UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended December 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number: 0-23370
PERMANENT BANCORP, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 35-1908797
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(State or other jurisdiction of (I.R.S. Employer
Incorporation or Origination) Identification No.)
101 Southeast Third Street, Evansville Indiana 47708
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code: (812) 437-2265
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [ X ] No [ ]
As of February 11, 2000 there were 4,198,741 shares of the Registrant's
Common Stock outstanding.
PERMANENT BANCORP, INC.
FORM 10-Q
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Consolidated Statements of Financial Condition
Consolidated Statements of Income
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Supplemental Data
Item 3. Quantitative & Qualitative Disclosures of Market Risk
PART II. OTHER INFORMATION
Signatures
PERMANENT BANCORP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(UNAUDITED)
December 31, March 31,
1999 1999
------------- -------------
ASSETS:
Cash $ 11,387,622 $ 7,591,117
Interest-bearing deposits 4,077,475 6,361,293
------------- -------------
Total cash and cash equivalents 15,465,097 13,952,410
Securities available for sale - at fair value (amortized cost $117,287,035
and $117,279,217) 111,903,530 117,289,086
Securities held to maturity (fair value - $5,879,701 and $6,627,235) 6,701,556 6,919,793
Other investments 1,728,206 1,698,477
Loans (net of allowance for loan losses of $2,323,245 and $2,706,408) 328,758,696 321,017,805
Interest receivable, net 3,313,334 2,824,211
Office properties and equipment, net 9,713,556 8,687,387
Other assets 19,574,319 19,937,789
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TOTAL ASSETS $ 497,158,294 $ 492,326,958
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY:
LIABILITIES:
Deposits $ 343,938,845 $ 345,341,089
Federal Home Loan Bank advances 105,797,876 96,503,610
Other long-term debt 3,000,000 3,000,000
Advance payments by borrowers for taxes and insurance 526,370 974,636
Interest payable 2,390,835 2,204,007
Other liabilities 1,012,824 3,442,429
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TOTAL LIABILITIES 456,666,750 451,465,771
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STOCKHOLDERS' EQUITY:
Serial Preferred Stock ($.01 par value) Authorized and unissued-
1,000,000 shares
Common Stock ($.01 par value) Authorized - 9,000,000 shares; issued -
4,927,000 shares; Outstanding - 4,161,837 and 3,978,322 shares 49,241 49,241
Additional paid-in capital 25,760,936 24,844,508
Treasury Stock - 751,872 and 947,244 shares (8,165,577) (9,920,624)
Retained Earnings - substantially restricted 26,557,225 26,573,401
Accumulated other comprehensive income, net of deferred
tax of ($1,970,787) and $3,909 (3,412,718) 5,960
ESOP Borrowing (297,563) (476,100)
Unearned compensation - restricted stock awards (215,199)
------------- -------------
TOTAL STOCKHOLDERS' EQUITY 40,491,544 40,861,187
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 497,158,294 $ 492,326,958
============= =============
See notes to consolidated financial statements
PERMANENT BANCORP, INC. AND SUBSIDIARY
PERMANENT BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
---------------------------- ---------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
INTEREST INCOME:
Loans $ 6,467,761 $ 6,039,411 $19,127,848 $16,306,600
Securities 1,922,246 2,304,766 5,658,324 7,858,861
Deposits 54,766 80,585 192,232 184,969
Dividends on Federal Home Loan Bank stock 110,690 110,219 330,329 329,874
----------- ----------- ----------- -----------
8,555,463 8,534,981 25,308,733 24,680,304
----------- ----------- ----------- -----------
INTEREST EXPENSE:
Deposits 3,814,128 3,794,787 11,254,845 11,214,919
Federal Home Loan Bank advances 1,380,484 1,258,381 3,896,958 3,739,659
Long-term borrowings 56,384 69,800 161,878 99,174
Short-term borrowings 19,262 33,636
----------- ----------- ----------- -----------
5,270,258 5,122,968 15,347,317 15,053,752
----------- ----------- ----------- -----------
NET INTEREST INCOME 3,285,205 3,412,013 9,961,416 9,626,552
PROVISION FOR LOAN LOSSES 66,000 75,000 217,000 225,000
----------- ----------- ----------- -----------
NET INTEREST INCOME AFTER LOAN LOSS
PROVISION 3,219,205 3,337,013 9,744,416 9,401,552
----------- ----------- ----------- -----------
OTHER INCOME:
Service charges 489,294 473,861 1,344,787 1,107,725
Gain on sale of loans 12,373 90,974 100,245 148,790
Commissions 145,734 139,906 504,383 443,726
Gain on sale of securities 53,057 206,018
Other 51,657 181,331 324,903 352,465
----------- ----------- ----------- -----------
699,058 939,129 2,274,318 2,258,724
----------- ----------- ----------- -----------
OTHER EXPENSE:
Salaries and employee benefits 1,823,874 1,497,043 4,765,168 4,251,555
Deposit insurance assessments 67,313 67,896 199,479 202,849
