives all rights
        of offset or counterclaim that it may have now or later against Lender
        or against any purchaser of such a participation interest and
        unconditionally agrees that either Lender or such purchaser may enforce
        Borrower's obligation under the Loan irrespective of the failure or
        insolvency of any holder of any interest in the Loan. Borrower further
        agrees that the purchaser of any such participation interests may
        enforce its interests irrespective of any personal claims or defenses
        that Borrower may have against Lender.

        Governing Law. This Agreement will be governed by, construed and
        enforced in accordance with federal law and the laws of the State of
        Illinois. This Agreement has been accepted by Lender in the State of
        Illinois.

        Choice of Venue. If there is a lawsuit, Borrower agrees upon Lender's
        request to submit to the jurisdiction of the courts of COOK County,
        State of Illinois.

        No Waiver by Lender. Lender shall not be deemed to have waived any
        rights under this Agreement unless such waiver is given in writing and
        signed by Lender. No delay or omission on the part of Lender in
        exercising any right shall operate as a waiver of such right or any
        other right. A waiver by Lender of a provision of this Agreement shall
        not prejudice or constitute a waiver of Lender's right otherwise to
        demand strict compliance with that provision or any other provision of
        this Agreement. No prior waiver by Lender, nor any course of dealing
        between Lender and Borrower, or between Lender and any Grantor, shall
        constitute a waiver of any of Lender's rights or of any of Borrower's or
        any Grantor's obligations as to any future transactions. Whenever the
        consent of Lender is required under this Agreement, the granting of such
        consent by Lender in any instance shall not constitute continuing
        consent to subsequent instances where such consent is required and in
        all cases such consent may be granted or withheld in the sole discretion
        of Lender.

        Notices. Any notice required to be given under this Agreement shall be
        given in writing, and shall be effective when actually delivered, when
        actually received by telefacsimile (unless otherwise required by law),
        when deposited with a nationally recognized overnight courier, or, if
        mailed, when deposited in the United States mail, as first class,
        certified or registered mail postage prepaid, directed to the addresses
        shown near the beginning of this Agreement. Any party may change its
        address for notices under this Agreement by giving formal written notice
        to the other parties, specifying that the purpose of the notice is to
        change the party's address. For notice purposes, Borrower agrees to keep
        Lender informed at all times of Borrower's current address. Unless
        otherwise provided or required by law, if there is more than one
        Borrower, any notice given by Lender to any Borrower is deemed to be
        notice given to all Borrowers.

        Severability. If a court of competent jurisdiction finds any provision
        of this Agreement to be illegal, invalid, or unenforceable as to any
        circumstance, that finding shall not make the offending provision
        illegal, invalid, or unenforceable as to any other circumstance. If
        feasible, the offending provision shall be considered modified so that
        it becomes legal, valid and enforceable. If the offending provision
        cannot be so modified, it shall be considered deleted from this
        Agreement. Unless otherwise required by law, the illegality, invalidity,
        or unenforceability of any provision of this Agreement shall not affect
        the legality, validity or enforceability of any other provision of this
        Agreement.

        Subsidiaries and Affiliates of Borrower. To the extent the context of
        any provisions of this Agreement makes it appropriate, including without
        limitation any representation, warranty or covenant, the word "Borrower"
        as used in this Agreement shall include all of Borrower's subsidiaries
        and affiliates. Notwithstanding the foregoing however, under no
        circumstances shall this Agreement be construed to require Lender to
        make any Loan or other financial accommodation to any of Borrower's
        subsidiaries or affiliates.

        Successors and Assigns. All covenants and agreements contained by or on
        behalf of Borrower shall bind Borrower's successors and assigns and
        shall inure to the benefit of Lender and its successors and assigns.
        Borrower shall not, however, have the right to assign Borrower's rights
        under this Agreement or any interest therein, without the prior written
        consent of Lender.

        Survival of Representations and Warranties. Borrower understands and
        agrees that in extending Loan Advances, Lender is relying on all
        representations, warranties, and covenants made by Borrower in this
        Agreement or in any certificate or other instrument delivered by
        Borrower to Lender under this Agreement or the Related Documents.
        Borrower further agrees that regardless of any investigation made by
        Lender, all such representations, warranties and covenants will survive
        the extension of Loan Advances and delivery to Lender of the Related
        Documents, shall be continuing in nature, shall be deemed made and
        redated by Borrower at the time each Loan Advance is made, and shall
        remain in full force and effect until such time as Borrower's
        Indebtedness shall be paid in full, or until this Agreement shall be
        terminated in the manner provided above, whichever is the last to occur.

        Time is of the Essence. Time is of the essence in the performance of
        this Agreement.

        Waive Jury. All parties to this Agreement hereby waive the right to any
        jury trial in any action, proceeding, or counterclaim brought by any
        party against any other party.

DEFINITIONS. The following capitalized words and terms shall have the following
meanings when used in this Agreement. Unless specifically stated to the
contrary, all references to dollar amounts shall mean amounts in lawful money of
the United States of America. Words and terms used in the singular shall include
the plural, and the plural shall include the singular, as the context may
require. Words and terms not otherwise defined in this Agreement shall have the
meanings attributed to such terms in the Uniform Commercial Code. Accounting
words and terms not otherwise defined in this Agreement shall have the meanings
assigned to them in accordance with generally accepted accounting principles as
in effect on the date of this Agreement:

        Advance. The word "Advance" means a disbursement of Loan funds made, or
        to be made, to Borrower or on Borrower's behalf on a line of credit or
        multiple advance basis under the terms and conditions of this Agreement.

        Agreement. The word "Agreement" means this Business Loan Agreement, as
        this Business Loan Agreement may be amended or modified from time to
        time, together with all exhibits and schedules attached to this Business
        Loan Agreement from time to time.

        Borrower. The word "Borrower" means KANKAKEE BANCORP, INC., and all
        other persons and entities signing the Note in whatever capacity.

        Collateral. The word "Collateral" means all property and assets granted
        as collateral security for a Loan, whether real or personal property,
        whether granted directly or indirectly, whether granted now or in the
        future, and whether granted in the form of a security interest,
        mortgage, collateral mortgage, deed of trust, assignment, pledge, crop
        pledge, chattel mortgage, collateral chattel mortgage, chattel trust,
        factor's lien, equipment trust, conditional sale, trust receipt, lien,
        charge, lien or title retention contract, lease or consignment intended
        as a security device, or any other security or lien interest whatsoever,
        whether created by law, contract, or otherwise.

        Environmental Laws. The words "Environmental Laws" mean any and all
        state, federal and local statutes, regulations and ordinances relating
        to the protection of human health or the environment, including without
        limitation the Comprehensive Environmental Response,



                             BUSINESS LOAN AGREEMENT
Loan No: NEW                       (Continued)                            Page 6

        Compensation, and Liability Act of 1980, as amended, 42 U.S.C. Section
        9601, et seq. ("CERCLA"), the Superfund Amendments and Reauthorization
        Act of 1986, Pub. L. No. 99-499 ("SARA"), the Hazardous Materials
        Transportation Act, 49 U.S.C. Section 1801, et seq., the Resource
        Conservation and Recovery Act, 42 U.S.C. Section 6901, et seq., or other
        applicable state or federal laws, rules, or regulations adopted pursuant
        thereto.

        Event of Default. The words "Event of Default" mean any of the events of
        default set forth in this Agreement in the default section of this
        Agreement.

        GAAP. The word "GAAP" means generally accepted accounting principles.

        Grantor. The word "Grantor" means each and all of the persons or
        entities granting a Security Interest in any Collateral for the Loan,
        including without limitation all Borrowers granting such a Security
        Interest.

        Guarantor. The word "Guarantor" means any guarantor, surety, or
        accommodation party of any or all of the Loan.

        Guaranty. The word "Guaranty" means the guaranty from Guarantor to
        Lender, including without limitation a guaranty of all or part of the
        Note.

        Hazardous Substances. The words "Hazardous Substances" mean materials
        that, because of their quantity, concentration or physical, chemical or
        infectious characteristics, may cause or pose a present or potential
        hazard to human health or the environment when improperly used, treated,
        stored, disposed of, generated, manufactured, transported or otherwise
        handled. The words "Hazardous Substances" are used in their very
        broadest sense and include without limitation any and all hazardous or
        toxic substances, materials or waste as defined by or listed under the
        Environmental Laws. The term "Hazardous Substances" also includes,
        without limitation, petroleum and petroleum by-products or any fraction
        thereof and asbestos.

        Indebtedness. The word "Indebtedness" means the indebtedness evidenced
        by the Note or Related Documents, including all principal and interest
        together with all other indebtedness and costs and expenses for which
        Grantor is responsible under this Agreement or under any of the Related
        Documents, and all other obligations, debts and liabilities, plus
        interest thereon, of Borrower to Lender, or any one or more of them, as
        well as all claims by Lender against Borrower or any one or more of
        them, whether now existing or hereafter arising, whether related or
        unrelated to the purpose of the Note, whether voluntary or otherwise,
        whether due or not due, direct or indirect, absolute or contingent,
        liquidated or unliquidated and whether Borrower may be liable
        individually or jointly with others, whether obligated as guarantor,
        surety, accommodation party or otherwise, and whether recovery upon such
        amounts may be or hereafter may become barred by any statute of
        limitations, and whether the obligation to repay such amounts may be or
        hereafter may become otherwise unenforceable.

        Lender. The word "Lender" means LASALLE BANK NATIONAL ASSOCIATION, its
        successors and assigns.

        Loan. The word "Loan" means any and all loans and financial
        accommodations from Lender to Borrower whether now or hereafter
        existing, and however evidenced, including without limitation those
        loans and financial accommodations described herein or described on any
        exhibit or schedule attached to this Agreement from time to time.

        Note. The word "Note" means the Note executed by KANKAKEE BANCORP, INC.
        in the principal amount of $1,500,000.00 dated February 28, 2003,
        together with all renewals of, extensions of, modifications of,
        refinancings of, consolidations of, and substitutions for the note or
        credit agreement.

        Permitted Liens. The words "Permitted Liens" mean (1) liens and security
        interests securing Indebtedness owed by Borrower to Lender; (2) liens
        for taxes, assessments, or similar charges either not yet due or being
        contested in good faith; (3) liens of materialmen, mechanics,
        warehousemen, or carriers, or other like liens arising in the ordinary
        course of business and securing obligations which are not yet
        delinquent; (4) purchase money liens or purchase money security
        interests upon or in any property acquired or held by Borrower in the
        ordinary course of business to secure indebtedness outstanding on the
        date of this Agreement or permitted to be incurred under the paragraph
        of this Agreement titled "Indebtedness and Liens"; (5) liens and
        security interests which, as of the date of this Agreement, have been
        disclosed to and approved by the Lender in writing; and (6) those liens
        and security interests which in the aggregate constitute an immaterial
        and insignificant monetary amount with respect to the net value of
        Borrower's assets.

        Related Documents. The words "Related Documents" mean all promissory
        notes, credit agreements, loan agreements, environmental agreements,
        guaranties, security agreements, mortgages, deeds of trust, security
        deeds, collateral mortgages, and all other instruments, agreements and
        documents, whether now or hereafter existing, executed in connection
        with the Loan.

        Security Agreement. The words "Security Agreement" mean and include
        without limitation any agreements, promises, covenants, arrangements,
        understandings or other agreements, whether created by law, contract, or
        otherwise, evidencing, governing, representing, or creating a Security
        Interest.

        Security Interest. The words "Security Interest" mean, without
        limitation, any and all types of collateral security, present and
        future, whether in the form of a lien, charge, encumbrance, mortgage,
        deed of trust, security deed, assignment, pledge, crop pledge, chattel
        mortgage, collateral chattel mortgage, chattel trust, factor's lien,
        equipment trust, conditional sale, trust receipt, lien or title
        retention contract, lease or consignment intended as a security device,
        or any other security or lien interest whatsoever whether created by
        law, contract, or otherwise.

BORROWER ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS BUSINESS LOAN
AGREEMENT AND BORROWER AGREES TO ITS TERMS. THIS BUSINESS LOAN AGREEMENT IS
DATED FEBRUARY 28, 2003.

BORROWER:

KANKAKEE BANCORP, INC.

                                                                
By: /s/ Larry D. Huffman                                           By: /s/ Ronald J. Walters
   -------------------------------------------------                  --------------------------------------------
    Larry D. Huffman, President & CEO of KANKAKEE                     /or Ronald J. Walters, Treasurer & CFO of
    BANCORP, INC.                                                     KANKAKEE BANCORP, INC.





                             BUSINESS LOAN AGREEMENT
Loan No: NEW                       (Continued)                            Page 7

LENDER:

LASALLE BANK NATIONAL ASSOCIATION

By:
   -------------------------------------------------
    Authorized Signer

   LASER PRO Lending. Ver. 5.21.00.003 Copr. Harland Financial Solutions, Inc.
   1997, 2003. All Rights Reserved. - IL C:\APPS\CFI\LPL\C4O.FC TR-12402 PR-44



                                      RIDER

Borrower:  KANKAKEE BANCORP, INC.     Lender:  LASALLE BANK NATIONAL ASSOCIATION
           310 S. Schuyler Avenue              MAIN OFFICE
           Kankakee, IL  60901                 135 SOUTH LASALLE STREET
                                               CHICAGO, IL 60603

This RIDER is attached to and by this reference is made a part of the Business
Loan Agreement, dated February 28, 2003, and executed in connection with a loan
or other financial accommodations between LASALLE BANK NATIONAL ASSOCIATION and
KANKAKEE BANCORP, INC.

Capitalized terms used herein without definition shall have the respective
meanings given thereto in the Agreement. In the event of a conflict between the
provisions of this Rider and the provisions of the Agreement, the provisions of
this Rider shall prevail.

1.      DEFINITIONS. Unless otherwise defined herein, capitalized terms used
herein without definition shall have the respective meanings given thereto in
the Agreement.

     "FDIC" means Federal Deposit Insurance Corporation.

     "FRS" means Federal Reserve System.

     "GAAP" means generally accepted accounting principles, consistently
     applied.

     "Subsidiary" means KFS Bank, F.S.B., a federal savings bank.

     "Subsidiary Shares" means 100% of the capital stock of the Subsidiary, as
more particularly described in that certain Commercial Pledge Agreement dated as
of February 28, 2003 between Borrower, as grantor, and Lender, as amended from
time to time.

2.      REPRESENTATIONS AND WARRANTIES. In addition to the representation and
warranties set forth in the Agreement, Borrower makes the following
representations and warranties:

(a)     Borrower's primary business is that of a unitary thrift holding company.
All necessary regulatory approvals have been obtained for Borrower to conduct
its business.

(b)     The deposit accounts of the Subsidiary are insured by FDIC.

(c)     None of the Subsidiary Shares constitute margin stock, as defined in
Regulation U of the Board of Governors of FRS.

3.      AFFIRMATIVE COVENANTS. In addition to the affirmative covenants set
forth in the Agreement, Borrower will:

(a)     furnish and deliver to Lender:

(i)     as soon as practicable, and in no event later than forty-five (45) days
after the end of each of the first three calendar quarters of Borrower and the
Subsidiary, a copy of: (1) the balance sheet, profit and loss statement, surplus
statement and any supporting schedules prepared in accordance with GAAP and
signed by the Presidents and Chief Financial Officer of Borrower and the
Subsidiary; and (2) all financial statements, including, but not limited to, all
call reports, filed with any state or federal bank regulatory authority;

(ii)    as soon as practicable, and in no event later than one hundred twenty
(120) days after the end of each calendar year, a copy of: (1) the consolidated
balance sheets as of the end of such year and the consolidated profit and loss
and surplus statements for Borrower and the Subsidiary for such year, audited by
independent certified public accountants satisfactory to Lender and accompanied
by an unqualified opinion; and (2) all financial statements and reports,
including, but not limited to call reports and annual reports, filed annually
with any state or federal regulatory authority;

(iii)   as soon as practicable, and in no event later than forty-five (45) days
after the end of each calendar quarter, copies of the then current loan/asset
watch list, the substandard loan/asset list, the nonperforming loan/asset list
and other real estate owned list of the Subsidiary;

(iv)    immediately after receiving knowledge thereof, notice in writing of all
charges, assessment, actions, suits and proceedings that are proposed or
initiated by, or brought before, any court or governmental department,
commission, board or other administrative agency, in connection with Borrower or
the Subsidiary (other than litigation in the ordinary course of business not
involving the FRS, the FDIC or the Illinois Office of Banks and Real Estate, or
the Office of Thrift Supervision (OTS) which, if adversely decided, would not
have a material effect on the financial condition or operations of Borrower or
the Subsidiary); and

(v)     promptly after the occurrence thereof, notice of any other matter which
has resulted in a materially adverse change in the financial condition or
operations of Borrower or the Subsidiary;

(b)     contemporaneously with the furnishing of a copy of each annual report
and of each quarterly statement provided pursuant to Section 3(a)(i) and (ii)
above, deliver to Lender, a certificate signed by the President and the Chief
Financial Officer of Borrower, containing a computation of the then current
financial ratios specified in Sections 3(c) and (d) below, and stating that no
Event of Default has occurred or is continuing, or, if such event exists,
describing such event and the steps, if any, that are being taken to cure it,
and the time within which such cure will occur;

(c)     maintain such capital as is necessary to cause Borrower to have adequate
capital in accordance with the regulations of the FRS and any requirements or
conditions that the FRS has or may impose on Borrower;

(d)     maintain such capital as is necessary to cause the Subsidiary to be
classified as a "well capitalized" institution in accordance with the
regulations of the FDIC, currently measured on the basis of information filed by
Borrower in its quarterly Consolidated Report of Income and Condition (the "Call
Report") as follows:

(i)     Total Capital to Risk-Weighted Assets of not less than 10%;

(ii)    Tier 1 Capital to Risk-Weighted Assets of not less than 6%; and

(iii)   Tier 1 Capital to average Total Assets of not less than 5%. For purposes
of this clause, the average Total Assets shall be determined on the basis of
information contained in the preceding four (4) Call Reports.



                                      RIDER
Loan No: NEW                       (Continued)                            Page 2

(e)     cause the Subsidiary's ratio of (a) nonperforming loans plus other real
estate owned to (b) total loans plus other real estate owned to be less than or
equal to three percent (3%) as of the end of each of its fiscal quarters. For
purposes of this clause, "nonperforming loans" shall mean the sum of all
non-accrual loans and loans on which any payment is ninety (90) or more days
past due;

(f)     cause the ratio of the loan and lease loss reserve to the total loans of
the Subsidiary to be not less than one percent (1.0%) at all times;

4.      NEGATIVE COVENANTS. In addition to the negative covenants set forth in
the Agreement, Borrower will not, without Lender's prior written consent:

(a)     engage in any business or activity not permitted by all applicable laws
and regulations, including without limitation, Lender Holding Company Act of
1954, the banking laws of the State of Illinois, the Federal Deposit Insurance
Act and any regulations promulgated thereunder;

(b)     make any loan or advance secured by the capital stock of another bank or
depository institution (except for loans made in the ordinary course of
business), or acquire the capital stock, assets or obligations of or any
interest in another bank or depository institution;

(c)     directly or indirectly create, assume, incur, suffer or permit to exist
any pledge, encumbrance, security interest, assignment, lien or charge of any
kind or character on the Subsidiary Shares or any other capital stock owned by
Borrower;

(d)     cause or allow the percent of Subsidiary Shares to diminish as a
percentage of the outstanding capital stock of the Subsidiary;

(e)     sell, transfer, issue, reissue, exchange or grant any option with
respect to the Subsidiary Shares; or

(f)     engage in any unsafe or unsound banking practices.

5.      EVENTS OF DEFAULT. In addition to the Events of Default set forth in the
Agreement, each of the following shall constitute an Event of Default under the
Agreement:

(a)     if the FRS, the FDIC, the Illinois Office of Banks and Real Estate or
other governmental agency charged with the regulation of bank holding companies
or depository institutions: (i) issues to Borrower or the Subsidiary, or
initiates any action, suit or proceeding to obtain against, impose on or require
from Borrower or the Subsidiary, a cease and desist order or similar regulatory
order, the assessment of civil monetary penalties, articles of agreement, a
memorandum of understanding, a capital directive, a capital restoration plan,
restrictions that prevent or as a practical matter impair the payment of
dividends by the Subsidiary or the payments of any debt by Borrower,
restrictions that make the payment of dividends by the Subsidiary or the payment
of debt by Borrower subject to prior regulatory approval, a notice or finding
under the State of Illinois Banking Act or Section 8(a) of the Federal Deposit
Insurance Act, or any similar enforcement action, measure or proceeding; or (ii)
issues to any officer or director of Borrower or the Subsidiary, or initiates
any action, suit or proceeding to obtain against, impose on or require from any
such officer or director, a cease and desist order or similar regulatory order,
a removal order, a suspension order, or the assessment of civil monetary
penalties;

(b)     if the Subsidiary is notified that it is considered an institution in
"troubled condition" within the meaning of 12 U.S.C. Section 1831i and the
regulations promulgated thereunder, or if a conservator or receiver is appointed
for the Subsidiary

8607116.

THIS RIDER IS EXECUTED ON FEBRUARY 28, 2003.

BORROWER:

KANKAKEE BANCORP, INC.

By: /s/ Larry D. Huffman
   -------------------------------------------------
    Larry D. Huffman, President & CEO of KANKAKEE
    BANCORP, INC.

By: /s/ Ronald J. Walters
   -------------------------------------------------
    /or Ronald J. Walters, Treasurer & CFO of
    KANKAKEE BANCORP, INC.

LENDER:

LASALLE BANK NATIONAL ASSOCIATION

By:
   -------------------------------------------------
    Authorized Signer

   LASER PRO Lending. Ver. 5.21.00.003 Copr. Harland Financial Solutions, Inc.
   1997, 2003. All Rights Reserved. - IL C:\APPS\CFI\LPL\C4O.FC TR-12402 PR-44



                                 PROMISSORY NOTE

Borrower:  KANKAKEE BANCORP, INC.     Lender:  LASALLE BANK NATIONAL ASSOCIATION
           310 S. Schuyler Avenue              MAIN OFFICE
           Kankakee, IL  60901                 135 SOUTH LASALLE STREET
                                               CHICAGO, IL 60603

                                                                           
Principal Amount: $1,500,000.00            Initial Rate: 4.250%                  Date of Note:  February 28, 2003



PROMISE TO PAY. KANKAKEE BANCORP, INC. ("Borrower") promises to pay to LASALLE
BANK NATIONAL ASSOCIATION ("Lender"), or order, in lawful money of the United
States of America, the principal amount of One Million Five Hundred Thousand &
00/100 Dollars ($1,500,000.00) or so much as may be outstanding, together with
interest on the unpaid outstanding principal balance of each advance. Interest
shall be calculated from the date of each advance until repayment of each
advance.

PAYMENT. Borrower will pay this loan in one payment of all outstanding principal
plus all accrued unpaid interest on February 28, 2004. In addition, Borrower
will pay regular quarterly payments of all accrued unpaid interest due as of
each payment date, beginning May 28, 2003, with all subsequent interest payments
to be due on the same day of each quarter after that. Unless otherwise agreed or
required by applicable law, payments will be applied first to accrued unpaid
interest, then to principal, and any remaining amount to any unpaid collection
costs. The annual interest rate for this Note is computed on a 365/360 basis;
that is, by applying the ratio of the annual interest rate over a year of 360
days, multiplied by the outstanding principal balance, multiplied by the actual
number of days the principal balance is outstanding. Borrower will pay Lender at
Lender's address shown above or at such other place as Lender may designate in
writing.

VARIABLE INTEREST RATE. The interest rate on this Note is subject to change from
time to time based on changes in an index which is Lender's Prime Rate (the
"Index"). This is the rate Lender charges, or would charge, on 90-day unsecured
loans to the most creditworthy corporate customers. This rate may or may not be
the lowest rate available from Lender at any given time. Lender will tell
Borrower the current Index rate upon Borrower's request. The interest rate
change will not occur more often than each day. Borrower understands that Lender
may make loans based on other rates as well. The Index currently is 4.250% per
annum. The interest rate to be applied to the unpaid principal balance of this
Note will be at a rate equal to the Index, resulting in an initial rate of
4.250% per annum. NOTICE: Under no circumstances will the interest rate on this
Note be more than the maximum rate allowed by applicable law.

