<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, 1998.
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
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KANKAKEE BANCORP, INC.
----------------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 36-3846489
- ------------------------------- -------------------------------------
(State or Other Jurisdiction of (I.R.S. Employer Identification Number)
Incorporation or Organization)
310 SOUTH SCHUYLER AVENUE, KANKAKEE, ILLINOIS 60901
- ------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
(815) 937-4440
- ------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Check whether the Issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
----- -----
As of November 6, 1998, there were 1,366,688 issued and outstanding shares of
the Issuer's Common Stock (exclusive of 383,312 shares of the Issuer's Common
Stock held as treasury stock).
<PAGE>
KANKAKEE BANCORP, INC.
INDEX
<TABLE>
<CAPTION>
Page
Number
<S> <C>
Part I. FINANCIAL INFORMATION
Item 1. Consolidated Financial
Statements (Unaudited)
Statements of Financial Condition,
September 30, 1998 and December 31, 1997 1 - 2
Statements of Income and Comprehensive Income,
Three Months Ended September 30, 1998 and 1997 3
Statements of Income and Comprehensive Income,
Nine Months Ended September 30, 1998 and 1997 4
Statements of Cash Flows, Nine Months
Ended September 30, 1998 and 1997 5 - 6
Notes to Financial Statements 7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 8 - 20
Item 3. Quantitative and Qualitative Disclosure
About Market Risk 10
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 21
Item 2. Changes in Securities 21
Item 3. Defaults Upon Senior Securities 21
Item 4. Submission of Matters to a Vote of Security Holders 21
Item 5. Other Information 21
Item 6. Exhibits and Reports on Form 8-K 21
SIGNATURES 22
</TABLE>
<PAGE>
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (UNAUDITED)
KANKAKEE BANCORP, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------ -----------
<S> <C> <C>
Assets
Cash and due from banks $ 24,462,817 $ 9,184,362
Federal funds sold 19,425,000 8,575,000
Money market funds 5,794,175 5,066,530
------------ ------------
Cash and cash equivalents 49,681,992 22,825,892
------------ ------------
Certificates of deposit 50,000 1,602,000
------------ ------------
Securities:
Investment securities:
Available-for-sale, at fair value 69,055,247 36,823,019
Held-to-maturity, at cost (fair value: September 30, 1998 -
$1,397,351; December 31, 1997 - $69,752) 1,396,156 69,752
------------ ------------
Total investment securities 70,451,403 36,892,771
------------ ------------
Mortgage-backed securities:
Available-for-sale, at fair value 18,594,077 28,299,596
Held-to-maturity, at cost (fair value: September 30, 1998 -
$180,956; December 31, 1997 - $207,815) 176,866 203,662
------------ ------------
Total mortgage-backed securities 18,770,943 28,503,258
------------ ------------
Non-marketable equity securities 501,100 501,100
------------ ------------
Loans 245,549,622 240,925,455
Less: Allowance for losses on loans 2,424,836 2,130,146
------------ ------------
Net loans 243,124,786 238,795,309
------------ ------------
Loans held for sale 725,757 254,406
Real estate held for sale 1,470,238 1,326,302
Federal Home Loan Bank stock, at cost 1,856,000 1,856,000
Office properties and equipment 8,415,628 5,340,406
Accrued interest receivable 2,878,956 2,465,594
Prepaid expenses and other assets 1,548,475 884,458
Intangible assets 5,687,656 2,161,740
------------ ------------
Total assets $405,162,934 $343,409,236
------------ ------------
------------ ------------
(Continued)
</TABLE>
1
<PAGE>
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (UNAUDITED)(CONTINUED)
KANKAKEE BANCORP, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------ -----------
<S> <C> <C>
Liabilities and stockholders' equity
Liabilities:
Deposits
Noninterest bearing $ 14,448,886 $ 9,720,181
Interest bearing 326,327,791 270,301,558
Short term borrowings - 8,220,000
Other borrowings 22,900,000 15,275,000
Advance payments by borrowers for taxes and insurance 459,417 1,428,880
Other liabilities 1,147,586 642,250
------------ ------------
Total liabilities 365,283,680 305,587,869
------------ ------------
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, 1998 -
1,373,488; December 31, 1997 - 1,371,638 17,500 17,500
Additional paid-in capital 16,076,670 16,090,239
Retained income, substantially restricted 30,993,476 29,554,920
Less: Cost of treasury stock (376,512 shares at September
30, 1998; 378,362 shares at December 31, 1997) (7,463,320) (7,459,540)
Unrealized gains on securities available-for-sale, net of
related income taxes 632,955 71,881
------------ ------------
Total stockholders' equity before
Employee Stock Ownership Plan loan 40,257,281 38,275,000
Employee Stock Ownership Plan loan (378,027) (453,633)
------------ ------------
Total stockholders' equity 39,879,254 37,821,367
------------ ------------
Total liabilities and stockholders' equity $405,162,934 $343,409,236
------------ ------------
------------ ------------
</TABLE>
See notes to consolidated financial statements (unaudited)
2
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (UNAUDITED)
KANKAKEE BANCORP, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
Three Months Ended September 30,
--------------------------------
1998 1997
---------- ----------
<S> <C> <C>
Interest income:
Loans $5,075,470 $4,738,304
Mortgage-backed securities 327,647 545,629
Investment securities 1,569,452 917,335
---------- ----------
Total interest income 6,972,569 6,201,268
---------- ----------
Interest expense:
Deposits 3,833,859 3,230,170
Borrowed funds 311,152 350,447
---------- ----------
Total interest expense 4,145,011 3,580,617
---------- ----------
Net interest income 2,827,558 2,620,651
Provision for losses on loans - 20,675
---------- ----------
Net interest income after provision for losses on loans 2,827,558 2,599,976
Other income:
Net gain on sale of securities available-for-sale - 1,875
