<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, 1999.
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 November 8, 1999, there were 1,251,783 issued and outstanding shares of
the Issuer's Common Stock (exclusive of 498,217 shares of the Issuer's Common
Stock held as treasury stock).
<PAGE>
KANKAKEE BANCORP, INC.
INDEX
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<TABLE>
<CAPTION>
PAGE
NUMBER
<S> <C>
Part I. FINANCIAL INFORMATION
Item 1. Consolidated Financial
Statements (Unaudited)
Statements of Financial Condition,
September 30, 1999 and December 31, 1998 1 - 2
Statements of Income and Comprehensive Income,
Three Months Ended September 30, 1999 and 1998 3
Statements of Income and Comprehensive Income,
Nine Months Ended September 30, 1999 and 1998 4
Statements of Cash Flows, Nine Months
Ended September 30, 1999 and 1998 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 9
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,
1999 1998
----------- ------------
<S> <C> <C>
Assets
Cash and due from banks $ 17,098,414 $ 15,154,733
Federal funds sold 4,700,000 18,525,000
Money market funds 4,782,447 13,310,905
-------------- --------------
Cash and cash equivalents 26,580,861 46,990,638
-------------- --------------
Certificates of deposit 50,000 50,000
-------------- --------------
Securities:
Investment securities:
Available-for-sale, at fair value 65,614,766 75,942,836
Held-to-maturity, at cost (fair value: September 30, 1999 -
$316,998; December 31, 1998 - $345,318) 337,610 341,647
------------- -------------
Total investment securities 65,952,376 76,284,483
------------- -------------
Mortgage-backed securities:
Available-for-sale, at fair value 18,755,311 18,577,927
Held-to-maturity, at cost (fair value: September 30, 1999 -
$118,115; December 31, 1998 - $172,340) 116,253 167,741
------------- -------------
Total mortgage-backed securities 18,871,564 18,745,668
------------- -------------
Non-marketable equity securities 501,100 501,100
------------- -------------
Loans 270,768,592 247,608,314
Less: Allowance for losses on loans 2,216,257 2,375,533
------------- -------------
Net loans 268,552,335 245,232,781
------------- -------------
Loans held for sale 70,770 1,910,966
Real estate held for sale 541,728 1,882,324
Federal Home Loan Bank stock, at cost 1,811,400 1,801,100
Office properties and equipment 9,171,201 8,729,971
Accrued interest receivable 2,916,026 2,772,872
Prepaid expenses and other assets 1,455,588 1,289,077
Intangible assets 5,291,252 5,587,678
-------------- --------------
Total assets $401,766,201 $411,778,658
============== ==============
</TABLE>
(Continued)
1
<PAGE>
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (UNAUDITED) (continued)
KANKAKEE BANCORP, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- ------------
<S> <C> <C>
Liabilities and stockholders' equity
Liabilities:
Deposits
Noninterest bearing $ 18,998,137 $17,533,020
Interest bearing 328,997,469 329,269,826
Short term borrowings - -
Other borrowings 15,700,000 22,900,000
Advance payments by borrowers for taxes and insurance 506,436 1,532,482
Other liabilities 1,089,930 866,721
------------- -------------
Total liabilities 365,291,972 372,102,049
------------- -------------
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, 1999 -
1,251,083; December 31, 1998 - 1,367,358 17,500 17,500
Additional paid-in capital 16,024,442 16,070,157
Retained income, substantially restricted 31,966,094 31,183,528
Less: Cost of treasury stock (498,917 shares at September 30,
1999; 382,642 shares at December 31, 1998) (10,669,086) (7,621,599)
Unrealized gains (losses) on securities available-for-
sale, net of related income taxes (637,905) 329,445
------------- -------------
Total stockholders' equity before Employee Stock
Ownership Plan loan and Bank Incentive Plan and Trust 36,701,045 39,979,031
Employee Stock Ownership Plan loan (226,816) (302,422)
------------- -------------
Total stockholders' equity 36,474,229 39,676,609
------------- -------------
Total liabilities and stockholders' equity $401,766,201 $411,778,658
============= =============
</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,
-----------------------------------
1999 1998
----------- -----------
<S> <C> <C>
Interest income:
Loans $ 5,213,446 $ 5,075,470
Mortgage-backed securities 296,100 327,647
Investment securities 1,228,243 1,569,452
----------- -----------
Total interest income 6,737,789 6,972,569
----------- -----------
Interest expense:
Deposits 3,570,163 3,833,859
Borrowed funds 234,784 311,152
----------- -----------
Total interest expense 3,804,947 4,145,011
----------- -----------
Net interest income 2,932,842 2,827,558
Provision for losses on loans -- --
----------- -----------
Net interest income after provision for losses on loans 2,932,842 2,827,558
Other income:
Net gain on sale of securities available-for-sale -- --
Net gain on sales of real estate held for sale 3,812 3,765
Net gain (loss) on sales of loans held for sale (21,057) 39,276
Fee income 463,897 374,675
Insurance commissions 44,345 54,154