PREPAYMENT. Borrower may pay without penalty all or a portion of the amount owed
earlier than it is due. Early payments will not, unless agreed to by Lender in
writing, relieve Borrower of Borrower's obligation to continue to make payments
of accrued unpaid interest. Rather, early payments will reduce the principal
balance due. Borrower agrees not to send Lender payments marked "paid in full",
"without recourse", or similar language. If Borrower sends such a payment,
Lender may accept it without losing any of Lender's rights under this Note, and
Borrower will remain obligated to pay any further amount owed to Lender. All
written communications concerning disputed amounts, including any check or other
payment instrument that indicates that the payment constitutes "payment in full"
of the amount owed or that is tendered with other conditions or limitations or
as full satisfaction of a disputed amount must be mailed or delivered to:
LASALLE BANK NATIONAL ASSOCIATION, MAIN OFFICE, 135 SOUTH LASALLE STREET,
CHICAGO, IL 60603.

INTEREST AFTER DEFAULT. Upon default, including failure to pay upon final
maturity, Lender, at its option, may, if permitted under applicable law,
increase the variable interest rate on this Note to 2.000 percentage points over
the Index. The interest rate will not exceed the maximum rate permitted by
applicable law.

DEFAULT. Each of the following shall constitute an event of default ("Event of
Default") under this Note:

        Payment Default. Borrower fails to make any payment when due under this
        Note.

        Other Defaults. Borrower fails to comply with or to perform any other
        term, obligation, covenant or condition contained in this Note or in any
        of the related documents or to comply with or to perform any term,
        obligation, covenant or condition contained in any other agreement
        between Lender and Borrower.

        Default in Favor of Third Parties. Borrower or any Grantor defaults
        under any loan, extension of credit, security agreement, purchase or
        sales agreement, or any other agreement, in favor of any other creditor
        or person that may materially affect any of Borrower's property or
        Borrower's ability to repay this Note or perform Borrower's obligations
        under this Note or any of the related documents.

        False Statements. Any warranty, representation or statement made or
        furnished to Lender by Borrower or on Borrower's behalf under this Note
        or the related documents is false or misleading in any material respect,
        either now or at the time made or furnished or becomes false or
        misleading at any time thereafter.

        Insolvency. The dissolution or termination of Borrower's existence as a
        going business, the insolvency of Borrower, the appointment of a
        receiver for any part of Borrower's property, any assignment for the
        benefit of creditors, any type of creditor workout, or the commencement
        of any proceeding under any bankruptcy or insolvency laws by or against
        Borrower.

        Creditor or Forfeiture Proceedings. Commencement of foreclosure or
        forfeiture proceedings, whether by judicial proceeding, self-help,
        repossession or any other method, by any creditor of Borrower or by any
        governmental agency against any collateral securing the loan. This
        includes a garnishment of any of Borrower's accounts, including deposit
        accounts, with Lender. However, this Event of Default shall not apply if
        there is a good faith dispute by Borrower as to the validity or
        reasonableness of the claim which is the basis of the creditor or
        forfeiture proceeding and if Borrower gives Lender written notice of the
        creditor or forfeiture proceeding and deposits with Lender monies or a
        surety bond for the creditor or forfeiture proceeding, in an amount
        determined by Lender, in its sole discretion, as being an adequate
        reserve or bond for the dispute.

        Events Affecting Guarantor. Any of the preceding events occurs with
        respect to any guarantor, endorser, surety, or accommodation party of
        any of the indebtedness or any guarantor, endorser, surety, or
        accommodation party dies or becomes incompetent, or revokes or disputes
        the validity of, or liability under, any guaranty of the indebtedness
        evidenced by this Note.

        Change In Ownership. Any change in ownership of twenty-five percent
        (25%) or more of the common stock of Borrower.

        Adverse Change. A material adverse change occurs in Borrower's financial
        condition, or Lender believes the prospect of payment or performance of
        this Note is impaired.

        Insecurity. Lender in good faith believes itself insecure.

LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid principal
balance on this Note and all accrued unpaid interest immediately due, and then
Borrower will pay that amount.

ATTORNEYS' FEES; EXPENSES. Lender may hire or pay someone else to help collect
this Note if Borrower does not pay. Borrower will pay Lender that amount. This
includes, subject to any limits under applicable law, Lender's attorneys' fees
and Lender's legal expenses, whether or not there is a lawsuit, including
attorneys' fees, expenses for bankruptcy proceedings (including efforts to
modify or vacate any automatic stay or injunction), and appeals. If not
prohibited by applicable law, Borrower also will pay any court costs, in
addition to all other sums provided by



                                 PROMISSORY NOTE
Loan No: NEW                       (Continued)                            Page 2

law.

JURY WAIVER. Lender and Borrower hereby waive the right to any jury trial in any
action, proceeding, or counterclaim brought by either Lender or Borrower against
the other.

GOVERNING LAW. This Note will be governed by, construed and enforced in
accordance with federal law and the laws of the State of Illinois. This Note has
been accepted by Lender in the State of Illinois.

CHOICE OF VENUE. If there is a lawsuit, Borrower agrees upon Lender's request to
submit to the jurisdiction of the courts of COOK County, State of Illinois.

DISHONORED ITEM FEE. Borrower will pay a fee to Lender of $20.00 if Borrower
makes a payment on Borrower's loan and the check or preauthorized charge with
which Borrower pays is later dishonored.

RIGHT OF SETOFF. To the extent permitted by applicable law, Lender reserves a
right of setoff in all Borrower's accounts with Lender (whether checking,
savings, or some other account). This includes all accounts Borrower holds
jointly with someone else and all accounts Borrower may open in the future.
However, this does not include any IRA or Keogh accounts, or any trust accounts
for which setoff would be prohibited by law. Borrower authorizes Lender, to the
extent permitted by applicable law, to charge or setoff all sums owing on the
indebtedness against any and all such accounts.

LINE OF CREDIT. This Note evidences a revolving line of credit. Advances under
this Note may be requested either orally or in writing by Borrower or as
provided in this paragraph. Lender may, but need not, require that all oral
requests be confirmed in writing. All communications, instructions, or
directions by telephone or otherwise to Lender are to be directed to Lender's
office shown above. The following persons currently are authorized to request
advances and authorize payments under the line of credit until Lender receives
from Borrower, at Lender's address shown above, written notice of revocation of
their authority: Larry D. Huffman, President & CEO of KANKAKEE BANCORP, INC.;
and /or Ronald J. Walters, Treasurer & CFO of KANKAKEE BANCORP, INC. Borrower
agrees to be liable for all sums either: (A) advanced in accordance with the
instructions of an authorized person or (B) credited to any of Borrower's
accounts with Lender. The unpaid principal balance owing on this Note at any
time may be evidenced by endorsements on this Note or by Lender's internal
records, including daily computer print-outs. Lender will have no obligation to
advance funds under this Note if: (A) Borrower or any guarantor is in default
under the terms of this Note or any agreement that Borrower or any guarantor has
with Lender, including any agreement made in connection with the signing of this
Note; (B) Borrower or any guarantor ceases doing business or is insolvent; (C)
any guarantor seeks, claims or otherwise attempts to limit, modify or revoke
such guarantor's guarantee of this Note or any other loan with Lender; (D)
Borrower has applied funds provided pursuant to this Note for purposes other
than those authorized by Lender; or (E) Lender in good faith believes itself
insecure.

NON-USE FEE. Borrower shall pay to Lender a non-use fee equal to .25% times the
maximum principal amount of this Note minus the daily average of the aggregate
outstanding principal amount of the loan. The non-use fee shall be calculated on
the basis of a year consisting of 360 days for actual days elapsed and shall be
payable quarterly in arrears on the 28th day of each May, August, November and
at maturity.

LIBOR RIDER. An exhibit, titled "Interest Rate Rider," is attached to this Note
and by this reference is made a part of this Note just as if all the provisions,
terms and conditions of the Exhibit had been fully set forth in this Note.

SUCCESSOR INTERESTS. The terms of this Note shall be binding upon Borrower, and
upon Borrower's heirs, personal representatives, successors and assigns, and
shall inure to the benefit of Lender and its successors and assigns.

GENERAL PROVISIONS. Lender may delay or forgo enforcing any of its rights or
remedies under this Note without losing them. Borrower and any other person who
signs, guarantees or endorses this Note, to the extent allowed by law, waive
presentment, demand for payment, and notice of dishonor. Upon any change in the
terms of this Note, and unless otherwise expressly stated in writing, no party
who signs this Note, whether as maker, guarantor, accommodation maker or
endorser, shall be released from liability. All such parties agree that Lender
may renew or extend (repeatedly and for any length of time) this loan or release
any party or guarantor or collateral; or impair, fail to realize upon or perfect
Lender's security interest in the collateral; and take any other action deemed
necessary by Lender without the consent of or notice to anyone. All such parties
also agree that Lender may modify this loan without the consent of or notice to
anyone other than the party with whom the modification is made. The obligations
under this Note are joint and several.

PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF
THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER AGREES TO
THE TERMS OF THE NOTE.

BORROWER ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THIS PROMISSORY NOTE.

BORROWER:

KANKAKEE BANCORP, INC.

                                                                
By: /s/ Larry D. Huffman                                           By: /s/ Ronald J. Walters
   -------------------------------------------------                  --------------------------------------------
   Larry D. Huffman, President & CEO of KANKAKEE                      /or Ronald J. Walters, Treasurer & CFO of
   BANCORP, INC.                                                      KANKAKEE BANCORP, INC.



   LASER PRO Lending. Ver. 5.21.00.003 Copr. Harland Financial Solutions, Inc.
   1997, 2003. All Rights Reserved. - IL C:\APPS\CFI\LPL\C4O.FC TR-12402 PR-44



                               INTEREST RATE RIDER

Borrower:  KANKAKEE BANCORP, INC.     Lender:  LASALLE BANK NATIONAL ASSOCIATION
           310 S. Schuyler Avenue              MAIN OFFICE
           Kankakee, IL  60901                 135 SOUTH LASALLE STREET
                                               CHICAGO, IL 60603

This INTEREST RATE RIDER is attached to and by this reference is made a part of
the Promissory Note, dated February 28, 2003, and executed in connection with a
loan or other financial accommodations between LASALLE BANK NATIONAL ASSOCIATION
and KANKAKEE BANCORP, INC.

        Capitalized words used herein without definition have the respective
meanings assigned to such terms in the Note.

        Notwithstanding anything to the contrary in the Note, the following
provisions shall apply to the Note as of fully set forth therein. In the event
of a conflict between the Note provisions and the provisions of this Rider, the
provisions of this Rider shall prevail.

        The outstanding principal amount of the Note shall bear interest, at
Borrower's option, at the Index (as defined in the Note) or at "Adjusted LIBOR"
(as hereinafter defined). Payments of interest computed at the index shall be
payable in accordance with the Note. Prepayments of principal bearing interest
at the index may be made in accordance with the Note.

        Each portion of the outstanding principal balance of the Note which
bears interest at "Adjusted LIBOR" (hereinafter defined). "Adjusted LIBOR" means
a rate of interest equal to one and three fourths of one percent (1.75%) per
annum in excess of the per annum rate of interest at which U.S. dollar deposits
in an amount comparable to the amount of the relevant LIBOR Loan and for a
period equal to the relevant "Interest Period" (hereinafter defined) are offered
generally to Lender (rounded upward if necessary, to the nearest 1/16 of 1.00%)
in the London Interbank Eurodollar market at 11:00 a.m. (London time) two
banking days prior to the commencement of each Interest Period, such rate to
remain fixed for such Interest Period. "Interest Period" shall mean successive
one, two or three month periods as selected from time to time by Borrower by
notice given to Lender not less than three banking days prior to the first day
of each respective Interest Period; provided that: (i) each such one, two or
three month period occurring after such initial period shall commence on the day
on which the next preceding period expires; (ii) the final Interest Period shall
be such that its expiration occurs on or before the stated maturity date of the
Note; and (iii) if for any reason Borrower shall fail to select timely a period,
then it shall be deemed to have selected the Index. Interest on each LIBOR Loan
shall be payable on the last banking day of each Interest Period with respect
thereto, commencing on the first such date to occur after the date hereof, at
maturity, after maturity on demand, and on the date of any payment hereon on the
amount paid. Borrower hereby further promises to pay to the order of Lender, on
demand, interest on the unpaid principal amount hereof after maturity (whether
by acceleration or otherwise) at the rate most recently borne by such LIBOR Loan
plus 2%.

        Lender's determination of Adjusted LIBOR as provided above shall be
conclusive, absent manifest error. Furthermore, if Lender determines, in good
faith (which determination shall be conclusive, absent manifest error), prior to
the commencement of any Interest Period that (a) U.S. dollar deposits of
sufficient amount and maturity for funding any LIBOR Loan are not available to
Lender in the London Interbank Eurodollar market in the ordinary course of
business, or (b) by reason of circumstances affecting the London Interbank
Eurodollar market, adequate and fair means do not exist for ascertaining the
rate of interest to be applicable to the relevant LIBOR Loan, Lender shall
promptly notify Borrower and such LIBOR Loan shall automatically convert on the
last day of its then-current Interest Period to a loan bearing interest at the
Index.

        If, after the date hereof, the introduction of, or any change in any
applicable law, treaty, rule, regulation or guideline or in the interpretation
or administration thereof by any governmental authority or any central bank or
other fiscal, monetary or other authority having jurisdiction over Lender or its
lending office (a "Regulatory Change"), shall, in the opinion of counsel to
Lender, makes it unlawful for Lender to make or maintain any LIBOR Loan
evidenced hereby, then Lender shall promptly notify Borrower and such LIBOR Loan
shall automatically convert on the last day of its then-current Interest Period
to a loan bearing interest at the Index.

        If, for any reason, any LIBOR Loan is paid prior to the last banking day
of its then-current Interest Period, Borrower agrees to indemnify Lender against
any loss (including any loss on redeployment of the funds repaid), cost or
expense incurred by Lender as a result of such prepayment.

        If any Regulatory Change (whether or not having the force of law) shall
(a) impose, modify or deem applicable any assessment, reserve, special deposit
or similar requirement against assets held by, or deposits in or for the account
of or loans by, or any other acquisition of funds or disbursements by, Lender;
(b) subject Lender or any LIBOR Loan to any tax, duty, charge, stamp tax or fee
or change the basis of taxation of payments to Lender of principal or interest
due from Borrower to Lender hereunder (other than a change in the taxation of
the overall net income of Lender); or (c) impose on Lender any other condition
regarding such LIBOR Loan or Lender's funding thereof, and Lender shall
determine (which determination shall be conclusive, absent manifest error) that
the result of the foregoing is to increase the cost to Lender of making or
maintaining such LIBOR Loan or to reduce the amount of principal or interest
received by Lender hereunder, then Borrower shall pay to Lender, on demand, such
additional amounts as Lender shall, from time to time, determine are sufficient
to compensate and indemnify Lender for such increased cost or reduced amount.

Ver. 109704.

THIS INTEREST RATE RIDER IS EXECUTED ON FEBRUARY 28, 2003.

BORROWER:

KANKAKEE BANCORP, INC.

By: /s/ Larry D. Huffman
   -------------------------------------------------
   Larry D. Huffman, President & CEO of KANKAKEE
   BANCORP, INC.

 By: Ronald J. Walters
    ------------------------------------------------
    /or Ronald J. Walters, Treasurer & CFO of
    KANKAKEE BANCORP, INC.

   LASER PRO Lending. Ver. 5.21.00.003 Copr. Harland Financial Solutions, Inc.
   1997, 2003. All Rights Reserved. - IL C:\APPS\CFI\LPL\C4O.FC TR-12402 PR-44



                           COMMERCIAL PLEDGE AGREEMENT

Grantor:   KANKAKEE BANCORP, INC.     Lender:  LASALLE BANK NATIONAL ASSOCIATION
           310 S. Schuyler Avenue              MAIN OFFICE
           Kankakee, IL  60901                 135 SOUTH LASALLE STREET
                                               CHICAGO, IL  60603

THIS COMMERCIAL PLEDGE AGREEMENT dated February 28, 2003, is made and executed
between KANKAKEE BANCORP, INC. ("Grantor") and LASALLE BANK NATIONAL ASSOCIATION
("Lender").

GRANT OF SECURITY INTEREST. For valuable consideration, Grantor grants to Lender
a security interest in the Collateral to secure the Indebtedness and agrees that
Lender shall have the rights stated in this Agreement with respect to the
Collateral, in addition to all other rights which Lender may have by law.

COLLATERAL DESCRIPTION. The word "Collateral" as used in this Agreement means
all of Grantor's property (however owned if more than one), in the possession
of, or subject to the control of, Lender (or in the possession of, or subject to
the control of, a third party subject to the control of Lender), whether
existing now or later and whether tangible or intangible in character, including
without limitation each and all of the following:

        100% of the common stock of KFS Bank, F.S.B. (formerly Kankakee Federal
        Savings) and any stock splits, substitutions, proceeds or dividends
        thereof

In addition, the word "Collateral" includes all of Grantor's property (however
owned), in the possession of, or subject to the control of, Lender (or in the
possession of, or subject to the control of, a third party subject to the
control of Lender), whether now or hereafter existing and whether tangible or
intangible in character, including without limitation each of the following:

        (A) All property to which Lender acquires title or documents of title.

        (B) All property assigned to Lender.

        (C) All promissory notes, bills of exchange, stock certificates, bonds,
        investment property, savings passbooks, time certificates of deposit,
        insurance policies, and all other instruments and evidences of an
        obligation.

        (D) All records relating to any of the property described in this
        Collateral section, whether in the form a of writing, microfilm,
        microfiche, or electronic media.

        (E) All Income and Proceeds from the Collateral as defined herein.

RIGHT OF SETOFF. To the extent permitted by applicable law, Lender reserves a
right of setoff in all Grantor's accounts with Lender (whether checking,
savings, or some other account). This includes all accounts Grantor holds
jointly with someone else and all accounts Grantor may open in the future.
However, this does not include any IRA or Keogh accounts, or any trust accounts
for which setoff would be prohibited by law. Grantor authorizes Lender, to the
extent permitted by applicable law, to charge or setoff all sums owing on the
Indebtedness against any and all such accounts.

REPRESENTATIONS AND WARRANTIES WITH RESPECT TO THE COLLATERAL. Grantor
represents and warrants to Lender that:

        Ownership. Grantor is the lawful owner of the Collateral free and clear
        of all security interests, liens, encumbrances, registered pledges,
        adverse claims, and any other claims of others except as disclosed to
        and accepted by Lender in writing prior to execution of this Agreement.

        Right to Pledge. Grantor has the full right, power and authority to
        enter into this Agreement and to pledge the Collateral.

        Authority; Binding Effect. Grantor has the full right, power and
        authority to enter into this Agreement and to grant a security interest
        in the Collateral to Lender. This Agreement is binding upon Grantor as
        well as Grantor's successors and assigns, and is legally enforceable in
        accordance with its terms. The foregoing representations and warranties,
        and all other representations and warranties contained in this Agreement
        are and shall be continuing in nature and shall remain in full force and
        effect until such time as this Agreement is terminated or cancelled as
        provided herein.

        No Further Assignment. Grantor has not, and shall not, sell, assign,
        transfer, encumber or otherwise dispose of any of Grantor's rights in
        the Collateral except as provided in this Agreement.

        No Defaults. There are no defaults existing under the Collateral, and
        there are no offsets or counterclaims to the same. Grantor will strictly
        and promptly perform each of the terms, conditions, covenants and
        agreements, if any, contained in the Collateral which are to be
        performed by Grantor.

        No Violation. The execution and delivery of this Agreement will not
        violate any law or agreement governing Grantor or to which Grantor is a
        party, and its certificate or articles of incorporation and bylaws do
        not prohibit any term or condition of this Agreement.

        Financing Statements. Grantor authorizes Lender to file a UCC-1
        financing statement, or alternatively, a copy of this Agreement to
        perfect Lender's security interest. At Lender's request, Grantor
        additionally agrees to sign all other documents that are necessary to
        perfect, protect, and continue Lender's security interest in the
        Property. Grantor will pay all filing fees, title transfer fees, and
        other fees and costs involved unless prohibited by law or unless Lender
        is required by law to pay such fees and costs. Grantor irrevocably
        appoints Lender to execute financing statements and documents of title
        in Grantor's name and to execute all documents necessary to transfer
        title if there is a default. Lender may file a copy of this Agreement as
        a financing statement. If Grantor changes Grantor's name or address, or
        the name or address of any person granting a security interest under
        this Agreement changes, Grantor will promptly notify the Lender of such
        change.

LENDER'S RIGHTS AND OBLIGATIONS WITH RESPECT TO THE COLLATERAL. Lender may hold
the Collateral until all Indebtedness has been paid and satisfied. Thereafter
Lender may deliver the Collateral to Grantor or to any other owner of the
Collateral. Lender shall have the following rights in addition to all other
rights Lender may have by law:

        Maintenance and Protection of Collateral. Lender may, but shall not be
        obligated to, take such steps as it deems necessary or desirable to
        protect, maintain, insure, control, receive, or manage the Collateral,
        including paying of any liens or claims against the Collateral. This may
        include such things as hiring other people, such as attorneys,
        appraisers or other experts. Lender may charge Grantor for any cost
        incurred in so doing. When applicable law provides more than one method
        of perfection of Lender's security interest, Lender may choose the
        method(s) to be used. If the Collateral consists of stock, bonds or
        other securities for which no certificate has been issued, Grantor
        agrees, at Lender's request, either to request issuance of an
        appropriate certificate or to give instructions on Lender's forms to the
        issuer, transfer agent, mutual fund company, or broker, as the case may
        be, to record on its books or records Lender's security interest in the
        Collateral.



                           COMMERCIAL PLEDGE AGREEMENT
Loan No: NEW                       (Continued)                            Page 2

        Income and Proceeds from the Collateral. Lender may receive all Income
        and Proceeds and add it to the Collateral. Grantor agrees to deliver to
        Lender immediately upon receipt, in the exact form received and without
        commingling with other property, all Income and Proceeds from the
        Collateral which may be received by, paid, or delivered to Grantor or
        for Grantor's account, whether as an addition to, in discharge of, in
        substitution of, or in exchange for any of the Collateral.

        Application of Cash. At Lender's option, Lender may apply any cash,
        whether included in the Collateral or received as Income and Proceeds or
        through liquidation, sale, retirement, split up, dividend, distribution,
        or other disposition of the Collateral, to the satisfaction of the
        Indebtedness or such portion thereof as Lender shall choose, whether or
        not matured.

        Transactions with Others. Lender may (1) extend time for payment or
        other performance, (2) grant a renewal or change in terms or conditions,
        or (3) compromise, compound or release any obligation, with any one or
        more Obligors, endorsers, or Guarantors of the Indebtedness as Lender
        deems advisable, without obtaining the prior written consent of Grantor,
        and no such act or failure to act shall affect Lender's rights against
        Grantor or the Collateral.

        All Collateral Secures Indebtedness. All Collateral shall be security
        for the Indebtedness, whether the Collateral is located at one or more
        offices or branches of Lender. This will be the case whether or not the
        office or branch where Grantor obtained Grantor's loan knows about the
        Collateral or relies upon the Collateral as security.

        Collection of Collateral. Lender at Lender's option may, but need not,
        collect the Income and Proceeds directly from the Obligors. Grantor
        authorizes and directs the Obligors, if Lender decides to collect the
        Income and Proceeds, to pay and deliver to Lender all Income and
        Proceeds from the Collateral and to accept Lender's receipt for the
        payments.

        Power of Attorney. Grantor irrevocably appoints Lender as Grantor's
        attorney-in-fact, with full power of substitution, (a) to demand,
        collect, receive, receipt for, sue and recover all Income and Proceeds
        and other sums of money and other property which may now or hereafter
        become due, owing or payable from the Obligors in accordance with the
        terms of the Collateral; (b) to execute, sign and endorse any and all
        instruments, receipts, checks, drafts and warrants issued in payment for
        the Collateral; (c) to settle or compromise any and all claims arising
        under the Collateral, and in the place and stead of Grantor, execute and
        deliver Grantor's release and acquittance for Grantor; (d) to file any
        claim or claims or to take any action or institute or take part in any
        proceedings, either in Lender's own name or in the name of Grantor, or
        otherwise, which in the discretion of Lender may seem to be necessary or
        advisable; and (e) to execute in Grantor's name and to deliver to the
        Obligors on Grantor's behalf, at the time and in the manner specified by
        the Collateral, any necessary instruments or documents.

