TABLE OF CONTENTS
President's Letter ................................................. 2
Selected Consolidated Financial Data ............................... 3
Quarterly Results of Operations .................................... 5
Management's Discussion and Analysis of
Financial Condition and Results of Operations .................... 6
Independent Auditors' Report ....................................... 19
Consolidated Statements of Financial Condition ................... 20
Consolidated Statements of Income ................................ 21
Consolidated Statements of Stockholders' Equity .................. 22
Consolidated Statements of Cash Flows ............................ 23
Notes to Consolidated Financial Statements ....................... 25
Officers and Directors ............................................. 46
Corporate Information .............................................. 47
1
Permanent
Bancorp, Inc.
LETTER TO STOCKHOLDERS
To Our Stockholders:
Permanent Bancorp, Inc. completed its fourth year as a public company
on March 31, 1998 and earned $2.64 million for the year. This amount represents
a 103% increase from 1997 net income of $1.30 million. Included in 1997's
earnings is a $1.77 million (pretax) industry-wide assessment by the Savings
Association Insurance Fund ("SAIF") of the Federal Deposit Insurance
Corporation. Earnings for the year ended March 31, 1998 compared to prior year
earnings before the SAIF assessment increased by 11.4%. Basic earnings per share
were $0.65 in fiscal 1998 compared to $0.31 in the prior year and diluted
earnings per share increased to $0.62 from $0.30 in the prior year.
The market price of the Company's stock reached record highs in March
1998 and the Board of Directors authorized a stock split, effected in the form
of a 100% stock dividend, which was completed in April.
The Company has recently adopted a dividend reinvestment and stock
purchase plan. This enables stockholders the convenience of purchasing
additional stock without incurring any brokerage commissions or administrative
fees.
The Board of Directors of the Company has elected a new director to its
board. In March 1998 Mr. Daniel L. Schenk, President of IVY Tech State College,
Evansville Region, joined the Board. Mr. Schenk was also elected a director of
the subsidiary Bank.
At the subsidiary level the Bank continues to increase its net interest
income and non-interest income while reducing classified assets. These trends,
coupled with a robust economy in the Evansville area, bodes well for the future.
In addition, in April 1998 the Company announced that it had reached an
agreement to acquire four branch locations from NBD Bank. This acquisition will
significantly increase the Company's presence in the Evansville area and afford
it marketing and other operating efficiencies. This acquisition will add
approximately $85 million to the Company's deposit base and we look forward to
having the NBD personnel join the Permanent family.
More recently Mr. Robert A. Cern has joined the management team as our
Chief Financial Officer and Corporate Secretary. Mr. Cern comes to us with many
years experience in financial and accounting management.
The banking environment is changing rapidly and the recent wave of
mega-mergers and technological advances will continue to reshape the financial
services industry. Permanent continues to explore growth opportunities and
profit improvement strategies. In the near future, the Company will offer a
telephone based bill paying service and personal computer based home banking
service.
We appreciate the continued support of our customers and shareholders
and look forward to another year of earnings improvement.
/s/Donald P. Weinzapfel
-----------------------
Donald P. Weinzapfel
Chairman of the Board
President and
Chief Executive Officer
2
Permanent
Bancorp, Inc.
SELECTED CONSOLIDATED FINANCIAL DATA
(In Thousands)
At March 31,
- ----------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------
Selected Financial Condition Data:
Total assets $439,115 $423,698 $395,903 $342,678 $365,184
Loans, net 225,349 210,189 206,910 195,483 189,240
Cash and interest-bearing deposits 6,083 6,364 4,916 5,573 36,235
Mortgage-backed securities available
for sale 62,652 74,052 61,953 981
Mortgage-backed securities held
to maturity 18,861 27,181 32,154 76,262 76,027
Securities available for sale 105,619 85,180 73,171 992
Securities held to maturity 25 25 48,076 48,247
Goodwill 453 326 545 769 1,015
Deposits 282,942 280,753 280,008 267,520 285,180
Total borrowings 99,353 100,278 70,985 28,114 34,823
Stockholders' equity 42,683 39,095 41,494 43,488 41,747
Year Ended March 31,
- ---------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------
Selected Operations Data:
Interest income $30,521 $29,689 $25,892 $22,705 $21,785
Interest expense 19,342 18,724 16,354 13,352 13,616
- ---------------------------------------------------------------------------------------------------------------------
Net interest income 11,179 10,965 9,538 9,353 8,169
Provision for loan losses 177 113 207 410 350
- ---------------------------------------------------------------------------------------------------------------------
Net interest income after provision
for loan losses 11,002 10,852 9,331 8,943 7,819
- ---------------------------------------------------------------------------------------------------------------------
Other income:
Service charges 985 841 628 619 817
Gain (loss) on sale of loans 92 23 18 (16) 228
Gain (loss) on sale of investment and
mortgage-backed securities 43 (56) (6) 5 36
Other 972 816 797 1,085 544
- ---------------------------------------------------------------------------------------------------------------------
Total other income 2,092 1,624 1,437 1,693 1,625
- ---------------------------------------------------------------------------------------------------------------------
Other expense:
Salaries and employee benefits 4,519 4,295 4,427 4,397 3,768
Deposit insurance assessment 276 2,351 711 738 776
Occupancy 821 809 819 769 704
Other 3,015 2,714 2,900 2,614 2,449
- ---------------------------------------------------------------------------------------------------------------------
Total other expense 8,631 10,169 8,857 8,518 7,697
- ---------------------------------------------------------------------------------------------------------------------
Income before income taxes 4,463 2,307 1,911 2,118 1,747
Income tax provision 1,818 1,003 662 874 721
- ---------------------------------------------------------------------------------------------------------------------
Net income $ 2,645 $ 1,304 $ 1,249 $ 1,244 $ 1,026
=====================================================================================================================
3
SELECTED CONSOLIDATED FINANCIAL DATA
At or For the Year Ended March 31,
- ---------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------
Performance Ratios:
Return on average assets (ratio of net
income to average total assets) 0.62% 0.31% 0.34% 0.36% 0.31%
Interest rate spread information:
Average during year 2.41 2.40 2.28 2.41 2.40
End of year 2.40 2.41 2.33 2.28 2.27
Net interest margin (1) 2.74 2.76 2.72 2.83 2.58
Ratio of operating expense to average
total assets 2.03 2.44 2.41 2.37 2.39
Return on average stockholders' equity
(ratio of net income to average
stockholders' equity) 6.45 3.25 2.95 2.92 4.90
Ratio of average interest-earning
assets to average interest-bearing
liabilities 106.97 107.63 109.42 110.51 04.19
Asset Quality Ratios:
Non-performing assets to total assets at
end of year (2) 0.25 1.11 1.75 2.43 2.83
Allowance for loan and real estate
owned losses to non-performing
assets 180.51 44.73 32.22 25.33 21.75
Allowance for loan losses to total loans 0.87 1.00 1.07 1.06 1.11
Capital Ratios:
Stockholders' equity to total assets at
end of year 9.72 9.23 10.48 12.69 11.43
Average stockholders' equity to average
assets 9.63 9.63 11.54 12.29 6.34
Number of full-service offices 11 11 11 11 11
Number of deposit accounts 33,884 35,426 36,452 35,075 38,644
Book value per share (3) $ 10.41 $ 9.52 $ 9.72 $ 9.36 $ 8.47
Dividend payout ratio 30.6% 46.7% 27.9% N/A N/A
(1) Net interest income divided by average interest-earning assets.
(2) Non-performing assets consist of non-accruing loans, including in-substance
foreclosures, accruing loans past due 90 or more days, troubled debt
restructurings and real estate owned.
(3) Amounts reflect a stock split in the form of a 100% stock dividend on April
14, 1998.
4
Permanent
Bancorp, Inc.
QUARTERLY RESULTS OF OPERATIONS
The following table presents certain selected unaudited data relating
to results of operations for the three month periods ending on the dates
indicated.
Three Months Ended
- --------------------------------------------------------------------------------------------------------------------
June 30, September 30, December 31, March 31,
1997 1997 1997 1998
- --------------------------------------------------------------------------------------------------------------------
Fiscal 1998
Total interest income $7,653,837 $7,784,083 $7,587,707 $7,495,779
Total interest expense 4,850,898 5,001,278 4,817,298 4,673,037
- --------------------------------------------------------------------------------------------------------------------
Net interest income 2,802,939 2,782,805 2,770,409 2,822,742
Provision for loan losses 77,386 75,164 (500) 25,000
- --------------------------------------------------------------------------------------------------------------------
Net interest income after
provision for loan losses 2,725,553 2,707,641 2,770,909 2,797,742
Other income 497,035 529,984 591,674 473,300
Other expense 2,123,438 2,140,755 2,196,172 2,170,962
- --------------------------------------------------------------------------------------------------------------------
Income before income taxes 1,099,150 1,096,870 1,166,411 1,100,080
Income tax provision 461,228 451,966 461,303 442,847
- --------------------------------------------------------------------------------------------------------------------
Net income $ 637,922 $ 644,904 $ 705,108 $ 657,233
====================================================================================================================
Three Months Ended
- --------------------------------------------------------------------------------------------------------------------
June 30, September 30, December 31, March 31,
1996 1996 1996 1997
- --------------------------------------------------------------------------------------------------------------------
Fiscal 1997
Total interest income $7,226,117 $7,436,240 $7,532,390 $7,493,878
Total interest expense 4,571,382 4,711,195 4,752,329 4,689,090
- --------------------------------------------------------------------------------------------------------------------
Net interest income 2,654,735 2,725,045 2,780,061 2,804,788
Provision for loan losses 60,000 88,486 (132,040) 96,810
- --------------------------------------------------------------------------------------------------------------------
Net interest income after
provision for loan losses 2,594,735 2,636,559 2,912,101 2,707,978
Other income 353,983 442,397 513,793 313,740
Other expense 2,037,515 3,915,272 2,135,720 2,080,249
- --------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes 911,203 (836,316) 1,290,174 941,469
Income tax provision (benefit) 406,800 (275,822) 573,492 298,516
- --------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 504,403 $ (560,494) $ 716,682 $ 642,953
====================================================================================================================
5
Permanent
Bancorp, Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
At March 31, 1998, Permanent Bancorp, Inc. (the "Company") successfully
completed its fourth year as a publicly owned entity. All references to the
Company before March 31, 1994 refer to the operations of the Company's
subsidiary, Permanent Federal Savings Bank ("Permanent Federal" or the "Bank").
The principal business of the Company consists of attracting deposits from the
general public and using these deposits, together with borrowings and other
funds, primarily to originate one- to four-family residential mortgage loans as
well as multi-family and commercial real estate, automobile and other consumer
loans. The Company also originates construction and commercial business loans
and invests in mortgage-backed and other investment securities. The Company's
results of operations are primarily dependent on its interest rate spread, which
is the difference ("spread") between the average yield on interest-earning
assets, such as loans, mortgage-backed and investment securities and short-term
interest bearing deposits and the average rate paid on interest-bearing
liabilities, such as deposits and borrowings. The interest rate spread is
affected by regulatory, economic and competitive factors that influence interest
rates, loan demand and deposit flows. In addition to credit risk, the Company is
subject to interest rate risk to the degree that its interest-earning assets
mature or reprice at different times, or on a different basis, than its
interest-bearing liabilities.
The Company's results of operations also depend upon, among other
things, the level of fee income, gains or losses on the sale of loans and other
assets, provisions for possible loan losses, income derived from subsidiary
activities, operating expenses and income taxes. The Company's operating
expenses principally consist of employee compensation and benefits, occupancy
expenses, federal deposit insurance premiums and other general and
administrative expenses.
Permanent Federal is significantly affected by prevailing economic
conditions, including federal monetary and fiscal policies, as well as by
federal regulation of financial institutions. Deposit balances are influenced by
a number of factors, including interest rates paid on competing personal
investments and the level of personal income and savings within the
institution's market area. In addition, deposit balances are influenced by the
perceptions of customers regarding the stability of the financial markets and
financial services industry. Management expects to retain a significant portion
of existing deposit balances by offering competitive rates on such deposits.
Permanent Federal has adopted a strategy of employing Federal Home Loan Bank of
Indianapolis (FHLB) advances to supplement deposits. FHLB advances are expected
to augment the liquidity necessary to fund lending operations and investment
opportunities. Lending activities are influenced by the demand for housing,
consumer and commercial loans as well as competition from other lending
institutions. The primary sources of funds for lending activities include
deposits, loan payments, borrowings, the sale of loans and other assets and
funds provided from operations.
Forward-looking Statements
Certain statements in this report that relate to Permanent Bancorp's
plans, objectives or future performance may be deemed to be forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995. Such statements are based on Management's current expectations. Actual
strategies and results in future periods may differ materially from those
currently expected because of various risks and uncertainties. Additional
discussion of factors affecting Permanent Bancorp's business and prospects is
contained in the Company's periodic filings with the Securities and Exchange
Commission.
Information Systems and the Year 2000
As is the case with most other companies using computers in their
operations, the Company is in the process of addressing the Year 2000 problem.
The Company is currently engaged in a comprehensive project to ascertain that
the
6
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
computer programs it utilizes, both internally generated and those provided by
outside sources, will consistently and properly recognize the Year 2000. Many of
the Company's significant systems used to generate both internal reports and
external documents (such as account statement and year-end tax reports) are
generated by an outside provider of data processing services which has
represented these systems will be Year 2000 compliant. The Company has initiated
contingency processing plans should this supplier not become Year 2000 compliant
in a timely manner. The Company is in the process of obtaining assurances from
vendors that timely updates will be made available to make all remaining
purchased software Year 2000 compliant.
The Company will utilize both internal and external resources to
reprogram or replace and test all of its software for Year 2000 compliance and
the Company expects to complete the project in early calendar year 1999. The
estimated cost for this project is being funded through operating cash flows. No
assurance can be given by the Company that either it or its vendors will be Year
2000 compliant and failure by the Company and/or significant vendors to complete
Year 2000 compliance work in a timely manner could have a material adverse
effect on certain of the Company's operations.
