<PAGE>
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 September 30,
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 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
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
------ ----
As of November 4, 1997, there were 1,370,868 issued and outstanding
shares of the Issuer's Common Stock (exclusive of 379,132 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,
September 30, 1997 and December 31, 1996 1 - 2
Statements of Income, Three Months
Ended September 30, 1997 and 1996 3
Statements of Income, Nine Months
Ended September 30, 1997 and 1996 4
Statements of Cash Flows, Nine Months
Ended September 30, 1997 and 1996 5 - 6
Notes to Financial Statements 7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 8 - 17
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 18
Item 2. Changes in Securities 18
Item 3. Defaults Upon Senior Securities 18
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 5. Other Information 18
Item 6. Exhibits and Reports on Form 8-K 18
SIGNATURES 19
<PAGE>
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (UNAUDITED)
KANKAKEE BANCORP, INC. AND SUBSIDIARY
September 30, December 31,
1997 1996
------------ ------------
Assets
Cash and due from banks $ 4,507,028 $ 4,291,857
Federal funds sold 1,725,000 7,985,000
Money market funds 6,128,459 4,883,256
------------ ------------
Cash and cash equivalents 12,360,487 17,160,113
------------ ------------
Certificates of deposit 350,000 50,000
------------ ------------
Securities:
Investment securities:
Available-for-sale, at fair value 44,644,777 51,345,158
Held-to-maturity, at cost
(fair value: September 30, 1997 -
$69,752; December 31, 1996 - $72,223) 69,752 72,223
------------ ------------
Total investment securities 44,714,529 51,417,381
------------ ------------
Mortgage-backed securities:
Available-for-sale, at fair value 31,269,102 34,467,377
Held-to-maturity, at cost
(fair value: September 30, 1997 -
$215,556; December 31, 1996 - $255,058) 211,779 246,303
------------ ------------
Total mortgage-backed securities 31,480,881 34,713,680
------------ ------------
Non-marketable equity securities 501,100 501,100
------------ ------------
Loans 238,209,221 235,682,573
Less: Allowance for losses on loans 2,143,988 2,359,889
------------ ------------
Net loans 236,065,233 233,322,684
------------ ------------
Loans held for sale 128,206 639,861
Real estate held for sale 1,395,601 215,027
Federal Home Loan Bank stock, at cost 1,856,000 1,956,000
Office properties and equipment 5,389,399 4,721,060
Accrued interest receivable 2,269,366 2,638,066
Prepaid expenses and other assets 1,206,046 914,693
Intangible assets 2,219,661 2,393,422
------------ ------------
Total assets $339,936,509 $350,643,087
------------ ------------
------------ ------------
(Continued)
1
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<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (UNAUDITED) (continued)
KANKAKEE BANCORP, INC. AND SUBSIDIARY
September 30, December 31,
1997 1996
------------ ------------
<S> <C> <C>
Liabilities and stockholders' equity
Liabilities:
Deposits
Noninterest bearing $ 7,991,909 $ 7,643,667
Interest bearing 268,223,048 269,704,540
Short term borrowings 9,940,000 26,820,000
Other borrowings 13,775,000 7,725,000
Advance payments by borrowers
for taxes and insurance 412,976 1,436,595
Other liabilities 741,348 819,064
------------ ------------
Total liabilities 301,084,281 314,148,866
------------ ------------
Stockholders' equity
Preferred stock, $.01 par value; authorized, 500,000
shares; none outstanding - -
Common stock, $.01 par value; authorized, 3,500,000
shares; issued and outstanding: September 30, 1997 -
1,425,568; December 31, 1996 - 1,414,918 17,500 17,500
Additional paid-in capital 16,100,115 16,181,726
Retained income, substantially restricted 28,972,118 27,219,741
Less: Cost of treasury stock (324,432 shares at September 30,
1997; 335,082 shares at December 31, 1996) (5,689,729) (5,876,509)
Unrealized losses on securities available-for-sale, net of
related income taxes (12,179) (409,353)
------------ ------------
Total stockholders' equity before Employee Stock Ownership
Plan loan and Bank Incentive Plan and Trust 39,387,825 37,133,105
Employee Stock Ownership Plan loan (529,238) (604,844)
Bank Incentive Plan and Trust (6,359) (34,040)
------------ ------------
Total stockholders' equity 38,852,228 36,494,221
------------ ------------
Total liabilities and stockholders' equity $339,936,509 $350,643,087
------------ ------------
------------ ------------
See notes to consolidated financial statements (unaudited)
