<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 March 31, 1997.
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 0-20804
KANKAKEE BANCORP, INC.
----------------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 36-3846489
- ------------------------------ ------------------------------
(State or Other Jurisdiction (I.R.S. Employer Identification Number)
of Incorporation 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
------- -------
As of May 9, 1997, there were 1,420,168 issued and outstanding shares of the
Issuer's Common Stock (exclusive of 329,832 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,
March 31, 1997 and December 31, 1996 1 - 2
Statements of Income, Three Months
Ended March 31, 1997 and 1996 3
Statements of Cash Flows, Three Months
Ended March 31, 1997 and 1996 4 - 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 7 - 14
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 2. Changes in Securities 15
Item 3. Defaults Upon Senior Securities 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURES 16
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CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (UNAUDITED)
KANKAKEE BANCORP, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
------------- -------------
<S> <C> <C>
Assets
Cash and due from banks $ 8,660,427 $ 4,291,857
Federal funds sold 2,765,000 7,985,000
Money market funds 5,490,117 4,883,256
------------ ------------
Cash and cash equivalents 16,915,544 17,160,113
------------ ------------
Certificates of deposit 150,000 50,000
Securities:
Investment securities:
Available-for-sale, at fair value 49,643,571 51,345,158
Held-to-maturity, at cost (fair value: March 31, 1997 -
$72,223; December 31, 1996 - $72,223) 72,223 72,223
------------ ------------
Total investment securities 49,715,794 51,417,381
------------ ------------
Mortgage-backed securities:
Available-for-sale, at fair value 33,195,353 34,467,377
Held-to-maturity, at cost (fair value: March 31, 1997 -
$241,658; December 31, 1996 - $255,058) 238,495 246,303
------------ ------------
Total mortgage-backed securities 33,433,848 34,713,680
------------ ------------
Non-marketable equity securities 501,100 501,100
Loans 230,866,864 235,682,573
Less: Allowance for losses on loans 2,340,898 2,359,889
------------ ------------
Net loans 228,525,966 233,322,684
------------ ------------
Loans held for sale 637,014 639,861
Real estate held for sale 280,671 215,027
Federal Home Loan Bank stock, at cost 1,956,000 1,956,000
Office properties and equipment 4,871,519 4,721,060
Accrued interest receivable 2,260,803 2,638,066
Prepaid expenses and other assets 795,291 914,693
Intangible assets 2,335,502 2,393,422
------------ ------------
Total assets $342,379,052 $350,643,087
------------ ------------
------------ ------------
</TABLE>
(Continued)
1
<PAGE>
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (UNAUDITED) (continued)
KANKAKEE BANCORP, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
------------- -------------
<S> <C> <C>
Liabilities and stockholders' equity
Liabilities
Deposits:
Noninterest bearing $ 8,359,278 $ 7,643,667
Interest bearing 269,922,494 269,704,540
Short term borrowings 16,530,000 26,820,000
Other borrowings 7,725,000 7,725,000
Advance payments by borrowers for taxes and insurance 2,545,911 1,436,595
Other liabilities 742,837 819,064
------------ ------------
Total liabilities 305,825,520 314,148,866
------------ ------------
Stockholders' equity
Preferred stock, $.01 par value; authorized, 500,000
shares; none outstanding - -
Common stock, $.01 par value; authorized, 3,500,000
shares; issued 1,750,000 17,500 17,500
Additional paid-in capital 16,141,496 16,181,726
Retained income, substantially restricted 27,819,341 27,219,741
Less: Cost of treasury stock (329,832 shares at March 31,
1997; 335,082 shares at December 31, 1996) (5,784,434) (5,876,509)
Unrealized losses on securities available-for-
sale, net of related income taxes (1,012,221) (409,353)
------------ ------------
Total stockholders' equity before Employee Stock
Ownership Plan loan and Bank Incentive Plans and Trusts 37,181,682 337,133,105
------------ ------------
Employee Stock Ownership Plan loan (604,844) (604,844)
Bank Incentive Plan and Trusts (23,306) (34,040)
------------ ------------
Total stockholders' equity 36,553,532 36,494,221
------------ ------------
Total liabilities and stockholders' equity $342,379,052 $350,643,087
------------ ------------
------------ ------------
</TABLE>
See notes to consolidated financial statements (unaudited)
2
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
KANKAKEE BANCORP, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1997 1996
------------ --------------
<S> <C> <C>
Interest income
Loans $4,679,333 $4,685,358
Mortgage-backed securities 581,280 572,664
Investment securities 1,026,854 1,142,099
---------- ----------
Total interest income 6,287,467 6,400,121
---------- ----------
Interest expense:
Deposits 3,107,247 3,393,072
Borrowed funds 459,773 435,058
---------- ----------
Total interest expense 3,567,020 3,828,130
---------- ----------
