<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 March 31, 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
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 May 8, 1998, there were 1,379,988 issued and outstanding shares of the
Issuer's Common Stock (exclusive of 370,012 shares of the Issuer's Common Stock
held as treasury stock).
<PAGE>
KANKAKEE BANCORP, INC.
INDEX
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Page
Number
Part I. FINANCIAL INFORMATION
Item 1. Consolidated Financial
Statements (Unaudited)
Statements of Financial Condition,
March 31, 1998 and December 31, 1997 1 - 2
Statements of Income and Comprehensive Income,
Three Months Ended March 31, 1998 and 1997 3
Statements of Cash Flows, Three Months
Ended March 31, 1998 and 1997 4-5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 7-15
Item 3. Quantitative and Qualitative Disclosure
About Market Risk 8
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 2. Changes in Securities 16
Item 3. Defaults Upon Senior Securities 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16
SIGNATURES 17
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CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (UNAUDITED)
KANKAKEE BANCORP, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
------------ -------------
<S> <C> <C>
Assets
Cash and due from banks $ 20,210,247 $ 9,184,362
Federal funds sold 18,800,000 8,575,000
Money market funds 5,475,740 5,066,530
------------ -------------
Cash and cash equivalents 44,485,987 22,825,892
------------ -------------
Certificates of deposit 338,846 1,602,000
------------ -------------
Securities:
Investment securities:
Available-for-sale, at fair value 52,514,808 36,823,019
Held-to-maturity, at cost (fair value: March 31, 1998 -
$1,275,309; December 31, 1997 - $69,752) 1,274,900 69,752
------------ -------------
Total investment securities 53,789,708 36,892,771
------------ -------------
Mortgage-backed securities:
Available-for-sale, at fair value 28,668,814 28,299,596
Held-to-maturity, at cost (fair value: March 31, 1998 -
$199,131; December 31, 1997 - $207,815) 194,926 203,662
------------ -------------
Total mortgage-backed securities 28,863,740 28,503,258
------------ -------------
Non-marketable equity securities 501,100 501,100
------------ -------------
Loans 252,169,497 240,925,455
Less: Allowance for losses on loans 2,492,183 2,130,146
------------ -------------
Net loans 249,677,314 238,795,309
------------ -------------
Loans held for sale 1,914,897 254,406
Real estate held for sale 1,456,725 1,326,302
Federal Home Loan Bank stock, at cost 1,856,000 1,856,000
Office properties and equipment 6,594,130 5,340,406
Accrued interest receivable 2,623,382 2,465,594
Prepaid expenses and other assets 900,776 884,458
Intangible assets 6,474,477 2,161,740
------------ -------------
Total assets $399,477,082 $343,409,236
------------ -------------
------------ -------------
(Continued)
</TABLE>
1
<PAGE>
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (UNAUDITED) (continued)
KANKAKEE BANCORP, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
------------ -------------
<S> <C> <C>
Liabilities and stockholders' equity
Liabilities:
Deposits
Noninterest bearing $ 17,237,159 $ 9,720,181
Interest bearing 315,962,708 270,301,558
Short term borrowings - 8,220,000
Other borrowings 23,275,000 15,275,000
Advance payments by borrowers for taxes and insurance 2,617,405 1,428,880
Other liabilities 1,852,270 642,250
------------ ------------
Total liabilities 360,944,542 305,587,869
------------ ------------
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: March 31, 1998 -
1,377,988; December 31, 1997 - 1,371,638 17,500 17,500
Additional paid-in capital 16,078,500 16,090,239
Retained income, substantially restricted 30,182,238 29,554,920
Less: Cost of treasury stock (372,012 shares at March 31,
1998; 378,362 shares at December 31, 1997) (7,334,350) (7,459,540)
Unrealized gains on securities available-for-sale, net of
related income taxes 42,285 71,881
------------ ------------
Total stockholders' equity before
Employee Stock Ownership Plan loan 38,986,173 38,275,000
Employee Stock Ownership Plan loan (453,633) (453,633)
------------ ------------
Total stockholders' equity 38,532,540 37,821,367
------------ ------------
Total liabilities and stockholders' equity $399,477,082 $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 March 31,
----------------------------
1998 1997
---------- ----------
<S> <C> <C>
Interest income:
Loans $5,099,853 $4,679,333
Mortgage-backed securities 468,212 581,280
Investment securities 1,168,872 1,026,854
---------- ----------
Total interest income 6,736,937 6,287,467
---------- ----------
Interest expense:
Deposits 3,497,979 3,107,247
Borrowed funds 355,244 459,773
---------- ----------
