<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C 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 June 30, 1996.
or
[ ] Transition Report Under Section 13 or 15(d) of the Securities Exchange Act
of 1934 For the Transition Period From to .
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Commission File Number 0-20804
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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
or Organization) Identification Number)
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
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As of August 7, 1996, there were 1,427,718 issued and outstanding shares of the
Issuer's Common Stock (exclusive of 322,182 shares of the Issuer's Common Stock
held as treasury stock).
<PAGE>
KANKAKEE BANCORP, INC.
INDEX
Page
Number
Part I. FINANCIAL INFORMATION
Item 1. Consolidated Financial
Statements (Unaudited)
Statements of Financial Condition,
June 30, 1996 and December 31, 1995 1
Statements of Income, Three Months
Ended June 30, 1996 and 1995 2
Statements of Income, Six Months
Ended June 30, 1996 and 1995 3
Statements of Cash Flows, Six Months
Ended June 30, 1996 and 1995 4 - 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 7 - 15
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 2. Changes in Securities 16
Item 3. Defaults Upon Senior Securities 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16
SIGNATURES 17
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CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (UNAUDITED)
KANKAKEE BANCORP, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
------------ ------------
<S> <C> <C>
Assets
Cash and amounts due from banks $ 6,699,064 $ 8,849,933
Federal funds sold 1,135,000 13,090,000
Money market funds 6,982,206 3,754,576
------------ ------------
Cash and cash equivalents 14,816,270 25,694,509
Certificates of deposit 426,640 287,500
Investment securities available-for-sale - at market 62,497,360 47,710,703
Investment securities (fair value: June 30, 1996
- $72,223; December 31, 1995 - $74,545) 72,223 74,545
Mortgage-backed securities available-for-sale - at market 32,292,213 36,118,544
Mortgage-backed securities (fair value: June 30, 1996
- $288,864; December 31, 1995 - $378,182) 281,450 362,843
Nonmarketable equity securities 551,100 551,100
Loans 235,629,261 232,274,230
Less: Allowance for losses on loans 2,378,530 2,387,856
------------ ------------
Net loans 233,250,731 229,886,374
Loans held for sale 558,320 581,054
Real estate held for sale 166,305 834,136
Federal Home Loan Bank stock, at cost 1,956,000 1,546,500
Office properties and equipment 5,038,476 5,099,536
Accrued interest receivable 2,908,444 2,483,548
Prepaid expenses and other assets 1,846,074 1,269,868
Intangible assets 2,509,263 2,602,237
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Total assets $359,170,869 $355,102,997
------------ ------------
------------ ------------
Liabilities and stockholders' equity
Liabilities
Deposits $294,622,223 $286,079,750
Short term borrowings 16,730,000 20,370,000
Other borrowings 9,925,000 9,275,000
Advance payments by borrowers for taxes and insurance 1,543,719 1,630,066
Other liabilities 851,703 1,297,494
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Total liabilities 323,672,645 318,652,310
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Stockholders' equity
Preferred stock, $.01 par value; authorized, 500,000
shares; none outstanding - -
Common stock, $.01 par value; authorized, 3,500,000
shares; issued and outstanding: June 30, 1996 -
1,433,718; December 31, 1995 - 1,453,418 17,500 17,500
Additional paid-in capital 16,181,726 16,186,914
Retained income, substantially restricted 26,726,756 26,015,559
Unrealized gains (losses) on available-for-
sale securities, net of related income taxes (1,174,029) 188,849
Employee Stock Ownership Plan loan (680,449) (756,055)
Bank Incentive Plan and Trusts (55,655) (75,434)
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41,015,849 41,577,333
Less cost of treasury stock 5,517,625 5,126,646
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Total stockholders' equity 35,498,224 36,450,687
------------ ------------
Total liabilities and stockholders' equity $359,170,869 $355,102,997
------------ ------------
------------ ------------
</TABLE>
See notes to consolidated financial statements (unaudited)
1
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
KANKAKEE BANCORP, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
Three Months Ended June 30,
-------------------------------
1996 1995
----------- -----------
<S> <C> <C>
Interest income:
Loans $4,785,922 $4,341,252
Mortgage-backed securities 543,180 115,810
Investment securities 1,152,449 1,028,125
----------- -----------
Total interest income 6,481,551 5,485,187
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Interest expense:
Deposits 3,424,131 2,918,629
Borrowed funds 407,676 10,046
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Total interest expense 3,831,807 2,928,675
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Net interest income 2,649,744 2,556,512
Provision for losses on loans 28,650 73,820
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Net interest income after provision for losses on loans 2,621,094 2,482,692
Other income:
Net gain (loss) on sales of securities (9,375) 62
Net gain on sales of real estate held for sale 20,710 598
Net gain (loss) on sales of loans (30,404) 2,248
Fee income 192,925 154,522
Insurance commissions 20,048 22,211
Other 146,502 87,076
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Total other income 340,406 266,717