Net interest income 2,720,447 2,571,991
Provision for losses on loans (3,550) 9,447
---------- ----------
Net interest income after provision for losses on loans 2,723,997 2,562,544
Other income:
Net loss on sale of securities available-for-sale - (19,434)
Net gain on sales of real estate held for sale 2,866 17,718
Net gain on sales of loans held for sale 5,931 10,336
Fee income 248,961 171,722
Insurance commissions 24,953 20,097
Other 93,052 63,756
---------- ----------
Total other income 375,763 264,195
---------- ----------
Other expenses
Compensation and benefits 1,128,093 1,182,040
Occupancy 177,246 182,345
Furniture and equipment 114,379 63,938
Federal insurance premiums 32,510 156,393
Advertising 33,040 15,128
Data processing services 76,110 104,556
Telephone and postage 59,990 85,790
Amortization of intangible assets 57,921 57,921
Other general and administrative 334,741 459,964
---------- ----------
Total other expenses 2,014,030 2,308,075
---------- ----------
Income before income taxes 1,085,730 518,664
Income taxes 315,710 122,091
---------- ----------
Net income $ 770,020 $ 396,573
---------- ----------
---------- ----------
Earnings per share $ 0.51 $ 0.26
---------- ----------
---------- ----------
</TABLE>
See notes to consolidated financial statements (unaudited)
3
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CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
KANKAKEE BANCORP, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
Three Months Ended March 31,
------------------------------
1997 1996
-------------- --------------
<S> <C> <C>
Cash flows from operating activities
Net income $ 770,020 $ 396,573
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for losses on loans (3,550) 9,447
Depreciation and amortization 183,413 145,934
Amortization of investment premiums and discounts-net 29,935 99,679
Accretion of loan fees and discounts (15,614) (13,906)
Deferred income tax provision (benefit) (32,366) (433,791)
Originations of loans held for sale (766,396) (1,575,676)
Proceeds from sales of loans 775,175 940,192
Decrease in interest receivable 377,263 11,190
Increase (decrease) in interest payable on deposits (8,149) 10,446
Proceeds from sales of trading securities - 17,922,500
Purchase of trading securities - 18,135,469)
Net gain on sales of loans (5,932) (10,336)
Net loss on sales of securities available-for-sale - 19,434
Net gain on sales of real estate held for sale (2,866) (17,718)
Other, net 397,209 354,423
------------ ------------
Net cash from operating activities 1,698,142 (277,078)
------------ ------------
Cash flows from investing activities
Investment securities:
Available-for-sale:
Purchases (1,085,468) (16,973,668)
Proceeds from sales - 4,189,375
Proceeds from calls and maturities 2,000,000 4,500,000
Mortgage-backed securities:
Available-for-sale:
Purchases - (2,967,588)
Proceeds from maturities and paydowns 1,115,988 3,185,991
Held-to-maturity:
Proceeds from maturities and paydowns 7,808 28,721
Purchases of certificates of deposit (305,500) (450,000)
Proceeds from maturities of certificates of deposit 205,500 487,500
Proceeds from sales of real estate 18,993 787,324
Net loan fees deferred (28,941) 38,280
Loans originated (14,012,468) (13,902,937)
Loans purchased (675,000) (200,000)
Principal collected on loans 19,449,874 13,819,562
Purchases of office properties and equipment-net (275,952) (37,192)
Payment of acquisition costs - (22,868)
------------ ------------
Net cash from investing activities 6,414,834 (7,517,500)
------------ ------------
</TABLE>
4
<PAGE>
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) (continued)
KANKAKEE BANCORP, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1997 1996
------------ -------------
<S> <C> <C>
Cash flows from Financing Activities
Net increase in non-certificate of deposit accounts 1,949,462 3,100,695
Net increase (decrease) in certificate of deposit accounts (1,007,748) 4,888,705
Increase in advance payments by borrowers for
taxes and insurance 1,109,316 1,118,727
Proceeds from short-term borrowings 34,580,000 1,900,000
Repayments of short-term borrowings (44,870,000) (2,660,000)
Proceeds from other borrowings - 650,000
Proceeds from exercise of stock options 51,845 6,912
Dividends paid (170,420) (145,342)
Purchase of treasury stock - (295,609)
------------ -----------
Net cash from financing activities (8,357,545) 8,564,088
Increase (decrease) in cash and cash equivalents (244,569) 769,510
Cash and cash equivalents:
Beginning of year 17,160,113 25,694,509
------------ -----------
End of year $ 16,915,544 $26,464,019
------------ -----------
------------ -----------
Supplemental Disclosures of cash flow information--Cash
paid during the year for:
Interest on deposits $ 3,099,100 $ 3,382,600
------------ -----------
------------ -----------
Interest on borrowed funds $ 551,000 $ 262,800
------------ -----------
------------ -----------
Supplemental disclosures of noncash investing activities:
Real estate acquired through foreclosure $ 82,417 $ 98,958
------------ -----------
------------ -----------
</TABLE>
See notes to consolidated financial statements (unaudited).
