If ever a banking company seemed destined for sale, Kankakee Bancorp Inc. was it.
In April of 2002 the 118-year-old Illinois company was under pressure from two dissident investors, Jeffrey L. Gendell and Lawrence B. Seidman, to sell itself to a larger bank. The two men, known for investing in underperforming community banks and then calling for their sale, owned a combined 14.5% of Kankakee's stock.
Today the two dissidents are out of the picture and Kankakee, the $517 million-asset holding company for KFS Bank, is positioning itself as a buyer, not a seller. Late last month it announced its first deal in five years, and its new hands-on chairman has set an ambitious goal for an incoming chief executive officer: to build Kankakee into the "premier" community bank between Chicago and St. Louis, largely through acquisitions.
"There was really no vision at Kankakee other than holding its position in the market it lived in," said Michael A. Griffith, a former pharmaceutical company executive who joined the board in December and was named chairman a month later. "It was run as a family business, and management made it almost impossible to take any risks. That's the wrong way to run a public company."
Mr. Griffith, 44, was appointed to the board as part of a settlement between Kankakee and Mr. Gendell, who agreed to stop pushing for a sale in return for the appointment of an independent director. In January, Mr. Griffith replaced William Cheffer, who had worked for Kankakee for 50 years, the last three as chairman.
Once he became acquainted with Kankakee, Mr. Griffith said, he was struck by its potential. He spoke of its strong deposit base, talented work force, state-of-the-art data processing system, and $77 million in cash to fund loan growth.
What had held Kankakee back - and caught the attention of sharp-eyed investors such as Mr. Gendell and Mr. Seidman - was its risk-averse management team and board, whose extreme conservatism kept returns mediocre, Mr. Griffith said. It did not help that the Kankakee area is among the slowest growing in all of Illinois.
Under Mr. Griffith, who had no banking experience, Kankakee is already showing signs of improvement.
In the first quarter it earned $1.3 million, up 53% from a year earlier. Mr. Griffith attributed the gains to the sale of one branch and better asset allocation. He also said that Kankakee is working through the asset quality problems that bedeviled it last year, when its loan-loss provision soared to $4 million, from $502,000 in 2001.
CEO Larry Huffman stepped down April 30, telling the board he was ill suited to building Kankakee into a regional, Mr. Griffith said. Since then the company has been without a chief executive; executive vice president Carol Hoekstra has been in charge of day-to-day operations, with significant help from the board, Mr. Griffith said.
The board will be less involved, though, once Kankakee closes its latest deal: $15 million in stock for the $98 million-asset Aviston Financial Corp. of Aviston, Ill., which owns State Bank of Aviston. Thomas A. Daiber, Aviston's chairman, president, and CEO, would become Kankakee's president and CEO.
Before joining Aviston, Mr. Daiber was the chief financial officer of the $2.3 billion-asset Allegiant Bancorp Inc. in St. Louis. An investment group he led with Allegiant CEO Shaun R. Hayes and several other Allegiant shareholders bought Aviston for $15 million in November, and he took on the top posts at Aviston in March.
Mr. Griffith, the former chairman and CEO of ChiRex Inc., a Stamford, Conn., firm that was sold for $510 million in 2000, did not rule out an eventual sale of Kankakee but he said that for now it is more interested in acquisitions.
"If we sold the bank, all those benefits would go to the buyer," he said. "We wanted to preserve them for the shareholders."
Kankakee made its last acquisition was in January 1998, when it paid $7.8 million for Coal City National Bank of Coal City, Ill.
Mr. Griffith said that acquiring Aviston, whose main branch is 10 miles out of downtown St. Louis, would anchor the southern end of the market territory Kankakee has staked out for itself.
After the deal closes, later this year, Kankakee can turn its gaze toward such Illinois markets as Springfield and Champaign-Urbana, where it would like to buy a bank or two, Mr. Griffith said.
"We're crying for a merger partner in Champaign-Urbana," he said. It has 14 banks now, and "if we merge with one of two of them and reduce that number, everyone would benefit."
Mr. Daiber's continued connection with Mr. Hayes and Allegiant through the investment group had fueled speculation that Allegiant might be interested in buying Aviston and may lead to similar talk about Allegiant and Kankakee. Allegiant itself is often rumored to be a takeover target, but Mr. Hayes says he wants to move into Illinois. "Hopefully we can cross the river into Illinois someday with the right acquisition," he said at an investor conference this month.
If Kankakee eventually sells itself, it will probably not be because of pressure from Mr. Seidman. After an unsuccessful bid for a board seat he sold his shares back to Kankakee in February for $2.5 million.
As for Aviston's sale, both Mr. Daiber and Brian Marsh, Aviston's president, said the company's lack of technology played a big role in its decision to sell. It is one of a dwindling number of bank companies that do not provide online banking, and it has to rely on a third-party provider for its data processing.
According to Mr. Marsh, Kankakee's system can easily be expanded to handle Aviston's data processing workload, saving the approximately $100,000 that Aviston pays annually to its data-processing vendor.
Another reason for the deal is that Aviston's growing commercial banking operation would mesh well with Kankakee's focus on residential lending, Mr. Daiber said in a press release issued May 28, the day the merger was announced.
"Kankakee has an excellent retail branch network with a strong core deposit base and is a leading mortgage originator in its market," he said. "Kankakee's strength as a retail bank will be a tremendous complement to Aviston's strong and growing commercial banking presence."
Terry Griffin, a spokeswoman for the Illinois Community Bankers Association, said it is unusual that Kankakee would want to bulk up in far-flung markets such as Aviston, 235 miles from its hometown, and Champaign-Urbana, more than 80 miles away. Community banks usually move into contiguous markets, but the Kankakee area, she pointed out, is mired in a long economic slump.
"Any bank there has probably got to find its future somewhere else," Ms. Griffin said.
