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, 2001.
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 Identification Number)
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 8, 2001, there were 1,208,908 issued and outstanding shares of the
Issuer's common stock (exclusive of 541,092 shares of the Issuer's common stock
held as treasury stock).
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, 2001 and December 31, 2000 1-2
Statements of Income and Comprehensive Income,
Three Months Ended March 31, 2001 and 2000 3
Statements of Cash Flows, Three Months
Ended March 31, 2001 and 2000 4-5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 7-14
Item 3. Quantitative and Qualitative Disclosure
About Market Risk 8-9
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 2. Changes in Securities 15
Item 3. Defaults Upon Senior Securities 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURES 16
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (UNAUDITED)
KANKAKEE BANCORP, INC. AND SUBSIDIARY
March 31, December 31,
2001 2000
----------- ------------
Assets
Cash and due from banks $16,718,532 $ 18,707,762
Federal funds sold 16,881,618 1,329,776
Money market funds 4,540,338 5,109,735
----------- ------------
Cash and cash equivalents 38,140,488 25,147,273
----------- ------------
Certificates of deposit 50,000 50,000
----------- ------------
Securities:
Investment securities:
Available-for-sale, at fair value 39,678,351 57,169,644
Held-to-maturity, at cost (fair value: March 31, 2001 -
$1,441,849; December 31, 2000 - $1,434,708) 1,447,743 1,447,846
------------ -----------
Total investment securities 41,126,094 58,617,490
----------- ------------
Mortgage-backed securities:
Available-for-sale, at fair value 15,232,028 16,050,792
Held-to-maturity, at cost (fair value: March 31, 2001 -
$60,382; December 31, 2000 - $67,727) 59,345 66,867
----------- ------------
Total mortgage-backed securities 15,291,373 16,117,659
----------- ------------
Non-marketable equity securities 501,000 501,000
----------- ------------
Loans, net of allowance for losses on loans ($2,160,321 at
March 31, 2001; $2,156,420 at December 31, 2000) 350,220,911 338,956,136
Loans held for sale - -
Real estate held for sale 515,087 484,320
Federal Home Loan Bank stock, at cost 2,154,000 2,112,000
Office properties and equipment 8,584,686 8,594,823
Accrued interest receivable 2,912,938 3,282,214
Prepaid expenses and other assets 1,214,383 1,225,070
Intangible assets 4,712,162 4,805,849
------------ ------------
Total assets $465,423,122 $459,893,834
============ ============
(Continued)
1
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (UNAUDITED) (continued)
KANKAKEE BANCORP, INC. AND SUBSIDIARY
March 31, December 31,
2001 2000
------------ ------------
Liabilities and stockholders' equity
Liabilities:
Deposits
Noninterest bearing $ 25,736,020 $ 25,357,749
Interest bearing 369,124,965 362,692,592
Short term borrowings - 14,000,000
Other borrowings 27,000,000 15,000,000
Advance payments by borrowers for taxes and insurance 3,081,285 1,813,412
Other liabilities 1,220,465 1,740,938
------------ ------------
Total liabilities 426,162,735 420,604,691
------------ ------------
Stockholders' equity
Preferred stock, $.01 par value; authorized, 500,000
shares; none outstanding - -
Common stock, $.01 par value; authorized, 3,500,000
shares; issued 1,750,000 17,500 17,500
Additional paid-in capital 15,304,393 15,328,249
Retained income, partially restricted 34,770,274 34,285,960
Treasury stock (526,592 shares at March 31,
2001; 486,892 shares at December 31, 2000) (11,421,391) (10,458,535)
Accumulated other comprehensive income 589,611 115,969
------------ ------------
Total stockholders' equity 39,260,387 39,289,143
------------ ------------
Total liabilities and stockholders' equity $465,423,122 $459,893,834
============ ============
See notes to consolidated financial statements (unaudited)
2
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (UNAUDITED)
KANKAKEE BANCORP, INC. AND SUBSIDIARY
Three Months Ended March 31,
-------------------------------
