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 June 30, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number: 0-23370
PERMANENT BANCORP, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 35-1908797
(State or other jurisdiction of (I.R.S. Employer
Incorporation or Origination) Identification No.)
101 Southeast Third Street, Evansville Indiana 47708
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code: (812) 428-6800
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 August 9, 1996, there were 2,249,134 shares of the Registrant's Common
Stock outstanding.
PERMANENT BANCORP, INC. AND SUBSIDIARY
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
Regulatory Developments
PART II. OTHER INFORMATION
Signatures
PERMANENT BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(UNAUDITED)
JUNE 30, 1996 MARCH 31, 1996
------------- --------------
ASSETS:
Cash .................................................................................... $ 4,772,253 $ 4,900,671
Interest-bearing deposits ............................................................... 950,417 15,750
------------- -------------
Total cash and cash equivalents ......................................................... 5,722,670 4,916,421
Securities available for sale - at fair value (amortized cost $92,933,956
and $73,408,686) ..................................................................... 90,713,754 73,170,635
Mortgage-backed securities available for sale at fair value (amortized
cost $56,252,434 and $61,888,585) .................................................... 55,391,938 61,953,242
Securities held to maturity (fair value $25,000 and $25,000) ............................ 25,000 25,000
Mortgage-backed securities held to maturity (fair value $30,281,021
and $32,319,409) ..................................................................... 30,484,906 32,153,595
Other Investments ....................................................................... 633,302 633,302
Loans (net of allowance for loan losses of $2,251,907 and $2,237,804) ................... 208,691,065 206,909,621
Interest receivable, net ................................................................ 3,157,224 2,874,362
Office properties and equipment, net .................................................... 7,332,651 7,256,587
Real estate owned, net .................................................................. 13,442 21,881
Deferred income tax ..................................................................... 1,755,236 281,495
Federal Home Loan Bank stock ............................................................ 4,930,700 3,503,600
Cash surrender value of life insurance .................................................. 963,942 953,199
Goodwill (net of accumulated amortization of $1,712,594 and $1,523,364) ................. 503,246 544,801
Other ................................................................................... 894,281 705,051
------------- -------------
TOTAL ASSETS ................................................................................. $ 411,213,357 $ 395,902,792
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY:
LIABILITIES:
Deposits ................................................................................ $ 273,852,079 $ 280,008,062
Federal Home Loan Bank advances ......................................................... 90,600,961 68,303,217
Advance payments by borrowers for taxes and insurance ................................... 754,237 1,022,263
Other borrowed funds .................................................................... 2,679,986 2,681,753
Interest payable ........................................................................ 1,971,742 1,922,635
Other ................................................................................... 1,076,478 471,231
------------- -------------
TOTAL LIABILITIES ............................................................................ $ 370,935,483 $ 354,409,161
------------- -------------
Continued to next page
PERMANENT BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION -- Continued
(UNAUDITED)
JUNE 30, 1996 MARCH 31, 1996
------------- --------------
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 -
2,459,839 and 2,460,196 shares; Outstanding - 2,135,256 and 2,134,515 shares ......... $ 24,598 $ 24,602
Additional paid-in capital .............................................................. 23,882,388 23,849,500
Treasury Stock - 210,705 and 211,803 shares ............................................. (3,343,865) (3,361,279)
Retained Earnings - substantially restricted ............................................ 23,113,719 22,727,602
Unrealized loss on securities available for sale, net of deferred tax of
$(1,220,263) and $(64,521) ........................................................... (1,860,435) (98,371)
ESOP Borrowing .......................................................................... (1,130,738) (1,190,250)
Unearned compensation - restricted stock awards ......................................... (407,793) (458,173)
------------- -------------
TOTAL STOCKHOLDERS' EQUITY ................................................................... $ 40,277,874 $ 41,493,631
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ................................................... $ 411,213,357 $ 395,902,792
============= =============
See notes to consolidated financial statements.