Net gain on sales of real estate held for sale 3,765 2,946
Net gain on sales of loans held for sale 39,276 23,663
Fee income 374,675 248,407
Insurance commissions 54,154 44,364
Other 123,429 103,267
---------- ----------
Total other income 595,299 424,522
---------- ----------
Other expenses:
Compensation and benefits 1,429,614 1,075,164
Occupancy 229,776 207,449
Furniture and equipment 153,764 118,919
Federal insurance premiums 42,389 41,781
Advertising 57,845 50,802
Provision for losses on foreclosed assets - 1,104
Data processing services 101,308 65,458
Telephone and postage 89,516 56,987
Amortization of intangible assets 106,521 57,921
Other general and administrative 400,940 327,475
---------- ----------
Total other expenses 2,611,673 2,003,060
---------- ----------
Income before income taxes 811,184 1,021,438
Income taxes 271,030 285,890
---------- ----------
Net income $ 540,154 $ 735,548
---------- ----------
---------- ----------
Net income $ 540,154 $ 735,548
Other comprehensive income:
Unrealized gains on available-for-sale
securities, net of related income taxes 440,798 383,933
---------- ----------
Comprehensive income $ 980,952 $1,119,481
---------- ----------
---------- ----------
Basic earnings per share $ 0.39 $ 0.52
---------- ----------
---------- ----------
Diluted earnings per share $ 0.37 $ 0.49
---------- ----------
---------- ----------
</TABLE>
See notes to consolidated financial statements (unaudited)
3
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (UNAUDITED)
KANKAKEE BANCORP, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------
1998 1997
----------- -----------
<S> <C> <C>
Interest income:
Loans $15,361,823 $14,098,353
Mortgage-backed securities 1,229,577 1,695,879
Investment securities 4,152,135 2,941,307
----------- -----------
Total interest income 20,743,535 18,735,539
----------- -----------
Interest expense:
Deposits 11,069,364 9,527,338
Borrowed funds 979,461 1,160,946
----------- -----------
Total interest expense 12,048,825 10,688,284
----------- -----------
Net interest income 8,694,710 8,047,255
Provision for losses on loans - 20,675
----------- -----------
Net interest income after provision for losses on loans 8,694,710 8,026,580
Other income:
Net gain on sale of securities available-for-sale - 1,875
Net gain (loss) on sales of real estate held for sale 20,450 (7,646)
Net gain on sales of loans held for sale 133,940 35,560
Fee income 1,241,647 744,593
Insurance commissions 97,899 94,944
Other 343,717 301,302
----------- -----------
Total other income 1,837,653 1,170,628
----------- -----------
Other expenses:
Compensation and benefits 4,097,121 3,278,536
Occupancy 681,278 562,741
Furniture and equipment 415,786 358,051
Federal insurance premiums 127,503 128,453
Advertising 234,349 164,760
Provision for losses on foreclosed assets 9,292 6,534
Data processing services 283,919 212,386
Telephone and postage 255,578 183,195
Amortization of intangible assets 303,362 173,762
Other general and administrative 1,213,853 982,642
----------- -----------
Total other expenses 7,622,041 6,051,060
----------- -----------
Income before income taxes 2,910,322 3,146,148
Income taxes 975,210 881,910
----------- -----------
Net income $ 1,935,112 $ 2,264,238
----------- -----------
----------- -----------
Net income $ 1,935,112 $ 2,264,238
Other comprehensive income:
Unrealized gains on available-for-sale
securities, net of related income taxes 561,074 397,174
----------- -----------
Comprehensive income $ 2,496,186 $ 2,661,412
----------- -----------
----------- -----------
Basic earnings per share $ 1.40 $ 1.59
----------- -----------
----------- -----------
Diluted earnings per share $ 1.32 $ 1.50
----------- -----------
----------- -----------
</TABLE>
See notes to consolidated financial statements (unaudited)
4
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
KANKAKEE BANCORP, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
Nine Months Ended September 30,
----------------------------------
1998 1997
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,935,112 $ 2,264,238
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for losses on loans - 20,675
Provisions for losses on repossessed assets 9,292 6,534
Depreciation and amortization 759,114 570,362
Amortization of investment premiums and discounts, net 201,599 95,243
Accretion of loan fees, costs and discounts, net (47,041) (33,549)
Deferred income tax provision (benefit) - (25,662)
Originations of loans held for sale (31,120,721) (3,498,789)
Proceeds from sales of loans 30,783,310 4,046,004
(Increase) decrease in interest receivable (105,888) 368,700
Increase (decrease) in interest payable on deposits 87,887 (17,764)
Net gain on sales of loans (133,940) (35,560)
Net gain on sales of securities - (1,875)
Net (gain) loss on sales of real estate held for sale (20,450) 7,646
Other, net (670,885) (27,564)
------------ ------------
Net cash from operating activities 1,677,389 3,738,639
------------ ------------
Cash flows from investing activities
Investment securities
Available-for sale:
Purchases (38,369,126) (2,188,976)
Proceeds from sales - 3,001,875
Proceeds from calls and maturities 22,000,000 6,189,000
Held-to-maturity:
Purchases (1,150,000) -
Proceeds from maturities 2,629 2,471
Mortgage-backed securities:
Available-for-sale:
Purchases (1,997,500) -
Proceeds from maturities and paydowns 11,848,317 3,405,164
Held-to-maturity:
Proceeds from maturities and paydowns 26,797 34,524
Purchases of certificates of deposit (765,692) (705,500)
Proceeds from maturities of certificates of deposit 2,317,692 405,500
Proceeds from sales of real estate 294,247 126,928
Net loan fees and costs deferred 5,115 (134,182)
Loans originated (71,131,586) (63,491,802)
Loans purchased (300,000) (1,735,000)
Principal collected on loans 84,293,894 61,302,528
Purchases of office properties and equipment, net (2,149,130) (1,064,940)
Payment of acquisition costs (8,080,745) -
------------ ------------
Net cash from investing activities (3,155,088) 5,147,590
------------ ------------
</TABLE>
See notes to consolidated financial statements (unaudited).