2001 2000
------------ ----------
Interest income:
Loans $6,855,666 $5,272,718
Investment securities and other 1,057,244 1,314,539
Mortgage-backed securities 281,830 308,684
---------- ----------
Total interest income 8,194,740 6,895,941
---------- ----------
Interest expense:
Deposits 4,487,054 3,685,493
Borrowed funds 362,402 140,250
---------- ----------
Total interest expense 4,849,456 3,825,743
---------- ----------
Net interest income 3,345,284 3,070,198
Provision for losses on loans 15,000 -
---------- ----------
Net interest income after provision for losses on loans 3,330,284 3,070,198
Other income:
Net gain on sales of real estate held for sale 10,383 6,745
Net gain on sales of loans held for sale - 1,592
Net gain on sales of property held for expansion - 11,552
Fee income 472,903 411,175
Insurance commissions 26,627 86,010
Other 87,652 84,228
---------- ----------
Total other income 597,565 601,302
---------- ----------
Other expenses:
Compensation and benefits 1,555,156 1,574,551
Occupancy 304,019 266,813
Furniture and equipment 184,021 176,286
Federal deposit insurance premiums 18,327 18,148
Advertising 68,518 78,011
Provision for losses on foreclosed assets 16,700 18,422
Data processing services 100,702 87,955
Telephone and postage 101,980 102,010
Amortization of intangible assets 93,687 94,617
Other general and administrative 536,436 502,906
---------- ----------
Total other expenses 2,979,546 2,919,719
---------- ----------
Income before income taxes 948,303 751,781
Income taxes 317,300 251,500
---------- ----------
Net income $ 631,003 $ 500,281
========== ==========
Net income $ 631,003 $ 500,281
Other comprehensive income:
Unrealized gains (losses) on available-for-sale
securities, net of related income taxes 473,642 (241,167)
---------- ----------
Comprehensive income $1,104,645 $ 259,114
========== ==========
Basic earnings per share $ 0.51 $ 0.40
========== ==========
Diluted earnings per share $ 0.50 $ 0.39
========== ==========
See notes to consolidated financial statements (unaudited)
3
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
KANKAKEE BANCORP, INC. AND SUBSIDIARY
Three Months Ended March 31,
----------------------------
2001 2000
------------ -------------
Cash flows from operating activities:
Net income $ 631,003 $ 500,281
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for losses on loans 15,000 -
Provisions for losses on real estate held for sale 16,700 18,422
Depreciation and amortization 341,464 323,188
Amortization of investment premiums and discounts, net (8,811) 5,260
Accretion of loan fees and discounts, net 13,391 18,789
Deferred income tax provision (benefit) 23,858 (41,838)
Originations of loans held for sale (1,741,425) (74,058)
Proceeds from sales of loans 1,741,425 75,650
Increase in interest receivable 369,276 250,265
Increase (decrease) in interest payable on deposits 72,663 (38,511)
Net gain on sales of loans - (1,592)
Net gain on sales of real estate held for sale (10,383) (6,745)
Net income on sales of office related property - (11,553)
Federal Home Loan Bank of Chicago, stock dividend (42,000) -
Other, net (790,184) 528,149
------------ -------------
Net cash from operating activities 631,977 1,545,707
------------ -------------
Cash flows from investing activities
Investment securities
Available-for sale:
Purchases (2,008,944) (4,999,906)
Proceeds from calls and maturities 20,070,000 8,500,000
Held-to-maturity:
Purchases - (100,000)
Mortgage-backed securities:
Available-for-sale:
Purchases (300,890) (1,962,724)
Proceeds from maturities and pay downs 1,276,429 823,601
Held-to-maturity:
Proceeds from maturities and pay downs 7,522 8,063
Proceeds from sales of real estate 58,484 55,331
Deferred loan fees and costs, net 57,174 31,038
Loans originated (39,458,334) (37,373,762)
Principal collected on loans 28,014,035 28,187,818
Purchases of office properties and equipment, net (237,640) (59,647)
------------ -------------
Net cash from investing activities 7,477,836 (6,890,188)
------------ -------------
See notes to consolidated financial statements (unaudited).