PERMANENT BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
THREE MONTHS ENDED
JUNE 30,
--------------------------
1996 1995
----------- -----------
INTEREST INCOME:
Loans ........................................ $ 4,117,639 $ 3,939,080
Mortgage-backed securities ................... 1,526,338 1,254,591
Investment securities ........................ 1,479,355 701,667
Deposits ..................................... 19,801 37,474
Dividends on Federal Home Loan Bank stock .... 82,984 49,682
----------- -----------
7,226,117 5,982,494
----------- -----------
INTEREST EXPENSE:
Deposits ..................................... 3,337,990 3,196,063
Federal Home Loan Bank advances .............. 1,228,240 489,278
Short-term borrowings ........................ 5,152 20,190
----------- -----------
4,571,382 3,705,531
----------- -----------
NET INTEREST INCOME ............................... 2,654,735 2,276,963
PROVISION FOR LOAN LOSSES ......................... 60,000 26,354
----------- -----------
NET INTEREST INCOME AFTER LOAN LOSS
PROVISION .................................... 2,594,735 2,250,609
----------- -----------
OTHER INCOME:
Service charges .............................. 204,767 140,670
Gain on sale of loans ........................ 2,997 3,726
Commissions .................................. 95,313 142,037
Loss on sale of investment and mortgage-backed
securities .................................. (5,835) (2,596)
Other ........................................ 56,741 76,522
----------- -----------
353,983 360,359
----------- -----------
Continued to next page
PERMANENT BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME -- Continued
(UNAUDITED)
THREE MONTHS ENDED
JUNE 30,
--------------------------
1996 1995
----------- -----------
OTHER EXPENSE:
Salaries and employee benefits ............... 1,025,563 1,080,721
Deposit insurance assessment ................. 181,991 180,212
Occupancy .................................... 193,247 216,158
Equipment .................................... 159,511 145,557
Net loss on real estate owned ................ 2,829 12,391
Computer service ............................. 130,111 120,343
Advertising .................................. 85,200 66,660
Postage and office supplies .................. 52,877 67,499
Other ........................................ 206,186 269,170
----------- -----------
2,037,515 2,158,711
----------- -----------
INCOME BEFORE INCOME TAXES ........................ 911,203 452,257
INCOME TAX PROVISION .............................. 406,800 147,833
----------- -----------
NET INCOME ........................................ $ 504,403 $ 304,424
=========== ===========
EARNINGS PER SHARE OF COMMON STOCK
Primary ...................................... $ 0.24 $ 0.13
Fully Diluted ................................ $ 0.23 $ 0.13
WEIGHTED AVERAGE SHARES OUTSTANDING
Primary ...................................... 2,134,351 2,262,678
Fully diluted ................................ 2,208,773 2,340,428
See notes to consolidated financial statements
PERMANENT BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED JUNE 30,
----------------------------
1996 1995
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ............................................. $ 504,403 $ 304,424
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation ................................... 121,965 120,253
Amortization and accretion .................... 174,219 (7,481)
Provisions for loan and real estate owned losses 14,103 12,506
Gain on sale of office properties and equipment -- (200)
Gain on sale of real estate owned .............. -- (6,087)
(Gain) loss on sale of securities .............. (11,624) 2,596
Loss on sale of mortgage-backed securities ..... 2,412 --
(Gain) on sale of loans ........................ (2,997) (3,726)
ESOP shares earned ............................. 36,453 --
Changes in assets and liabilities:
Proceeds from the sales of loans ................... 222,982 605,876
Origination of loans for resale .................... (219,985) (608,418)
Interest receivable ................................ (282,862) (130,085)
Deferred income tax ................................ (317,998) (140,703)
Other assets ....................................... (189,230) 149,918
Interest payable ................................... 49,107 144,868
Other liabilities .................................. 652,058 198,598
------------ ------------
Net cash provided by operating activities .............. 753,006 642,339
------------ ------------
Continued to next page
PERMANENT BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS -- Continued
(UNAUDITED)
THREE MONTHS ENDED JUNE 30,
----------------------------
1996 1995
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Loans originated ....................................... (17,776,343) (11,687,336)
Loan principal repayments .............................. 19,443,018 10,145,128
Proceeds from:
Maturities of:
Securities held to maturity .................... -- 1,588,706
Securities available for sale .................. 5,000,000 --
Sales of:
Securities held to maturity .................... -- 1,994,572
Securities available for sale .................. 5,528,233 --
Mortgage-backed securities available for sale .. 3,572,360 --