5
<PAGE>
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) (continued)
KANKAKEE BANCORP, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
Nine Months Ended September 30,
----------------------------------
1998 1997
------------ ------------
<S> <C> <C>
Cash flows from financing activities
Net increase (decrease) in non-certificate
of deposit accounts $ 1,528,921 $ (3,473,680)
Net increase in certificate of deposit accounts 7,273,856 2,358,194
Net decrease in advance payments by
borrowers for taxes and insurance (1,105,081) (1,333,677)
Proceeds from short-term borrowings - 52,720,000
Repayments of short-term borrowings (8,220,000) (69,600,000)
Proceeds from other borrowings 8,000,000 27,050,000
Repayments of other borrowings (375,000) (21,000,000)
Proceeds from exercise of stock options 151,051 105,169
Dividends paid (496,556) (511,861)
Purchase of treasury stock (168,400) -
------------ ------------
Net cash from financing activities 6,588,791 (13,685,855)
------------ ------------
Increase (decrease) in cash and cash equivalents 5,111,092 (4,799,626)
Cash and cash equivalents:
Beginning of year 22,825,892 17,160,113
Cash acquired with Coal City National Bank 21,745,008 -
------------ ------------
End of year $ 49,681,992 $ 12,360,487
------------ ------------
------------ ------------
Supplemental disclosures of cash flow information
Cash paid during the year for:
Interest on deposits $ 11,157,300 $ 9,509,600
------------ ------------
------------ ------------
Interest on borrowed funds $ 1,002,100 $ 1,223,700
------------ ------------
------------ ------------
Income taxes $ 882,335 $ 1,029,588
------------ ------------
------------ ------------
Supplemental disclosures of non-cash investing activities:
Real estate acquired through foreclosure $ 410,268 $ 1,328,781
------------ ------------
------------ ------------
Change in unrealized gains on securities available-for-sale $ 850,112 $ 601,779
------------ ------------
------------ ------------
Change in deferred taxes attributable to the unrealized gains
on securities available-for-sale $ (289,038) $ (204,605)
------------ ------------
------------ ------------
Purchase of Coal City National Bank
Cash paid $ (8,080,745)
------------
------------
Assets acquired:
Cash $ 21,745,008
Investments 15,538,921
Loans 17,560,127
Accrued interest receivable 307,474
Premises and equipment 696,288
Other assets 122,646
Liabilities assumed:
Non-certificates of deposit (28,996,351)
Certificates of deposit (22,691,676)
Accrued interest payable (176,247)
Other liabilities (459,339)
Equity (3,646,851)
------------
$ (8,080,745)
------------
------------
</TABLE>
See notes to consolidated financial statements (unaudited).
6
<PAGE>
KANKAKEE BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 1998
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, 1997 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, 1998 are not
necessarily indicative of the results that may be expected for the year
ending December 31, 1998. 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, 1997.
Note 2 - Earnings Per Share
Basic earnings per share of common stock have been determined by
dividing net income for the period by the average number of shares of common
stock outstanding. Diluted earnings per share of common stock have been
determined by dividing net income for the period by the average number of
shares of common stock and common stock equivalents outstanding. Common stock
equivalents assume exercise of stock options, and the 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. Diluted
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, 1998, 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 increased by $632,955. This represents the amount by which the market
value of the available-for-sale securities and the available-for-sale
mortgage-backed securities exceeded the book value, net of an income tax
provision of $326,199. A decrease in market interest rates during the nine
months ended September 30, 1998 resulted in a $561,074 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 1997, the market value of the available-for-sale securities portfolio
exceeded the book value by $71,881, 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 Company serves the financial needs of families and local businesses
in its primary market areas through its main office at 310 South Schuyler
Avenue, Kankakee, Illinois and fourteen branch offices located in the
communities of Ashkum, Bourbonnais, Bradley, Braidwood, Champaign, Coal City
(2), Diamond, Dwight, Herscher, Hoopeston, Manteno, Momence and Urbana,
Illinois. The Company's business involves attracting deposits from the
general public and using such deposits to originate residential mortgage
loans and, to a lesser extent, commercial real estate, consumer, commercial
business, multi-family and construction loans in its market areas. The
Company also invests in investment securities, mortgage-backed securities and
various types of short term liquid assets.
BANK ACQUISITION AND OTHER DEVELOPMENTS
On January 29, 1998, the Company completed the acquisition of Coal City
National Bank ("CCNB") from Coal City Corporation, a multi-bank holding
company headquartered in Chicago, Illinois. CCNB was based in Coal City,
Illinois, which is 30 miles northwest of Kankakee, and also had offices in
nearby Braidwood and Diamond, Illinois. All three offices of CCNB became
offices of the Bank upon completion of the merger, and their operating
results have been included with those of the Bank since January 29, 1998.
At the time of purchase, CCNB had total assets of approximately $56.0
million, deposits of approximately $51.7 million and stockholders' equity of
approximately $3.7 million. The cash purchase price, including acquisition
costs, was $8.2 million, and the transaction was accounted for as a purchase.
Intangible assets of about $3.8 million have been recorded as a result of
this purchase.
In addition to the purchase of CCNB, two new branch offices of the Bank
were opened during the first nine months of 1998. A branch in a grocery store
in Coal City, Illinois and a stand alone branch in Urbana, Illinois opened
for business in June. The Company also completed construction of a new
building to replace its Herscher, Illinois branch. The new building was
occupied and opened for business on August 3, 1998. During the third quarter,
the Company began construction on an in-store branch office in Bradley,
Illinois. The Bradley office opened for business on November 2, 1998.
During the second quarter of 1998, the Company completed the data
processing conversion of the deposit and loan accounts acquired with the
acquisition of CCNB. Additionally, the Company's item processing was
converted to an in-house operation during the second quarter.
8
<PAGE>
FINANCIAL CONDITION
Total assets of the Company increased by $61.8 million, or 18.0%, to
$405.2 million at September 30, 1998 from $343.4 million at December 31,
1997. The primary reason for the increase in total assets was the acquisition
of CCNB.
Cash and cash equivalents increased by $26.9 million, or 117.7% from
$22.8 million at December 31, 1997 to $49.7 million at September 30, 1998.
The increase was primarily attributable to cash and cash equivalents acquired
with the purchase of CCNB.
During the nine-month period ended September 30, 1998, net loans
receivable increased by $4.3 million, or 1.8%, from $238.8 million to $243.1
million. This was primarily the result of the acquisition of $17.6 million in
loans with CCNB, the origination (or purchase) of $40.1 million of real
estate loans and the origination (or purchase) of $31.3 million of consumer
and commercial business loans, offset by loan repayments which totaled $84.3
million. The high level of loan repayments was the result of refinancing of
existing loans due to the low interest rate environment.