Occupancy 293,464 272,181 864,447 753,532
Equipment 201,561 201,774 603,506 557,741
Computer service 192,714 183,585 581,944 506,236
Advertising 99,178 105,415 316,579 355,861
Postage and office supplies 109,508 114,545 323,691 344,764
Other 575,732 456,666 1,631,449 1,088,607
Merger related 582,448 582,448
----------- ----------- ----------- -----------
3,945,792 2,899,105 9,868,711 8,061,145
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES (27,529) 1,377,037 2,150,023 3,599,131
INCOME TAX PROVISION 67,653 514,588 711,546 1,423,475
----------- ----------- ----------- -----------
NET (LOSS) INCOME ($ 95,182) $ 862,449 $ 1,438,477 $ 2,175,656
=========== =========== =========== ===========
EARNINGS (LOSS) PER SHARE OF COMMON STOCK
Basic ($ 0.02) $ 0.22 $ 0.37 $ 0.54
Diluted ($ 0.02) $ 0.21 $ 0.35 $ 0.51
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic 3,949,535 4,049,286 3,912,382 3,994,297
Diluted 3,949,535 4,298,978 4,102,525 4,235,915
See notes to consolidated financial statements
PERMANENT BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended December 31,
--------------------------------
1999 1998
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,438,477 $ 2,175,656
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 424,246 384,691
Amortization and accretion 700,152 789,394
Vesting of restricted stock awards 166,216
Provisions for loan and real estate owned losses 269,621 28,376
Income (loss) recognized using equity method 84,800 (51,998)
(Gain) on sale of securities and mortgage-backed securities 4,920 (206,018)
(Gain) on sale of loans (100,245) (153,938)
(Gain) on sale of bank premises (63,288)
on sale of real estate owned (25,124) (47,223)
ESOP shares earned 189,496 273,036
Proceeds from the sales of loans 7,878,013 9,450,468
Origination of loans for resale (7,777,768) (8,997,320)
Changes in assets and liabilities:
Other investments 784 (573,096)
Interest receivable 489,123 25,515
Other assets (2,275,094) (7,449,135)
Interest payable 186,828 167,769
Other liabilities (2,898,710) (4,813,497)
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Net cash used in operating activities (1,307,553) (8,997,320)
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(Continued to next page)
PERMANENT BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
(UNAUDITED)
Nine Months Ended December 31,
--------------------------------
1999 1998
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CASH FLOWS FROM INVESTING ACTIVITIES:
Cash acquired through branch acquisitions 26,872,394
Loans originated (111,349,172) (119,389,189)
Loan principal repayments 106,513,904 84,915,478
Proceeds from:
Maturities of:
Securities available for sale 104,051,465
Other investments 1,008,477
Securities held to maturity 25,820,000
Sales of:
Securities available for sale 38,637,869
Office properties, equipment and land 163,758
Real estate owned 203,410 125,473
Purchases of:
Securities and mortgage-backed securities
available for sale (14,094,882) (106,725,270)
Securities held to maturity (5,909,080)
Equity Investments (9,375)
Loans (6,500,712) (7,871,080)
Commercial paper (18,338,597)
Real Estate Owned (90,000)
FHLB Stock (61,500)
Office properties, equipment and land (1,554,682) (734,596)
Payments on mortgage-backed securities 13,130,283 24,852,862
Increase in cash surrender value of life insurance (126,944) (656,939)
Dividends received on equity investments 55,356
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Net cash provided by (used in) investing activities (5,230,676) 38,169,387
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CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid (796,248) (704,318)
Net change in deposits (1,399,421) (15,241,633)
Receipts from FHLB advances 99,300,000 95,000,000
Payments on FHLB advances (90,007,002) (95,322,711)
Principal repayment of ESOP borrowing 178,538 178,538
Advance payments by borrowers for taxes and insurance (448,265) (426,526)
Net change in long-term debt 3,000,000
Purchase of treasury stock (683,886) (4,163,316)
Sale of common stock 1,907,200 105,320
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Net cash provided by (used in) financing activities 8,050,916 (17,574,646)
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(Continued to next page)
PERMANENT BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
(UNAUDITED)
Nine Months Ended December 31,
--------------------------------
1999 1998
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NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,512,687 11,597,421
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 13,952,410 6,082,859
------------- -------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 15,465,097 $ 17,680,280
============= =============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 15,160,489 $ 14,885,983
Income taxes 450,000 993,000
Noncash transactions:
Transfers from loans to real estate owned 149,310 150,901
See notes to consolidated financial statements.
