<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
_____________________
FORM 10-Q
(Mark One)
[X] Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act
of 1934 For the Quarterly Period Ended March 31, 2000.
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.
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(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 _______
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As of May 11, 2000, there were 1,225,583 issued and outstanding shares of the
Issuer's Common Stock (exclusive of 524,417 shares of the Issuer's Common Stock
held as treasury stock).
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KANKAKEE BANCORP, INC.
INDEX
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Page
Number
Part I. FINANCIAL INFORMATION
Item 1. Consolidated Financial
Statements (Unaudited)
Statements of Financial Condition,
March 31, 2000 and December 31, 1999 1 - 2
Statements of Income and Comprehensive Income,
Three Months Ended March 31, 2000 and 1999 3
Statements of Cash Flows, Three Months
Ended March 31, 2000 and 1999 4 - 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 7 - 15
Item 3. Quantitative and Qualitative Disclosure
About Market Risk 8
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 2. Changes in Securities 16
Item 3. Defaults Upon Senior Securities 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16
SIGNATURES 17
<PAGE>
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (UNAUDITED)
KANKAKEE BANCORP, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
------------ ------------
<S> <C> <C>
Assets
Cash and due from banks $ 10,347,372 $ 19,118,528
Federal funds sold 5,208,274 6,321,834
Money market funds 4,434,508 4,653,221
------------ ------------
Cash and cash equivalents 19,990,154 30,093,583
------------ ------------
Certificates of deposit 50,000 50,000
------------ ------------
Securities:
Investment securities:
Available-for-sale, at fair value 61,335,915 65,131,965
Held-to-maturity, at cost (fair value: March 31, 2000 -
$385,013; December 31, 1999 - $284,038) 405,961 306,241
------------ ------------
Total investment securities 61,741,876 65,438,206
------------ ------------
Mortgage-backed securities:
Available-for-sale, at fair value 18,555,532 17,490,841
Held-to-maturity, at cost (fair value: March 31, 2000 -
$101,302; December 31, 1999 - $108,819) 100,661 108,724
------------ ------------
Total mortgage-backed securities 18,656,193 17,599,565
------------ ------------
Non-marketable equity securities 501,100 501,100
------------ ------------
Loans, net of allowance for losses on loans ($2,192,791
at March 31, 2000; $2,171,040 at December 31, 1999) 279,496,176 270,360,059
Real estate held for sale 586,678 575,164
Federal Home Loan Bank stock, at cost 1,811,400 1,811,400
Office properties and equipment 8,637,945 8,850,579
Accrued interest receivable 2,639,233 2,889,498
Prepaid expenses and other assets 1,080,446 1,352,138
Intangible assets 5,102,018 5,196,634
------------ ------------
Total assets $400,293,219 $404,717,926
============ ============
</TABLE>
(Continued)
1
<PAGE>
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (UNAUDITED) (continued)
KANKAKEE BANCORP, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
------------ ------------
<S> <C> <C>
Liabilities and stockholders' equity
Liabilities:
Deposits
Noninterest bearing $ 22,361,974 $ 21,455,669
Interest bearing 333,366,321 333,521,782
Short term borrowings - -
Other borrowings 5,000,000 11,200,000
Advance payments by borrowers for taxes and insurance 2,663,075 1,548,998
Other liabilities 868,914 743,750
------------ ------------
Total liabilities 364,260,284 368,470,199
------------ ------------
Stockholders' equity
Preferred stock, $.01 par value; authorized, 500,000
shares; none outstanding - -
Common stock, $.01 par value; authorized, 3,500,000
shares; issued and outstanding: March 31, 2000 -
1,230,383; December 31, 1999 - 1,243,383 17,500 17,500
Additional paid-in capital 15,999,621 16,019,390
Retained income, substantially restricted 32,660,140 32,309,425
Less: Cost of treasury stock (519,617 shares at March 31,
2000; 506,617 shares at December 31, 1999) (11,156,470) (10,851,899)
Accumulated other comprehensive income (1,336,645) (1,095,478)
------------ ------------
Total stockholders' equity before
Employee Stock Ownership Plan loan
and Bank Incentive Plan and Trust 36,184,146 36,398,938
------------ ------------
Employee Stock Ownership Plan loan (151,211) (151,211)
------------ ------------
Total stockholders' equity 36,032,935 36,247,727
------------ ------------