Loans held for sale increased by $472,000, or 185.3%, during the
nine-month period ended September 30, 1998, to $726,000 from $254,000 at
December 31, 1997. The increase was the result of the origination of $31.1
million of such loans, which was partially offset by the sale of $30.8
million of such loans. The increase in origination and sale of loans held for
sale is the result of a flat yield curve and low market interest rates for
mortgage loans, which have created a high level of refinancings into fixed
rate loans.
Securities available-for-sale increased by $32.3 million, or 87.5%, to
$69.1 million at September 30, 1998 from $36.8 million at December 31, 1997
as the result of the acquisition of $15.1 million of such securities with the
purchase of CCNB, and the purchase of $38.4 million in such securities, which
was partially offset by the maturity of $22.0 million of such securities and
by the net change in market value adjustment.
Mortgage-backed securities available-for-sale decreased by $9.7 million,
or 34.3%, to $18.6 million at September 30, 1998 from $28.3 million at
December 31, 1997. The decrease resulted from maturities of $11.8 million of
such securities, which was partially offset by the acquisition of $286,000 of
such securities with the purchase of CCNB, the purchase of $2.0 million of
such securities and the change in market value adjustment.
During the nine-month period ended September 30, 1998, intangible assets
increased by $3.5 million, or 163.1%, to $5.7 million from $2.2 million at
December 31, 1997. This increase was a result of the $3.8 million of
intangible assets created by the purchase of CCNB on January 29, 1998, which
was partially offset by amortization of $303,000.
Deposits increased by $60.8 million, or 22.4%, to $340.8 million at
September 30, 1998 from $280.0 million at December 31, 1997. The increase
resulted from the acquisition of $51.9 million in deposits with the purchase
of CCNB, a $1.5 million increase in passbook, NOW and money market accounts
and a $7.3 million increase in certificate of deposit accounts.
Total borrowings, which decreased by $595,000, or 2.5%, to $22.9 million
at September 30, 1998 from $23.5 million at December 31, 1997, consisted
entirely of advances from the Federal Home Loan Bank of Chicago (the "FHLB").
9
<PAGE>
Real estate held for sale increased by $144,000, or 10.9%, to $1.5
million at September 30, 1998, from $1.3 million at December 31, 1997. The
increase was the result of the transfer of six single family properties from
loans to real estate held for sale during the nine-month period, two of which
were disposed of during the period. Included in real estate held for sale is
a commercial building in Champaign, Illinois, which was deeded to the Company
in 1997. The property is fully rented to a retail operation and a local
community college on multi-year leases. Further negotiations on other loans
with the borrower resulted in the sale of a subdivision (collateral for one
of the other loans) to a third party, and the deeding of a single-family
residence to the Company. The borrower was released from all liability,
except for a loan secured by the borrower's personal residence. Negotiations
are continuing on the sale of the commercial building, and the single-family
residence has been listed for sale with a local realtor. Management does not
anticipate any material loss on these transactions.
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, and the majority of 20-year
fixed-rate mortgage loans bearing a contractual interest rate of less than
6.75%, which it originates. In addition, the Company has continued, as market
circumstances permit, to build its portfolio of adjustable rate commercial
real estate loans. The Company has also increased, as market circumstances
permit, 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.
The Company currently does not enter into derivative financial
instruments including futures, forwards, interest rate risk swaps, option
contracts, or other financial instruments with similar characteristics.
However, the Company is a party to financial instruments with off-balance
sheet risk in the normal course of business to meet the financing needs of
its customers such as commitments to extend credit and letters of credit.
NON-PERFORMING ASSETS AND ALLOWANCE FOR LOSSES ON LOANS
The Company's non-performing assets decreased to 0.97% of total assets
at September 30, 1998 from 1.27% of total assets at December 31, 1997.
Non-performing assets decreased to $3.9 million at September 30, 1998
compared to $4.3 million at December 31, 1997. During the nine-month period
ended September 30, 1998, non-performing construction and development loans
and restructured debt decreased by $903,000 and $186,000, respectively. These
decreases were partially offset by increases of $49,000, $253,000, $40,000
and $169,000 in non-performing one-to-four family loans, non-performing
commercial real estate loans, non-performing consumer loans and
non-performing commercial business loans, respectively. In addition,
foreclosed assets increased by $144,000. The ratio of the allowance for
losses on loans to non-performing loans increased to 100.0% as of September
30, 1998 as compared to 75.6% as of December 31, 1997. The increase in this
ratio, which excludes foreclosed assets and restructured troubled debt, was
primarily the result of an increase of $295,000 in the allowance for losses
on loans and a decrease of $392,000 in non-performing loans. The acquisition
of CCNB contributed to the increase in the allowance for
10
<PAGE>
losses on loans and had the effect of increasing total assets, but had no
impact on total non-performing assets.
The Company classified $1.5 million of its assets as Special Mention,
$4.6 million as Substandard and $114,000 as Loss as of September 30, 1998. No
assets were classified as Doubtful at September 30, 1998. This represents a
decrease of $250,000 in the Special Mention category and a net decrease of
$99,000 in the other categories from the December 31, 1997 totals for
classified assets. The ratio of classified assets to total assets (including
items classified as Special Mention) was 1.51% as of September 30, 1998 as
compared to 1.89% as of December 31, 1997. The ratio of the allowance for
losses on loans to classified assets increased to 39.5% as of September 30,
1998 as compared to 32.9% as of December 31, 1997, even though no additional
provision for losses on loans was made during the first nine months of 1998.
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, level of classified loans and other factors that warrant
recognition in providing for an adequate allowance for losses on 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 SEPTEMBER 30, 1998 AND 1997
Net income for the three-month period ended September 30, 1998 was
$540,000 compared to $736,000 for the same period in 1997. This represents a
$196,000 decrease in net income for the 1998 period. The decrease in net
income resulted from a $609,000 increase in general and administrative
expenses due primarily to expenses relating to the expansion of the
organization, which was partially offset by increases of $207,000 in net
interest income and $170,000 in other income.
Net interest income increased $207,000, or 7.9%, during the three-month
period ended September 30, 1998, compared to the three-month period ended
September 30, 1997.
The table presented on page 19 ("Table I"), sets forth an analysis of
the Company's net interest income for the three-month periods ended
September 30, 1998 and 1997.