PERMANENT BANCORP, INC.
Notes to Consolidated Financial Statements
1. BASIS OF PRESENTATION - The consolidated financial statements include the
accounts of Permanent Bancorp, Inc. (the "Company") and Permanent Bank (formerly
Permanent Federal Savings Bank), its wholly owned subsidiary (the "Bank"). All
significant intercompany accounts and transactions have been eliminated. These
consolidated interim financial statements at December 31, 1999 and for the three
and nine month periods ended December 31, 1999 and 1998 have not been examined
by independent auditors but reflect, in the opinion of the Company's management,
all adjustments (which include only normal recurring adjustments) necessary to
present fairly the financial position and results of operations for such
periods.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. It is therefore suggested that these statements
be read in conjunction with the consolidated financial statements and related
notes which are incorporated by reference in the Company's Annual Report on Form
10-K/A for the year ended March 31, 1999.
2. STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 130, "COMPREHENSIVE INCOME" -
This statement requires that changes in the amounts of certain items including
foreign currency translation adjustments and unrealized gains and losses on
certain securities be shown in the annual and quarterly financial statements.
The following is a summary of the Company's total comprehensive income for the
interim three month and nine month periods ended December 31, 1999 and 1998
under FAS 130:
Three Months Ended Nine Months Ended
December 31, December 31,
---------------------------- ----------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
Net income (loss) ($ 95,182) $ 862,449 $ 1,438,477 $ 2,175,656
Other comprehensive income, net of tax:
Unrealized gains (losses) on securities:
Unrealized holding gains (losses)
arising during period (2,164,168) (416,612) (3,418,678) 184,677
Reclassification adjustment for (gains)
losses included in net income -- (32,041) -- (124,414)
----------- ----------- ----------- -----------
Other comprehensive income (2,164,168) (384,571) (3,418,378) 60,263
----------- ----------- ----------- -----------
COMPREHENSIVE INCOME ($2,259,350) $ 477,878 ($1,980,201) $ 2,235,919
=========== =========== =========== ===========
3. EARNINGS PER SHARE - The difference between basic and diluted earnings per
share represents the dilutive impact of the Company's outstanding stock options.
The following is a reconciliation of the weighted average common shares for the
basic and diluted earnings per share computations.
Three Months Ended Nine Months Ended
December 31, December 31,
----------------------- -----------------------
1999 1998 1999 1998
--------- --------- --------- ---------
Basic average common shares 3,949,535 4,049,286 3,912,382 3,994,297
Dilutive effect of stock options (1) 249,692 190,143 241,618
--------- --------- --------- ---------
Diluted average common shares (1) 3,949,535 4,298,978 4,102,525 4,235,915
========= ========= ========= =========
(1) The impact of stock options is not included for the quarter ended
December 31, 1999 since the effect would be anti-dilutive. Diluted
earnings per share is calculated using the basic average common shares
outstanding.
4. SEGMENT REPORTING - The Company has determined that it operates a single
segment which is community banking in Southwestern Indiana. At December 31, 1999
and March 31, 1999, the Bank had assets of approximately $498.9 million and
$493.7 million, or substantially all of consolidated assets at these dates. Net
income of the Bank for the nine months ended December 31, 1999 and 1998 was
$2,344,000 and $2,321,000 or 163% and 107% of consolidated net income. Net
income of the Bank for the quarters ended 1999 and 1998 was $669,000 and
$931,000, respectively. Substantially all of net interest income for the nine
and three month periods ended December 31, 1999 and 1998 was produced by the
Bank.
5. ACQUISITION - On June 26, 1998 the Company acquired deposits and certain
assets of four branch banking locations from NBD Bank, N.A. in a purchase
transaction. The operating results of the acquired branches have been
consolidated since the acquisition date. As a result of the purchase, the
company acquired $79.1 million of deposits, $43.6 million of loans, $900,000 of
office properties and equipment and received cash of approximately $26.9
million. The purchase created approximately $9.5 million of goodwill.