Land ........................................... -- 7,450
Real estate owned .............................. -- 44,177
Purchases of:
Securities available for sale .................. (29,988,750) (4,983,125)
Securities held to maturity .................... -- (5,478,161)
Mortgage-backed securities held to maturity .... -- (2,886,859)
Mortgage-backed securities available for sale .. (1,014,099) --
Loans .......................................... (3,695,083) (1,477,283)
FHLB Stock ..................................... (1,427,100) --
Office properties and equipment ................ (198,029) (23,382)
Payments on mortgage-backed securities ................. 4,780,729 1,872,157
Increase in cash surrender value of life insurance ..... (10,743) (9,453)
Payments on real estate owned .......................... 8,439 60,704
------------ ------------
Net cash used in investing activities .................. (15,777,368) (10,832,705)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid ......................................... $ (111,852) $ --
Net change in deposits ................................. (6,155,983) (401,582)
Receipts from FHLB advances ............................ 41,000,000 12,000,000
Payments on FHLB advances .............................. (18,702,256) (359,396)
Principal repayment of ESOP borrowing .................. 59,512 59,512
Advance payments by borrowers for taxes and insurance .. (268,026) (425,452)
Net change in other borrowed funds ..................... (1,767) 988,343
Purchase of treasury stock ............................. -- (1,953,241)
Sale of common stock .................................. 10,983 29,750
------------ ------------
Net cash provided by financing activities .............. 15,830,611 9,937,934
------------ ------------
Continued to next page
PERMANENT BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS -- Continued
(UNAUDITED)
THREE MONTHS ENDED JUNE 30,
----------------------------
1996 1995
------------ ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS ................ 806,249 (252,432)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ........... 4,916,421 5,573,343
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ................. 5,722,670 5,320,911
============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest ........................................... $ 3,334,841 $ 3,329,877
Income taxes ....................................... 80,000 45,900
Noncash transactions:
Transfers from loans to real estate owned .......... -- 35,095
See notes to consolidated financial statements.
PERMANENT BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
1. BASIS OF PRESENTATION - The consolidated financial statements include the
accounts of Permanent Bancorp, Inc. (the "Company"), its wholly owned
subsidiary, Permanent Federal Savings Bank, its wholly owned subsidiary,
Perma-Service Corp, and its wholly owned subsidiary, Permanent Insurance Agency,
Inc. (collectively the "Bank"). All significant intercompany accounts and
transactions have been eliminated. These consolidated interim financial
statements at June 30, 1996 and for the three month periods ended June 30, 1996,
and 1995, 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.
These statements should 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 for the year ended March 31, 1995.
2. CHANGES IN PRESENTATION - Certain amounts and items appearing in the
financial statements for the quarter ended June 30,1995 have been reclassified
to conform with the presentation presented for the period ended June 30, 1996.
3. FINANCIAL ACCOUNTING STANDARDS NO. 122 (FAS 122) " ACCOUNTING FOR MORTGAGE
SERVICING RIGHTS" - FAS 122 was adopted by the Company effective April 1, 1996.
This statement specifies conditions under which mortgage servicing rights should
be accounted for separately from the underlying mortgage loans. Generally the
statement applies to mortgages sold with servicing rights retained. An
allocation of the loan's book value is made to the servicing rights retained.
The value of the servicing rights are capitalized and written off as servicing
income is received. The effect is to increase profits recognized when loans are
sold, but to reduce net income recognized on servicing, as loans are repaid. The
application of FAS 122 had a nominal effect on the Company's financial
statements for the quarter ended June 30, 1996, but could have a more material
impact if loan sales are increased.
4. FINANCIAL ACCOUNTING STANDARDS NO. 123 (FAS 123) "ACCOUNTING FOR STOCK BASED
COMPENSATION" Effective April 1, 1996, the Company adopted FAS 123 by continuing
to account for stock compensation in accordance with Accounting Principals Board
Opinion No. 25 "Accounting for Stock Issued to Employees." However, the fair
value disclosures are not included as the fair values are not deemed to have a
significant impact on the financial position or results of operations of the
Company.
5. FINANCIAL ACCOUNTING STANDARDS NO. 125 (FAS 125) "ACCOUNTING FOR TRANSFERS
AND SERVICING OF FINANCIAL ASSETS AND EXTINGUISHMENTS OF LIABILITIES"-FAS 125
was issued in June 1996 and provides accounting and reporting standards for
transfers and servicing of financial assets and extinguishments of liabilities.