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Other expenses:
Compensation and benefits 1,098,643 1,188,506
Occupancy 168,523 179,019
Furniture and equipment 103,148 76,329
Federal insurance premiums 163,133 146,381
Advertising 50,551 54,037
Provisions for losses on real estate held for sale - 50,000
Data processing services 70,558 61,431
Telephone and postage 59,179 58,359
Other general and administrative 453,437 455,923
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Total other expenses 2,167,172 2,269,985
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Income before income taxes 794,328 479,424
Income taxes 190,430 162,950
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Net income $ 603,898 $ 316,474
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----------- -----------
Earnings per share $0.40 $0.20
----- -----
----- -----
</TABLE>
See notes to consolidated financial statements (unaudited)
2
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
KANKAKEE BANCORP, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
Six Months Ended June 30,
-------------------------------
1996 1995
----------- -----------
<S> <C> <C>
Interest income:
Loans $9,471,280 $8,442,483
Mortgage-backed securities 1,115,844 223,615
Investment securities 2,294,548 2,136,531
----------- -----------
Total interest income 12,881,672 10,802,629
----------- -----------
Interest expense:
Deposits 6,817,203 5,632,767
Borrowed funds 842,734 10,046
----------- -----------
Total interest expense 7,659,937 5,642,813
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Net interest income 5,221,735 5,159,816
Provision for losses on loans 38,097 134,390
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Net interest income after provision for losses on loans 5,183,638 5,025,426
Other income:
Net gain (loss) on sales of securities (28,809) 21,655
Net gain (loss) on sales of real estate held for sale 38,428 (4,292)
Net gain (loss) on sales of loans (20,068) 2,574
Fee income 364,647 310,756
Insurance commissions 40,145 32,417
Other 210,258 179,116
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Total other income 604,601 542,226
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Other expenses:
Compensation and benefits 2,280,683 2,150,302
Occupancy 350,868 364,389
Furniture and equipment 167,086 145,279
Federal insurance premiums 319,526 292,761
Advertising 65,679 103,408
Provision for losses on real estate held for sale - 50,000
Data processing services 175,114 117,362
Telephone and postage 144,969 114,753
Other general and administrative 971,322 847,299
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Total other expenses 4,475,247 4,185,553
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Income taxes 1,312,992 1,382,099
Income tax expense 312,521 469,950
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Net income $ 1,000,471 $ 912,149
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----------- -----------
Earnings per share $0.66 $0.57
----- -----
----- -----
</TABLE>
See notes to consolidated financial statements (unaudited)
3
<PAGE>
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
KANKAKEE BANCORP, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
Six Months Ended March 31,
--------------------------------
1996 1995
------------ ------------
<S> <C> <C>
Cash flows from operating activities
Net income $1,000,471 $912,149
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Provision for losses on loans 38,097 134,390
Provision for losses on real estate held for sale - 50,000
Depreciation and amortization 321,904 255,458
Amortization of investment premiums and discounts-net 205,216 (2,693)
Accretion of loan fees and discounts (58,380) (76,922)
Deferred income tax provision (benefit) (13,710) 244,541
Origination of loans held for sale (3,354,766) (595,256)
Proceeds from sales of loans 3,357,432 206,173
Decrease (increase) in interest receivable (424,896) 23,659
Increase (decrease) in interest payable on deposits (11,446) (2,180)
Proceeds from sales of trading securities 19,662,500 -
Purchase of trading securities (19,884,844) -
Net (gain) loss on sales of loans 20,068 (2,574)
Net (gain) loss on sales of securities 28,809 (21,655)
Net (gain) loss on sales of real estate held for sale (38,428) 4,291
Other, net (961,738) (937,637)
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Net cash provided (used) by operating activities (113,711) 191,744
------------ ------------
Cash flows from investing activities
Investment securities:
Available-for-sale:
Purchases (26,956,508) (3,039,806)
Proceeds from sales 4,189,375 12,975,469
Proceeds from maturities 6,500,000 -
Held-to-maturity:
Purchases - (2,000,000)
Proceeds from maturities 2,322 3,002,182
Mortgage-backed securities:
Available-for-sale
Purchases (2,967,588) (10,240,367)
Proceeds from maturities 6,197,884
Held-to-maturity:
Proceeds from maturities 81,393 430,872
Purchases of certificates of deposit (826,640) (287,500)
Proceeds from maturities of certificates of deposit 687,500 1,447,826
Proceeds from sales of real estate 933,394 21,018
Net loan fees deferred 93,574 50,738
Loans originated (36,996,484) (37,763,439)
Loans purchased (850,000) (78,136)
Principal collected on loans 34,681,089 25,241,483
Purchases of office properties and equipment-net (303,102) (74,007)
Payment of acquisition costs (22,868) -
------------ ------------
Net cash used by investing activities (15,556,659) (10,313,667)
------------ ------------
</TABLE>
See notes to consolidated financial statements (unaudited)
4
<PAGE>