As Table I indicates, interest income increased $772,000, or 12.4%, to
$7.0 million for the three-month period ended September 30, 1998 from $6.2
million for the same period in 1997. The increase in interest income was the
result of an increase in the average balance of interest-earning assets to
$371.8 million during the 1998 period, primarily resulting from the
acquisition of CCNB, from $326.5 million during the 1997 period. This was
partially offset by a decrease in the yield earned on interest-earning assets
to 7.44% during the 1998 period from 7.54% during the 1997 period. The
increase in the average balance of interest-earning assets was primarily due
to increases in balances of loans, investment securities and other
interest-earning assets during the period.
11
<PAGE>
Interest expense increased $565,000, or 15.8%, to $4.1 million for the
three-month period ended September 30, 1998 from $3.6 million for the same
period in 1997. The increase in interest expense was the result of an
increase in the average outstanding balance of interest-bearing liabilities
to $363.7 million during the 1998 period from $301.9 million during the 1997
period. This increase was partially offset by a decrease in the average yield
on interest-bearing liabilities to 4.52% during the 1998 period from 4.71%
during the 1997 period. The increase in average interest-bearing liabilities
resulted primarily from the CCNB acquisition. The decrease in the average
yield on interest-bearing liabilities resulted from the lower average cost
associated with the CCNB deposits and from a lower cost of borrowings during
the quarter.
No provision for losses on loans was deemed necessary during the third
quarter of 1998 based on management's review of the adequacy of the allowance
for losses on loans subsequent to the acquisition of $398,000 in allowance
for losses on loans as part of the purchase of CCNB in January, 1998. The
provision for losses on loans for the third quarter of 1997 was $21,000.
Other income for the three-month period ended September 30, 1998
increased $170,000, or 40.2%, to $595,000 compared to $425,000 for the same
period in 1997. The increase was attributable to increases of $126,000 in fee
income, $20,000 in other income, $16,000 in gain on sale of loans held for
sale and $10,000 in insurance commissions. The increase in fee income was the
result of the acquisition of CCNB and of an ongoing review of the Company's
fee structure. The increase in gain on the sale of loans held for sale was
the result of a higher volume of sales compared to the year earlier period
due to the level of refinancings.
Other expenses for the three-month period ended September 30, 1998
increased $609,000 or 30.4%, to $2.6 million from $2.0 million during the
1997 period. The increase was primarily attributable to expenses associated
with the ongoing operation of fourteen (14) offices compared to nine (9)
during the same period in 1997, and to non-capital costs associated with the
completion of construction of a replacement office in Herscher, Illinois, and
with the grocery store location in Bradley, Illinois. There were increases of
$354,000 (33.0%) in compensation and benefits, $49,000 (83.9%) in
amortization of intangible assets, $73,000 (22.4%) in other expenses, $22,000
(10.8%) in occupancy costs, $35,000 (29.0%) in furniture and equipment
expense and $36,000 (54.8%) in data processing expenses.
Federal income taxes decreased $15,000 to $271,000 for the three-month
period ended September 30, 1998, compared to $286,000 for the same period in
1997.
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
Net income for the nine-month period ended September 30, 1998 was $1.9
million compared to $2.3 million for the same period in 1997. This represents
a $329,000 decrease in net income for the 1998 period. The decrease in net
income resulted from increases of $1.5 million in general and administrative
expenses due primarily to expenses relating to the expansion of the
organization and $93,000 in federal income tax expense. These items were
partially offset by increases of $648,000 in net interest income and $667,000
in other income.
Net interest income increased $648,000, or 8.0%, during the nine-month
period ended September 30, 1998, compared to the nine-month period ended
September 30, 1997.
12
<PAGE>
The table presented on page 20 ("Table II"), sets forth an analysis of
the Company's net interest income for the nine-month periods ended
September 30, 1998 and 1997.
As Table II indicates, interest income increased $2.0 million, or 10.7%,
to $20.7 million for the nine-month period ended September 30, 1998 from
$18.7 million for the same period in 1997. The increase in interest income
was the result of an increase in the average balance of interest-earning
assets to $369.4 million during the 1998 period, primarily resulting from the
acquisition of CCNB, from $330.2 million during the 1997 period. This was
partially offset by a decrease in the yield earned on interest-earning assets
to 7.51% during the 1998 period from 7.59% during the 1997 period. The
increase in the average balance of interest-earning assets was primarily due
to increases in balances of loans, investment securities and other
interest-earning assets during the period.
Interest expense increased $1.3 million, or 12.7%, to $12.0 million for
the nine-month period ended September 30, 1998 from $10.7 million for the
same period in 1997. The increase in interest expense was the result of an
increase in the average outstanding balance of interest-bearing liabilities
to $355.6 million during the 1998 period from $304.7 million during the 1997
period. This increase was partially offset by a decrease in the average yield
on interest-bearing liabilities to 4.53% during the 1998 period from 4.69%
during the 1997 period. The increase in average interest-bearing liabilities
resulted primarily from the CCNB acquisition. The decrease in the average
yield on interest-bearing liabilities resulted from the lower average cost
associated with the CCNB deposits and from a lower cost of borrowings during
the nine-month period.
No provision for losses on loans was deemed necessary during the first
nine months of 1998 based on management's review of the adequacy of the
allowance for losses on loans subsequent to the acquisition of $398,000 in
allowance for losses on loans as part of the purchase of CCNB in January,
1998. The provision for losses on loans for the first nine months of 1997 was
$21,000.
Other income for the nine-month period ended September 30, 1998
increased $667,000, or 57.0%, to $1.8 million compared to $1.2 million for
the same period in 1997. The increase was attributable to increases of
$497,000 in fee income, $98,000 in gain on sale of loans held for sale,
$42,000 in other income and $28,000 in gain on sale of real estate. The
increase in fee income was the result of the acquisition of CCNB and of an
ongoing review of the Company's fee structure. The increase in gain on the
sale of loans held for sale was the result of a higher volume of sales
compared to the year earlier period due to the level of refinancings.