FAS 125 applies to transactions occuring after December 31, 1996. Management has
not yet quantified the effect of this new standard on the Consolidated Financial
Statements.
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 Federal Savings Bank (the "Bank") and has
no other subsidiaries. Material changes in the consolidated statements of
Financial Condition and Results of Operations of the Company, except where
noted, are attributed to the operations of the Bank; therefore the following
analysis is centered on the activities of the Bank.
QUARTER ENDED JUNE 30, 1996 COMPARED TO JUNE 30, 1995
NET INTEREST INCOME - Net interest income before provision for loan losses
increased by $378,000 or 16.6% for the quarter ended June 30, 1996 compared to
the quarter ended June 30, 1995. This increase was primarily attributable to an
increase in interest earning assets and an improvement in the interest rate
spread (the difference between the rate earned on interest earning assets and
the rate paid on interest bearing liabilities).
Net interest income after provision for loan losses increased by $344,000, or
15.3% for the quarter ended June 30, 1996 compared to the quarter ended June 30,
1995. The increase was smaller than the increase in net interest income before
provision for loan losses because of an increase in the loss provision
reflecting actual and anticipated loan growth.
INTEREST INCOME - Total interest income for the three months ended June 30, 1996
increased $1,244,000, or 20.8%, from the three month period ended June 30, 1995.
This increase was attributable to an increase of 31 basis points in the average
rate earned on total interest earning assets and an increase of $52.5 million in
average balances for the comparable periods.
INTEREST EXPENSE - Total interest expense increased by $866,000, or 23.4%,
during the three months ended June 30, 1996 compared to the three months ended
June 30, 1995. Average interest bearing liabilities increased by $56.1 million,
but the cost of such liabilities decreased by 16 basis points, compared to the
quarter ended June 30, 1995.
OTHER INCOME - Total other income decreased by $6,000 during the quarter ended
June 30, 1996 compared to the quarter ended June 30, 1995. Service charges were
$64,000 more while commissions were $47,000 less during the quarter ended June
30, 1996 than during the comparable quarter in 1995. During the quarter ended
June 30, 1996 the Company earned profits on sales of loans of $3,000 compared to
$4,000 during the quarter ended June 30, 1995 and recognized losses of $6,000 on
sales of investment and mortgage-backed securities compared to losses of $3,000
during the quarter ended June 30, 1995. The remaining other income accounts were
down by $20,000 during the current year quarter, primarily because the prior
year quarter included an adjustment for the conversion from regulatory
accounting principals to generally acceptable accounting principals for the
recognition of loan fees in the amount of $69,000. The conversion which had been
phased in over a period of years was completed during January, 1996. The loss of
the conversion fee recognition was partially offset by increases in other fees.
OTHER EXPENSE - Other expense decreased a total of $121,000 during the quarter
ended June 30, 1996 compared to the quarter ended June 30, 1995. Salaries and
employee benefits decreased by $55,000 or 5.1% during the quarter ended June 30,
1996 compared to the same period in 1995. During the Quarter ended June 30, 1996
the bank expended $21,000 in consulting fees and associated costs under an
arrangement to assist management in enhancing bank profitability. Occupancy
expenses decreased by $23,000 and equipment and computer expenses increased by
$24,000 during the comparable periods. Deposit insurance assessments were $2,000
higher during the quarter ended June 30, 1996, and advertising expenditures were
$19,000 higher than during the quarter ended June 30, 1995. Postage and office
supplies were $15,000 lower during the quarter ended June 30, 1996. The
recognition of deferred loan expense decreased by $21,000 during the 1996 period
compared to the 1995 period.
INCOME TAXES - Provisions for income taxes amounted to $407,000, or 44.6% of
income before taxes during the quarter ended June 30, 1996, compared to
$148,000, or 32.7% of income before taxes during the quarter ended June 30,
1995. The increase was the result of the Bank's inability to claim loan loss
provisions for tax purposes as high as the expense recognized for book purposes
during the quarter ended June 30, 1996 and because an adjustment for a prior
period over accrual was made during the quarter ended June 30, 1995.