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) (continued)
KANKAKEE BANCORP, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
Six Months Ended June 30,
--------------------------------
1996 1995
------------ ------------
<S> <C> <C>
Cash flows from financing activities
Net (decrease) increase in non-certificate
of deposit accounts 3,364,398 ($14,481,854)
Net increase in certificates of deposit 5,189,521 13,298,783
Increase (decrease) in advance payments by
borrowers for taxes and insurance (86,347) 37,207
Proceeds from short-term borrowing 16,730,000 8,715,000
Repayments of short-term borrowed funds (20,370,000) -
Proceeds from other borrowing 650,000 1,575,000
Proceeds from exercise of stock options 6,912 5,431
Dividends paid (289,274) (304,139)
Purchase of treasury stock (403,079) (189,881)
------------ ------------
Net cash provided by financing activities 4,792,131 8,655,547
------------ ------------
Decrease in cash and cash equivalents (10,878,239) (1,466,376)
Cash and cash equivalents:
Beginning of period 25,694,509 14,047,105
------------ ------------
End of period $14,816,270 $12,580,729
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Supplemental disclosures of cash flow information
Cash paid during the year for:
Interest on deposits $6,828,600 $5,634,900
------------ ------------
------------ ------------
Interest on borrowed funds $842,300
------------
------------
Income taxes $128,736 $265,000
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------------ ------------
Supplemental disclosures of non-cash investing activities:
Real estate acquired through foreclosure $224,830 $10,235
------------ ------------
------------ ------------
</TABLE>
See notes to consolidated financial statements (unaudited)
5
<PAGE>
KANKAKEE BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
June 30, 1996
Note 1 - Basis of Presentation
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with instructions to Form 10-Q. Accordingly, they do
not include all of the information and footnotes required by generally accepted
accounting principles 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, 1995 has been derived from the audited financial statements at
that date, but does not include all of the information and footnotes required by
generally accepted accounting principles for complete financial statements.
Operating results for the three-month and six-month periods ended June 30, 1996
are not necessarily indicative of the results that may be expected for the year
ending December 31, 1996. 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, 1995.
Note 2 - Earnings Per Share
Earnings per share of common stock have been determined by dividing net
income for the period by the weighted average number of shares of common stock
and common stock equivalents outstanding. Common stock equivalents assume
exercise of stock options and the calculation assumes purchase of treasury stock
with the option proceeds at the average market price for the period (when
dilutive). The Company adopted an incentive stock option plan for the benefit of
directors, officers and employees and on December 30, 1992 awarded stock options
subject to stockholder approval. The stockholders approved the plan at their
annual meeting on April 23, 1993. Earnings per share have been determined
considering the stock options granted, net of stock options which have been
exercised.
Note 3 - Accounting for Certain Investments in Debt and Equity Securities
At June 30, 1996, in accordance with the requirements of Statement of
Financial Accounting Standards No. 115 ("SFAS 115"), "Accounting for Certain
Investments in Debt and Equity Securities", stockholders' equity has been
reduced by $1,174,029. This represents the amount by which the book value of
the available-for-sale securities and the available-for-sale mortgage-backed
securities exceeded the market value, net of an income tax benefit of $604,665.
An increase in market interest rates during the six months ended June 30, 1996
resulted in a $1,362,878 decrease in the market value, net of income tax effect,
of the available-for-sale securities and the available-for-sale mortgage-backed
securities during the six months. At the end of 1995, the market value of the
available-for-sale securities portfolio exceeded the book value by $188,849, net
of income tax benefit.
6
<PAGE>
KANKAKEE BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company was formed in late 1992 under the laws of the State of Delaware
for the purpose of becoming the savings and loan holding company of Kankakee
Federal Savings Bank (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 Bank 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 nine branch offices located in the communities of Ashkum,
Bourbonnais, Carlyle, Champaign, Dwight, Herscher, Hoopeston, Manteno and
Momence, Illinois. The Bank'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 primary market areas. The Bank also
invests in investment securities, mortgage-backed securities and various types
of short term liquid assets.
FINANCIAL CONDITION
Total assets of the Company increased by $4.1 million, or 1.1%, to $359.2
million at June 30, 1996 from $355.1 million at December 31, 1995.
Cash and cash equivalents decreased by $10.9 million, or 42.3%, from $25.7
million at December 31, 1995 to $14.8 million at June 30, 1996. The decrease
was primarily attributable to increases in investment securities available-for-
sale and loans receivable, and a decrease in borrowings, which were partially
offset by an increase in deposits and a decrease in mortgage-backed securities
available-for-sale.