Pro forma information is not presented since the transaction is not considered
significant.
6. DEBT REFINANCING AND LINE OF CREDIT - On September 30, 1999 the Company
refinanced $3 million of existing debt with an unaffiliated financial
institution. This loan is secured by the stock of the Bank. The loan bears
interest at LIBOR (as defined in the loan agreement) plus 160 basis points. The
interest rate adjusts monthly. Principal payments of $250,000 commence in
January 2000 and occur quarterly thereafter.
The loan agreement requires that the Company meet defined performance standards
including return on average assets of .50%. The Company is also required to
maintain defined loan loss, asset quality and capital ratios.
In conjunction with this refinancing, the Company also obtained a one year, $1
million revolving line of credit which is also secured by the Bank stock and has
an interest rate of LIBOR plus 160 basis points. The Company has not utilized
this credit facility
The terms of the merger agreement described below require the Company to repay
the entire $3 million credit facility prior to the effective date of the merger.
In addition, under the terms of the merger agreement the Company cannot utilize
the $1 million line of credit facility.
7. MERGER AGREEMENT - On December 20, 1999, the Company announced an agreement
to merge with Old National Bancorp, Inc. in a stock for stock transaction valued
at approximately $92 million.
The agreement calls for a fixed price with the exchange ratio to be based on the
price of Old National stock at the time of the closing subject to adjustment.
The agreement provides for adjustments in the exchange ratio and the
renegotiation of the agreement under certain conditions. The following is a
description of the provisions of the agreement related to the exchange ratio.
Old National share prices have been adjusted from the original agreement to
reflect the 5% stock dividend payable to its shareholders of record on January
6, 2000.
o The assumed number of Permanent shares and vested options to be exchanged
in the transaction is approximately 4,432,742. At a total purchase price of
$92 million, this equates to a projected price per Permanent share/option
of approximately $20.75.
o If the share price of Old National at the time of closing is between $26.60
and $34.20, the number of shares of Old National stock payable to Permanent
shareholders would be derived by dividing $92 million by the Old National
share price. Assuming the $20.75 value above, the exchange ratio per
Permanent share would range between a low of .6069 shares of Old National
at an Old National price of $34.20 to a high of .7802 shares at an Old
National price of $26.60.
o If the share price of Old National is less than $26.60, the exchange ratio
will be fixed at .7802 and the value of the transaction will be less than
$92 million. However, if the share price of Old National is less than
$24.70, Permanent may terminate the agreement if Old National elects not to
increase the transaction value to $85.4 million.
o If the share price of Old National is greater than $34.20, the exchange
ratio will be fixed at .6069 and the value of the transaction will be
greater than $92 million. If the share price of Old National is greater
than $36.10, Old National may request to renegotiate the exchange ratio and
if the parties are unable to agree to a new exchange ratio, Old National
may terminate the agreement.
This merger, which requires both regulatory and shareholder approval, is
expected to be completed in the quarter ending September 30, 2000.
The Company has in conjunction with the merger retained the services of
qualified professionals to advise it on merger related matters. Included in
operating results for the quarter ended December 31, 1999 are approximately
$425,000 of expenses related to these services. The Company anticipates that
additional expenses of approximately $800,000 for professional fees related to
the merger will be incurred.
In addition, during the quarter ended December 31, 1999, the Company vested all
shares of stock held under the Recognition and Retention Plan (RRP) which
resulted in a pre-tax charge to earnings of approximately $157,000.
Because of this pending merger, the employment contract of the Chairman of the
Board and Chief Executive Officer of the Company, which was scheduled to
terminate on March 31, 2000, was extended to the earlier of the completion of
the merger or the end of the month following the termination of the merger
agreement.
8. CHANGES IN PRESENTATION - Certain amounts and items appearing in the
financial statements for the three and nine month periods ended December 31,
1998 have been reclassified to conform with December 31, 1999 presentation.
PERMANENT BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Permanent Bancorp, Inc. (the "Company") is a bank holding company which owns
100% of the capital stock of Permanent Bank (formerly Permanent Federal Savings
Bank, the "Bank") and has no other subsidiaries. Material changes in the
Consolidated Statements of Financial Condition and Consolidated Statements of
Income, except where noted, are attributable primarily to the operations of the
Bank.