Total liabilities and stockholders' equity $400,293,219 $404,717,926
============ ============
</TABLE>
See notes to consolidated financial statements (unaudited)
2
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (UNAUDITED)
KANKAKEE BANCORP, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
Three Months Ended March 31,
---------------------------
2000 1999
------------ ------------
<S> <C> <C>
Interest income:
Loans $ 5,272,718 $ 4,904,795
Mortgage-backed securities 308,684 238,370
Investment securities 1,314,539 1,495,013
------------ ------------
Total interest income 6,895,941 6,638,178
------------ ------------
Interest expense:
Deposits 3,685,493 3,584,688
Borrowed funds 140,250 299,915
------------ ------------
Total interest expense 3,825,743 3,884,603
------------ ------------
Net interest income 3,070,198 2,753,575
Provision for losses on loans - -
------------ ------------
Net interest income after provision for losses on loans 3,070,198 2,753,575
Other income:
Net loss on sale of securities available-for-sale - -
Net gain on sales of real estate held for sale 6,745 19,979
Net gain on sales of loans held for sale 1,592 11,351
Net gain on sales office related property 11,552 -
Fee income 411,175 544,761
Insurance commissions 86,010 13,782
Other 84,228 195,812
------------ ------------
Total other income 601,302 785,685
------------ ------------
Other expenses:
Compensation and benefits 1,574,551 1,499,041
Occupancy 266,813 264,835
Furniture and equipment 176,286 175,687
Federal insurance premiums 18,148 42,985
Advertising 78,011 75,195
Provision for losses on foreclosed assets 18,422 17,750
Data processing services 87,955 117,586
Telephone and postage 102,010 85,701
Amortization of intangible assets 94,617 106,521
Other general and administrative 502,906 484,445
------------ ------------
Total other expenses 2,919,719 2,869,746
------------ ------------
Income before income taxes 751,781 669,514
Income taxes 251,500 227,642
------------ ------------
Net income $ 500,281 $ 441,872
============ ============
Net income $ 500,281 $ 441,872
Other comprehensive income:
Unrealized losses on available-for-sale
securities, net of related income taxes (241,167) (236,043)
------------ ------------
Comprehensive income $ 259,114 $ 205,829
============ ============
Basic earnings per share $0.40 $0.33
============ ============
Diluted earnings per share $0.39 $0.31
============ ============
</TABLE>
See notes to consolidated financial statements (unaudited)
3
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CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
KANKAKEE BANCORP, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
Three Months Ended March 31,
---------------------------
2000 1999
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 500,281 $ 441,872
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for losses on loans - -
Provisions for losses on real estate held for sale 18,422 17,750
Depreciation and amortization 323,188 326,470
Amortization of investment premiums and discounts, net 5,260 97,026
Accretion of loan fees and discounts, net 18,789 5,430
Deferred income tax provision (benefit) (41,838) 100,107
Originations of loans held for sale (74,058) (3,251,074)
Proceeds from sales of loans 75,650 3,281,921
(Increase) decrease in interest receivable 250,265 (154,136)
Increase (decrease) in interest payable on deposits (38,511) 14,152
Net gain on sales of loans (1,592) (11,351)
Net gain on sales of real estate held for sale (6,745) (19,979)
Net gain on sale of property held for expansion (11,553) -
Other, net 528,149 863,520
------------ ------------
Net cash from operating activities 1,545,707 1,711,708
------------ ------------
Cash flows from investing activities
Investment securities
Available-for sale:
Purchases (4,999,906) (5,001,882)
Proceeds from calls and maturities 8,500,000 6,000,000
Held-to-maturity:
Purchases (100,000) -
Mortgage-backed securities:
Available-for-sale:
Purchases (1,962,724) (5,650,382)
Proceeds from maturities and pay downs 823,601 2,569,833
Held-to-maturity:
Proceeds from maturities and pay downs 8,063 20,652
Proceeds from sales of real estate 55,331 243,324
Deferred loan fees and costs, net 31,038 (2,686)
Loans originated (37,373,762) (35,929,910)
Loans purchased - (1,366,276)
Principal collected on loans 28,187,818 25,087,948
Purchases of office properties and equipment, net (59,647) (120,179)
Payments of improvements on real estate - (357,018)
------------ ------------
Net cash from investing activities (6,890,188) (14,506,576)
</TABLE>
See notes to consolidated financial statements (unaudited).