Total interest expense 3,853,223 3,567,020
---------- ----------
Net interest income 2,883,714 2,720,447
Provision for losses on loans - (3,550)
---------- ----------
Net interest income after provision for losses on loans 2,883,714 2,723,997
Other income:
Net gain (loss) on sales of real estate held for sale 203 2,866
Net gain (loss) on sales of loans held for sale 34,619 5,931
Fee income 417,061 248,961
Insurance commissions 33,727 24,953
Other 113,858 93,052
---------- ----------
Total other income 599,468 375,763
---------- ----------
Other expenses:
Compensation and benefits 1,251,968 1,128,093
Occupancy 190,509 177,246
Furniture and equipment 123,643 114,379
Federal insurance premiums 42,236 32,510
Advertising 39,698 33,040
Provision for losses on foreclosed assets 2,538 -
Data processing services 87,004 76,110
Telephone and postage 81,842 59,990
Amortization of intangible assets 94,521 57,921
Other general and administrative 375,419 334,741
---------- ----------
Total other expenses 2,289,378 2,014,030
---------- ----------
Income before income taxes 1,193,804 1,085,730
Income taxes 401,128 315,710
---------- ----------
Net income $ 792,676 $ 770,020
---------- ----------
---------- ----------
Basic earnings per share $0.58 $0.54
---------- ----------
---------- ----------
Diluted earnings per share $0.54 $0.51
---------- ----------
---------- ----------
Net income $792,676 $770,020
Other comprehensive income:
Unrealized losses on available-for-sale
securities, net of related income taxes (29,596) (602,868)
---------- ----------
Comprehensive income $ 763,080 $ 167,152
---------- ----------
---------- ----------
</TABLE>
See notes to consolidated financial statements (unaudited)
3
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
KANKAKEE BANCORP, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1998 1997
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income $792,676 $ 770,020
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for losses on loans - (3,550)
Depreciation and amortization 226,843 183,413
Amortization of investment premiums and discounts, net 54,668 29,935
Accretion of loan fees, costs and discounts, net (19,807) (15,614)
Deferred income tax provision (benefit) - (32,366)
Originations of loans held for sale (15,357,397) (766,396)
Proceeds from sales of loans 13,731,525 775,175
(Increase) decrease in interest receivable 149,686 377,263
Increase (decrease) in interest payable on deposits (28,120) (8,149)
Net (gain) loss on sales of loans (34,619) (5,932)
Net gain (loss) on sales of real estate held for sale (203) (2,866)
Other, net 879,317 397,209
---------- ----------
Net cash from operating activities 394,569 1,698,142
Cash flows from investing activities
Investment securities
Available-for sale:
Purchases (8,574,630) (1,085,468)
Proceeds from calls and maturities 8,000,000 2,000,000
Held-to-maturity:
Purchases (1,025,000) -
Mortgage-backed securities:
Available-for-sale:
Purchases (1,997,500) -
Proceeds from maturities and paydowns 1,770,385 1,115,988
Held-to-maturity:
Proceeds from maturities and paydowns 8,736 7,808
Purchases of certificates of deposit (765,692) (305,500)
Proceeds from maturities of certificates of deposit 2,028,846 205,500
Proceeds from sales of real estate - 18,993
Net loan fees and costs deferred 9,021 (28,941)
Loans originated (19,200,771) (14,012,468)
Loans purchased (300,000) (675,000)
Principal collected on loans 26,065,159 19,449,874
Purchases of office properties and equipment, net (689,758) (275,952)
Purchase of Coal City National Bank (8,054,109) -
---------- ----------
Net cash from investing activities (2,725,313) 6,414,834
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) (continued)
KANKAKEE BANCORP, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1998 1997
----------- -----------
<S> <C> <C>
Cash flows from financing activities
Net increase (decrease) in non-certificate
of deposit accounts $2,289,593 $1,949,462
Net increase in certificate of deposit accounts (947,619) (1,007,748)
Net increase (decrease) in advance payments by
borrowers for taxes and insurance 1,175,764 1,109,316
Proceeds from short-term borrowings - 34,580,000
Repayments of short-term borrowings (8,220,000) (44,870,000)
Proceeds from other borrowings 8,000,000 -
Proceeds from exercise of stock options 113,451 51,845
Dividends paid (165,358) (170,420)
----------- -----------
Net cash from financing activities 2,245,831 (8,357,545)
----------- -----------
Increase (decrease) in cash and cash equivalents (84,913) (244,569)
Cash and cash equivalents:
Beginning of period 22,825,892 17,160,113
Cash acquired with Coal City National Bank 21,745,008 -
----------- -----------
End of period $44,485,987 $16,915,544
----------- -----------
----------- -----------
Supplemental disclosures of cash flow information
Cash paid during the year for:
Interest on deposits $3,469,900 $3,099,100
----------- -----------
----------- -----------
Interest on borrowed funds $372,800 $551,000
----------- -----------
----------- -----------
Income taxes $0 $36,449
----------- -----------
----------- -----------
Supplemental disclosures of non-cash investing activities:
Real estate acquired through foreclosure $124,520 $82,417
----------- -----------
----------- -----------
Change in unrealized gains (losses) on securities available-for-sale $44,843 $913,438
----------- -----------
----------- -----------
Change in deferred taxes attributable to the unrealized gains
(Losses) on securities available-for-sale ($15,247) ($310,570)
----------- -----------
----------- -----------
Purchase of Coal City National Bank
Assets acquired:
Cash $21,745,008
Investments 15,538,921
Loans 17,560,127
Accrued interest receivable 307,474
Premises and equipment 696,288
Intangible assets 4,407,258
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)
-----------
$ (8,054,109)
-----------
-----------
</TABLE>
See notes to consolidated financial statements
5
<PAGE>
KANKAKEE BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 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 period ended March 31, 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 March 31, 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 $42,285. 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 $21,828. An increase in market interest rates during the three
months ended March 31, 1998 resulted in a $29,596 decrease in the market
value, net of income tax effect, of the available-for-sale securities and the
available-for-sale mortgage-backed securities during the three 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.
6
<PAGE>
KANKAKEE BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company was formed in late 1992 under the laws of the State of
Delaware for the purpose of becoming the savings and loan holding company of
Kankakee Federal Savings Bank (the "Bank"), the Company's principal
subsidiary.
The Bank was originally chartered in 1885 as an Illinois savings and
loan association and was converted to a federally chartered thrift
institution in 1937. The Bank serves the financial needs of families and
local businesses in its primary market areas through its main office at 310
South Schuyler Avenue, Kankakee, Illinois and eleven branch offices located
in the communities of Ashkum, Bourbonnais, Braidwood, Champaign, Coal City,
Diamond, 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.
BANK ACQUISITION
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 $4.4 million were recorded as a result of this
purchase.
FINANCIAL CONDITION
Total assets of the Company increased by $56.1 million, or 16.3%, to
$399.5 million at March 31, 1998 from $343.4 million at December 31, 1997.
The reason for the increase in total assets was the acquisition of CCNB.
Cash and cash equivalents increased by $21.7 million, or 94.9%, from
$22.8 million at December 31, 1997 to $44.5 million at March 31, 1998. The
increase was primarily attributable to cash and cash equivalents acquired
with the purchase of CCNB.
During the three-month period ended March 31, 1998, net loans receivable
increased by $10.9 million, or 4.6%, from $238.8 million to $249.7 million.
This was primarily the result of the acquisition of $17.6 million in loans
with CCNB, the origination (or purchase) of $3.7 million of real estate loans
and the origination (or purchase) of $15.8 million of consumer and commercial
business loans, offset by loan repayments which totaled $26.1 million.
7
<PAGE>
Loans held for sale increased by $1.7 million, or 652.7%, during the
three-month period ended March 31, 1998, to $1.9 million from $254,000 at
December 31, 1997. The increase was the result of the origination of $15.4
million of such loans, which was partially offset by the sale of $13.7
million of such loans. The increase in origination and sale of loans held for
sale is the result of relatively low market interest rates on mortgage loans,
which have created a new round of refinancings.
Securities available-for-sale increased by $15.7 million, or 42.6%, to
$52.5 million at March 31, 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 $8.6 million in such securities, which
was partially offset by the maturity of $8.0 million of such securities and
by the net change in market value adjustment.
Mortgage-backed securities available-for-sale increased by $369,000, or
1.3%, to $28.7 million at March 31, 1998 from $28.3 million at December 31,
1997. The increase resulted from the acquisition of $286,000 of such
securities with the purchase of CCNB, the purchase of $2.0 million of such
securities, partially offset by maturities of $1.8 million of such
securities, and by the change in market value adjustment.