</TABLE>
2
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<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
KANKAKEE BANCORP, INC. AND SUBSIDIARY
Three Months Ended September 30,
--------------------------------
1997 1996
---------- ---------
<S> <C> <C>
Interest income:
Loans $4,738,304 $4,844,505
Mortgage-backed securities 545,629 487,471
Investment securities 917,335 1,139,502
---------- ---------
Total interest income 6,201,268 6,471,478
---------- ---------
Interest expense:
Deposits 3,230,170 3,412,619
Borrowed funds 350,447 392,100
---------- ---------
Total interest expense 3,580,617 3,804,719
---------- ---------
Net interest income 2,620,651 2,666,759
Provision for losses on loans 20,675 23,300
---------- ---------
Net interest income after provision for losses on loans 2,599,976 2,643,459
Other income:
Net gain on sale of securities available-for-sale 1,875 41,376
Net gain on sales of real estate held for sale 2,946 6,137
Net gain on sales of loans held for sale 23,663 14,859
Fee income 248,407 210,158
Insurance commissions 44,364 35,877
Other 103,267 819,535
---------- ---------
Total other income 424,522 1,127,942
---------- ---------
Other expenses:
Compensation and benefits 1,075,164 1,075,314
Occupancy 207,449 173,479
Furniture and equipment 118,919 105,889
Federal insurance premiums 41,781 1,867,470
Advertising 50,802 31,095
Provision for losses on repossessed assets 1,104 -
Data processing services 65,458 70,884
Telephone and postage 56,987 74,952
Amortization of intangible assets 57,921 57,920
Other general and administrative 327,475 354,913
---------- ---------
Total other expenses 2,003,060 3,811,916
---------- ---------
Income before income taxes 1,021,438 (40,515)
Income taxes 285,890 (13,760)
---------- ---------
Net income $ 735,548 $ (26,755)
---------- ---------
---------- ---------
Earnings per share $0.49 ($0.02)
----- ------
----- ------
</TABLE>
See notes to consolidated financial statements (unaudited)
3
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<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
KANKAKEE BANCORP, INC. AND SUBSIDIARY
Nine Months Ended September 30,
-------------------------------
1997 1996
----------- -----------
<S> <C> <C>
Interest income:
Loans $14,098,353 $14,315,785
Mortgage-backed securities 1,695,879 1,603,315
Investment securities 2,941,307 3,434,050
----------- -----------
Total interest income 18,735,539 19,353,150
----------- -----------
Interest expense:
Deposits 9,527,338 10,229,822
Borrowed funds 1,160,946 1,234,834
----------- -----------
Total interest expense 10,688,284 11,464,656
----------- -----------
Net interest income 8,047,255 7,888,494
Provision for losses on loans 20,675 61,397
----------- -----------
Net interest income after provision for losses on loans 8,026,580 7,827,097
Other income:
Net gain on sale of securities available-for-sale 1,875 12,567
Net gain (loss) on sales of real estate held for sale (7,646) 44,565
Net gain (loss) on sales of loans held for sale 35,560 (5,209)
Fee income 744,593 574,805
Insurance commissions 94,944 76,022
Other 301,302 1,029,793
----------- -----------
Total other income 1,170,628 1,732,543
----------- -----------
Other expenses:
Compensation and benefits 3,278,536 3,355,997
Occupancy 562,741 524,347
Furniture and equipment 358,051 272,975
Federal insurance premiums 128,453 2,186,996
Advertising 164,760 96,774
Provision for losses on repossessed assets 6,534 -
Data processing services 212,386 245,998
Telephone and postage 183,195 219,921
Amortization of intangible assets 173,762 173,762
Other general and administrative 982,642 1,210,393
----------- -----------
Total other expenses 6,051,060 8,287,163
----------- -----------
Income before income taxes 3,146,148 1,272,477
Income taxes 881,910 298,761
----------- -----------
Net income $ 2,264,238 $ 973,716
----------- -----------
----------- -----------
Earnings per share $1.50 $0.64
----- -----
----- -----
</TABLE>
See notes to consolidated financial statements (unaudited)
4
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
KANKAKEE BANCORP, INC. AND SUBSIDIARY
Nine Months Ended September 30,
-------------------------------
1997 1996
------------ ------------
<S> <C> <C>
Cash flows from operating activities
Net income $ 2,264,238 $ 973,716
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for losses on loans 20,675 61,397
Provision for losses on repossessed assets 6,534 -
Depreciation and amortization 570,362 511,222
Amortization of investment premiums and discounts, net 95,243 289,809
Accretion of loan fees and discounts, net (33,549) (90,426)
Deferred income tax benefit (25,662) (13,710)