Other expenses for the nine-month period ended September 30, 1998
increased $1.5 million, or 26.0%, to $7.6 million from $6.1 million during
the 1997 period. The increase for the nine-month period was primarily
attributable to 1998 expenses associated with the ongoing operation of the
former CCNB offices, to non-capital costs associated with the data processing
conversion of the records of CCNB, as well as to the return of item
processing to an in-house environment, the construction of a new
(replacement) office in Herscher, and new office locations in Urbana, a
grocery store in Coal City and a grocery store in Bradley. There were
increases of $819,000 (25.0%) in compensation and benefits, $130,000 (74.6%)
in amortization of intangible assets, $231,000 (23.5%) in other expenses,
$119,000 (21.1%) in occupancy costs and $70,000 (42.2%) in advertising.
Federal income taxes increased $93,000 to $975,000 for the nine-month
period ended September 30, 1998, compared to $882,000 for the same period in
1997.
13
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company maintains a certain level of cash and other liquid assets to
fund normal volumes of loan commitments, deposit withdrawals and other
obligations. The Office of Thrift Supervision (the "OTS") regulations
currently require each savings association to maintain, for each calendar
quarter, an average daily balance of liquid assets (including cash and cash
equivalent investments) equal to at least 4% of its liquidity base as of the
end of the preceding calendar quarter or the average daily balance of its
liquidity base during the preceding calendar quarter. The liquidity base
consists of net withdrawable accounts plus borrowings repayable in 12 months
or less. At September 30, 1998, the Company's liquidity ratio was 26.8%,
which was well in excess of the minimum regulatory requirement.
The Company's primary sources of funds are deposits and proceeds from
payments of principal and interest on loans and the sale or maturity of
investment securities and mortgage-backed securities. Management considers
current liquidity and additional sources of funds adequate to meet
outstanding liquidity needs.
Federally insured savings banks, such as the Bank, are required by
federal law and OTS regulations to maintain minimum levels of regulatory
capital. The OTS has established the following minimum capital requirements:
a risk-based capital ratio, a core capital ratio and a tangible capital
ratio. In addition to these minimum regulatory capital requirements, another
provision of federal law grants the OTS broad power to take prompt corrective
action to resolve the problems of undercapitalized institutions. The OTS
regulations implementing this statutory authority (the "prompt corrective
action regulations") establish other capital thresholds which determine
whether an institution will be deemed to be "well capitalized", "adequately
capitalized", "undercapitalized", "significantly undercapitalized" or
"critically undercapitalized". The capital category to which an institution
is assigned in turn determines the actions the OTS may take to address the
institution's undercapitalization. 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). Under the prompt
corrective action regulations, however, an institution with a ratio of
tangible capital to total assets below 2.0% is deemed to be "critically
undercapitalized" and, as such, will be subject to a variety of sanctions
under the prompt corrective action regulations, including, without
limitation, limits on asset growth, restrictions on activities and,
ultimately, the appointment of a receiver. 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 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). Under the
prompt corrective action regulations, however, an institution that with a
ratio of core capital to adjusted total assets of 3.0% will be deemed to be
"adequately capitalized" only if the institution also has a composite rating
of "1" under the Uniform Financial Institutions Rating System ("UFIRS"). All
other institutions must maintain a minimum ratio of core capital to adjusted
total assets of 4.0% in order to be deemed to be "adequately capitalized",
and an institution, regardless of its UFIRS rating, will be deemed to be
"well capitalized" only if it maintains a ratio of core capital to adjusted
total assets of at least 5.0%. If an institution fails to remain at least
"adequately capitalized", the OTS may impose one or more of a variety of
sanctions on the institution to address its undercapitalized condition,
including, without limitation, requiring the
14
<PAGE>
submission of a capital plan, restricting growth and restricting the payment
of capital distributions (such as dividends). 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. In order to be
considered "well capitalized" under the prompt corrective action regulations,
however, an institution must maintain a ratio of total capital to total
risk-weighted assets of at least 10.0% and a ratio of core capital to total
risk-weighted assets of at least 6.0%. 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, 1998, the Bank exceeded all current minimum
regulatory capital standards and was deemed to be "well capitalized" for
purposes of the OTS's prompt corrective action regulations. At September 30,
1998, the Bank's tangible capital was $27.5 million, or 7.0%, of adjusted
total assets, which exceeded the 1.5% requirement by $21.6 million and
exceeded the 2.0% "critically undercapitalized" threshold by $19.7 million.
In addition, at September 30, 1998, the Bank had core capital of $27.5
million, or 7.0%, of adjusted total assets, which exceeded the 4.0%
requirement by $11.8 million and exceeded the 5.0% "well capitalized"
threshold by $7.8 million. The Bank had risk-based capital of $29.8 million
at September 30, 1998, or 13.6%, of risk-adjusted assets, which exceeded the
minimum risk-based capital requirement by $12.2 million and exceeded the
10.0% "well capitalized" threshold by $7.8 million. Additionally, the Bank's
$27.5 million of core capital equaled 12.5% of total risk-weighted assets,
which exceeded the 6.0% "well capitalized" threshold by $14.3 million.
STOCK REPURCHASE
On January 13, 1998, the Company's Board of Directors authorized the
repurchase during 1998 of up to 137,000 shares of its common stock. During
the nine-month period ending September 30, 1998, 6,500 shares of common stock
were repurchased at a cost of $168,000. Through September 30, 1998, a total
of 415,857 shares of common stock of the Company had been purchased under the
current and previously completed repurchase programs at a total cost of $8.1
million. As of September 30, 1998, the Company held 376,512 shares of its
common stock as treasury stock. During the period from September 30, 1998
through November 6, 1998, the Company repurchased 7,150 shares of common
stock at a cost of $179,000.
EXERCISE OF STOCK OPTIONS
During the third quarter of 1998, there were no stock options exercised.
On October 13, 1998, options on 350 shares of common stock were exercised. No
other notice was received between September 30, 1998 and November 6, 1998
from holders of options of their intent to exercise options.
DIVIDENDS
In January, 1995, the Company began a regular quarterly dividend program
and declared the first
15
<PAGE>
cash dividend since becoming a public company. During 1995 and 1996, cash
dividends of $.10 per share were paid each quarter. During 1997 and for the
first three quarters of 1998, cash dividends of $.12 per share were paid each
quarter. On October 17, 1998, a cash dividend of $.12 per share was declared
payable on December 1, 1998 to stockholders of record as of November 13,
1998. 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 federal banking regulators recently issued guidelines establishing
minimum safety and soundness standards for achieving Year 2000 compliance.