FINANCIAL CONDITION JUNE 30, 1996 COMPARED TO MARCH 31, 1996
The Company's total assets at June 30, 1996 were $411.2 million representing an
increase of $15.3 million, or 3.9%, from March 31, 1996. Investment and
mortgage-backed securities, including those classified as available for sale,
increased by $9.3 million to $176.6 million at June 30, 1996 from $167.3 million
at March 31, 1996. Net loans increased by $1.8 million to $208.7 million at June
30, 1996 compared to $206.9 million at March 31, 1996.
The loan growth, primarily in single family mortgage loans and in automobile
loans, is indicative of the strength of the local economy. By policy, the Bank
retains all adjustable rate loans and all fixed rate loans with terms of 20 year
or less in its portfolio, and sells all fixed rate loans of terms exceeding 20
years. During the three months ended June 30, 1996, customers showed a marked
preference for the Bank's mortgage loan program offering loans at an interest
rate which is fixed for ten years, then adjustable annually.
In July, 1996 the bank received a payoff on a (Cardinal Industries) multi-family
housing loan. The loan, with a principal balance of $1,439,858 was carried as a
criticized asset in the "other assets especially mentioned" category. The Bank
received its full principal balance on the loan. As previously disclosed, the
Bank holds an additional five Cardinal Industries' loans with aggregate
principal balances of nearly $6.8 million; three of the five remaining loans
with principal balances of approximately $4.3 million are carried as impaired
loans and one with a principal balance of nearly $2.0 million is a troubled debt
restructuring. The remaining loan is a 50% participation and has always
performed according to the note terms. Management representatives of the Bank
and of Cardinal Industries have reached a contingent agreement, deemed
acceptable by the Bank's board of directors on two of the impaired loans with
total principal balances of approximately $3.0 million. The contingencies are
approval by Cardinal's board of directors, satisfactory appraisals, and
Cardinal's ability to obtain other financing. If the proposed settlement is
reached, it will have little or no effect on the Bank's earnings, however
nonperforming assets will decline significantly. Bank management cannot now
predict if the contingencies will be satisfied.
Non-performing assets were at $6.8 million at June 30, 1996, compared to $6.9
million at March 31, 1996 and $8.0 million at June 30, 1995. As of June 30,
1996, the Bank's loan loss allowance was $2,251,907. Although no assurance can
be provided, management believes this amount to be sufficient based upon
historical averages and current trends. Based on management's analysis of
classified assets, loss histories and future projections, the allowance for loan
losses (presented below in tabular form) was deemed by management to be adequate
at June 30, 1996. Figures presented for April 1, 1995 have been restated to
reflect the reclassification of impaired loans from in-substance foreclosure
back to loan categories pursuant to the provisions of Statement of Financial
Accounting Standards No. 114 (FASB 114), which was adopted during the quarter
ended June 30, 1995.
1996 1995
---------- ----------
Balance, April 1 $2,237,804 $2,093,491
Provision for loan losses 60,000 26,354
Net charge offs (45,897) (2,863)
---------- ----------
Balance, June 30 $2,251,907 $2,116,982
Effective April 1, 1994, the Company implemented Statement of Financial
Accounting Standards No. 115 (FAS 115) "Accounting for Certain Investments in
Debt and Equity Securities." FAS 115 required a classification of most equity
and all debt securities in one of three categories: "held to maturity,"
"trading," or "available for sale." Except in very specific and limited
circumstances, any security classified as "held to maturity" could not be sold
or reclassified without the entire portfolio being reclassified. During November
1995, the Financial Accounting Standards Board voted to allow a one time
opportunity (between November 15, 1995 and December 31, 1995) to reclassify
securities without tainting the portfolio. The Company utilized this opportunity
by reclassifying investment and mortgage backed securities with an aggregate
carrying value of $101.3 million from the "held to maturity" category to the
"available for sale" category.
The loan growth and the increase in investment and mortgage-backed securities
was funded through Federal Home Loan Bank advances which increased by $22.3
million to $90.6 million at June 30, 1996 compared to $68.3 million at March 31,
1996. Deposits decreased by $6.1 million to $273.9 million at June 30, 1996
compared to $280.0 million at March 31, 1996.