FINANCIAL CONDITION
March 31, 1998 Compared to March 31, 1997
The Company's total assets at March 31, 1998 were $439.1 million, an
increase of $15.4 million, or 3.6% from $423.7 million at March 31, 1997.
Investment and mortgage-backed securities amounted to $187.1 million at March
31, 1998, an increase of $694,000 from $186.4 million at March 31, 1997. Net
loans increased by $15.2 million or 7.2% to $225.3 million at March 31, 1998
compared to $210.2 million at March 31, 1997. Total liabilities were $396.4
million at March 31, 1998, up $11.8 million, or 3.1% from $384.6 million at
March 31, 1997. Deposits of $282.9 million were up $2.1 million or 0.8% from
$280.8 million at March 31, 1997. Federal Home Loan Bank (FHLB) advances
increased by $869,000 to $99.4 million at March 31, 1998 from $98.5 million at
March 31, 1997. Total stockholders' equity increased by $3.6 million to $42.7
million at March 31, 1998. The Company earned $2.64 million and paid $809,000 of
dividends to its shareholders. The Company purchased $994,000 of treasury shares
and received $183,000 from the issuance of its stock. The fair value of
securities increased by approximately $1.82 million and $509,000 of stock was
earned or became vested under the Company's ESOP and restricted stock award
programs.
One to four family first mortgage loans increased by $6.2 million and
consumer loans decreased by $1.3 million. Commercial and multi-family real
estate loans increased by $611,000, land and construction loans increased by
$1.6 million and commercial paper increased by $8.1 million. The allowance for
loan losses decreased by $153,000 as non-performing loans decreased by $3.7
million from March 31, 1997 to March 31, 1998.
RESULTS OF OPERATIONS
Comparison of Operating Results for the Years Ended March 31, 1998 and March 31,
1997.
General. The Company's net income of $2.64 million during the fiscal
year ended March 31, 1998 was $1.34 million greater than the $1.30 million
earned during the fiscal year ended March 31, 1997. The results of operations
for the year ended March 31, 1997 include a $1.77 million (pretax) payment of a
special assessment to recapitalize the Savings Association Insurance Fund (SAIF)
of the Federal Deposit Insurance Corporation (FDIC). The after tax impact
7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
of this assessment on earnings was $1.07 million. Net income for the year ended
March 31, 1998 compared to prior year earnings before the special assessment
increased $275,000 or 11.4%.
Net Interest Income. The Company's net interest income increased by
$214,000 to $11.2 million for the year ended March 31, 1998 compared to $11.0
million for the year ended March 31, 1997. The increase was primarily
attributable to an increase in average interest earning assets and an
improvement in the interest rate spread of 0.01%.
Interest Income. Interest income for the year ended March 31, 1998
increased $833,000 to $30.5 million compared to $29.7 million for the same
period in 1997. With the exception of investment securities, interest income was
higher for all major earning asset categories including increased interest
income on loans of $713,000 (a 4.2% increase) and mortgage-backed securities of
$269,000 (a 4.4% increase). Due to decreased holdings of interest bearing
securities, investment security income decreased $199,000 or 3.2% from the prior
year. Due to increased holdings and an improved yield, dividends on Federal Home
Loan Bank stock were up by $49,000. Interest income on loans increased as a
result of growth in average loans outstanding of $ 5.6 million for the year
ended March 31, 1998. The weighted average yield on loans was 8.14% during the
fiscal year ended March 31, 1998 compared to 8.02% during the fiscal year ended
March 31, 1997. Interest income on mortgage-backed securities also increased
primarily as a result of higher outstanding balances. Mortgage-backed securities
balances averaged $97.7 million during fiscal 1998 compared to $91.4 million
during fiscal 1997. Interest bearing securities and FHLB stock averaged $93.2
million during fiscal 1998, compared to $95.2 million during fiscal 1997. The
weighted average yields on mortgage-backed securities and interest bearing
securities and FHLB stock were 6.52% and 7.01%, respectively during fiscal 1998,
compared to 6.67% and 7.02%, respectively, during fiscal 1997. During 1998, the
Company made investments of $500,000 in a limited partnership that invests in
the stock of other financial institutions. The fair value of this investment was
$614,000 at March 31, 1998.
Interest Expense. Interest expense increased by $619,000 to $19.3
million during the fiscal year ended March 31, 1998 compared to $18.7 million
during fiscal 1997. Interest paid on deposits increased by $99,000 due to an
increase of $2.8 million in average deposit balance which more than offset a
decrease in the rate paid from 4.84% to 4.83%. Interest on Federal Home Loan
Bank advances increased by $545,000 as average balances outstanding increased by
$9.1 million and the average rate paid on advances also increased from 5.74%
during fiscal 1997 to 5.77% during fiscal year 1998.
Provision for Loan Losses. The Bank establishes its provision for loan
losses and evaluates the adequacy of its allowance for loan losses based on
management's evaluation of the risk inherent in its loan portfolio and changes
in the nature and volume of its loan activity. Such evaluation, which includes a
review of all loans for which full collectibility may not be reasonably assured,
considers, among other matters, the estimated fair value of the underlying
collateral, economic conditions, historical loan loss experience, the
composition of its loan portfolio and other factors that warrant recognition in
providing for an adequate loan loss allowance. This methodology is performed on
a periodic basis, generally monthly, and is designed to ensure that matters
affecting loan collectibility will be identified in a timely manner and
evaluated by management in determining the necessary reserves and the provision
for loan losses. The amounts actually reported in each period will vary with the
outcome of this detailed review.
During the year ended March 31, 1998, the Company recorded a provision
for loan losses of $177,050 compared to $113,256 for the year ended March 31,
1997. Net charge offs amounted to $330,000 during fiscal 1998 compared to
$225,000 during fiscal 1997. Asset quality, as measured by non-performing loans
to total loans, improved significantly for the year ended March 31, 1998
compared to the prior year. The ratios of non-performing loans to total loans
was 0.40% at March 31, 1998 and 2.16% at March 31, 1997 respectively. The
allowance for losses, as a ratio to total loans, was 0.87% at March 31, 1998
compared to 1.00% at March 31, 1997. At March 31, 1998 and 1997, the
8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
allowance for loan losses as a percentage of non-performing loans was 216.58%
and 46.31%, respectively. It is management's belief that the allowance for loan
losses reflects an adequate reserve against potential losses in the loan
portfolio. Future additions to the Company's allowance for loan losses and any
change in the related ratio to nonperforming loans are dependent upon the
performance of the Company's loan portfolio, the economy, inflation, changes in
real estate and other collateral values and interest rates as well as the view
of regulatory authorities toward adequate reserve levels. See also "Asset
Quality."
Other Income. Other income increased by $468,000 to $2,092,000 during
the fiscal year ended March 31, 1998. This represents an increase of 28.8% over
the prior year. Service charges increased by $144,000 and profit on sale of
loans, securities and real estate owned increased by $193,000. Commissions on
the sale of investment and insurance products increased by $68,000. Earnings
from other sources were up by $63,000 during fiscal 1998.
Other Expense. The Company's other expense decreased by $1.54 million
from fiscal 1997 to fiscal 1998. The decrease is primarily attributable to the
aforementioned $1.77 million SAIF assessment. Salaries and employee benefits
increased $224,000 or 5.2%. The majority of this increase is attributable to
increased expense associated with the Company's ESOP and restricted stock awards
programs.
Income Tax Provision. The Company's income tax provision increased by
$814,000 from fiscal 1997 to fiscal 1998 primarily as a result of increased
pretax earnings.
RESULTS OF OPERATIONS
Comparison of Operating Results for the Years Ended March 31, 1997 and March 31,
1996.
General. The Company's net income of $1.30 million for the fiscal year
ended March 31, 1997 was slightly improved from the $1.25 million earned during
the fiscal year ended March 31, 1996. The earnings improvement occurred despite
the payment of a special assessment in the amount of $1.77 million to
recapitalize the Savings Association Insurance Fund (SAIF) of the Federal
Deposit Insurance Corporation (FDIC). The after tax impact of this assessment on
earnings was $1.07 million.
Net Interest Income. The Company's net interest income increased by
$1.5 million to $11.0 million for the year ended March 31, 1997 compared to $9.5
million for the year ended March 31, 1996. The increase was primarily
attributable to an increase in interest earning assets and an improvement in the
interest rate spread.
Interest Income. Interest income for the year ended March 31, 1997
increased $3.8 million to $29.7 million compared to $25.9 million for the same
period in 1996. Interest income was higher for all major earning asset
categories including increased interest income on loans of $458,000,
mortgage-backed securities of $341,000, and investment securities of $2,851,000.
Due to increased holdings, dividends on Federal Home Loan Bank stock were also
up by $166,000. Income on interest bearing deposits was down by a modest
$19,000. Interest income on loans increased as a result of growth in average
loans outstanding of $3.9 million for the year ended March 31, 1997. The
weighted average yield on loans was 8.02% during the fiscal year ended March 31,
1997 compared to 8.13% during the fiscal year ended March 31, 1996. Interest
income on mortgage-backed and investment securities also increased primarily as
a result of higher outstanding balances. Mortgage-backed securities averaged
$91.4 million during fiscal 1997 compared to $87.6 million during fiscal 1996.
Securities and FHLB stock averaged $95.2 million during fiscal 1997 compared to
$60.3 million during fiscal 1996. The weighted average yields on mortgage-backed
and investment securities were 6.67% and 7.02% respectively during fiscal 1997,
compared to 6.58% and 6.09% during fiscal 1996.
9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Interest Expense. Interest expense increased by $2.3 million to $18.7
million during the fiscal year ended March 31, 1997 compared to $16.4 million
during fiscal 1996. Interest paid on deposits decreased by $109,000 due to an
decrease in the average rate paid to 4.84% from 4.93%, which more than offset
the decrease of $2.8 million in average deposit balances. Interest on Federal
Home Loan Bank advances increased by $2.5 million as average balances
outstanding increased by $46.3 million. The average rate paid on advances was
5.74% during fiscal 1997 compared to 6.17% during fiscal year 1996.
Provision for Loan Losses. During the year ended March 31, 1997, the
Company recorded a provision for loan losses of $113,000 compared to $207,000
for the year ended March 31, 1996. During the period ended March 31, 1997 the
bank reduced the loan loss provision by $232,000 relating to the reversal of
specific reserves on a previously impaired loan. This decrease in the provision
is partially offset by increases of $119,000 reflecting increased charge offs on
consumer loans. Net recoveries amounted to $225,000 during fiscal 1997 compared
to $62,000 during fiscal 1996. Asset quality, as measured by non-performing
loans to total loans, improved for the year ended March 31, 1997 compared to the
same period a year ago. The ratios of non-performing loans to total assets were
1.11% at March 31, 1997 and 1.75% at March 31, 1996, respectively. The allowance
for losses, as a ratio to total loans, was 1.00% at March 31, 1997 compared to
1.07% at March 31, 1996.
Other Income. Other income increased by $187,000 to $1,624,000 during
the fiscal year ended March 31, 1997. Service charges increased by $213,000,
profit on sale of loans by $5,000, and gains on real estate owned by $10,000.
Commissions on investment and insurance products decreased by $20,000. A loss of
$56,000 was realized on the sale of investment and mortgage-backed securities
compared to a loss of $6,000 during fiscal 1996. Earnings from other sources
were up by $29,000 during fiscal 1997.
Other Expense. The Company's other expenses increased $1.3 million to
$10.2 million for the year ended March 31, 1997, compared to $8.9 million for
the year ended March 31, 1996, primarily because of the inclusion of the special
FDIC-SAIF special assessment in the amount of $1.77 million mentioned under the
"general" heading above. Salaries and employee benefits were $133,000 or 3.0%
lower during fiscal 1997 than during fiscal 1996, while most other expenses
remained relatively stable.
Income Tax Provision. The Company's income tax provision increased from
$661,000 for the year ended March 31, 1996 to $1,003,000 for the year ended
March 31, 1997. The increase was primarily because the Company was able to
recognize a greater loan loss deduction for tax purposes due to growth in loan
balances during fiscal 1996.
10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Average Balance Sheet. The following table presents for the periods
indicated the average balance of interest-earning assets and interest-bearing
liabilities, the amount of interest income and the interest expense, and the
average yield on assets and the average cost of liabilities. Such yields and
costs are derived by dividing interest income or expense by the average balance
of assets or liabilities, respectively, for the periods shown. No tax equivalent
adjustments were made. Non-accruing loans have been included in the table as
loans carrying a zero yield.
(Dollars in Thousands) 1998 1997 1996
- --------------------------------------------------------------------------------------------------------------------------------
Average Interest Average Average Interest Average Average Interest Average
Outstanding Earned/ Yield/ Outstanding Earned/ Yield/ Outstanding Earned/ Yield/
Balance Paid Rate Balance Paid Rate Balance Paid Rate
- --------------------------------------------------------------------------------------------------------------------------------
Interest-earning assets:
Loans $214,982 $17,509 8.14% $209,420 $16,796 8.02% $200,940 $16,338 8.13%
Mortgage-backed securities 97,668 6,370 6.52 91,431 6,101 6.67 87,551 5,761 6.58
Securities and FHLB stock 93,210 6,536 7.01 95,212 6,686 7.02 60,268 3,669 6.09
Other 1,416 106 7.49 1,869 106 5.67 1,854 124 6.69
- --------------------------------------------------------------------------------------------------------------------------------
Total interest-earning
assets (1) $407,276 $30,521 7.49% $397,932 $29,689 7.46 $350,613 $25,892 7.38
- --------------------------------------------------------------------------------------------------------------------------------
Interest-bearing liabilities:
Deposits $278,181 $13,431 4.83% $275,407 $13,333 4.84 $272,568 $13,442 4.93
FHLB advances 101,704 5,866 5.77 92,604 5,320 5.74 46,308 2,856 6.17
Other borrowings 845 46 5.44 1,693 71 4.19 1,541 56 3.63
- --------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing
liabilities $380,730 $19,343 5.08% $369,704 $18,724 5.06 $320,417 $16,354 5.10
- --------------------------------------------------------------------------------------------------------------------------------
Net interest income $11,178 $10,965 $ 9,538
- --------------------------------------------------------------------------------------------------------------------------------
Net interest rate spread 2.41% 2.40% 2.28%
- --------------------------------------------------------------------------------------------------------------------------------
Net earning assets $ 26,546 $ 28,228 $ 30,196
- --------------------------------------------------------------------------------------------------------------------------------
Net interest margin(2) 2.74% 2.76% 2.72%
- --------------------------------------------------------------------------------------------------------------------------------
Average interest-earning
assets to average interest-
bearing liabilities 106.97% 107.64% 109.42%
- --------------------------------------------------------------------------------------------------------------------------------
(1) Calculated net of deferred loan fees, loan discounts, loans in process and
loss reserves. (2) Net interest margin represents net interest income divided by
average interest-earning assets.