Other 114,047 123,429
----------- -----------
Total other income 605,044 595,299
----------- -----------
Other expenses:
Compensation and benefits 1,508,671 1,429,614
Occupancy 292,346 229,776
Furniture and equipment 172,801 153,764
Federal insurance premiums 41,606 42,389
Advertising 111,377 57,845
Provision for losses on foreclosed assets 3,750 --
Data processing services 94,919 101,308
Telephone and postage 107,062 89,516
Amortization of intangible assets 94,617 106,521
Other general and administrative 536,868 400,940
----------- -----------
Total other expenses 2,964,017 2,611,673
----------- -----------
Income before income taxes 573,869 811,184
Income taxes 188,600 271,030
----------- -----------
Net income $ 385,269 $ 540,154
=========== ===========
Net income $ 385,269 $ 540,154
Other comprehensive income:
Unrealized gains (losses) on available-for-sale
securities, net of related income taxes (218,682) 440,798
----------- -----------
Comprehensive income $ 166,587 $ 980,952
=========== ===========
Basic earnings per share $ 0.29 $ 0.39
=========== ===========
Diluted earnings per share $ 0.28 $ 0.37
=========== ===========
</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,
-------------------------------
1999 1998
----------- -----------
<S> <C> <C>
Interest income:
Loans $15,209,557 $15,361,823
Mortgage-backed securities 825,651 1,229,577
Investment securities 4,093,464 4,152,135
----------- -----------
Total interest income 20,128,672 20,743,535
---------- ----------
Interest expense:
Deposits 10,691,558 11,069,364
Borrowed funds 835,548 979,461
----------- -----------
Total interest expense 11,527,106 12,048,825
----------- -----------
Net interest income 8,601,566 8,694,710
Provision for losses on loans - -
----------- -----------
Net interest income after provision for losses on loans 8,601,566 8,694,710
Other income:
Net gain on sale of securities available-for-sale 1,094 -
Net gain on sales of real estate held for sale 25,390 20,450
Net gain on sales of loans held for sale 2,854 133,940
Fee income 1,458,429 1,241,647
Insurance commissions 75,822 97,899
Other 458,425 343,717
---------- -----------
Total other income 2,022,014 1,837,653
---------- ----------
Other expenses:
Compensation and benefits 4,545,122 4,097,121
Occupancy 819,214 681,278
Furniture and equipment 527,248 415,786
Federal insurance premiums 126,635 127,503
Advertising 289,320 234,349
Provision for losses on foreclosed assets 33,000 9,292
Data processing services 299,763 283,919
Telephone and postage 271,700 255,578
Amortization of intangible assets 296,426 303,362
Other general and administrative 1,528,864 1,213,853
----------- -----------
Total other expenses 8,737,292 7,622,041
----------- -----------
Income before income taxes 1,886,288 2,910,322
Income taxes 620,350 975,210
----------- -----------
Net income $1,265,938 $1,935,112
=========== ===========
Net income $1,265,938 $1,935,112
Other comprehensive income:
Unrealized gains (losses) on available-for-sale
securities, net of related income taxes (967,350) 561,074
----------- -----------
Comprehensive income $298,588 $2,496,186
=========== ===========
Basic earnings per share $0.95 $1.40
===== =====
Diluted earnings per share $0.90 $1.32
===== =====
</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,
-------------------------------------
1999 1998
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,265,938 $ 1,935,112
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for losses on loans -- --
Provision for losses on real estate held for sale (33,000) 9,292
Depreciation and amortization 960,697 759,114
Amortization of investment premiums and discounts, net 224,001 201,599
Accretion of loan fees and discounts, net 26,118 (47,041)
Deferred income tax provision (benefit) 100,107 --
Originations of loans held for sale (8,359,875) (31,120,721)
Proceeds from sales of loans 10,202,925 30,783,310
Increase in interest receivable (143,154) (105,888)
Increase in interest payable on deposits 64,744 87,887
Net gain on sales of loans (2,854) (133,940)
Net gain on sales of securities available-for-sale (1,094) --
Net gain on sales of real estate held for sale (25,390) (20,450)
Other, net 274,870 (670,885)
------------ ------------
Net cash from operating activities 4,554,033 1,677,389
------------ ------------
Cash flows from investing activities:
Investment securities:
Available-for-sale:
Purchases (11,983,543) (38,369,126)
Proceeds from sales 2,001,094 --
Proceeds from calls and maturities 19,000,000 22,000,000
Held to maturity:
Purchases -- (1,150,000)
Proceeds from maturities 2,797 2,629
Mortgage-backed securities:
Available-for-sale:
Purchases (6,798,597) (1,997,500)
Proceeds from maturities and paydowns 6,244,383 11,848,317
Held-to-maturity:
Proceeds from maturities and paydowns 51,488 26,797
Purchases of certificates of deposit -- (765,692)
Proceeds from maturities of certificates of deposit -- 2,317,692
Proceeds from sales of real estate 2,589,556 294,247
Deferred loan fees and costs, net (63,198) 5,115
Loans originated (98,540,131) (71,131,586)
