<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 June 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
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KANKAKEE BANCORP, INC.
----------------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 36-3846489
- ------------------------------------------------------------------------------
(State or Other Jurisdiction of Incorporation (I.R.S. Employer
or Organization) Identification Number)
310 SOUTH SCHUYLER AVENUE, KANKAKEE, ILLINOIS 60901
- ------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
(815) 937-4440
- ------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Check whether the Issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
---- ----
As of August 6, 1999, there were 1,328,613 issued and outstanding shares of the
Issuer's Common Stock (exclusive of 421,387 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> <C>
Part I. FINANCIAL INFORMATION
Item 1. Consolidated Financial
Statements (Unaudited)
Statements of Financial Condition,
June 30, 1999 and December 31, 1998 1 - 2
Statements of Income and Comprehensive Income,
Three Months Ended June 30, 1999 and 1998 3
Statements of Income and Comprehensive Income,
Six Months Ended June 30, 1999 and 1998 4
Statements of Cash Flows, Six Months
Ended June 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 21
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>
June 30, December 31,
1999 1998
------------ -------------
<S> <C> <C>
Assets
Cash and due from banks $ 11,203,323 $ 15,154,733
Federal funds sold 8,900,000 18,525,000
Money market funds 9,769,828 13,310,905
------------ -------------
Cash and cash equivalents 29,873,151 46,990,638
------------ -------------
Certificates of deposit 50,000 50,000
------------ -------------
Securities:
Investment securities:
Available-for-sale, at fair value 67,834,926 75,942,836
Held-to-maturity, at cost (fair value: June 30, 1999 -
$319,760; December 31, 1998 - $345,318) 338,024 341,647
------------ -------------
Total investment securities 68,172,950 76,284,483
------------ -------------
Mortgage-backed securities:
Available-for-sale, at fair value 19,380,039 18,577,927
Held-to-maturity, at cost (fair value: June 30, 1999 -
$140,702; December 31, 1998 - $172,340) 137,776 167,741
------------ -------------
Total mortgage-backed securities 19,517,815 18,745,668
------------ -------------
Non-marketable equity securities 501,100 501,100
------------ -------------
Loans 266,072,726 247,608,314
Less: Allowance for losses on loans 2,195,500 2,375,533
------------ -------------
Net loans 263,877,226 245,232,781
------------ -------------
Loans held for sale 1,567,844 1,910,966
Real estate held for sale 2,016,410 1,882,324
Federal Home Loan Bank stock, at cost 1,811,400 1,801,100
Office properties and equipment 8,913,664 8,729,971
Accrued interest receivable 2,752,681 2,772,872
Prepaid expenses and other assets 1,649,099 1,289,077
Intangible assets 5,385,869 5,587,678
------------ -------------
Total assets $406,089,209 $411,778,658
------------ -------------
------------ -------------
(Continued)
</TABLE>
1
<PAGE>
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (UNAUDITED) (continued)
KANKAKEE BANCORP, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
------------ -------------
<S> <C> <C>
Liabilities and stockholders' equity
Liabilities:
Deposits
Noninterest bearing $ 20,238,269 $ 17,533,020
Interest bearing 321,817,420 329,269,826
Short term borrowings - -
Other borrowings 22,900,000 22,900,000
Advance payments by borrowers for taxes and insurance 1,812,495 1,532,482
Other liabilities 637,431 866,721
------------ ------------
Total liabilities 367,405,615 372,102,049
------------ ------------
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: June 30, 1999 -