FORWARD-LOOKING STATEMENTS
The Company may from time to time make "forward-looking statements," including
statements contained in the Company's filings with the Securities and Exchange
Commission (the "SEC"), in its reports to shareholders and in other
communications, which are made in good faith by the Company pursuant to the
"safe harbor" provisions of the Private Securities Litigation Reform Act of
1995.
These forward-looking statements include statements with respect to the
Company's beliefs, expectations, estimates and intentions, that are subject to
significant risks and uncertainties, and may change based on various factors
(some of which are beyond the Company's control). Those risks and uncertainties
could cause the Company's financial performance to differ materially from
expectations, estimates, and intentions expressed in such forward-looking
statements.
The Company does not undertake, and expressly disclaims any intent or obligation
to update any forward-looking statement, whether written or oral, that may be
made from time to time by or on behalf of the Company.
YEAR 2000 ("Y2K")
To date the Company has not experienced any significant computer operating
problems associated with passing from 1999 into 2000. In addition, the Company
neither experienced environmental difficulties (those potential problems
associated with the operation of elevators, security systems and heating and air
conditioning) nor significant changes in its financial condition as a result of
deposit withdrawals. The Company is unaware of any Y2K related problems
occurring at any of its significant customers, the presence of which might have
a material financial impact on the Company.
While the Company believes that Y2K problems would have manifested themselves,
no assurance can be given that a Year 2000 related problem may subsequently be
discovered which could have a material adverse effect on the Company's financial
condition or results of operations.
QUARTER ENDED DECEMBER 31, 1999 COMPARED TO DECEMBER 31, 1998
NET INTEREST INCOME - Net interest income before provision for loan losses
decreased by $127,000 or approximately 3.7% for the quarter ended December 31,
1999 compared to the quarter ended December 31, 1998. This decrease is the
result of the cost of interest-bearing liabilities increasing more rapidly than
the rate on interest-earning assets. The weighted average yield on interest
earning assets increased .25% whereas the weighted average cost of interest
bearing liabilities increased .27% from the comparable quarter of the prior
year. The factors that caused the decrease of net interest income are discussed
below.
INTEREST INCOME - Total interest income for the three months ended December 31,
1999 increased $20,000, or approximately 0.2% from the three month period ended
December 31, 1998. This increase was primarily a result of a .25% increase in
the yield on earning assets as a result of generally higher interest rate levels
in the current year compared to the prior year and the Company maintaining a
greater percentage of its earning assets in higher yielding loans rather than in
lower yielding securities. Offsetting this rate increase were slightly lower
levels of average earning assets since the Company increased cash on hand in
anticipation of a decrease in deposits because of Y2K concerns.
INTEREST EXPENSE - Total interest expense increased by $147,000 or approximately
2.9% during the three months ended December 31, 1999 compared to the three
months ended December 31, 1998, as a result of an increase in the cost of
interest-bearing liabilities of .27%. While deposit rates have generally
increased from the comparable quarter of the prior year, local market conditions
have also required the Company to pay premium rates to attract retail deposits.
As a result, the Company has increased its utilization of the jumbo ($100,000+)
certificate of deposit market which is a very rate sensitive market. In
addition, many of the Company's FHLB advances contain provisions which allow the
issuer the option to raise the rate. As rates have risen during the quarter
ended December 31, 1999, the costs associated with these advances has increased
as has the Company's reliance on this source of funding since, in many
instances, FHLB advances remain an attractive alternative to retail deposits.
The Company's average long-term borrowings were $3.0 million for the quarter
ended December 31, 1999 compared to approximately $3.8 million for the quarter
ended December 31, 1998. As a result, interest expense on long-term borrowings
decreased by $13,000 or approximately 19.2%.
OTHER INCOME - Total other income decreased by $240,000 during the quarter ended
December 31, 1999 compared to the quarter ended December 31, 1998. Significant
components of this decrease include a $79,000 decrease in gains from the sale of
loans, attributable to a depressed local residential lending market, and a
$53,000 decrease in gains from the sale of securities and a $32,000 decrease in
the earnings of an investment accounted for under the equity method, with the
remainder attributable to non-recurring items recognized in the prior year.