4
<PAGE>
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) (continued)
KANKAKEE BANCORP, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
Three Months Ended March 31,
---------------------------
2000 1999
------------ ------------
<S> <C> <C>
Cash flows from financing activities
Net increase in non-certificate
of deposit accounts $ 2,206,081 $ 1,996,790
Net decrease in certificate of deposit accounts (1,416,726) (2,028,995)
Net increase in advance payments by
borrowers for taxes and insurance 1,125,603 1,096,927
Repayments of other borrowings (6,200,000) -
Proceeds from exercise of stock options 87,330 92,289
Dividends paid (149,566) (164,041)
Purchase of treasury stock (411,670) (982,759)
------------ ------------
Net cash from financing activities (4,758,948) 10,211
------------ ------------
Decrease in cash and cash equivalents (10,103,429) (12,784,657)
Cash and cash equivalents:
Beginning of period 30,093,583 46,990,638
------------ ------------
End of period $ 19,990,154 $ 34,205,981
============ ============
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest on deposits $ 3,647,700 $ 3,584,700
============ ============
Interest on borrowed funds $ 141,000 $ 300,600
============ ============
Income taxes $ 73,144 -
============ ============
Supplemental disclosures of non-cash investing activities:
Real estate acquired through foreclosure - $ 122,713
============ ============
Increase in unrealized losses on
securities available-for-sale $ 359,952 $ 357,642
============ ============
Increase in deferred tax benefit attributable to the
unrealized losses on securities available-for-sale $ 118,784 $ 121,598
============ ============
</TABLE>
See notes to consolidated financial statements (unaudited).
5
<PAGE>
KANKAKEE BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 2000
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, 1999 has been derived from the audited financial statements at
that date, but does not include all of the information and footnotes required by
generally accepted accounting principles for complete financial statements.
Operating results for the three-month period ended March 31, 2000 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2000. 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, 1999.
Note 2 - Earnings Per Share
Basic earnings per share of common stock have been determined by dividing net
income for the period by the average number of shares of common stock
outstanding. Diluted earnings per share of common stock have been determined by
dividing net income for the period by the average number of shares of common
stock and common stock equivalents outstanding. Common stock equivalents assume
exercise of stock options, and the calculation assumes purchase of treasury
stock with the option proceeds at the average market price for the period (when
dilutive). The Company has an incentive stock option plan for the benefit of
directors, officers and employees. Diluted earnings per share have been
determined considering the stock options granted, net of stock options which
have been exercised.
Note 3 - Accounting for Certain Investments in Debt and Equity Securities
At March 31, 2000, stockholders' equity includes a negative $1.3 million,
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 $677,000. An increase in market
interest rates during the three months ended March 31, 2000 resulted in a
$241,000 decrease in the market value, net of income tax effect, of the
available-for-sale securities and the available-for-sale mortgage-backed
securities during the three months. At the end of 1999, the book value of the
available-for-sale securities portfolio exceeded the market value by $1.1
million, net of income tax benefit.
6
<PAGE>
KANKAKEE BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company was formed in late 1992 under the laws of the State of Delaware
for the purpose of becoming the savings and loan holding company of Kankakee
Federal Savings Bank (the "Bank"), the Company's principal subsidiary. The Bank
was originally chartered in 1885 as an Illinois savings and loan association and
was converted to a federally chartered thrift institution in 1937.
The 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 $4.4 million, or 1.1%, to $400.3
million at March 31, 2000 from $404.7 million at December 31, 1999.