11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Rate/Volume Analysis. The following table presents the extent to which
changes in interest rates and changes in the volume of interest-earning assets
and interest-bearing liabilities have affected the Company's interest income and
interest expense during the years indicated. For each category of
interest-earning assets and interest-bearing liabilities, information is
provided for changes attributable to (i) changes in volume (i.e., changes in
volume multiplied by prior rate) and (ii) changes in rate (i.e., changes in rate
multiplied by prior volume). Changes attributable to both rate and volume have
been allocated proportionately to the change due to volume and the change due to
rate.
Year Ended March 31,
- ---------------------------------------------------------------------------------------------------------------------
(In Thousands) 1998 vs. 1997 1997 vs. 1996
- ---------------------------------------------------------------------------------------------------------------------
Increase (Decrease) Total Increase (Decrease) Total
Due to Increase Due to Increase
Volume Rate (Decrease) Volume Rate (Decrease)
- ---------------------------------------------------------------------------------------------------------------------
Interest-earning assets:
Loans receivable $ 451 $ 263 $ 714 $ 676 $ (218) $ 458
Mortgage-backed securities 402 (133) 269 258 82 340
Securities and FHLB stock (140) (10) (150) 2,386 631 3,017
Other 1 (19) (18)
- ---------------------------------------------------------------------------------------------------------------------
Total interest-earning assets $ 713 $ 120 $ 833 $3,321 $ 476 $3,797
- ---------------------------------------------------------------------------------------------------------------------
Interest-bearing liabilities:
Deposits $ 134 $ (36) $ 98 $ 143 $ (252) $ (109)
FHLB advances 525 21 546 2,645 (181) 2,464
Other borrowings (62) 37 (25) 6 9 15
- ---------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities $ 597 $ 22 $ 619 $2,794 $ (424) $2,370
=====================================================================================================================
Net change in interest income $ 214 $1,427
=====================================================================================================================
The following table presents the weighted average yields on loans,
investments and other interest-earning assets, the weighted average rates on
savings deposits and borrowings and the resultant interest rate spreads at the
dates indicated:
At March 31,
1998 1997 1996
- ---------------------------------------------------------------------------------------------------------
Weighted average yield on:
Loans, net 7.91% 8.02% 8.01%
Mortgage-backed securities 6.80 6.71 6.87
Securities 6.84 7.05 6.40
Other 6.06 6.69 5.35
Combined weighted average yield on
interest-earning assets 7.42 7.47 7.39
Weighted average rate paid on:
Savings deposits 3.77 3.87 3.90
Demand and NOW deposits 1.79 2.06 2.20
Time deposits 5.78 5.67 5.74
FHLB Advances 5.39 5.65 5.77
Other Borrowings 5.19 4.76
Combined weighted average rate paid
on interest-bearing liabilities 5.02 5.05 5.06
Spread 2.40 2.41 2.33
12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Asset Quality
In accordance with the Company's classification of assets policy,
management periodically evaluates the loan and investment portfolios to identify
substandard assets that may contain the potential for loss. In addition,
management evaluates the adequacy of its allowance for possible loan losses.
Non-Performing Assets. The following table sets forth the amounts and
categories of non-performing assets in the Bank's loan portfolio. For the years
presented, the Bank had no accruing loans delinquent more than 90 days. Real
estate owned includes loans classified as in-substance foreclosures and property
acquired in settlement of foreclosed loans which are carried at the lower of
cost or estimated fair value less estimated cost to sell. Other assets include
other repossessed assets.
Year Ended March 31,
- --------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands) 1998 1997 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------
Non-accruing loans:
One- to four-family $ 822 $1,131 $ 695 $1,219 $ 1,911
Multi-family 1,062 3,654 3,696 3,912
Commercial real estate 646
Construction or development 12 171 171 57
Consumer 77 99 185 78 93
- --------------------------------------------------------------------------------------------------------------------
Total 911 2,463 4,705 4,993 6,619
- --------------------------------------------------------------------------------------------------------------------
Troubled debt restructurings 2,128 2,165 3,293 3,341
- --------------------------------------------------------------------------------------------------------------------
Total non-performing loans $ 911 $4,591 $6,870 $8,286 $ 9,960
Real estate and other assets owned:
One- to four-family 93 41 22 7 46
Construction or development 26 342
Consumer 89 53 54 25
- --------------------------------------------------------------------------------------------------------------------
Total 182 94 76 58 388
- --------------------------------------------------------------------------------------------------------------------
Total non-performing assets $1,093 $4,685 $6,946 $8,344 $10,348
====================================================================================================================
Total as a percentage of total assets 0.25% 1.11% 1.75% 2.43% 2.83%
====================================================================================================================
At March 31, 1998 the Bank had one non-performing asset with an
outstanding balance in excess of $100,000. This compares to four non-performing
assets at March 31, 1997 that had balances in excess of $100,000.
Non-accruing Loans. As of March 31, 1998, the Bank had $911,000 in book
value of non-accruing loans compared to $2.5 million as of March 31, 1997. For
the year ended March 31, 1998, gross interest income which would have been
recorded had the Bank's non-accruing loans been current in accordance with their
original terms amounted to $73,000. The amount that was included in interest
income on such loans was $39,000 for the year ended March 31, 1998.
Real Estate Owned. At March 31, 1998, the Bank's real estate acquired
through foreclosure totaled $93,000.
Other Loans of Concern. In addition to the non-performing assets set
forth in the table above, as of March 31, 1998, there was an aggregate of $3.2
million in net book value of loans which management is closely monitoring for
the borrowers' ability to comply with current repayment terms. Management
believes it has taken a conservative approach in evaluating under-performing
credits.
13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Delinquent Loans. The following table sets forth the Bank's loan
delinquencies by type, amount and percentage at March 31, 1998.
Loan Delinquent For:
- ------------------------------------------------------------------------------------------------------------------------
30-59 Days 60-89 Days 90 Days and Over
- ------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands) Number Amount Percentage Number Amount Percentage Number Amount Percentage
- ------------------------------------------------------------------------------------------------------------------------
Real Estate:
One- to four-family 111 $3,161 81.65% 52 $1,598 96.32% 24 $ 822 90.23%
Construction or
development 1 1 0.03% 1 12 1.32%
Consumer 107 709 18.32% 14 61 3.68% 14 77 8.45%
- ----------------------------------------------------------------------------------------------------------------------
Total 219 $3,871 100.00% 66 $1,659 100.00% 39 $ 911 100.00%
======================================================================================================================
Allowance for Loan Losses. The allowance for loan losses is established
through a provision for loan losses based upon management's evaluation of the
risk inherent in its loan portfolio and changes in the nature and volume of it's
loan activity.
The following table sets forth an analysis of the Bank's allowance at
the years indicated.
(Dollars in Thousands) At March 31,
- --------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------
Balance at beginning of year $2,126 $2,238 $2,093 $2,110 $2,077
Charge-offs:
One- to four-family 56 11 20 5
Multi-family 72 86 97
Consumer 276 354 93 63 57
Commercial business 17 414 183
- --------------------------------------------------------------------------------------------------------------------
404 371 104 583 342
- --------------------------------------------------------------------------------------------------------------------
Recoveries:
One- to four-family 2 11 134
Multi-family & commercial 98 4
Consumer 74 46 27 22 25
- --------------------------------------------------------------------------------------------------------------------
74 146 42 156 25
- --------------------------------------------------------------------------------------------------------------------
Net charge-offs 330 225 62 427 317
Provision for loan losses charged
to operations 177 113 207 410 350
- --------------------------------------------------------------------------------------------------------------------
Balance at end of year $1,973 $2,126 $2,238 $2,093 $2,110
====================================================================================================================
Ratio of net charge-offs during the period to
average loans outstanding during the year 0.15% 0.11% 0.03% 0.22% 0.17%
====================================================================================================================
Ratio of net charge-offs during the period to
ending non-performing assets 30.19% 4.80% 0.89% 5.12% 3.06%
====================================================================================================================
Ratio of provision for loan losses
to total loans 0.08% 0.05% 0.10% 0.21% 0.19%
====================================================================================================================
Ratio of allowance for loan losses
to non-performing loans 216.58% 46.31% 32.58% 25.26% 21.18%
====================================================================================================================
Ratio of allowance for loan losses
to total loans 0.87% 1.00% 1.07% 1.06% 1.11%
====================================================================================================================
14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Asset/Liability Management
The measurement and analysis of the exposure of the Bank to changes in
the interest rate environment is referred to as asset/liability management. One
method used to analyze the Bank's sensitivity to changes in interest rates is to
measure the difference between the amount of interest-earning assets which are
anticipated to mature or reprice within a given period of time compared to the
amount of interest-bearing liabilities which are expected to mature or reprice
within the same period. This difference is known as the interest rate
sensitivity "gap." A gap is considered positive when the amount of interest rate
sensitive assets anticipated to reprice or mature exceeds the amount of interest
rate sensitive liabilities anticipated to reprice or mature in a given period. A
gap is considered negative when the amount of interest rate sensitive
liabilities anticipated to reprice or mature exceeds the amount of interest rate
sensitive assets anticipated to reprice or mature in a given period.
At March 31, 1998, the Company's total interest-bearing liabilities
maturing or repricing within one year exceeded total interest-earning assets
maturing or repricing in the same period by $56.9 million, representing a
negative cumulative one-year gap ratio of 12.95% of total assets. The Company
relies on certain assumptions, such as the amount and timing of loan
prepayments, among others, in the measurement of the interest rate sensitivity
gap. In light of the Company's negative cumulative one-year gap ratio,
management believes that an increase in interest rates will adversely effect its
net interest income.
The Company focuses lending efforts toward the origination and purchase
of competitively priced adjustable-rate loan products and fixed-rate loan
products with relatively short terms to maturity, generally fifteen years or
less. This allows the Company to maintain a portfolio of loans which will be
sensitive to changes in the level of interest rates while providing a reasonable
spread to the cost of liabilities used to fund the loans.
The effect of these assumptions is to quantify the dollar amount of
items that are interest-sensitive and which can be repriced within each of the
periods specified. Such repricing can occur in one of three ways: (i) the rate
of interest to be paid on an asset or liability may adjust periodically on the
basis of an interest rate index, (ii) an asset or liability such as a mortgage
loan may amortize, permitting reinvestment of cash flows at the then-prevailing
interest rate, or (iii) an asset or liability may mature, at which time the
proceeds can be reinvested at the current market rates.
The following table sets forth the interest rate sensitivity of the
Company's assets and liabilities at March 31, 1998 on the basis of the
above-described assumptions, and sets forth the repricing dates of the Company's
interest-earning assets and interest-bearing liabilities at March 31, 1998 and
the Company's interest rate sensitivity "gap" percentages at the dates
indicated. Information presented is based on estimated prepayment rates ranging
from 9% to 50% for loans and mortgage-backed securities, depending on their
maturity and yield. Passbook savings and NOW account balances assume a 17% and
37% annual decay rate, respectively, and money market demand amounts assume a
79% annual decay rate.
15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Maturing or Repricing
- ------------------------------------------------------------------------------------------------------------------
Less than 6-12 Over 1-3 Over 3-5 Over
6 Months Months Years Years 5 Years
- ------------------------------------------------------------------------------------------------------------------
Fixed-rate one- to four-
family, multi-family (including
mortgage-backed securities),
commercial real estate and
construction loans $ 16,284 $ 10,009 $ 30,186 $ 21,630 $ 40,648
Adjustable rate one- to four-
family, multi-family (including
mortgage-backed securities)
commercial real estate and
construction loans 55,831 17,921 30,255 12,971 12,137
Consumer loans 10,256 7,183 21,444 9,244 4,008
Investment securities and other 10,942 7,001 21,849 77,186
--------- --------- --------- --------- ---------
Total interest-earning assets 93,313 35,113 88,886 65,694 133,979
--------- --------- --------- --------- ---------
Savings deposits 2,368 4,024 11,789 5,700 28,169
Demand and NOW deposits 9,830 6,277 9,600 2,761 5,540
Certificates 89,494 37,412 37,291 15,837 14,987
FHLB advances 18,340 17,553 17,107 5,365 40,993
--------- --------- --------- --------- ---------
Total interest-bearing liabilities 120,032 65,266 75,787 29,663 89,689
--------- --------- --------- --------- ---------
Interest-earning assets less
interest-bearing liabilities $ (26,719) $ (30,153) $ 13,099 $ 36,031 $ 44,290
========= ========= ========= ========= =========
Cumulative interest-rate
sensitivity gap $ (26,719) $ (56,872) $ (43,773) $ (7,742) $ 36,548
========= ========= ========= ========= =========
Cumulative interest-rate
gap as a percentage of assets (6.08)% (12.95)% (9.97)% (1.76)% 8.34%
========= ========= ========= ========= =========
In evaluating the Company's exposure to interest rate risk, certain
shortcomings inherent in the method of analysis presented in the foregoing
tables must be considered. For example, although certain assets and liabilities
may have similar maturities or periods to repricing, they may react in different
degrees to changes in market interest rates. Also, the interest rates on certain
types of assets and liabilities may fluctuate in advance of changes in market
interest rates, while interest rates on other types may lag behind changes in
market rates. Additionally, certain assets, such as adjustable-rate mortgages,
have features which restrict changes in interest rates on a short-term basis and
over the life of the asset. Further, in the event of a change in interest rates,
prepayment and early withdrawal levels would likely deviate significantly from
those assumed in calculating the table. For example, projected passbook, money
market and NOW account maturities may materially change if interest rates change
significantly or if alternative savings/investment products become attractive.