During the three-month period ended March 31, 1998, intangible assets
increased by $4.4 million, or 199.5%, to $6.5 million from $2.2 million at
December 31, 1997. This increase was a direct result of the purchase of CCNB
on January 29, 1998.
Deposits increased by $53.2 million, or 19.0%, to $333.2 million at
March 31, 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 and a $2.3 million increase in passbook, NOW and money market
accounts, partially offset by a $948,000 decrease in certificate of deposit
accounts.
Total borrowings, which decreased by $220,000, or 0.9%, to $23.3 million
at March 31, 1998 from $23.5 million at December 31, 1997, consisted entirely
of advances from the Federal Home Loan Bank of Chicago (the "FHLB").
Real estate held for sale increased by $130,000, or 9.8%, to $1.5
million at March 31, 1998, from $1.3 million at December 31, 1997. The
increase was the result of the transfer of two single family properties from
loans to real estate held for sale during the quarter. Included in real
estate held for sale is a commercial retail building in Champaign, Illinois,
which was deeded to the Bank in 1997. The borrower has remained liable on
the underlying obligation, which is also secured by additional collateral.
The property is currently being offered for sale. Management does not
presently 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, and the majority of 15-year
fixed-rate mortgage loans bearing a contractual interest rate of less than
7.00%, which it originates. In addition, the Company has continued, as market
circumstances permit, to build its
8
<PAGE>
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 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 1.12% of total assets
at March 31, 1998 from 1.27% of total assets at December 31, 1997.
Non-performing assets increased to $4.5 million at March 31, 1998 compared to
$4.3 million at December 31, 1997. During the three-month period ended March
31, 1998, non-performing commercial real estate loans, non-performing
construction and development loans, non-performing commercial business loans
and non-performing consumer loans increased by $38,000, $81,000, $33,000 and
$74,000, respectively. In addition, foreclosed assets increased by $130,000.
These increases were partially offset by decreases of $45,000 and $185,000 in
non-performing one-to-four family loans and restructured debt, respectively.
The ratio of the allowance for losses on loans to non-performing loans was
83.2% as of March 31, 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 $362,000 in the
allowance for losses on loans which was partially offset by an increase of
$181,000 in non-performing loans. The acquisition of CCNB increased the
reserve for losses on loans and had the effect of increasing total assets,
but had no impact on total non-performing assets.
The Company classified $1.7 million of its assets as Special Mention,
$4.8 million as Substandard and $34,000 as Loss as of March 31, 1998. No
assets were classified as Doubtful at March 31, 1998. This represents a
decrease of $23,000 in the Special Mention category and a net increase of
$101,000 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 1.64% as of March 31, 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 38.0% as of March 31, 1998
as compared to 32.9% as of December 31, 1997.
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.
9
<PAGE>
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
Net income for the three-month period ended March 31, 1998 was $793,000
compared to $770,000 for the same period in 1997. This represents a $23,000
increase in net income for the 1998 period. The increase in net income
resulted from a $164,000 increase in net interest income and a $223,000
increase in other income. These items were partially offset by increases of
$275,000 in general and administrative expenses and $85,000 in federal income
tax expense.
Net interest income increased $164,000, or 6.0%, during the three-month
period ended March 31, 1998, compared to the three-month period ended March
31, 1997.
The table presented on page 15 ("Table I"), sets forth an analysis of
the Company's net interest income for the three-month periods ended March 31,
1998 and 1997.
As Table I indicates, interest income increased $450,000, or 7.1%, to
$6.7 million for the three-month period ended March 31, 1998 from $6.3
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
$364.5 million during the 1998 period, primarily resulting from the
acquisition of CCNB, from $334.7 million during the 1997 period. This was
partially offset by a decrease in the yield earned on interest-earning assets
to 7.50% during the 1998 period from 7.62% during the 1997 period. The
increase in the average balance of interest-earning assets was primarily due
to increases in balances of loans and other interest-earning assets during
the period.
Interest expense increased $286,000, or 8.0%, to $3.9 million for the
three-month period ended March 31, 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 $344.6
million during the 1998 period from $308.0 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 4.70%
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 first
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. The
provision for losses on loans for the first quarter of 1997 was a negative
$4,000.
Other income for the three-month period ended March 31, 1998 increased
$223,000, or 59.5%, to $599,000 compared to $376,000 for the same period in
1997. The increase was attributable to an increase of $168,000 in fee
income, $29,000 in gain on sale of loans held for sale, $20,000 in other
income and $9,000 in insurance commissions, which were partially offset by a
decrease of $3,000 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 Bank'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.
