<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, 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 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 August 11, 1997, there were 1,425,168 issued and outstanding shares of the
Issuer's Common Stock (exclusive of 324,832 shares of the Issuer's Common Stock
held as treasury stock).
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KANKAKEE BANCORP, INC.
INDEX
Page
Number
Part I. FINANCIAL INFORMATION
Item 1. Consolidated Financial
Statements (Unaudited)
Statements of Financial Condition,
June 30, 1997 and December 31, 1996 1 - 2
Statements of Income, Three Months
Ended June 30, 1997 and 1996 3
Statements of Income, Six Months
Ended June 30, 1997 and 1996 4
Statements of Cash Flows, Six Months
Ended June 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
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CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (UNAUDITED)
KANKAKEE BANCORP, INC. AND SUBSIDIARY
June 30, December 31,
1997 1996
------------- -------------
Assets
Cash and due from banks $ 6,232,256 $ 4,291,857
Federal funds sold 1,650,000 7,985,000
Money market funds 5,814,290 4,883,256
------------- -------------
Cash and cash equivalents 13,696,546 17,160,113
------------- -------------
Certificates of deposit 250,000 50,000
------------- -------------
Securities:
Investment securities:
Available-for-sale, at fair value 48,215,325 51,345,158
Held-to-maturity, at cost
(fair value: June 30, 1997 -
$69,752; December 31, 1996 - $72,223) 69,752 72,223
------------- -------------
Total investment securities 48,285,077 51,417,381
------------- -------------
Mortgage-backed securities:
Available-for-sale, at fair value 32,441,595 34,467,377
Held-to-maturity, at cost
(fair value: June 30, 1997 -
$224,718; December 31, 1996 - $255,058) 220,795 246,303
------------- -------------
Total mortgage-backed securities 32,662,390 34,713,680
------------- -------------
Non-marketable equity securities 501,100 501,100
------------- -------------
Loans 233,935,162 235,682,573
Less: Allowance for losses on loans 2,157,972 2,359,889
------------- -------------
Net loans 231,777,190 233,322,684
------------- -------------
Loans held for sale 636,052 639,861
Real estate held for sale 1,450,135 215,027
Federal Home Loan Bank stock, at cost 1,856,000 1,956,000
Office properties and equipment 4,925,669 4,721,060
Accrued interest receivable 2,533,735 2,638,066
Prepaid expenses and other assets 826,908 914,693
Intangible assets 2,277,581 2,393,422
------------- -------------
Total assets $341,678,383 $350,643,087
============= =============
(Continued)
1
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CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (UNAUDITED) (continued)
KANKAKEE BANCORP, INC. AND SUBSIDIARY
June 30, December 31,
1997 1996
----------- --------------
Liabilities and stockholders' equity
Liabilities:
Deposits
Noninterest bearing $ 8,366,037 $ 7,643,667
Interest bearing 269,573,938 269,704,540
Short term borrowings 12,700,000 26,820,000
Other borrowings 11,225,000 7,725,000
Advance payments by borrowers
for taxes and insurance 1,429,636 1,436,595
Other liabilities 490,314 819,064
------------ ------------
Total liabilities 303,784,925 314,148,866
------------ ------------
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:
June 30, 1997 - 1,425,168;
December 31, 1996 - 1,414,918 17,500 17,500
Additional paid-in capital 16,103,180 16,181,726
Retained income,
substantially restricted 28,407,591 27,219,741
Less cost of treasury stock
(324,832 shares at June 30, 1997;
335,082 shares at December 31, 1996) (5,696,744) (5,876,509)
Unrealized losses on securities
available-for-sale, net of
related income taxes (396,112) (409,353)
------------ ------------
Total stockholders' equity before
Employee Stock Ownership
Plan loan and Bank Incentive
Plan and Trust 38,435,415 37,133,105
Employee Stock Ownership Plan loan (529,238) (604,844)
Bank Incentive Plan and Trust (12,719) (34,040)
------------ ------------
Total stockholders' equity 37,893,458 36,494,221
------------ ------------
Total liabilities and
stockholders' equity $341,678,383 $350,643,087
============ ============
See notes to consolidated financial statements (unaudited)
2
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CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
KANKAKEE BANCORP, INC. AND SUBSIDIARY
Three Months Ended June 30,