Loans purchased (1,366,276) (300,000)
Principal collected on loans 76,123,402 84,293,894
Purchases of office properties and equipment, net (1,132,277) (2,149,130)
Payment of acquisition costs -- (8,080,745)
Payments of improvements on real estate (347,623) --
------------ ------------
Net cash from investing activities (14,218,925) (3,155,088)
</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,
-------------------------------------
1999 1998
------------ ------------
<S> <C> <C>
Cash flows from financing activities
Net increase (decrease) in non-certificate of deposit accounts $ (2,195,753) $ 1,528,921
Net increase in certificate of deposit accounts 3,323,769 7,273,856
Net decrease in advance payments by borrowers
for taxes and insurance (1,096,328) (1,105,081)
Repayments of short-term borrowings -- (8,220,000)
Proceeds from other borrowings -- 8,000,000
Repayments of other borrowings (7,200,000) (375,000)
Proceeds from exercise of stock options 181,607 151,051
Dividends paid (483,371) (496,556)
Purchase of treasury stock (3,274,809) (168,400)
------------ ------------
Net cash from financing activities (10,744,885) 6,588,791
------------ ------------
Increase (decrease) in cash and cash equivalents (20,409,777) 5,111,092
Cash and cash equivalents:
Beginning of year 46,990,638 22,825,892
Cash acquired with Coal City National Bank -- 21,745,008
------------ ------------
End of year $ 26,580,861 $ 49,681,992
============ ============
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest on deposits $ 10,756,300 $ 11,157,300
============ ============
Interest on borrowed funds $ 869,100 $ 1,002,100
============ ============
Income taxes $ 417,072 $ 882,335
============ ============
Supplemental disclosures of non-cash investing activities:
Real estate acquired through foreclosure $ 122,713 $ 410,268
============ ============
(Increase) decrease in unrealized gains (losses) on
securities available-for-sale ($ 1,443,806) $ 850,112
============ ============
Increase (decrease) in deferred taxes attributable to the
unrealized gains (losses) on securities available-for-sale $ 476,456 ($ 289,038)
============ ============
Reduction of Employee Stock Ownership plan loan $ 75,606 $ 75,606
============ ============
Acquisition 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, 1999
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, 1998 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,
1999 are not necessarily indicative of the results that may be expected for the
year ending December 31, 1999. 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, 1998.
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, 1999, stockholders' equity has been reduced by $637,905
which represents the amount by which the book value of the available-for-sale
securities and the available-for-sale mortgage-backed securities exceeded the
market value, net of an income tax benefit of $328,575. An increase in market
interest rates during the nine months ended September 30, 1999 resulted in a
$967,350 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 nine months. At the end of 1998, the market value of the
available-for-sale securities portfolio exceeded the book value by $329,445, 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.
FINANCIAL CONDITION
Total assets of the Company decreased by $10.0 million, or 2.4%, to $401.8
million at September 30, 1999 from $411.8 million at December 31, 1998.
Cash and cash equivalents decreased by $20.4 million, or 43.4%, from $47.0
million at December 31, 1998 to $26.6 million at September 30, 1999. The
decrease was primarily attributable to the use of cash equivalent assets in the
funding of loans during the nine-month period.
During the nine-month period ended September 30, 1999, net loans receivable
increased by $23.4 million, or 9.5%, from $245.2 million to $268.6 million. This
was primarily the result of the origination (or purchase) of $55.8 million of
real estate loans and the origination (or purchase) of $44.1 million of consumer
and commercial business loans, offset by loan repayments which totaled $76.1
million.
Loans held for sale decreased by $1.8 million or 96.3%, to $71,000 at
September 30, 1999, from $1.9 million at December 31, 1998. During the nine
month period, $10.2 million of loans were sold, while origination of such loans
totaled $8.4 million.
Securities available-for-sale decreased by $10.3 million, or 13.6%, to
$65.6 million at September 30, 1998 from $75.9 million at December 31, 1998 as
the result of the maturity of $19.0 million of securities and the sale of $2.0
million of securities, which were partially offset by the purchase of $12.0
million of securities and by the net change in market value adjustment.
Mortgage-backed securities available-for-sale increased by $177,000, or
1.0%, to $18.8 million at September 30, 1999 from $18.6 million at December 31,
1998. The increase resulted from purchases of $6.8 million of securities, which
were partially offset by the maturity of $6.2 million of securities and the
change in market value adjustment.