Total stockholders' equity decreased by $1.2 million to $40.3 million at June
30, 1996 from $41.5 million at March 31, 1996. The decrease was primarily
attributable to an increase of $1.8 million in unrealized losses on securities
available for sale. Additionally, the Company paid dividends of $111,852 during
the quarter ended June 30, 1996. Increases resulted from the retention of
earnings, reduction of employee stock ownership liability, vesting of restricted
stock awards, and through the exercise of stock options resulting in the sale of
1,098 shares of treasury stock at $10 per share.
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 5%.
At June 30, 1996, the Bank's liquidity ratio was 11.07%. 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 regularly reviewed and updated 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 June 30,
1996, the Bank had $90,601,000 in such borrowings. As of that date, the Bank had
commitments to fund loan origination's and purchase investment securities of
approximately $2.7 million and commitments to sell mortgage-backed securities in
the amount of $4.1 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 June 30, 1996.
Amount Percent (*)
------ -----------
Tangible Capital:
Capital level ......................... $33,415,263 8.18%
Requirement ........................... 6,124,305 1.50%
----------- -----
Excess ................................ $27,290,958 6.68%
----------- -----
Core Capital:
Capital level ......................... $33,415,263 8.18%
Requirement ........................... 12,248,609 3.00%
----------- -----
Excess ................................ $21,166,654 5.18%
----------- -----
Risk-Based Capital:
Capital level ......................... $35,246,203 20.86%
Requirement ........................... 13,516,547 8.00%
----------- -----
Excess ................................ $21,729,656 12.86%
----------- -----
(*) Tangible and core capital are computed as a percentage of adjusted total
assets of $408,286,983. Risk-based capital is computed as a percentage of
risk-weighted assets of $168,956,839.
SUPPLEMENTAL DATA
Three Months Ended
June 30,
------------------
1996 1995
---- ----
Weighted average interest rate earned on
total interest-earning assets ........................ 7.52% 7.21%
Weighted average cost of total
interest-bearing liabilities ......................... 4.76% 4.92%
Interest rate spread during period ..................... 2.76% 2.29%
Net yield on interest-earning assets
(net interest income divided by average
interest-earning assets on annualized basis) ......... 2.76% 2.74%
Total interest income divided by average
total assets (on annualized basis) ................... 7.16% 6.88%
Total interest expense divided by
average total assets (on annualized basis) ........... 4.53% 4.26%
Net interest income divided by average
total assets (on annualized basis) ................... 2.63% 2.62%
Return on assets (net income divided by
average total assets on annualized basis) ............ 0.50% 0.35%
Return on equity (net income divided by
average total equity on annualized basis) ............ 4.94% 2.85%
Interest rate spread at end of period .................. 2.44% 2.19%
Data as of
June 30, March 31,
1996 1996
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(IN THOUSANDS)
NONPERFORMING ASSETS:
Loans: Non-accrual ................................ $4,474 $4,705
Restructured .............................. 2,156 2,165
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Total nonperforming loans .......................... $6,630 $6,870
Real estate owned, net ............................. 13 22
Other repossessed assets, net ...................... 4 29
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Total Nonperforming Assets ........................... $6,810 $6,921
Nonperforming assets divided by total assets ......... 1.66% 1.75%
Nonperforming loans divided by total loans ........... 3.18% 3.22%
Balance in Allowance for Loan Losses ................. $2,252 $2,238
REGULATORY DEVELOPMENTS
Recapitalization of SAIF and related Legislative Proposals - The deposits of the
Company are currently insured by the Savings Association Insurance Fund ("SAIF")
of the Federal Deposit Insurance Corporation ("FDIC"). Both the SAIF and the
Bank Insurance Fund ("BIF"), the federal deposit insurance fund that covers
commercial bank deposits, are required by law to attain and thereafter maintain
a reserve ratio of 1.25% of insured deposits. The BIF has achieved a fully
funded status in contrast to the SAIF and, thereafter, as discussed below, the
FDIC recently substantially reduced the average deposit insurance premium paid
by commercial banks to a level substantially below the average premium paid by
savings institutions.
On November 14, 1995, the FDIC approved a final rule regarding deposit insurance
premiums. The final rule reduced deposit insurance premiums for BIF member
institutions to zero basis points (subject to a $2,000 minimum) for institutions
on the lowest risk category, while holding deposit insurance premiums for SAIF
members at their current levels (23 basis points for institutions in the lowest
risk category). The reduction was effective with respect to the semiannual
premium assessment beginning January 1, 1996. Accordingly, in the absence of
further legislative action, SAIF members such as the Bank will be competitively
disadvantaged as compared to commercial banks by the resulting premium
differential.