1,332,138; December 31, 1998 - 1,367,358 17,500 17,500
Additional paid-in capital 16,040,404 16,070,157
Retained income, substantially restricted 31,740,235 31,183,528
Less: Cost of treasury stock (417,862 shares at June 30,
1999; 382,642 shares at December 31, 1998) (8,468,506) (7,621,599)
Unrealized gains (losses) on securities available-for-sale,
net of related income taxes (419,223) 329,445
------------ ------------
Total stockholders' equity before Employee Stock
Ownership Plan loan and Bank Incentive Plan and Trust 38,910,410 39,979,031
Employee Stock Ownership Plan loan (226,816) (302,422)
------------ -------------
Total stockholders' equity 38,683,594 39,676,609
------------ -------------
Total liabilities and stockholders' equity $406,089,209 $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 JUNE 30,
---------- ----------
1999 1998
---------- ----------
<S> <C> <C>
Interest income:
Loans $5,091,316 $5,186,500
Mortgage-backed securities 291,181 433,718
Investment securities 1,370,208 1,413,811
---------- ----------
Total interest income 6,752,705 7,034,029
---------- ----------
Interest expense:
Deposits 3,536,707 3,737,526
Borrowed funds 300,849 313,065
---------- ----------
Total interest expense 3,837,556 4,050,591
---------- ----------
Net interest income 2,915,149 2,983,438
Provision for losses on loans - -
---------- ----------
Net interest income after provision for losses on loans 2,915,149 2,983,438
Other income:
Net gain on sale of securities available-for-sale 1,094 -
Net gain on sales of real estate held for sale 1,599 16,482
Net gain on sales of loans held for sale 12,560 60,045
Fee income 449,771 449,911
Insurance commissions 17,695 10,018
Other 148,566 106,430
---------- ----------
Total other income 631,285 642,886
---------- ----------
Other expenses:
Compensation and benefits 1,537,410 1,415,539
Occupancy 262,033 260,993
Furniture and equipment 178,760 138,379
Federal insurance premiums 42,044 42,878
Advertising 102,748 136,806
Provision for losses on foreclosed assets 11,500 6,754
Data processing services 87,258 95,607
Telephone and postage 78,937 84,220
Amortization of intangible assets 95,288 102,320
Other general and administrative 507,551 437,494
---------- ----------
Total other expenses 2,903,529 2,720,990
---------- ----------
Income before income taxes 642,905 905,334
Income taxes 204,108 303,052
---------- ----------
Net income $ 438,797 $ 602,282
---------- ----------
---------- ----------
Net income $ 438,797 $ 602,282
Other comprehensive income:
Unrealized gains (losses) on available-for-sale
securities, net of related income taxes (512,625) 149,872
---------- ----------
Comprehensive income $(73,828) $752,154
---------- ----------
---------- ----------
Basic earnings per share $0.33 $0.44
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----- -----
Diluted earnings per share $0.31 $0.41
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----- -----
</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>
SIX MONTHS ENDED JUNE 30,
-------------------------------
1999 1998
---------- -----------
<S> <C> <C>
Interest income:
Loans $9,996,111 $10,286,353
Mortgage-backed securities 529,551 901,930
Investment securities 2,865,221 2,582,683
---------- -----------
Total interest income 13,390,883 13,770,966
---------- -----------
Interest expense:
Deposits 7,121,395 7,235,505
Borrowed funds 600,764 668,309
---------- -----------
Total interest expense 7,722,159 7,903,814
---------- -----------
Net interest income 5,668,724 5,867,152
Provision for losses on loans - -
---------- -----------
Net interest income after provision for losses on loans 5,668,724 5,867,152
Other income:
Net gain on sale of securities available-for-sale 1,094 -