Real estate held for sale decreased by $1.3 million, or 71.3%, to
$542,000 at September 30,
8
<PAGE>
1999, from $1.9 million at December 31, 1998. The decrease was the result of the
sale of nine single family properties and the sale of a large commercial
building in Champaign, Illinois. The sale of the commercial building resulted in
a deferred gain of $311,000. The gain will not be recognized in current income
due to the Bank's participation in the purchaser's financing through a second
mortgage in the amount of $350,000. The second mortgage was made with a market
rate and market terms. The decreases were partially offset by the transfer of
ten single family properties to real estate held for sale during the nine-month
period and additional expenditures incurred in connection with the commercial
building.
Deposits remained stable during the period, increasing by $1.2 million from
$346.8 million as of December 31, 1998 to $348.0 million at September 30, 1999.
During the nine-month period there was a $3.3 million increase in certificate of
deposit accounts, which was partially offset by a $2.2 million decrease in
passbook, checking and money market accounts.
Total borrowings decreased by $7.2 million from $22.9 million at December
31, 1998 to $15.7 million at September 30, 1999. The decrease was the result of
the maturity of Federal Home Loan Bank of Chicago (the "FHLB") borrowings.
Borrowings consisted entirely of FHLB advances.
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 has not entered 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 0.65% of total assets at
September 30, 1999 from 0.82% of total assets at December 31, 1998.
Non-performing assets decreased to $2.6 million at September 30, 1999 compared
to $3.4 million at December 31, 1998. During the nine-month period ended
September 30, 1999, non-performing one-to-four family loans, non-performing
consumer loans, non-performing commercial business loans and foreclosed assets
decreased by $151,000, $5,000, $131,000 and $1.3 million, respectively. These
decreases were partially offset by increases of $122,000 and $773,000 in
non-performing commercial real estate loans and non-performing construction and
development loans, respectively. The ratio of the allowance for losses on loans
to non-performing loans increased to 268.9% as of September 30, 1999 as compared
to
9
<PAGE>
160.4% as of December 31, 1998. The increase in this ratio, which excludes
foreclosed assets and restructured troubled debt, was primarily the result of a
decrease of $657,000 in non-performing loans, which was partially offset by a
decrease of $160,000 in the allowance for losses on loans, which resulted from
net charge-offs.
The Company classified $2.4 million of its assets as Special Mention, $2.4
million as Substandard and $39,000 as Loss as of September 30, 1999. No assets
were classified as Doubtful at September 30, 1999. This represented a decrease
of $332,000 in the Special Mention category and a net decrease of $1.8 million
in the other categories from the December 31, 1998 totals for classified assets.
The ratio of classified assets to total assets (including items classified as
Special Mention) was 1.20% as of September 30, 1999 as compared to 1.70% as of
December 31, 1998. The ratio of the allowance for losses on loans to classified
assets decreased to 45.8% as of September 30, 1999 as compared to 34.0% as of
December 31, 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.
BANK ACQUISITION AND OTHER 1998 DEVELOPMENTS
The operating impact of a number of activities and events undertaken during
calendar 1998 was fully reflected in the results for both the three-month and
nine-month periods ended September 30, 1999. However, due to their timing, they
may have had a lesser impact or no impact on the results for the comparable 1998
periods.
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. The transaction was accounted for as a
purchase and intangible assets of approximately $3.8 million were recorded as a
result of this purchase.
In addition to the purchase of CCNB, three new branch offices of the Bank
were opened during 1998. A branch in a grocery store in Coal City, Illinois, and
a stand-alone branch in Urbana, Illinois, opened for business in June. A branch
in a superstore in Bradley, Illinois, opened for business in November. The
Company also completed construction of a new building to replace its Herscher,
Illinois, branch. The new building was occupied and opened for business in
August.
During the second quarter of 1998, the Company's item processing was
converted to an in-house operation. Additionally, during the second quarter the
Company completed the data processing
10
<PAGE>
conversion of the deposit and loan accounts acquired with the acquisition of
CCNB.
In February 1998, the Bank received regulatory approval to begin offering
trust services. Although granted full trust powers, the Bank has initially
focused on personal trust services and limited employee plan services. It is
anticipated that the trust operations will generate operating losses during 1999
and 2000, and are not projected to break even or produce a small profit until
2001.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
Net income for the three-month period ended September 30, 1999 was $385,000
compared to $540,000 for the same period in 1998. This represented a $155,000
decrease in net income for the 1999 period. The decrease in net income resulted
from an increase of $352,000 in general and administrative expenses, due
primarily to expenses relating to the expansion of the organization. The
increase in general and administrative expenses was partially offset by an
increase of $105,000 in net interest income, an increase of $10,000 in other
income and a decrease of $82,000 in income taxes.
Net interest income increased $105,000, or 3.7%, during the three-month
period ended September 30, 1999, compared to the three-month period ended
September 30, 1998.
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,
1999 and 1998.