        Perfection of Security Interest. Upon Lender's request, Grantor will
        deliver to Lender any and all of the documents evidencing or
        constituting the Collateral. When applicable law provides more than one
        method of perfection of Lender's security interest, Lender may choose
        the method(s) to be used. Upon Lender's request, Grantor will sign and
        deliver any writings necessary to perfect Lender's security interest. If
        any of the Collateral consists of investment property for which no
        certificate has been issued, Grantor agrees, at Lender's option, either
        to request issuance of an appropriate certificate or to execute
        appropriate instructions on Lender's forms instructing the issuer,
        transfer agent, mutual fund company, or broker, as the case may be, to
        record on its books or records, by book-entry, initial transaction
        statement, registered pledge, or otherwise, Lender's security interest
        in the Collateral. Grantor hereby appoints Lender as Grantor's
        irrevocable attorney-in-fact for the purpose of executing any documents
        necessary to perfect, amend, or to continue the security interest
        granted in this Agreement or to demand termination of filings of other
        secured parties. This is a continuing Security Agreement and will
        continue in effect even though all or any part of the Indebtedness is
        paid in full and even though for a period of time Grantor may not be
        indebted to Lender.

LENDER'S EXPENDITURES. If any action or proceeding is commenced that would
materially affect Lender's interest in the Collateral or if Grantor fails to
comply with any provision of this Agreement or any Related Documents, including
but not limited to Grantor's failure to discharge or pay when due any amounts
Grantor is required to discharge or pay under this Agreement or any Related
Documents, Lender on Grantor's behalf may (but shall not be obligated to) take
any action that Lender deems appropriate, including but not limited to
discharging or paying all taxes, liens, security interests, encumbrances and
other claims, at any time levied or placed on the Collateral and paying all
costs for insuring, maintaining and preserving the Collateral. All such
expenditures incurred or paid by Lender for such purposes will then bear
interest at the rate charged under the Note from the date incurred or paid by
Lender to the date of repayment by Grantor. All such expenses will become a part
of the Indebtedness and, at Lender's option, will (A) be payable on demand; (B)
be added to the balance of the Note and be apportioned among and be payable with
any installment payments to become due during either (1) the term of any
applicable insurance policy; or (2) the remaining term of the Note; or (C) be
treated as a balloon payment which will be due and payable at the Note's
maturity. The Agreement also will secure payment of these amounts. Such right
shall be in addition to all other rights and remedies to which Lender may be
entitled upon Default.

LIMITATIONS ON OBLIGATIONS OF LENDER. Lender shall use ordinary reasonable care
in the physical preservation and custody of the Collateral in Lender's
possession, but shall have no other obligation to protect the Collateral or its
value. In particular, but without limitation, Lender shall have no
responsibility for (A) any depreciation in value of the Collateral or for the
collection or protection of any Income and Proceeds from the Collateral, (B)
preservation of rights against parties to the Collateral or against third
persons, (C) ascertaining any maturities, calls, conversions, exchanges, offers,
tenders, or similar matters relating to any of the Collateral, or (D) informing
Grantor about any of the above, whether or not Lender has or is deemed to have
knowledge of such matters. Except as provided above, Lender shall have no
liability for depreciation or deterioration of the Collateral.

REINSTATEMENT OF SECURITY INTEREST. If payment is made by Grantor, whether
voluntarily or otherwise, or by guarantor or by any third party, on the
Indebtedness and thereafter Lender is forced to remit the amount of that payment
(A) to Grantor's trustee in bankruptcy or to any similar person under any
federal or state bankruptcy law or law for the relief of debtors, (B) by reason
of any judgment, decree or order of any court or administrative body having
jurisdiction over Lender or any of Lender's property, or (C) by reason of any
settlement or compromise of any claim made by Lender with any claimant
(including without limitation Grantor), the Indebtedness shall be considered
unpaid for the purpose of enforcement of this Agreement and this Agreement shall
continue to be effective or shall be reinstated, as the case may be,
notwithstanding any cancellation of this Agreement or of any note or other
instrument or agreement evidencing the Indebtedness and the Collateral will
continue to secure the amount repaid or recovered to the same extent as if that
amount never had been originally received by Lender, and Grantor shall be bound
by any judgment, decree, order, settlement or compromise relating to the
Indebtedness or to this Agreement.

DEFAULT. Each of the following shall constitute an Event of Default under this
Agreement:

        Payment Default. Grantor fails to make any payment when due under the
        Indebtedness.

        Other Defaults. Grantor fails to comply with or to perform any other
        term, obligation, covenant or condition contained in this Agreement or
        in any of the Related Documents or to comply with or to perform any
        term, obligation, covenant or condition contained in any other



                           COMMERCIAL PLEDGE AGREEMENT
Loan No: NEW                       (Continued)                            Page 3

        agreement between Lender and Grantor.

        Default in Favor of Third Parties. Should Grantor or any Grantor default
        under any loan, extension of credit, security agreement, purchase or
        sales agreement, or any other agreement, in favor of any other creditor
        or person that may materially affect any of Grantor's property or
        Grantor's or any Grantor's ability to repay the Indebtedness or perform
        their respective obligations under this Agreement or any of the Related
        Documents.

        False Statements. Any warranty, representation or statement made or
        furnished to Lender by Grantor or on Grantor's behalf under this
        Agreement or the Related Documents is false or misleading in any
        material respect, either now or at the time made or furnished or becomes
        false or misleading at any time thereafter.

        Defective Collateralization. This Agreement or any of the Related
        Documents ceases to be in full force and effect (including failure of
        any collateral document to create a valid and perfected security
        interest or lien) at any time and for any reason.

        Insolvency. The dissolution or termination of Grantor's existence as a
        going business, the insolvency of Grantor, the appointment of a receiver
        for any part of Grantor's property, any assignment for the benefit of
        creditors, any type of creditor workout, or the commencement of any
        proceeding under any bankruptcy or insolvency laws by or against
        Grantor.

        Creditor or Forfeiture Proceedings. Commencement of foreclosure or
        forfeiture proceedings, whether by judicial proceeding, self-help,
        repossession or any other method, by any creditor of Grantor or by any
        governmental agency against any collateral securing the Indebtedness.
        This includes a garnishment of any of Grantor's accounts, including
        deposit accounts, with Lender. However, this Event of Default shall not
        apply if there is a good faith dispute by Grantor as to the validity or
        reasonableness of the claim which is the basis of the creditor or
        forfeiture proceeding and if Grantor gives Lender written notice of the
        creditor or forfeiture proceeding and deposits with Lender monies or a
        surety bond for the creditor or forfeiture proceeding, in an amount
        determined by Lender, in its sole discretion, as being an adequate
        reserve or bond for the dispute.

        Events Affecting Guarantor. Any of the preceding events occurs with
        respect to guarantor, endorser, surety, or accommodation party of any of
        the Indebtedness or guarantor, endorser, surety, or accommodation party
        dies or becomes incompetent or revokes or disputes the validity of, or
        liability under, any Guaranty of the Indebtedness.

        Adverse Change. A material adverse change occurs in Grantor's financial
        condition, or Lender believes the prospect of payment or performance of
        the Indebtedness is impaired.

        Insecurity. Lender in good faith believes itself insecure.

        Failure to Register. Failure of the issuer, transfer agent, mutual fund
        company, or broker, as the case may be, to furnish a written statement
        to Lender recording Lender's security interest to the security, or the
        identification of any adverse claim that may interfere with Lender's
        security interest in the Collateral.

RIGHTS AND REMEDIES ON DEFAULT. If an Event of Default occurs under this
Agreement, at any time thereafter, Lender may exercise any one or more of the
following rights and remedies:

        Accelerate Indebtedness. Declare all Indebtedness, including any
        prepayment penalty which Grantor would be required to pay, immediately
        due and payable, without notice of any kind to Grantor.

        Collect the Collateral. Collect any of the Collateral and, at Lender's
        option and to the extent permitted by applicable law, retain possession
        of the Collateral while suing on the Indebtedness.

        Sell the Collateral. Sell the Collateral, at Lender's discretion, as a
        unit or in parcels, at one or more public or private sales. Unless the
        Collateral is perishable or threatens to decline speedily in value or is
        of a type customarily sold on a recognized market, Lender shall give or
        mail to Grantor, and other persons as required by law, notice at least
        ten (10) days in advance of the time and place of any public sale, or of
        the time after which any private sale may be made. However, no notice
        need be provided to any person who, after an Event of Default occurs,
        enters into and authenticates an agreement waiving that person's right
        to notification of sale. Grantor agrees that any requirement of
        reasonable notice as to Grantor is satisfied if Lender mails notice by
        ordinary mail addressed to Grantor at the last address Grantor has given
        Lender in writing. If a public sale is held, there shall be sufficient
        compliance with all requirements of notice to the public by a single
        publication in any newspaper of general circulation in the county where
        the Lender is located, setting forth the time and place of sale and a
        brief description of the property to be sold. Lender may be a purchaser
        at any public sale.

        Sell Securities. Sell any securities included in the Collateral in a
        manner consistent with applicable federal and state securities laws. If,
        because of restrictions under such laws, Lender is unable, or believes
        Lender is unable, to sell the securities in an open market transaction,
        Grantor agrees that Lender will have no obligation to delay sale until
        the securities can be registered. Then Lender may make a private sale to
        one or more persons or to a restricted group of persons, even though
        such sale may result in a price that is less favorable than might be
        obtained in an open market transaction. Such a sale will be considered
        commercially reasonable. If any securities held as Collateral are
        "restricted securities" as defined in the Rules of the Securities and
        Exchange Commission (such as Regulation D or Rule 144) or the rules of
        state securities departments under state "Blue Sky" laws, or if Grantor
        or any other owner of the Collateral is an affiliate of the issuer of
        the securities, Grantor agrees that neither Grantor, nor any member of
        Grantor's family, nor any other person signing this Agreement will sell
        or dispose of any securities of such issuer without obtaining Lender's
        prior written consent.

        Rights and Remedies with Respect to Investment Property, Financial
        Assets and Related Collateral. In addition to other rights and remedies
        granted under this Agreement and under applicable law, Lender may
        exercise any or all of the following rights and remedies: (1) register
        with any issuer or broker or other securities intermediary any of the
        Collateral consisting of investment property or financial assets
        (collectively herein, "investment property") in Lender's sole name or in
        the name of Lender's broker, agent or nominee; (2) cause any issuer,
        broker or other securities intermediary to deliver to Lender any of the
        Collateral consisting of securities, or investment property capable of
        being delivered; (3) enter into a control agreement or power of attorney
        with any issuer or securities intermediary with respect to any
        Collateral consisting of investment property, on such terms as Lender
        may deem appropriate, in its sole discretion, including without
        limitation, an agreement granting to Lender any of the rights provided
        hereunder without further notice to or consent by Grantor; (4) execute
        any such control agreement on Grantor's behalf and in Grantor's name,
        and hereby irrevocably appoints Lender as agent and attorney-in-fact,
        coupled with an interest, for the purpose of executing such control
        agreement on Grantor's behalf; (5) exercise any and all rights of Lender
        under any such control agreement or power of attorney; (6) exercise any
        voting, conversion, registration, purchase, option, or other rights with
        respect to any Collateral; (7) collect, with or without legal action,
        and issue receipts concerning any notes, checks, drafts, remittances or
        distributions that are paid or payable with respect to any Collateral
        consisting of investment property. Any control agreement entered with
        respect to any investment property shall contain the following
        provisions, at Lender's discretion. Lender



                           COMMERCIAL PLEDGE AGREEMENT
 Loan No: NEW                      (Continued)                            Page 4

        shall be authorized to instruct the issuer, broker or other securities
        intermediary to take or to refrain from taking such actions with respect
        to the investment property as Lender may instruct, without further
        notice to or consent by Grantor. Such actions may include without
        limitation the issuance of entitlement orders, account instructions,
        general trading or buy or sell orders, transfer and redemption orders,
        and stop loss orders. Lender shall be further entitled to instruct the
        issuer, broker or securities intermediary to sell or to liquidate any
        investment property, or to pay the cash surrender or account termination
        value with respect to any and all investment property, and to deliver
        all such payments and liquidation proceeds to Lender. Any such control
        agreement shall contain such authorizations as are necessary to place
        Lender in "control" of such investment collateral, as contemplated under
        the provisions of the Uniform Commercial Code, and shall fully authorize
        Lender to issue "entitlement orders" concerning the transfer,
        redemption, liquidation or disposition of investment collateral, in
        conformance with the provisions of the Uniform Commercial Code.

        Foreclosure. Maintain a judicial suit for foreclosure and sale of the
        Collateral.

        Transfer Title. Effect transfer of title upon sale of all or part of the
        Collateral. For this purpose, Grantor irrevocably appoints Lender as
        Grantor's attorney-in-fact to execute endorsements, assignments and
        instruments in the name of Grantor and each of them (if more than one)
        as shall be necessary or reasonable.

        Other Rights and Remedies. Have and exercise any or all of the rights
        and remedies of a secured creditor under the provisions of the Uniform
        Commercial Code, at law, in equity, or otherwise.

        Application of Proceeds. Apply any cash which is part of the Collateral,
        or which is received from the collection or sale of the Collateral, to
        reimbursement of any expenses, including any costs for registration of
        securities, commissions incurred in connection with a sale, attorneys'
        fees and court costs, whether or not there is a lawsuit and including
        any fees on appeal, incurred by Lender in connection with the collection
        and sale of such Collateral and to the payment of the Indebtedness of
        Grantor to Lender, with any excess funds to be paid to Grantor as the
        interests of Grantor may appear. Grantor agrees, to the extent permitted
        by law, to pay any deficiency after application of the proceeds of the
        Collateral to the Indebtedness.

        Election of Remedies. Except as may be prohibited by applicable law, all
        of Lender's rights and remedies, whether evidenced by this Agreement,
        the Related Documents, or by any other writing, shall be cumulative and
        may be exercised singularly or concurrently. Election by Lender to
        pursue any remedy shall not exclude pursuit of any other remedy, and an
        election to make expenditures or to take action to perform an obligation
        of Grantor under this Agreement, after Grantor's failure to perform,
        shall not affect Lender's right to declare a default and exercise its
        remedies.

MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Agreement:

        Amendments. This Agreement, together with any Related Documents,
        constitutes the entire understanding and agreement of the parties as to
        the matters set forth in this Agreement. No alteration of or amendment
        to this Agreement shall be effective unless given in writing and signed
        by the party or parties sought to be charged or bound by the alteration
        or amendment.

        Attorneys' Fees; Expenses. Grantor agrees to pay upon demand all of
        Lender's costs and expenses, including Lender's attorneys' fees and
        Lender's legal expenses, incurred in connection with the enforcement of
        this Agreement. Lender may hire or pay someone else to help enforce this
        Agreement, and Grantor shall pay the costs and expenses of such
        enforcement. Costs and expenses include Lender's attorneys' fees and
        legal expenses whether or not there is a lawsuit, including attorneys'
        fees and legal expenses for bankruptcy proceedings (including efforts to
        modify or vacate any automatic stay or injunction), appeals, and any
        anticipated post-judgment collection services. Grantor also shall pay
        all court costs and such additional fees as may be directed by the
        court.

        Caption Headings. Caption headings in this Agreement are for convenience
        purposes only and are not to be used to interpret or define the
        provisions of this Agreement.

        Governing Law. This Agreement will be governed by, construed and
        enforced in accordance with federal law and the laws of the State of
        Illinois. This Agreement has been accepted by Lender in the State of
        Illinois.

        Choice of Venue. If there is a lawsuit, Grantor agrees upon Lender's
        request to submit to the jurisdiction of the courts of COOK County,
        State of Illinois.

        No Waiver by Lender. Lender shall not be deemed to have waived any
        rights under this Agreement unless such waiver is given in writing and
        signed by Lender. No delay or omission on the part of Lender in
        exercising any right shall operate as a waiver of such right or any
        other right. A waiver by Lender of a provision of this Agreement shall
        not prejudice or constitute a waiver of Lender's right otherwise to
        demand strict compliance with that provision or any other provision of
        this Agreement. No prior waiver by Lender, nor any course of dealing
        between Lender and Grantor, shall constitute a waiver of any of Lender's
        rights or of any of Grantor's obligations as to any future transactions.
        Whenever the consent of Lender is required under this Agreement, the
        granting of such consent by Lender in any instance shall not constitute
        continuing consent to subsequent instances where such consent is
        required and in all cases such consent may be granted or withheld in the
        sole discretion of Lender.

        Notices. Any notice required to be given under this Agreement shall be
        given in writing, and shall be effective when actually delivered, when
        actually received by telefacsimile (unless otherwise required by law),
        when deposited with a nationally recognized overnight courier, or, if
        mailed, when deposited in the United States mail, as first class,
        certified or registered mail postage prepaid, directed to the addresses
        shown near the beginning of this Agreement. Any party may change its
        address for notices under this Agreement by giving formal written notice
        to the other parties, specifying that the purpose of the notice is to
        change the party's address. For notice purposes, Grantor agrees to keep
        Lender informed at all times of Grantor's current address. Unless
        otherwise provided or required by law, if there is more than one
        Grantor, any notice given by Lender to any Grantor is deemed to be
        notice given to all Grantors.

        Severability. If a court of competent jurisdiction finds any provision
        of this Agreement to be illegal, invalid, or unenforceable as to any
        circumstance, that finding shall not make the offending provision
        illegal, invalid, or unenforceable as to any other circumstance. If
        feasible, the offending provision shall be considered modified so that
        it becomes legal, valid and enforceable. If the offending provision
        cannot be so modified, it shall be considered deleted from this
        Agreement. Unless otherwise required by law, the illegality, invalidity,
        or unenforceability of any provision of this Agreement shall not affect
        the legality, validity or enforceability of any other provision of this
        Agreement.

        Successors and Assigns. Subject to any limitations stated in this
        Agreement on transfer of Grantor's interest, this Agreement shall be
        binding upon and inure to the benefit of the parties, their successors
        and assigns. If ownership of the Collateral becomes vested in a person
        other than Grantor, Lender, without notice to Grantor, may deal with
        Grantor's successors with reference to this Agreement and the
        Indebtedness by way of forbearance or extension without releasing
        Grantor from the obligations of this Agreement or liability under the
        Indebtedness.



                           COMMERCIAL PLEDGE AGREEMENT
Loan No: NEW                       (Continued)                            Page 5

        Time is of the Essence. Time is of the essence in the performance of
        this Agreement.

        Waive Jury. All parties to this Agreement hereby waive the right to any
        jury trial in any action, proceeding, or counterclaim brought by any
        party against any other party.

DEFINITIONS. The following capitalized words and terms shall have the following
meanings when used in this Agreement. Unless specifically stated to the
contrary, all references to dollar amounts shall mean amounts in lawful money of
the United States of America. Words and terms used in the singular shall include
the plural, and the plural shall include the singular, as the context may
require. Words and terms not otherwise defined in this Agreement shall have the
meanings attributed to such terms in the Uniform Commercial Code:

        Agreement. The word "Agreement" means this Commercial Pledge Agreement,
        as this Commercial Pledge Agreement may be amended or modified from time
        to time, together with all exhibits and schedules attached to this
        Commercial Pledge Agreement from time to time.

        Borrower. The word "Borrower" means KANKAKEE BANCORP, INC., and all
        other persons and entities signing the Note in whatever capacity.

        Collateral. The word "Collateral" means all of Grantor's right, title
        and interest in and to all the Collateral as described in the Collateral
        Description section of this Agreement.

        Default. The word "Default" means the Default set forth in this
        Agreement in the section titled "Default".

        Event of Default. The words "Event of Default" mean any of the events of
        default set forth in this Agreement in the default section of this
        Agreement.

        Grantor. The word "Grantor" means KANKAKEE BANCORP, INC..

        Guaranty. The word "Guaranty" means the guaranty from guarantor,
        endorser, surety, or accommodation party to Lender, including without
        limitation a guaranty of all or part of the Note.

        Income and Proceeds. The words "Income and Proceeds" mean all present
        and future income, proceeds, earnings, increases, and substitutions from
        or for the Collateral of every kind and nature, including without
        limitation all payments, interest, profits, distributions, benefits,
        rights, options, warrants, dividends, stock dividends, stock splits,
        stock rights, regulatory dividends, subscriptions, monies, claims for
        money due and to become due, proceeds of any insurance on the
        Collateral, shares of stock of different par value or no par value
        issued in substitution or exchange for shares included in the
        Collateral, whether voluntary or involuntary, by agreement or by
        operation of law, and all other property Grantor is entitled to receive
        on account of such Collateral, including accounts, documents,
        instruments, chattel paper, investment property, and general
        intangibles.

        Indebtedness. The word "Indebtedness" means the indebtedness evidenced
        by the Note or Related Documents, including all principal and interest
        together with all other indebtedness and costs and expenses for which
        Grantor is responsible under this Agreement or under any of the Related
        Documents, and all other obligations, debts and liabilities, plus
        interest thereon, of Borrower to Lender, or any one or more of them, as
        well as all claims by Lender against Borrower or any one or more of
        them, whether now existing or hereafter arising, whether related or
        unrelated to the purpose of the Note, whether voluntary or otherwise,
        whether due or not due, direct or indirect, absolute or contingent,
        liquidated or unliquidated and whether Borrower may be liable
        individually or jointly with others, whether obligated as guarantor,
        surety, accommodation party or otherwise, and whether recovery upon such
        amounts may be or hereafter may become barred by any statute of
        limitations, and whether the obligation to repay such amounts may be or
        hereafter may become otherwise unenforceable.

        Lender. The word "Lender" means LASALLE BANK NATIONAL ASSOCIATION, its
        successors and assigns.

        Note. The word "Note" means the Note executed by KANKAKEE BANCORP, INC.
        in the principal amount of $1,500,000.00 dated February 28, 2003,
        together with all renewals of, extensions of, modifications of,
        refinancings of, consolidations of, and substitutions for the note or
        credit agreement.

        Obligor. The word "Obligor" means without limitation any and all persons
        obligated to pay money or to perform some other act under the
        Collateral.

        Property. The word "Property" means all of Grantor's right, title and
        interest in and to all the Property as described in the "Collateral
        Description" section of this Agreement.

        Related Documents. The words "Related Documents" mean all promissory
        notes, credit agreements, loan agreements, environmental agreements,
        guaranties, security agreements, mortgages, deeds of trust, security
        deeds, collateral mortgages, and all other instruments, agreements and
        documents, whether now or hereafter existing, executed in connection
        with the Indebtedness.

GRANTOR HAS READ AND UNDERSTOOD ALL THE PROVISIONS OF THIS COMMERCIAL PLEDGE
AGREEMENT AND AGREES TO ITS TERMS. THIS AGREEMENT IS DATED FEBRUARY 28, 2003.

GRANTOR:

KANKAKEE BANCORP, INC.

                                                                
By: /s/ Larry D. Huffman                                           By: /s/ Ronald J. Walters
   -------------------------------------------------                  --------------------------------------------
   Larry D. Huffman, President & CEO of KANKAKEE                       /or Ronald J. Walters, Treasurer & CFO of
   BANCORP, INC.                                                       KANKAKEE BANCORP, INC.

EX-10.14

                                                                   EXHIBIT 10.14

[LOGO OF THE BOND MARKET ASSOCIATION]

MASTER REPURCHASE AGREEMENT

September 1996 Version

Dated as of

Between:       Salomon Smith Barney, Inc.

And            KANKAKEE FED SVGS BANK

1.   APPLICABILITY
     From time to time the parties hereto may enter into transactions in which
     one party ("Seller") agrees to transfer to the other ("Buyer") securities
     or other assets ("Securities") against the transfer of funds by Buyer, with
     a simultaneous agreement by Buyer to transfer to Seller such Securities at
     a date certain or on demand, against the transfer of funds by Seller. Each
     such transaction shall be referred to herein as a "Transaction" and, unless
     otherwise agreed in writing, shall be governed by this Agreement, including
     any supplemental terms or conditions contained in Annex I hereto and in any
     other annexes identified herein or therein as applicable hereunder.