Net gain on sales of real estate held for sale 21,578 16,685
Net gain on sales of loans held for sale 23,911 94,664
Fee income 994,532 866,972
Insurance commissions 31,477 43,745
Other 344,378 220,288
---------- -----------
Total other income 1,416,970 1,242,354
---------- -----------
Other expenses:
Compensation and benefits 3,036,451 2,667,507
Occupancy 526,868 451,502
Furniture and equipment 354,447 262,022
Federal insurance premiums 85,029 85,114
Advertising 177,943 176,504
Provision for losses on foreclosed assets 29,250 9,292
Data processing services 204,844 182,611
Telephone and postage 164,638 166,062
Amortization of intangible assets 201,809 196,841
Other general and administrative 991,996 812,913
---------- -----------
Total other expenses 5,773,275 5,010,368
---------- -----------
Income before income taxes 1,312,419 2,099,138
Income taxes 431,750 704,180
---------- -----------
Net income $880,669 $1,394,958
---------- -----------
---------- -----------
Net income $880,669 $1,394,958
Other comprehensive income:
Unrealized gains (losses) on available-for-sale
securities, net of related income taxes (748,668) 120,276
---------- -----------
Comprehensive income $132,001 $1,515,234
---------- -----------
---------- -----------
Basic earnings per share $0.66 $1.01
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----- -----
Diluted earnings per share $0.62 $0.95
----- -----
----- -----
</TABLE>
See notes to consolidated financial statements (unaudited)
4
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
KANKAKEE BANCORP, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
-------------------------------
1999 1998
--------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 880,669 $ 1,394,958
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 (29,250) -
Depreciation and amortization 643,192 477,642
Amortization of investment premiums and discounts, net 176,747 127,681
Accretion of loan fees, costs and discounts, net 12,069 (42,134)
Deferred income tax provision (benefit) 100,107 -
Originations of loans held for sale (7,354,799) (25,508,600)
Proceeds from sales of loans 7,721,832 24,109,520
(Increase) decrease in interest receivable 20,191 (47,990)
Increase in interest payable on deposits 10,669 93,297
Proceeds from sales of trading securities - -
Purchase of trading securities - -
Net gain on sales of loans (23,911) (94,664)
Net gain on sales of securities available-for-sale (1,094) -
Net gain on sales of real estate held for sale (21,578) (16,685)
Other, net (195,673) (1,966,479)
----------- -----------
Net cash from operating activities 1,939,171 (1,473,454)
----------- -----------
Cash flows from investing activities:
Investment securities:
Available-for-sale:
Purchases (10,976,715) (20,573,069)
Proceeds from sales 2,001,094 -
Proceeds from calls and maturities 16,000,000 14,000,000
Held to maturity:
Purchases - (1,025,000)
Proceeds from maturities 2,797 2,629
Mortgage-backed securities:
Available-for-sale:
Purchases (5,650,382) (1,997,500)
Proceeds from maturities and paydowns 4,622,630 5,545,350
Held-to-maturity:
Proceeds from maturities and paydowns 29,965 17,678
Purchases of certificates of deposit - (765,692)
Proceeds from maturities of certificates of deposit - 2,317,692
Proceeds from sales of real estate 420,401 86,953
Deferred loan fees and costs, net (46,130) 3,289
Loans originated (68,140,655) (43,670,647)
Loans purchased (1,366,276) (300,000)
Principal collected on loans 50,719,190 54,192,137
Purchases of office properties and equipment, net (651,852) (1,721,688)
Payment of acquisition costs - (8,080,745)
Payments of improvements on real estate (347,623) -
----------- -----------
Net cash from investing activities (13,383,556) (1,968,613)
</TABLE>
See notes to consolidated financial statements (unaudited).