The ability of many borrowers to service their debt may decrease in the event of
an interest rate increase. The Company considers all of these factors in
monitoring its exposure to interest rate risk.
In addition, the foregoing table does not necessarily indicate the
impact of general interest rate movements on the Company's net interest income
because the repricing of certain categories of assets and liabilities is subject
to competitive and other pressures beyond the Company's control. As a result,
certain assets and liabilities indicated as maturing or otherwise repricing
within a stated period may, in fact, mature or reprice at different times and at
different volumes.
16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Office of Thrift Supervision ("OTS") requires the Bank to calculate
the estimated change in its net portfolio value ("NPV") assuming an
instantaneous, parallel shift in the Treasury yield curve of 100 to 400 basis
points ("bp") either up or down. NPV represents the sum of future cash flows
discounted to present value. The OTS permits the Bank to utilize the OTS model
to determine the impact of parallel and instantaneous shifts in the Treasury
yields curve. While the OTS model uses data submitted by the Bank to the OTS,
many of the assumptions imbedded in the model, such as loan prepayment rates and
deposit decay rates, are determined by the OTS. The following table sets forth
the Bank's interest rate sensitivity of NPV as of March 31, 1998 as calculated
by the OTS (dollars in 000's):
Net portfolio value NPV as % of PV of Assets
- -----------------------------------------------------------------------------------------------------------------
Change in
rates $ Amount $ Change % Change NPV Ratio Change
- -----------------------------------------------------------------------------------------------------------------
+400 bp 26,039 (26,434) (50%) 6.55% (535 bp)
+300 bp 33,181 (19,292) (37%) 8.12% (378 bp)
+200 bp 40,138 (12,335) (24%) 9.57% (234 bp)
+100 bp 46,707 (5,766) (11%) 10.85% (105 bp)
0 bp 52,473 11.90%
(100 bp) 57,316 4,843 9% 12.72% + 82 bp
(200 bp) 60,845 8,373 16% 13.25% +134 bp
(300 bp) 64,458 11,985 23% 13.76% +186 bp
(400 bp) 69,635 17,162 33% 14.52% +262 bp
Liquidity and Capital Resources
The OTS requires minimum levels of liquid assets. OTS regulations
presently require the Bank to maintain an average daily balance of liquid assets
(United States Treasury, federal agency and other investments) equal to at least
4.0% of the sum of its average daily balance of net withdrawable deposit
accounts and borrowings payable in one year or less. Such requirements may be
changed from time to time by the OTS to reflect changing economic conditions.
Such investments are intended to provide a source of relatively liquid funds
upon which Permanent Federal may rely, if necessary, to fund deposit withdrawals
and other short-term funding needs. The Bank has historically maintained its
liquidity ratio in excess of that required. At March 31, 1998, the amount of the
Bank's liquidity was $192.7 million, resulting in a liquidity ratio of 65.55%.
Liquidity management is both a daily and long-term responsibility of
management. The Bank adjusts its investments in liquid assets based upon
management's assessment of (i) expected loan demand, (ii) expected deposit
flows, (iii) yields available on interest-bearing deposits and (iv) the
objectives of its asset/liability management program. Excess liquidity generally
is invested in interest-bearing overnight deposits and other short-term
government and agency obligations. If the Bank requires additional funds, beyond
its internal ability to generate, it has additional borrowing capacity with the
FHLB and collateral eligible for repurchase agreements.
The Bank principally uses its liquidity resources to meet ongoing
commitments, to fund maturing certificates of deposit and deposit withdrawals,
to invest, to fund existing and future loan commitments, to maintain liquidity,
and to meet operating expenses. At March 31, 1998, the Bank had approximately
$4.9 million of loan commitments and an additional $5.5 million of undisbursed
loans in process. The Bank anticipates that it will have sufficient funds
available to meet current loan commitments.
Certificates of deposit scheduled to mature in a year or less at March
31, 1998 totalled $124 million. Based on historical experience, management
believes that a significant portion of such deposits will remain with the Bank,
however, there can be no assurance that the Bank can retain all such deposits.
17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management believes that loan repayments and other sources of funds
will be adequate to meet and exceed the Bank's foreseeable short- and long-term
liquidity needs.
The primary investing activities of the Bank include investing in
loans, mortgage-backed securities, U.S. Treasury and agency securities and other
investment securities. At March 31, 1998, these assets accounted for 94.2% of
the Company's total assets. The purchases are funded primarily from loan
repayments, maturities of securities, FHLB advances and increases in deposits
and net income.
At March 31, 1998, the Bank had outstanding borrowings of $99.4 million
from the FHLB and had the capacity to borrow up to a total of approximately $203
million.
Under the Financial Institutions Reform, Recovery, and Enforcement Act
of 1989 ("FIRREA"), the capital requirements applicable to all savings
institutions, including the Bank, have been substantially increased. However,
the Bank is in compliance with the fully phased-in capital requirements. See
Note 10 to the Consolidated Financial Statements for a further discussion of
regulatory capital requirements.
Dividends are subject to determination and declaration by the Board of
Directors, which will take into account the Company's consolidated financial
condition and results of operations as well as other relevant factors. The
Company's ability to pay dividends is subject to federal regulations and its
continued compliance with regulatory capital requirements. The Company is also
subject to the requirements of Delaware law, which generally limits dividends to
an amount in excess of a company's net assets over paid-in-capital, or, if there
is no such excess, to its net profits for the current and immediately preceding
fiscal year. See Note 10 to the Consolidated Financial Statements for a further
discussion.
Impact of Inflation and Changing Prices
The consolidated financial statements and related data presented herein
have been prepared in accordance with generally accepted accounting principles
which require the measurement of financial position and results of operations in
terms of historical dollars without considering changes in the relative
purchasing power of money over time because of inflation.
Unlike most industrial companies, virtually all of the assets and
liabilities of Permanent Federal are monetary in nature. As a result, interest
rates have a more significant impact on the Company's performance than the
effects of general levels of inflation. Interest rates do not necessarily move
in the same direction or in the same magnitude as the prices of goods and
services. In the present interest rate environment, the liquidity, maturity
structure and quality of Permanent Federal's assets and liabilities are
important factors in the maintenance of acceptable performance levels.
Recent Accounting Pronouncements
The Financial Accounting Standards Board has issued Statements 130 and
131 that the Company will be required to adopt in future periods. See Note 1 to
the Consolidated Financial Statements for a description of the statements
requirements.
18
INDEPENDENT AUDITORS' REPORT
To the Stockholders and the Board of Directors of
Permanent Bancorp, Inc.:
We have audited the accompanying consolidated statements of financial
condition of Permanent Bancorp, Inc. and its subsidiary (the "Company") as of
March 31, 1998 and 1997 and the consolidated statements of income, stockholders'
equity and cash flows for each of the three years in the period ended March 31,
1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly,
in all material respects, the financial position of Permanent Bancorp, Inc. and
its subsidiary as of March 31, 1998 and 1997, and the results of their
operations and their cash flows for each of the three years in the period ended
March 31, 1998 in conformity with generally accepted accounting principles.
/s/DELOITTE & TOUCHE L L P
- --------------------------
DELOITTE & TOUCHE L L P
May 11, 1998
Indianapolis, Indiana
19
Consolidated Statements of Permanent
Financial Condition Bancorp, Inc.
March 31,
- ---------------------------------------------------------------------------------------------------------------------
1998 1997
- ---------------------------------------------------------------------------------------------------------------------
ASSETS:
Cash $ 4,274,700 $ 3,211,091
Interest-bearing deposits 1,808,159 3,153,385
Total cash and cash equivalents 6,082,859 6,364,476
Securities available for sale - at fair value
(amortized cost - $105,529,613 and $87,020,254) (Notes 2, 8) 105,618,621 85,180,313
Mortgage-backed securities available for sale - at fair value
(amortized cost - $62,368,921 and $74,846,178) (Note 3) 62,652,286 74,052,253
Securities held to maturity (Note 2) 25,000
Mortgage-backed securities held to maturity (fair value -
$19,119,093 and $27,197,070) (Note 3) 18,861,416 27,180,891
Other investments 1,100,826 1,056,036
Loans (net of allowance for loan losses of $1,973,410 and
$2,126,225) (Notes 4,13) 225,349,258 210,189,422
Interest receivable, net 3,270,173 3,539,085
Office properties and equipment, net (Note 5) 7,533,251 6,968,587
Real estate owned 93,182 40,653
Deferred income tax (Note 9) 180,456 1,374,109
Federal Home Loan Bank stock (Note 7) 5,466,000 5,192,600
Cash surrender value of life insurance (Note 12) 1,625,253 1,552,875
Goodwill (net of accumulated amortization of $1,909,003 and
$1,741,967) 452,912 326,198
Other 828,007 655,833
- ---------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $439,114,500 $423,698,331
=====================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY:
LIABILITIES:
Deposits (Notes 6) $282,942,123 $280,753,353
Federal Home Loan Bank advances (Note 7) 99,352,678 98,483,986
Advance payments by borrowers for taxes and insurance 979,859 1,014,598
Other borrowed funds (Note 8) 1,793,967
Interest payable 2,193,548 2,049,727
Other 10,963,033 508,073
- ---------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 396,431,241 384,603,704
- ---------------------------------------------------------------------------------------------------------------------
Commitments and contingencies (Notes 4,13)
STOCKHOLDERS' EQUITY (Notes 10,11,12):
Serial Preferred Stock ($.01 par value) Authorized and unissued
- 1,000,000 shares
Common Stock ($.01 par value) Authorized - 9,000,000 shares
Issued - 4,927,000 and 4,917,964 Outstanding - 4,102,094
and 4,104,150 49,241 49,180
Additional paid-in capital 24,525,662 24,020,823
Treasury Stock - 682,674 and 635,786 shares - at cost (6,255,083) (5,547,823)
Retained Earnings - substantially restricted 25,127,127 23,393,701
Unrealized gains (losses) on securities available for sale, net
of deferred tax of $147,127 and $(1,043,275) 225,247 (1,590,591)
ESOP borrowing (714,150) (952,200)
Unearned compensation - restricted stock awards (274,785) (278,463)
- ---------------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 42,683,259 39,094,627
- ---------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $439,114,500 $423,698,331
=====================================================================================================================
See notes to consolidated financial statements.
20
Consolidated Statements of Income Permanent
Bancorp, Inc.
Years Ended March 31,
- ---------------------------------------------------------------------------------------------------------------------
1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------
INTEREST INCOME:
Loans $17,509,318 $16,796,387 $16,338,109
Mortgage-backed securities and mortgage-backed securities
held for sale 6,370,350 6,101,478 5,760,962
Investment securities and securities held for sale 6,102,461 6,301,581 3,450,724
Deposits 106,454 105,488 124,465
Dividends on Federal Home Loan Bank stock 432,823 383,691 217,652
- ---------------------------------------------------------------------------------------------------------------------
30,521,406 29,688,625 25,891,912
- ---------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE:
Deposits (Note 6) 13,431,142 13,332,587 13,441,629
Federal Home Loan Bank advances (Note 7) 5,865,542 5,320,326 2,856,167
Short-term borrowings (Note 8) 45,827 71,083 56,444
- ---------------------------------------------------------------------------------------------------------------------
19,342,511 18,723,996 16,354,240
- ---------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME 11,178,895 10,964,629 9,537,672
PROVISION FOR LOAN LOSSES (Note 4) 177,050 113,256 206,923
- ---------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME AFTER LOAN LOSS PROVISION 11,001,845 10,851,373 9,330,749
- ---------------------------------------------------------------------------------------------------------------------
OTHER INCOME:
Service charges 984,668 840,520 627,917
Gain on sale of loans 91,866 22,771 18,233
Commissions 607,806 539,487 559,593
Gain (loss) on sale of securities and mortgage-backed
securities 42,643 (55,897) (6,307)
Gain on sale of real estate owned 41,966 16,811 6,400
Other 323,044 260,221 231,133
- ---------------------------------------------------------------------------------------------------------------------
2,091,993 1,623,913 1,436,969
- ---------------------------------------------------------------------------------------------------------------------
OTHER EXPENSE:
Salaries and employee benefits (Note 12) 4,519,290 4,294,824 4,427,347
Deposit insurance assessment 275,986 2,350,715 710,909
Occupancy (Note 13) 821,412 809,138 818,544
Equipment (Note 13) 608,472 566,098 592,033
Computer service 537,903 494,374 484,652
Advertising 354,370 326,211 304,593
Postage and office supplies 285,906 273,474 320,030
Other 1,227,988 1,053,922 1,198,859
- ---------------------------------------------------------------------------------------------------------------------
8,631,327 10,168,756 8,856,967
- ---------------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 4,462,511 2,306,530 1,910,751
INCOME TAX PROVISION (Note 9) 1,817,344 1,002,986 661,446
- ---------------------------------------------------------------------------------------------------------------------
NET INCOME $ 2,645,167 $ 1,303,544 $ 1,249,305
=====================================================================================================================
EARNINGS PER SHARE OF COMMON STOCK
Basic $ 0.65 $ 0.31 $ 0.28
Diluted 0.62 0.30 0.27
See notes to consolidated financial statements.
21
Consolidated Statements of Permanent
Stockholders' Equity Bancorp, Inc.