-------------------------------
1997 1996
-------------------------------
Interest income:
Loans $4,680,716 $4,785,922
Mortgage-backed securities 568,970 543,180
Investment securities 997,118 1,152,449
---------- ----------
Total interest income 6,246,804 6,481,551
---------- ----------
Interest expense:
Deposits 3,189,921 3,424,131
Borrowed funds 350,726 407,676
---------- ----------
Total interest expense 3,540,647 3,831,807
---------- ----------
Net interest income 2,706,157 2,649,744
Provision for losses on loans 3,550 28,650
---------- ----------
Net interest income after provision
for losses on loans 2,702,607 2,621,094
Other income:
Net loss on sale of securities
available-for-sale - (9,375)
Net gain (loss) on sales of real estate
held for sale (13,458) 20,710
Net gain (loss) on sales of loans
held for sale 5,966 (30,404)
Fee income 247,225 192,925
Insurance commissions 25,627 20,048
Other 104,983 146,502
---------- ----------
Total other income 370,343 340,406
---------- ----------
Other expenses:
Compensation and benefits 1,075,279 1,098,643
Occupancy 178,046 168,523
Furniture and equipment 124,753 103,148
Federal insurance premiums 54,162 163,133
Advertising 80,918 50,551
Data processing services 70,818 70,558
Telephone and postage 66,218 59,179
Amortization of intangible assets 57,920 57,920
Other general and administrative 325,856 395,517
---------- ----------
Total other expenses 2,033,970 2,167,172
---------- ----------
Income before income taxes 1,038,980 794,328
Income taxes 280,310 190,430
---------- ----------
Net income $ 758,670 $ 603,898
========== ==========
Earnings per share $ 0.50 $ 0.40
====== ======
See notes to consolidated financial statements (unaudited)
3
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CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
KANKAKEE BANCORP, INC. AND SUBSIDIARY
Six Months Ended June 30,
-----------------------------
1997 1996
-----------------------------
Interest income:
Loans $ 9,360,049 $ 9,471,280
Mortgage-backed securities 1,150,250 1,115,844
Investment securities 2,023,972 2,294,548
----------- -----------
Total interest income 12,534,271 12,881,672
----------- -----------
Interest expense:
Deposits 6,297,168 6,817,203
Borrowed funds 810,499 842,734
----------- -----------
Total interest expense 7,107,667 7,659,937
----------- -----------
Net interest income 5,426,604 5,221,735
Provision for losses on loans - 38,097
----------- -----------
Net interest income after provision
for losses on loans 5,426,604 5,183,638
Other income:
Net loss on sale of securities available-for-sale - (28,809)
Net gain (loss) on sales of real estate
held for sale (10,592) 38,428
Net gain (loss) on sales of loans held for sale 11,897 (20,068)
Fee income 496,186 364,647
Insurance commissions 50,580 40,145
Other 198,035 210,258
----------- -----------
Total other income 746,106 604,601
----------- -----------
Other expenses:
Compensation and benefits 2,203,372 2,280,683
Occupancy 355,292 350,868
Furniture and equipment 239,132 167,086
Federal insurance premiums 86,672 319,526
Advertising 113,958 65,679
Data processing services 146,928 175,114
Telephone and postage 126,208 144,969
Amortization of intangible assets 115,841 115,841
Other general and administrative 660,597 855,481
----------- -----------
Total other expenses 4,048,000 4,475,247
----------- -----------
Income before income taxes 2,124,710 1,312,992
Income taxes 596,020 312,521
=========== ===========
Net income $ 1,528,690 $ 1,000,471
Earnings per share $1.01 $0.66
===== =====
See notes to consolidated financial statements (unaudited)
4
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CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
KANKAKEE BANCORP, INC. AND SUBSIDIARY
Six Months Ended June 30,
-----------------------------
1997 1996
-----------------------------
Cash flows from operating activities
Net income $ 1,528,690 $ 1,000,471
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for losses on loans - 38,097
Depreciation and amortization 375,607 321,904
Amortization of investment premiums and
discounts-net 57,924 205,216
Accretion of loan fees and discounts, net (32,896) (58,380)
Deferred income tax provision (benefit) (28,003) (13,710)
Origination of loans held for sale (1,790,002) (3,354,766)
Proceeds from sales of loans 1,805,708 3,357,432
(Increase) decrease in interest receivable 104,331 (424,896)
Decrease in interest payable on deposits (5,243) (11,446)