5
<PAGE>
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) (continued)
KANKAKEE BANCORP, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
---------- -----------
1999 1998
----------- -----------
<S> <C> <C>
Cash flows from financing activities
Net increase in non-certificate of deposit accounts $ 433,847 $1,729,505
Net increase (decrease) in certificate of deposit accounts (5,191,673) 3,888,868
Net increase in advance payments by borrowers
for taxes and insurance 285,345 126,184
Repayments of short-term borrowings - (8,220,000)
Proceeds from other borrowings - 8,000,000
Repayments of other borrowings - (375,000)
Proceeds from exercise of stock options 127,144 151,051
Dividends paid (323,961) (330,957)
Purchase of treasury stock (1,003,804) -
----------- -----------
Net cash from financing activities (5,673,102) 4,969,651
----------- -----------
Increase (decrease) in cash and cash equivalents (17,117,487) 1,527,584
Cash and cash equivalents:
Beginning of period 46,990,638 22,825,892
Cash acquired with Coal City National Bank - 21,745,008
---------- -----------
End of period $29,873,151 $46,098,484
----------- -----------
----------- -----------
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest on deposits $7,132,100 $7,328,800
----------- -----------
----------- -----------
Interest on borrowed funds $605,500 $689,300
----------- -----------
----------- -----------
Income taxes $137,072 $687,335
----------- -----------
----------- -----------
Supplemental disclosures of non-cash investing activities:
Real estate acquired through foreclosure $122,713 $124,520
----------- -----------
----------- -----------
(Increase) decrease in unrealized gains (losses) on
securities available-for-sale $(1,134,345) $182,236
----------- -----------
----------- -----------
Increase (decrease) in deferred taxes attributable to the
unrealized gains (losses) on securities available-for-sale $385,677 $(61,960)
----------- -----------
----------- -----------
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)
June 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 six-month periods ended June 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 June 30, 1999, stockholders' equity has been reduced by $419,223, 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 $193,638. An increase in market
interest rates during the six months ended June 30, 1999 resulted in a $748,668
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 six 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 $5.7 million, or 1.4%, to $406.1
million at June 30, 1999 from $411.8 million at December 31, 1998.
Cash and cash equivalents decreased by $17.1 million, or 36.4%, from $47.0
million at December 31, 1998 to $29.9 million at June 30, 1999. The decrease was
primarily attributable to the use of cash equivalent assets in the funding of
loans and the purchase of mortgage-backed securities during the six-month
period.
During the six-month period ended June 30, 1999, net loans receivable
increased by $18.7 million, or 7.6%, from $245.2 million to $263.9 million. This
was primarily the result of the origination (or purchase) of $41.7 million of
real estate loans and the origination (or purchase) of $27.8 million of consumer
and commercial business loans, offset by loan repayments which totaled $50.7
million.
Loans held for sale decreased by $300,000, or 18.0%, to $1.6 million at
June 30, 1999, from $1.9 million at December 31, 1998. During the six month
period, $7.7 million of loans were sold, which sales were partially offset by
the origination of $7.4 million of such loans.
Securities available-for-sale decreased by $8.1 million, or 10.7%, to $67.8
million at June 30, 1998 from $75.9 million at December 31, 1998 as the result
of the maturity of $16.0 million of securities and the sale of $2.0 million of
securities, which were partially offset by the purchase of $11.0 million of
securities and by the net change in market value adjustment.
Mortgage-backed securities available-for-sale increased by $802,000, or
4.3%, to $19.4 million at June 30, 1999 from $18.6 million at December 31, 1998.
The increase resulted from purchases of $5.7 million of securities, which was
partially offset by the maturity of $4.6 million of securities and the change in
market value adjustment.
Deposits decreased by $4.7 million from $346.8 million as of December 31,
1998 to $342.1
8
<PAGE>
million at June 30, 1999. During the six-month period there was a $5.2 million
decrease in certificate of deposit accounts, which was partially offset by a
$434,000 increase in passbook, checking and money market accounts.
Total borrowings remained at $22.9 million at June 30, 1999. Borrowings
consisted entirely of advances from the Federal Home Loan Bank of Chicago (the
"FHLB").
Real estate held for sale increased by $134,000, or 7.1%, to $2.0 million
at June 30, 1999, from $1.9 million at December 31, 1998. The increase was the
result of the transfer of three single family properties to real estate held for
sale during the six-month period and of additional expenditures incurred in
connection with a commercial building in Champaign, Illinois. These increases
were partially offset by the disposal of seven single family properties.