For the Years Ended March 31, 1998, 1997 and 1996
Additional
Common Stock Paid-in Treasury Retained Unrealized
Shares Amount Capital Stock Earnings Gain (Loss)
- ---------------------------------------------------------------------------------------------------------------------------
BALANCES, APRIL 1, 1995 4,926,104 $49,261 $23,586,140 $21,847,208 $6,571
Net income 1,249,305
Unrealized loss on
securities available for sale (104,942)
ESOP shares earned 265,528
Vesting of restricted stock awards
Cancellation of restricted
stock awards (5,712) (57) (28,503)
Purchase of Treasury Stock (436,744) (3,465,463)
Issuance of restricted stock awards 6,000 1,733 47,580
Exercise of stock options 7,138 56,604 (20,915)
Payment of dividends (347,996)
- ---------------------------------------------------------------------------------------------------------------------------
BALANCES, MARCH 31, 1996 4,496,786 49,204 23,824,898 (3,361,279) 22,727,602 (98,371)
Net income 1,303,544
Unrealized loss on
securities available for sale (1,492,220)
ESOP shares earned 205,471
Vesting of restricted stock awards
Cancellation of restricted
stock awards (2,428) (24) (12,116)
Purchase of Treasury Stock (224,838) (2,286,925)
Issuance of restricted stock awards 1,000 2,570 7,930
Exercise of stock options 11,658 92,451 (28,806)
Payment of dividends (608,639)
- ---------------------------------------------------------------------------------------------------------------------------
BALANCES, MARCH 31, 1997 4,282,178 49,180 24,020,823 (5,547,823) 23,393,701 (1,590,591)
Net income 2,645,167
Unrealized gain on
securities available for sale 1,815,838
ESOP shares earned 383,336
Vesting of restricted stock awards
Cancellation of restricted
stock awards (2,856) (29) (14,251)
Purchase of Treasury Stock (92,000) (993,628)
Issuance of restricted stock awards 9,000 90 135,754
Exercise of stock options 36,112 286,368 (103,131)
Payment of dividends (808,610)
- ---------------------------------------------------------------------------------------------------------------------------
BALANCES, MARCH 31, 1998 4,232,434 $49,241 $24,525,662 ($6,255,083) $25,127,127 $225,247
===========================================================================================================================
Restricted Total
ESOP Stock Stockholders'
Borrowing Awards Equity
- --------------------------------------------------------------------------------------------
BALANCES, APRIL 1, 1995 ($1,428,300) ($573,160) $43,487,720
Net income 1,249,305
Unrealized loss on
securities available for sale (104,942)
ESOP shares earned 238,050 503,578
Vesting of restricted stock awards 135,740 135,740
Cancellation of restricted
stock awards 28,560
Purchase of Treasury Stock (3,465,463)
Issuance of restricted stock awards (49,313)
Exercise of stock options 35,689
Payment of dividends (347,996)
- --------------------------------------------------------------------------------------------
BALANCES, MARCH 31, 1996 (1,190,250) (458,173) 41,493,631
Net income 1,303,544
Unrealized loss on
securities available for sale (1,492,220)
ESOP shares earned 238,050 443,521
Vesting of restricted stock awards 178,070 178,070
Cancellation of restricted
stock awards 12,140
Purchase of Treasury Stock (2,286,925)
Issuance of restricted stock awards (10,500)
Exercise of stock options 63,645
Payment of dividends (608,639)
- --------------------------------------------------------------------------------------------
BALANCES, MARCH 31, 1997 (952,200) (278,463) 39,094,627
Net income 2,645,167
Unrealized gain on
securities available for sale 1,815,838
ESOP shares earned 238,050 621,386
Vesting of restricted stock awards 125,242 125,242
Cancellation of restricted
stock awards 14,280
Purchase of Treasury Stock (993,628)
Issuance of restricted stock awards (135,844)
Exercise of stock options 183,237
Payment of dividends (808,610)
- --------------------------------------------------------------------------------------------
BALANCES, MARCH 31, 1998 ($714,150) ($274,785) $42,683,259
============================================================================================
See notes to consolidated financial statements.
22
Consolidated Statements of Permanent
Cash Flows Bancorp, Inc.
Years Ended March 31,
- ----------------------------------------------------------------------------------------------------------------------
1998 1997 1996
- ----------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,645,167 $ 1,303,544 $ 1,249,305
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 556,598 488,930 478,535
Amortization and accretion 258,006 (49,563) (43,445)
Vesting of restricted stock awards 125,243 178,070 135,740
Provisions for loan and real estate owned losses (152,815) (142,153) 257,689
(Gain) Loss on sale of securities and mortgage-backed securities (42,643) 51,120 5,808
(Gain) on sale of loans (91,866) (22,771) (18,233)
(Gain) Loss on sale of building and improvements (13,886) 61,766
Gain on sale of real estate owned (60,422) (13,289) (34,014)
ESOP shares earned 383,336 205,471 265,528
Changes in assets and liabilities:
Proceeds from the sales of loans held for sale 5,169,926 984,756 3,268,671
Origination of loans for resale (5,078,060) (961,985) (2,984,456)
Other investments (51,135) (422,734)
Interest receivable 268,912 (664,723) (971,623)
Deferred income taxes (1,430) (113,861) 169,691
Other assets (172,174) 79,790 241,695
Interest payable 143,821 127,092 206,775
Other liabilities 1,456,933 36,942 (226,637)
- ----------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 5,343,511 1,126,402 2,001,029
- ----------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash acquired through branch purchase 4,578,736
Loans originated (71,094,339) (61,791,343) (61,639,620)
Loan principal repayments 73,116,431 76,390,492 55,018,039
Proceeds from:
Maturities of:
Securities available for sale 60,991,550 18,000,000 9,000,000
Securities held to maturity 25,000 15,626,930
Sales of:
Securities and mortgage-backed securities available for sale 24,072,258 36,573,836
Securities and mortgage-backed securities held to maturity 7,729,484
Fixed assets 187,596
Real estate owned 135,578 27,224 132,629
Purchases of:
Securities and mortgage-backed securities available for sale (97,993,517) (91,445,439) (43,952,634)
Securities and mortgage-backed securities held to maturity (42,104,045)
Loans (17,257,140) (17,741,292) (5,260,316)
FHLB stock (273,400) (1,689,000) (932,300)
Office properties and equipment (457,064) (305,595) (482,009)
Payments on mortgage-backed securities 24,282,962 15,416,207 12,594,721
Increase in cash surrender value of life insurance (72,378) (599,676) (121,812)
Other 16,517 49,499 33,534
- ----------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities 258,790 (27,115,087) (54,357,399)
- ----------------------------------------------------------------------------------------------------------------------
(Continued on next page)
23
Consolidated Statements of Permanent
Cash Flows Bancorp, Inc.
Years Ended March 31,
- ----------------------------------------------------------------------------------------------------------------------
1998 1997 1996
- ----------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid (808,610) (608,639) (347,996)
Purchase of treasury stock (993,628) (2,286,925) (3,465,463)
Net change in deposits (3,542,954) 745,291 12,488,154
Proceeds from FHLB advances 274,500,000 142,900,000 76,731,824
Payments on FHLB advances (273,631,307) (112,719,231) (34,117,384)
Principal repayments of ESOP borrowing 238,050 238,050 238,050
Advance payments by borrowers for taxes and insurance (34,739) (7,665) (120,411)
Net change in other borrowed funds (1,793,967) (887,786) 256,985
Net proceeds from issuance of common stock 183,237 63,645 35,689
- ----------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities (5,883,918) 27,436,740 51,699,448
- ----------------------------------------------------------------------------------------------------------------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (281,617) 1,448,055 (656,922)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 6,364,476 4,916,421 5,573,343
- ----------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 6,082,859 $ 6,364,476 $ 4,916,421
- ----------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 19,198,690 $ 18,596,904 $ 16,147,465
Income taxes 1,588,000 1,097,000 547,508
Noncash transactions:
Transfers from loans to real estate owned 151,339 39,307 123,151
Liability for purchase of available for sale securities 8,995,000
24
Permanent
Bancorp, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization - Permanent Bancorp, Inc. (the "Company"), a Delaware
Corporation, commenced operations on March 31, 1994 upon acquisition of
Permanent Federal Savings Bank (the "Bank") in a transaction accounted for as a
pooling of interests. The Company was initially capitalized and the Bank
acquired by the issuance of 4,761,000 shares of common stock which resulted in
net proceeds to the Company of $22,809,881.
Business of the Company - Permanent Bancorp, Inc. is a savings and loan
holding company incorporated to hold all of the outstanding common stock of
Bank, with its principal offices in Evansville, Indiana and branch locations in
Fort Branch, Jasper, Newburgh and Oakland City, Indiana.
Basis of Presentation - The consolidated financial statements include
the accounts of the Company and the Bank which is wholly owned. All significant
intercompany balances and transactions have been eliminated.
Use of Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Estimates most susceptible to change in the near term include the allowance for
loan losses and the fair value of securities.
Cash and cash equivalents - All highly liquid investments with an
original maturity of three months or less are considered to be cash equivalents.
Securities Available for Sale and Securities Held to Maturity -
Securities are classified and accounted for as follows:
o Debt securities that the Company has the positive intent and ability
to hold to maturity are classified as "held to maturity securities" and reported
at amortized cost. Debt securities classified as held to maturity and sold
within three months of their expected maturity or call dates are considered
maturities of the securities. Similarly, the sale of held to maturity debt
securities occurring after the Company has collected at least 85% of the
principal originally acquired is considered a maturity of the security.
o Debt and equity securities that are acquired and held principally for
the purpose of selling them in the near term are classified as "trading
securities" and reported at fair value with unrealized gains and losses included
in earnings. The Company has not held trading securities during the three years
ended March 31, 1998.
o Debt and equity securities not classified as either held to maturity
or trading securities are classified as "available for sale securities" and
reported at fair value with unrealized gains and losses, after applicable taxes,
excluded from earnings and reported as a separate component of stockholders'
equity.
Premiums and discounts are amortized over the contractual lives of the
related securities using the level yield method. Gains or losses on sales of
securities are based on the specific identification method.
Other Investments - The Bank, through a subsidiary, has an investment
in an insurance company partnership which underwrites various types of life and
disability insurance and annuity programs. The investment is recorded using the
equity method.
Loans - Loans are reported at their outstanding principal balance net
of the allowance for loan losses and any deferred fees or costs on originated
loans. Deferred loan fees and origination costs are amortized and recognized as
an adjustment of yield over the life of the loan.
25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company adopted SFAS 122, "Accounting for Mortgage Servicing
Rights" (MSRs), on April 1, 1996. SFAS 122 requires that the Company recognize
as separate assets rights to service mortgage loans for others that have been
acquired through either the purchase or origination of a loan. Additionally,
SFAS 122 requires that MSRs be reported on the consolidated statement of
financial condition at the lower of cost or fair value. These servicing costs
are initially capitalized and subsequently amortized in proportion to, and over
the period of estimated net loan servicing income.
The Bank originates loans for portfolio investment or for sale in the
secondary market. During the loan origination period, loans are designated as
held for sale or portfolio investment. Loans held for sale are carried at the
lower of cost or market, determined on an individual loan basis.
Allowance for Losses - The balance in the allowance for loan losses and
the amount in the provision for loan losses are judgmentally determined based
upon a number of factors. The allowance is maintained by management at a level
considered adequate to cover possible losses that are currently anticipated
based on past loss experience, general economic conditions, information about
specific borrower situations, collateral values and other factors. While
management endeavors to use the best information available in making the
evaluations, future allowance adjustments may be necessary. Management may
periodically allocate portions of the allowance for specific problem loan
situations although the entire allowance is available for any loan charge-offs
which occur. Increases to the allowance are recorded by a provision for possible
loan losses charged to expense. A loan is charged off by management as a loss
when deemed uncollectible, although collection efforts continue and future
recoveries may occur.
Loan Servicing - The Company services mortgage loans for permanent
investors under servicing contracts. Fees earned for servicing loans owned by
investors are based on the outstanding principal balances of the loans being
serviced and are recognized as income when the related mortgage payments are
received. Loan servicing costs are charged to expense as incurred.
Office Properties and Equipment are carried at cost less accumulated
depreciation. Depreciation is computed on the straight-line and accelerated
methods over estimated useful lives that range from three to thirty-five years.
Real Estate Owned - When property is acquired, it is recorded at the
lower of cost or estimated fair value at the date of acquisition less any
estimated selling costs and any write-down resulting therefrom is charged
against the allowance for loan losses. Any subsequent deterioration of the
property is charged directly to real estate owned expense. Loans secured by
property for which there is an indication that the borrower has little or no
equity in the collateral based upon the current fair value of the collateral, no
longer has the ability to repay the loan and it is doubtful that equity will be
rebuilt in the foreseeable future are classified as in-substance foreclosures.
Costs relating to the development and improvement of real estate owned are
capitalized, whereas costs relating to holding and maintaining the property are
charged to expense.
Goodwill represents the fair market value of liabilities assumed and
cash consideration paid over the fair market value of assets acquired. Goodwill
is amortized the life of the underlying net assets or liabilities that give rise
to it but not more than fifteen years. Impairment of goodwill results in a
charge to expense and/or a change in the amortization period. Amortization
expense for the years ended March 31, 1998, 1997 and 1996 was $167,036, $
218,603 and $218,603 respectively.
Uncollected Interest - The Bank provides an allowance for the loss of
uncollected interest on loans which are more than 90 days past due. The
allowance is established by a charge to interest income equal to all interest
previously accrued and income is subsequently recognized only to the extent that
cash payments are received until, in management's judgment, the borrower's
ability to make periodic interest and principal payments returns to normal, in
which case the loan is returned to accrual status.
26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Federal Income Taxes - Deferred income tax assets and liabilities
reflect the impact of temporary differences between amounts of assets and
liabilities for financial reporting purposes and basis of such assets and
liabilities as measured by tax laws and regulations. The Company and the Bank
file consolidated income tax returns.
New Accounting Pronouncements - In June 1997, the Financial Accounting
Standards Board (FASB) issued SFAS No. 130, "Reporting Comprehensive Income,"
which is effective for fiscal years beginning after December 15, 1997. This
statement establishes standards for reporting and display of comprehensive
income and its components. Comprehensive income is defined as the change in
equity of a business enterprise during a period from transactions and other
events or circumstances from nonowner sources.