5
<PAGE>
KANKAKEE BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 1997
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, 1996 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 period ended March 31, 1997 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1997. 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, 1996.
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 has an incentive stock option plan for the benefit of
directors, officers and employees. 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 March 31, 1997, 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 $1,012,221. 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 $524,639.
An increase in market interest rates during the three months ended March 31,
1997 resulted in a $602,868 decrease in the market value, net of income tax
effect, of the available-for-sale securities and the available-for-sale mort-
gage-backed securities during the period. At the end of 1996, the book value of
the available-for-sale securities portfolio exceeded the market value by
$409,353, 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 eight branch offices located in the communities of
Ashkum, Bourbonnais, 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 decreased by $8.3 million, or 2.4%, to $342.4
million at March 31, 1997 from $350.6 million at December 31, 1996.
Cash and cash equivalents decreased by $245,000, or 1.4%, from $17.2
million at December 31, 1996 to $16.9 million at March 31, 1997. The decrease
was primarily attributable to a decrease in borrowings, which was partially
offset by an increase in deposits, and decreases in investment securities
available-for-sale, mortgage-backed securities available-for-sale and loans.
During the three-month period ended March 31, 1997, net loans decreased by
$4.8 million (2.1%) from $233.3 million to $228.5 million. This was primarily
the result of loan principal repayments totaling $19.5 million, offset by the
origination (or purchase) of $6.8 million of real estate loans and the origina-
tion (or purchase) of $7.9 million of consumer and commercial business loans.
Securities available-for-sale decreased by $1.7 million to $49.6 million at
March 31, 1997 from $51.3 million at December 31, 1996 as the result of the
maturity of $2.0 million of such securities, and by the net change in market
value adjustment, which were partially offset by the purchase of $1.1 million of
such securities.
Mortgage-backed securities available-for-sale decreased by $1.3 million, or
3.3%, to $33.2 million at March 31, 1997 from $34.5 million at December 31,
1996. The decrease resulted from maturities of $1.1 million of such securities,
and by the change in market value adjustment.
7
<PAGE>
Deposits increased by $934,000, or 0.3% to $278.3 million at March 31, 1997
from $277.3 million at December 31, 1996. The increase in deposits was the
result of a $1.9 million increase in savings, NOW and money market accounts
which was partially offset by a $1.0 million decrease in certificates of
deposit.
Total borrowings, which decreased by $10.3 million, or 29.8%, to $24.2
million at March 31, 1997 from $34.5 million at December 31, 1996, consisted of
$13.7 million in advances from the Federal Home Loan Bank of Chicago ("the
FHLB") and $10.5 million in funds borrowed using mortgage-backed securities
available-for-sale 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 typically 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 loans. The Company
has also increased its origination of installment and home equity consumer 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 $3.6 million at March 31,
1997 as compared to $4.1 million at December 31, 1996. Non-performing assets
represented 1.06% and 1.16% of total assets at March 31, 1997 and December 31,
1996, respectively. During the three-month period ending March 31, 1997, non-
performing one-to-four family loans and commercial real estate loans decreased
by $260,000 and $432,000, respectively. These decreases were partially offset
by increases of $75,000, $71,000, $14,000 and $81,000 in construction and
development loans, consumer loans, commercial business loans and foreclosed
assets, respectively. The ratio of the allowance for losses on loans to non-
performing loans was 69.8% as of March 31, 1997 as compared to 60.9% as of
December 31, 1996. The increase in this ratio, which excludes foreclosed
assets, was primarily the result of the decrease of $521,000 in non-performing
loans.