As Table I indicates, interest income decreased $235,000, or 3.4%, to $6.7
million for the three-month period ended September 30, 1999 from $7.0 million
for the same period in 1998. The decrease in interest income was the result of a
decrease in the yield earned on interest-earning assets to 7.20% during the 1999
period from 7.44% during the 1998 period and by a decrease in the average
balance of interest-earning assets to $371.5 million during the 1999 period from
$371.8 million during the 1998 period. The decrease in the average balance of
interest-earning assets was primarily due to decreases in balances of
mortgage-backed securities and other interest-earning assets which were
partially offset by increases in balances of loans and investment securities.
The decrease in the yield earned on interest-earning assets was the result of
declining market interest rates during 1998, which resulted in a high level of
loan refinancing.
Interest expense decreased $340,000, or 8.2%, to $3.8 million for the
three-month period ended September 30, 1999 from $4.1 million for the same
period in 1998. The decrease in interest expense was the result of a decrease in
the average yield on interest-bearing liabilities to 4.16% during the 1999
period from 4.52% during the 1998 period and by a decrease in the average
outstanding balance of interest-bearing liabilities to $363.2 million during the
1999 period from $363.7 million during the 1998 period. The decrease in the
average yield on interest-bearing liabilities resulted from lower market
interest rates. The decrease in average interest-bearing liabilities resulted
primarily from repayment of borrowings which was partially offset by deposit
growth.
No provision for losses on loans was deemed necessary during either the
third quarter of 1999, or the third quarter of 1998, based on management's
review of the adequacy of the allowance for losses on loans. This was primarily
the result of the acquisition of $398,000 in allowance for losses on loans as
part of the purchase of CCNB in January, 1998, as well as the decline in
non-performing
11
<PAGE>
assets.
Other income for the three-month period ended September 30, 1999 increased
$10,000, or 1.6%, to $605,000 compared to $595,000 for the same period in 1998.
The slight increase was attributable to an increase of $89,000 in fee income
which was partially offset by decreases of $60,000 in gain on the sale of loans
held for sale, $10,000 in insurance commissions and $9,000 in other income. The
increase in fee income was the result of an ongoing review of the Company's fee
structure and growth in transaction accounts. The decrease in gain on the sale
of loans held for sale was the result of a smaller volume or origination and
sales of such loans compared to the year earlier period, during which there was
a high volume of refinancings because of a low interest rate environment.
Other expenses for the three-month period ended September 30, 1999
increased $352,000 or 13.5%, to $3.0 million from $2.6 million during the 1998
period. The increase was primarily attributable to expenses associated with the
ongoing operation of fifteen (15) offices during the 1999 period compared to
fourteen (14) during most of the same period in 1998. The additional office was
a start-up and will contribute more to expense than to income until a sufficient
customer base is developed at the location. There were increases of $79,000
(5.5%) in compensation and benefits, $63,000 (27.2%) in occupancy costs, $19,000
(12.4%) in furniture and equipment expense, $54,000 (92.5%) in advertising
expense, $17,000 (19.6%) in telephone and postage expense, $136,000 (33.9%) in
other expenses and $4,000 in provision for losses on foreclosed assets. These
increases were partially offset by decreases of $1,000 (1.8%) in deposit
insurance premiums, $6,000 (6.3%) in data processing costs and $12,000 (11.2%)
in the amortization of intangible assets.
Federal income taxes decreased $82,000 to $189,000 for the three-month
period ended September 30, 1999, compared to $271,000 for the same period in
1998. The primary reason for this decrease was the decrease in pre-tax income.
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
Net income for the nine-month period ended September 30, 1999 was $1.3
million compared to $1.9 million for the same period in 1998. This represented a
$669,000 decrease in net income for the 1999 period. The decrease in net income
resulted from a decrease of $93,000 in net interest income and from a $1.1
million increase in general and administrative expenses, due primarily to
expenses relating to the expansion of the organization. These items were
partially offset by an increase of $184,000 in other income and a $355,000
decrease in income taxes.
Net interest income decreased $93,000, or 1.1%, during the nine-month
period ended September 30, 1999, compared to the nine-month period ended
September 30, 1998.
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,
1999 and 1998.
As Table II indicates, interest income decreased $615,000, or 3.0%, to
$20.1 million for the nine-month period ended September 30, 1999 from $20.7
million for the same period in 1998. The decrease in interest income was the
result of a decrease in the yield earned on interest-earning assets to 7.15%
during the 1999 period from 7.51% during the 1998 period. This was partially
offset by an increase in the average balance of interest-earning assets to
$376.6 million during the 1999 period from $369.4 million during the 1998
period. The increase in the average balance of interest-
12
<PAGE>
earning assets was primarily due to increases in balances of loans and
investment securities during the period, which were partially offset by
decreases in balances of mortgage-backed securities and other interest-earning
assets. The decrease in the yield earned on interest-earning assets was the
result of declining market interest rates during 1998, which resulted in a high
level of loan refinancing.