2.   DEFINITIONS
     (a)  "Act of Insolvency", with respect to any party, (i) the commencement
          by such party as debtor of any case or proceeding under any
          bankruptcy, insolvency, reorganization, liquidation, moratorium,
          dissolution, delinquency or similar law, or such party seeking the
          appointment or election of a receiver, conservator, trustee, custodian
          or similar official for such party or any substantial part of its
          property, or the convening of any meeting of creditors for purposes of
          commencing any such case or proceeding or seeking such an appointment
          or election, (ii) the commencement of any such case or proceeding
          against such party, or another seeking such an appointment or
          election, or the filing against a party of an application for a
          protective decree under the provisions of the Securities Investor
          Protection Act of 1970, which (A) is consented to or not timely
          contested by such party, (B) results in the entry of an order for
          relief, such an appointment or election, the issuance of such a
          protective decree or the entry of an order having a similar effect, or
          (C) is not dismissed within 15 days, (iii) the making by such party of
          a general assignment for the benefit of creditors, or (iv) the
          admission in writing by such party of such party's inability to pay
          such party's debts as they become due;

     (b)  "Additional Purchased Securities", Securities provided by Seller to
          Buyer pursuant to Paragraph 4(a) hereof;



     (c)  "Buyer's Margin Amount", with respect to any Transaction as of any
          date, the amount obtained by application of the Buyer's Margin
          Percentage to the Repurchase Price for such Transaction as of such
          date;

     (d)  "Buyer's Margin Percentage", with respect to any Transaction as of any
          date, a percentage (which may be equal to the Seller's Margin
          Percentage) agreed to by Buyer and Seller or, in the absence of any
          such agreement, the percentage obtained by dividing the Market Value
          of the Purchased Securities on the Purchase Date by the Purchase Price
          on the Purchase Date for such Transaction;

     (e)  "Confirmation", the meaning specified in Paragraph 3(b) hereof;

     (f)  "Income", with respect to any Security at any time, any principal
          thereof and all interest, dividends or other distributions thereon;

     (g)  "Margin Deficit", the meaning specified in Paragraph 4(a) hereof;

     (h)  "Margin Excess", the meaning specified in Paragraph 4(b) hereof;

     (i)  "Margin Notice Deadline", the time agreed to by the parties in the
          relevant Confirmation, Annex I hereto or otherwise as the deadline for
          giving notice requiring same-day satisfaction of margin maintenance
          obligations as provided in Paragraph 4 hereof (or, in the absence of
          any such agreement, the deadline for such purposes established in
          accordance with market practice);

     (j)  "Market Value", with respect to any Securities as of any date, the
          price for such Securities on such date obtained from a generally
          recognized source agreed to by the parties or the most recent closing
          bid quotation from such a source, plus accrued Income to the extent
          not included therein (other than any Income credited or transferred
          to, or applied to the obligations of, Seller pursuant to Paragraph 5
          hereof) as of such date (unless contrary to market practice for such
          Securities);

     (k)  "Price Differential", with respect to any Transaction as of any date,
          the aggregate amount obtained by daily application of the Pricing Rate
          for such Transaction to the Purchase Price for such Transaction on a
          360 day per year basis for the actual number of days during the period
          commencing on (and including) the Purchase Date for such Transaction
          and ending on (but excluding) the date of determination (reduced by
          any amount of such Price Differential previously paid by Seller to
          Buyer with respect to such Transaction);

     (l)  "Pricing Rate", the per annum percentage rate for determination of the
          Price Differential;

     (m)  "Prime Rate", the prime rate of U.S. commercial banks as published in
          The Wall Street Journal (or, if more than one such rate is published,
          the average of such rates);

     (n)  "Purchase Date", the date on which Purchased Securities are to be
          transferred by Seller to Buyer;

2 . September 1996 . Master Repurchase Agreement



     (o)  "Purchase Price", (i) on the Purchase Date, the price at which
          Purchased Securities are transferred by Seller to Buyer, and (ii)
          thereafter, except where Buyer and Seller agree otherwise, such price
          increased by the amount of any cash transferred by Buyer to Seller
          pursuant to Paragraph 4(b) hereof and decreased by the amount of any
          cash transferred by Seller to Buyer pursuant to Paragraph 4(a) hereof
          or applied to reduce Seller's obligations under clause (ii) of
          Paragraph 5 hereof;

     (p)  "Purchased Securities", the Securities transferred by Seller to Buyer
          in a Transaction hereunder, and any Securities substituted therefor in
          accordance with Paragraph 9 hereof. The term "Purchased Securities"
          with respect to any Transaction at any time also shall include
          Additional Purchased Securities delivered pursuant to Paragraph 4(a)
          hereof and shall exclude Securities returned pursuant to Paragraph
          4(b) hereof;

     (q)  "Repurchase Date", the date on which Seller is to repurchase the
          Purchased Securities from Buyer, including any date determined by
          application of the provisions of Paragraph 3(c) or 11 hereof;

     (r)  "Repurchase Price", the price at which Purchased Securities are to be
          transferred from Buyer to Seller upon termination of a Transaction,
          which will be determined in each case (including Transactions
          terminable upon demand) as the sum of the Purchase Price and the Price
          Differential as of the date of such determination;

     (s)  "Seller's Margin Amount", with respect to any Transaction as of any
          date, the amount obtained by application of the Seller's Margin
          Percentage to the Repurchase Price for such Transaction as of such
          date;

     (t)  "Seller's Margin Percentage", with respect to any Transaction as of
          any date, a percentage (which may be equal to the Buyer's Margin
          Percentage) agreed to by Buyer and Seller or, in the absence of any
          such agreement, the percentage obtained by dividing the Market Value
          of the Purchased Securities on the Purchase Date by the Purchase Price
          on the Purchase Date for such Transaction.

3.   INITIATION; CONFIRMATION; TERMINATION
     (a)  An agreement to enter into a Transaction may be made orally or in
          writing at the initiation of either Buyer or Seller. On the Purchase
          Date for the Transaction, the Purchased Securities shall be
          transferred to Buyer or its agent against the transfer of the Purchase
          Price to an account of Seller.

     (b)  Upon agreeing to enter into a Transaction hereunder, Buyer or Seller
          (or both), as shall be agreed, shall promptly deliver to the other
          party a written confirmation of each Transaction (a "Confirmation").
          The Confirmation shall describe the Purchased Securities (including
          CUSIP number, if any), identify Buyer and Seller and set forth (i) the
          Purchase Date, (ii) the Purchase Price, (iii) the Repurchase Date,
          unless the Transaction is to be terminable on demand, (iv) the Pricing
          Rate or Repurchase Price applicable to the Transaction, and (v) any
          additional terms or conditions of the Transaction not inconsistent
          with this Agreement. The Confirmation, together with this Agreement,
          shall constitute conclusive evidence of the terms agreed between Buyer
          and Seller with respect to the Transaction to which the Confirmation
          relates, unless

                                3 . September 1996 . Master Repurchase Agreement



          with respect to the Confirmation specific objection is made promptly
          after receipt thereof. In the event of any conflict between the terms
          of such Confirmation and this Agreement, this Agreement shall prevail.

     (c)  In the case of Transactions terminable upon demand, such demand shall
          be made by Buyer or Seller, no later than such time as is customary in
          accordance with market practice, by telephone or otherwise on or prior
          to the business day on which such termination will be effective. On
          the date specified in such demand, or on the date fixed for
          termination in the case of Transactions having a fixed term,
          termination of the Transaction will be effected by transfer to Seller
          or its agent of the Purchased Securities and any Income in respect
          thereof received by Buyer (and not previously credited or transferred
          to, or applied to the obligations of, Seller pursuant to Paragraph 5
          hereof) against the transfer of the Repurchase Price to an account of
          Buyer.

4.   MARGIN MAINTENANCE
     (a)  If at any time the aggregate Market Value of all Purchased Securities
          subject to all Transactions in which a particular party hereto is
          acting as Buyer is less than the aggregate Buyer's Margin Amount for
          all such Transactions (a "Margin Deficit"), then Buyer may by notice
          to Seller require Seller in such Transactions, at Seller's option, to
          transfer to Buyer cash or additional Securities reasonably acceptable
          to Buyer ("Additional Purchased Securities"), so that the cash and
          aggregate Market Value of the Purchased Securities, including any such
          Additional Purchased Securities, will thereupon equal or exceed such
          aggregate Buyer's Margin Amount (decreased by the amount of any Margin
          Deficit as of such date arising from any Transactions in which such
          Buyer is acting as Seller).

     (b)  If at any time the aggregate Market Value of all Purchased Securities
          subject to all Transactions in which a particular party hereto is
          acting as Seller exceeds the aggregate Seller's Margin Amount for all
          such Transactions at such time (a "Margin Excess"), then Seller may by
          notice to Buyer require Buyer in such Transactions, at Buyer's option,
          to transfer cash or Purchased Securities to Seller, so that the
          aggregate Market Value of the Purchased Securities, after deduction of
          any such cash or any Purchased Securities so transferred, will
          thereupon not exceed such aggregate Seller's Margin Amount (increased
          by the amount of any Margin Excess as of such date arising from any
          Transactions in which such Seller is acting as Buyer).

     (c)  If any notice is given by Buyer or Seller under subparagraph (a) or
          (b) of this Paragraph at or before the Margin Notice Deadline on any
          business day, the party receiving such notice shall transfer cash or
          Additional Purchased Securities as provided in such subparagraph no
          later than the close of business in the relevant market on such day.
          If any such notice is given after the Margin Notice Deadline, the
          party receiving such notice shall transfer such cash or Securities no
          later than the close of business in the relevant market on the next
          business day following such notice.

     (d)  Any cash transferred pursuant to this Paragraph shall be attributed to
          such Transactions as shall be agreed upon by Buyer and Seller.

4 . September 1996 . Master Repurchase Agreement



     (e)  Seller and Buyer may agree, with respect to any or all Transactions
          hereunder, that the respective rights of Buyer or Seller (or both)
          under subparagraphs (a) and (b) of this Paragraph may be exercised
          only where a Margin Deficit or Margin Excess, as the case may be,
          exceeds a specified dollar amount or a specified percentage of the
          Repurchase Prices for such Transactions (which amount or percentage
          shall be agreed to by Buyer and Seller prior to entering into any such
          Transactions).

     (f)  Seller and Buyer may agree, with respect to any or all Transactions
          hereunder, that the respective rights of Buyer and Seller under
          subparagraphs (a) and (b) of this Paragraph to require the elimination
          of a Margin Deficit or a Margin Excess, as the case may be, may be
          exercised whenever such a Margin Deficit or Margin Excess exists with
          respect to any single Transaction hereunder (calculated without regard
          to any other Transaction outstanding under this Agreement).

5.   INCOME PAYMENTS
     Seller shall be entitled to receive an amount equal to all Income paid or
     distributed on or in respect of the Securities that is not otherwise
     received by Seller, to the full extent it would be so entitled if the
     Securities had not been sold to Buyer. Buyer shall, as the parties may
     agree with respect to any Transaction (or, in the absence of any such
     agreement, as Buyer shall reasonably determine in its discretion), on the
     date such Income is paid or distributed either (i) transfer to or credit to
     the account of Seller such Income with respect to any Purchased Securities
     subject to such Transaction or (ii) with respect to Income paid in cash,
     apply the Income payment or payments to reduce the amount, if any, to be
     transferred to Buyer by Seller upon termination of such Transaction. Buyer
     shall not be obligated to take any action pursuant to the preceding
     sentence (A) to the extent that such action would result in the creation of
     a Margin Deficit, unless prior thereto or simultaneously therewith Seller
     transfers to Buyer cash or Additional Purchased Securities sufficient to
     eliminate such Margin Deficit, or (B) if an Event of Default with respect
     to Seller has occurred and is then continuing at the time such Income is
     paid or distributed.

6.   SECURITY INTEREST
     Although the parties intend that all Transactions hereunder be sales and
     purchases and not loans, in the event any such Transactions are deemed to
     be loans, Seller shall be deemed to have pledged to Buyer as security for
     the performance by Seller of its obligations under each such Transaction,
     and shall be deemed to have granted to Buyer a security interest in, all of
     the Purchased Securities with respect to all Transactions hereunder and all
     Income thereon and other proceeds thereof.

7.   PAYMENT AND TRANSFER
     Unless otherwise mutually agreed, all transfers of funds hereunder shall be
     in immediately available funds. All Securities transferred by one party
     hereto to the other party (i) shall be in suitable form for transfer or
     shall be accompanied by duly executed instruments of transfer or assignment
     in blank and such other documentation as the party receiving possession may
     reasonably request, (ii) shall be transferred on the book-entry system of a
     Federal Reserve Bank, or (iii) shall be transferred by any other method
     mutually acceptable to Seller and Buyer.

                                5 . September 1996 . Master Repurchase Agreement



8.   SEGREGATION OF PURCHASED SECURITIES
     To the extent required by applicable law, all Purchased Securities in the
     possession of Seller shall be segregated from other securities in its
     possession and shall be identified as subject to this Agreement.
     Segregation may be accomplished by appropriate identification on the books
     and records of the holder, including a financial or securities intermediary
     or a clearing corporation. All of Seller's interest in the Purchased
     Securities shall pass to Buyer on the Purchase Date and, unless otherwise
     agreed by Buyer and Seller, nothing in this Agreement shall preclude Buyer
     from engaging in repurchase transactions with the Purchased Securities or
     otherwise selling, transferring, pledging or hypothecating the Purchased
     Securities, but no such transaction shall relieve Buyer of its obligations
     to transfer Purchased Securities to Seller pursuant to Paragraph 3, 4 or 11
     hereof, or of Buyer's obligation to credit or pay Income to, or apply
     Income to the obligations of, Seller pursuant to Paragraph 5 hereof.

          Required Disclosure for Transactions in Which the Seller Retains
          Custody of the Purchased Securities
          Seller is not permitted to substitute other securities for those
          subject to this Agreement and therefore must keep Buyer's securities
          segregated at all times, unless in this Agreement Buyer grants Seller
          the right to substitute other securities. If Buyer grants the right to
          substitute, this means that Buyer's securities will likely be
          commingled with Seller's own securities during the trading day. Buyer
          is advised that, during any trading day that Buyer's securities are
          commingled with Seller's securities, they [will]* [may]** be subject
          to liens granted by Seller to [its clearing bank]* [third parties]**
          and may be used by Seller for deliveries on other securities
          transactions. Whenever the securities are commingled, Seller's ability
          to resegregate substitute securities for Buyer will be subject to
          Seller's ability to satisfy [the clearing] *[any]** lien or to obtain
          substitute securities.

          * Language to be used under 17 C.F.R. B403.4(e) if Seller is a
          government securities broker or dealer other than a financial
          institution.
          ** Language to be used under 17 C.F.R. B403.5(d) if Seller is a
          financial institution.

9.   SUBSTITUTION
     (a)  Seller may, subject to agreement with and acceptance by Buyer,
          substitute other Securities for any Purchased Securities. Such
          substitution shall be made by transfer to Buyer of such other
          Securities and transfer to Seller of such Purchased Securities. After
          substitution, the substituted Securities shall be deemed to be
          Purchased Securities.

     (b)  In Transactions in which Seller retains custody of Purchased
          Securities, the parties expressly agree that Buyer shall be deemed,
          for purposes of subparagraph (a) of this Paragraph, to have agreed to
          and accepted in this Agreement substitution by Seller of other
          Securities for Purchased Securities; provided, however, that such
          other Securities shall have a Market Value at least equal to the
          Market Value of the Purchased Securities for which they are
          substituted.

6 . September 1996 . Master Repurchase Agreement



10.  REPRESENTATIONS
     Each of Buyer and Seller represents and warrants to the other that (i) it
     is duly authorized to execute and deliver this Agreement, to enter into
     Transactions contemplated hereunder and to perform its obligations
     hereunder and has taken all necessary action to authorize such execution,
     delivery and performance, (ii) it will engage in such Transactions as
     principal (or, if agreed in writing, in the form of an annex hereto or
     otherwise, in advance of any Transaction by the other party hereto, as
     agent for a disclosed principal), (iii) the person signing this Agreement
     on its behalf is duly authorized to do so on its behalf (or on behalf of
     any such disclosed principal), (iv) it has obtained all authorizations of
     any governmental body required in connection with this Agreement and the
     Transactions hereunder and such authorizations are in full force and effect
     and (v) the execution, delivery and performance of this Agreement and the
     Transactions hereunder will not violate any law, ordinance, charter, by-law
     or rule applicable to it or any agreement by which it is bound or by which
     any of its assets are affected. On the Purchase Date for any Transaction
     Buyer and Seller shall each be deemed to repeat all the foregoing
     representations made by it.

11.  EVENTS OF DEFAULT
     In the event that (i) Seller fails to transfer or Buyer fails to purchase
     Purchased Securities upon the applicable Purchase Date, (ii) Seller fails
     to repurchase or Buyer fails to transfer Purchased Securities upon the
     applicable Repurchase Date, (iii) Seller or Buyer fails to comply with
     Paragraph 4 hereof, (iv) Buyer fails, after one business day's notice, to
     comply with Paragraph 5 hereof, (v) an Act of Insolvency occurs with
     respect to Seller or Buyer, (vi) any representation made by Seller or Buyer
     shall have been incorrect or untrue in any material respect when made or
     repeated or deemed to have been made or repeated, or (vii) Seller or Buyer
     shall admit to the other its inability to, or its intention not to, perform
     any of its obligations hereunder (each an "Event of Default"):

     (a)  The nondefaulting party may, at its option (which option shall be
          deemed to have been exercised immediately upon the occurrence of an
          Act of Insolvency), declare an Event of Default to have occurred
          hereunder and, upon the exercise or deemed exercise of such option,
          the Repurchase Date for each Transaction hereunder shall, if it has
          not already occurred, be deemed immediately to occur (except that, in
          the event that the Purchase Date for any Transaction has not yet
          occurred as of the date of such exercise or deemed exercise, such
          Transaction shall be deemed immediately canceled). The nondefaulting
          party shall (except upon the occurrence of an Act of Insolvency) give
          notice to the defaulting party of the exercise of such option as
          promptly as practicable.

     (b)  In all Transactions in which the defaulting party is acting as Seller,
          if the nondefaulting party exercises or is deemed to have exercised
          the option referred to in subparagraph (a) of this Paragraph, (i) the
          defaulting party's obligations in such Transactions to repurchase all
          Purchased Securities, at the Repurchase Price therefor on the
          Repurchase Date determined in accordance with subparagraph (a) of
          this Paragraph, shall thereupon become immediately due and payable,
          (ii) all Income paid after such exercise or deemed exercise shall be
          retained by the nondefaulting party and applied to the aggregate
          unpaid Repurchase Prices and any other amounts owing by the defaulting
          party hereunder, and (iii) the defaulting party shall immediately
          deliver to the nondefaulting party any Purchased Securities subject to
          such Transactions then in the defaulting party's possession or
          control.

                                7 . September 1996 . Master Repurchase Agreement



     (c)  In all Transactions in which the defaulting party is acting as Buyer,
          upon tender by the nondefaulting party of payment of the aggregate
          Repurchase Prices for all such Transactions, all right, title and
          interest in and entitlement to all Purchased Securities subject to
          such Transactions shall be deemed transferred to the nondefaulting
          party, and the defaulting party shall deliver all such Purchased
          Securities to the nondefaulting party.

     (d)  If the nondefaulting party exercises or is deemed to have exercised
          the option referred to in subparagraph (a) of this Paragraph, the
          nondefaulting party, without prior notice to the defaulting party,
          may:

          (i)  as to Transactions in which the defaulting party is acting as
               Seller, (A) immediately sell, in a recognized market (or
               otherwise in a commercially reasonable manner) at such price or
               prices as the nondefaulting party may reasonably deem
               satisfactory, any or all Purchased Securities subject to such
               Transactions and apply the proceeds thereof to the aggregate
               unpaid Repurchase Prices and any other amounts owing by the
               defaulting party hereunder or (B) in its sole discretion elect,
               in lieu of selling all or a portion of such Purchased Securities,
               to give the defaulting party credit for such Purchased Securities
               in an amount equal to the price therefor on such date, obtained
               from a generally recognized source or the most recent closing bid
               quotation from such a source, against the aggregate unpaid
               Repurchase Prices and any other amounts owing by the defaulting
               party hereunder; and

          (ii) as to Transactions in which the defaulting party is acting as
               Buyer, (A) immediately purchase, in a recognized market (or
               otherwise in a commercially reasonable manner) at such price or
               prices as the nondefaulting party may reasonably deem
               satisfactory, securities ("Replacement Securities") of the same
               class and amount as any Purchased Securities that are not
               delivered by the defaulting party to the nondefaulting party as
               required hereunder or (B) in its sole discretion elect, in lieu
               of purchasing Replacement Securities, to be deemed to have
               purchased Replacement Securities at the price therefor on such
               date, obtained from a generally recognized source or the most
               recent closing offer quotation from such a source.

          Unless otherwise provided in Annex I, the parties acknowledge and
          agree that (1) the Securities subject to any Transaction hereunder are
          instruments traded in a recognized market, (2) in the absence of a
          generally recognized source for prices or bid or offer quotations for
          any Security, the nondefaulting party may establish the source
          therefor in its sole discretion and (3) all prices, bids and offers
          shall be determined together with accrued Income (except to the extent
          contrary to market practice with respect to the relevant Securities).

     (e)  As to Transactions in which the defaulting party is acting as Buyer,
          the defaulting party shall be liable to the nondefaulting party for
          any excess of the price paid (or deemed paid) by the nondefaulting
          party for Replacement Securities over the Repurchase Price for the
          Purchased Securities replaced thereby and for any amounts payable by
          the defaulting party under Paragraph 5 hereof or otherwise hereunder.

     (f)  For purposes of this Paragraph 11, the Repurchase Price for each
          Transaction hereunder in respect of which the defaulting party is
          acting as Buyer shall not

8 . September 1996 . Master Repurchase Agreement



          increase above the amount of such Repurchase Price for such
          Transaction determined as of the date of the exercise or deemed
          exercise by the nondefaulting party of the option referred to in
          sub-paragraph (a) of this Paragraph,

     (g)  The defaulting party shall be liable to the nondefaulting party for
          (i) the amount of all reasonable legal or other expenses incurred by
          the nondefaulting party in connection with or as a result of an Event
          of Default, (ii) damages in an amount equal to the cost (including all
          fees, expenses and commissions) of entering into replacement
          transactions and entering into or terminating hedge transactions in
          connection with or as a result of an Event of Default, and (iii) any
          other loss, damage, cost or expense directly arising or resulting from
          the occurrence of an Event of Default in respect of a Transaction.

     (h)  To the extent permitted by applicable law, the defaulting party shall
          be liable to the non-defaulting party for interest on any amounts
          owing by the defaulting party hereunder, from the date the defaulting
          party becomes liable for such amounts hereunder until such amounts are
          (i) paid in full by the defaulting party or (ii) satisfied in full by
          the exercise of the nondefaulting party's rights hereunder. Interest
          on any sum payable by the defaulting party to the nondefaulting party
          under this Paragraph 1l(h) shall be at a rate equal to the greater of
          the Pricing Rate for the relevant Transaction or the Prime Rate.

     (i)  The nondefaulting party shall have, in addition to its rights
          hereunder, any rights otherwise available to it under any other
          agreement or applicable law.

12.  SINGLE AGREEMENT
     Buyer and Seller acknowledge that, and have entered hereinto and will enter
     into each Transaction hereunder in consideration of and in reliance upon
     the fact that, all Transactions hereunder constitute a single business and
     contractual relationship and have been made in consideration of each other.
     Accordingly, each of Buyer and Seller agrees (i) to perform all of its
     obligations in respect of each Transaction hereunder, and that a default in
     the performance of any such obligations shall constitute a default by it in
     respect of all Transactions hereunder, (ii) that each of them shall be
     entitled to set off claims and apply property held by them in respect of
     any Transaction against obligations owing to them in respect of any other
     Transactions hereunder and (iii) that payments, deliveries and other
     transfers made by either of them in respect of any Transaction shall be
     deemed to have been made in consideration of payments, deliveries and other
     transfers in respect of any other Transactions hereunder, and the
     obligations to make any such payments, deliveries and other transfers may
     be applied against each other and netted.

13.  NOTICES AND OTHER COMMUNICATIONS
     Any and all notices, statements, demands or other communications hereunder
     may be given by a party to the other by mail, facsimile, telegraph,
     messenger or otherwise to the address specified in Annex II hereto, or so
     sent to such party at any other place specified in a notice of change of
     address hereafter received by the other. All notices, demands and requests
     hereunder may be made orally, to be confirmed promptly in writing, or by
     other communication as specified in the preceding sentence.

                                9 . September 1996 . Master Repurchase Agreement



14.  ENTIRE AGREEMENT; SEVERABILITY
     This Agreement shall supersede any existing agreements between the parties
     containing general terms and conditions for repurchase transactions. Each
     provision and agreement herein shall be treated as separate and independent
     from any other provision or agreement herein and shall be enforceable
     notwithstanding the unenforceability of any such other provision or
     agreement.

15.  NON-ASSIGNABILITY; TERMINATION
     (a)  The rights and obligations of the parties under this Agreement and
          under any Transaction shall not be assigned by either party without
          the prior written consent of the other party, and any such assignment
          without the prior written consent of the other party shall be null and
          void. Subject to the foregoing, this Agreement and any Transactions
          shall be binding upon and shall inure to the benefit of the parties
          and their respective successors and assigns. This Agreement may be
          terminated by either party upon giving written notice to the other,
          except that this Agreement shall, notwithstanding such notice, remain
          applicable to any Transactions then outstanding.