Origination of loans held for sale (3,498,789) (4,776,690)
Proceeds from sales of loans 4,046,004 4,305,598
(Increase) decrease in interest receivable 368,700 (13,522)
Decrease in interest payable on deposits (17,764) (44,644)
Proceeds from sales of trading securities - 21,412,500
Purchase of trading securities - (21,644,844)
Net (gain) loss on sales of loans (35,560) 5,209
Net gain on sales of securities (1,875) (12,567)
Net (gain) loss on sales of real estate held for sale 7,646 (44,565)
Net gain on sale of branch - (707,675)
Other, net (27,564) 1,084,919
------------ ------------
Net cash from operating activities 3,738,639 1,295,727
------------ ------------
Cash flows from investing activities
Investment securities:
Available-for-sale:
Purchases (2,188,976) 26,961,940)
Proceeds from sales 3,001,875 4,290,751
Proceeds from calls and maturities 6,189,000 14,500,000
Held-to-maturity:
Proceeds from maturities 2,471 2,322
Mortgage-backed securities:
Available-for-sale
Purchases - (2,967,588)
Proceeds from maturities and paydowns 3,405,164 7,831,689
Held-to-maturity:
Proceeds from maturities and paydowns 34,524 108,192
Purchases of certificates of deposit (705,500) (826,640)
Proceeds from maturities of certificates of deposit 405,500 1,064,140
Proceeds from sales of real estate 126,928 939,361
Net loan fees and costs deferred (134,182) 144,349
Loans originated (63,491,802) (57,384,896)
Loans purchased (1,735,000) (1,000,000)
Principal collected on loans 61,302,528 49,824,039
Purchases of office properties and equipment, net (1,064,940) (369,523)
Cash transferred to buyer on sale of branch - (3,852,993)
Payment of acquisition costs - (22,868)
------------ ------------
Net cash from investing activities 5,147,590 (14,681,605)
------------ ------------
(continued)
</TABLE>
5
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<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) (continued)
KANKAKEE BANCORP, INC. AND SUBSIDIARY
Nine Months Ended September 30,
-------------------------------
1997 1996
------------ ------------
<S> <C> <C>
Cash flows from financing activities
Net increase (decrease) in non-certificate
of deposit accounts ($3,473,680) 1,451,110
Net increase in certificate of deposit accounts 2,358,194 5,036,049
Net decrease in advance payments by
borrowers for taxes and insurance (1,333,677) (1,370,363)
Proceeds from short-term borrowings 52,720,000 34,460,000
Repayments of short-term borrowings (69,600,000) (31,740,000)
Proceeds from other borrowings 27,050,000 650,000
Repayments of other borrowings (21,000,000) (2,000,000)
Proceeds from exercise of stock options 105,169 6,912
Dividends paid (511,861) (430,765)
Purchase of treasury stock - (761,963)
------------ ------------
Net cash from financing activities (13,685,855) 5,300,980
------------ ------------
Decrease in cash and cash equivalents (4,799,626) (8,084,898)
Cash and cash equivalents:
Beginning of year 17,160,113 25,694,509
------------ ------------
End of year $12,360,487 $17,609,611
------------ ------------
------------ ------------
Supplemental disclosures of cash flow information
Cash paid during the year for:
Interest on deposits $9,509,600 $ 10,274,500
------------ ------------
------------ ------------
Interest on borrowed funds $1,223,700 $ 1,285,800
------------ ------------
------------ ------------
Supplemental disclosures of non-cash investing activities:
Real estate acquired through foreclosure $1,328,781 $ 224,830
------------ ------------
------------ ------------
Sale of Branch:
Cash paid $ 3,774,524
------------
Assets disposed:
Cash $ (78,469)
Loans (3,845,182)
Accrued interest receivable (18,400)
Premises and equipment (238,181)
Other assets (15,468)
Liabilities assumed by buyer:
Non-certificates of deposit 3,684,830
Certificates of deposit 4,922,897
Accrued interest payable 15,966
Escrows on loans 51,664
Other liabilities 2,542
Gain on sale of branch (707,675)
------------
$3,774,524
------------
------------
</TABLE>
See notes to consolidated financial statements (unaudited)
6
<PAGE>
KANKAKEE BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 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 and nine-month periods ended September 30, 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 September 30, 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 $12,179. 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 $6,274. A decrease in market interest rates during the nine
months ended September 30, 1997 resulted in a $397,174 increase 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 nine months. 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.