During the six-month period ended June 30, 1996, net loans receivable
increased by $3.4 million (1.5%) from $229.9 million to $233.3 million. This was
primarily the result of the origination (or purchase) of $18.2 million of real
estate loans and the origination (or purchase) of $19.6 million of consumer and
commercial business loans, offset by loan repayments which totaled $34.7
million.
Securities available-for-sale increased by $14.8 million to $62.5 million
at June 30, 1996 from $47.7 million at December 31, 1995 as the result of the
purchase of $27.0 million in such securities, partially offset by the sale of
$4.2 million and maturity of $6.5 million in such securities, and by the net
change in market value adjustment.
Deposits increased by $8.5 million, or 3.0% to $294.6 million at June 30,
1996 from $286.1 million at December 31, 1995. The increase resulted from a $5.2
million increase in certificates of deposit and a $3.3 million increase in
passbook, NOW and money market accounts.
7
<PAGE>
During 1995, the Board of Directors authorized the borrowing of
approximately $30.0 million for the purpose of purchasing mortgage-backed
securities. The mortgage-backed securities purchased with borrowed money are
categorized as available-for-sale and subject to market value adjustments under
SFAS 115. At June 30, 1996, mortgage-backed securities available-for-sale
totaled $32.3 million and borrowed money totaled $26.7 million. The borrowed
money consisted of $9.9 million in advances from the Federal Home Loan Bank of
Chicago and $16.8 million in funds borrowed using mortgage-backed securities as
collateral.
ASSET/LIABILITY MANAGEMENT
Management attempts to control fluctuations in net interest income which
result from an imbalance in the amounts of assets and liabilities that reprice
during a period of time. The Company attempts to mitigate its interest rate
exposure, to the extent consistent with the maintenance of an adequate interest
rate spread, by retaining adjustable rate loans and selling, in the secondary
market (with servicing retained), the majority of 30-year fixed-rate mortgage
loans which it originates. In addition, the Company has continued to build its
portfolio of adjustable rate commercial real estate and multi-family loans. The
Company has also increased its origination of commercial business and
construction loans having adjustable or floating interest rates and/or
relatively short terms to maturity in an effort to control interest rate risk.
NON-PERFORMING ASSETS AND ALLOWANCE FOR LOSSES ON LOANS
The Company's non-performing assets decreased to $1.6 million at June 30,
1996 as compared to $2.3 million at December 31, 1995. Non-performing assets
represented 0.44% and 0.64% of total assets at June 30, 1996 and December 31,
1995, respectively. During the six-month period ending June 30, 1996,
foreclosed assets and non-performing one-to-four family loans decreased by
$668,000 and $222,000, respectively. These decreases were partially offset by
increases of $48,000, $76,000, $39,000 and $18,000 in non-performing
construction and development loans, consumer loans, commercial real estate loans
and commercial business loans, respectively. The ratio of the allowance for
losses on loans to non-performing loans was 168.3% as of June 30, 1996 as
compared to 163.5% as of December 31, 1995. The increase in this ratio, which
excludes foreclosed assets, is primarily the result of a decrease of $46,000 in
non-performing loans.
The Company classified $2.4 million of its assets as Special Mention, $3.7
million as Substandard and $218,000 as Loss as of June 30, 1996. No assets were
classified as Doubtful at June 30, 1996. This represents a decrease of $170,000
in the Special Mention category and a net decrease of $1.1 million in the other
categories from the December 31, 1995 totals for classified assets. The ratio
of classified assets to total assets (including items classified as Special
Mention) was 1.77% as of June 30, 1996 as compared to 2.15% as of December 31,
1995. The ratio of the allowance for losses on loans to classified assets
increased to 37.4% as of June 30, 1996 as compared to 31.3% as of December 31,
1995.
The allowance for losses on loans is established through a provision for
losses on loans based on management's evaluation of the risk inherent in the
loan portfolio and changes in the nature and volume of its loan activity. Such
evaluation, which includes a review of all loans with respect
8
<PAGE>
to which full collectibility may not be reasonably assured, considers the fair
value of the underlying collateral, economic conditions, historical loan loss
experience and other factors that warrant recognition in providing for an
adequate allowance for losses on loans. The Bank also requires additional
reserves for delinquent and classified loans. These policies have had the effect
of increasing the Company's allowance for losses on loans in recent years.
While management believes that it uses the best information available to
determine the allowance for losses on loans, unforeseen market conditions could
result in adjustments to the allowance for losses on loans and net earnings
could be significantly affected if circumstances differ substantially from the
assumptions used in establishing the allowance for losses on loans.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1996 AND 1995
Net income for the three-month period ended June 30, 1996 was $604,000
compared to $316,000 for the same period in 1995. The difference in net income
of $288,000 represents a 90.8% increase in net income for the 1996 period. The
increase in net income resulted from a $93,000 increase in net interest income,
a $103,000 decrease in general and administrative expenses, a $74,000 increase
in other income and a $45,000 decrease in the provision for losses on loans,
partially offset by a $27,000 increase in federal income tax expense.