4
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) (continued)
KANKAKEE BANCORP, INC. AND SUBSIDIARY
Three Months Ended March 31,
----------------------------
2001 2000
------------ ------------
Cash flows from financing activities
Net increase in non-certificate of deposit accounts $ 3,404,364 $ 2,206,081
Net increase (decrease) in certificate of deposit accounts 3,333,617 (1,416,726)
Net increase in advance payments by
borrowers for taxes and insurance 1,278,822 1,125,603
Proceeds from short-term borrowings 5,000,000 -
Repayments of short-term borrowings (19,000,000) -
Proceeds from other borrowings 12,000,000 -
Repayments of other borrowings - (6,200,000)
Proceeds from exercise of stock options 62,273 87,330
Dividends paid (146,689) (149,566)
Purchase of treasury stock (1,048,985) (411,670)
------------ ------------
Net cash from financing activities 4,883,402 (4,758,948)
------------ ------------
Increase (decrease) in cash and cash equivalents 12,993,215 (10,103,429)
Cash and cash equivalents:
Beginning of period 25,147,273 30,093,583
------------ ------------
End of period $ 38,140,488 $ 19,990,154
============ ============
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest on deposits $ 4,414,400 $ 3,647,700
============ ============
Interest on borrowed funds $ 378,700 $ 141,000
============ ============
Income taxes $ 55,218 $ 73,144
============ ============
Supplemental disclosures of non-cash investing activities:
Real estate acquired through foreclosure $ 65,899 $ -
============ ============
Increase in unrealized gains on
securities available-for-sale $ 717,638 $ 359,952
============ ============
Increase in deferred taxes attributable to the
unrealized gains on securities available-for-sale $ 243,996 $ 118,784
============ ============
See notes to consolidated financial statements (unaudited).
5
KANKAKEE BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 2001
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, 2000 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, 2001 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2001. 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, 2000.
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, 2001, stockholders' equity included a positive $590,000, which
represents the amount by which the market value of the available-for-sale
securities and the available-for-sale mortgage-backed securities exceeded the
book value, net of income tax of $309,000. A decrease in market interest rates
during the three months ended March 31, 2001 resulted in a $474,000 increase in
the market value, net of income tax effect, of the available-for-sale securities
and the available-for-sale mortgage-backed securities. At the end of 2000, the
market value of the available-for-sale securities portfolio exceeded the book
value by $116,000, net of income tax benefit.
6
KANKAKEE BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company is a Delaware company formed in 1992 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.
ECONOMIC CLIMATE AND BUSINESS DEVELOPMENTS
During the first quarter of 2001, the Federal Open Market Committee (the
"FOMC") lowered its target short-term interest rates three times, by a total of
one and one-half percentage points. In April 2001, the FOMC lowered those same
rates by an additional one-half percentage point. The federal funds target
became 4.50% and the Federal Reserve discount rate became 4.00%. The federal
funds rate is the rate at which financial institutions borrow from each other,
while the discount rate is the rate at which member institutions borrow from the
Federal Reserve. The FOMC continues to cite a slowing economy and the risk of
recession as the motivating factors for lowering interest rates. Lower rates
should provide stimulus to the economy by reducing borrowing costs for both
businesses and individuals.
A slowing economy could adversely affect cash flows for both commercial and
individual borrowers, as a result of which, the Company could experience
increases in problem assets, delinquencies and losses on loans.
Lower market interest rates could benefit the Company by reducing its cost of
funds, as term deposits and borrowed money reprice to lower rates at maturity.
However, lower interest rates could also reduce the Company's return on
interest-earning assets. As investments mature or are called, and as loans are
repaid or prepaid, the reinvestment rates on those funds are lower. The impact
of changes in market interest rates on the Company's financial condition and
results of operations is the Company's interest rate sensitivity. While
management believes that the Company's current level of interest rate
sensitivity is reasonable, significant fluctuations in interest rates may have
an adverse effect on the Company's financial condition and results of
operations.
During 2000, the Company initiated an aggressive growth strategy which was
aimed at increasing deposits and growing the loan portfolio, while continuing to
reduce the size of the investment portfolio. While committed to continuing
profitable growth of its assets and liabilities, the Company, during the second
quarter of 2001, will resume selling most of the long-term, fixed-rate single-
family mortgage loans it originates. Such loans with terms of less than 20
years will continue to be retained in the portfolio.
7
FINANCIAL CONDITION
Total assets of the Company increased by $5.5 million, or 1.2%, to $465.4
million at March 31, 2001 from $459.9 million at December 31, 2000.
Cash and cash equivalents increased by $13.0 million, or 51.7%, from $25.1
million at December 31, 2000 to $38.1 million at March 31, 2001. The increase
was primarily attributable to an increase in deposit balances and a decrease in
investment securities during the period.
During the three-month period ended March 31, 2001, net loans receivable
increased by $11.2 million, or 3.3%, from $339.0 million to $350.2 million. This
was primarily the result of the origination of $27.2 million of real estate
loans and the origination of $12.3 million of consumer and commercial business
loans, offset by loan repayments which totaled $28.0 million.