The Company classified $1.3 million of its assets as Special Mention, $4.9
million as Substandard and $248,000 as Loss as of March 31, 1997. No assets
were classified as Doubtful at March 31, 1997. This represents a decrease of
$981,000 in the Special Mention category and a net increase of $871,000 in the
other categories from the December 31, 1996 totals for classified assets. The
ratio of classified assets to total assets (including items classified as
Special Mention) was 1.89% as of March 31, 1997 as compared to 1.88% as of
December 31, 1996. The ratio of the allowance for losses on loans to classified
assets increased to 36.1% as of March 31, 1997 as compared to 35.8% as of
December 31, 1996.
8
<PAGE>
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 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.
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 MARCH 31, 1997 AND 1996
During the three-month period ended March 31, 1997, the Company recorded
net income of $770,000, or $.51 per share, compared to net income of $397,000,
or $.26 per share, for the same period in 1996. The difference of $373,000
represents a 94.2% increase in net income for the 1997 period. The increase in
net income resulted from a $148,000 increase in net interest income, a $112,000
increase in other income and a $294,000 decrease in general and administrative
expense, which were partially offset by a $194,000 increase in federal income
tax expense.
Net interest income increased $148,000, or 5.8%, during the three-month
period ended March 31, 1997 compared to the three-month period ended March 31,
1996.
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 March 31, 1997
and 1996.
As Table I indicates, interest income decreased $113,000, or 1.8%, to $6.3
million for the three-month period ended March 31, 1997 from $6.4 million for
the same period in 1996. The decrease in interest income was the result of a
decrease in the average balance of interest-earning assets to $334.7 million
during the 1997 period from $343.1 million during the 1996 period, which was
partially offset by an increase in the yield earned on interest-earning assets
to 7.62% during the 1997 period from 7.50% during the 1996 period. The increase
in yield was primarily due to higher returns on loans, mortgage-backed securi-
ties and investment securities.
Interest expense decreased $261,000, or 6.8%, to $3.6 million for the
three-month period ended March 31, 1997 from $3.8 million for the same period in
1996. The decrease in interest expense was the result of a decrease in the
average yield on interest-bearing liabilities and a decrease in the average
outstanding balance of interest-bearing liabilities to 4.70% and $318.0 million,
respectively, during the 1997 period from 4.82% and $319.1 million,
respectively, during the 1996 period. The decrease in the average yield on
interest-bearing liabilities was primarily attributable to a decrease in the
average yield on certificates of deposit which resulted from the maturity of
higher yielding balances
9
<PAGE>
which were either renewed at lower rates or withdrawn. Average outstanding
borrowings during the 1997 period were 10.1% of interest-bearing liabilities as
compared to 9.3% during the 1996 period.
The provision for losses on loans was a negative $4,000 for the three-month
period ended March 31, 1997, compared to $9,000 for the three-month period ended
March 31, 1996. The negative provision for the 1997 period was the result of
minimal charge-offs during the period and a reduction in total loans.
Other income for the three-month period ended March 31, 1997 increased
$112,000, or 42.2%, to $376,000 compared to $264,000 for the same period in
1996. The increase was attributable to increases of $19,000 in net gain on sale
of investment and mortgage-backed securities, $77,000 in fee income, $5,000 in
insurance commissions and $10,000 in other categories. The increase in fee
income was due to the Company reevaluating and improving the methods used to
assess fees.
Other expenses for the three-month period ended March 31, 1997 decreased by
$294,000, or 12.7%, to $2.0 million from $2.3 million during the 1996 period.
The decrease was attributable to decreases in federal insurance premiums, data
processing services, telephone and postage, compensation and benefits and other
general and administrative expenses of $124,000, $28,000, $26,000, $54,000 and
$125,000, respectively. These decreases were partially offset by increases of
$50,000 and $18,000 in furniture and equipment expenses and advertising,
respectively. The decrease in federal insurance premiums was due to the lower
premium rate effective in the first quarter of 1997 which resulted from the
third quarter 1996 recapitalization of the Savings Association Insurance Fund.
The other decreases were primarily the result of recommendations derived from an
operational review and restructuring of certain departments, which were imple-
mented during 1996. The increase in furniture and equipment expense was
primarily the result of depreciation on personal computers and related equipment
reflected in the 1997 period which was not initiated until the second quarter of
1996.