Proceeds from sales of trading securities - 19,662,500
Purchase of trading securities - (19,884,844)
Net (gain) loss on sales of loans (11,897) 20,068
Net loss on sales of securities - 28,809
Net (gain) loss on sales of real estate
held for sale 10,592 (38,428)
Other, net (54,530) (961,738)
----------- -----------
Net cash from operating activities 1,960,281 (113,711)
----------- -----------
Cash flows from investing activities
Investment securities:
Available-for-sale:
Purchases (2,183,161) (26,956,508)
Proceeds from sales - 4,189,375
Proceeds from calls and maturities 5,189,000 6,500,000
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 2,124,892 6,197,884
Held-to-maturity:
Proceeds from maturities and paydowns 25,508 81,393
Purchases of certificates of deposit (505,500) (826,640)
Proceeds from maturities of certificates
of deposit 305,500 687,500
Proceeds from sales of real estate 101,777 933,394
Net loan fees and costs deferred (96,953) 93,574
Loans originated (39,514,897) (36,996,484)
Loans purchased (1,295,000) (850,000)
Principal collected on loans 41,156,459 34,681,089
Purchases of office properties and
equipment-net (464,375) (303,102)
Payment of acquisition costs - (22,868)
----------- -----------
Net cash from investing activities 4,845,721 (15,556,659)
----------- -----------
(continued)
5
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CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) (continued)
KANKAKEE BANCORP, INC. AND SUBSIDIARY
Six Months Ended June 30,
-----------------------------
1997 1996
-----------------------------
Cash flows from financing activities
Net increase (decrease) in non-certificate
of deposit accounts (384,602) 3,364,398
Net increase in certificate of deposit accounts 981,613 5,189,521
Decrease in advance payments by
borrowers for taxes and insurance (6,959) (86,347)
Proceeds from short-term borrowings 42,780,000 16,730,000
Repayments of short-term borrowings (56,900,000) (20,370,000)
Proceeds from other borrowings 16,200,000 650,000
Repayments of other borrowings (12,700,000) -
Proceeds from exercise of stock options 101,219 6,912
Dividends paid (340,840) (289,274)
Purchase of treasury stock - (403,079)
----------- -----------
Net cash from financing activities (10,269,569) 4,792,131
----------- -----------
Increase (decrease) in cash and cash equivalents (3,463,567) (10,878,239)
Cash and cash equivalents:
Beginning of year 17,160,113 25,694,509
----------- -----------
End of year $13,696,546 $14,816,270
=========== ===========
Supplemental disclosures of cash flow information
Cash paid during the year for:
Interest on deposits $ 6,291,900 $ 6,828,600
=========== ===========
Interest on borrowed funds $ 880,200 $ 842,300
=========== ===========
Supplemental disclosures of non-cash
investing activities:
Real estate acquired through foreclosure $ 1,328,781 $ 224,830
=========== ===========
See notes to consolidated financial statements (unaudited)
6
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KANKAKEE BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
June 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 six-month periods ended June 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 June 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 $396,112. 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
$204,014. A decrease in market interest rates during the six months ended
June 30, 1997 resulted in a $13,241 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 six 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
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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 $9.0 million, or 2.6%, to $341.7
million at June 30, 1997 from $350.7 million at December 31, 1996.
Cash and cash equivalents decreased by $3.5 million, or 20.2%, from $17.2
million at December 31, 1996 to $13.7 million at June 30, 1997. The decrease
was primarily attributable to a decrease in borrowings, which was partially
offset by a decrease in investment securities available-for-sale, a decrease
in mortgage-backed securities available-for-sale and a decrease in loans
receivable.
During the six-month period ended June 30, 1997, net loans receivable
decreased by $1.5 million (0.7%) from $233.3 million to $231.8 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 $21.3 million of
consumer and commercial business loans, offset by loan repayments which
totaled $41.2 million.