Included in real estate held for sale is a commercial building in Champaign,
Illinois, which was deeded to the Company in 1997. A sale of the property was in
final negotiation as of June 30, 1999 and the sale was completed on July 21,
1999. The transaction 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.
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 increased to 1.03% of total assets at
June 30, 1999 from 0.82% of total assets at December 31, 1998. Non-performing
assets increased to $4.2 million at June 30, 1999 compared to $3.4 million at
December 31, 1998. During the six-month period ended June 30, 1999,
non-performing one-to-four family loans and non-performing construction and
development loans increased by $265,000 and $773,000, respectively. These
increases were partially offset by decreases of $129,000, $75,000 and $131,000
in non-performing commercial real estate loans, non-performing consumer loans
and non-performing commercial business loans,
9
<PAGE>
respectively. In addition, foreclosed assets increased by $134,000. The ratio of
the allowance for losses on loans to non-performing loans increased to 173.3% as
of June 30, 1999 as compared to 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 $214,000 in non-performing loans, which
was partially offset by a decrease of $180,000 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, $4.2
million as Substandard and $35,000 as Loss as of June 30, 1999. No assets were
classified as Doubtful at June 30, 1999. This represented a decrease of $316,000
in the Special Mention category and a net decrease of $9,000 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 1.64% as of June 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 32.9% as of June 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
six-month periods ended June 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.
10
<PAGE>
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 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 are not projected to break even or produce a small profit until 2000.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1999 AND 1998
Net income for the three-month period ended June 30, 1999 was $439,000
compared to $602,000 for the same period in 1998. This represented a $163,000
decrease in net income for the 1999 period. The decrease in net income resulted
from a decrease of $68,000 in net interest income, from a $183,000 increase in
general and administrative expenses, due primarily to expenses relating to the
expansion of the organization, and to a small decrease of $12,000 in other
income. These items were partially offset by a decrease of $99,000 in income
taxes.
Net interest income decreased $68,000, or 2.3%, during the three-month
period ended June 30, 1999, compared to the three-month period ended June 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 June 30, 1999
and 1998.
As Table I indicates, interest income decreased $281,000, or 4.0%, to $6.8
million for the three-month period ended June 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 7.13% during the 1999
period from 7.56% during the 1998 period. This was partially offset by an
increase in the average balance of interest-earning assets to $379.8 million
during the 1999 period from $373.0 million during the 1998 period. The increase
in the average balance of interest-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 $213,000, or 5.3%, to $3.8 million for the
three-month period ended June 30, 1999 from $4.0 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 4.18% during the 1999 period
from 4.52% during the 1998 period. This decrease was partially offset by an
increase in the average outstanding balance of interest-bearing liabilities to
$368.4 million during the 1999 period from $359.8 million during the 1998
period. The decrease in the average yield on interest-bearing liabilities
resulted from lower market interest rates. The increase in average
interest-bearing liabilities resulted primarily from deposit growth.
No provision for losses on loans was deemed necessary during either the
second quarter of 1999, or the second 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.
11
<PAGE>
Other income for the three-month period ended June 30, 1999 decreased
$12,000, or 1.8%, to $631,000 compared to $643,000 for the same period in 1998.
The decrease was attributable to decreases of $48,000 in gain on the sale of
loans held for sale and $15,000 in gain on the sale of real estate held for
sale. These decreases were partially offset by increases of $1,000 in gain on
the sale of securities available-for-sale, $8,000 in insurance commissions and
$42,000 in other income. 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. The increase in fee income was the result of an ongoing review of
the Company's fee structure and growth in transaction accounts.
Other expenses for the three-month period ended June 30, 1999 increased
$183,000 or 6.7%, to $2.9 million from $2.7 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. The three additional offices were
start-ups and will contribute more to expense than to income until a sufficient
customer base is developed at each of the locations. There were increases of
$122,000 (8.6%) in compensation and benefits, $1,000 (0.4%) in occupancy costs,
$40,000 (29.2%) in furniture and equipment expense, and $5,000 (70.3%) in
provision for losses on foreclosed assets. These increases were partially offset
by decreases of $34,000 (24.9%) in advertising expense, $8,000 (8.7%) in data
processing expense, $7,000 (6.9%) in amortization of intangible assets and
$5,000 (6.3%) in telephone and postage expense.