Cash and cash equivalents decreased by $10.1 million, or 33.6%, from $30.1
million at December 31, 1999 to $20.0 million at March 31, 2000. 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 quarter.
During the three-month period ended March 31, 2000, net loans receivable
increased by $9.1 million, or 3.4%, from $270.4 million to $279.5 million. This
was primarily the result of the origination (or purchase) of $24.8 million of
real estate loans and the origination (or purchase) of $12.6 million of consumer
and commercial business loans, offset by loan repayments which totaled $28.2
million.
There were no loans held for sale at either March 31, 2000, or at December 31,
1999. During the quarter ended March 31, 2000, no mortgage loans were
originated for sale.
Securities available-for-sale decreased by $3.8 million, or 5.8%, to $61.3
million at March 31, 2000 from $65.1 million at December 31, 1999 as the result
of the maturity of $8.5 million of securities, which was partially offset by the
purchase of $5.0 million of securities and by the net change in market value
adjustment.
Mortgage-backed securities available-for-sale increased by $1.1 million, or
6.1%, to $18.6 million at March 31, 2000 from $17.5 million at December 31,
1999. The increase resulted from purchases of $2.0 million of securities, which
was partially offset by the maturity of $824,000 of securities and the change in
market value adjustment.
7
<PAGE>
Deposits increased by $751,000, or 0.2%, from $355.0 million at December 31,
1999 to $355.7 million at March 31, 2000. During the quarter there was a $2.2
million increase in passbook, NOW and money market accounts which was offset by
a $1.4 million decrease in certificate of deposit accounts.
Total borrowings decreased by $6.2 million from $11.2 million at December 31,
1999 to $5.0 million at March 31, 2000. The decrease was the result of the call
on an advance subject to a quarterly call at the option of the lender.
Borrowings consisted entirely of advances from the Federal Home Loan Bank of
Chicago.
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. Adjustable rate mortgage loans, and loans with typically shorter
terms, such as commercial real estate loans, commercial business loans and
consumer loans, have historically been, and continue to be, retained.
Historically, most fixed-rate mortgage loans, particularly those with terms of
20-years or longer, have been sold in the secondary market (with servicing
usually retained). Since the beginning of 2000, the Company has retained
virtually all the fixed-rate mortgage loans it has originated. This amounted to
approximately $8.6 million during the quarter. While the Company continues to
promote the origination of adjustable rate mortgages, commercial real estate
loans, commercial business loans and consumer loans, management determined that
the Company's asset/liability position was such that retention of additional
longer term fixed-rate mortgage loans was appropriate. Management reviews the
Company's asset/liability position on a regular basis.
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 $2.0 million, or 0.50%, of
total assets at March 31, 2000 from $2.8 million, or 0.69%, of total assets at
December 31, 1999. During the three-month period ended March 31, 2000, non-
performing one-to-four family loans and non-performing commercial real estate
loans decreased by $19,000 and $844,000, respectively. These decreases were
partially offset by increases of $28,000 and $52,000 in non-performing consumer
loans and non-performing commercial business loans, respectively. In addition,
foreclosed assets increased by $11,000 and restructured troubled debts decreased
by $5,000. The ratio of the allowance for losses on loans to non-performing
loans increased to 227.7% as of March 31, 2000 as compared to 124.2% as of
December 31, 1999. The increase in this ratio, which excludes foreclosed assets
and restructured troubled debt, was primarily the result of the decrease of
$785,000 in non-performing loans.
The Company classified $2.3 million of its assets as Special Mention, $2.4
million as
8
<PAGE>
Substandard and $44,000 as Loss as of March 31, 2000. No assets were classified
as Doubtful at March 31, 2000. This represents an increase of $10,000 in the
Special Mention category and a net decrease of $66,000 in the other categories
from the December 31, 1999 totals for classified assets. The ratio of classified
assets to total assets (including items classified as Special Mention) was 1.20%
at March 31, 2000 and at December 31, 1999. The ratio of the allowance for
losses on loans to classified assets increased to 45.8% as of March 31, 2000 as
compared to 44.8% as of December 31, 1999.