7
<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 $10.7 million, or 3.1%, to
$339.9 million at September 30, 1997 from $350.7 million at December 31, 1996.
Cash and cash equivalents decreased by $4.8 million, or 28.0%, from $17.2
million at December 31, 1996 to $12.4 million at September 30, 1997. The
decrease was primarily attributable to decreases in borrowings, deposits and
advance payments by borrowers for taxes and insurance, and an increase in
loans, which were partially offset by a decrease in investment securities
available-for-sale and a decrease in mortgage-backed securities
available-for-sale.
During the nine-month period ended September 30, 1997, net loans
receivable increased by $2.8 million (1.2%) from $233.3 million to $236.1
million. This was primarily the result of the origination (or purchase) of
$33.4 million of real estate loans and the origination (or purchase) of $31.8
million of consumer and commercial business loans, offset by loan repayments
which totaled $61.3 million.
Securities available-for-sale decreased by $6.7 million, or 13.0%, to
$44.6 million at September 30, 1997 from $51.3 million at December 31, 1996
as the result of the maturity of $6.2 million in such securities and the sale
of $3.0 million in such securities, partially offset by the purchase of $2.2
million in such securities, and by the net change in market value adjustment.
Mortgage-backed securities available-for-sale decreased by $3.2 million,
or 9.3%, to $31.3 million at September 30, 1997 from $34.5 million at
December 31, 1996. The decrease resulted from maturities of $3.4 million of
such securities, and by the change in market value adjustment.
Deposits decreased by $1.1 million, or 0.4%, to $276.2 million at
September 30, 1997 from $277.3 million at December 31, 1996. The decrease
resulted from a $3.5 million decrease in passbook, NOW and money market
accounts, partially offset by a $2.4 million increase in certificate of
deposit accounts.
8
<PAGE>
Total borrowings, which decreased by $10.8 million, or 31.4%, to $23.7
million at September 30, 1997 from $34.5 million at December 31, 1996,
consisted of $13.8 million in advances from the Federal Home Loan Bank of
Chicago (the "FHLB") and $9.9 million in funds borrowed using mortgage-backed
securities available-for-sale as collateral.
Real estate held for sale increased by $1.2 million, or 549.0%, to $1.4
million at September 30, 1997, from $215,000 at December 31, 1996. The
increase was the result of the second quarter transfer of one property from
loans to real estate held for sale. The property, a commercial retail
building in Champaign, Illinois, was deeded to the Bank. The borrower has
remained liable on the underlying obligation, which is also secured by
additional collateral. The property is currently being offered for sale.
Management does not currently anticipate that a loss will be incurred.
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
September 30, 1997 as compared to $4.1 million at December 31, 1996.
Non-performing assets represented 1.05% and 1.16% of total assets at
September 30, 1997 and December 31, 1996, respectively. During the
nine-month period ended September 30, 1997, non-performing commercial real
estate loans, non-performing construction and development loans,
non-performing commercial business loans and non-performing one-to-four
family loans decreased by $1.7 million, $23,000, $12,000 and $80,000,
respectively. These decreases were partially offset by increases of $1.2
million and $85,000 in foreclosed assets and consumer loans, respectively.
The ratio of the allowance for losses on loans to non-performing loans was
98.8% as of September 30, 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 a decrease of $1.7 million in non-performing loans.
The Company classified $1.4 million of its assets as Special Mention,
$4.4 million as Substandard and $34,000 as Loss as of September 30, 1997. No
assets were classified as Doubtful at September 30, 1997. This represents a
decrease of $846,000 in the Special Mention category and a net increase of
$98,000 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 1.72% as of September 30, 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 36.7% as of September 30,
1997 as compared to 35.8% as of December 31, 1996.