OTHER EXPENSE - Total other expenses increased by approximately $1,047,000, or
36.1%, in the quarter ended December 31, 1999 compared to the comparable quarter
of the prior year. Significant components of the increase include approximately
$582,000 of expenses directly attributable to the Company's pending merger with
Old National Bancorp, Inc. and a $327,000 increase in salaries and employee
benefits, the majority of which is attributable to the exercise of stock
options. In addition, other expenses increased by $119,000 or 26.1% from the
comparable quarter of the prior year. Major components of this increase include
amortization of the Bank's investment in an affordable housing project
($35,000), various expenses related to the formation and operation of the Bank's
security management subsidiary ($54,000) and increased consultant fees ($24,000)
primarily attributable to the outsourcing of the Company's internal audit
function.
INCOME TAXES - Provisions for income taxes amounted to $68,000 for the quarter
ended December 31, 1999 compared to $515,000 for the quarter ended December 31,
1998.
NINE MONTHS ENDED DECEMBER 31, 1999 COMPARED TO NINE MONTHS ENDED DECEMBER 31,
1998.
NET INTEREST INCOME - Net interest income before provision for loan losses
increased by $335,000 or 3.5% for the nine months ended December 31, 1999
compared to the nine months ended December 31, 1998. The increase is primarily
the result of interest revenues and interest expenses associated with the assets
and liabilities of the acquired NBD branch offices being consolidated for nine
months in the current year compared to six months in the prior year.
Offsetting the increase in net interest income caused by this factor is an
increase in interest expense related to long-term borrowing since this borrowing
occurred in August 1998 and is therefore included for nine months in the current
year compared to four months in the prior year.
INTEREST INCOME - Total interest income for the nine months ended December 31,
1999 increased $628,000, or 2.5% , from the nine month period ended December 31,
1998. This increase is primarily attributable to a larger asset base in the
current year because of the previously noted branch acquisition which was,
however, partially offset by a decrease in earning asset yield of .05%. Asset
yield decreased because of the intense competitive environment for quality loans
and the fact that many of the Company's securities had "call" provisions which
were exercised as rates fell, principally in the first quarter of the current
fiscal year.
INTEREST EXPENSE - Total interest expense increased by $294,000, or 2.0%, during
the nine months ended December 31, 1999 compared to the nine months ended
December 31, 1998. This increase is primarily due to a larger deposit base due
to the branch acquisition described above. In addition, interest expense
associated with long-term borrowing increased by $63,000 for the nine months
ended December 31, 1999 compared to the prior year since this debt was incurred
in August 1998 and was therefore outstanding for only four months in the prior
year. Offsetting these increases is a decrease in the overall costs of deposits
and other liabilities of .03% from the prior year.
OTHER INCOME - Total other income increased $16,000, or .7%, in the nine month
period ending December 31, 1999 compared to the comparable period of the prior
year. Service charges increased $237,000, or 21.4%, compared to the prior year
as a result of higher fee levels and the deposits which were acquired in the
branch acquisition described above being subject to service charge assessment
for nine months in the current year compared to six months in the prior year.
Offsetting the service charge increase was a $49,000 decrease in gains on the
sale of loans, attributable to a depressed local residential real estate market,
and a $206,000 decrease in gains on the sale of securities. Commissions
increased by $61,000, or 13.7%, from the prior year as the Company has
aggressively marketed its brokerage services and the stock market has been
generally favorable to investors.
OTHER EXPENSE - Other expense increased by $1.8 million, or 22.4%, from the
prior year. Significant components of the increase include $582,000 of expenses
related to the Company's pending merger with Old National Bancorp, Inc., and a
$514,000 increase in salary and employee benefit expense, the majority of which
is attributable to the exercise of stock options. Increases in occupancy
($111,000), equipment ($46,000) and computer service expenses ($76,000) are
attributable to branches acquired in 1998. Expenses of these branches are
consolidated for the entire nine months ended December 31, 1999, but only for
six months for the comparable period of the prior year. Miscellaneous other
expenses increased $543,000 or 49.8%, from the comparable period of the prior
year. Major components of this increase include increased amortization of
deposit premiums associated with the June 1998 branch purchase ($159,000),
increased amortization of the Bank's investment in a affordable housing project
($98,000), increased consulting expenses ($54,000) as a result of the Company
outsourcing its internal audit function, and increased expenses ($103,000)
related to the start-up and operation of the Company's security custody
management subsidiary.
INCOME TAXES - Provisions for income taxes were $712,000, or 33.1% of income
before taxes during the nine months ended December 31, 1999. During the nine
month period ended December 31, 1998 the Company recorded a provision for income
taxes of $1,423,000 or 39.6% of income before taxes. The decrease in the
effective tax rate is the result of a managerial and geographical reorganization
of the Company's securities function and utilization of tax credit
opportunities.