Federal income taxes decreased $99,000 to $204,000 for the three-month
period ended June 30, 1999, compared to $303,000 for the same period in 1998.
The primary reason for this decrease was the decrease in pre-tax income.
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1999 AND 1998
Net income for the six-month period ended June 30, 1999 was $881,000
compared to $1.4 million for the same period in 1998. This represented a
$514,000 decrease in net income for the 1999 period. The decrease in net income
resulted from a decrease of $198,000 in net interest income and from a $763,000
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 $175,000 in other income and a $272,000 decrease in income
taxes.
Net interest income decreased $198,000, or 3.4%, during the six-month
period ended June 30, 1999, compared to the six-month period ended June 30,
1998.
The table presented on page 20 ("Table II"), sets forth an analysis of the
Company's net interest income for the six-month periods ended June 30, 1999 and
1998.
As Table II indicates, interest income decreased $380,000, or 2.8%, to
$13.4 million for the six-month period ended June 30, 1999 from $13.8 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 7.12% during the 1999
period from 7.55% during the 1998 period. This was partially offset by an
increase in the average balance of interest-earning assets to $379.3 million
during the 1999 period from $367.7 million during the 1998 period. The increase
in the average balance of interest-earning assets was primarily due to increases
in balances of loans and investment securities during the
12
<PAGE>
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 $181,000, or 2.3%, to $7.7 million for the
six-month period ended June 30, 1999 from $7.9 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 4.22% 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 $368.9
million during the 1999 period from $351.6 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 half of 1999, or the first half 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.
Other income for the six-month period ended June 30, 1999 increased
$175,000, or 14.1%, to $1.4 million compared to $1.2 million for the same period
in 1998. The increase was attributable to increases of $128,000 in fee income,
$124,000 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 $71,000 in gain on the sale of
loans held for sale and $12,000 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.
Other expenses for the six-month period ended June 30, 1999 increased
$763,000, or 15.2%, to $5.8 million from $5.0 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. There were increases of $369,000 (13.8%)
in compensation and benefits, $75,000 (16.7%) in occupancy costs, $92,000
(35.3%) in furniture and equipment expense, $179,000 (22.0%) in other expense,
$22,000 (12.2%) in data processing expenses and $20,000 (215.8%) in the
provision for losses on foreclosed assets.
Federal income taxes decreased $272,000 to $432,000 for the six-month
period ended June 30, 1999, compared to $704,000 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 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 June
30, 1999, the
13
<PAGE>
Company's liquidity ratio was 22.4%, 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.
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
14
<PAGE>
other things, maturing capital instruments, such as subordinated debt and
mandatorily redeemable preferred stock, and a portion of the Bank's general
allowance for losses on loans.
As of June 30, 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 June 30, 1999, the Bank's
tangible capital was $28.9 million, or 7.3%, of adjusted total assets, which
exceeded the 1.5% requirement by $23.0 million and exceeded the 2.0% "critically
undercapitalized" threshold by $21.0 million. In addition, at June 30, 1999, the
Bank had core capital of $28.9 million, or 7.3%, of adjusted total assets, which
exceeded the 4.0% requirement by $13.0 million and exceeded the 5.0% "well
capitalized" threshold by $9.1 million. The Bank had risk-based capital of
$31.1 million at June 30, 1999, or 13.2%, of risk-adjusted assets, which
exceeded the minimum risk-based capital requirement by $12.3 million and
exceeded the 10.0% "well capitalized" threshold by $7.6 million. Additionally,
the Bank's $28.9 million of core capital equaled 12.3% of total risk-weighted
assets, which exceeded the 6.0% "well capitalized" threshold by $14.9 million.
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 six-month period ending June 30, 1999, 43,070 shares of common
stock were repurchased at a cost of $1.0 million. Through June 30, 1999, a total
of 466,077 shares of common stock of the Company had been purchased under the
current and previous repurchase programs at a total cost of $9.3 million. As of
June 30, 1999, the Company held 417,862 shares of its common stock as treasury
stock. During the period from June 30, 1999 through August 6, 1999, an
additional 7,000 shares of common stock were repurchased at a total cost of
$188,000.