There were no loans held for sale at either March 31, 2001, or at December 31,
2000. During the three months ended March 31, 2001, $1.7 million in commercial
real estate loans were originated for sale and sold.
Securities available-for-sale decreased by $17.5 million, or 30.6%, to $39.7
million at March 31, 2001 from $57.2 million at December 31, 2000 as the result
of the maturity, or the exercise of call options by issuers, of $20.1 million of
securities, which was partially offset by the purchase of $2.0 million of
securities and by the net change in market value adjustment.
Mortgage-backed securities available-for-sale decreased by $819,000, or 5.1%,
to $15.2 million at March 31, 2001 from $16.1 million at December 31, 2000. The
decrease resulted from the maturity of $1.3 million of securities, which was
partially offset by the purchase of $301,000 of securities and by the net change
in market value adjustments.
Deposits increased by $6.8 million, or 1.8%, from $388.1 million at December
31, 2000 to $394.9 million at March 31, 2001. During the three month period,
there was a $3.4 million increase in certificate of deposit accounts and a $3.4
million increase in passbook, checking and money market accounts.
Total borrowings decreased by $2.0 million, or 6.9%, from $29.0 million at
December 31, 2000 to $27.0 million at March 31, 2001. The decrease was the
result of $19.0 million in repayments, which were partially offset by new
borrowings of $17.0 million. 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. Those with terms
of 20-years or longer totaled approximately $10.3 million during the three
month period. While the Company continues to promote the origination of
adjustable rate mortgages, commercial real estate loans, commercial
8
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. In light of the changing economic
climate and the current interest rate environment, the Company will, during the
second quarter of 2001, resume selling fixed-rate mortgage loans with terms of
20 years or longer in the secondary market. 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 0.43%, of
total assets at March 31, 2001 from $3.5 million, or 0.76% of total assets at
December 31, 2000. During the three month period ended March 31, 2001, non-
performing construction and development loans, non-performing one-to-four family
loans and non-performing commercial business loans decreased by $900,000,
$79,000 and $816,000, respectively. These decreases were partially offset by
increases in non-performing commercial real estate loans and non-performing
consumer loans of $202,000 and $93,000, respectively. In addition, foreclosed
assets increased by $31,000 and restructured troubled debts decreased by
$17,000. The decrease in non-performing construction and development loans was
due to the repayment in full of a single loan. The decrease in non-performing
commercial business loans was due to the loans involved having been brought
current. The ratio of the allowance for losses on loans to non-performing loans
increased to 201.9% as of March 31, 2001 compared to 83.9% as of December 31,
2000. The increase in this ratio, which excludes foreclosed assets and
restructured troubled debt, was primarily the result of the decrease of $1.5
million in non-performing loans.
The Company classified $3.1 million of its assets as Special Mention, $2.5
million as Substandard and $78,000 as Loss as of March 31, 2001. No assets were
classified as Doubtful at March 31, 2001. This represents a decrease of
$496,000 in the Special Mention category and a net increase of $253,000 in the
other categories from the December 31, 2000 totals for classified assets. The
ratio of classified assets to total assets (including items classified as
Special Mention) was 1.22% at March 31, 2001 as compared to 1.29% at December
31, 2000. The ratio of the allowance for losses on loans to classified assets
increased to 38.0% as of March 31, 2001 compared to 36.3% as of December 31,
2000.
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.
9
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2001 AND 2000
Net income for the quarter ended March 31, 2001 was $631,000 compared to
$500,000 for the same period in 2000. This represented a $131,000, or 26.1%,
increase. The increase in net income resulted from an increase of $275,000 in
net interest income, which was partially offset by increases of $15,000 in
provisions for losses on loans, $59,000 in other expenses and $66,000 in income
tax expense, and by a decrease of $4,000 in other income.
Basic earnings per share were $.51 for the quarter ended March 31, 2001
compared to $.40 for the 2000 period. Diluted earnings per share were $.50 for
the quarter ended March 31, 2001 compared to $.39 for the comparable 2000
period.
Net interest income increased $275,000, or 9.0%, during the quarter ended
March 31, 2001, compared to the quarter ended March 31, 2000.
The table presented on page 14 ("Table I"), sets forth an analysis of the
Company's net interest income for the three-month periods ended March 31, 2001
and 2000.