Securities available-for-sale decreased by $3.1 million to $48.2 million
at June 30, 1997 from $51.3 million at December 31, 1996 as the result of the
maturity of $5.2 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 $2.1 million,
or 5.9%, to $32.4 million at June 30, 1997 from $34.5 million at December 31,
1997. The decrease resulted from maturities of $2.1 million of such
securities, and by the change in market value adjustment.
8
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Deposits increased by $592,000, or 0.2% to $277.9 million at June 30,
1997 from $277.3 million at December 31, 1996. The increase resulted from a
$1.0 million increase in certificates of deposit, partially offset by a
$385,000 decrease in passbook, NOW and money market accounts.
Total borrowings, which decreased by $10.6 million, or 30.7%, to $23.9
million at June 30, 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 $10.2 million in funds borrowed using mortgage-backed securities
available-for-sale as collateral.
During the second quarter of 1997, real estate held for sale increased
$1.2 million, or 574.4% to $1.5 million from $215,000 at December 31, 1996.
The increase was the result of the 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. However, the borrower remained
liable on the underlying obligation. There is also additional collateral on
the underlying obligation. The property is currently 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 $3.2 million at June 30,
1997 as compared to $4.1 million at December 31, 1996. Non-performing assets
represented 0.94% and 1.16% of total assets at June 30, 1997 and December 31,
1996, respectively. During the six-month period ending June 30, 1997,
non-performing commercial real estate loans, non-performing construction and
development loans and non-performing one-to-four family loans decreased by
$1.7 million, $607,000 and $97,000, respectively. These decreases were
partially offset by increases of $1.3 million, $111,000, $85,000 and $78,000
in foreclosed assets, multi-family loans, commercial business loans and
consumer loans, respectively. The ratio of the allowance for losses on loans
to non-performing loans was 121.6% as of June 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 $2.1 million in
non-performing loans.
The Company classified $1.4 million of its assets as Special Mention,
$4.5 million as Substandard and $43,000 as Loss as of June 30, 1997. No
assets were classified as Doubtful at June 30, 1997. This represents a
decrease of $840,000 in the Special Mention category and a net increase of
9
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$234,000 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 1.75% as of June 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 36.0% as of June 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 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 JUNE 30, 1997 AND 1996
Net income for the three-month period ended June 30, 1997 was $759,000
compared to $604,000 for the same period in 1996. The difference in net
income of $155,000 represents a 25.6% increase in net income for the 1997
period. The increase in net income resulted from a $56,000 increase in net
interest income, a $133,000 decrease in general and administrative expenses,
a $30,000 increase in other income and a $25,000 decrease in the provision
for losses on loans, partially offset by a $90,000 increase in federal income
tax expense.
Net interest income increased $56,000, or 2.1%, during the three-month
period ended June 30, 1997 compared to the three-month period ended June 30,
1996.
The table presented on page 16 ("Table I"), sets forth an analysis of the
Company's net interest income for the three-month periods ended June 30, 1997
and 1996.
As Table I indicates, interest income decreased $235,000, or 3.6%, to
$6.2 million for the three-month period ended June 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 $328.8
million during the 1996 period from $345.5 million during the 1995 period,
which was partially offset by an increase in the yield earned on
interest-earning assets to 7.62% during the 1997 period from 7.55% during the
1996 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.
10
<PAGE>
Interest expense decreased $291,000, or 7.6%, to $3.5 million for the
three-month period ended June 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 4.69% and
$303.0 million, respectively, during the 1997 period from 4.78% and $322.1
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 66.3% of interest-bearing liabilities during both the
1997 period and the 1996 period. Average outstanding borrowings during the
1997 period were 8.0% of interest-bearing liabilities as compared to 8.7%
during the 1996 period.
The provision for losses on loans totaled $4,000 for the three-month
period ended June 30, 1997 compared to $29,000 for the same period in 1996.
The decrease was primarily attributed to a modest reduction in loans
receivable, relative stability in the mix of loans in loans receivable and
minimal net charges-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 three-month period ended June 30, 1997 increased
$31,000, or 8.8%, to $371,000 compared to $340,000 for the same period in
1996. The increase was attributable to increases in net gain on the sale of
loans, fee income and net gain on the sale of securities available-for-sale
of $36,000, $54,000 and $9,000, respectively, which were partially offset by
an increase in net loss on sale of real estate held for sale of $34,000 and a
decrease in other income of $42,000. The increase in fee income was the
result of an ongoing process of review of the Bank's fee structure.