The guidelines, which took effect October 15, 1998 and apply to all FDIC
insured depository institutions, establish standards for developing and
managing Year 2000 project plans, testing remediation efforts and planning
for contingencies. The guidelines are based upon guidance previously issued
by the agencies under the auspices of the Federal Financial Institutions
Examination Council (the "FFIEC"), but are not intended to replace or
supplant the FFIEC guidance which will continue to apply to all federally
insured depository institutions.
The guidelines were issued under section 39 of the Federal Deposit
Insurance Act, as amended (the "FDIA"), which requires the federal banking
regulators to establish standards for the safe and sound operation of
federally insured depository institutions. Under section 39 of the FDIA, if
an institution fails to meet any of the standards established in the
guidelines, the institution's primary federal regulator may require the
institution to submit a plan for achieving compliance. If an institution
fails to submit an acceptable compliance plan, or fails in any material
respect to implement a compliance plan that has been accepted by its primary
federal regulator, the regulator is required to issue an order directing the
institution to cure the deficiency. Such an order is enforceable in court in
the same manner as a cease and desist order. Until the deficiency cited in
the regulator's order is cured, the regulator may restrict the institution's
rate of growth, require the institution to take any action the regulator
deems appropriate under the circumstances. In addition to the enforcement
procedures established in section 39 of the FDIA, noncompliance with the
standards established by the guidelines may also be grounds for other
enforcement action by the federal banking regulators, including cease and
desist orders and civil money penalty assessments.
YEAR 2000 COMPLIANCE
The Year 2000 has posed a unique set of challenges to those industries
reliant on information technology. As a result of methods employed by early
programmers, many software applications and operational programs may be
unable to distinguish the Year 2000 from the Year 1900. If not effectively
addressed, this problem could result in the production of inaccurate data,
or, in the worst cases, the inability of the systems to continue to function
altogether. Financial institutions are particularly vulnerable due to the
industry's dependence on electronic data processing systems. In 1997, the
Company started the process of identifying the hardware and software issues
required to be addressed to assure Year 2000 compliance. The Company began by
assessing the issues related to the Year 2000 and the potential for those
issues to adversely affect the Company's operations and those of its
subsidiaries.
Since that time, the Company has established a Year 2000 management
committee to deal with
16
<PAGE>
this issue. The management committee meets with and utilizes various
representatives from key areas throughout the organization to aid in analysis
and testing. It is the mission of this committee to identify areas subject to
complications related to the Year 2000 and to initiate remedial measures
designed to eliminate any adverse effects on the Company's operations. The
committee has identified all mission-critical software and hardware that may
be adversely affected by the Year 2000 and has required vendors to represent
that the systems and products provided are or will be Year 2000 compliant.
The Company licenses all software used in conducting its business from
third party vendors. None of the Company's software has been internally
developed. The Company has developed a comprehensive list of all software,
all hardware and all service providers used by the Company. Every vendor has
been contacted regarding the Year 2000 issue, and the Company continues to
closely track the progress each vendor is making in resolving the problems
associated with the issue. The vendor of the primary software in use at the
Company released its Year 2000 complaint software in July 1998. Testing
standards were formulated and comprehensive testing is now underway with an
estimated completion date for testing of December 31, 1998. At November 1,
1998, the testing was sixty percent complete, with no defects reported to the
software vendor. The Company actively takes part in a peer users group to aid
the testing process. Users of the primary software meet monthly to discuss
Year 2000 testing issues and results. In addition, the Company continues to
monitor all other major vendors of services to the Company for Year 2000
issues in order to avoid shortages of supplies and services in the coming
months. The Company has not had any material delay regarding its information
systems projects as a result of the Year 2000 project.
The Company has two material third party relationships, and thus
potential exposure to Year 2000 issues. The Company's main commercial banking
relationship is with the LaSalle National Bank in Chicago. LaSalle
newsletters and correspondence indicate substantial progress with Year 2000
readiness. The Company also has a material relationship with the Federal Home
Loan Bank of Chicago, whose newsletters also indicate substantial progress
with Year 2000 readiness.
There are four third party utilities with which the Company has an
important relationship, i.e. Ameritech and MCI (phone service), Commonwealth
Edison (electricity) and Northern Illinois Gas (natural gas for heating). The
Company has not identified any practical, long-term alternatives to relying
on these companies for basic utility services. The Company's main office
disaster plan has included a generator for short term power outages and will
be used to keep the main office running in case of power outages caused by
Year 2000 issues. In the event that the utilities significantly curtailed or
interrupted their services to the Company, it would have a significant
adverse effect on the Company's ability to conduct its business.
The Company also has tested such things as vault doors, alarm systems,
networks, etc. and is not aware of any significant problems with such systems.
The Company's cumulative costs of the Year 2000 project through the
third quarter of 1998 have been $49,000. After capitalization of purchased
software and hardware, this represents 2.7% of the annual information systems
budget. The estimated total cost of the Year 2000 project is $73,000. This
includes costs to upgrade equipment specifically for the purpose of Year 2000
compliance and certain administrative expenditures. After capitalization of
purchased software and hardware, this represents 5.1% of the annual
information systems budget. At the present time, no situations that will
require material cost expenditures to become fully compliant have been
identified. However, the Year 2000 problem is pervasive and complex and can
potentially affect any computer process. Accordingly, no assurance can be
given that Year 2000 compliance can be achieved without
17
<PAGE>
additional unanticipated expenditures and uncertainties that might affect
future financial results.
It is not possible at this time to quantify the estimated future costs
due to possible business disruption caused by vendors, suppliers, customers,
or even the possible loss of electric power or phone service; however, such
costs could be substantial.
The Company is committed to a plan for achieving compliance, focusing
not only on its own data processing systems, but also on its loan customers.
The management committee has taken steps to educate and assist its customers
with identifying their Year 2000 compliance problems. In addition, the
management committee has proposed policy and procedure changes to help
identify potential risks to the Company and to gain an understanding of how
customers are managing the risks associated with the Year 2000. The Company
is assessing the impact, if any, the Year 2000 will have on its credit risk
and loan underwriting. In connection with potential credit risk related to
the Year 2000 issue, the Company has contacted its large commercial loan
customers regarding their level of preparedness for the Year 2000.