In June 1997, the FASB also issued No. 131, "Disclosures about Segments
of an Enterprise and Related Information," which is effective for financial
statements for periods beginning after December 15, 1997. This statement
establishes the way that public business enterprises report information about
operating segments in annual financial statements and requires that those
enterprises report selected information about operating segments in financial
reports issued to shareholders. It also establishes standards for related
disclosures about products and services, geographic areas, and major customers.
The provisions of both of these statements are of a disclosure nature
only and will not have an effect on the Company's financial condition or net
income.
Earnings per Share - In 1998 the Company adopted SFAS 128 "Earnings per
Share" and has retroactively restated 1997 and 1996 per share amounts. 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:
Years Ended March 31,
- --------------------------------------------------------------------------------
1998 1997 1996
- --------------------------------------------------------------------------------
Basic average common shares 4,048,150 4,226,304 4,413,420
Dilutive effect of stock options 251,216 182,534 156,560
- --------------------------------------------------------------------------------
Diluted average common shares 4,299,366 4,408,838 4,569,980
- --------------------------------------------------------------------------------
Acquisition - On May 19, 1997, the Company acquired in a purchase
transaction a branch location in Newburgh, Indiana. The Company acquired $4.6
million of cash, $838,000 of office properties and equipment and $30,000 of
other assets and assumed approximately $5.7 million of deposit liabilities. The
transaction created approximately $294,000 of goodwill.
Changes In Presentation - Certain items appearing in the 1997 and 1996
financial statements have been reclassified to conform to the 1998 presentation.
Subsequent Events - In April, 1998 the Company announced a two-for-one
stock split effected in the form of a 100% stock dividend. All equity amounts
and per share data presented have been retroactively restated to reflect this
dividend.
Also in April, 1998, the Company announced that it had reached a
definitive agreement to acquire four branch offices from NBD Bank, N.A. The
acquisition, which is expected to be completed at the end of the first quarter
of fiscal 1999, will increase the Company's deposit base by approximately $85
million. The Company will acquire approximately $40 million of loans in this
transaction.
27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. SECURITIES
The carrying values and estimated fair values of securities available
for sale and securities held to maturity are summarized as follows:
March 31, 1998
- -----------------------------------------------------------------------------------------------------
Amortized Gross Unrealized Fair
Cost Gains Losses Value
- -----------------------------------------------------------------------------------------------------
Securities available for sale:
U.S. Treasury $ 3,995,076 $ 38,049 $ 4,033,125
U.S. Agency 101,028,193 178,044 $ 234,772 100,971,465
Other 506,344 107,687 614,031
- -----------------------------------------------------------------------------------------------------
$105,529,613 $323,780 $ 234,772 $105,618,621
- -----------------------------------------------------------------------------------------------------
March 31, 1997
- -----------------------------------------------------------------------------------------------------
Amortized Gross Unrealized Fair
Cost Gains Losses Value
- -----------------------------------------------------------------------------------------------------
Securities held to maturity:
Other $ 25,000 $ 25,000
- -----------------------------------------------------------------------------------------------------
Securities available for sale:
U.S. Treasury $ 7,029,449 $ 9,691 $ 30,390 $ 7,008,750
U.S. Agency 79,990,805 4,723 1,823,965 78,171,563
- -----------------------------------------------------------------------------------------------------
$ 87,020,254 $ 14,414 $1,854,355 $ 85,180,313
- -----------------------------------------------------------------------------------------------------
The amortized cost and estimated fair value of available for sale
securities at March 31, 1998 by contractual maturity are as follows:
Amortized Fair
Cost Value
- --------------------------------------------------------------------------------
Due within 1 year $ 506,344 $ 614,031
Due after 1 year through 5 years 27,849,752 27,895,672
Due after 5 years through 10 years 73,344,492 73,345,673
Due after 10 years through 15 years 3,829,025 3,763,245
- --------------------------------------------------------------------------------
$105,529,613 $105,618,621
================================================================================
Activities related to the sales of securities are summarized as
follows:
Years Ended March 31,
- --------------------------------------------------------------------------------
1998 1997 1996
- --------------------------------------------------------------------------------
Proceeds from sales $8,989,174 $25,430,978 $6,988,301
Gross gains on sales 22,530 77,581 1,971
Gross losses on sales 7,500 128,794 10,227
28
3. MORTGAGE-BACKED SECURITIES
The carrying values and estimated fair values of mortgage-backed
securities held to maturity and mortgage-backed securities available for sale
are summarized as follows:
March 31, 1998
- ---------------------------------------------------------------------------------------------------------------------
Amortized Gross Unrealized Fair
Cost Gains Losses Value
- ---------------------------------------------------------------------------------------------------------------------
Mortgage-backed securities held to maturity:
FHLMC certificates $ 938,942 $ 3,378 $ 942,320
FNMA certificates 4,003,242 47,147 $ 26,415 4,023,974
GNMA certificates 13,919,232 271,158 37,591 14,152,799
- ---------------------------------------------------------------------------------------------------------------------
$18,861,416 $321,683 $ 64,006 $19,119,093
=====================================================================================================================
Mortgage-backed securities available for sale:
FHLMC certificates $27,355,375 $171,134 $ 131,638 $27,394,871
FNMA certificates 21,871,532 111,670 58,909 21,924,293
GNMA certificates 13,142,014 206,137 15,029 13,333,122
- ---------------------------------------------------------------------------------------------------------------------
$62,368,921 $488,941 $ 205,576 $62,652,286
=====================================================================================================================
March 31, 1997
- ---------------------------------------------------------------------------------------------------------------------
Amortized Gross Unrealized Fair
Cost Gains Losses Value
- ---------------------------------------------------------------------------------------------------------------------
Mortgage-backed securities held to maturity:
FHLMC certificates $ 5,390,009 $ 83,862 $ 5,306,147
FNMA certificates 4,787,009 $ 14,782 63,052 4,738,739
GNMA certificates 17,003,873 228,213 79,902 17,152,184
- ---------------------------------------------------------------------------------------------------------------------
$27,180,891 $242,995 $ 226,816 $27,197,070
=====================================================================================================================
Mortgage-backed securities available for sale:
FHLMC certificates $37,269,433 $ 43,186 $ 739,907 $36,572,712
FNMA certificates 27,483,089 3,919 251,080 27,235,928
GNMA certificates 10,093,656 164,711 14,754 10,243,613
- ---------------------------------------------------------------------------------------------------------------------
$74,846,178 $211,816 $1,005,741 $74,052,253
=====================================================================================================================
The amortized cost and estimated fair values of mortgage-backed
securities at March 31, 1998 by contractural maturity are shown below. Expected
maturities will differ from contractual maturities because borrowers may have
the right to call or prepay obligations with or without call or prepayment
penalties.
29
Available for Sale Held to Maturity
- ------------------------------------------------------------------------------------------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
- ------------------------------------------------------------------------------------------------------
Due in less than one year:
FHLMC certificates $ 2,168,371 $ 2,107,499
Due after one year through five years:
FHLMC certificates 3,356,915 3,402,638
Due five through ten years:
FHLMC certificates 325,162 328,450
FNMA certificates $ 1,500,540 $ 1,540,833
Due after ten years:
FHLMC certificates 21,504,927 21,556,283 938,943 942,320
FNMA certificates 21,871,532 21,924,294 2,502,704 2,483,141
GNMA certificates 13,142,014 13,333,122 13,919,229 14,152,799
- ------------------------------------------------------------------------------------------------------
$62,368,921 $62,652,286 $18,861,416 19,119,093
======================================================================================================
Activities related to the sale of mortgage-backed securities are
summarized as follows:
Years Ended March 31,
- --------------------------------------------------------------------------------
1998 1997 1996
- --------------------------------------------------------------------------------
Proceeds from sales $15,083,084 $11,142,858 $ 744,220
Gross gains on sales 29,246 47,318 5,952
Gross losses on sales 1,635 47,225 3,504
4. LOANS
Approximately 92% of the Bank's loans are to customers in Indiana,
although certain mortgage-banking and commercial lending activities extend
outside Indiana. The portfolio of loans consists of residential, commercial real
estate, commercial construction, consumer and other loans.
30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31,
- --------------------------------------------------------------------------------
1998 1997
- --------------------------------------------------------------------------------
First mortgage:
Secured by one-to-four family residences $ 158,721,706 $ 152,480,578
Secured by other properties 8,886,895 12,075,643
Construction loans 3,409,383 1,832,266
Land 25,455 56,064
Automobile 31,436,243 31,394,332
Consumer 9,212,727 9,692,035
Commercial 3,799,904
Mobile home 935,365 1,239,973
Loans on savings accounts 891,516 940,324
Credit card 565,538 623,196
Second mortgage 24,661 195,195
Home improvement 838,893 1,083,982
Loan contracts 24,135 28,211
FHA improvement 4,270
Commercial paper 9,116,180 978,922
------------- -------------
Subtotal 227,888,601 212,624,991
Allowance for loan losses (1,973,410) (2,126,225)
Deferred loan fees, net (397,765) (284,028)
Undisbursed loan proceeds (148,567) 24,213
Unearned interest and unearned discounts (19,601) (49,529)
------------- -------------
Loans, net $ 225,349,258 $ 210,189,422
============= =============
The principal balance of loans on nonaccrual status totalled
approximately $911,000 and $2,463,000 at March 31, 1998 and 1997, respectively.
For the years ended March 31, 1998 and 1997, gross interest income which would
have been recorded had the Bank's non-accruing loans been current with their
original terms amounted to $73,277 and $240,756 respectively. The amounts
included in interest income on such loans were $39,338 and $105,038 for the
years ended March 31, 1998 and 1997, respectively.
The Bank originates commercial real estate loans. Such loans had a
carrying value of approximately $9 million and $12 million at March 31, 1998 and
1997, respectively. These loans are considered by management to be of somewhat
greater risk of uncollectibility than other loans due to the dependency on
income production. Of the commercial real estate loans, $4 million and $8
million are collateralized by multi-family residential property at March 31,
1998 and 1997, respectively; and $5 million, and $4 million by hotel and other
property at March 31, 1998 and 1997, respectively.
The Bank had commitments to make loans, approximating $4,886,000 and
$1,550,000 excluding undisbursed portions of loans in-process at March 31, 1998
and 1997, respectively. The undisbursed portion of loans in process amounted to
$5,546,000 and $3,452,000 at March 31, 1998 and 1997, respectively.
31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Bank originates both adjustable and fixed interest rate loans. The
composition of these loans was as follows:
Fixed Rate Adjustable Rate
- ---------------------------------------------------------- -----------------------------------------------------------
Book Value Book Value
- ---------------------------------------------------------- -----------------------------------------------------------
Term to March 31, March 31, Term to Rate March 31, March 31,
Maturity 1998 1997 Adjustment 1998 1997
- ---------------------------------------------------------- -----------------------------------------------------------
1mo.-1yr $ 17,079,000 $ 6,095,000 1mo.-1yr. $20,329,000 $31,629,000
1yr.-3yr. 12,125,000 12,657,000 1yr.-3yr. 3,533,000 1,355,000
3yr.-5yr. 30,023,000 29,882,000 3yr.-5yr. 5,487,000 453,000
5yr.-10yr. 28,317,000 25,755,000 5yr.-10yr. 38,578,000 29,420,000
10yr.-20yr. 68,512,000 70,494,000 10yr.-20yr. 1,817,000 1,119,000
Over 20 years 1,884,000 3,339,000 over 20 yrs 205,000 427,000
- ---------------------------------------------------------- -----------------------------------------------------------
$157,940,000 $148,222,000 $69,949,000 $64,403,000
========================================================== ===========================================================
The adjustable rate loans have interest rate adjustment limitations and
are generally indexed on a weekly average yield of U.S. Treasury securities
adjusted to a constant maturity of one year. Future market factors may affect
the correlation of the interest rate adjustment with the rates the Bank pays on
the short-term deposits that have been primarily utilized to fund these loans.
Aggregate loans to officers and directors totaled $630,613 and $676,855
at March 31, 1998 and 1997, respectively. For the years ended March 31, 1998 and
1997 loans of $202,444 and $124,899 respectively, were disbursed to officers and
directors and repayments of principal of $248,686 and $181,150 respectively,
were received from officers and directors.
The amount of loans serviced for others totalled approximately
$32,468,000 and $34,298,000 at March 31, 1998 and 1997, respectively. Servicing
loans for others generally consists of collecting mortgage payments, maintaining
escrow amounts, disbursing payments to investors and foreclosure processing. In
connection with loans serviced for others, the Bank held borrower's escrow
balances of approximately $233,216 and $249,000 at March 31, 1998 and 1997,
respectively. The Bank is obligated to repurchase certain loans sold to and
serviced for others which become delinquent as defined by the various
agreements. At March 31, 1998 and 1997, these obligations were limited to
approximately $443,000 and $610,000 respectively.
Loan servicing fee income for the years ended March 31, 1998, 1997 and
1996 was $84,274, $100,824 and $104,184, respectively.
There were no restructured loans in the Bank's loan portfolio as of
March 31, 1998. The principal balance at March 31, 1997 of restructured loans
totalled approximately $2,127,700. Modifications included forgiveness of
interest, reduced interest rates and/or extensions of the loan term. For the
year ended March 31, 1997, gross interest income which would have been recorded
had the Bank's modified loans been current in accordance with their original
terms amounted to $165,000. The amount that was included in interest income
during 1997 on such loans was $151,000.