Other expenses for the three-month period ended June 30, 1997 decreased
$133,000, or 6.1%, to $2.0 million from $2.2 million during the 1996 period.
The decrease was attributable to decreases in compensation and benefits
expense, federal insurance premiums and other general and administrative
expense of $23,000, $109,000 and $70,000, respectively, which were partially
offset by increases in occupancy expense, furniture and equipment expense and
advertising of $10,000, $22,000 and $30,000, respectively. The decrease in
federal insurance premiums was due to the lower premium rate in effect
beginning in 1997 which resulted from the third quarter 1996 recapitalization
of the Savings Association Insurance Fund (the "SAIF").
Federal income taxes increased $90,000, or 47.2%, to $280,000 for the
three-month period ended June 30, 1997, compared to $190,000 for the same
period in 1996.
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1997 AND 1996
Net income for the six-month period ended June 30, 1997 was $1.5 million
compared to $1.0 million for the same period in 1996. The difference in net
income of $528,000 represents a 52.8% increase in net income for the 1997
period. The increase in net income resulted from a $205,000 increase in net
interest income, a $38,000 decrease in provision for losses on loans, a
$142,000 increase in other income and a $427,000 decrease in other expenses,
which were partially offset by
11
<PAGE>
a $283,000 increase in federal income tax expense.
Net interest income increased by $205,000, or 3.9%, during the six-month
period ended June 30, 1997 compared to the six-month period ended June 30,
1996.
The table presented on page 17 ("Table II"), sets forth an analysis of
the Company's net interest income for the six months ended June 30, 1997 and
1996.
As Table II indicates, interest income decreased $347,000, or 2.7% , to
$12.5 million for the six-month period ended June 30, 1997 from $12.9 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 $331.7
million during the 1997 period from $343.8 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 7.54% during the
1996 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 decreased $552,000, or 7.2%, to $7.1 million for the
six-month period ended June 30, 1997 from $7.7 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 $305.9
million, respectively, during the 1997 period from 4.81% and $320.2 million,
respectively, during the 1996 period.
The provision for losses on loans was zero for the six month period ended
June 30, 1997, compared to $38,000 for the same period in 1996. The decrease
was primarily attributed to a modest reduction 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 six-month period ended June 30, 1997 increased
$141,000, or 23.4%, to $746,000 from $605,000 for the same period in 1996.
Increases of $29,000, $32,000 and $131,000 attributable to net gain on sale
of securities available-for-sale, net gain on the sale of loans held for sale
and fee income, respectively, were partially offset by decreases of $49,000
and $12,000 in net gain on the sale of real estate held for sale and other
income, respectively.
Other expenses for the six-month period ended June 30, 1997 decreased
$427,000, or 9.5%, 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 $233,000, $77,300, $28,000, $18,000 and
$195,000, respectively. These decreases were partially offset by increases in
furniture and equipment and advertising expense of $72,000 and $48,000,
respectively. The decrease in federal insurance premiums was due to the
lower premium rate in effect during the first half of 1997 which resulted
from the third quarter 1996 recapitalization of the SAIF. 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
12
<PAGE>
full impact of recommendations implemented during 1996 has been reflected in
the operating results for 1997.
Federal income taxes increased by $283,000, or 90.7%, to $596,000 for the
six-month period ended June 30, 1997, compared to $313,000 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 June
30, 1997, the Bank's liquidity ratio was 13.3%, 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 June 30, 1997, the
Bank exceeded all current minimum regulatory capital standards.
At June 30, 1997, the Bank's tangible capital was $29.5 million, or 8.8%,
of adjusted total assets, which exceeded the 1.5% requirement by $24.5
million. In addition, at June 30, 1997, the Bank had core capital of $29.5
million, or 8.8%, of adjusted total assets, which exceeded the 3.0%
requirement by $19.5 million. The Bank had risk-based capital of $31.6
million at June 30, 1997, or 16.3%, of risk-adjusted assets, which exceeded
the minimum risk-based capital requirement by $16.1 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. Since the current program was announced, no shares of common
stock have been repurchased. Through June 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 June
30, 1997, the Company held 324,832 shares of its common stock as treasury
stock.