FINANCIAL CONDITION AT DECEMBER 31, 1999 COMPARED TO MARCH 31, 1999
The Company's total assets at December 31, 1999 were $497.2 million representing
an increase of $4.8 million, or approximately 1.0%, from March 31, 1999.
Securities decreased by $5.6 million to $118.6 million at December 31, 1999 from
$124.2 million at March 31, 1999 as the Company invested a higher percentage of
its resources in higher yielding loans. Net loans increased by $7.7 million to
$328.7 million at December 31, 1999 compared to $321 million at March 31, 1999.
Loan growth was primarily in the consumer and commercial loan areas. Cash and
cash equivalents increased by $1.5 million from March 31, 1999 as the Company
increased its liquid assets as part of its Y2K readiness plan.
Office properties and equipment increased by approximately $1 million primarily
because the Company constructed a new branch banking facility on Evansville's
east side.
Non-performing assets were $1.1 million at December 31, 1999 and $1.2 million at
March 31, 1999. As of December 31, 1999, the Bank's loan loss allowance was $2.3
million. Although no assurance can be provided, management believes this amount
to be sufficient based upon historical averages and anticipated trends. Based on
management's analysis of classified and non-performing assets, loss histories
and other quantitative and qualitative factors, the allowance for loan losses
(presented below in tabular form) was deemed by management to be adequate at
December 31, 1999. The Bank conducts an on-going review of its loan portfolio
for potential problems in conjunction with its analysis of the adequacy of the
loss allowance.
1999 1998
----------- -----------
Balance, April 1 $ 2,706,408 $ 1,973,410
Provision for loan losses 217,000 225,000
Acquired in branch acquisition 760,000
Net charge offs (600,163) (196,624)
----------- -----------
Balance, December 31 $ 2,323,245 $ 2,761,786
=========== ===========
Federal Home Loan Bank advances increased by $9.3 million to $105.8 million at
December 31, 1999 compared to $96.5 million at March 31, 1999. The Company has
in the past and anticipates continuing to utilize advances in its funding
strategy since the cost of advances can be lower than the cost of acquiring or
retaining deposits. Deposits decreased by $1.4 million to $343.9 million at
December 31, 1999 compared to $345.3 million at March 31, 1999 as the Company
has elected to fund asset growth with advances and certificates of deposits
greater than $100,000 as rates on these sources have been attractive compared to
premium retail deposit rates being offered in the local market. Certificates of
deposit greater than $100,000 amounted to $44.8 million at December 31, 1999
compared to $30 million at March 31, 1999.
Other liabilities decreased because of the tax effects of a decrease in the
market value of securities available for sale and the exercise of nonqualified
stock options by directors.
Total stockholders' equity was $40.5 million at December 31, 1999 compared to
$40.9 million at March 31, 1999.
LIQUIDITY AND CAPITAL RESOURCES - The standard measure of liquidity for the
thrift industry is the ratio of cash and eligible investments to a certain
percentage of borrowings due within one year and net withdrawable deposit
accounts. The minimum required level is currently set by OTS regulation at 4%.
At December 31, 1999, the Bank's liquidity ratio was 33%. Historically, the Bank
has maintained its liquid assets which qualify for purposes of the OTS liquidity
regulations above the minimum requirements imposed by such regulations and at a
level believed adequate to meet requirements of normal daily activities,
repayment of maturing debt, and potential deposit outflows. Cash flow
projections are periodically reviewed to assure that adequate liquidity is
maintained. Cash for these purposes is generated through the maturity of
investment securities and loan sales and repayments, and may be generated
through increases in deposits. Loan payments are a relatively stable source of
funds while deposit flows are influenced significantly by the level of interest
rates and general money market conditions.
Borrowings may be used to compensate for reductions in other sources of funds
such as deposits. As a member of the FHLB system, the Bank may borrow from the
FHLB of Indianapolis. At December 31, 1999, the Bank had $105.8 million in such
borrowings. As of that date, the Bank had commitments to fund loans of
approximately $28.7 million (which includes unfunded lines and letters of credit
of approximately $25.3 million). In the opinion of management, the Bank has
sufficient cash flow and borrowing capacity to meet current and anticipated
funding commitments.
The following table sets forth the Bank's compliance with its capital
requirements at December 31, 1999.