The allowance for losses on loans is established through a provision for
losses on loans based
9
<PAGE>
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
1996 COMPARATIVE NUMBERS
Two events during the third quarter of 1996 significantly impacted net
income for both the three and nine-month periods ended September 30, 1996.
The combined impact of these two events was a loss of $655,000, or $.44 per
share, for both the three and nine-month periods of 1996. The impact of
these events should be considered in the comparative analyses between the
three and nine-month periods ended September 30, 1996 and the comparable 1997
periods.
The first event was a one-time Federal Deposit Insurance Corporation
assessment on the federally-insured deposit base of the Bank. The assessment
was required by federal legislation to increase the balance of the Savings
Association Insurance Fund. A $1.7 million expense was recorded during the
third quarter of 1996. Net of tax benefit, the special assessment reduced
net income for both the three-month and nine-month periods ended September
30, 1996 by $1.1 million, or $.75 per share.
The second event was the sale, during the third quarter of 1996, by the
Bank of a branch office which resulted in a gain of $708,000. Net of
provision for income taxes, net income for both the three and nine-month
periods ended September 30, 1996 was increased by $467,000, or $.31 per share.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
Net income for the three-month period ended September 30, 1997 was
$736,000 compared to a loss of $27,000 for the same period in 1996. This
represents a $763,000 increase in net income for the 1997 period. The
increase in net income resulted from a $1.8 million decrease in general and
administrative expenses, partially offset by a $703,000 decrease in other
income, a $46,000 decrease in net interest income and a $300,000 increase in
federal income tax expense. The changes in general and administrative
expense and in other income relate to the third quarter 1996 events discussed
earlier.
Net interest income decreased $46,000, or 1.7%, during the three-month
period ended September 30, 1997 compared to the three-month period ended
September 30, 1996.
The table presented on page 16 ("Table I"), sets forth an analysis of the
Company's net interest
10
<PAGE>
income for the three-month periods ended September 30, 1997 and 1996.
As Table I indicates, interest income decreased $271,000, or 4.2%, to
$6.2 million for the three-month period ended September 30, 1997 from $6.5
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
$326.5 million during the 1997 period from $341.0 million during the 1996
period and by a slight decrease in the yield earned on interest-earning
assets to 7.54% during the 1997 period from 7.55% during the 1996 period.
The decrease in the average balance of interest-earning assets was primarily
due to decreases in balances of investment securities during the period.
Interest expense decreased $225,000, or 5.9%, to $3.6 million for the
three-month period ended September 30, 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 4.71%
and $301.9 million, respectively, during the 1997 period from 4.75% and
$318.7 million, respectively, during the 1996 period. The decrease in the
average yield on interest-bearing liabilities was attributable to a decrease
in the average yield of certificates of deposit during the period. Higher
yielding interest-bearing liabilities, consisting of certificates of deposit
and borrowings, represented 66.8% of interest-bearing liabilities during the
1997 period, compared to 66.3% during the 1996 period. Average outstanding
borrowings during the 1997 period were 7.9% of interest-bearing liabilities
as compared to 8.6% during the 1996 period.
The provision for losses on loans totaled $21,000 for the three-month
period ended September 30, 1997 compared to $23,000 for the same period in
1996.
Other income for the three-month period ended September 30, 1997
decreased $703,000, or 62.4%, to $425,000 compared to $1.1 million for the
same period in 1996. A decrease was anticipated due to the $708,000 gain on
the sale of a branch during the 1996 period. The decrease was also
attributable to a decrease of $40,000 in profit on the sale of securities
available-for-sale which was partially offset by an increase of $38,000 in
fee income. The increase in fee income was the result of an ongoing review
of the Bank's fee structure.
Other expenses for the three-month period ended September 30, 1997
decreased $1.8 million, or 47.5%, to $2.0 million from $3.8 million during
the 1996 period. The decrease was primarily attributable to a $1.8 million
decrease in federal insurance premiums. Federal insurance premiums for the
1996 period included the special one-time assessment of $1.7 million. The
remaining $126,000 decrease in federal insurance premiums was due to the
lower premium rate in effect beginning in 1997. The decrease was also
attributed to decreases of $18,000 and $27,000 in telephone and postage and
other expense, respectively. These decreases were partially offset by
increases of $34,000 in occupancy, $13,000 in furniture and equipment expense
and $20,000 in advertising.