EXERCISE OF STOCK OPTIONS
During the second quarter of 1997, stock options for 5,000 shares of
common stock were exercised. Between June 30, 1997 and August 8, 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 by
20% to $.12 per share. On July 15, 1997, a cash dividend of $.12 per share
was declared payable on August 29, 1997 to stockholders of record as of
August 15, 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
The Committee on Banking and Financial Services of the U. S. House of
Representatives has approved legislation that would eliminate the federal
thrift charter by requiring each federal thrift to convert to a national or
state bank within two years following enactment of the legislation. Any
federal thrift that failed to convert to a bank within such two-year period
would, by operation of law, become a national bank as of the second
anniversary of the enactment of the legislation. Under the proposed
legislation, state thrift institutions would be regulated for purposes of
federal law as state banks. The proposed legislation would allow a
converting federal thrift and its parent holding company to retain
nonconforming investments and activities, subject to certain conditions.
The proposed legislation would also allow bank holding companies to
engage in a wider range of nonbanking activities, including greater authority
to engage in securities and insurance activities. 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, and if each of the depository institution subsidiaries of the
bank holding company had received at least a "satisfactory" rating under the
Community Reinvestment Act. The proposed legislation would also impose
various restrictions on transactions between the depository institution
subsidiaries of bank
14
<PAGE>
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 the proposed
legislation will be enacted and, therefore, is unable to predict the impact
such legislation may have on the operations of the Company and the Bank.
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>
<CAPTION>
TABLE I
NET INTEREST INCOME ANALYSIS (UNAUDITED)
KANKAKEE BANCORP, INC. AND SUBSIDIARY
Three Months Ended June 30,
<S> <C> <C> <C> <C> <C> <C>
-------------------------------------------------------------------------------------------------
1997 1996
-------------------------------------------------------------------------------------------------
Average Average
Outstanding Interest Yield/ Outstanding Interest Yield/
Balance Earned/Paid Rate Balance Earned/Paid Rate
------------------------------------------------- --------------------------------------------
(Dollars in Thousands)
Interest-earning assets:
Loans receivable (1) $230,553 $4,681 8.14% $232,796 $4,786 8.27%
Mortgage-backed securities 33,029 569 6.91% 34,276 543 6.37%
Investments securities (2) 49,245 777 6.33% 60,020 954 6.39%
Other interest-earning assets 14,061 189 5.39% 16,472 173 4.22%
FHLB stock 1,881 31 6.61% 1,956 26 5.35%
--------- ------ -------- ------
Total interest-earning assets 328,769 6,247 7.62% 345,520 6,482 7.55%
--------- ------ -------- ------
Other assets 14,596 15,578
--------- --------
Total assets $343,365 $361,098
========= ========
Interest-bearing liabilities:
Time deposits $176,681 2,482 5.63% $185,636 2,660 5.76%
Savings deposits 52,395 356 2.73% 55,080 370 2.70%
Demand and NOW deposits 49,796 352 2.84% 53,436 394 2.97%
Borrowings 24,098 351 5.84% 27,983 408 5.86%
-------- ------ -------- ------
Total interest-bearing liabilities 302,970 3,541 4.69% 322,135 3,832 4.78%
--------- ------ -------- ------
Other liabilities 3,205 3,575
--------- --------
Total liabilities 306,175 325,710
--------- --------
Stockholders' equity 37,190 35,388
--------- --------
Total liabilities and
stockholders' equity $343,365 $361,098
========= ========
Net interest income $2,706 $2,650
====== ======
Net interest rate spread 2.93% 2.77%
===== =====
Net earning assets $25,799 $23,385
========= ========
Net yield on average interest-
earning assets (net interest
margin) 3.30% 3.08%
===== =====
Average interest-earning assets to
average interest-bearing liabilities 108.52% 107.26%
====== =======
(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.