LIQUIDITY AND CAPITAL RESOURCES
The Bank 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") requires thrifts to maintain a
minimum liquidity ratio (cash and cash equivalent investments to net withdraw-
able deposits and borrowings due within one year) of 5%. At March 31, 1997, the
Bank's liquidity ratio was 15.4%, 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 liquidi-
ty 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
10
<PAGE>
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 require-
ment 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 March 31,
1997, the Bank exceeded all current minimum regulatory capital standards.
At March 31, 1997, the Bank's tangible capital was $29.1 million, or 8.2%,
of adjusted total assets, which exceeded the 1.5% requirement by $24.1 million.
In addition, at March 31, 1997, the Bank had core capital of $29.1 million, or
8.2%, of adjusted total assets, which exceeded the 3.0% requirement by $19.0
million. The Bank had risk-based capital of $31.2 million at March 31, 1997, or
16.3%, of risk-adjusted assets, which exceeded the minimum risk-based capital
requirement by $15.9 million.
STOCK REPURCHASE
On January 29, 1997, the Company announced that its Board of Directors had
authorized the repurchase during 1997 of up to 142,000 shares of its common
stock. Since the current program was announced, no shares of common stock have
been repurchased. Through March 31, 1997, a total of 354,357 shares of common
stock of the Company had been purchased under the previously completed repur-
chase programs at a total cost of $6.2 million. As of March 31, 1997, the
Company held 329,832 shares of its common stock as treasury stock.
EXERCISE OF STOCK OPTIONS
During the first quarter of 1997, stock options for 5,250 shares of common
stock were exercised. Between March 31, 1997 and May 9, 1997, 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.
During 1995 and 1996, cash dividends of $.10 per share were paid each quarter.
During the first quarter of 1997, the dividend rate was increased
11
<PAGE>
by 20% to $.12 per share. On April 8, 1997, a cash dividend of $.12 per share
was declared payable on May 30, 1997 to stockholders of record as of May 14,
1997. 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.
RECENT REGULATORY DEVELOPMENTS
Legislation has been introduced in the Congress that would eliminate the
federal thrift charter by requiring each federal thrift to convert to a national
bank or to a state bank or state thrift. One of the pending bills would require
the conversion to occur by January 1, 1998, while the other would require
conversion by June 30, 1998. Under the proposed legislation, state thrift
institutions would be regulated for purposes of federal law as state banks. The
bills would allow a converting federal thrift to retain nonconforming invest-
ments and activities for a period of two years following conversion (subject to
extension by the converted bank's primary federal regulator for up to two
additional one-year periods). The pending legislation would allow savings and
loan holding companies that become bank holding companies as a result of a
charter conversion pursuant to the legislation to continue to engage in any
activity in which they are currently allowed to engage, provided that they
remain "qualified bank holding companies." In order to be deemed a qualified
bank holding company, each depository institution subsidiary of the holding
company that was previously a thrift institution must continue to satisfy the
qualified thrift lender test and comply with all other investment limitations to
which the institution was subject as a thrift institution. Further, the
proposed legislation imposes certain restrictions on the ability of a qualified
bank holding company to acquire other depository institutions or to be acquired.
If a savings and loan holding company failed to remain a qualified bank holding
company, the company would become subject to all of the nonbanking activities
restrictions generally applicable to bank holding companies.
The Congress is also considering legislation that would allow bank holding
companies to engage in a wider range of nonbanking activities, including greater
authority to engage in securities and insurance activities. While the scope of
permissible nonbanking activities and the conditions under which the new powers
could be exercised varies among the bills, the expanded powers generally would
be available to a bank holding company only if the bank holding company and its
bank subsidiaries remain well-capitalized and well-managed. The bills also
impose various restrictions on transactions between the depository institution
subsidiaries of bank holding companies and their nonbank affiliates. These
restrictions are intended to protect the depository institutions from the risks
of the new nonbanking activities permitted to such affiliates.
At this time, the Company is unable to predict whether any of the pending
bills will be enacted and, therefore, is unable to predict the impact such
legislation may have on the operations of the Company and the Bank.
12
<PAGE>
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This report contains certain forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. The Company intends such forward-
looking statements to be covered by the safe harbor provisions for forward-
looking statements contained in the Private Securities Reform Act of 1995, and
is including this statement for purposes of these safe harbor provisions.