EXERCISE OF STOCK OPTIONS
During the three-month and six-month periods ending June 30, 1999, options
on 1,600 and 7,850 shares of common stock were exercised. Between June 30, 1999
and August 6, 1999, options on 3,475 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 half of 1999, cash dividends of $.12 per share were
paid each quarter. On July 21, 1999, a cash dividend of $.12 per share was
declared payable on September 1, 1999 to stockholders of record as of August 13,
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.
15
<PAGE>
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 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 plans a third complete test of
software in the third quarter of 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
16
<PAGE>
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 second
quarter of 1999 have been $93,000. After capitalization of purchased software
and hardware, this represents 3.1% of the annual information systems budget. The
estimated total cost of the Year 2000 project is $100,000. This includes costs
to upgrade equipment specifically for the purpose of Year 2000 compliance and
certain administrative expenditures. After capitalization of purchased software
and hardware, this represents 5.6% of the annual information systems budget. 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,
17
<PAGE>
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 JUNE 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) $260,692 $5,092 7.83% $250,134 $5,186 8.32%
Mortgage-backed securities (2) 20,628 291 5.66% 27,286 434 6.38%
Investments securities (3) 70,586 1,020 5.80% 59,399 932 6.29%
Other interest-earning assets 26,037 321 4.94% 34,362 451 5.26%
FHLB stock 1,809 29 6.43% 1,856 31 6.70%
-------- ------ -------- ------
Total interest-earning assets 379,752 6,753 7.13% 373,037 7,034 7.56%
-------- ------ -------- ------
Other assets 30,982 29,705
-------- --------
Total assets $410,734 $402,742
-------- --------
-------- --------
Interest-bearing liabilities:
Certificate accounts $207,515 2,738 5.29% $204,691 2,877 5.64%
Savings deposits 62,798 384 2.45% 59,982 407 2.72%
Demand and NOW deposits 75,179 415 2.21% 71,936 454 2.53%
Borrowings 22,900 301 5.27% 23,151 313 5.42%
-------- ------ -------- ------
Total interest-bearing liabilities 368,392 3,838 4.18% 359,760 4,051 4.52%
-------- ------ -------- ------
Other liabilities 3,582 4,142
-------- --------
Total liabilities 371,974 363,902
-------- --------
Stockholders' equity 38,760 38,839
-------- --------
Total liabilities and
stockholders' equity $410,734 $402,741
-------- --------
-------- --------
Net interest income $2,915 $2,983
------ ------
------ ------
Net interest rate spread 2.95% 3.04%
---- ----
---- ----
Net earning assets $11,360 $13,277
-------- --------
-------- --------
Net yield on average interest-
earning assets (net interest
margin) 3.08% 3.21%
---- ----
---- ----
Average interest-earning assets to
average interest-bearing liabilities 103.08% 103.69%
------ ------
------ ------
</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>
SIX MONTHS ENDED JUNE 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) $256,418 $9,996 7.86% $250,084 $10,286 8.29%
Mortgage-backed securities (2) 19,391 530 5.51% 27,868 902 6.53%
Investments securities (3) 72,989 2,141 5.92% 54,806 1,688 6.21%
Other interest-earning assets 28,711 667 4.68% 33,114 834 5.08%
FHLB stock 1,806 57 6.36% 1,856 61 6.63%
-------- ------ -------- -------
Total interest-earning assets 379,315 13,391 7.12% 367,728 13,771 7.55%
-------- ------ -------- -------
Other assets 31,889 26,051
-------- --------
Total assets $411,204 $393,779
-------- --------
-------- --------
Interest-bearing liabilities:
Certificate accounts $208,863 5,541 5.35% $200,384 5,590 5.63%
Savings deposits 61,865 749 2.44% 58,256 781 2.70%
Demand and NOW deposits 75,246 831 2.23% 68,509 864 2.54%
Borrowings 22,900 601 5.29% 24,427 668 5.51%
-------- ------ -------- -------
Total interest-bearing liabilities 368,874 7,722 4.22% 351,576 7,903 4.53%
--------- ------ -------- -------
Other liabilities 3,204 3,667
-------- --------
Total liabilities 372,078 355,243
-------- --------
Stockholders' equity 39,126 38,536
-------- --------
Total liabilities and
stockholders' equity $411,204 $393,779
-------- --------
-------- --------
Net interest income $5,669 $5,868
------ ------
------ ------
Net interest rate spread 2.90% 3.02%
---- ----
---- ----
Net earning assets $10,441 $16,152
------- -------
------- -------
Net yield on average interest-
earning assets (net interest
margin) 3.01% 3.22%
---- ----
---- ----
Average interest-earning assets to
average interest-bearing liabilities 102.83% 104.59%
------ ------
------ ------
</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
Item 1. LEGAL PROCEEDINGS - There are no material pending legal proceedings
to which the Company or the Bank is a party other than ordinary
routine litigation incidental to their respective businesses.