As Table I indicates, interest income increased $1.3 million, or 18.8%, to
$8.2 million for the three-month period ended March 31, 2001 from $6.9 million
for the same period in 2000. The increase in interest income was the result of
an increase in the yield earned on interest-earning assets to 7.73% during the
2001 period from 7.45% during the 2000 period, and an increase in the average
balance of interest-earning assets to $429.7 million during the 2001 period from
$372.2 million during the 2000 period. The increase in the average balance of
interest-earning assets was due to an increase in balances of loans, which was
partially offset by decreases in balances of mortgage-backed securities,
investment securities and other interest-earning assets during the quarter. 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 both the reinvestment of principal
repayments on loans and newly originated loans. The increase in average loans
was primarily the result of an aggressive lending program during 2000 and the
first quarter of 2001.
Interest expense increased $1.0 million, or 26.8%, to $4.8 million during the
first quarter from $3.8 million in the same period in 2000. The increase in
interest expense was the result of an increase in the average outstanding
balance of interest-bearing liabilities to $415.5 million during the 2001 period
from $363.9 million during the 2000 period, and, by an increase in the average
yield on interest-bearing liabilities to 4.73% during the 2001 period from 4.23%
during the 2000 period. The increase in average interest-bearing liabilities
resulted primarily from a more aggressive pricing policy and the continuing
movement to a sales oriented operation. The increase in the average yield on
interest-bearing liabilities resulted primarily from a more aggressive pricing
policy.
Based on management's review of the adequacy of the allowance for losses on
loans, a provision for losses on loans of $15,000 was recorded during the first
quarter of 2001. There was no provision for losses on loans recorded during the
first quarter of 2000.
Other income for the three-month period ended March 31, 2001 decreased $4,000,
or 0.6%, to $597,000 compared to $601,000 for the same period in 2000. The
decrease was attributable to decreases of $59,000 in insurance commissions,
$2,000 in gain on the sale of loans held for sale and $12,000 in gain on sale of
property held for expansion. These decreases were partially offset by increases
of $62,000 in fee income, $4,000 in gain on sale of real estate held for sale
and $3,000 in other income. The $59,000 decrease in insurance commissions
resulted primarily from a
10
corresponding decrease in sales of annuity products during the first quarter of
2001 compared to the same period in 2000.
Other expenses for the first quarter of 2001 increased $60,000 or 2.0%, to
$3.0 million from $2.9 million for the first quarter of 2000. There were
increases of $37,000 (13.9%) in occupancy costs, $34,000 (6.7%) in other
expenses, $13,000 (14.5%) in data processing services and $8,000 (4.4%) in
furniture and equipment expenses. These increases were partially offset by
decreases of $19,000 (1.2%) in compensation and benefits, $9,000 (12.2%) in
advertising and $2,000 (9.3%) in provision for losses on foreclosed assets. A
contributing factor in the increase in occupancy costs was higher energy costs
associated with heating the Company's office buildings.
Federal income taxes increased $66,000 to $317,000 for the three-month
period ended March 31, 2001, compared to $251,000 for the same period in 2000.
The primary reason for this increase was the increase 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 sufficient liquidity to ensure its
safe and sound operation.
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 undercapital ized" 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
11
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 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, 2001, 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, 2001, the Bank's
tangible capital was $31.7 million, or 6.9%, of adjusted total assets, which
exceeded the 1.5% requirement by $24.8 million and exceeded the 2.0% "critically
undercapitalized" threshold by $22.5 million. In addition, at March 31, 2001,
the Bank had core capital of $31.7 million, or 6.9%, of adjusted total assets,
which exceeded the 4.0% requirement by $13.4 million and exceeded the 5.0% "well
capitalized" threshold by $8.8 million. The Bank had risk-based capital of $33.8
million at March 31, 2001, or 11.7%, of risk-adjusted assets, which exceeded the
minimum risk-based capital requirement by $10.7 million and exceeded the 10.0%
"well capitalized" threshold by $4.9 million. Additionally, the Bank's $31.7
million of core capital equaled 11.0% of total risk-weighted assets, which
exceeded the 6.0% "well capitalized" threshold by $14.4 million.
STOCK REPURCHASE
During the quarter ended March 31, 2001, the Company completed the
repurchase of common stock approved by the Board of Directors in January 2000,
when it repurchased 43,700 shares of common stock at a total cost of $1.0
million. On January 9, 2001, the Company's Board of Directors authorized the
repurchase through January 31, 2002, of up to 90,000 shares of its common stock.