Forward-looking statements, which are based on certain assumptions and describe
future plans, strategies and expectations of the Company, are generally identi-
fiable by use of the words "believe," "expect," "intend," "anticipate," "esti-
mate," "project" or similar expressions. 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 affect on the operations
and future prospects of the Company and its subsidiaries include, but are not
limited to, changes in: interest rates, general economic conditions, legisla-
tive/regulatory changes, monetary and fiscal policies of the U. S. Government,
including policies of the U. S. Treasury and the Federal Reserve Board, the
quality of composition of the loan or investment portfolios, demand for loan
products, deposit flows, competition, demand for financial services in the
Company's market area and account principles, policies and guidelines. These
risks and uncertainties should be considered in evaluating forward-looking
statements and undue reliance should not be placed on such statements. Further
information concerning the Company and its business, including additional
factors that could materially affect the Company's financial results, is
included in the Company's filings with the Securities and Exchange Commission.
13
<PAGE>
TABLE I
NET INTEREST INCOME ANALYSIS (UNAUDITED)
KANKAKEE BANCORP, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
Three Months Ended March 31,
------------------------------------------------------------------------------
1997 1996
---------------------------------- ------------------------------------
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 (1) $231,810 $4,679 8.19% $230,531 $4,685 8.17%
Mortgage-backed securities 34,088 581 6.91% 35,486 573 6.49%
Investments securities (2) 50,534 847 6.80% 51,416 808 6.32%
Other interest-earning assets 16,324 147 3.65% 24,065 301 5.03%
FHLB stock 1,956 33 6.84% 1,649 33 8.05%
-------- ------ -------- ------
Total interest-earning assets 334,712 6,287 7.62% 343,147 6,400 7.50%
-------- ------ -------- ------
Other assets 12,687 15,698
-------- --------
Total assets $347,399 $358,845
-------- --------
-------- --------
Interest-bearing liabilities:
Time deposits $174,890 2,404 5.57% $183,743 2,646 5.79%
Savings deposits 52,294 349 2.71% 54,085 358 2.66%
Demand and NOW deposits 49,706 354 2.89% 51,708 389 3.03%
Borrowings 31,115 460 6.00% 29,563 435 5.92%
-------- ------ -------- ------
Total interest-bearing liabilities 308,005 3,567 4.70% 319,099 3,828 4.82%
-------- ------ -------- ------
Other liabilities 2,799 3,534
-------- --------
Total liabilities 310,804 322,633
-------- --------
Stockholders' equity 36,595 36,212
-------- --------
Total liabilities and
stockholders' equity $347,399 $358,845
-------- --------
-------- --------
Net interest income $ 2,720 $ 2,572
------- -------
------- -------
Net interest rate spread 2.92% 2.68%
----- -----
----- -----
Net earning assets $ 26,707 $ 24,048
-------- --------
-------- --------
Net yield on average interest-
earning assets (net interest
margin) 3.30% 3.01%
----- -----
----- -----
Average interest-earning assets to
average interest-bearing liabilities 108.67% 107.54%
------- -------
------- -------
</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>
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 - None
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
15
<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 under-
signed, thereunto duly authorized.
KANKAKEE BANCORP, INC.
Registrant
Date: May 9, 1997 /s/ JAMES G. SCHNEIDER
------------------------ ------------------------------------
Chairman, President and Chief Executive
Officer (Principal Executive
and Operating Officer)
Date: May 9, 1997 /s/ RONALD J. WALTERS
------------------------ ------------------------------------
Vice President and Treasurer
(Principal Financial
and Accounting Officer)
16
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 8,660
<INT-BEARING-DEPOSITS> 5,640
<FED-FUNDS-SOLD> 2,765
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 82,839
<INVESTMENTS-CARRYING> 311
<INVESTMENTS-MARKET> 314
<LOANS> 230,867
<ALLOWANCE> 2,341
<TOTAL-ASSETS> 342,379
<DEPOSITS> 278,282
<SHORT-TERM> 16,530
<LIABILITIES-OTHER> 3,289
<LONG-TERM> 7,725
0
0
<COMMON> 16,159
<OTHER-SE> 20,395
<TOTAL-LIABILITIES-AND-EQUITY> 342,379
<INTEREST-LOAN> 4,679
<INTEREST-INVEST> 1,027
<INTEREST-OTHER> 581
<INTEREST-TOTAL> 6,287
<INTEREST-DEPOSIT> 3,107
<INTEREST-EXPENSE> 3,567
<INTEREST-INCOME-NET> 2,720
<LOAN-LOSSES> (4)
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2,014
<INCOME-PRETAX> 1,086
<INCOME-PRE-EXTRAORDINARY> 770
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 770
<EPS-PRIMARY> .51
<EPS-DILUTED> .51
<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>