Amount Percent (*)
-------- -----------
Core Capital:
Capital level $34,736,000 7.05%
Requirement 19,703,000 4.00%
---------- -----
Excess $15,033,000 3.05%
=========== =====
Risk-Based Capital:
Capital level $37,019,000 13.35%
Requirement 22,185,000 8.00%
---------- -----
Excess $14,834,000 5.35%
=========== =====
(*) Core capital is computed as a percentage of adjusted total assets of
$492,582,000. Risk-based capital is computed as a percentage of risk-weighted
assets of $277,315,000.
SUPPLEMENTAL DATA
Three Months Ended Nine Months Ended
December 31, December 31,
--------------------- ------------------
1999 1998 1999 1998
---- ---- ---- ----
Weighted average interest rate earned on
total interest-earning assets 7.60% 7.35% 7.34% 7.39%
Weighted average cost of total
interest-bearing liabilities 4.77 4.50 4.67 4.70
Interest rate spread during period 2.83 2.85 2.67 2.69
Net yield on interest-earning assets
(net interest income divided by average
interest-earning assets on annualized basis) 2.84 2.94 2.83 2.88
Total interest income divided by average
total assets (on annualized basis) 6.66 6.73 6.72 6.81
Total interest expense divided by
average total assets (on annualized basis) 4.20 4.07 4.08 4.15
Net interest income divided by average
total assets (on annualized basis) 2.42 2.66 2.59 2.66
Return on assets (net income (loss) divided by
average total assets on annualized basis) (0.07) 0.68 0.38 0.60
Return on equity (net income (loss) divided by
average total equity on annualized basis) (0.63) 8.49 4.61 6.94
Interest rate spread at end of period 2.78 2.94 2.78 2.94
Data as of
December 31, March 31,
1999 1999
------ ------
(IN THOUSANDS, EXCEPT %)
NONPERFORMING ASSETS:
Loans: Non-accrual $ 745 $ 818
Restructured 0 0
------ ------
Total nonperforming loans 745 818
Real estate owned, net 114 112
Other repossessed assets, net 207 236
------ ------
Total Nonperforming Assets $1,066 $1,166
====== ======
Nonperforming assets divided by total assets .21% .24%
Nonperforming loans divided by total loans .23% .25%
Balance in Allowance for Loan Losses $2,323 $2,706
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Office of Thrift Supervision (OTS) requires each thrift institution to
calculate the estimated change in the institution's market value of portfolio
equity (MVPE) assuming an instantaneous, parallel shift in the Treasury yield
curve of 100 to 300 basis points either up or down in 100 basis point
increments. MVPE is defined as the net present value of an institution's
existing assets, liabilities and off-balance sheet instruments. The OTS permits
institutions to perform this MVPE analysis using their own internal model based
upon reasonable assumptions.
The Company has determined that, as of December 31, 1999, there has been no
material change in prepayment assumptions or the estimated sensitivity of the
Company's MVPE to parallel yield curve shifts in comparison to the disclosures
set forth in the Company's 1999 annual report to shareholders.
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
Other than ordinary routine litigation incidental to the business,
there are no material pending legal proceedings to which the Company
or the Bank are a party.
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
ITEM 10. Material Contracts: Amendment dated December 20, 1999 to the
Employment Agreement dated October 6, 1998 between the Company and
Donald P. Weinzapfel, Chairman of the Board and Chief Executive
Officer.
(b) Reports on Form 8-K
A Form 8-K was filed on December 20, 1999, with the Securities and
Exchange Commission regarding an announcement on December 17, 1999
that the Company was in negotiations that could lead to a stock for
stock merger transaction and an announcement on December 20, 1999
that the Company had agreed to merge with Old National Bancorp, Inc.
in an all stock transaction valued at approximately $92 million.
A Form 8-K was filed on December 23. 1999 with the Securities and
Exchange Commission regarding the declaration of a quarterly cash
dividend.
A Form 8-K was filed on February 1, 2000 with the Securities and
Exchange Commission regarding a joint press release issued by the
Company and Old National Bancorp, Inc. on February 1, 2000 clarifying
the terms of the merger agreement announced on December 20, 1999.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PERMANENT BANCORP, INC.
Date: February 14, 2000 By /s/ Donald P. Weinzapfel
----------------- -------------------------
Donald P. Weinzapfel,
Chairman of the Board
Chief Executive Officer
(Principal Executive Officer)
Date: February 14, 2000 By /s/ Robert A. Cern
----------------- -------------------
Robert A. Cern
Chief Financial Officer and Secretary
(Principal Financial Accounting Officer)