Other expenses for the three-month period ended March 31, 1998 increased
$275,000 or 13.7%, to $2.3 million from $2.0 million during the 1997 period.
The increase was primarily attributable to expenses associated with the
ongoing operation of the former CCNB offices and to an increase in the
10
<PAGE>
amortization of intangible assets. There were increases of $124,000 (11.0%)
in compensation and benefits, $37,000 (63.2%) in amortization of intangible
assets, $10,000 (29.9%) in federal insurance premiums, $22,000 (36.4%) in
telephone and postage and $7,000 (20.2%) in advertising.
Federal income taxes increased $85,000 to $401,000 for the three-month
period ended March 31, 1998, compared to $316,000 for the same period in 1997.
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") 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 March 31, 1998, the Bank's liquidity ratio was 26.4%, 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 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 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). Under the
prompt corrective action regulations, however, an institution that with a
11
<PAGE>
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 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 March 31, 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 March 31, 1998, the Bank's
tangible capital was $26.3 million, or 6.8%, of adjusted total assets, which
exceeded the 1.5% requirement by $20.5 million and exceeded the 2.0%
"critically undercapitalized" threshold by $18.6 million. In addition, at
March 31, 1998, the Bank had core capital of $26.3 million, or 6.8%, of
adjusted total assets, which exceeded the 4.0% requirement by $10.8 million
and exceeded the 5.0% "well capitalized" threshold by $6.9 million. The Bank
had risk-based capital of $28.8 million at March 31, 1998, or 13.3%, of
risk-adjusted assets, which exceeded the minimum risk-based capital
requirement by $11.4 million and exceeded the 10.0% "well capitalized"
threshold by $7.1 million. Additionally, the Bank's $26.3 million of core
capital equaled 12.1% of total risk-weighted assets, which exceeded the 6.0%
"well capitalized" threshold by $15.8 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 three-month period ending March 31, 1998, no shares of common stock were
repurchased. Through March 31, 1998, a total of 409,357 shares of common
stock of the Company had been purchased under the previously completed
repurchase programs at a total cost of $8.0 million. As of March 31, 1998,
the Company held 372,012 shares of its common stock as treasury stock. There
were no repurchases of shares of its common stock by the Company during the
period from March 31, 1998 through May 8, 1998.
EXERCISE OF STOCK OPTIONS
During the first quarter of 1998, stock options for 6,350 shares of
common stock were exercised. Options for 2,000 shares of common stock were
exercised between March 31, 1998 and May 8, 1998. No other notice was
received between March 31, 1998 and May 8, 1998 from holders of options of
their intent to exercise options.
12
<PAGE>
DIVIDENDS
In 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 1997 and for the first quarter of 1998, cash dividends of $.12 per
share were paid each quarter. On April 14, 1998, a cash dividend of $.12 per
share was declared payable on May 29, 1998 to stockholders of record as of
May 14, 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.
YEAR 2000
The federal banking regulators have issued several statements providing
guidance to financial institutions on the steps the regulators expect
financial institutions to take to become Year 2000 compliant. Each of the
federal banking regulators is also examining the financial institutions under
its jurisdiction to assess each institution's compliance with the outstanding
guidance. If an institution's progress in addressing the Year 2000 problem
is deemed by its primary federal regulator to be less than satisfactory, the
institution will be required to enter into a memorandum of understanding with
the regulator which will, among other things, require the institution to
promptly develop and submit an acceptable plan for becoming Year 2000
compliant and to provide periodic reports describing the institution's
progress in implementing the plan. Failure to satisfactorily address the
Year 2000 problem may also expose a financial institution to other forms of
enforcement action that its primary federal regulator deems appropriate to
address the deficiencies in the institution's Year 2000 remediation program.
The Company licenses all software used in conducting its business from third
party software vendors. None of the Company's software has been internally
developed. The Company has developed a comprehensive list of all software
and all hardware in use within the organization. Every vendor has been
contacted regarding the Year 2000 issue, and the Company is closely tracking
the progress each is making in resolving the problems associated with the
issue. Software is upgraded as the vendors resolve Year 2000 problems. The
vendor of the primary software in use at the Bank is scheduled to release its
Year 2000 compliant software in May 1998. Testing standards are being
formulated for comprehensive testing of this software during the last half of
1998. Additionally, the Company has begun the process of contacting its
borrowers to determine the level of progress they have made in addressing the
impact that the Year 2000 issue will have on their respective businesses. At
the present time, no situations that will require material cost expenditures
to become fully compliant have been identified.