     (b)  Subparagraph (a) of this Paragraph 15 shall not preclude a party from
          assigning, charging or otherwise dealing with all or any part of its
          interest in any sum payable to it under Paragraph 11 hereof.

16.  GOVERNING LAW
     This Agreement shall be governed by the laws of the State of New York
     without giving effect to the conflict of law principles thereof.

17.  NO WAIVERS, ETC.
     No express or implied waiver of any Event of Default by either party shall
     constitute a waiver of any other Event of Default and no exercise of any
     remedy hereunder by any party shall constitute a waiver of its right to
     exercise any other remedy hereunder. No modification or waiver of any
     provision of this Agreement and no consent by any party to a departure
     here-from shall be effective unless and until such shall be in writing and
     duly executed by both of the parties hereto. Without limitation on any of
     the foregoing, the failure to give a notice pursuant to Paragraph 4(a) or
     4(b) hereof will not constitute a waiver of any right to do so at a later
     date.

18.  USE OF EMPLOYEE PLAN ASSETS
     (a)  If assets of an employee benefit plan subject to any provision of the
          Employee Retirement Income Security Act of 1974 ("ERISA") are intended
          to be used by either party hereto (the "Plan Party") in a Transaction,
          the Plan Party shall so notify the other party prior to the
          Transaction. The Plan Party shall represent in writing to the other
          party that the Transaction does not constitute a prohibited
          transaction under ERISA or is otherwise exempt therefrom, and the
          other party may proceed in reliance thereon but shall not be required
          so to proceed.

10 . September 1996 . Master Repurchase Agreement



     (b)  Subject to the last sentence of subparagraph (a) of this Paragraph,
          any such Transaction shall proceed only if Seller furnishes or has
          furnished to Buyer its most recent available audited statement of its
          financial condition and its most recent subsequent unaudited statement
          of its financial condition.

     (c)  By entering into a Transaction pursuant to this Paragraph, Seller
          shall be deemed (i) to represent to Buyer that since the date of
          Seller's latest such financial statements, there has been no material
          adverse change in Seller's financial condition which Seller has not
          disclosed to Buyer, and (ii) to agree to provide Buyer with future
          audited and unaudited statements of its financial condition as they
          are issued, so long as it is a Seller in any out-standing Transaction
          involving a Plan Party.

19.  INTENT
     (a)  The parties recognize that each Transaction is a "repurchase
          agreement" as that term is defined in Section 101 of Title 11 of the
          United States Code, as amended (except insofar as the type of
          Securities subject to such Transaction or the term of such Transaction
          would render such definition inapplicable), and a "securities
          contract" as that term is defined in Section 741 of Title 11 of the
          United States Code, as amended (except insofar as the type of assets
          subject to such Transaction would render such definition
          inapplicable).

     (b)  It is understood that either party's right to liquidate Securities
          delivered to it in connection with Transactions hereunder or to
          exercise any other remedies pursuant to Paragraph 11 hereof is a
          contractual right to liquidate such Transaction as described in
          Sections 555 and 559 of Title 11 of the United States Code, as
          amended.

     (c)  The parties agree and acknowledge that if a party hereto is an
          "insured depository institution," as such term is defined in the
          Federal Deposit Insurance Act, as amended ("FDIA"), then each
          Transaction hereunder is a "qualified financial contract," as that
          term is defined in FDIA and any rules, orders or policy statements
          thereunder (except insofar as the type of assets subject to such
          Transaction would render such definition inapplicable).

     (d)  It is understood that this Agreement constitutes a "netting contract"
          as defined in and subject to Title IV of the Federal Deposit Insurance
          Corporation Improvement Act of 1991 ("FDICIA") and each payment
          entitlement and payment obligation under any Transaction hereunder
          shall constitute a "covered contractual payment entitlement" or
          "covered contractual payment obligation", respectively, as defined in
          and subject to FDICIA (except insofar as one or both of the parties is
          not a "financial institution" as that term is defined in FDICIA).

20.  DISCLOSURE RELATING TO CERTAIN FEDERAL PROTECTIONS
     The parties acknowledge that they have been advised that:

     (a)  in the case of Transactions in which one of the parties is a broker or
          dealer registered with the Securities and Exchange Commission ("SEC")
          under Section 15 of the Securities Exchange Act of 1934 ("1934 Act"),
          the Securities Investor Protection

                               11 . September 1996 . Master Repurchase Agreement



          Corporation has taken the position that the provisions of the
          Securities Investor Protection Act of 1970 ("SIPA") do not protect
          the other party with respect to any Transaction hereunder;

     (b)  in the case of Transactions in which one of the parties is a
          government securities broker or a government securities dealer
          registered with the SEC under Section 15C of the 1934 Act, SIPA will
          not provide protection to the other party with respect to any
          Transaction hereunder; and

     (c)  in the case of Transactions in which one of the parties is a financial
          institution, funds held by the financial institution pursuant to a
          Transaction hereunder are not a deposit and therefore are not insured
          by the Federal Deposit Insurance Corporation or the National Credit
          Union Share Insurance Fund, as applicable.

Salomon Smith Barney Inc.                        KANKAKEE FED SVGS BANK.

By:                                              By: /s/ Ronald J. Walters
    ----------------------------                     ---------------------------
Name: Barrie Ringelheim                          Name: Ronald J. Walters
                                                       -------------------------
Title: Director                                  Title: SR. V.P. & Treasurer
                                                        ------------------------
Date:                                            Date:         3/13/2002
     ---------------------------                       -------------------------

12 . September 1996 . Master Repurchase Agreement



                                     ANNEX I
                        SUPPLEMENTAL TERMS AND CONDITIONS

     This Annex I supplements and forms a part of the Master Repurchase
Agreement dated as of 3/13/2002 (the "Agreement") between Salomon Smith Barney
Inc. and KANKAKEE FED SVGS BNK. Capitalized terms used but not defined in this
Annex I shall have the meanings ascribed to them in the Agreement.

1.   Other Applicable Annexes. In addition to this Annex I and Annex II, the
     following Annexes and any Schedules thereto shall form a part of the
     Agreement and shall be applicable thereunder.

     Schedule B (ERISA Representations)

2.   Definitions. For purposes of the Agreement and this Annex I, the following
     terms shall have the following meanings:

     "Margin Notice Deadline" means 10:00 A.M. New York time.

     "Business Day" or "business day", with respect to any Transaction (other
     than an International Transaction) hereunder, a day on which regular
     trading may occur in the principal market for the Purchased Securities
     subject to such Transaction, which includes shortened trading days, days on
     which trades are permitted to occur but do not in fact occur and days on
     which the Purchased Securities are subject to percentage of movement or
     volume limitations, provided, however, that for purposes of calculating
     Market Value, such term shall mean a day on which regular trading occurs in
     the principal market for the assets the value of which is being determined.
     Notwithstanding the foregoing, (i) for purposes of Paragraph 4 of the
     Agreement, "business day" shall mean any day on which regular trading
     occurs in the principal market for any Purchased Securities or for any
     assets constituting Additional Purchased Securities under any outstanding
     Transaction hereunder and "next business day" shall mean the next day on
     which a transfer of Additional Purchased Securities may be effected in
     accordance with Paragraph 7 of the Agreement, and (ii) in no event shall a
     Saturday or Sunday be considered a business day.

3.   Margin Maintenance. Notwithstanding Paragraph 4 of the Agreement, with
     respect to any International Transaction (other than Transactions in
     English government securities and Transactions in which the Purchase Price
     and Repurchase Price are denominated in U.S. Dollars or which are cleared
     and settled in the U.S.), transfers required to be made by Seller of cash
     or Additional Purchased Securities and Buyer of cash or Purchased
     Securities pursuant to Paragraph 4 of the Agreement shall be made by the
     close of business on the next business day following the business day on
     which notice is given, in the case of notice given at or before the Margin
     Notice Deadline, or by the close of business on the second business day
     following the business day on which notice is given, in the case of notice
     given after the Margin Notice Deadline.

4.   PURCHASE PRICE MAINTENANCE.
     (a)  The parties agree that in any Transaction hereunder whose term extends
          over an income payment date for the Securities subject to such
          transaction, Buyer shall on the date such income is paid transfer to
          or credit to the account of Seller an amount equal to such income
          payment or payments pursuant to Paragraph 5(I) and shall not apply the
          income payment or payments to reduce the amount to be transferred to
          Buyer or Seller upon termination of the Transaction pursuant to
          Paragraph 5(II) of the Agreement.

     (b)  Notwithstanding the definition of Purchase Price in Paragraph 2 of the
          Agreement and the provisions of Paragraph 4 of the Agreement, the
          parties agree (i) that the Purchase Price will not be increased or
          decreased by the amount of any cash transferred by one party to the
          other pursuant to Paragraph 4 of the Agreement and (ii) that transfer
          of such cash shall be treated as if it constituted a transfer of
          Securities (with a Market Value equal to the U.S. dollar amount of
          such cash) pursuant to Paragraph 4(a) or (b), as the case may be
          (including for purposes of the definition of "Additional Purchased
          Securities").

                                       13a



5.   SUBMISSION TO JURISDICTION AND WAIVER OF IMMUNITY.
     Each party irrevocably and unconditionally (I) submits to the exclusive
     jurisdiction of any United States Federal or New York State court sitting
     in Manhattan, and any appellate court from any such court, solely for the
     purpose of any suit, action or proceeding brought to enforce its
     obligations under the Agreement or relating in any way to the Agreement or
     any Transaction under the Agreement and (II) waives, to the fullest extent
     it may effectively do so, any defense of an inconvenient forum to the
     maintenance of such action or proceeding in any such court and any right of
     jurisdiction on account of its place of residence or domicilo.

     To the extent that either party has or hereafter may acquire any immunity
     (sovereign or otherwise) from any legal action, suit or proceeding, from
     jurisdiction of any court or from set off or any legal process (whether
     service or notice, attachment prior to judgment, attachment in aid of
     execution of judgment, execution of judgment or otherwise) with respect to
     itself or any of its property, such party hereby irrevocably waives and
     agrees not to plead or claim such immunity in respect of any action brought
     to enforce its obligations under the Agreement or relating in any way to
     the Agreement or any Transaction under the Agreement.

     Each party hereto hereby irrevocably waives all right to trial by jury in
     any action or proceeding arising out of or relating to this Agreement or
     any Transaction hereunder.

6.   CROSS DEFAULT.
     Each party to this agreement (such party, "Party X") agrees that, upon the
     insolvency of Party X or any of its affiliates or the default of Party X or
     any of its affiliates under any transaction with the other party hereto or
     any of such other party's affiliates (such other party or any of its
     affiliates, a "Non-Defaulting Party"), each Non-Defaulting Party may,
     without prior notice to Party X: (a) liquidate any transaction between
     Party X and any Non-Defaulting Party (which liquidation may include the
     conversion of amounts denominated in multiple currencies into a single
     currency if deemed necessary or desirable by the Non-Defaulting Party), (b)
     reduce any amounts due and owing to Party X under any transaction between
     Party X and any Non-Defaulting Party by setting off against such amounts
     any amounts due and owing to a Non-Defaulting Party by Party X, and (c)
     treat all security for, and all amounts due and owing to Party X under, any
     transaction between Party X and any Non-Defaulting Party as security for
     all transactions between Party X and any Non-Defaulting Party; provided,
     however, that the exercise of the remedies described in clauses (a), (b)
     and (c) above (or in any other similar provision in any agreement between
     the parties) shall be deemed to occur immediately subsequent to, but
     independent of, the exercise of any netting, liquidation, set-off or other
     similar provision contained in any master agreement between the parties;
     provided, further that each provision and agreement hereof shall be treated
     as independent from any other provision or agreement herein and shall be
     enforceable notwithstanding the unenforceability of any such other
     provision or agreement. For purposes of the foregoing, the term "affiliate"
     shall not include any entity that controls or is under common control with
     Salomon Smith Barney Holdings Inc., but in any event such term shall
     include Salomon Smith Barney Holdings Inc. and any entity controlled by it.

7.   SUBSTITUTIONS.
     (a)  In the case of any Transaction for which the Repurchase Date is other
          than the business day immediately following the Purchase Date and with
          respect to which Seller does not have any existing right to substitute
          substantially the same Securities for Purchased Securities, Seller
          shall have the right, subject to the proviso to this sentence, upon
          notice to Buyer, which notice shall be given at or prior to 10 A.M.
          New York time on such business day, to substitute substantially the
          same Securities for any Purchased Securities; provided, however, that
          Buyer may elect by the close of business on the business day notice is
          received, or by the close of the next business day if notice is given
          after 10 A.M. New York time on such day, not to accept such
          substitution. In the event such substitution is accepted by Buyer,
          such substitution shall be made by Seller's transfer to Buyer of such
          other Securities and Buyer's transfer to Seller of such Purchased
          Securities, and after substitution, the substituted Securities shall
          be deemed to be Purchased Securities. In the event Buyer elects not to
          accept such substitution, Buyer shall offer Seller the right to
          terminate the Transaction.

                                       13b



     (b)  In the event Seller exercises its right to substitute or terminate
          under sub-paragraph (a), Seller shall be obligated to pay to Buyer, by
          the close of the business day of such substitution or termination, as
          the case may be, an amount equal to (A) Buyer's actual cost (including
          all fees, expenses and commissions) of (i) entering into replacement
          transactions; (ii) entering into or terminating hedge transactions;
          and/or (iii) terminating transactions or substituting securities in
          like transactions with third parties in connection with or as a result
          of such substitution or termination, and (B) to the extent Buyer
          determines not to enter into replacement transactions, the loss
          incurred by Buyer directly arising or resulting from such substitution
          or termination. The foregoing amounts shall be solely determined and
          calculated by Buyer in good faith.

8.   "OPEN" TRANSACTIONS.
     Whenever the parties enter into a Transaction on an "open basis", it is
     understood that the Transaction will terminate on the next succeeding
     Business Day, and that on any day that a Transaction is terminating, the
     parties may enter into a new Transaction (which may be accomplished by
     resetting the rate) which will, itself, terminate on the next succeeding
     Business Day. In all cases, unless the parties have agreed otherwise,
     "open" Transactions will settle following termination in accordance with
     the normal timeframe determined in accordance with market practice.

9.   RESALE OF PURCHASED SECURITIES
     The parties hereto acknowledge that from time to time the Purchased
     Securities may consist of Securities that have not been registered under
     the United States Securities Act of 1933 (the "Securities Act").
     Accordingly, Buyer agrees that if any Purchased Securities consist of
     Securities that have not been registered under the Securities Act, Buyer
     will not resell or otherwise transfer such Purchased Securities except in
     accordance with Regulation S or Rule 144A or other available exemption
     under the Securities Act and in accordance with all applicable laws and
     regulations in each jurisdiction in which it offers, sells or delivers
     Purchased Securities. In addition, if any Purchased Securities consist of
     bearer debt securities issued by a non-U.S. entity and if Buyer resells or
     otherwise transfers any such obligations, Buyer agrees that it will do so
     only under procedures adequate to satisfy the restrictions of applicable
     U.S. Treasury regulations relating to an original issuance of bearer bonds.

10.  LIMITATION OF LIABILITY
     No party shall be required to pay or be liable to the other party for any
     consequential, indirect or punitive damages, opportunity costs or lost
     profits (whether or not arising from its negligence).

11.  In the event of any inconsistency between the provisions of this Annex and
     the provisions of the Master Repurchase Agreement attached hereto, the
     terms contained in this Annex shall prevail.

Salomon Smith Barney Inc.                        KANKAKEE FED SVGS BANK.

By:                                              By: /s/ Ronald J. Walters
   ------------------------                         -------------------------
Name:  Barrie L. Ringelheim                      Name:  Ronald J. Walters
Title: Director                                  Title: SR. V.P. & Treas.

                                       13c



                                    ANNEX II

             NAMES AND ADDRESSES FOR COMMUNICATIONS BETWEEN PARTIES

Contract Issues:

                            Salomon Smith Barney Inc.
                           Attention: Jason T. Sankey
                            Assistant Vice President
                         390 Greenwich Street, 4th Floor
                               New York, NY 10013
                             Telephone: 212-723-6251
                              Telefax: 212-723-8615

Operations Issues:

                            Salomon Smith Barney Inc.
                                   Ken Dasilva
                      333 West 34/th/ Street - 4/th/ Floor
                               New York, NY 10001
                             Telephone: 212-615-9159

                                       14



                                   SCHEDULE B

This Schedule B sets forth additional terms and conditions governing
Transactions with parties that may involve "Plan Assets" as defined below.
Unless otherwise defined, capitalized terms used but not defined in this
Schedule shall have the meanings assigned in the Master Repurchase Agreement of
which this Schedule forms part (such agreement, together with this Schedule and
any other Annexes and Schedules or Exhibits attached thereto, shall be referred
to as the "Agreement").

1.   Paragraph 18 of the Master Repurchase Agreement is hereby deleted.

2.   ERISA Representations and Covenants. Each party represents and warrants
(which representations and warranties shall be deemed to be repeated upon
commencement of any Transaction and to continue for the duration of each such
Transaction) that the assets that are used in connection with the execution,
delivery and performance of this Agreement, or the Transactions entered pursuant
hereto, are not the assets of: (i) any employee benefit or other plan subject to
any provision of Title I of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"); (ii) a plan described in Section 4975 of the United States
Internal Revenue Code of 1986, as amended (the "Code"); (iii) an entity whose
underlying assets include "plan assets" by reason of United States Department of
Labor regulation section 2510.3-101 or otherwise; or (iv) a government plan that
is subject to any federal, state, or local law that is substantially similar to
the provisions of Section 406 of ERISA or Section 4975 of the Code (each a
"Plan").

3.   Change in Fund Character. If a party intends to enter into a Transaction
using the assets of any Plan (the "Plan Party"), the Plan Party shall notify the
other party (the "Non-Plan Party") in writing prior to the use of such Plan
assets for any purpose under this Agreement. In no event shall a Plan Party
enter into a Transaction using Plan assets under this Agreement, unless such
Plan Party amends this Schedule B (i) to disclose in writing the identity of any
such Plans and (ii) to represent and warrant to the satisfaction of the Non-Plan
Party that such Transaction will not constitute a prohibited transaction for
which no exemptive relief is available under ERISA and the reasons therefor. The
Non-Plan Party may enter into such Transaction involving the assets of any such
Plan in reliance upon such representations and warranties of the Plan Party but
shall not be required to so proceed.

4.   Indemnity. The Plan Party, Plan Party's Trustee, Investment advisor, or
named fiduciary, agrees to indemnify and hold the Non-Plan Party, the Non-Plan
Party's affiliates, successors and assigns and any director, officer, employee
or agent of any of the foregoing, harmless from and against, any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs and expenses, including but not limited to reasonable attorneys' fees and
disbursements, related to or arising out of any actions taken by the Non-Plan
Party in reliance upon the representations, warranties and agreements of the
Plan Party under this Schedule B. These indemnification obligations shall
survive the termination of this Agreement.

5.   Termination. If any of the provisions contained in this Schedule B are
breached by a Plan Party, the Non-Plan Party may terminate the Transactions that
are deemed, at the Non-Plan Party's sole discretion, to be in breach of this
Schedule B ("Affected Transactions"). The Plan Party shall pay the Non-Plan
Party a Breakage Fee for all Affected Transactions that are terminated before
their scheduled termination date. "Breakage Fee" shall mean, a fee equal to the
sum of (a) the cost to such Non-Plan Party (including all fees, expenses, and
commissions) of entering into replacement transactions and entering into or
terminating hedge transactions in connection with or as a result of the
termination of the Affected Transaction, and (b) any other loss, damage, cost or
expense directly arising or resulting from the termination of the Affected
Transactions that are incurred by such Non-Plan Party (other than losses or
costs for lost profits or lost opportunities), as determined by such Non-Plan
Party in a commercially reasonable manner, and (c) any other amount due and
payable by such Non-Plan Party to the Plan Party. The determination of the
Breakage Fee hereunder shall be made in accordance with market practice at the
side of the market of such Non-Plan Party.

[Counterparty]                          [Plan Party trustee, investment adviser,
                                        or named fiduciary]

By:_________________________            By: ____________________________
Title:______________________            Title: _________________________

EX-10.15

                                                                   Exhibit 10.15


                              CONSULTING AGREEMENT

         THIS CONSULTING AGREEMENT (this "Agreement") is made and entered into
as of June 2, 2003, by and between KANKAKEE BANCORP, INC., a Delaware
corporation (the "Company"), and RONALD J. WALTERS (the "Consultant").

                                    RECITALS

         WHEREAS, the Company and Aviston Financial Corporation have entered
into that certain Agreement and Plan of Merger as of May 27, 2003 (the "Merger
Agreement"); and

         WHEREAS, the Company desires the services that Mr. Walters may provide
during the period prior to the Closing (as defined in the Merger Agreement); and

         WHEREAS, the Consultant has agreed to provide his services to the
Company on the terms and conditions hereinafter set forth;

         NOW, THEREFORE, effective as of June 2, 2003, the Company and the
Consultant hereby agree as follows:

                                   AGREEMENTS

         1.   Engagement, Period of Engagement.

              (a) The Company offers to engage the Consultant and the Consultant
hereby accepts such engagement, to provide services to the Company as a
consultant for the period established under this Section 1 (the "Period of
Engagement"). The Period of Engagement commences on June 2, 2003 and shall end
on the earlier of the Closing or August 1, 2003, unless extended from month to
month in writing by the parties.

              (b) Notwithstanding anything contained herein to the contrary, the
Period of Engagement shall end upon any termination of this Agreement pursuant
to Section 5.

         2.   Services. During the Period of Engagement, the Consultant shall:

              (a) Provide the Company with assistance related to the Company's
financial statements, reporting, and any financial aspects of the transaction
governed by the Merger Agreement and on such other matters as are requested by
the Company; and

              (b) Serve as an officer and the "designated agent" of KFS
Insurance Agency, Inc.

         3.   Compensation. In consideration for any services to be provided
under Section 2, the Company shall pay to the Consultant a consulting fee of
five thousand dollars ($5,000.00) per month, payable within ten (10) business
days of the end of each month in which services are rendered hereunder by the
Consultant to the Company. Within five (5) business days of the end of each
month, the Consultant shall provide to the Company a report detailing the
services provided during the previous month by the Consultant pursuant to this
Agreement, such report to



be in form and content reasonably acceptable to the Company. The Company
contemplates that it will require at least thirty (30) hours per month of
Consultant's time under this Agreement.

         4.   Expenses. If in connection with the performance of service
hereunder at the request of the Company, the Consultant incurs out-of-pocket
costs for expenses for travel, meals and lodging or other reasonable expenses of
a type for which other providers of professional services to the Company would
be reimbursed by the Company, the Consultant shall be entitled to reimbursement
therefor by the Company in accordance with the reasonable standards and
procedures established by the Company and communicated to the Consultant.

         5.   Termination of Agreement. This Agreement and the Period of
Engagement established hereunder shall terminate immediately upon the occurrence
of any of the following events: (a) the Consultant's death; (b) the Consultant's
material breach of the Consultant's obligations under Section 2 and subsequent
failure to substantially cure such breach after notice of such breach; or (c)
the Consultant's voluntary termination, upon thirty (30) days written notice to
the Company, of this Agreement. Following the termination of this Agreement, the
Company shall have no further obligations hereunder. The provisions of Sections
6 and 7 shall survive the termination of this Agreement.

         6.   Nonsolicitation. In consideration of the compensation to be paid
to the Consultant pursuant to Section 3, the Consultant hereby covenants and
agrees that for a period of twelve (12) months following the termination of this
Agreement for any reason, the Consultant will not directly or indirectly
(including, without limitation, any action by any corporation, partnership or
other entity for which the Consultant acts as officer, employer, or consultant
or in which the Consultant directly or indirectly holds a shareholder or other
ownership position greater than five percent (5%)) offer employment to, hire,
engage or assist another in offering employment to, hiring or engaging (without
regard to whether it would be in competition with the Company's business) a
person who is or was an employee, commissioned sales person or consultant or who
performed similar services of or for the Company at any time during the then
preceding twelve (12) month period or undertake any business with or solicit the
business of any person, firm or company who shall have been a customer of the
Company during the then preceding twelve (12) month period, in any such case
without the prior written consent of the Company.

         7.   Confidential Information. The Consultant shall maintain
Confidential Information (as defined below) in strict confidence and secrecy and
shall not at any time, directly or indirectly, use, publish, make lists of,
communicate, divulge or disclose to any person or business entity or use for any
purpose any Confidential Information or assist any third parties in doing so,
except on behalf of and for the benefit of the Company. The Consultant agrees,
upon demand by the Company, to promptly return all Confidential Information
(including any copies, extracts thereof or materials reflecting any such
information) which is in the Consultant's possession.