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
TABLE II
NET INTEREST INCOME ANALYSIS (UNAUDITED)
KANKAKEE BANCORP, INC. AND SUBSIDIARY
Six Months Ended June 30,
<S> <C> <C> <C> <C> <C> <C>
-------------------------------------------------------------------------------------------------
1997 1996
-------------------------------------------------------------------------------------------------
Average Average
Outstanding Interest Yield/ Outstanding Interest Yield/
Balance Earned/Paid Rate Balance Earned/Paid Rate
------------------------------------------------- --------------------------------------------
(Dollars in Thousands)
Interest-earning assets:
Loans receivable (1) $231,470 $9,360 8.15% $231,717 $9,471 8.22%
Mortgage-backed securities 33,577 1,150 6.91% 34,736 1,116 6.46%
Investments securities (2) 49,893 1,686 6.81% 55,753 1,761 6.35%
Other interest-earning assets 14,864 275 3.73% 19,768 475 4.83%
FHLB stock 1,913 64 6.75% 1,780 59 6.67%
-------- ------- -------- ------
Total interest-earning assets 331,717 12,535 7.62% 343,754 12,882 7.54%
-------- ------- -------- ------
Other assets 14,093 15,759
-------- --------
Total assets $345,810 $359,513
======== ========
Interest-bearing liabilities:
Time deposits $175,853 4,886 5.60% $184,568 5,306 5.78%
Savings deposits 52,286 705 2.72% 54,550 728 2.68%
Demand and NOW deposits 49,685 706 2.87% 52,406 783 3.00%
Borrowings 28,085 811 5.82% 28,664 843 5.91%
-------- ----- -------- -----
Total interest-bearing liabilities 305,909 7,108 4.69% 320,188 7,660 4.81%
-------- ----- -------- -----
Other liabilities 2,960 3,493
-------- --------
Total liabilities 308,869 323,681
-------- --------
Stockholders' equity 36,941 35,832
-------- --------
Total liabilities and
stockholders' equity $345,810 $359,513
======== ========
Net interest income $5,427 $5,222
====== ======
Net interest rate spread 2.93% 2.73%
===== ====
Net earning assets $25,808 $23,566
======= =======
Net yield on average interest-
earning assets (net interest
margin) 3.30% 3.05%
===== =====
Average interest-earning assets to
average interest-bearing liabilities 108.44% 107.36%
======= =======
(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.
</TABLE>
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 - The Annual
Meeting of Stockholders (the "Meeting") of the Company was held on
April 25, 1997. At the Meeting, Charles C. Huber, Thomas M. Schneider
and Wesley E. Walker were elected to serve as directors with terms
expiring in 2000. Continuing with terms expiring in 1999 were William
Cheffer and Michael A. Stanfa. 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:
Charles C. Huber 1,215,534 7,955
Thomas M. Schneider 1,215,181 8,308
Wesley E. Walker 1,215,231 8,258
Broker
For Against Abstain Non-Votes
--------- ------- ------- ---------
The ratification of
McGladrey & Pullen, LLP,
as the auditors for the
year ending
December 31, 1997: 1,207,692 12,330 3,467 -
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: AUGUST 11, 1997 /s/ JAMES G. SCHNEIDER
Chairman,
President and Chief Executive
Officer (Principal Executive
and Operating Officer)
Date: AUGUST 11, 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> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 6,232
<INT-BEARING-DEPOSITS> 6,064
<FED-FUNDS-SOLD> 1,650
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 80,657
<INVESTMENTS-CARRYING> 291
<INVESTMENTS-MARKET> 294
<LOANS> 233,935
<ALLOWANCE> 2,158
<TOTAL-ASSETS> 341,678
<DEPOSITS> 277,940
<SHORT-TERM> 12,700
<LIABILITIES-OTHER> 1,920
<LONG-TERM> 11,225
0
0
<COMMON> 16,121
<OTHER-SE> 21,772
<TOTAL-LIABILITIES-AND-EQUITY> 341,678
<INTEREST-LOAN> 4,681
<INTEREST-INVEST> 997
<INTEREST-OTHER> 569
<INTEREST-TOTAL> 6,247
<INTEREST-DEPOSIT> 3,190
<INTEREST-EXPENSE> 3,541
<INTEREST-INCOME-NET> 2,706
<LOAN-LOSSES> 4
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2,034
<INCOME-PRETAX> 1,039
<INCOME-PRE-EXTRAORDINARY> 759
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 759
<EPS-PRIMARY> .50
<EPS-DILUTED> .50
<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>