The Company has incurred costs totaling approximately $20,000 related to
hardware and software upgrades because of the Year 2000 issue and anticipates
incurring additional costs of approximately $40,000 during 1998, primarily
related to additional planning and testing.
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
13
<PAGE>
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.
14
<PAGE>
<TABLE>
<CAPTION>
TABLE I
NET INTEREST INCOME ANALYSIS (UNAUDITED)
KANKAKEE BANCORP, INC. AND SUBSIDIARY
Three Months Ended March 31,
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) $250,410 $5,100 8.26% $231,810 $4,679 8.19%
Mortgage-backed securities 28,700 468 6.61% 34,088 581 6.91%
Investments securities (2) 50,042 839 6.80% 50,534 847 6.80%
Other interest-earning assets 33,469 300 3.64% 16,324 147 3.65%
FHLB stock 1,856 30 6.56% 1,956 33 6.84%
-------- ------ -------- ------
Total interest-earning assets 364,477 6,737 7.50% 334,712 6,287 7.62%
-------- ------ -------- ------
Other assets 21,766 12,687
-------- --------
Total assets $386,243 $347,399
-------- --------
-------- --------
Interest-bearing liabilities:
Time deposits $196,457 2,714 5.60% $174,890 2,404 5.57%
Savings deposits 56,922 374 2.66% 52,594 349 2.71%
Demand and NOW deposits 65,823 410 2.53% 49,706 354 2.89%
Borrowings 25,385 355 5.67% 31,115 460 6.00%
-------- ------ -------- ------
Total interest-bearing
liabilities 344,587 3,853 4.53% 308,005 3,567 4.70%
-------- ------ -------- ------
Other liabilities 3,424 2,799
-------- --------
Total liabilities 348,011 310,804
-------- --------
Stockholders' equity 38,232 36,595
-------- --------
Total liabilities and
stockholders' equity $386,243 $347,399
-------- --------
-------- --------
Net interest income $2,884 $2,720
------ ------
------ ------
Net interest rate spread 2.97% 2.92%
------ -----
------ -----
Net earning assets $19,890 $26,707
-------- --------
-------- --------
Net yield on average interest-
earning assets (net interest
margin) 3.21% 3.30%
------ -----
------ -----
Average interest-earning assets to
average interest-bearing liabilities 105.77% 108.67%
------- -------
------- -------
</TABLE>
(1) Calculated including loans held for sale, and net of deferred loan fees,
loan discounts, loans in process and loan loss reserves.
(2) Calculated including investment securities available-for-sale.
15
<PAGE>
KANKAKEE BANCORP, INC.
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS - 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
16
<PAGE>
KANKAKEE BANCORP, INC.
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934,
the Registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
KANKAKEE BANCORP, INC.
Registrant
Date: May 8, 1998 /s/ MICHAEL A. STANFA
----------- ----------------------------
Executive Vice President
Date: May 8, 1998 /s/ RONALD J. WALTERS
----------- ----------------------------
Vice President and Treasurer
(Principal Financial
and Accounting Officer)
17
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 20,210
<INT-BEARING-DEPOSITS> 5,815
<FED-FUNDS-SOLD> 18,800
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 81,184
<INVESTMENTS-CARRYING> 1,470
<INVESTMENTS-MARKET> 1,474
<LOANS> 252,169
<ALLOWANCE> 2,492
<TOTAL-ASSETS> 399,477
<DEPOSITS> 333,200
<SHORT-TERM> 0
<LIABILITIES-OTHER> 4,469
<LONG-TERM> 23,275
0
0
<COMMON> 16,096
<OTHER-SE> 22,437
<TOTAL-LIABILITIES-AND-EQUITY> 399,477
<INTEREST-LOAN> 5,100
<INTEREST-INVEST> 1,169
<INTEREST-OTHER> 468
<INTEREST-TOTAL> 6,737
<INTEREST-DEPOSIT> 3,498
<INTEREST-EXPENSE> 3,853
<INTEREST-INCOME-NET> 2,884
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2,289
<INCOME-PRETAX> 1,194
<INCOME-PRE-EXTRAORDINARY> 793
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 793
<EPS-PRIMARY> 0.58
<EPS-DILUTED> 0.54
<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>