Net interest income increased $93,000, or 3.6%, during the three-month
period ended June 30, 1996 compared to the three-month period ended June 30,
1995.
The table presented on page 14 ("Table I"), sets forth an analysis of the
Company's net interest income for the three-month periods ended June 30, 1996
and 1995.
As Table I indicates, interest income increased $1.0 million, or 18.2%, to
$6.5 million for the three-month period ended June 30, 1996 from $5.5 million
for the same period in 1995. The increase in interest income was the result of
an increase in the yield earned on interest-earning assets and an increase in
the average balance of interest-earning assets to 7.55% and $345.5 million,
respectively, during the 1996 period from 7.43% and $296.1 million,
respectively, during the 1995 period. The increase in yield was due to the
reinvestment of proceeds from maturing and prepaying assets at interest rates
higher than the rates earned on those maturing and prepaying assets, and, to a
lesser extent, from upward rate adjustments on adjustable rate mortgage loans.
Interest expense increased $900,000, or 30.8%, to $3.8 million for the
three-month period ended June 30, 1996 from $2.9 million for the same period in
1995. The increase in interest expense was the result of an increase in the
average yield on interest-bearing liabilities and an increase in the average
outstanding balance of interest-bearing liabilities to 4.78% and $322.1 million,
respectively, during the 1996 period from 4.38% and $268.3 million,
respectively, during the 1995 period. The increase in the average yield on
interest-bearing liabilities was attributable to a change in the composition of
average interest-bearing liabilities during the 1996 period as compared to the
1995 period. Higher yielding interest-bearing liabilities, consisting of
certificates
9
<PAGE>
of deposit and borrowings, represented 66.3% of interest-bearing liabilities
during the 1996 period as compared to 59.9% during the 1995 period. Average
outstanding borrowings during the 1996 period were 8.7% of interest-bearing
liabilities as compared to 1.0% during the 1995 period.
The provision for losses on loans totaled $29,000 for the three-month
period ended June 30, 1996 compared to $74,000 for the same period in 1995. The
decrease was primarily attributed to modest growth in loans receivable, relative
stability in the mix of loans in loans receivable and minimal net charges-offs
during the 1996 period.
Other income for the three-month period ended June 30, 1996 increased
$73,000, or 27.6%, to $340,000 compared to $267,000 for the same period in 1995.
The increase was attributable to increases in net gain on sale of real estate,
fee income and other income of $20,000, $38,000 and $59,000, respectively, which
were partially offset by increases in net loss on sale of investment and
mortgage-backed securities and net loss on sale of loans of $9,000 and $33,000,
respectively.
Other expenses for the three-month period ended June 30, 1996 decreased
$103,000, or 4.5%, to $2.2 million from $2.3 million during the 1995 period.
The decrease was attributable to decreases in compensation and benefits expense,
occupancy expense and provision for losses on real estate held for sale of
$90,000, $10,000 and $50,000, respectively, which were partially offset by
increases in furniture and equipment expense and federal insurance premiums of
$27,000 and $17,000, respectively. The decreases in compensation and benefits
expense and occupancy expense were primarily the result of recommendations
derived from an operational review and restructuring of certain departments
during the last half of 1995.
Federal income taxes increased $27,000, or 16.7%, to $190,000 for the
three-month period ended June 30, 1996, compared to $163,000 for the same period
in 1995. The effective federal income tax rate for 1996 has been reduced
because of a prior overaccrual of income taxes which was considered immaterial.
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996 AND 1995
Net income for the six-month period ended June 30, 1996 was $1.0 million
compared to $912,000 for the same period in 1995. The difference in net income
of $88,000 represents a 9.7% increase in net income for the 1996 period. The
increase in net income resulted from a $62,000 increase in net interest income,
a $96,000 decrease in provision for losses on loans, a $62,000 increase in other
income and a $157,000 decrease in federal income tax expense, which were
partially offset by a $290,000 increase in other expenses.
Net interest income increased by $62,000, or 1.2%, during the six-month
period ended June 30, 1996 compared to the six-month period ended June 30, 1995.
The table presented on page 15 ("Table II"), sets forth an analysis of the
Company's net interest income for the six months ended June 30, 1996 and 1995.
10
<PAGE>
As Table II indicates, interest income increased $2.1 million, or 19.2% ,
to $12.9 million for the six-month period ended June 30, 1996 from $10.8 million
for the same period in 1995. The increase in interest income was the result of
an increase in the yield earned on interest-earning assets and an increase in
the average balance of interest-earning assets to 7.54% and $343.8 million,
respectively, during the 1996 period from 7.42% and $293.5 million,
respectively, during the 1995 period. The increase in yield was due to the
reinvestment of proceeds from maturing and prepaying assets at interest rates
higher than the rates earned on those maturing and prepaying assets, and to
adjustments on adjustable-rate mortgage loans repricing at higher levels during
the period.