Federal income taxes increased $300,000 to $286,000 for the three-month
period ended September 30, 1997, compared to a benefit of $14,000 for the
same period in 1996.
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
Net income for the nine-month period ended September 30, 1997 was $2.3
million compared to
11
<PAGE>
$974,000 for the same period in 1996. The difference in net income of $1.3
million represents a 132.5% increase in net income for the 1997 period. The
increase in net income resulted from a $159,000 increase in net interest
income, a $41,000 decrease in provision for losses on loans, and a $2.2
million decrease in other expenses, which were partially offset by a decrease
of $562,000 in other income and a $583,000 increase in federal income tax
expense.
Net interest income increased by $159,000, or 2.0%, during the nine-month
period ended September 30, 1997 compared to the nine-month period ended
September 30, 1996.
The table presented on page 17 ("Table II"), sets forth an analysis of
the Company's net interest income for the nine months ended September 30,
1997 and 1996.
As Table II indicates, interest income decreased $618,000, or 3.2% , to
$18.7 million for the nine-month period ended September 30, 1997 from $19.4
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
$330.2 million during the 1997 period from $342.7 million, during the 1996
period, which was partially offset by an increase in the yield earned on
interest-earning assets to 7.59% during the 1997 period from 7.54% during the
1996 period. The decrease in the average balance of interest-earning assets
was due primarily to decreases of $7.8 million and $3.6 million in the
average balances of investment securities and other interest-earning assets,
respectively, during the 1997 period.
Interest expense decreased $777,000, or 6.8%, to $10.7 million for the
nine-month period ended September 30, 1997 from $11.5 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 4.69%
and $304.7 million, respectively, during the 1997 period from 4.79% and
$319.5 million, respectively, during the 1996 period.
The provision for losses on loans for the nine-month period ended
September 30, 1997, was $21,000, compared to $61,000 for the same period in
1996. The decrease was primarily attributed to a modest increase in loans
receivable, relative stability in the mix of loans receivable and minimal net
charge-offs during the 1997 period, other than one charged-off item on which
the specific reserve exceeded the actual charge-off.
Other income for the nine-month period ended September 30, 1997 decreased
$562,000, or 32.4%, to $1.2 million from $1.7 million for the same period in
1996. The decrease was attributable to decreases of $11,000, $52,000 and
$728,000 in net gain on sale of securities available-for-sale, net gain on
the sale of real estate held for sale and other income, respectively, which
were partially offset by increases of $41,000, $170,000 and $19,000 in net
gain on the sale of loans held for sale, fee income and insurance
commissions, respectively. A decrease was anticipated in other income due to
the $708,000 gain on the sale of a branch during the 1996 period.
Other expenses for the nine-month period ended September 30, 1997
decreased $2.2 million, or 27.0%, from the same period in 1996. The decrease
was attributable to decreases in federal insurance premiums, compensation and
benefits, data processing services, telephone and postage and other general
and administrative expense of $2.1 million, $77,500, $34,000, $37,000 and
$228,000, respectively. These decreases were partially offset by increases
in occupancy, furniture and equipment and advertising expense of $38,000,
$85,000 and $68,000, respectively. Federal insurance premiums for the 1996
period included the special one-time assessment of $1.7 million.
12
<PAGE>
The remaining $359,000 decrease in federal insurance premiums was due to the
lower premium rate in effect beginning in 1997. Cost savings continue to be
realized from recommendations derived from an operational review of certain
departments which was conducted in the last half of 1995. The full impact of
recommendations implemented during 1996 has been reflected in the operating
results for 1997.
Federal income taxes increased by $583,000, or 195.2%, to $882,000 for
the nine-month period ended September 30, 1997, compared to $299,000 for the
same period in 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 withdrawable deposits and borrowings due within one year) of 5%. At
September 30, 1997, the Bank's liquidity ratio was 11.7%, which was well 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 September 30,
1997, the Bank exceeded all current minimum regulatory capital standards.