Interest expense decreased $522,000, or 4.3%, to $11.5 million for the
nine-month period ended September 30, 1999 from $12.0 million for the same
period in 1998. The decrease in interest expense was the result of a decrease in
the average yield on interest-bearing liabilities to 4.20% during the 1999
period from a 4.53% during the 1998 period which was partially offset by an
increase in the average outstanding balance of interest-bearing liabilities to
$367.0 million during the 1999 period from $355.6 million during the 1998
period. The increase in average interest-bearing liabilities resulted primarily
from deposit growth. The decrease in the average yield on interest-bearing
liabilities resulted from lower market interest rates.
No provision for losses on loans was deemed necessary during either the
first nine months of 1999, or the first nine months of 1998, based on
management's review of the adequacy of the allowance for losses on loans. This
was primarily the result of the acquisition of $398,000 in allowance for losses
on loans as part of the purchase of CCNB in January, 1998, as well as the
decline in non-performing assets.
Other income for the nine-month period ended September 30, 1999 increased
$184,000, or 10.0%, to $2.0 million compared to $1.8 million for the same period
in 1998. The increase was attributable to increases of $217,000 in fee income,
$115,000 in other income, $1,000 in gain on the sale of securities available for
sale, and $5,000 in gain on the sale of real estate held for sale. These
increases were partially offset by decreases of $131,000 in gain on the sale of
loans held for sale and $22,000 in insurance commissions. The increase in fee
income was the result of an ongoing review of the Company's fee structure and
growth in transaction accounts. The decrease in gain on the sale of loans held
for sale was the result of a smaller volume of origination and sales of such
loans compared to the year earlier period, during which there was a high volume
of refinancings because of a low interest rate environment.
Other expenses for the nine-month period ended September 30, 1999 increased
$1.1 million, or 14.6% to $8.7 million from $7.6 million during the 1998 period.
The increase was primarily attributable to expenses associated with the ongoing
operation of fifteen (15) offices during the 1999 period compared to twelve (12)
during most of the same period in 1998. All but two categories of other expenses
reflected increases. There were increases of $448,000 (10.9%) in compensation
and benefits, $138,000 (20.2%) in occupancy costs, $111,000 (26.8%) in furniture
and equipment expense, $315,000 (26.0%) in other expense, $55,000 (23.5%) in
marketing expenses and $24,000 (255.1%) in the provision for losses on
foreclosed assets. Small decreases were noted in deposit insurance premiums
($1,000, or 0.7%) and amortization of intangible assets ($7,000, or 2.3%).
Federal income taxes decreased $355,000 to $620,000 for the nine-month
period ended September 30, 1999, compared to $975,000 for the same period in
1998. The primary reason for this decrease was the decrease in pre-tax income.
LIQUIDITY AND CAPITAL RESOURCES
The Company maintains a certain level of cash and other liquid assets to
fund normal volumes
13
<PAGE>
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, 1999, the Company's
liquidity ratio was 20.0%, 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 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 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.
14
<PAGE>
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, 1999, 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, 1999, the Bank's
tangible capital was $29.2 million, or 7.4%, of adjusted total assets, which
exceeded the 1.5% requirement by $23.3 million and exceeded the 2.0% "critically
undercapitalized" threshold by $21.3 million. In addition, at September 30,
1999, the Bank had core capital of $29.2 million, or 7.4%, of adjusted total
assets, which exceeded the 4.0% requirement by $13.4 million and exceeded the
5.0% "well capitalized" threshold by $9.4 million. The Bank had risk-based
capital of $31.3 million at September 30, 1999, or 13.3%, of risk-adjusted
assets, which exceeded the minimum risk-based capital requirement by $12.4
million and exceeded the 10.0% "well capitalized" threshold by $7.7 million.
Additionally, the Bank's $29.2 million of core capital equaled 12.4% of total
risk-weighted assets, which exceeded the 6.0% "well capitalized" threshold by
$15.0 million.
RECENT REGULATORY DEVELOPMENTS
Pending Legislation. On November 4, 1999, the United States Congress
approved legislation that would allow bank holding companies to engage in a
wider range of nonbanking activities, including greater authority to engage in
securities and insurance activities. Under the Gramm-Leach-Bliley Act (the
"Act"), a bank holding company that elects to become a financial holding company
may engage in any activity that the Board of Governors of the Federal Reserve
System (the "Federal Reserve"), in consultation with the Secretary of the
Treasury, determines by regulation or order is (i) financial in nature, (ii)
incidental to any such financial activity, or (iii) complementary to any such
financial activity and does not pose a substantial risk to the safety or
soundness of depository institutions or the financial system generally. The Act
specifies certain activities that are deemed to be financial in nature,
including lending, exchanging, transferring, investing for others, or
safeguarding money or securities; underwriting and selling insurance; providing
financial, investment, or economic advisory services; underwriting, dealing in
or making a market in, securities; and any activity currently permitted for bank
holding companies by the Federal Reserve under section 4(c)(8) of the Bank
Holding Company Act. A bank holding company may elect to be treated as a
financial holding company only if all depository institution subsidiaries of the
holding company are well-capitalized, well-managed and have at least a
satisfactory rating under the community Reinvestment Act.