The allowance for losses on loans is established through a provision for
losses on loans based on management's evaluation of the risk inherent in the
loan portfolio and changes in the nature and volume of its loan activity. Such
evaluation, which includes a review of all loans with respect to which full
collectibility may not be reasonably assured, considers the fair value of the
underlying collateral, economic conditions, historical loan loss experience,
level of classified loans and other factors that warrant recognition in
providing for an adequate allowance for losses on loans.
While management believes that it uses the best information available to
determine the allowance for losses on loans, unforeseen market conditions could
result in adjustments to the allowance for losses on loans and net earnings
could be significantly affected if circumstances differ substantially from the
assumptions used in establishing the allowance for losses on loans.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2000 AND 1999
Net income for the quarter ended March 31, 2000 was $500,000 compared to
$442,000 for the same period in 1999. This represented a $58,000, or 13.2%,
increase. The increase in net income resulted from an increase of $317,000 in
net interest income, which was partially offset by a decrease of $184,000 in
other income, and increases of $50,000 and $24,000 in general and administrative
expense and income tax expense, respectively.
Basic earnings per share were $.40 for the quarter ended March 31, 2000
compared to $.33 for the 1999 period. Diluted earnings per share were $.39 for
the quarter ended March 31, 2000 compared to $.31 for the comparable 1999
period.
Net interest income increased $317,000, or 11.5%, during the quarter period
ended March 31, 2000, compared to the three-month period ended March 31, 1999.
The table presented on page 15 ("Table I"), sets forth an analysis of the
Company's net interest income for the three-month periods ended March 31, 2000
and 1999.
As Table I indicates, interest income increased $258,000, or 3.9%, to $6.9
million for the three-month period ended March 31, 2000 from $6.6 million for
the same period in 1999. The increase in interest income was the result of an
increase in the yield earned on interest-earning assets to 7.45% during the 2000
period from 7.09% during the 1999 period. This was partially offset by a
decrease in the average balance of interest-earning assets to $372.2 million
during the 2000 period from $379.8 million during the 1999 period. The decrease
in the average balance of interest-earning assets was primarily due to decreases
in balances of mortgage-backed securities, investment securities and other
interest-earning assets during the quarter, which were partially offset by an
increase in balances of loans. The increase in the yield earned on interest-
earning assets was the result of increasing market interest rates during 2000,
which resulted in higher yields on short term assets and a higher yield on the
reinvestment of principal repayments on loans.
9
<PAGE>
Interest expense decreased $58,000, or 1.5%, to $3.8 million during the first
quarter from $3.9 million in the same period in 1999. The decrease in interest
expense was the result of a decrease in the average outstanding balance of
interest-bearing liabilities to $363.9 million during the 2000 period from
$369.6 million during the 1999 period, and, to a lesser extent, by a decrease in
the average yield on interest-bearing liabilities to 4.23% during the 2000
period from 4.26% during the 1999 period. The decrease in average interest-
bearing liabilities resulted primarily from repayment of borrowings. The
decrease in the average yield on interest-bearing liabilities resulted from a
shift in the liability mix due to the repayment of higher cost borrowings.
No provision for losses on loans was deemed necessary during either the first
quarter of 2000, or the first quarter of 1999, based on management's review of
the adequacy of the allowance for losses on loans.
Other income for the three-month period ended March 31, 2000 decreased
$184,000, or 23.5%, to $601,000 compared to $785,000 for the same period in
1999. The decrease was attributable to decreases of $134,000 in fee income,
$112,000 in other income, $10,000 in gain on the sale of loans held for sale and
$13,000 in gain on sale of real estate held for sale. These decreases were
partially offset by an increase of $72,000 in insurance commissions. The
decrease in fee income was the result of a positive adjustment in the carrying
value of originated mortgage servicing rights during the 1999 period, which did
not recur in the 2000 period. The decrease in other income resulted primarily
from the absence of rental income on real estate owned during the 2000 period,
compared to the 1999 period. The property on which rents were received was sold
in 1999.