         For purposes of this Agreement, "Confidential Information" shall
include, but not be limited to, materials, records, data or trade secrets
regarding the assets, condition, business, financial information, business
affairs, business matters or other matters related to the Company and to its
direct and indirect subsidiaries and affiliates which the Consultant has
knowledge of as

                                        2



a result of the Consultant's services for the Company. Confidential Information
shall not include information that becomes generally available to the public
other than as a result of disclosure by the Consultant. Nothing in this
Agreement modifies or reduces the Consultant's obligations to comply with
applicable laws related to trade secrets, confidential information or unfair
competition.

         8.   No Employment Relationship Created. The relationship between the
Company and the Consultant shall be that of client and independent contractor.
The Company shall not assume, and specifically disclaims, any obligations of an
employer to an employee which may exist under applicable law. The Consultant
shall be treated as an independent contractor for all purposes of federal, state
and local income taxes and payroll taxes and the Company shall report on the
appropriate IRS Form 1099 all compensation paid to the Consultant. The
Consultant shall be responsible for payment of all taxes, including federal,
state and local taxes, arising out of the Consultant's activities in accordance
with this Agreement, including by way of illustration, but not limitation,
federal and state personal income tax and social security tax, all as may be
required by applicable law or regulation. The Consultant shall have the full
authority to select the means, manner and method of performing the services to
be performed under this Agreement. The Consultant shall not be considered by
reason of the provisions of this Agreement or otherwise as being an employee of
the Company. The Consultant shall not be eligible to participate in any employee
benefit plans offered by the Company or any of its subsidiaries to their
respective employees.

         9.   Successors and Assigns. This Agreement will inure to the benefit
of and be binding upon the Consultant, the Consultant's legal representatives
and testate or intestate distributees, and the Company, and its successors and
assigns, including, in the case of the Company, any successor by merger or
consolidation or a statutory receiver or any other person or firm or corporation
to which all or substantially all of the respective assets and business of the
Company may be sold or otherwise transferred. The Consultant may not assign any
of his rights under this Agreement without the prior written consent of the
Company. Except as expressly provided herein, nothing in this Agreement shall be
construed to give any person other than the parties to this Agreement any legal
or equitable right, remedy or claim under or with respect to this Agreement or
any provision of this Agreement.

         10.  Waiver. The rights and remedies of the parties to this Agreement
are cumulative and not alternative. Neither the failure nor any delay by any
party in exercising any right, power or privilege under this Agreement or the
documents referred to in this Agreement will operate as a waiver of such right,
power or privilege, and no single or partial exercise of any such right, power
or privilege will preclude any other or further exercise of such right, power or
privilege or the exercise of any other right, power or privilege.

         11.  Modification. This Agreement may only be amended by a written
agreement executed by both parties.

         12.  Notices. All notices and other communications under this Agreement
must be in writing and will be deemed to have been duly given if delivered by
hand or by nationally recognized overnight delivery service (receipt requested)
or mailed by certified mail (return receipt requested) with first class postage
prepaid:

                                        3



              (a) if to the Company, to:

                  Kankakee Bancorp, Inc.
                  310 S. Schuyler Ave.
                  Kankakee, Illinois 60901
                  Attention: Ms. Carol Hoekstra

                  with a copy to:

                  John E. Freechack, Esq.
                  Barack, Ferrazzano
                  333 W. Wacker Drive, Suite 2700
                  Chicago, Illinois 60606

              (b) if to Consultant, to:

                  Mr. Ronald J. Walters
                  1387 Sommerset Way
                  Bourbonnais, IL 60914

or to such other person or place as either party shall furnish to the other in
writing. Except as otherwise provided herein, all such notices and other
communications shall be effective: (x) if delivered by hand, when delivered; (y)
if mailed in the manner provided in this Section, five (5) business days after
deposit with the United States Postal Service; or (z) if delivered by overnight
express delivery service, on the next business day after deposit with such
service.

         13.  Entire Agreement. This Agreement and any documents executed by the
parties pursuant to this Agreement and referred to herein constitute a complete
and exclusive statement of the entire understanding and agreement of the parties
hereto with respect to their subject matter and supersede all other prior
agreements and understandings, written or oral, relating to such subject matter
between the parties.

         14.  Severability. Whenever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision will be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of such provision or the remaining provisions of this Agreement. Without
limiting the generality of the foregoing, if the scope of any provision
contained in this Agreement is too broad to permit enforcement to its full
extent, but may be made enforceable by limitations thereon, such provision shall
be enforced to the maximum extent permitted by law, and the Consultant hereby
agrees that such scope may be judicially modified accordingly.

         15.  Counterparts. This Agreement and any amendments hereto may be
executed in any number of counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same agreement.

                                        4



         IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed and the Consultant has hereunto set his hand, all as of the day and
year first above written.

KANKAKEE BANCORP, INC.


By:   /s/ Carol Hoekstra                    /s/ Ronald J. Walters
    ----------------------------------    ------------------------
       Carol Hoekstra                        Ronald J. Walters
       Executive Vice President

                                        5

EX-13.1

                                                                    Exhibit 13.1

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

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

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

                                    FORM 10-K

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

                   For the fiscal year ended December 31, 2002

                                       OR

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

                For the transition period from _______ to _______

                         Commission File Number 1-13676

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

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

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

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

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

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

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

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

     YES X NO___

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

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



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

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

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

                       DOCUMENTS INCORPORATED BY REFERENCE

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

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



                             KANKAKEE BANCORP, INC.

                         2002 ANNUAL REPORT ON FORM 10-K

                                Table of Contents



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

                                     PART II

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

                                    PART III

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

                                     PART IV

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

Form 10-K Signature Page............................................................... 54


                                        3



                                     PART I

Item 1.  BUSINESS

                                   THE COMPANY

GENERAL

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

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

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

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

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

                                        4



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

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

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

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

MARKET AREA

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

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

                                        5



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

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

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

LENDING ACTIVITIES

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

                                        6



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



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

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

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


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

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

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


                                        7





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


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


                                        8



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



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


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


                                        9





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


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


                                       10



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



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


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


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

                                       11



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

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

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

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

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

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

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

                                       12



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

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

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

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

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

                                       13



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

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

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

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

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

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

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

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

                                       14



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

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

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

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

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

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

                                       15



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

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

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



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


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

                                       16



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

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

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

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

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

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

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

                                       17



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

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



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


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

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

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

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

                                       18



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

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

                                       19



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



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


                                       20



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

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

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

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

                                       21



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



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


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



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


                                       22



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

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

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

                                       23





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


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

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

                                       24



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



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


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

                                       25



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



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


                                       26



INVESTMENT ACTIVITIES

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

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

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

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

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

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

                                       27



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



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


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

                                       28



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



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


SOURCES OF FUNDS

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

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

                                       29



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



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


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

                                       30





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


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

                                       31



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



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


                                       32



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



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


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

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

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

                                       33



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

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

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

SERVICE CORPORATION

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

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

COMPETITION

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

                                       34



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

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

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

EMPLOYEES

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

                           SUPERVISION AND REGULATION

GENERAL

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

                                       35



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

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

THE COMPANY

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

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

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

                                       36



companies in the acquiror's state.

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

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

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

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

                                       37



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

THE BANK

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

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

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

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

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

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

                                       38



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

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

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

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

                                       39



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

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

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

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

                                       40



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

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

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

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

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

                                       41



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

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

FEDERAL AND STATE TAXATION

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

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

                                       42



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

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

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

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

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

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

                        EXECUTIVE OFFICERS OF THE COMPANY

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

                                       43



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

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

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

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

                                       44



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



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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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


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

                                       45



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

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

ITEM 3.   LEGAL PROCEEDINGS

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

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

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

                                     PART II

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

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

ITEM 6.   SELECTED FINANCIAL DATA

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

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

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

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

                                       46



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

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

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

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

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

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

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

                                       47



     The NPV decreases in a rising rate scenario because the Company's
interest-bearing liabilities generally reprice faster than its interest-earning
assets. This effect is increased by periodic and lifetime limits on changes in
rate on most adjustable-rate, interest-earning assets. The NPV decreases in a
falling rate scenario because of the limits on the Company's ability to decrease
rates on some of its deposit sources, such as money market accounts and NOW
accounts, and by the ability of borrowers to repay loans ahead of schedule and
refinance at lower rates.

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

ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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

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

     None

                                    PART III

ITEM 10.  DIRECTORS AND OFFICERS OF THE REGISTRANT

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

EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS

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


                                       48



COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

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

ITEM 11.  EXECUTIVE COMPENSATION

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

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

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

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

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

ITEM 14.  CONTROLS AND PROCEDURES

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

                                       49



                                     PART IV

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

     (a)(1) Consolidated Financial Statements:

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

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

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

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

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

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

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

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

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

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

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

     (a)(2) Financial Statement Schedules:

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

                                       50



     (a)(3) Exhibits:

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

          3   Bylaws                                          (1)

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

         10   Material Contracts

              a.  Stock Option Plan                           (2)

              b.  Management Recognition Plan
                  and Trusts                                  (2)

              c.  Employee Stock Ownership Plan               (1)

              d.  Money Purchase Pension Plan                 (1)

              e.  401(k) Plan                                 (1)

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

              g.  Rights Agreement                            (4)

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

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

         13   2002 Annual Report to Stockholder               13

         21   Subsidiaries of Registrant                      21

         23   Consent of Independent Auditor                  23

       99.1   Certification of Chief Executive               99.1
              Officer

       99.2   Certification of Principal                     99.2
              Financial Officer

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

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

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

                                       51



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

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

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

     (b)  Reports on Form 8-K:

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

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

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

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

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

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

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

                                       52



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

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

                                       53



                                   SIGNATURES

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

                                      KANKAKEE BANCORP, INC.

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

                                      By:  /s/ Ronald J. Walters

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

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

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

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

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

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

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

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

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

                                       54



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

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

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

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

Date:  March 26,  2003

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

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

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

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

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

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

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

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

                                       55



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

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

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

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

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

Date:  March 26,  2003

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

                                       56



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

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

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

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

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

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

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

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

                                       57



                                INDEX TO EXHIBITS

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

          3   Bylaws                                          (1)

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

         10   Material Contracts

              a.  Stock Option Plan                           (2)

              b.  Management Recognition Plan
                  and Trusts                                  (2)

              c.  Employee Stock Ownership Plan               (1)

              d.  Money Purchase Pension Plan                 (1)

              e.  401(k) Plan                                 (1)

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

              g.  Rights Agreement                            (4)

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

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

         13   2002 Annual Report to                            13
              Stockholders

         21   Subsidiaries of Registrant                       21

         23   Consent of Independent Auditor                   23

       99.1   Certification of Chief Executive               99.1
              Officer

       99.2   Certification of Principal                     99.2
              Financial Officer

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

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

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

                                       58



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

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

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

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

                                       59

EX-13.2

                                                                    Exhibit 13.2

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

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

                                    FORM 10-Q

(Mark One)

[X]  Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act
     of 1934 For the Quarterly Period Ended March 31, 2003.

                                       or

[_]  Transition Report Under Section 13 or 15(d) of the Securities Exchange Act
     of 1934 For the Transition Period From __________ to __________.

Commission File Number 1-13676

                             KANKAKEE BANCORP, INC.
        ----------------------------------------------------------------
             (Exact Name of Registrant as Specified in its Charter)

                                               
                  Delaware                                     36-3846489
 --------------------------------------------     ---------------------------------------
(State or Other Jurisdiction of Incorporation     (I.R.S. Employer Identification Number)
or Organization)



310 South Schuyler Avenue, Kankakee, Illinois                    60901
- --------------------------------------------------------------------------------
   (Address of Principal Executive Offices)                (Zip Code)

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


Check whether the Issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.

                                    Yes   X   No ___
                                         ---

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

As of May 13, 2003, there were 932,611 issued and outstanding shares of the
Issuer's common stock (exclusive of 817,389 shares of the Issuer's common stock
held as treasury stock).



                             KANKAKEE BANCORP, INC.

                                      INDEX



                                                                                                  Page
                                                                                                 Number
                                                                                           
Part I.   FINANCIAL INFORMATION

          Item 1.   Consolidated Financial
                    Statements (Unaudited)

                    Statements of Financial Condition,
                    March 31, 2003 and December 31, 2002                                          3 - 4

                    Statements of Income and Comprehensive Income,
                    Three Months Ended March 31, 2003 and 2002                                        5

                    Statements of Cash Flows, Three Months
                    Ended March 31, 2003 and 2002                                                 6 - 7

                    Notes to Financial Statements                                                8 - 10

          Item 2.   Management's Discussion and Analysis
                    of Financial Condition and Results
                    of Operations                                                               11 - 21

          Item 3.   Quantitative and Qualitative Disclosures                                    13 - 14
                    About Market Risk

          Item 4.   Controls and Procedures                                                          19

Part II.  OTHER INFORMATION

          Item 1.   Legal Proceedings                                                                22

          Item 2.   Changes in Securities and Use of Proceeds                                        22

          Item 3.   Defaults Upon Senior Securities                                                  22

          Item 4.   Submission of Matters to a Vote of Security Holders                              22

          Item 5.   Other Information                                                                22

          Item 6.   Exhibits and Reports on Form 8-K                                            22 - 23

          SIGNATURES AND CERTIFICATIONS                                                              24


                                       2



            CONSOLIDATED STATEMENT OF FINANCIAL CONDITION (UNAUDITED)
                      KANKAKEE BANCORP, INC. AND SUBSIDIARY



                                                                           March 31,         December 31,
                                                                             2003               2002
                                                                             ----               ----
                                                                                      
Assets
     Cash and due from banks                                             $ 19,321,602       $ 16,576,706
     Federal funds sold                                                    22,111,098         19,178,334
     Money market funds                                                     3,458,217         11,670,916
                                                                         ------------       ------------
         Cash and cash equivalents                                         44,890,917         47,425,956
                                                                         ------------       ------------
     Certificates of deposit:                                                  50,000             50,000
                                                                         ------------       ------------
     Securities:
     Investment securities:
         Available-for-sale, at fair value                                 43,366,715         44,459,135
         Held-to-maturity, at cost (fair value:  March 31, 2003
         $905,271; December 31, 2002 - $1,076,979)                            891,761          1,066,664
                                                                         ------------       ------------
              Total investment securities                                  44,258,476         45,525,799
                                                                         ------------       ------------
     Mortgage-backed securities:
         Available-for-sale, at fair value:                                33,251,985         38,179,459
         Held-to-maturity, at cost (fair value:  March 31, 2003
         $23,017; December 31, 2002 - $25,525)                                 23,017             25,525
                                                                         ------------       ------------
              Total mortgage-backed securities                             33,275,002         38,204,984
                                                                         ------------       ------------
     Loans, net of allowance for losses on loans ($6,576,965 at
         March 31, 2003; $6,524,306 at December 31, 2002)                 360,689,206        384,238,637
     Loans held for sale                                                      894,350            128,000
     Real estate held for sale                                                132,765            316,170
     Federal Home Loan Bank stock, at cost                                  2,816,400          2,740,500
     Office properties and equipment                                       10,445,961         10,377,731
     Accrued interest receivable                                            2,669,427          2,795,701
     Goodwill                                                               3,065,821          3,065,821
     Other intangible assets                                                  956,278          1,181,212
     Prepaid expenses and other assets                                     12,674,669         10,353,190
                                                                         ------------       ------------
Total assets                                                             $516,819,272       $546,403,701
                                                                         ============       ============

                                                                                            (Continued)



                                        3



      CONSOLIDATED STATEMENT OF FINANCIAL CONDITION (UNAUDITED) (continued)
                      KANKAKEE BANCORP, INC. AND SUBSIDIARY



                                                                          March 31,       December 31,
                                                                            2003              2002
                                                                            ----              ----
                                                                                    
Liabilities and stockholders' equity
     Liabilities:
         Deposits
              Noninterest bearing                                       $ 33,192,989      $ 28,633,800
              Interest bearing                                           386,594,901       403,397,808
         Short-term borrowings                                               800,000                 -
         Long-term borrowings                                             48,200,000        59,700,000
         Trust preferred debentures                                       10,000,000        10,000,000
         Advance payments by borrowers for taxes and insurance             2,888,870         1,751,128
         Other liabilities                                                 2,317,156         1,814,306
                                                                        ------------      ------------
     Total liabilities                                                   483,993,916       505,297,042
                                                                        ------------      ------------
     Stockholders' equity
         Preferred stock, $.01 par value; authorized, 500,000
          shares; none outstanding                                                 -                 -
         Common stock, $.01 par value; authorized, 3,500,000
          shares; shares issued 1,750,000                                     17,500            17,500
         Additional paid-in capital                                       15,039,598        15,039,598
         Retained income, partially restricted                            39,712,873        38,517,217
         Treasury stock (817,389 shares at March 31, 2003;
          584,119 shares at December 31, 2002), at cost                  (23,407,048)      (14,099,004)
         Accumulated other comprehensive income                            1,462,433         1,631,348
                                                                        ------------      ------------

     Total stockholders' equity                                           32,825,356        41,106,659
                                                                        ------------      ------------
Total liabilities and stockholders' equity                              $516,819,272      $546,403,701
                                                                        ============      ============


See notes to consolidated financial statements (unaudited).

                                        4



      CONSOLIDATED STATEMENT OF INCOME AND COMPREHENSIVE INCOME (UNAUDITED)
                      KANKAKEE BANCORP, INC. AND SUBSIDIARY



                                                                       Three Months Ended March 31,
                                                                       ----------------------------
                                                                        2003                  2002
                                                                        ----                  ----
                                                                                 
Interest income:
     Loans                                                          $  6,210,834       $ 6,980,330
     Mortgage-backed securities                                          653,397           588,562
     Investment securities and other                                     469,069           210,880
                                                                    ------------       -----------
         Total interest income                                         7,333,300         7,779,772
                                                                    ------------       -----------
Interest expense:
     Deposits                                                          2,613,801         3,571,121
     Borrowed funds                                                      728,032           361,949
                                                                    ------------       -----------
         Total interest expense                                        3,341,833         3,933,070
                                                                    ------------       -----------
     Net interest income                                               3,991,467         3,846,702

Provision for losses on loans                                             66,300           147,968
                                                                    ------------       -----------
     Net interest income after provision for losses on loans           3,925,167         3,698,734
Other income:
     Net gain on sale of real estate held for sale                        26,486            10,209
     Net gain on sales of loans held for sale                            382,048           237,918
     Net gain on sale of branch office                                   477,843                 -
     Fee income                                                          632,556           590,416
     Insurance commissions                                                 5,008            10,793
     Other                                                               217,470           110,125
                                                                    ------------       -----------
         Total other income                                            1,741,411           959,461
                                                                    ------------       -----------
Other expenses:
     Compensation and benefits                                         1,908,419         1,802,732
     Occupancy                                                           339,039           297,744
     Furniture and equipment                                             176,034           148,876
     Federal deposit insurance premiums                                   17,584            18,267
     Advertising                                                         105,746            67,923
     Provision for losses on foreclosed assets                             9,914             6,000
     Data processing services                                            131,748           115,043
     Telephone and postage                                               138,022           136,052
     Amortization of intangible assets                                    37,884            46,017
     Other general and administrative                                    805,149           741,508
                                                                    ------------       -----------
         Total other expenses                                          3,669,539         3,380,162
                                                                    ------------       -----------
Income before income taxes                                             1,997,039         1,278,033
Income taxes                                                             626,500           384,846
                                                                    ------------       -----------
Net income                                                          $  1,370,539       $   893,187
                                                                    ============       ===========
Net income                                                          $  1,370,539       $   893,187
Other comprehensive income:
     Change in unrealized gains on available-for-sale
     securities, net of related income taxes                            (168,915)         (366,576)
                                                                    ------------       -----------
Comprehensive income                                                $  1,201,624       $   526,611
                                                                    ============       ===========

     Basic earnings per share                                       $       1.28       $      0.73
                                                                    ============       ===========
     Diluted earnings per share                                     $       1.28       $      0.72
                                                                    ============       ===========


See notes to consolidated financial statements (unaudited).

                                        5



                CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
                      KANKAKEE BANCORP, INC. AND SUBSIDIARY



                                                                     Three Months Ended March 31,
                                                                     ----------------------------
                                                                        2003            2002
                                                                        ----            ----
                                                                             
Cash flows from operating activities:
     Net income                                                     $  1,370,539   $     893,187
     Adjustments to reconcile net income to net
     cash provided by operating activities:
         Provision for losses on loans                                    66,300         147,968
         Provisions for losses on real estate held for sale                9,914           6,000
         Depreciation and amortization                                   279,885         259,185
         Amortization of investment premiums and discounts, net           31,768           8,709
         Accretion of loan fees and discounts                            (43,784)        (35,116)
         (Increase) decrease in interest receivable                      102,056         (85,462)
         Increase in interest payable on deposits                         22,356          44,484
         Net gain on sales of loans                                     (382,048)       (237,918)
         Net gain on sales of real estate held for sale                  (26,486)        (10,209)
         Federal Home Loan Bank of Chicago, stock dividend               (75,900)        (35,400)
         Increase in cash surrender value of Bank
          Owned Life Insurance                                          (112,415)              -
         Gain on the sale of branch office                              (477,843)              -
         Other, net                                                     (633,371)       (169,531)
                                                                    ------------   -------------
     Net cash from operating activities before loan
     originations and sales                                              130,971         785,897
         Originations on loans held for sale                         (15,065,210)    (15,892,028)
         Proceeds from sales of loans                                 14,680,908      16,571,356
                                                                    ------------   -------------

Net cash from operating activities                                      (253,331)      1,465,225
                                                                    ------------   -------------

Cash flow from investing activities:
Investment securities
     Available-for-sale:
         Purchases                                                    (6,905,101)     (4,005,781)
         Proceeds from calls and maturities                            8,000,000       2,000,000
     Held-to-maturity:
         Proceeds from maturities                                        174,817               -
Mortgage-backed securities:
     Available-for-sale:
         Purchases                                                             -     (30,607,096)
         Proceeds from maturities and pay downs                        4,637,391       1,221,649
     Held-to-maturity:
         Proceeds from maturities and pay downs                            2,508           5,509
     Proceeds from sales of real estate                                  157,878               -
     Deferred loan fees and costs, net                                    97,254          (2,124)
     Loans originated                                                (35,753,694)    (37,481,976)
     Loans purchased                                                           -      (1,400,000)
     Principal collected on loans                                     52,813,078      36,575,893
     Purchases of office properties and equipment, net                (1,440,979)       (506,178)
     Purchases of Bank Owned Life Insurance                                    -      (8,000,000)
     Cash transferred to buyer on sale of branch                     (12,314,815)              -
                                                                    ------------   -------------
Net cash from investing activities                                     9,468,337     (42,200,104)
                                                                    ------------   -------------


See notes to consolidated financial statements (unaudited).

                                                                     (Continued)

                                        6



          CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) (continued)
                      KANKAKEE BANCORP, INC. AND SUBSIDIARY



                                                                          Three Months Ended March 31,
                                                                            2003             2002
                                                                            ----             ----
                                                                                   
Cash flows from financing activities:
     Net increase in non-certificate of deposit accounts                $ 13,711,978     $  2,640,828
     Net increase (decrease) in certificate of deposit accounts           (6,504,862)       4,334,305
     Net increase in advance payments by
      borrowers for taxes and insurance                                    1,225,766        1,194,882
     Proceeds from short-term borrowings                                     800,000                -
     Proceeds from other borrowings                                                -       37,600,000
     Repayments of other borrowings                                      (11,500,000)      (5,000,000)
     Proceeds from exercise of stock options                                       -          433,685
     Dividends paid                                                         (174,882)        (147,384)
     Purchase of treasury stock                                           (9,308,045)        (687,452)
                                                                        ------------     ------------
Net cash from financing activities                                       (11,750,045)      40,368,864
                                                                        ------------     ------------
Decrease in cash and cash equivalents                                     (2,535,039)        (366,015)
Cash and cash equivalents:
     Beginning of period                                                  47,425,956       26,662,714
                                                                        ------------     ------------
     End of period                                                      $ 44,890,917     $ 26,296,699
                                                                        ============     ============
Supplemental disclosures of cash flow information
Cash paid during the period for:
     Interest on deposits                                               $  2,591,445     $  3,526,600
                                                                        ============     ============
     Interest on borrowed funds                                         $    610,300     $    334,800
                                                                        ============     ============
     Income taxes                                                       $    150,000     $          -
                                                                        ============     ============
Supplemental disclosures of non-cash investing activities:
Real estate acquired through foreclosure                                $          -     $     63,306
                                                                        ============     ============
Decrease in unrealized gains on securities available-for-sale              ($254,008)       ($551,242)
                                                                        ============     ============
Decrease in deferred taxes attributable to the
 unrealized gains on securities available-for-sale                      $     85,093     $    184,666
                                                                        ============     ============

Sale of branch:
     Assets disposed:
         Loans                                                           ($6,370,117)    $          -
         Accrued interest receivable                                         (24,218)               -
         Premises and equipment                                             (164,639)               -
         Other assets                                                       (197,251)               -
     Liabilities assumed by buyer:
         Non-certificate of deposit accounts                               2,161,632                -
         Certificates of deposit                                          17,243,008                -
         Accrued interest payable                                             68,550                -
         Escrows on loans                                                     64,005                -
         Other liabilities                                                    11,688                -
Gain on the sale of branch office                                           (477,843)               -
                                                                        ------------     ------------
Cash paid                                                               $ 12,314,815     $          -
                                                                        ============     ============


See notes to consolidated financial statements (unaudited).