32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
An analysis of the allowance for loan losses is as follows:
Years Ended March 31,
- --------------------------------------------------------------------------------------------
1998 1997 1996
- --------------------------------------------------------------------------------------------
Beginning balance $2,126,225 $2,237,804 $2,093,492
Provision for losses charged to operations 177,050 113,256 206,923
Charge-offs (403,896) (370,519) (104,335)
Recoveries 74,031 145,684 41,724
- --------------------------------------------------------------------------------------------
Ending balance $1,973,410 $2,126,225 $2,237,804
============================================================================================
The recorded investment in loans considered impaired at March 31, 1998
was $116,778 for which no specific valuation reserve has been established. For
the year ended March 31, 1998, the average recorded investment in impaired loans
was approximately $1,215,012. Cash received for interest on impaired loans was
$108,989 and $294,091 for the years ended March 31, 1998 and 1997, respectively.
As a federally-chartered savings bank, aggregate commercial real estate
loans may not exceed 400% of capital as determined under the capital standards
provisions of FIRREA. This limitation was approximately $154 million and $134
million as of March 31, 1998, and 1997, respectively.
Also, under applicable regulations, the loans-to-one borrower
limitation is defined and is generally 15% of unimpaired capital which, for the
Bank, was approximately $5.7 million at March 31, 1998 and $5.2 million at March
31,1997. At March 31, 1998 and 1997 there were no loans exceeding this
limitation.
5. OFFICE PROPERTIES AND EQUIPMENT
Office properties and equipment are summarized as follows:
March 31,
- --------------------------------------------------------------------------------
1998 1997
- --------------------------------------------------------------------------------
Land $ 1,841,659 $ 1,726,939
Office buildings 7,379,489 7,166,672
Furniture and equipment 3,560,222 3,102,854
Leasehold improvements 375,184 365,201
Automobiles 52,728 52,728
- --------------------------------------------------------------------------------
Total 13,209,282 12,414,394
Less accumulated depreciation 5,676,031 5,445,807
- --------------------------------------------------------------------------------
Office properties and equipment, net $ 7,533,251 $ 6,968,587
================================================================================
Depreciation expense included in operations during the years ended
March 31, 1998, 1997 and 1996 totalled $556,598, $488,930 and $478,535,
respectively.
33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. DEPOSITS
Deposit accounts are summarized as follows:
March 31,
- --------------------------------------------------------------------------------------------------------
1998 1997
- --------------------------------------------------------------------------------------------------------
Weighted Weighted
Average Average
Amount Rate Amount Rate
- --------------------------------------------------------------------------------------------------------
Noninterest-bearing $ 1,755,251 $ 902,835
NOW and MMDA's 34,010,142 2.0% 35,588,164 2.2%
Passbook savings 52,050,522 3.7% 54,244,569 3.8%
- --------------------------------------------------------------------------------------------------------
Total 87,815,915 90,735,568
- --------------------------------------------------------------------------------------------------------
Certificates of deposit:
1.50 - 3.49% 66,459 2.9% 157,572 2.9%
3.50 - 5.49% 61,522,709 5.0% 81,947,155 5.0%
5.50 - 7.49% 130,864,156 6.0% 104,618,045 6.1%
7.50 - 9.49% 2,672,884 7.8% 3,295,013 8.0%
- --------------------------------------------------------------------------------------------------------
Total certificates of deposit 195,126,208 190,017,785
- --------------------------------------------------------------------------------------------------------
Total $282,942,123 $280,753,353
========================================================================================================
Certificates of deposit in the amount of $100,000 or more total
approximately $21 million at March 31, 1998 and 1997.
A summary of certificate accounts by scheduled maturities at March 31,
1998 is as follows:
1999 2000 2001 2002 2003 Thereafter Total
- ------------------------------------------------------------------------------------------------------------------------------------
Less than 3.49% $ 64,051 $ 2,408 $ 66,459
3.50 - 5.49% 45,817,668 10,242,121 $ 3,308,413 $ 781,223 $ 1,047,369 325,914 61,522,708
5.50 - 7.49% 78,046,368 18,069,142 7,608,128 2,892,043 9,729,966 14,518,510 130,864,157
7.50 - 9.49% 30,474 45,000 1,259,632 1,337,778 2,672,884
------------ ------------ ------------ ------------ ------------ ------------ ------------
$123,958,561 $ 28,358,671 $ 12,176,173 $ 5,011,044 $ 10,777,335 $ 14,844,424 $195,126,208
============ ============ ============ ============ ============ ============ ============
Interest expense on deposits is as follows:
Years Ended March 31,
- -------------------------------------------------------------------------------
1998 1997 1996
- -------------------------------------------------------------------------------
NOW and MMDA's $ 716,098 $ 780,027 $ 968,605
Passbook savings 1,951,908 2,056,077 1,567,719
Certificates of deposit 10,763,136 10,496,483 10,905,305
- -------------------------------------------------------------------------------
$13,431,142 $13,332,587 $13,441,629
================================================================================
34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. FEDERAL HOME LOAN BANK ADVANCES
Advances from the Federal Home Loan Bank of Indianapolis (FHLB) are as
follows:
Average Rate March 31,
- ------------------------------------------------------------------------------------------------------------
Fiscal Year 1998 1997 1998 1997
- ------------------------------------------------------------------------------------------------------------
Fixed Rate:
1998 5.67% $35,950,000
1999 5.55% 5.51 $19,494,333 17,500,000
2000 5.59 5.51 2,026,678 2,286,958
2001 5.61 5.68 3,770,924 1,478,037
After 2002 5.21 6.91 34,310,743 2,518,991
- ------------------------------------------------------------------------------------------------------------
Total FHLB fixed rate 59,602,678 59,733,986
- ------------------------------------------------------------------------------------------------------------
Variable Rate:
1998 5.61 38,750,000
1999 5.88 15,750,000
2001 5.47 11,000,000
After 2002 4.92 13,000,000
- ------------------------------------------------------------------------------------------------------------
Total variable rate 39,750,000 38,750,000
- ------------------------------------------------------------------------------------------------------------
Total advances $99,352,678 $98,483,986
============================================================================================================
The Bank does not have any advances scheduled to mature in the year
ending March 31, 2002.
The Bank has pledged mortgage loans and FHLB stock as collateral on
these advances. The Bank may receive advances from the FHLB up to 50% of the
Bank's adjusted assets which was approximately $203 million at March 31, 1998.
8. OTHER BORROWED FUNDS
The Company had no other borrowed funds at March 31, 1998. At March 31,
1997, other borrowed funds consisted of:
Federal Home Loan Bank, funds due April 1, 1997 $1,186,818
Securities sold under agreement to repurchase 607,149
- --------------------------------------------------------------------------------
Total $1,793,967
================================================================================
The FHLB funds represent checks written by the Bank on its demand
account at the FHLB of Indianapolis. U.S Agency Securities with an amortized
cost of $4,079,341 ($3,910,000 fair value) were pledged for the securities sold
under agreement to repurchase at March 31, 1997.
35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
An analysis of securities sold under agreements to repurchase is as
follows:
March 31,
- --------------------------------------------------------------------------------------------------
1998 1997 1996
- --------------------------------------------------------------------------------------------------
Highest month-end balance $444,636 $3,955,494 $982,868
Average balance $103,260 $1,484,957 $530,189
Weighted average interest rate at end of period 5.2% 4.8%
Weighted average interest rate during the period 5.1% 4.8% 4.8%
9. INCOME TAXES
An analysis of the income tax provision is as follows:
Years Ended March 31,
- --------------------------------------------------------------------------------
1998 1997 1996
- --------------------------------------------------------------------------------
Current:
Federal $1,366,610 $ 862,572 $437,317
State 447,482 254,275 123,341
Deferred 3,252 (113,861) 100,788
- --------------------------------------------------------------------------------
$1,817,344 $1,002,986 $661,446
================================================================================
The difference between the financial statement provision and amounts
computed by using the statutory rate of 34% is reconciled as follows:
Year Ended March 31,
- ----------------------------------------------------------------------------------------------
1998 1997 1996
- ----------------------------------------------------------------------------------------------
Income tax provision at federal statutory rate $1,517,254 $ 784,221 $649,655
State tax, net of federal tax benefit 295,338 167,822 127,056
Nondeductible expenses 188,734 50,347 135,248
Other (183,982) 596 (250,513)
- ----------------------------------------------------------------------------------------------
Total income tax provision $1,817,344 $1,002,986 $661,446
==============================================================================================
The Company's deferred income tax assets and liabilities are as follows:
March 31,
- -------------------------------------------------------------------------------
1998 1997
- -------------------------------------------------------------------------------
Deferred tax assets:
Bad debt reserves $ 628,648 $ 635,090
Unrealized loss on securities available for sale 1,043,274
Accrued employee benefits 113,198 107,624
Other 32,786 64,317
- -------------------------------------------------------------------------------
774,632 1,850,305
- -------------------------------------------------------------------------------
Deferred tax liabilities:
Depreciation 107,547 119,405
Deferred loan fees 258,986 277,883
Restricted stock awards 39,598 78,908
Unrealized gain on securities available for sale 147,127
Other 40,918
- -------------------------------------------------------------------------------
594,176 476,196
- -------------------------------------------------------------------------------
Deferred income tax, net $ 180,456 $1,374,109
================================================================================
36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Retained earnings at March 31, 1998 and 1997 includes approximately $6
million of income that has not been subject to tax because of deductions for bad
debts allowed for Federal income tax purposes. Deferred income taxes have not
been provided on such bad debt deductions since the Company does not intend to
use the accumulated bad debt deductions for purposes other than to absorb loan
losses. If, in the future, this portion of retained earnings is used for any
purpose other than to absorb bad debt losses, federal income taxes may be
imposed on such amounts at the then current corporate income tax rate.
In August 1996, the "Small Business Job Protection Act of 1996" was
passed into law. One provision of the act repeals the special bad debt reserve
method for thrift institutions currently provided for in Section 593 of the IRC.
The provision requires thrifts to recapture any reserve accumulated after 1987
but forgives taxes owed on reserves accumulated prior to 1988. Thrift
institutions will be given six years to account for the recaptured excess
reserves, beginning with the first taxable year after 1995, and will be
permitted to delay the timing of this recapture for one or two years, subject to
whether they meet certain residential loan test requirements.
10. REGULATORY CAPITAL REQUIREMENTS
The Bank is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory and discretionary actions by
regulators that could have a direct material effect on the Company's financial
position and results of operations. The regulations require the Bank to meet
specific capital adequacy guidelines that involve quantitative measures of the
Bank's assets, liabilities, and certain off-balance-sheet items as calculated
under regulatory accounting practices. The Bank's capital classifications are
also subject to qualitative judgements by the regulators.
Quantitative measures established by regulation to ensure capital
adequacy require the Bank to maintain minimum amounts and ratios as set forth in
the following tables of core and total risk-based capital. Prompt Corrective
Action provisions contained in the Federal Deposit Insurance Corporation
Improvement Act of 1991 (FDICIA) require specific supervisory actions as capital
levels decrease. To be considered well-capitalized under the regulatory
framework for Prompt Corrective Action Provisions under FDICIA, the Bank must
maintain minimum Tier 1 leverage, Tier 1 risk-based and total risk-based capital
ratios as set forth in the following tables. At March 31, 1998 and 1997 the Bank
exceeded the minimum requirements for the well-capitalized category.
The following presents the Bank's minimum and "well-capitalized"
regulatory capital levels.
As of March 31, 1998
- ------------------------------------------------------------------------------------------------
Actual Capital Required Capital
- ------------------------------------------------------------------------------------------------
Amount Ratio Amount Ratio
- ------------------------------------------------------------------------------------------------
OTS capital adequacy
Core capital $38,178,423 8.76% $17,440,197 4.00%
Risk-based capital 40,097,017 21.05 15,239,127 8.00
FDICIA regulations to be
classified well-capitalized
Tier 1 leverage capital 38,178,423 8.76 21,800,246 5.00
Tier 1 risk-based capital 38,178,423 20.04 11,429,346 6.00
Total risk-based capital 40,097,017 21.05 19,048,909 10.00
37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of March 31, 1997
- ----------------------------------------------------------------------------------------------------------------
Actual Capital Required Capital
- ----------------------------------------------------------------------------------------------------------------
Amount Ratio Amount Ratio
- ----------------------------------------------------------------------------------------------------------------
OTS capital adequacy
Core capital $34,701,101 8.27% $12,583,846 3.00%
Risk-based capital 36,480,827 20.80 14,034,819 8.00
FDICIA regulations to be
classified well-capitalized
Tier 1 leverage capital 34,701,101 8.27 20,980,109 5.00
Tier 1 risk-based capital 34,701,101 19.78 10,526,117 6.00
Total risk-based capital 36,480,827 20.80 17,538,859 10.00
11. STOCKHOLDERS' EQUITY AND REGULATORY MATTERS
Dividend Restrictions - Under current regulations, the Bank is not
permitted to pay dividends on its stock if its regulatory capital would thereby
reduce below (i) the amount then required for the liquidation account
established at the time the Bank converted from a mutual to stock form of
ownership or (ii) the Bank's regulatory capital requirements. As a "Tier 1"
institution (an institution with capital in excess of its fully phased-in
capital requirements, both immediately before the proposed capital distribution
and on a pro forma basis after giving effect to such distribution), the Bank may
make capital distributions after prior notice to the OTS in any calendar year up
to 100% of its net earnings to date during such calendar year plus the amount
that would reduce by one-half its capital surplus ratio at the beginning of such
calendar year. Any additional amount of capital distributions would require
prior regulatory approval. The Company has regulatory approval to pay $4,000,000
in dividends at March 31, 1998.
Preferred Stock - The Company is authorized to issue 1,000,000 shares
of preferred stock, $.01 par value which remains unissued at March 31, 1998. In
the event any preferred shares are issued, the Board of Directors is authorized
to fix and state the voting powers, designations, preferences and rights of the
shares of each such series and the qualifications, limitations and restriction
thereof.
Recapitalization of SAIF - On September 30, 1996, the President signed
into law an omnibus appropriations act for fiscal year 1997 that included, among
other things, the recapitalization of the Savings Association Insurance Fund
(SAIF) in a section entitled "The Deposit Insurance Funds Act of 1996" (the
Act). The Act included a provision where all insured depository institutions
would be charged a one-time special assessment on their SAIF assessable deposits
as of March 31, 1995. The Company recorded a pre-tax charge of $1,766,185 during
the year ended March 31, 1997, which represented 65.7 basis points of the March
31, 1995, assessable deposits.