Other expenses for the first quarter of 2000 increased $50,000 or 1.7%, but
remained at approximately $2.9 million for the period. There were increases of
$76,000 (5.0%) in compensation and benefits, $16,000 (19.0%) in telephone and
postage and $18,000 (3.8%) in other expenses. These increases were partially
offset by decreases of $25,000 (57.8%) in federal insurance premiums, $30,000
(25.2%) in data processing expenses and $12,000 (11.2%) in amortization of
intangible assets.
The Year 2000 posed a unique set of challenges to those industries reliant on
information technology. Financial institutions are particularly dependent on
electronic data processing systems. The Company's cumulative costs of the Year
2000 project through the end of 1999 were approximately $100,000. Additional
costs related to Year 2000 were limited during the first quarter to payment of
invoices received after the end of 1999. No additional expenditures or payments
are expected at this time.
The Company and its subsidiaries experienced an uneventful transition from
1999 to 2000. There was no disruption of services to customers or with internal
operations. Among the benefits derived from the time, effort and costs related
to Year 2000 was a complete review and update of the Company's disaster recovery
and contingency plans. As a result, the Company is now better prepared to deal
with technical or natural disasters which could threaten the Company's
operations. The Company will continue to remain aware of dates during 2000
which are considered critical, such as 10/10/2000, and will address issues,
should they arise.
Federal income taxes increased $24,000 to $252,000 for the three-month period
ended March 31, 2000, compared to $228,000 for the same period in 1999. The
primary reason for this increase was the increase in pre-tax income.
10
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company maintains a certain level of cash and other liquid assets to fund
normal volumes of loan commitments, deposit withdrawals and other obligations.
The Office of Thrift Supervision (the "OTS") regulations currently require each
savings association to maintain, for each calendar quarter, an average daily
balance of liquid assets (including cash and cash equivalent investments) equal
to at least 4% of its liquidity base as of the end of the preceding calendar
quarter or the average daily balance of its liquidity base during the preceding
calendar quarter. The liquidity base consists of net withdrawable accounts plus
borrowings repayable in 12 months or less. At March 31, 2000, the Company's
liquidity ratio was 18.0%, 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 A1" 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
11
<PAGE>
submission of a capital plan, restricting growth and restricting the payment of
capital distributions (such as dividends). Core capital generally consists of
tangible capital plus specified amounts of certain intangible assets.
The OTS risk-based requirement currently requires associations to have total
capital of at least 8.0% of risk-weighted assets. In order to be considered
"well capitalized" under the prompt corrective action regulations, however, an
institution must maintain a ratio of total capital to total risk-weighted assets
of at least 10.0% and a ratio of core capital to total risk-weighted assets of
at least 6.0%. Total capital consists of core capital plus supplementary
capital, which consists of, among other things, maturing capital instruments,
such as subordinated debt and mandatorily redeemable preferred stock, and a
portion of the Bank's general allowance for losses on loans.
As of March 31, 2000, the Bank exceeded all current minimum regulatory capital
standards and was deemed to be "well capitalized" for purposes of the OTS's
prompt corrective action regulations. At March 31, 2000, the Bank's tangible
capital was $29.9 million, or 7.6%, of adjusted total assets, which exceeded the
1.5% requirement by $24.0 million and exceeded the 2.0% "critically
undercapitalized" threshold by $22.0 million. In addition, at March 31, 2000,
the Bank had core capital of $29.9 million, or 7.6%, of adjusted total assets,
which exceeded the 4.0% requirement by $14.1 million and exceeded the 5.0% "well
capitalized" threshold by $10.1 million. The Bank had risk-based capital of
$32.0 million at March 31, 2000, or 13.1%, of risk-adjusted assets, which
exceeded the minimum risk-based capital requirement by $12.5 million and
exceeded the 10.0% "well capitalized" threshold by $7.6 million. Additionally,
the Bank's $29.9 million of core capital equaled 12.2% of total risk-weighted
assets, which exceeded the 6.0% "well capitalized" threshold by $15.3 million.
RECENT REGULATORY DEVELOPMENTS
On November 12, 1999, President Clinton signed legislation that will 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 financial in nature, incidental to any such financial activity, or
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.