                                        7



                      KANKAKEE BANCORP, INC. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

                                 March 31, 2003

Note 1 - Basis of Presentation

     The accompanying unaudited consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States of America for interim financial information and with instructions
to Form 10-Q. Accordingly, they do not include all of the information and
footnotes required by accounting principles generally accepted in the United
States of America for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. The statement of condition
at December 31, 2002 has been derived from the audited financial statements at
that date, but does not include all of the information and footnotes required by
accounting principles generally accepted in the United States of America for
complete financial statements. Operating results for the three-month period
ended March 31, 2003 are not necessarily indicative of the results that may be
expected for the year ending December 31, 2003. For further information, refer
to the consolidated financial statements and footnotes thereto included in the
annual report for Kankakee Bancorp, Inc. (the "Company") on Form 10-K for the
year ended December 31, 2002.

Note 2 - Earnings Per Share

     Basic earnings per share of common stock have been determined by dividing
net income for the period by the average number of shares of common stock
outstanding. Diluted earnings per share of common stock have been determined by
dividing net income for the period by the average number of shares of common
stock and common stock equivalents outstanding. Common stock equivalents assume
exercise of stock options, and the purchase of treasury stock with the option
proceeds at the average market price for the period (when dilutive). The Company
has an incentive stock option plan for the benefit of directors, officers and
employees. Diluted earnings per share have been determined considering the stock
options granted, net of stock options which have been exercised.

                                           Three months ended
                                                March 31,
                                         2003               2002
                                         ----               ----
Net income                            $1,370,539        $  893,187
                                      ==========        ==========

Average outstanding shares
 of common stock                       1,067,164         1,228,699
Average common stock equivalents           1,103            13,776
                                      ----------        ----------
Total                                  1,068,267         1,242,475
                                      ==========        ==========

Basic earnings per share              $     1.28        $     0.73
                                      ==========        ==========
Diluted earnings per share            $     1.28        $     0.72
                                      ==========        ==========

                                       8



Note 3 - Accounting for Certain Investments in Debt and Equity Securities

     At March 31, 2003, stockholders' equity included a positive $1.4 million,
which represents the amount by which the market value of the available-for-sale
securities and the available-for-sale mortgage-backed securities exceeded the
book value, net of income tax of $758,000. An increase in market interest rates
during the three months ended March 31, 2003 resulted in a $169,000 decrease in
the market value, net of income tax effect, of the available-for-sale securities
and the available-for-sale mortgage-backed securities. At the end of 2002, the
market value of the available-for-sale securities portfolio exceeded the book
value by $1.6 million, net of income tax benefit.

Note 4 - Commitments and Contingencies

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

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

Financial instruments whose contract amount represent credit risk follows:




                                            March 31,             December 31,
                                              2003                    2002
                                              ----                    ----
Commitments to originate new loans        $ 26,220,000            $ 19,100,000
Commitments to extend credit                28,797,000              31,106,000
Standby letters of credit                    1,233,000               1,228,000

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

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

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

                                        9



customer does not perform in accordance with the terms of the agreement with the
third party, the Bank would be required to fund the commitment. The maximum
potential amount of future payments the Bank could be required to make is
represented by the contractual amount shown in the summary above. If the
commitment is funded, the Bank would be entitled to seek recovery from the
customer. At March 31, 2003 and December 31, 2002, no amounts have been recorded
as liabilities for the Bank's potential obligations under these guarantees.

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

Note 5 - Stock-Based Employee Compensation

The Company had one stock-based employee compensation plan which was in
existence for all periods presented. As permitted under accounting principles
generally accepted in the United States of America, grants of options under the
plan are accounted for under the recognition and measurement principles of APB
Opinion No. 25, Accounting for Stock Issued to Employees, and related
interpretations. Because options granted under the plan had an exercise price
equal to market value of the underlying common stock on the date of the grant,
no stock-based employee compensation cost is included in determining net income.
Stock options were granted to newly elected directors in December 2001 and 2002
and vested immediately. As a result, there was no compensation expense to be
recognized for the three months ended March 31, 2003 or 2002, under APB Opinion
No. 25 or the fair value recognition provisions of FASB Statement No. 123,
Accounting for Stock-Based Compensation.

                                       10



                             KANKAKEE BANCORP, INC.
                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

GENERAL

     The Company is a Delaware company formed in 1992 for the purpose of
becoming the savings and loan holding company of KFS Bank, F.S.B. (the "Bank"),
the Company's principal subsidiary. The Bank was originally chartered in 1885 as
an Illinois savings and loan association and was converted to a federally
chartered thrift institution in 1937.

     The Company serves the financial needs of families and local businesses in
its primary market areas through its main office at 310 South Schuyler Avenue,
Kankakee, Illinois and thirteen branch offices located in the communities of
Ashkum, Bourbonnais, Bradley, Braidwood, Champaign, Coal City (2), Diamond,
Dwight, Herscher, Manteno, Momence and Urbana, Illinois. The Company's business
involves attracting deposits from the general public and using such deposits to
originate residential mortgage loans and, to a lesser extent, commercial real
estate, consumer, commercial business, multi-family and construction loans in
its market areas. The Company also invests in investment securities,
mortgage-backed securities and various types of short term liquid assets.

ECONOMIC CLIMATE

     Over the last 27 months, the Federal Open Market Committee ("the FOMC")
lowered its target short-term interest rates by a total of five and one-quarter
percentage points. The federal funds target went from 6.50% to 1.25% and the
Federal Reserve discount rate went from 6.00% to 0.75%. The federal funds rate
is the rate at which financial institutions borrow from each other, while the
discount rate is the rate at which member banks borrow from the Federal Reserve.
The FOMC cited a slowing economy and recessionary trends as the primary reasons
for lowering interest rates. Lower short-term interest rates would tend to
stimulate economic activity by reducing the financing costs on borrowed funds
for both businesses and individuals.

     A slowing economy would usually result in some increase in problem assets,
and could possibly result in some increase in loan losses. In a slowing economy
or recession, cash flows and profits of commercial customers decrease, which
could result in an increase in delinquencies. Additionally, individual borrowers
experience cash flow problems from job loss, reduction in investment returns or
other causes. This could also result in an increase in delinquencies. Due in
part to recent economic conditions, the Company experienced an increase of
delinquencies and problem loans. During the last half of 2002, this resulted in
a substantial increase in its provision for losses on loans.

     Since the beginning of 2003, there have been few fundamental changes in the
economic environment. Some economic indicators are pointing toward a recovery,
while others are still weak, indicating that the economy remains slow. If the
economy does move into a full recovery, then the FOMC would likely increase in
its target rates.

     The Company had a positive cumulative one-year gap of 10.1% at March 31,
2003. A positive gap indicates that an increase in market interest rates might
positively affect net interest income and the results of operations, due to
assets maturing, and repricing, from their current rates to higher rates, more
quickly than liabilities will mature and reprice to higher rates. Management
believes that the Company's current level of interest rate sensitivity is
reasonable,

                                       11



in light of the current market rates and the possibility of increasing market
rates. However, significant fluctuations in interest rates may have an adverse
effect on the Company's financial condition and results of operations.

INITIATIVES AND SIGNIFICANT EVENTS

     During the first quarter of 2003, the Company continued moving ahead with a
number of strategies designed to improve profitability and enhance stockholder
value, including the sale of the Hoopeston, Illinois branch. The Company
continues to evaluate service delivery systems and explore new market areas,
evaluating both potential acquisitions and sites for new branches.

     Construction of a new branch office in Bradley, Illinois has begun, with
completion expected by the end of the third quarter of the year. This new office
will replace an existing in-store facility. In addition, office renovations are
planned for the branches in Manteno and Momence, Illinois, while possible
renovations at other offices are being evaluated. An ATM was installed at the
Urbana, Illinois office, and seven additional or replacement ATMs are scheduled
for installation during the year.

     The Company has also continued to evaluate and improve its organizational
structure, including lines of authority, job functions and supervisory
responsibilities. As a result of this process, some positions have been
eliminated, some new positions have been added and a number of changes in
reporting responsibility have been implemented. Fundamental organizational
changes at the board level, designed to increase independence and improve
corporate governance, have been substantially completed, and the process of
conducting a search for a new CEO continues. Some costs associated with these
activities are reflected in expenses for the first quarter of 2003.

FINANCIAL CONDITION

     Total assets of the Company decreased by $29.6 million, or 5.4%, to $516.8
million at March 31, 2003 from $546.4 million at December 31, 2002.

     Cash and cash equivalents decreased by $2.5 million, or 5.3%, from $47.4
million at December 31, 2002 to $44.9 million at March 31, 2003. The decrease
was attributable to decreases in deposits and borrowed money, as well as
treasury stock purchases.

     During the three-month period ended March 31, 2003, net loans receivable
decreased by $23.5 million, or 6.1%, from $384.2 million to $360.7 million. This
was primarily the result of loan repayments which totaled $52.8 million and the
sale of $6.4 million in loans as part of the sale of the Hoopeston, Illinois
branch, which were substantially offset by the origination of $24.3 million of
real estate loans and the origination of $11.5 million of consumer and
commercial business loans.

     Loans held for sale increased by $766,000, from $128,000 at December 31,
2002 to $894,000 at March 31, 2003. This was the result of the origination of
$15.1 million of loans held for sale, which was partially offset by the sale of
$14.7 million of such loans, at a net gain of $382,000. The level of borrower
refinancing remained strong through the first quarter of 2003, with interest
rates down at levels not seen in decades. Gains on the sale of loans have been
greatly enhanced by these factors. We cannot assume that interest rates will
remain at current levels or that refinancing volume will continue at current
levels.

                                       12



     Securities available-for-sale decreased by $1.1 million, or 2.4%, to $43.4
million at March 31, 2003 from $44.5 million at December 31, 2002 as the result
of the maturity or the exercise of call options by issuers on $8.0 million of
securities, which was partially offset by purchases of $6.9 million in such
securities, and by a minimal net change in market value adjustments.

     Mortgage-backed securities available-for-sale decreased by $4.9 million, or
12.9%, to $33.3 million at March 31, 2003 from $38.2 million at December 31,
2002. The decrease resulted from the maturity of $4.6 million of securities, and
by the net change in market value adjustments.

     Deposits decreased by $12.2 million, or 2.8%, from $432.0 million at
December 31, 2002 to $419.8 million at March 31, 2003. During the three month
period, $17.2 million in certificate of deposit accounts and $2.2 million in
passbook, checking and money market accounts were sold with the Hoopeston,
Illinois branch. In addition, there was a $6.5 million decrease in certificate
of deposit accounts, a $13.7 million increase in passbook, checking and money
market accounts and a small increase in accrued interest on deposits.

     Total borrowings decreased by $10.7 million, or 17.9%, from $59.7 million
at December 31, 2002 to $49.0 million at March 31, 2003. The decrease was the
result of $11.5 million in repayments, which were partially offset by new
borrowings of $800,000. Borrowings at March 31, 2003 consisted of $29.8 million
in advances from the Federal Home Loan Bank of Chicago, $800,000 in funds drawn
down on a line-of-credit and $18.4 million in funds from securities sold under
agreement to repurchase. Additionally, there were $10.0 million of trust
preferred debentures outstanding at both March 31, 2003 and December 31, 2002.

ASSET/LIABILITY MANAGEMENT

     In an attempt to manage its exposure to changes in interest rates,
management closely monitors the Company's interest rate risk. The Bank has a
funds management committee, consisting of the president, certain vice presidents
and the controller of the Bank, which meets weekly and reviews the Bank's
interest rate risk position and evaluates its current asset/liability pricing
and strategies. This committee adjusts pricing and strategies as needed and
makes recommendations to the Bank's board of directors regarding significant
changes in strategy. In addition, on a quarterly basis the board reviews the
Bank's asset/liability position, including simulations of the effect on the
Bank's capital of various interest rate scenarios.

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

     The Company attempts to manage its interest rate risk to the extent
consistent with its interest margin objectives through management of the mix of
its assets and liabilities in a number of ways, including the following:

                                       13



     .    The Company prefers to lend on adjustable rate mortgages ("ARMs") in
          its one-to-four family residential lending program. However, ARMs are
          not currently in great demand, and less than 5% of the one-to-four
          family loans originated during the first quarter of 2003 were ARMs
     .    The Company has increased originations of commercial business and
          construction loans having adjustable or floating interest rates,
          relatively short terms to maturity, or a combination thereof.
     .    The Company has continued its origination of consumer loans having
          terms to maturity that are significantly shorter than residential
          loans.
     .    The Company regularly reviews its policy on newly originated
          fixed-rate mortgage loans, as to the question of which loans, if any,
          should be retained in portfolio versus which should be sold in the
          secondary market. Trends in the economy, trends in market interest
          rates, the Company's interest margin and the Company's current
          asset/liability mix are among the factors considered. Changes
          resulting from these reviews take effect on a specific calendar date
          and impact either those loans which are applied for on or after that
          date, or those loans which are closed on or after that date. During
          the first quarter of 2003, the Company sold most of the fixed-rate
          mortgage loans it originated.

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

NON-PERFORMING ASSETS AND ALLOWANCE FOR LOSSES ON LOANS

     The Company's non-performing assets increased to $12.5 million, or 2.42%,
of total assets at March 31, 2003 from $11.1 million, or 2.03% of total assets
at December 31, 2002. This represented an increase of $1.4 million over the
three-month period. Changes in individual loan categories are detailed in the
following table:

                                            March 31     December 31
                                              2003           2002        Change
                                              ----           ----        ------
Non-accruing loans:
     Real estate:
       One-to-four family                  $   797        $ 1,115        ($318)
       Multi family                            118            118            -
       Commercial                            3,039          3,039            -
       Construction and development          1,687          1,687            -
     Commercial business                       859            875          (16)
                                           -------        -------       ------
Total                                        6,500          6,834         (334)
                                           -------        -------       ------
Accruing loans delinquent 90
     days or more:
     Real estate:
       Commercial                            3,731          2,516        1,215
     Consumer                                  325            290           35
     Commercial business                     1,448            633          815
                                           -------        -------       ------
Total                                        5,504          3,439        2,065
                                           -------        -------       ------
Foreclosed assets                              133            316         (183)
Troubled debt restructuring                    351            480         (129)
                                           -------        -------       ------
Total non-performing assets                $12,488        $11,069       $1,419
                                           =======        =======       ======

                                       14



     Non-performing assets are presented on a gross balance basis and the totals
have not been reduced by specific reserves.

     The ratio of the allowance for losses on loans to non-performing loans
decreased to 54.8% as of March 31, 2003 compared to 63.5% as of December 31,
2002. The decrease in this ratio, which excludes foreclosed assets and
restructured troubled debt, was the result of the increase of $1.7 million in
non-performing loans. Since the end of the first quarter of 2003, there has been
a reduction in the balance of non-performing loans as the result of aggressive
follow-up on delinquent loans by the Company.

     The Company classified $4.9 million of its assets as Special Mention, $5.6
million as Substandard and $4.1 million as Loss as of March 31, 2003. No assets
were classified as Doubtful at March 31, 2003. This represents a decrease of
$1.1 million in the Special Mention category and a net decrease of $296,000 in
the other categories from the December 31, 2002 totals for classified assets.
The ratio of classified assets to total assets (including items classified as
Special Mention) was 2.83% at March 31, 2003 as compared to 2.93% at December
31, 2002. The ratio of the allowance for losses on loans to classified assets
increased to 45.0% as of March 31, 2003 compared to 40.8% as of December 31,
2002.

CRITICAL ACCOUNTING POLICIES

     Accounting policies, the implementation of which requires difficult,
complex or subjective judgments on the part of management are critical to the
Company's financial condition and results of operations, and they may relate to
matters that are inherently uncertain. Changes in facts and circumstances can
result in material changes in estimates determined under these policies. Changes
in interest rates, deterioration in the performance of the economy, changes in
laws and regulations and deterioration in the financial condition of borrowers
are among those facts and circumstances that could affect the evaluation
process. Management believes that the Company's critical accounting policies
include determining the allowance for losses on loans.

DISCUSSION ON PROVISION FOR LOSSES ON LOANS

     As with many financial institutions, the lagging economy has challenged
many companies, including some of the Bank's customers. During the last half of
2002, the Company experienced a significant increase in non-performing loans,
most of which related to commercial real estate and real estate development
loans. After an extensive evaluation, the Company recorded additions of $3.4
million to reserves for losses on loans during the last half of the year. Issues
related to these loans, including a bankruptcy filing, several foreclosures and
past due real estate taxes, necessitate ongoing review and evaluation as to the
adequacy of reserves. Based on this ongoing review, management has concluded
that it is not appropriate at this time to add additional reserves with respect
to these identified loans. Management is continuing to examine the loans with
the parties involved to determine the best course of action to realize maximum
satisfaction of these credits. While non-performing loans increased during the
first quarter of 2003, management's review of the loans which became
non-performing did not indicate the need to provide additional reserves.
Management will continue to monitor and evaluate non-performing assets.

RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2003 AND 2002

     Net income for the quarter ended March 31, 2003 was $1.4 million compared
to $893,000 for the same period in 2002. This represented a $477,000, or 53.4%
increase. The increase in net income resulted from an increase in net interest
income of $145,000 (3.8%), an increase in other income of $782,000 (81.5%),
which included a $478,000 gain on the sale of a branch

                                       15



operation, and a decrease in provision for losses on loans of $82,000 (55.2%).
These items were partially offset by an increase in other expenses of $289,000
(8.6%) and an increase in income tax expense of $242,000 (62.8%). Basic earnings
per share were $1.28 for the quarter ended March 31, 2003 compared to $.73 for
the comparable 2002 quarter. Diluted earnings per share were $1.28 for the
quarter ended March 31, 2003 compared to $.72 for the comparable 2002 quarter,
representing an increase of 77.8%.

     Net interest income increased $145,000, or 3.8%, during the quarter ended
March 31, 2003, compared to the quarter ended March 31, 2002. The table
presented on page 21 ("Table I"), sets forth an analysis of the Company's net
interest income for the three-month periods ended March 31, 2003 and 2002.

     As Table I indicates, interest income decreased $446,000, or 5.7%, to $7.3
million for the three-month period ended March 31, 2003 compared to the $7.8
million for the same period in 2002. The decrease in interest income was the
result of a decrease in the yield earned on interest-earning assets to 6.03%
during the 2003 period from 6.71% during the 2002 period, which was partially
offset by an increase in the average balance of interest-earning assets to
$492.8 million during the 2003 period from $470.4 million during the 2002
period. The increase in the average balance of interest-earning assets was due
to increases in balances of mortgage-backed securities, investment securities
and other interest-earning assets, which were partially offset by a decrease in
balances of loans during the quarter. The decrease in the yield earned on
interest-earning assets was the result of decreasing market interest rates
during the quarter, which resulted in lower yields on short term assets and a
lower yield on the reinvestment of principal repayments and prepayments on loans
and on newly originated loans. The decrease in average loans was primarily the
result of the refinancing of loans in the mortgage portfolio in the current low
interest rate environment. Most such long-term, fixed-rate mortgage loans were
sold with servicing retained.

     Interest expense decreased $591,000, or 15.0%, to $3.3 million during the
first quarter from $3.9 million in the same period in 2002. The decrease in
interest expense was the result of a decrease in the average yield on
interest-bearing liabilities to 2.75% during the 2003 period from 3.50% during
the 2002 period, which was partially offset by an increase in the average
outstanding balance of interest-bearing liabilities to $493.0 million during the
2003 period from $455.8 million during the 2002 period. The increase in average
interest-bearing liabilities resulted from the implementation of a leveraging
strategy, increased use of borrowed funds, and the continuing movement to a
sales oriented operation. While the leveraging strategy was implemented in the
first quarter of 2002, it was done near the end of that quarter and had minimal
impact on average balances. The decrease in the average yield on
interest-bearing liabilities resulted from decreasing market interest rates
during the last twenty-seven months and continuing improvement in the deposit
mix, with a higher ratio of non-certificate deposit accounts.

     The provision for losses on loans totaled $66,000 during the first quarter
of 2003, compared to $148,000 during the first quarter of 2002. The amount of
the provision for losses on loans is determined through regular review of the
various elements of the loan portfolio, and by a review of overall adequacy,
based on circumstances and factors known at the time of the review.

     Other income for the three-month period ended March 31, 2003 increased
$782,000, or 81.5%, to $1.7 million compared to $959,000 for the same period in
2002. The increase was attributable to increases of $144,000 (60.6%) in gain on
sales of loans held for sale, $107,000 (97.5%) in other income and $42,000
(7.1%) in fee income. In addition, the Company recorded a gain on the sale of a
branch banking office in Hoopeston, Illinois totaling $478,000. The $144,000
increase in gain on the sale of loans held for sale was the result of more
aggressive pricing and better spreads on the loans sold during the 2003 period
compared to the 2002

                                       16



period. The increase in other income was the result of a full quarter's earnings
from the investment in BOLI during 2003 compared to a few days during 2002.

     Other expenses for the first quarter of 2003 increased $289,000 or 8.6%, to
$3.7 million from $3.4 million for the first quarter of 2002. There were
increases of $64,000 (8.6%) in other expenses, $106,000 (5.9%) in compensation
and benefits, $41,000 (13.9%) in occupancy expense and $38,000 (55.7%) in
advertising. These increases were partially offset by small decreases totaling
less than $9,000 in two areas of operating expenses. The increase in
compensation and benefits was primarily due to an increase in compensation
levels and an increase in employment taxes in the first quarter resulting from
the payment in January 2003 of bonuses accrued in and for 2002.

     Federal income taxes increased $242,000 to $627,000 for the three-month
period ended March 31, 2003, compared to $385,000 for the same period in 2002.
The primary reason for this increase was the increase in pre-tax income for the
quarter.

LIQUIDITY AND CAPITAL RESOURCES

     The Company maintains a certain level of cash and other liquid assets to
fund normal volumes of loan commitments, deposit withdrawals and other
obligations. The Office of Thrift Supervision (the "OTS") regulations currently
require each savings association to maintain sufficient liquidity to ensure its
safe and sound operation.

     The Company's primary sources of funds are deposits and proceeds from
payments of principal and interest on loans and the sale or maturity of
investment securities and mortgage-backed securities. Management considers
current liquidity and additional sources of funds adequate to meet outstanding
liquidity needs.

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

     Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the table
below) of Tangible and Core capital (as defined by the regulations) to tangible
assets (as defined) and Total and Tier I capital (as defined) to risk-weighted
assets (as defined). Management believes, as of March 31, 2003, that the Bank
meets all capital adequacy requirements to which it is subject.

     As of the most recent notification from the Office of Thrift Supervision
(the "OTS"), categorized the Bank as well capitalized under the regulatory
framework for prompt corrective action. To be categorized as well capitalized,
the Bank must maintain minimum total risk-based, Tier I risk-based and Tier I
leverage ratios as set forth in the table below. There are no conditions or
events since that notification that management believes have changed the Bank's
category.