At September 30, 1997, the Bank's tangible capital was $29.9 million, or
9.0%, of adjusted total assets, which exceeded the 1.5% requirement by $24.9
million. In addition, at September 30, 1997, the Bank had core capital of
$29.9 million, or 9.0%, of adjusted total assets, which exceeded the 3.0%
requirement by $20.0 million. The Bank had risk-based capital of $32.0
million at September 30, 1997, or 16.3%, of risk-adjusted assets, which
exceeded the minimum risk-based capital requirement by $16.3 million.
13
<PAGE>
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. During the nine-month period ending September 30, 1997, no
shares of common stock were repurchased. Through September 30, 1997, a total
of 354,357 shares of common stock of the Company had been purchased under the
previously completed repurchase programs at a total cost of $6.2 million. As
of September 30, 1997, the Company held 324,432 shares of its common stock as
treasury stock. On October 21, 1997, the Company purchased 55,000 shares of
its common stock at a total cost of $1.8 million, under the current
repurchase program.
EXERCISE OF STOCK OPTIONS
During the third quarter of 1997, stock options for 400 shares of common
stock were exercised. During the nine months ended September 30, 1997, stock
options for 10,650 shares of common stock were exercised. Options for 300
shares of common stock were exercised between September 30, 1997 and November
4, 1997. No other notice was received between September 30, 1997 and
November 4, 1997 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
by 20% to $.12 per share. On October 15, 1997, a cash dividend of $.12 per
share was declared payable on December 1, 1997 to stockholders of record as
of November 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.
BANK ACQUISITION
On October 16, 1997, the Company announced that it had entered into an
agreement to purchase for cash the Coal City National Bank ("CCNB") from Coal
City Corporation, a multi-bank holding company headquartered in Chicago,
Illinois. Terms of the purchase were not disclosed, pending completion of
due diligence.
The $50 million asset CCNB is headquartered in Coal City, Illinois, which
is 25 miles northwest of Kankakee. CCNB also has full-service offices in
nearby Diamond and Braidwood, Illinois. The purchase, which is subject to
regulatory approvals, is expected to be completed no later than the second
quarter of 1998. Under current plans, CCNB's offices will become
full-service offices of the Bank.
ACCOUNTING DEVELOPMENTS
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS No. 128"), Earnings per
Share. SFAS No. 128 requires the
14
<PAGE>
presentation of both basic earnings per share and diluted earnings per share.
Basic earnings per share will be computed by dividing net income by the
weighted-average number of common shares outstanding. Diluted earnings per
share will be computed in the same manner as currently used by Kankakee
Bancorp, Inc., in computing earnings per share. SFAS No. 128 will be
effective for Kankakee Bancorp's 1997 annual report. If SFAS No. 128 had
been in effect during 1997, basic earnings per share would have been $.52 and
$1.59 per share, and the diluted earnings per share would have been $.49 and
$1.50 per share for the three months and nine months ended September 30,
1997, respectively.
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 identifiable by use of the words "believe," "expect,"
"intend," "anticipate," "estimate," "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 effect 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, legislative/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.
15
<PAGE>
TABLE I
NET INTEREST INCOME ANALYSIS (UNAUDITED)
KANKAKEE BANCORP, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
Three Months Ended September 30,
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 receivable (1) $234,174 $4,738 8.03% $235,365 $4,845 8.19%
Mortgage-backed securities 32,100 546 6.75% 31,703 487 6.11%
Investments securities (2) 46,042 719 6.20% 59,009 991 6.68%
Other interest-earning assets 12,288 166 5.36% 12,987 116 3.55%
FHLB stock 1,856 32 6.84% 1,956 33 6.71%
-------- ------ -------- ------
Total interest-earning asset 326,460 6,201 7.54% 341,020 6,472 7.55%
-------- -------- ------
Other assets 15,487 15,274
-------- --------
Total assets $341,947 $356,294
-------- --------
-------- --------
Interest-bearing liabilities:
Time deposits $177,894 2,530 5.64% $183,933 2,655 5.74%
Savings deposits 51,862 356 2.72% 54,600 369 2.69%
Demand and NOW deposits 48,239 344 2.83% 52,624 389 2.94%
Borrowings 23,855 350 5.82% 27,505 392 5.67%
-------- ------ -------- ------
Total interest-bearing liabilities 301,850 3,580 4.71% 318,662 3,805 4.75%
-------- ------ -------- ------
Other liabilities 1,666 2,175
-------- --------
Total liabilities 303,516 320,837
-------- --------
Stockholders' equity 38,431 35,457
-------- --------
Total liabilities and
stockholders' equity $341,947 $356,294
-------- --------
-------- --------
Net interest income $2,621 $2,667
------ ------
------ ------
Net interest rate spread 2.83% 2.80%
----- -----
----- -----
Net earning assets $24,610 $22,358
-------- --------
-------- --------
Net yield on average interest-
earning assets (net interest
margin) 3.19% 3.11%
----- -----
----- -----
Average interest-earning assets to
average interest-bearing liabilities 108.15% 107.02%
------- -------
------- -------
</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.