There were no purchases under this program during the quarter. Through March 31,
2001, a total of 649,007 shares of common stock of the Company had been
purchased under the current and previous repurchase programs at a total cost of
$13.9 million. As of March 31, 2001, the Company held 526,592 shares of its
common stock as treasury stock. During the period from March 31, 2001 through
May 8, 2001, an additional 14,500 shares of common stock were repurchased at a
total cost of $341,000.
STOCK OPTIONS
During the first quarter of 2001, options on 4,000 shares of common stock
were exercised. Between March 31, 2001 and May 8, 2001, no options on shares of
common stock were exercised. Through May 8, 2001, no notice was received from
holders of options of their intent to exercise options.
12
DIVIDENDS
On April 9, 2001, a cash dividend of $.12 per share was declared, payable
on May 31, 2001 to stockholders of record as of May 15, 2001. 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, implementation by the Company of new technologies,
the Company's ability to develop and maintain secure and reliable electronic
systems and accounting 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.
13
TABLE I
NET INTEREST INCOME ANALYSIS (UNAUDITED)
KANKAKEE BANCORP, INC. AND SUBSIDIARY
Three Months Ended March 31,
---------------------------------------------------------------------------------
2001 2000
------------------------------------ ------------------------------------
Average Average
Outstanding Interest Yield/ Outstanding Interest Yield/
Balance Earned/Paid Rate Balance Earned/Paid Rate
------------------------------------ ------------------------------------
(Dollars in Thousands)
Interest-earning assets:
Loans receivable (1) $343,504 $ 6,856 8.09% $272,080 $ 5,273 7.79%
Mortgage-backed securities (2) 15,721 282 7.27% 18,105 309 6.86%
Investments securities (3) 50,728 776 6.20% 62,590 953 6.12%
Other interest-earning assets 17,589 244 5.63% 17,633 329 7.50%
FHLB stock 2,144 37 7.00% 1,811 32 7.11%
-------- -------- -------- --------
Total interest-earning assets 429,686 8,195 7.73% 372,219 6,896 7.45%
-------- -------- -------- --------
Other assets 28,976 30,674
-------- --------
Total assets $458,662 $402,893
======== ========
Interest-bearing liabilities:
Certificate accounts $246,581 3,607 5.93% $217,663 2,889 5.34%
Savings deposits 57,080 357 2.54% 60,590 375 2.49%
Demand and NOW deposits 85,622 523 2.48% 76,015 422 2.23%
Borrowings 26,250 363 5.61% 9,650 140 5.83%
-------- -------- -------- --------
Total interest-bearing liabilities 415,533 4,850 4.73% 363,918 3,826 4.23%
-------- -------- -------- --------
Other liabilities 4,062 2,890
-------- --------
Total liabilities 419,595 366,808
-------- --------
Stockholders' equity 39,067 36,085
-------- --------
Total liabilities and
stockholders' equity $485,662 $402,893
======== ========
Net interest income $ 3,345 $ 3,070
======== ========
Net interest rate spread 3.00% 3.22%
==== ====
Net earning assets $ 14,153 $ 8,301
======== ========
Net yield on average interest-
earning assets (net interest
margin) 3.16% 3.32%
==== ====
Average interest-earning assets to
average interest-bearing liabilities 103.41% 102.28%
======= =======
(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.
14
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
--------------------------------
a. Exhibits
--------
10.1 employment contract between the Company and Larry D.
Huffman, dated April 1, 2001.
b. Reports on Form 8-K
-------------------
On January 29, 2001, the Company filed a report on Form 8-K
stating under Item 5 that the Company had, on January 29, 2001,
issued a news release announcing its earnings for the quarter
ending December 31, 2000, its payment of a quarterly dividend to
its stockholders and the date of its annual meeting of
stockholders.
15
KANKAKEE BANCORP, INC.
SIGNATURES
----------
In accordance with the requirements of the Securities Exchange Act of 1934,
the Registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
KANKAKEE BANCORP, INC.
Registrant
Date: May 8, 2001 /s/ MICHAEL A. STANFA
--------------------- ----------------------------------------
Executive Vice President
Date: May 8, 2001 /s/ RONALD J. WALTERS
--------------------- ----------------------------------------
Vice President and Treasurer
(Principal Financial
and Accounting Officer)
16