The Company has developed contingency plans for various Year 2000
problems and continues to revise those plans based on testing results and
vendor notifications.
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.
18
<PAGE>
<TABLE>
<CAPTION>
TABLE I
NET INTEREST INCOME ANALYSIS (UNAUDITED)
KANKAKEE BANCORP, INC. AND SUBSIDIARY
Three Months Ended September 30,
----------------------------------------------------------------------------
1998 1997
-------------------------------- ------------------------------------
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) $246,085 $ 5,075 8.18% $234,174 $ 4,738 8.03%
Mortgage-backed securities 22,072 328 5.90% 32,100 546 6.75%
Investments securities (2) 65,928 1,050 6.32% 46,042 719 6.20%
Other interest-earning assets 35,903 489 5.40% 12,288 166 5.36%
FHLB stock 1,856 31 6.63% 1,856 32 6.84%
-------- ------- -------- -------
Total interest-earning assets 371,844 6,973 7.44% 326,460 6,201 7.54%
-------- ------- -------- -------
Other assets 33,240 15,487
-------- --------
Total assets $405,084 $341,947
-------- --------
-------- --------
Interest-bearing liabilities:
Time deposits $207,904 2,952 5.63% $177,894 2,530 5.64%
Savings deposits 60,089 412 2.72% 51.862 356 2.72%
Demand and NOW deposits 72.847 470 2.56% 48,239 344 2.83%
Borrowings 22,900 311 5.39% 23,855 350 5.82%
-------- ------- -------- -------
Total interest-bearing liabilities 363,740 4,145 4.52% 301,850 3,580 4.71%
-------- ------- -------- -------
Other liabilities 1,822 1,666
-------- --------
Total liabilities 365,562 303,516
-------- --------
Stockholders' equity 39,522 38,431
-------- --------
Total liabilities and
stockholders' equity $405,084 $341,947
-------- --------
-------- --------
Net interest income $ 2,828 $ 2,621
------- -------
------- -------
Net interest rate spread 2.92% 2.83%
----- -----
----- -----
Net earning assets $ 8,104 $ 24,610
-------- --------
-------- --------
Net yield on average interest-
earning assets (net interest
margin) 3.02% 3.19%
----- -----
----- -----
Average interest-earning assets to
average interest-bearing liabilities 102.23% 108.15%
------- -------
------- -------
</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.
19
<PAGE>
<TABLE>
<CAPTION>
TABLE II
NET INTEREST INCOME ANALYSIS (UNAUDITED)
KANKAKEE BANCORP, INC. AND SUBSIDIARY
Nine Months Ended September 30,
----------------------------------------------------------------------------
1998 1997
-------------------------------- ------------------------------------
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) $248,713 $15,362 8.26% $232,457 $14,098 8.11%
Mortgage-backed securities 25,818 1,230 6.37% 33,078 1,696 6.86%
Investments securities (2) 58,747 2,737 6.23% 48,488 2,288 6.31%
Other interest-earning assets 34,266 1,323 5.16% 14,243 557 5.23%
FHLB stock 1,856 92 6.63% 1,896 96 6.77%
-------- ------- -------- -------
Total interest-earning assets 369,400 20,744 7.51% 330,162 18,735 7.59%
-------- ------- -------- -------
Other assets 28,086 14,516
-------- --------
Total assets $397,486 $344,678
-------- --------
-------- --------
Interest-bearing liabilities:
Time deposits $202,757 8,542 5.63% $176,524 7,416 5.62%
Savings deposits 58,853 1,192 2.71% 52,154 1,061 2.72%
Demand and NOW deposits 69,971 1,335 2.55% 49,203 1,050 2.85%
Borrowings 23,969 980 5.47% 26,809 1,161 5.79%
-------- ------- -------- -------
Total interest-bearing liabilities 355,550 12,049 4.53% 304,690 10,688 4.69%
-------- ------- -------- -------
Other liabilities 3,075 2,546
-------- --------
Total liabilities 358,625 307,236
-------- --------
Stockholders' equity 38,861 37,442
-------- --------
Total liabilities and
stockholders' equity $397,486 $344,678
-------- --------
-------- --------
Net interest income $ 8,695 $ 8,047
------- -------
------- -------
Net interest rate spread 2.98% 2.90%
----- -----
----- ------
Net earning assets $ 13,850 $ 25,472
-------- --------
-------- --------
Net yield on average interest-
earning assets (net interest
margin) 3.15% 3.26%
----- -----
----- -----
Average interest-earning assets to
average interest-bearing liabilities 103.90% 108.36%
------- -------
------- -------
</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.
20
<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
21
<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 6, 1998 /s/ MICHAEL A. STANFA
--------------------- ------------------------------
Executive Vice President
Date: November 6, 1998 /s/ RONALD J. WALTERS
--------------------- ------------------------------
Vice President and Treasurer
(Principal Financial
and Accounting Officer)
22
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 24,463
<INT-BEARING-DEPOSITS> 5,844
<FED-FUNDS-SOLD> 19,425
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 87,649
<INVESTMENTS-CARRYING> 1,573
<INVESTMENTS-MARKET> 1,578
<LOANS> 245,550
<ALLOWANCE> 2,425
<TOTAL-ASSETS> 405,163
<DEPOSITS> 340,777
<SHORT-TERM> 0
<LIABILITIES-OTHER> 1,607
<LONG-TERM> 22,900
0
0
<COMMON> 16,094
<OTHER-SE> 23,785
<TOTAL-LIABILITIES-AND-EQUITY> 405,163
<INTEREST-LOAN> 15,362
<INTEREST-INVEST> 4,152
<INTEREST-OTHER> 1,230
<INTEREST-TOTAL> 20,744
<INTEREST-DEPOSIT> 11,069
<INTEREST-EXPENSE> 12,049
<INTEREST-INCOME-NET> 8,695
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 7,622
<INCOME-PRETAX> 2,910
<INCOME-PRE-EXTRAORDINARY> 1,935
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,935
<EPS-PRIMARY> 1.40
<EPS-DILUTED> 1.32
<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>