                                       17






                                                                                               To be Well
                                                                                            Capitalized Under
                                                                        For Capital         Prompt Corrective
                                                    Actual           Adequacy Purposes      Action Provisions
                                                    ------           -----------------      -----------------
                                               Amount      Ratio     Amount      Ratio      Amount      Ratio
                                               ------      -----     ------      -----      ------      -----
                                                                   (Dollars in Thousands)
                                                                                      
As of March 31, 2003
Tangible Captial to Tangible Assets
   KFS Bank, F.S.B.                            $36,943     7.25%    $ 7,649       1.50%         N/A
Core Capital to Tangible Assets
   KFS Bank, F.S.B.                             36,943     7.25%     20,396       4.00%     $25,496      5.00%
Tier I Capital to Risk Weighted Assets
   KFS Bank, F.S.B.                             36,943    11.44%        N/A                  19,376      6.00%
Total Capital to Risk Weighted Assets
   KFS Bank, F.S.B.                             39,441    12.21%     25,835       8.00%      32,293     10.00%


As of December 31, 2002
Tangible Capital to Tangible Assets
   KFS Bank, F.S.B.                             35,726     6.73%      7,961       1.50%         N/A
Core Capital to Tangible Assets
   KFS Bank, F.S.B.                             35,726     6.73%     21,230       4.00%      26,537      5.00%
Tier I Capital to Risk Weighted Assets
   KFS Bank, F.S.B.                             35,726    10.57%        N/A                  20,280      6.00%
Total Capital to Risk Weighted Assets
   KFS Bank, F.S.B.                             38,785    11.47%     27.040       8.00%      33,800     10.00%



STOCK REPURCHASE

     During the quarter ended March 31, 2003, the Company repurchased 233,270
shares of common stock at a total cost of $9.3 million under the stock
repurchase program announced in January 2003. On a cumulative basis, through
March 31, 2003, a total of 986,389 shares of common stock of the Company had
been purchased under repurchase programs at a total cost of $26.9 million. As of
March 31, 2003, the Company held 817,389 shares of its common stock as treasury
stock. During the period from March 31, 2003 through May 13, 2003, no additional
shares of common stock were repurchased.

STOCK OPTIONS

     During the first quarter of 2003, no options on shares of common stock were
exercised. At the end of the quarter, there were options outstanding to two
individuals on 4,750 shares of stock. Between March 31, 2003 and May 13, 2003,
neither individual had given notice of intent to exercise these options.

     At the annual meeting of stockholders on April 25, 2003, a proposed stock
option plan on 116,500 shares of common stock was approved. On May 1, 2003,
options on 2,500 shares of common stock were granted to each director of the
Company and the Bank. The exercise price on the 15,000 options granted was set
at the closing price of $38.00 per share on May 1, 2003. No options under this
plan have been exercised through May 13, 2003.

                                       18



     During the April 2003 organizational meeting of the Board of Directors of
the Company, a short-term stock incentive plan was approved, the term of which
ran from May 1, 2003 through May 13, 2003. Under the terms of the plan, each
director of the Company and of the Bank was given the option to purchase 2,500
shares of common stock at the greater of the current market price or $40.02 per
share. Options under this plan totaled 15,000 shares of common stock. Under this
plan, directors exercising all of their own options also were given the option
to acquire shares under the same terms and conditions, through options not
exercised by other directors. No options were exercised during the term of the
plan.

DIVIDENDS

     On April 24, 2003, a cash dividend of $.15 per share was declared, payable
on May 30, 2003 to stockholders of record as of May 14, 2003. The Company has
paid a dividend every quarter since the dividend program was instituted in the
first quarter of 1995. Future dividends will depend primarily upon earnings,
financial condition and need for funds, as well as restrictions imposed by
regulatory authorities regarding dividend payments and capital requirements.

CONTROLS AND PROCEDURES

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

SPECIAL NOTE CONCERNING FORWARD-LOOKING STATEMENTS

     This document (including information incorporated by reference) contains,
and future oral and written statements of the Company and its management may
contain, forward-looking statements, within the meaning of such term in the
Private Securities Litigation Reform Act of 1995, with respect to the financial
condition, results of operations, plans, objectives, future performance and
business of the Company. Forward-looking statements, which may be based upon
beliefs, expectations and assumptions of the Company's management and on
information currently available to management, are generally identifiable by the
use of words such as "believe," "expect," "anticipate," "plan," "intend"
"estimate," "may," "will," "would," "could," "should" or other similar
expressions. Additionally, all statements in this document, including
forward-looking statements, speak only as of the date they are made, and the
Company undertakes no obligation to update any statement in light of new
information or future events.

     The Company's ability to predict results or the actual effect of future
plans or strategies is inherently uncertain. Factors which could have a material
adverse effect on the operations and future prospects of the Company and its
subsidiaries include, but are not limited to, the following:

     .    The strength of the United States economy in general and the strength
          of the local economies in which the Company conducts its operations
          which may be less favorable than expected and may result in, among
          other things, a deterioration in the credit quality and value of the
          Company's assets.
     .    The economic impact of past and any future terrorist threats and
          attacks, acts of war or threats thereof, and the response of the
          United States to any such threats and attacks.

                                       19



     .    The effects of, and changes in, federal, state and local laws,
          regulations and policies affecting banking, securities, insurance and
          monetary and financial matters.
     .    The effects of changes in interest rates (including the effects of
          changes in the rate of prepayments of the Company's assets) and the
          policies of the Board of Governors of the Federal Reserve System.
     .    The ability of the Company to compete with other financial
          institutions as effectively as the Company currently intends due to
          increases in competitive pressures in the financial services sector.
     .    The inability of the Company to obtain new customers and to retain
          existing customers.
     .    The timely development and acceptance of products and services,
          including products and services offered through alternative delivery
          channels such as the Internet.
     .    Technological changes implemented by the Company and by other parties,
          including third party vendors, which may be more difficult or more
          expensive than anticipated or which may have unforeseen consequences
          to the Company and its customers.
     .    The ability of the Company to develop and maintain secure and reliable
          electronic systems.
     .    The ability of the Company to retain key executives and employees and
          the difficulty that the Company may experience in replacing key
          executives and employees in an effective manner.
     .    Consumer spending and saving habits which may change in a manner that
          affects the Company's business adversely.
     .    Business combinations and the integration of acquired businesses which
          may be more difficult or expensive than expected.
     .    The costs, effects and outcomes of existing or future litigation.
     .    Changes in accounting policies and practices, as may be adopted by
          state and federal regulatory agencies and the Financial Accounting
          Standards Board.

The ability of the Company to manage the risks associated with the foregoing as
well as anticipated. These risks and uncertainties should be considered in
evaluating forward-looking statements and undue reliance should not be placed on
such statements. Additional information concerning the Company and its business,
including other factors that could materially affect the Company's financial
results, is included in the Company's filings with the Securities and Exchange
Commission.

                                       20



                                     TABLE I
                    NET INTEREST INCOME ANALYSIS (UNAUDITED)
                      KANKAKEE BANCORP, INC. AND SUBSIDIARY



                                                                        Three Months Ended March 31,
                                                                        ---------------------------
                                                                2003                                      2002
                                                                ----                                      ----
                                                 Average      Interest                    Average       Interest
                                               Outstanding     Earned/      Yield/      Outstanding      Earned/      Yield/
                                                 Balance        Paid         Rate         Balance         Paid         Rate
                                                 -------        ----         ----         -------         ----         ----
                                                                            (Dollars in Thousands)
                                                                                                    
Interest-earning assets:
   Loans receivable (1)                         $371,992       $6,211        6.77%        $393,954       $6,980        7.19%
   Mortgage-backed securities  (2)                35,399          469        5.37%          18,902          211        4.53%
   Investment securities (3)                      45,639          506        4.50%          35,674          458        5.21%
   Other interest-earning assets                  37,017          103        1.13%          19,415           99        2.07%
   FHLB stock                                      2,789           44        6.40%           2,470           31        5.09%
                                                --------       ------                     --------       ------

Total interest-earning assets                    492,836        7,333        6.03%         470,415        7,779        6.71%
                                                --------       ------                     --------       ------

Other assets                                      41,861                                    31,405
                                                --------                                  --------

Total assets                                    $534,697                                  $501,820
                                                ========                                  ========

Interest-bearing liabilities:
   Certificate accounts                         $245,966        2,074        3.42%        $250,953        2,844        4.60%
   Savings deposits                               73,709          231        1.27%          69,755          356        2.07%
   Demand and NOW deposits                       107,329          309        1.17%          96,961          371        1.55%
   Borrowings                                     65,950          728        4.48%          38,150          362        3.85%
                                                --------       ------                     --------       ------

Total interest-bearing liabilities               492,954        3,342        2.75%         455,819        3,933        3.50%
                                                --------       ------                     --------       ------

Other liabilities                                  4,387                                     4,445
                                                --------                                  --------

Total liabilities                                497,341                                   460,264
                                                --------                                  --------

Stockholders' equity                              37,356                                    41,556
                                                --------                                  --------

Total liabilities and stockholders' equity      $534,697                                  $501,820
                                                ========                                  ========

Net interest income                                            $3,991                                    $3,846
                                                               ======                                    ======

Net interest rate spread                                                     3.28%                                     3.21%
                                                                             ====                                      ====

Net earning assets                                 ($118)                                  $14,596
                                                  ======                                   =======

Net yield on average interest-earning
assets (net interest margin)                                                 3.28%                                     3.32%
                                                                             ====                                      ====

Average interest-earning assets to
average interest-bearing liabilities                            99.98%                                   103.20%
                                                                =====                                    ======


(1)    Calculated including loans held for sale, and net of deferred loan fees,
       loan discounts, loans in process and the allowance for losses on loans.
(2)    Calculated including mortgage-backed securities available-for-sale.
(3)    Calculated including investment securities available-for-sale and
       certificates of deposit.

                                       21



                             KANKAKEE BANCORP, INC.

                           PART II - OTHER INFORMATION

Item 1.  Legal Proceedings - There are no material pending legal proceedings TO
         which the Company or the Bank is a party other than ordinary routine
         litigation incidental to their respective businesses.

Item 2.  Changes in Securities and Use of Proceeds - None

Item 3.  Defaults Upon Senior Securities - None

Item 4.  Submission of Matters to a Vote of Security Holders - None

Item 5.  Other Information - None

Item 6.  Exhibits and Reports on Form 8-K

           a.   Exhibits - 99.1 - Certification of Principal Executive Officer
                           99.2 - Certification of Chief Financial Officer

           b.   Reports on Form 8-K

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

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

                On February 20, 2003, the Company filed a report on Form 8-K
                stating under Item 5 that the Company, on February 18, 2003,
                pursuant to a stock buyback program authorized by the Board of
                Directors of the Company, after being approached by two
                stockholders offering to sell their shares to the Company, the
                Company purchased an aggregate of 174,270 shares of its common
                stock in open market transaction at a purchase price of $40.02
                per share, the current market price immediately prior to the
                transaction. The sellers were Lawrence B. Seidman, and related
                parties under his control, and Investors of America, Limited
                Partnership.

                On March 13, 2003, the Company filed a report on Form 8-K
                stating under Item 5 that the Company, on March 10, 2003,
                pursuant to a stock buyback program authorized by the Board of
                Directors, repurchased from two stockholders an aggregate of
                40,000 share of its common stock in open market transactions at
                a purchase price of $39.27 per share, the current market price
                immediately prior to

                                       22



     the transaction. The sellers were Tontine Management L.L.C. and Private
     Capital Management, L.P. Both stockholders' ownership in our common stock
     exceeded 10% as a result of our repurchases in February, and these latest
     purchases brought both stockholders' ownership below 10%.

     On April 24, 2003, the Company filed a report on Form 8-K pursuant to Item
     12 that the Company, on April 24, 2003, issued a news release announcing
     its earnings for the quarter ended March 31, 2003.

     On April 30, 2003, the Company filed a report on Form 8-K stating under
     Item 5 that the Company, on April 30, 2003, issued a news release
     announcing a stock dividend, the results of the annual meeting of
     stockholders and other corporate events.

                                       23



                             KANKAKEE BANCORP, INC.

SIGNATURES

     In accordance with the requirements of the Securities Exchange Act of 1934,
the Registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

                                           KANKAKEE BANCORP, INC.
                                           Registrant

Date:       May 13, 2003                   /s/ CAROL S. HOEKSTRA
      --------------------------           -------------------------------------
                                           Executive Vice President, Interim COO
                                           (Principal Executive Officer)



Date:       May 13, 2003                   /s/ RONALD J. WALTERS
      --------------------------           -------------------------------------
                                           Vice President and Treasurer
                                           (Principal Financial
                                           And Accounting Officer)

                                       24



     I, Carol S. Hoekstra, Executive Vice President, Interim Chief Operating
     Officer and Principal Executive Officer of the Company, certify that:

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

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

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

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

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

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

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

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

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

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

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

Date:  May 13, 2003

                                      /s/ Carol S. Hoekstra
                                      -----------------------------------------
                                      Executive Vice President, Interim COO and
                                      Principal Executive Officer

                                       25



          I, Ronald J. Walters, Vice President and Treasurer and Principal
          Financial and Accounting Officer of the Company, certify that:

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

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

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

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

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

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

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

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

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

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

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

Date:  May 13, 2003

                                      /s/ Ronald J. Walters
                                      ------------------------------------------
                                      Vice President, Treasurer and
                                      Principal Financial and Accounting Officer

                                       26

EX-23.1

                                                                    Exhibit 23.1

[LOGO OF MCGLADREY & PULLEN]

Consent of Independent Accountants

We consent to the incorporation by reference in the Proxy Statement / Prospectus
forming a part of the Registration Statement on Form S-4 filed by Kankakee
Bancorp, Inc of our report dated February 6, 2003, except for Note 17 as to
which the date is February 24, 2003, which is incorporated by reference in the
Annual Report on Form 10-K of Kankakee Bancorp, Inc. for the year ended December
31, 2002. We also consent to the reference of our firm under the heading
"EXPERTS" in the Proxy Statement / Prospectus.

/s/ McGladrey & Pullen

Champaign, Illinois
June 27, 2003

McGladrey & Pullen, LLP is an independent
member firm of RSM International, an
affiliation of independent accounting and
consulting firms.

EX-23.2

                                                                    Exhibit 23.2

                        INDEPENDENT ACCOUNTANTS' CONSENT

The Stockholders and Board of Directors
Kankakee Bancorp, Inc.
Kankakee, Illinois

We consent to the inclusion in the Registration Statement on Form S-4 of
Kankakee Bancorp, Inc. of our report, dated May 30, 2003, relating to the
consolidated balance sheet of Aviston Bancorp, Inc. and subsidiary as of
December 31, 2001, and the related consolidated statements of income,
shareholders' equity, and cash flows for the year then ended, our report, dated
June 6, 2003, relating to the consolidated statements of income and cash flows
of Aviston Bancorp, Inc. and subsidiary for the 296 day period ended October 23,
2002, and our report, dated February 21, 2003 (except for Note 2 as for which
the date is June 6, 2003), relating to the consolidated balance sheet of Aviston
Financial Corporation and subsidiaries as of December 31, 2002, and the related
consolidated statements of income, shareholders' equity, and cash flows for the
69 day period ended December 31, 2002, and to the reference to our Firm under
the heading of "Experts" in the related prospectus.

/s/ Hauk, Fasani, Ramsey, Kruse & Co. PC

St. Louis, Missouri
June 27, 2003

EX-99.1

                                                                    Exhibit 99.1

                                 REVOCABLE PROXY

                             Kankakee Bancorp, Inc.
                         Special Meeting of Stockholders

     The undersigned hereby appoints ___________________ of Kankakee Bancorp,
Inc. ("Kankakee Bancorp") to act as attorney and proxy for the undersigned to
vote all shares of common stock of Kankakee Bancorp that the undersigned is
entitled to vote at Kankakee Bancorp's Special Meeting of Stockholders (the
"Meeting"), to be held on ________________, 2003, at the offices of Barack
Ferrazzano Kirschbaum Perlman & Nagelberg LLC, 333 W. Wacker Drive, Suite 2700,
Chicago, Illinois 60606, at __:00 __.m., local time, and any and all
adjournments and postponements thereof, as follows:

         The approval of the Agreement and Plan of Merger, dated as of
         May 27, 2003 (the "Merger Agreement"), between Kankakee
         Bancorp, Inc. and Aviston Financial Corporation and the
         transactions it contemplates

               [_] FOR          [_] AGAINST      [_] ABSTAIN

                    The Board of Directors recommends a
              vote "FOR" approval of the Merger Agreement and
                     the transactions it contemplates.

         The adoption of an amendment to the Certificate of Incorporation of
         Kankakee Bancorp, Inc., changing its name to _______________________

               [_] FOR          [_] AGAINST      [_] ABSTAIN

                    The Board of Directors recommends a vote "FOR"
            adoption of this amendment to the Certificate of Incorporation.

         The adoption of an amendment to the Certificate of
         Incorporation of Kankakee Bancorp, Inc., increasing the number
         of authorized shares of common stock from 3.5 million to 5.5
         million

               [_] FOR          [_] AGAINST      [_] ABSTAIN

                    The Board of Directors recommends a vote "FOR"
            adoption of this amendment to the Certificate of Incorporation.

         The adoption of an amendment to the Certificate of Incorporation of
         Kankakee Bancorp, Inc., changing the manner in which the Certificate of
         Incorporation may be amended

               [_] FOR          [_] AGAINST      [_] ABSTAIN

                    The Board of Directors recommends a vote "FOR"
            adoption of this amendment to the Certificate of Incorporation.

         The approval to adjourn the Meeting in the event that an
         insufficient number of shares is present in person or by proxy
         to approve the Merger Agreement to permit further solicitation

               [_] FOR          [_] AGAINST      [_] ABSTAIN



- --------------------------------------------------------------------------------
THIS PROXY WILL BE VOTED AS DIRECTED, BUT IF NO INSTRUCTIONS ARE SPECIFIED, THIS
PROXY WILL BE VOTED FOR APPROVAL OF THE MERGER AGREEMENT AND THE TRANSACTIONS IT
CONTEMPLATES, FOR ADOPTION OF THE AMENDMENT TO THE CERTIFICATE OF INCORPORATION
CHANGING KANKAKEE BANCORP'S NAME TO __________________, FOR ADOPTION OF THE
AMENDMENT TO THE CERTIFICATE OF INCORPORATION INCREASING THE NUMBER OF
AUTHORIZED SHARES OF COMMON STOCK FROM 3.5 MILLION TO 5.5 MILLION, FOR ADOPTION
OF THE AMENDMENT TO THE CERTIFICATE OF INCORPORATION CHANGING THE MANNER IN
WHICH THE CERTIFICATE OF INCORPORATION MAY BE AMENDED AND FOR ANY RESOLUTION TO
                                                          ---
ADJOURN THE SPECIAL MEETING, IF NECESSARY, TO SOLICIT ADDITIONAL PROXIES. IF ANY
OTHER BUSINESS IS PRESENTED AT THE MEETING, THIS PROXY WILL BE VOTED BY THOSE
NAMED IN THIS PROXY IN THEIR BEST JUDGMENT. AT THE PRESENT TIME, THE BOARD OF
DIRECTORS KNOWS OF NO OTHER BUSINESS TO BE PRESENTED AT THE MEETING.

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

           THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS

         This proxy may be revoked at any time before it is voted by: (i) filing
with the Secretary of Kankakee Bancorp at or before the Meeting a written notice
of revocation bearing a later date than this proxy; (ii) duly executing a
subsequent proxy relating to the same shares and delivering it to the Secretary
of Kankakee Bancorp at or before the Meeting; or (iii) attending the Meeting and
voting in person (although attendance at the Meeting will not in and of itself
constitute revocation of this proxy). If this proxy is properly revoked as
described above, then the power of such attorneys and proxies shall be deemed
terminated and of no further force and effect.

         The undersigned acknowledges receipt from Kankakee Bancorp, prior to
the execution of this proxy, of Notice of the Special Meeting and a Proxy
Statement-Prospectus.

Date:______________________, 2003        ______________________________________
                                         PRINT NAME OF STOCKHOLDER

                                         ______________________________________
                                         SIGNATURE OF STOCKHOLDER

                                         ______________________________________
                                         PRINT NAME OF STOCKHOLDER

                                         ______________________________________
                                         SIGNATURE OF STOCKHOLDER

                                         Please sign exactly as your name
                                         appears on this card. When signing as
                                         attorney, executor, administrator,
                                         trustee or guardian, please give your
                                         full title. If shares are held
                                         jointly, each holder should sign.

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

                  PLEASE PROMPTLY COMPLETE, DATE, SIGN AND MAIL
                THIS PROXY IN THE ENCLOSED POSTAGE-PAID ENVELOPE

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

EX-99.2

                                                                    Exhibit 99.2

                                 REVOCABLE PROXY

                          Aviston Financial Corporation
                         Special Meeting of Stockholders

         The undersigned hereby appoints ___________________ of Aviston
Financial Corporation ("Aviston Financial"), with full power of substitution, to
act as attorneys and proxies for the undersigned to vote all shares of common
stock of Aviston Financial that the undersigned is entitled to vote at Aviston
Financial's Special Meeting of Stockholders (the "Meeting"), to be held on
__________________, 2003, at the main branch office of the State Bank of
Aviston, 101 S. Page Street, Aviston, Illinois 62216, at __:00 __.m., local
time, and any and all adjournments and postponements thereof, as follows:

       The approval of the Agreement and Plan of Merger, dated as of
       May 27, 2003 (the "Merger Agreement"), between Kankakee
       Bancorp, Inc. and Aviston Financial Corporation and the
       transactions it contemplates

                [_] FOR         [_] AGAINST      [_] ABSTAIN

                     The Board of Directors recommends a
               vote "FOR" Approval of the Merger Agreement and
                     the transactions it contemplates.

       The approval to adjourn the Meeting in the event that an
       insufficient number of shares is present in person or by proxy
       to approve the Merger Agreement to permit further solicitation

                [_] FOR         [_] AGAINST      [_] ABSTAIN

- --------------------------------------------------------------------------------
THIS PROXY WILL BE VOTED AS DIRECTED, BUT IF NO INSTRUCTIONS ARE SPECIFIED, THIS
PROXY WILL BE VOTED FOR APPROVAL OF THE MERGERS AGREEMENT AND THE TRANSACTIONS
IT CONTEMPLATES AND FOR ANY RESOLUTION TO ADJOURN THE SPECIAL MEETING, IF
NECESSARY, TO SOLICIT ADDITIONAL PROXIES. IF ANY OTHER BUSINESS IS PRESENTED AT
THE MEETING, THIS PROXY WILL BE VOTED BY THOSE NAMED IN THIS PROXY IN THEIR BEST
JUDGMENT. AT THE PRESENT TIME, THE BOARD OF DIRECTORS KNOWS OF NO OTHER BUSINESS
TO BE PRESENTED AT THE MEETING.

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



           THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS

         This proxy may be revoked at any time before it is voted by: (i) filing
with the Secretary of Aviston Financial at or before the Meeting a written
notice of revocation bearing a later date than this proxy; (ii) duly executing a
subsequent proxy relating to the same shares and delivering it to the Secretary
of Aviston Financial at or before the Meeting; or (iii) attending the Meeting
and voting in person (although attendance at the Meeting will not in and of
itself constitute revocation of this proxy). If this proxy is properly revoked
as described above, then the power of such attorneys and proxies shall be deemed
terminated and of no further force and effect.

         The undersigned acknowledges receipt from Aviston Financial, prior to
the execution of this proxy, of Notice of the Special Meeting and a Proxy
Statement-Prospectus.

Date:______________________, 2003

                                            ____________________________________
                                            PRINT NAME OF STOCKHOLDER

                                            ____________________________________
                                            SIGNATURE OF STOCKHOLDER

                                            ____________________________________
                                            PRINT NAME OF STOCKHOLDER

                                            ____________________________________
                                            SIGNATURE OF STOCKHOLDER

                                            Please sign exactly as your name
                                            appears on this card. When signing
                                            as attorney, executor,
                                            administrator, trustee or guardian,
                                            please give your full title. If
                                            shares are held jointly, each holder
                                            should sign.

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

                  PLEASE PROMPTLY COMPLETE, DATE, SIGN AND MAIL
                THIS PROXY IN THE ENCLOSED POSTAGE-PAID ENVELOPE

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

EX-99.3

                                                                    Exhibit 99.3

                  CONSENT OF PERSON ABOUT TO BECOME A DIRECTOR


     Pursuant to (S)230.438 of Regulation C promulgated under the Securities Act
of 1933, as amended, the undersigned hereby consents to his being named in the
Proxy Statement-Prospectus, which forms a part of the Registration Statement on
Form S-4 relating to the proposed merger of Aviston Financial Corporation with
and into Kankakee Bancorp, Inc., as a person who is expected to become a
director of Kankakee Bancorp, Inc., upon the consummation of such merger. As of
the effective time of the Registration Statement, the undersigned will not be a
member of the Board of Directors of Kankakee Bancorp, Inc. and will not be
required to sign the Registration Statement.



June 27, 2003
                                            Signature to be filed by amendment.
                                        ----------------------------------------
                                            Thomas A. Daiber