National banks are also authorized by the Act to engage, through "financial
subsidiaries", in any activity that is permissible for financial holding
companies (as described above) and any activity that the Secretary of the
Treasury, in consultation with the Federal Reserve, determines is financial in
nature or incidental to any such financial activity, except (i) insurance
underwriting, (ii) real estate development or real estate investment activities
(unless otherwise expressly permitted by law), (iii) insurance company portfolio
investments and (iv) merchant banking. The authority of a national
12
<PAGE>
bank to invest in a financial subsidiary is subject to a number of conditions,
including, among other things, requirements that the bank must be well-managed
and well-capitalized (after deducting from capital the bank's outstanding
investments in financial subsidiaries). The Act provides that state banks may
invest in financial subsidiaries (assuming they have the requisite investment
authority under applicable state law) subject to the same conditions that apply
to national banks.
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 are currently permitted for
multiple savings and loan holding companies or 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 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.
Various bank regulatory agencies have begun issuing regulations as mandated by
the Act. The Federal Reserve has issued interim regulations listing the
financial activities permissible for financial holding companies and describing
the parameters under which financial holding companies may engage in securities
and merchant banking activities. In addition, all federal bank regulatory
agencies have jointly issued a proposed regulation that would implement the
privacy provisions of the Act. At this time, it is not possible to predict the
impact the Act and its implementing regulations may have on the Company.
STOCK REPURCHASE
On January 11, 2000, the Company's Board of Directors authorized the
repurchase through January 31, 2001, of up to 90,000 shares of its common stock.
During the three-month period ending March 31, 2000, 18,000 shares of common
stock were repurchased at a cost of $412,000. Through March 31, 2000, a total
of 577,077 shares of common stock of the Company had been purchased under the
current and previous repurchase programs at a total cost of $12.1 million. As
of March 31, 2000, the Company held 519,617 shares of its common stock as
treasury stock. During the period from March 31, 2000 through May 11, 2000, the
Company repurchased 6,000 shares of common stock at a cost of $124,000.
STOCK OPTIONS
During the first quarter of 2000, under the 1992 stock option and incentive
plan, ratified by stockholders on April 23, 1993, options on 2,500 shares of
common stock were awarded at the time of election of a new non-employee
director. The exercise price of $20.50 was established by the closing stock
price on March 14, 2000.
During the first quarter of 2000, options on 5,000 shares of common stock were
exercised. Between March 31, 2000 and May 11, 2000, options on 1,200 shares of
common stock were exercised. No other notice was received from holders of
options of their intent to exercise options during that period.
13
<PAGE>
DIVIDENDS
On April 11, 2000, a cash dividend of $.12 per share was declared, payable on
May 31, 2000 to stockholders of record as of May 15, 2000. 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.
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, our implementation of new technologies, our ability
to develop and maintain secure and reliable electronic systems, and account
principles, policies and guidelines. These risks and uncertainties should be
considered in evaluating forward-looking statements and undue reliance should
not be placed on such statements. Further information concerning the Company
and its business, including additional factors that could materially affect the
Company's financial results, is included in the Company's filings with the
Securities and Exchange Commission.