Item 2. CHANGES IN SECURITIES - None
Item 3. DEFAULTS UPON SENIOR SECURITIES - None
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - The Annual
Meeting of Stockholders of the Company was held on April 23, 1999.
At the meeting, William Cheffer and Michael A. Stanfa were elected
to serve as directors with terms expiring in 2002. Continuing
with terms expiring in 2000 were Charles C. Huber, Thomas M.
Schneider and Wesley E. Walker. Continuing with terms expiring in
2001 were James G. Schneider and Larry D. Huffman. The matters
approved by stockholders at the meeting and the number of votes
cast for, against or withheld (as well as the number of abstentions
and broker non-votes) as to each matter are set forth below:
<TABLE>
<CAPTION>
NUMBER OF VOTES
---------------
FOR WITHHELD
--------- --------
<S> <C> <C>
The election of the following directors for a three-year term:
William Cheffer 1,034,026 165,836
Michael A. Stanfa 1,032,422 167,440
</TABLE>
<TABLE>
<CAPTION>
Broker
For Against Abstain Non-votes
--------- ------ ------- --------
<S> <C> <C> <C> <C>
The ratification of McGladrey &
Pullen, LLP, as the auditors for the
year ending December 31, 1999: 1,183,569 13,484 2,809 -
</TABLE>
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 - On May 21, 1999, the Company filed a Report on
Form 8-K reporting under Item 5 that the Board of Directors of the
Company, on May 11, 1999, declared a dividend of one preferred share
purchase right for each outstanding share of common stock, par value
$.01 per share, of the Company.
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: August 6, 1999 /s/ MICHAEL A. STANFA
-------------- --------------------------
Executive Vice President
Date August 6, 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 11,203
<INT-BEARING-DEPOSITS> 9,820
<FED-FUNDS-SOLD> 8,900
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 87,215
<INVESTMENTS-CARRYING> 476
<INVESTMENTS-MARKET> 460
<LOANS> 266,073
<ALLOWANCE> 2,196
<TOTAL-ASSETS> 406,089
<DEPOSITS> 342,056
<SHORT-TERM> 0
<LIABILITIES-OTHER> 2,449
<LONG-TERM> 22,900
0
0
<COMMON> 16,058
<OTHER-SE> 22,626
<TOTAL-LIABILITIES-AND-EQUITY> 406,089
<INTEREST-LOAN> 9,996
<INTEREST-INVEST> 2,865
<INTEREST-OTHER> 530
<INTEREST-TOTAL> 13,391
<INTEREST-DEPOSIT> 7,121
<INTEREST-EXPENSE> 601
<INTEREST-INCOME-NET> 5,669
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 1
<EXPENSE-OTHER> 5,773
<INCOME-PRETAX> 1,313
<INCOME-PRE-EXTRAORDINARY> 881
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 881
<EPS-BASIC> .66
<EPS-DILUTED> .62
<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>