Under current law, so-called "unitary savings and loan holding companies"
(i.e., those that control only one savings association and have no other
depository institution subsidiaries) are not generally subject to any
restrictions on the non-banking activities in which they may engage (either
directly or through a subsidiary). The Act limits the nonbanking activities of
unitary savings and loan holding companies by generally prohibiting any savings
and loan holding company from engaging in any activity other than activities
that (i) are currently permitted for multiple savings and loan holding companies
or (ii) are permissible for financial holding companies (as described above)
(collectively "permissible activities"). The Act also generally prohibits any
company from acquiring control of a savings association or savings and loan
holding company unless the acquiring company engages
15
<PAGE>
solely in permissible activities. The Act creates an exemption from the general
prohibitions for unitary savings and loan holding companies in existence, or
formed pursuant to an application pending before the Office of Thrift
Supervision, on or before May 4, 1999.
The Act must signed by the President before it will take effect. At this
time, the Company is unable to predict the impact the Act may have on the
Company and its subsidiaries.
STOCK REPURCHASE
On January 12, 1999, the Company's Board of Directors authorized the
repurchase through January 31, 2000, of up to 136,000 shares of its common
stock. During the nine-month period ending September 30, 1999, 127,600 shares of
common stock were repurchased at a cost of $3.3 million. Through September 30,
1999, a total of 550,607 shares of common stock of the Company had been
purchased under the current and previous repurchase programs at a total cost of
$11.6 million. As of September 30, 1999, the Company held 498,917 shares of its
common stock as treasury stock. During the period from September 30, 1999
through November 5, 1999, no additional shares of common stock were repurchased.
EXERCISE OF STOCK OPTIONS
During the three-month and nine-month periods ending September 30, 1999,
options on 3,475 and 11,325 shares of common stock, respectively, were
exercised. Between September 30, 1999 and November 5, 1999, options on 700
shares of common stock were exercised. No other notice was received from holders
of options of their intent to exercise options during that period.
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, 1998 and for the first three quarters of 1999, cash dividends of $.12 per
share were paid each quarter. On October 14, 1999, a cash dividend of $.12 per
share was declared payable on December 1, 1999 to stockholders of record as of
November 12, 1999. 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 PLANNING AND CONCERNS
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
16
<PAGE>
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 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 compliant software in July 1998. Testing standards were
formulated and comprehensive testing was begun. In March 1999, the testing was
complete, with no defects reported to the software vendors. During June 1999 the
Company completed a second set of testing as part of the Company's comprehensive
testing strategy. In addition, the Company will complete a third test of
software by November 30, 1999. The Company actively takes part in a peer users
group to aid the testing process. Users of the primary software talk monthly
discussing 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 a critical,
though not material relationship, i.e. Ameritech and MCI (phone service), ComEd
(electricity) and NICOR (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.
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 1999 have been approximately $100,000. After capitalization of
purchased software and hardware, this represents 3.1% of the annual information
systems budget. 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 5.6% of the
17
<PAGE>
annual information systems budget. No additional material expenditures on the
Year 2000 project are anticipated at this time. At the present time, no
situations have been identified that will require material cost expenditures to
become fully compliant or that will cause the Company to be non-compliant.
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 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 and deposit
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, loan underwriting
and cash needs. 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 also
contacted large commercial depositors to determine their potential cash needs
over year end 1999.
The Company has developed contingency plans for various Year 2000 problems
and continues to revise those plans based on testing results, vendor
notifications, and regulatory changes.
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 I
NET INTEREST INCOME ANALYSIS (UNAUDITED)
KANKAKEE BANCORP, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
Three Months Ended September 30,
------------------------------------------------------------------------------
1999 1998
-------------------------------- --------------------------------------
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) $267,110 $5,214 7.74% $246,085 $5,075 8.18%
Mortgage-backed securities (2) 19,409 296 6.05% 22,072 328 5.90%
Investments securities (3) 67,466 989 5.82% 65,928 1,050 6.32%
Other interest-earning assets 15,733 209 5.27% 35,903 489 5.40%
FHLB stock 1,811 30 6.57% 1,856 31 6.63%
----------- --------- ----------- ---------
Total interest-earning assets 371,529 6,738 7.20% 371,844 6,973 7.44%
----------- --------- ----------- ---------
Other assets 31,566 33,240
----------- -----------
Total assets $403,095 $405,084
=========== ===========
Interest-bearing liabilities:
Certificate accounts $209,560 2,757 5.22% $207,904 2,952 5.63%
Savings deposits 61,949 381 2.44% 60,089 412 2.72%
Demand and NOW deposits 74,148 432 2.31% 72,847 470 2.56%
Borrowings 17,500 235 5.33% 22,900 311 5.39%
----------- --------- ----------- ---------
Total interest-bearing liabilities 363,157 3,805 4.16% 363,740 4,145 4.52%
----------- --------- ----------- ---------
Other liabilities 2,052 1,822
----------- ----------
Total liabilities 365,209 365,562
----------- ----------
Stockholders' equity 37,886 39,522
----------- ----------
Total liabilities and
stockholders' equity $403,095 $405,084
=========== ===========
Net interest income $2,933 $2,828
======== =========
Net interest rate spread 3.04% 2.92%
===== =====
Net earning assets $8,372 $8,104
=========== ===========
Net yield on average interest-
earning assets (net interest
margin) 3.13% 3.02%
===== =====
Average interest-earning assets to
average interest-bearing liabilities 102.31% 102.23%
======= =======
</TABLE>
(1) Calculated including loans held for sale, and net of deferred loan fees,
loan discounts, loans in process and the allowance for losses on loans,
(2) Calculated including mortgage-backed securities available-for-sale.