The U.S. House of Representatives and Senate have actively considered
legislation which would have eliminated the premium differential between
SAIF-insured institutions by recapitalizing the SAIF's reserves to the required
ratio. The proposed legislation would have provided that all SAIF member
institutions pay a special one-time assessment to recapitalize the SAIF, which
in the aggregate would have been sufficient to bring the reserve ratio in the
SAIF to 1.25% of insured deposits. Based on the current level of reserves
maintained by the SAIF, it was anticipated that the amount of the special
assessment required to recapitalize the SAIF would have been approximately 68
basis points of the SAIF-assessable deposits. It was anticipated that after the
recapitalization of the SAIF, premiums paid by SAIF-insured institutions would
be reduced to match those currently being assessed BIF-insured commercial banks.
The legislation also provided for the merger of the BIF and the SAIF, with such
merger being conditioned upon the prior elimination of the thrift charter.
The legislation discussed above had been, for some time, included as part of a
fiscal 1996 federal budget bill, but was eliminated prior to the bill enacted on
April 26, 1996. In light of the legislation's elimination and the uncertainty of
the legislative process generally, management cannot predict whether legislation
reducing SAIF premiums and/or imposing a special one-time assessment will be
adopted, or, if adopted, the amount of the assessment, if any, would be imposed
on the Bank.
If legislation were to be enacted in the future which would assess a one-time
special assessment of 68 basis points, the Bank would (based upon the Bank's
SAIF deposits as of March 31, 1995) pay approximately $1.1 million, net of
related tax benefits. In addition, the enactment of such legislation might have
the effect of immediately reducing the Bank's capital by such an amount.
Nevertheless, management does not believe, based upon the forgoing assumptions,
that a one-time assessment of this nature would have a material adverse effect
on the Company's consolidated financial condition.
Pending Legislation Regarding Bad Debt Reserves - Under Section 593 of the
Internal Revenue Code of 1986, as amended (the "Code"), thrift institutions such
as the Bank, which meet certain definitional tests primarily relating to their
assets and the nature of their business, are permitted to establish a tax
reserve for bad debts and to make annual additions thereto, which additions may,
within specified limitations, be deducted in arriving at their taxable income.
The Company's deduction with respect to "qualifying loans", which are generally
loans secured by certain interests in real property, may currently be computed
using an amount based on the Company's loss experience (the "experience
method"), or a percentage equal to 8.0% of the Company's taxable income (the
"percentage of taxable income method"), computed without regard to this
deduction and with additional modifications and reduced by the amount of any
permitted addition to the non-qualifying reserve.
Under proposed legislation, the percentage of taxable income method would be
repealed and the Bank would be permitted to use only the experience method of
computing additions to its bad debt reserve. In addition, the Bank would be
unable to make additions to its tax bad debt reserve, would be permitted to
deduct bad debts only as they occur and would additionally be required to
recapture (i.e., take into income) over a six-year period the excess of the
balance of its bad debt reserves as of December 31, 1995 over the balance of
such reserves as of December 31, 1987. However, under the proposed legislation,
such recapture requirements would be suspended for each of two successive
taxable years beginning January 1, 1996, in which the Bank originates a minimum
amount of certain residential loans based upon the average of the principal
amounts of such loans made by the Bank during its six taxable years preceding
1996. It is anticipated that any recapture of the Bank's bad debt reserves
accumulated after 1987 would have a material adverse effect on the Company's
consolidated financial condition or results of operations.
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
None.
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
None.
(b) Reports on Form 8-K
A Form 8-K was filed on May 3, 1996, with the Securities and
Exchange Commission, regarding a press release dated May 3,
1996, announcing a plan to repurchase up to 5 percent of the
registrant's common stock.
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 August 14, 1996 By /s/ Donald P. Weinzapfel
--------------------------------------------
Donald P. Weinzapfel,
Chairman of the Board
President and Chief Executive Officer
(Principal Executive Officer)
DATE August 14, 1996 By /s/ Joseph M. Schnapf
--------------------------------------------
Joseph M. Schnapf
Chief Financial Officer
(Principal Financial Accounting Officer)