16
<PAGE>
TABLE II
NET INTEREST INCOME ANALYSIS (UNAUDITED)
KANKAKEE BANCORP, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
Nine Months Ended September 30,
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 receivable (1) $232,457 $14,098 8.11% $232,967 $14,316 8.21%
Mortgage-backed securities 33,078 1,696 6.86% 33,739 1,603 6.35%
Investments securities (2) 48,488 2,288 6.31% 56,331 2,751 6.52%
Other interest-earning assets 14,243 557 5.23% 17,865 591 4.42%
FHLB stock 1,896 96 6.77% 1,833 92 6.70%
-------- ------- -------- -------
Total interest-earning assets 330,162 18,735 7.59% 342,735 19,353 7.54%
-------- ------- -------- -------
Other assets 14,516 15,525
-------- --------
Total assets $344,678 $358,260
-------- --------
-------- --------
Interest-bearing liabilities:
Time deposits $176,524 7,416 5.62% $184,188 7,962 5.77%
Savings deposits 52,154 1,061 2.72% 54,515 1,096 2.69%
Demand and NOW deposits 49,203 1,050 2.85% 52,364 1,172 2.99%
Borrowings 26,809 1,161 5.79% 28,401 1,235 5.81%
-------- ------- -------- -------
Total interest-bearing liabilities 304,690 10,688 4.69% 319,468 11,465 4.79%
-------- ------- -------- -------
Other liabilities 2,546 3,077
-------- --------
Total liabilities 307,236 322,545
-------- --------
Stockholders' equity 37,442 35,715
-------- --------
Total liabilities and
stockholders' equity $344,678 $358,260
-------- --------
-------- --------
Net interest income $8,047 $7,888
------- -------
------- -------
Net interest rate spread 2.90% 2.75%
----- -----
----- -----
Net earning assets $25,472 $23,267
-------- --------
-------- --------
Net yield on average interest-
earning assets (net interest
margin) 3.26% 3.07%
----- -----
----- -----
Average interest-earning assets to
average interest-bearing liabilities 108.36% 107.28%
------- -------
------- -------
</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.
17
<PAGE>
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 - 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
18
<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: November 4, 1997 /s/ MICHAEL A. STANFA
--------------------------- ----------------------------------
Executive Vice President
Date: November 4, 1997 /s/ RONALD J. WALTERS
--------------------------- -----------------------------------
Vice President and Treasurer
(Principal Financial
and Accounting Officer)
19
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 4,507
<INT-BEARING-DEPOSITS> 6,478
<FED-FUNDS-SOLD> 1,725
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 75,914
<INVESTMENTS-CARRYING> 282
<INVESTMENTS-MARKET> 285
<LOANS> 238,209
<ALLOWANCE> 2,144
<TOTAL-ASSETS> 236,065
<DEPOSITS> 276,215
<SHORT-TERM> 9,940
<LIABILITIES-OTHER> 1,155
<LONG-TERM> 13,775
0
0
<COMMON> 16,118
<OTHER-SE> 22,734
<TOTAL-LIABILITIES-AND-EQUITY> 339,937
<INTEREST-LOAN> 4,738
<INTEREST-INVEST> 917
<INTEREST-OTHER> 546
<INTEREST-TOTAL> 6,201
<INTEREST-DEPOSIT> 3,230
<INTEREST-EXPENSE> 350
<INTEREST-INCOME-NET> 2,621
<LOAN-LOSSES> 21
<SECURITIES-GAINS> 2
<EXPENSE-OTHER> 2,003
<INCOME-PRETAX> 1,021
<INCOME-PRE-EXTRAORDINARY> 736
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 736
<EPS-PRIMARY> .49
<EPS-DILUTED> .49
<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>