(3) Calculated including investment securities available-for-sale and
certificates of deposit.
19
<PAGE>
TABLE II
NET INTEREST INCOME ANALYSIS (UNAUDITED)
KANKAKEE BANCORP, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-----------------------------------------------------------------------------
1999 1998
-------------------------------- ---------------------------------------
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) $259,792 $15,210 7.83% $248,713 $15,362 8.26%
Mortgage-backed securities (2) 19,385 826 5.70% 25,818 1,230 6.37%
Investments securities (3) 71,256 3,130 5.87% 58,747 2,737 6.23%
Other interest-earning assets 24,384 876 4.80% 34,266 1,323 5.16%
FHLB stock 1,807 87 6.44% 1,856 92 6.63%
----------- --------- ----------- ----------
Total interest-earning assets 376,624 20,129 7.15% 369,400 20,744 7.51%
----------- --------- ----------- ----------
Other assets 31,848 28,086
----------- -----------
Total assets $408,472 $397,486
=========== ===========
Interest-bearing liabilities:
Certificate accounts $209,483 8,298 5.30% $202,757 8,542 5.63%
Savings deposits 61,857 1,130 2.44% 58,853 1,192 2.71%
Demand and NOW deposits 74,900 1,263 2.25% 69,971 1,335 2.55%
Borrowings 20,740 836 5.39% 23,969 980 5.47%
----------- --------- ----------- ----------
Total interest-bearing liabilities 366,980 11,527 4.20% 355,550 12,049 4.53%
----------- --------- ----------- ----------
Other liabilities 2,818 3,075
----------- ----------
Total liabilities 369,798 358,625
----------- ----------
Stockholders' equity 38,674 38,861
----------- ----------
Total liabilities and
stockholders' equity $408,472 $397,486
=========== ===========
Net interest income $8,602 $8,695
========= =========
Net interest rate spread 2.95% 2.98%
===== =====
Net earning assets $9,644 $13,850
=========== ===========
Net yield on average interest-
earning assets (net interest
margin) 3.05% 3.15%
===== =====
Average interest-earning assets to
average interest-bearing liabilities 102.63% 103.90%
======= =======
</TABLE>
(1) Calculated including loans held for sale, and net of deferred loan fees,
loan discounts, loans in process and the allowance for losses on loans.
(2) Calculated including investment securities available-for-sale.
(3) Calculated including investment securities available-for-sale and
certificates of deposit.
20
<PAGE>
KANKAKEE BANCORP, INC.
PART II - OTHER INFORMATION
<TABLE>
<S> <C>
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.
</TABLE>
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 8, 1999 /s/ MICHAEL A. STANFA
-------------------------- --------------------------------
Executive Vice President
Date: November 8, 1999 /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-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 17,098
<INT-BEARING-DEPOSITS> 4,832
<FED-FUNDS-SOLD> 4,700
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 84,370
<INVESTMENTS-CARRYING> 454
<INVESTMENTS-MARKET> 435
<LOANS> 270,769
<ALLOWANCE> 2,216
<TOTAL-ASSETS> 401,766
<DEPOSITS> 347,996
<SHORT-TERM> 0
<LIABILITIES-OTHER> 1,596
<LONG-TERM> 15,700
0
0
<COMMON> 16,042
<OTHER-SE> 20,432
<TOTAL-LIABILITIES-AND-EQUITY> 401,766
<INTEREST-LOAN> 15,210
<INTEREST-INVEST> 4,093
<INTEREST-OTHER> 826
<INTEREST-TOTAL> 20,129
<INTEREST-DEPOSIT> 10,692
<INTEREST-EXPENSE> 11,527
<INTEREST-INCOME-NET> 8,602
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 1
<EXPENSE-OTHER> 8,737
<INCOME-PRETAX> 1,886
<INCOME-PRE-EXTRAORDINARY> 1,266
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,266
<EPS-BASIC> .95
<EPS-DILUTED> .90
<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>