Interest expense increased $2.1 million, or 35.7%, to $7.7 million for the
six-month period ended June 30, 1996 from $5.6 million for the same period in
1995. The increase in interest expense was the result of an increase in the
average yield on interest-bearing liabilities and an increase in the average
outstanding balance of interest-bearing liabilities to 4.81% and $320.2 million,
respectively, during the 1996 period from 4.27% and $266.8 million,
respectively, during the 1995 period.
Other income for the six-month period ended June 30, 1996 increased
$63,000, or 11.5%, to $605,000 from $542,000 for the same period in 1995.
Increases of $43,000, $54,000 and $31,000 in net gain on the sale of real
estate, fee income and other income, respectively, were partially offset by
decreases of $50,000 and $23,000 in net gain on the sale of investment and
mortgage-backed securities and net gain on the sale of loans, respectively.
Other expenses for the six-month period ended June 30, 1996 increased
$290,000, or 6.9%, from the same period in 1995. Compensation and benefits
expense increased $130,000, or 6.1%, from $2.2 million during the 1995 period to
$2.3 million during the 1996 period. The 1995 figure reflected a one-time
expense reduction of $275,000 which resulted from the decision to discontinue
funding a portion of the cost of post-retirement health benefits for retired
employees. Expense for data processing services for the six-month period ended
June 30, 1996 increased $58,000, or 49.2%, due to costs associated with
temporary data center management required during the period and the amortization
of software licensing and prepaid maintenance associated with an upgrade of the
computer system. Telephone and postage expense increased $30,000, or 26.3%,
during the 1996 period, primarily due to increased use of direct mail marketing
of products and services. Other general and administrative expenses increased
during the 1996 period by $124,000, or 14.6%, primarily due to amortization of
intangible assets related to the Momence branch acquisition and an increase in
fees paid for outsourced services.
Federal income taxes decreased by $157,000, or 33.5%, to $313,000 for the
six-month period ended June 30, 1996, compared to $470,000 for the same period
in 1995. The effective federal income tax rate for 1996 has been reduced
because of a prior overaccrual of income taxes which was considered immaterial.
LIQUIDITY AND CAPITAL RESOURCES
The Bank maintains a certain level of cash and other liquid assets to fund
normal volumes
11
<PAGE>
of loan commitments, deposit withdrawals and other obligations. The Office of
Thrift Supervision ("OTS") requires thrifts to maintain a minimum liquidity
ratio (cash and cash equivalent investments to net withdrawable deposits and
borrowings due within one year) of 5%. At June 30, 1996, the Bank's liquidity
ratio was 15.5%, which was in excess of the minimum regulatory requirement.
The Bank'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.
Federally insured savings banks, such as the Bank, are required to maintain
a minimum level of regulatory capital. The OTS has established the following
capital requirements: a risk-based capital ratio, a core capital ratio and a
tangible capital ratio. The capital regulations of the OTS exclude the effect
of SFAS 115 for the purpose of calculating regulatory capital.
The capital regulations currently require tangible capital of at least 1.5%
of adjusted total assets (as defined by regulation). Tangible capital generally
includes common stockholders' equity and retained income and certain non-
cumulative perpetual preferred stock and related income less intangible assets
(other than specified amounts of purchased mortgage servicing rights) and
certain non-includable investments in subsidiaries. The capital regulations also
currently require core capital equal to at least 3.0% of adjusted total assets
(as defined by regulation). Core capital generally consists of tangible capital
plus specified amounts of certain intangible assets. The OTS risk-based
requirement currently requires associations to have total capital of at least
8.0% of risk-weighted assets. Total capital consists of core capital plus
supplementary capital, which consists of, among other things, maturing capital
instruments, such as subordinated debt and mandatorily redeemable preferred
stock, and a portion of the Bank's general allowance for losses on loans. As of
June 30, 1996, the Bank exceeded all current minimum regulatory capital
standards.
At June 30, 1996, the Bank's tangible capital was $28.4 million, or 8.0%,
of adjusted total assets, which exceeded the 1.5% requirement by $23.1 million.
In addition, at June 30, 1996, the Bank had core capital of $28.4 million, or
8.0%, of adjusted total assets, which exceeded the 3.0% requirement by $17.8
million. The Bank had risk-based capital of $30.4 million at June 30, 1996, or
15.3%, of risk-adjusted assets, which exceeded the minimum risk-based capital
requirement by $14.5 million.
STOCK REPURCHASE
On January 30, 1996, the Company announced that its Board of Directors had
authorized the repurchase of up to 150,000 shares of its common stock. The
Company repurchased 5,600 shares of its common stock during the second quarter
of 1996 at a total cost of $107,000, and since the current program was announced
20,400 shares of common stock have been repurchased at a total cost of $403,000.