14
<PAGE>
TABLE I
NET INTEREST INCOME ANALYSIS (UNAUDITED)
KANKAKEE BANCORP, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
Three Months Ended March 31,
-----------------------------------------------------------------------
2000 1999
----------------------------------- ----------------------------------
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) $272,080 $ 5,273 7.79% $252,841 $ 4,905 7.87%
Mortgage-backed securities (2) 18,105 309 6.86% 18,754 238 5.15%
Investments securities (3) 62,590 953 6.12% 75,868 1,121 5.99%
Other interest-earning assets 17,633 329 7.50% 30,522 346 4.60%
FHLB stock 1,811 32 7.11% 1,801 28 6.31%
-------- ------- -------- -------
Total interest-earning assets 372,219 6,896 7.45% 379,786 6,638 7.09%
-------- ------- -------- -------
Other assets 30,674 32,286
-------- --------
Total assets $402,893 $412,072
======== ========
Interest-bearing liabilities:
Certificate accounts $217,663 2,889 5.34% $210,151 2,802 5.41%
Savings deposits 60,590 375 2.49% 61,137 365 2.42%
Demand and NOW deposits 76,015 422 2.23% 75,371 417 2.24%
Borrowings 9,650 140 5.83% 22,900 300 5.31%
-------- ------- -------- -------
Total interest-bearing liabilities 363,918 3,826 4.23% 369,559 3,884 4.26%
-------- ------- -------- -------
Other liabilities 2,890 3,096
-------- --------
Total liabilities 366,808 372,655
-------- --------
Stockholders' equity 36,085 39,417
-------- --------
Total liabilities and
stockholders' equity $402,893 $412,072
======== ========
Net interest income $ 3,070 $ 2,754
======= =======
Net interest rate spread 3.22% 2.83%
==== ====
Net earning assets $ 8,301 $ 10,227
======== ========
Net yield on average interest-
earning assets (net interest
margin) 3.32% 2.94%
==== ====
Average interest-earning assets to
average interest-bearing liabilities 102.28% 102.77%
======= =======
</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.
15
<PAGE>
KANKAKEE BANCORP, INC.
PART II - OTHER INFORMATION
---------------------------
Item 1. Legal Proceedings - There are no material pending legal proceedings
-----------------
to which the Company or the Bank is a party other than ordinary routine
litigation incidental to their respective businesses.
Item 2. Changes in Securities - None
---------------------
Item 3. Defaults Upon Senior Securities - None
-------------------------------
Item 4. Submission of Matters to a Vote of Security Holders - None
---------------------------------------------------
Item 5. Other Information - None
-----------------
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
Exhibits - Exhibit 27 - Financial Data Schedule
Reports on Form 8-K -
On March 6, 2000, the Company filed a Report on Form 8-K reporting
under Item 5 that the Company had issued two press releases: (1) on
February 15, 2000, announcing that James G. Schneider, its chairman,
president and chief executive officer, had died on Tuesday, February
15, 2000; and (2) on February 25, 2000, announcing that William Cheffer
had been elected chairman, president and chief executive officer of the
Company, succeeding James G. Schneider.
On March 21, 2000, the Company filed a Report on Form 8-K reporting
under Item 5 that the Company had issued a press release on March 16,
2000, announcing that on March 14, 2000, the board of directors of the
Company had elected Brenda Baird to serve as a director of the Company,
filling the vacancy created by the death of James G. Schneider.
16
<PAGE>
KANKAKEE BANCORP, INC.
SIGNATURES
----------
In accordance with the requirements of the Securities Exchange Act of 1934,
the Registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
KANKAKEE BANCORP, INC.
Registrant
Date: May 11, 2000 /s/ MICHAEL A. STANFA
------------------- --------------------------------------
Executive Vice President
Date: May 11, 2000 /s/ RONALD J. WALTERS
------------------- ------------------------------------
Vice President and Treasurer
(Principal Financial
and Accounting Officer)
17
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 10,347
<INT-BEARING-DEPOSITS> 4,485
<FED-FUNDS-SOLD> 5,208
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 79,891
<INVESTMENTS-CARRYING> 507
<INVESTMENTS-MARKET> 486
<LOANS> 281,689
<ALLOWANCE> 2,193
<TOTAL-ASSETS> 400,293
<DEPOSITS> 355,728
<SHORT-TERM> 0
<LIABILITIES-OTHER> 3,532
<LONG-TERM> 5,000
0
0
<COMMON> 16,017
<OTHER-SE> 20,016
<TOTAL-LIABILITIES-AND-EQUITY> 400,293
<INTEREST-LOAN> 5,273
<INTEREST-INVEST> 1,315
<INTEREST-OTHER> 308
<INTEREST-TOTAL> 6,896
<INTEREST-DEPOSIT> 3,686
<INTEREST-EXPENSE> 3,826
<INTEREST-INCOME-NET> 3,070
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2,920
<INCOME-PRETAX> 752
<INCOME-PRE-EXTRAORDINARY> 500
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 500
<EPS-BASIC> .40
<EPS-DILUTED> .39
<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>