Through June 30, 1996, a total of 335,557 shares of common stock of the Company
had been purchased under the current and previously completed repurchase
programs
12
<PAGE>
at a total cost of $5.8 million. As of June 30, 1996, the Company held 316,282
shares of its common stock as treasury stock.
EXERCISE OF STOCK OPTIONS
There were no stock options exercised during the second quarter of 1996.
During the first six months of 1996, stock options for 700 shares of common
stock were exercised. Between June 30, 1996 and August 7, 1996, no notice was
received from holders of options of their intent to exercise options.
DIVIDENDS
During January, 1995, the Company began a regular quarterly dividend
program and declared the first cash dividend since becoming a public company.
Cash dividends of $.10 per share have been paid during each quarter since the
Company announced the dividend program. In July, 1996, a cash dividend of $.10
per share was declared payable on August 30, 1996 to stockholders of record as
of August 15, 1996. 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.
BRANCH SALE
On February 5, 1996, the Bank announced that it had entered into an
agreement to sell its branch in Carlyle, Illinois to Centralia Savings Bank,
Centralia, Illinois ("Centralia"). The branch had approximately $9.4 million in
deposits at June 30, 1996. In addition to assuming the deposit liabilities
attributable to the branch, Centralia has agreed to acquire certain assets
associated with the branch, including the real property. Subsequent to the end
of the second quarter, the Bank received notification that all required
regulatory approvals had been received. It is expected that the sale will be
completed by the end of the third quarter.
13
<PAGE>
<TABLE>
<CAPTION>
TABLE I
NET INTEREST INCOME ANALYSIS (UNAUDITED)
KANKAKEE BANCORP, INC. AND SUBSIDIARY
Three Months Ended June 30,
---------------------------------------------------------------------
1996 1995
--------------------------------- ---------------------------------
Average Average
Outstanding Interest Yield/ Outstanding Interest Yield/
Balance Earned/Paid Rate Balance Earned/Paid Rate
--------------------------------- ---------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable (1) $232,796 $4,786 8.27% $223,153 $4,341 7.80%
Mortgage-backed securities 34,276 543 6.37% 8,557 116 5.44%
Investments securities (2) 60,020 954 6.39% 49,268 823 6.70%
Other interest-earning assets 16,472 173 4.22% 13,658 181 5.32%
FHLB stock 1,956 26 5.35% 1,510 24 6.38%
-------- ------ -------- ------
Total interest-earning assets 345,520 6,482 7.55% 296,146 5,485 7.43%
-------- ------ -------- ------
Other assets 15,578 12,967
-------- --------
Total assets $361,098 $309,113
-------- --------
-------- --------
Interest-bearing liabilities:
Time deposits $185,636 2,660 5.76% $158,242 2,176 5.52%
Savings deposits 55,080 370 2.70% 55,699 352 2.53%
Demand and NOW deposits 53,436 394 2.97% 51,797 390 3.02%
Borrowings 27,983 408 5.86% 2,573 10 1.56%
-------- ------ --------
Total interest-bearing liabilities 322,135 3,832 4.78% 268,311 2,928 4.38%
-------- ------ -------- ------
Other liabilities 3,575 4,363
-------- --------
Total liabilities 325,710 272,674
-------- --------
Stockholders' equity 35,388 36,439
-------- --------
Total liabilities and
stockholders' equity $361,098 $309,113
-------- --------
-------- --------
Net interest income $2,650 $2,557
-------- ------
-------- ------
Net interest rate spread 2.77% 3.05%
----- -----
----- -----
Net earning assets $23,385 $27,835
-------- --------
-------- --------
Net yield on average interest-
earning assets (net interest
margin) 3.08% 3.46%
----- -----
----- -----
Average interest-earning assets to
average interest-bearing liabilities 107.26% 110.37%
-------- -------
-------- -------
</TABLE>
(1) Calculated including loans held for sale, and net of deferred loan fees,
loan discounts, loans in process and loan loss reserves.
(2) Calculated including investment securities available-for-sale.
14
<PAGE>
<TABLE>
<CAPTION>
TABLE II
NET INTEREST INCOME ANALYSIS (UNAUDITED)
KANKAKEE BANCORP, INC. AND SUBSIDIARY
Six Months Ended June 30,
--------------------------------------------------------------------
1996 1995
--------------------------------- --------------------------------
Average Average
Outstanding Interest Yield/ Outstanding Interest Yield/
Balance Earned/Paid Rate Balance Earned/Paid Rate
--------------------------------- --------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable (1) $231,717 $9,471 8.22% $219,633 $8,442 7.75%
Mortgage-backed securities 34,736 1,116 6.46% 7,576 224 5.96%
Investments securities (2) 55,753 1,761 6.35% 52,485 1,729 6.64%
Other interest-earning assets 19,768 475 4.83% 12,374 362 5.90%
FHLB stock 1,789 59 6.67% 1,463 46 6.34%
-------- -------- -------- ------
Total interest-earning assets 343,754 12,882 7.54% 293,531 10,803 7.42%
-------- -------- -------- ------
Other assets 15,759 13,472
-------- --------
Total assets $359,513 $307,003
-------- --------
-------- --------
Interest-bearing liabilities:
Time deposits $184,568 5,306 5.78% $154,481 4,098 5.35%
Savings deposits 54,550 728 2.68% 57,180 719 2.54%
Demand and NOW deposits 52,406 783 3.00% 53,636 816 3.07%
Borrowings 28,664 843 5.91% 1,459 10 1.38%
-------- -------- -------- ------
Total interest-bearing liabilities 320,188 7,660 4.81% 266,756 5,643 4.27%
-------- -------- -------- ------
Other liabilities 3,493 4,100
-------- --------
Total liabilities 323,681 270,856
-------- --------
Stockholders' equity 35,832 36,147
-------- --------
Total liabilities and
stockholders' equity $359,513 $307,003
-------- --------
-------- --------
Net interest income $5,222 $5,160
-------- ------
-------- ------
Net interest rate spread 2.73% 3.15%
----- -----
----- -----
Net earning assets $23,566 $26,775
-------- --------
-------- --------
Net yield on average interest-
earning assets (net interest
margin) 3.05% 3.54%
----- -----
----- -----
Average interest-earning assets to
average interest-bearing liabilities 107.36% 110.04%
------- -------
------- -------
</TABLE>
(1) Calculated including loans held for sale, and net of deferred loan fees,
loan discounts, loans in process and loan loss reserves.
(2) Calculated including investment securities available-for-sale.
15
<PAGE>
KANKAKEE BANCORP, INC.
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS - None
Item 2. CHANGES IN SECURITIES - None
Item 3. DEFAULTS UPON SENIOR SECURITIES - None
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Stockholders (the "Meeting") of the Company was
held on April 19, 1996. At the meeting, William Cheffer and Michael
A. Stanfa were elected to serve as directors with terms expiring in
1999. Continuing with terms expiring in 1997 were Charles C. Huber,
Thomas M. Schneider and Wesley E. Walker. Continuing with terms
expiring in 1998 were James G. Schneider and Larry D. Huffman. The
matters approved by stockholders at the Meeting and the number of
votes cast for, against or withheld (as well as the number of
abstentions and broker non-votes) as to each matter are set forth
below:
Number of Votes
---------------------
For Withheld
---------- --------
The election of the following
directors for a three-year term:
William Cheffer 1,239,782 10,977
Michael A. Stanfa 1,239,473 11,286
<TABLE>
<CAPTION>
Broker
For Against Abstain Non-Votes
---------- ------- ------- ---------
<S> <C> <C> <C> <C>
The ratification of McGladrey &
Pullen, LLP, as the auditors for the
year ending December 31, 1996: 1,237,879 8,539 4,341 -
</TABLE>
Item 5. OTHER INFORMATION - None
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits - Exhibit 27 - Financial Data Schedule
Reports on Form 8-K - None
16
<PAGE>
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: August 7, 1996 /s/ JAMES G. SCHNEIDER
----------------------- ---------------------------------------
Chairman, President and Chief Executive
Officer (Principal Executive
and Operating Officer)
Date: August 7, 1996 /s/ RONALD J. WALTERS
----------------------- ---------------------------------------
Vice President and Treasurer
(Principal Financial
and Accounting Officer)
17
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> APR-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 6,699
<INT-BEARING-DEPOSITS> 7,409
<FED-FUNDS-SOLD> 1,135
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 94,790
<INVESTMENTS-CARRYING> 354
<INVESTMENTS-MARKET> 361
<LOANS> 235,629
<ALLOWANCE> 2,379
<TOTAL-ASSETS> 359,171
<DEPOSITS> 294,622
<SHORT-TERM> 16,730
<LIABILITIES-OTHER> 2,395
<LONG-TERM> 9,926
0
0
<COMMON> 16,199
<OTHER-SE> 19,299
<TOTAL-LIABILITIES-AND-EQUITY> 359,171
<INTEREST-LOAN> 4,786
<INTEREST-INVEST> 1,153
<INTEREST-OTHER> 543
<INTEREST-TOTAL> 6,482
<INTEREST-DEPOSIT> 3,424
<INTEREST-EXPENSE> 3,832
<INTEREST-INCOME-NET> 2,650
<LOAN-LOSSES> 29
<SECURITIES-GAINS> (9)
<EXPENSE-OTHER> 2,167
<INCOME-PRETAX> 794
<INCOME-PRE-EXTRAORDINARY> 794
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 794
<EPS-PRIMARY> .40
<EPS-DILUTED> .40
<YIELD-ACTUAL> 0
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 0
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 0
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