12. EMPLOYEE BENEFIT PLANS
Multi-employer Pension Plan - The Bank participates in a
noncontributory multi-employer pension plan covering all qualified employees.
The plan is administered by the trustees of the Financial Institutions'
Retirement Fund. There is no separate valuation of the plan benefits nor
segregation of plan assets specifically for the Bank because the plan is a
multi-employer plan and separate actuarial valuations are not made with respect
to each employer.
Pension expense amounted to $40,000 and $142,028 for the years ended
March 31, 1997 and 1996, respectively. There was no pension expense in 1998.
38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Employee Stock Ownership Plan - The Company has an Employee Stock
Ownership Plan (ESOP) which owns 333,270 shares of the Company's common stock.
The ESOP purchase of the stock was funded by a loan from the Company (loan
balance of $714,150 and $952,200 at March 31, 1998 and 1997, respectively) which
will be repaid by contributions to the ESOP by the Company in the future.
Pursuant to the ESOP, the shares are to be allocated to participants annually
over an 8 year period. The ESOP covers substantially all employees and shares
are allocated based upon employee compensation levels during the year. ESOP
expense is based on the fair value of shares earned and totaled $639,317,
$479,046 and $503,579 during 1998 and 1997, and 1996, respectively. During
fiscal years ended March 31, 1998, 1997 and 1996, 47,688 shares, 49,728 shares
and 51,780 shares were earned by participants. At March 31, 1998, 130,340 shares
with a fair value of approximately $2,273,000 were held in suspense by the ESOP.
These shares are not considered to be outstanding for the purpose of computing
earning per share.
Recognition and Retention Plan - The Company has a Recognition and
Retention Plan (RRP) which provides executive officers and employees with a
proprietary interest in the Company in a manner designed to encourage such
individuals to remain with the Bank. Restricted stock awards covering up to 4%
of the common stock issued may be awarded under the RRP. Awarded stock vests at
a rate of 20% per year. During the fiscal year ended March 31, 1998, and 1997 an
additional 9,000 and 1,000 shares were awarded. The cost of the RRP is being
reflected as compensation expense as vesting occurs. This amounted to $125,242,
$178,070 and $135,740 during the fiscal years ended March 31, 1998, 1997 and
1996. Termination of employees resulted in 2,856 shares, 2,428 shares 5,712
shares being cancelled during the fiscal years ended March 31, 1998, 1997 and
1996 respectively.
Stock Option and Incentive Plan - The Company has granted stock options
to existing stockholders, officers, directors and other affiliated individuals
to purchase shares of the Company's stock. Awarded options vest at a rate of 25%
per year and are exercisable in the ten years immediately following the grant.
During the fiscal years ended March 31, 1997 and 1996, options to purchase an
additional 9,522 and 32,000 shares were awarded. No options were issued in 1998.
Employee terminations resulted in options to purchase of 3,572, 5,952 and 10,712
shares being cancelled during fiscal years ended March 31, 1998, 1997 and 1996
respectively.
The following is an analysis of stock option activity for each of the
three years in the period ending March 31, 1998 and the stock options
outstanding at the end of the respective years:
Weighted
Average
Options Shares Price
- -------------------------------------------------------------------------------------------
Outstanding April 1, 1995 435,610 5.03
Granted 32,000 8.22
Exercised (7,138) 5.00
Forfeited or expired (10,712) 5.00
- -------------------------------------------------------------------------------------------
Outstanding March 31, 1996 449,760 5.26
Granted 9,522 8.13
Exercised (11,658) 5.46
Fortified or expired (5,952) 5.00
- -------------------------------------------------------------------------------------------
Outstanding March 31, 1997 441,672 5.32
Exercised (36,112) 5.07
Fortified or expired (3,572) 5.00
- -------------------------------------------------------------------------------------------
Balance at March 31, 1998 401,988 5.34
===========================================================================================
39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The number of vested shares exercisable at March 31, 1998, 1997, and
1996 were: 376,465, 296,272 and 196,384, respectively and had a weighted average
exercise price of $5.16, $5.09 and $5.01, respectively. The weighted average
remaining contractual life of the options outstanding at March 31, 1998 and 1997
was 6.3 years and 7.2 years, respectively. Exercise prices for options
outstanding at March 31, 1998 ranged from $5.00 to $8.22.
The Company applies APB opinion No. 25 ("Accounting for Stock Issued to
Employees") and related interpretations in accounting for the plan. No
compensation cost has been recognized for the plan because the stock option
price is equal to the fair value at the grant date. Had compensation cost for
the plan been determined based on the fair value at the grant dates for awards
under the plan consistent with the fair value method of SFAS No. 123
("Accounting for Stock-Based Compensation"), the Company's proforma net income
per share would be as follows:
Year Ended March 31,
- ------------------------------------------------------------------------------
1998 1998 1997
- ------------------------------------------------------------------------------
Net income :
As reported $2,645,167 $1,303,544 $1,249,305
Proforma 2,631,973 1,293,311 1,246,344
Basic :
Net income per share:
As reported $ 0.65 $ 0.31 $ 0.28
Proforma 0.65 0.31 0.28
Diluted Net income per share:
As reported $ 0.62 $ 0.30 $ 0.27
Proforma 0.61 0.29 0.27
The fair value of option grants are estimated on the date of grant
using an option pricing model with the following assumptions: dividend yields of
0.96% to 1.7%, risk-free interest rates of 5.75% to 6.74%, expected volatility
of 18% and an expected life of five years. The proforma amounts are not
representative of the effects on reported net income for future years.
Deferred Compensation (401K) Plan - The Company has an Employee
Deferred Compensation (401K) Plan administered through the financial
institution's retirement fund. Each employee may contribute up to 6% of
compensation. Employee contributions of up to 4% of compensation are matched by
the Company at a rate of $.25 per dollar of employee contribution. The Company
matching expense was $21,450, $19,203 and $19,386 during the fiscal years ended
March 31, 1998, 1997 and 1996, respectively.
Directors Deferred Compensation Plan - The Bank has entered into
deferred compensation agreements with certain directors. Benefits under these
agreements are paid over a ten year period upon retirement. The present value of
the benefit to be paid is accrued over the active period of employment of
individual participants and is funded by life insurance policies.
40
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. COMMITMENTS
Lease commitments - The Company has future minimum rental commitments
for noncancelable operating leases as follows:
Fiscal year ended March 31:
---------------------------
1999 $81,156
2000 69,582
2001 65,724
2002 25,431
2003 7,000
Rental expense for the years ended March 31, 1998, 1997 and 1996 was
$79,036, $70,265 and $57,851, respectively.
Rental income from noncancelable subleases for the years ended March
31, 1998, 1997 and 1996 was $119,306, $103,306, and $93,883, respectively.
Financial Instruments with Off-Balance Sheet Risk - The Bank is a party
to financial instruments with off-balance-sheet risk of loss as part of its
normal business operations to meet the financing needs of its customers by
providing commitments to extend credit. These instruments involve, to varying
degrees, elements of credit and interest rate risk in excess of the amount
recognized in the balance sheet. The contract amount of these instruments
reflects the extent of involvement the Company has in this class of financial
instruments.
Exposure to credit loss in the event of nonperformance by the other
party to the financial instrument for commitments to extend credit is
represented by the contract amount of those instruments. The Company uses the
same credit policies in making commitments as it does for on-balance-sheet
instruments. Unless noted otherwise, the Company does not require collateral or
other security to support financial instruments with credit risk.
Commitments to extend credit are agreements to lend to a customer
provided there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Some commitments will expire without a loan
disbursement; thus, the total commitment does not necessarily represent future
cash requirements. The Bank evaluates each customer's creditworthiness on a
case-by-case basis. The amount of collateral obtained, if deemed necessary by
the Bank upon extension of credit, is based on management's credit evaluation of
the borrower. See also Note 4.
The collateral consists predominantly of residential family units,
commercial residential or non-residential real estate, and personal property.
Employment agreement - The Company has entered into employment
agreements with two executive officers. Under certain circumstances provided in
the agreement, the Company may be obligated to continue the officer's salary for
a period of three years.
Standby letters of Credit - Standby letters of credit are conditional
commitments issued by the Bank to guarantee the performance of a customer to a
third party. Standby letters of credit amounted to $53,000 at March 31, 1998.
41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. PERMANENT BANCORP, INC. FINANCIAL INFORMATION
(PARENT COMPANY ONLY)
The following condensed statement of financial condition as of March
31, 1998 and 1997 and condensed statement of operations and cash flows for the
three years ended March 31, 1998 for Permanent Bancorp, Inc. should be read in
conjunction with the consolidated financial statements and notes thereto.
CONDENSED STATEMENTS OF FINANCIAL CONDITION
March 31,
- --------------------------------------------------------------------------------
1998 1997
- --------------------------------------------------------------------------------
Cash $ 1,519,171 $ 328,249
Securities available for sale 2,614,031 2,979,375
Loans 978,922
Loans receivable from ESOP 714,150 952,200
Fixed assets 460,282 467,441
Interest receivable 11,353 65,200
Other assets 8,746 4,687
Investment in subsidiary 38,514,563 33,448,734
----------- -----------
Total assets $43,842,296 $39,224,808
=========== ===========
Deferred income taxes $ 111,341 $ 63,867
Accrued expenses 1,047,696 66,314
----------- -----------
Total liabilities 1,159,037 130,181
----------- -----------
Total stockholder's equity - net 42,683,259 39,094,627
----------- -----------
Total liabilities and stockholder's equity $43,842,296 $39,224,808
=========== ===========
Year Ended March 31,
- -------------------------------------------------------------------------------------------------------------------
1998 1997 1996
- -------------------------------------------------------------------------------------------------------------------
CONDENSED STATEMENTS OF INCOME
INCOME:
Interest income from securities held to maturity and available for sale $ 145,162 $ 293,929 438,368
Interest on loans 52,510 66,991 81,681
Other income 92,656 81,094 77,771
- -------------------------------------------------------------------------------------------------------------------
Total income 290,328 442,014 597,820
- -------------------------------------------------------------------------------------------------------------------
EXPENSES:
Salaries and benefits 172,019 223,192 200,118
Legal and professional fees 130,957 67,433 94,590
Other expenses 86,646 79,418 80,436
- -------------------------------------------------------------------------------------------------------------------
Total expenses 389,622 370,043 375,144
- -------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE EQUITY IN UNDISTRIBUTED EARNINGS (99,294) 71,971 222,676
INCOME TAX PROVISION (38,426) 21,296 67,170
EQUITY IN UNDISTRIBUTED EARNINGS OF SUBSIDIARY 2,706,035 1,252,869 1,093,799
- -------------------------------------------------------------------------------------------------------------------
NET INCOME $2,645,167 $1,303,544 $1,249,305
===================================================================================================================
42
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31,
- ----------------------------------------------------------------------------------------------------
1998 1997 1996
- ----------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,645,167 $ 1,303,544 $ 1,249,305
Equity in undistributed earnings of subsidiary (2,706,035) (1,252,869) (1,093,799)
Adjustments to reconcile net income to net cash
provided by operating activities
Vesting of restricted stock awards 125,243 178,070 135,740
Amortization and accretion (246) 28,238 (38,296)
(Gain) Loss on sale of investments (5,198) (5,790) (1,015)
Changes in assets and liabilities:
Interest receivable 53,847 16,838 34,054
Deferred income tax (7,422) (46,817) (59,786)
Other assets (4,059)
Other liabilities (18,519) 20,848 40,575
- ----------------------------------------------------------------------------------------------------
Net cash provided by operating activities 82,778 242,062 266,778
- ----------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from:
Maturities of:
Securities held to maturity 600,000
Securities available for sale 1,997,500 2,974,688 2,000,000
Commercial Paper 1,500,000 5,500,000
Principal repayments on loans 238,050 238,050 238,050
Sale of:
Securities held to maturity 2,979,063
Securities available for sale 1,986,510 2,934,384
Purchase of:
Loans (497,415) (6,438,563)
Securities held to maturity (3,995,625) (1,000,000)
Securities available for sale (2,497,500)
- ----------------------------------------------------------------------------------------------------
Net cash provided by investing activities 2,727,145 1,212,934 4,817,113
- ----------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid (808,610) (608,737) (347,996)
Purchase of treasury stock (993,628) (2,286,926) (3,465,463)
Sale of common stock 183,237 63,645 35,689
- ----------------------------------------------------------------------------------------------------
Net cash used in financing activities (1,619,001) (2,832,018) (3,777,770)
- ----------------------------------------------------------------------------------------------------
NET INCREASE IN CASH 1,190,922 (1,377,022) 1,306,121
CASH AT BEGINNING OF PERIOD 328,249 1,705,271 399,150
- ----------------------------------------------------------------------------------------------------
CASH AT END OF PERIOD $ 1,519,171 $ 328,249 $ 1,705,271
=========== =========== ===========
43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair value of financial
instruments is made in accordance with the requirements of Statement of
Financial Accounting Standards No. 107 (SFAS 107), "Disclosures about Fair Value
of Financial Instruments":
March 31, 1998 March 31, 1997
- --------------------------------------------------------------------------------------------------------------------
Carrying Fair Carrying Fair
Value Value Value Value
- --------------------------------------------------------------------------------------------------------------------
Assets:
Cash $ 4,274,700 $ 4,274,700 $ 3,211,091 $ 3,211,091
Interest-bearing deposits 1,808,159 1,808,159 3,153,385 3,153,385
Securities available for sale 105,618,621 105,618,621 85,180,313 85,180,313
Mortgage-backed securities
available for sale 62,652,286 62,652,286 74,052,253 74,052,253
Securities held to maturity 25,000 25,000
Mortgage-backed securities held to maturity 18,861,416 19,119,093 27,180,891 27,197,070
Loans, net 225,349,258 226,008,379 210,189,422 206,062,560
Interest receivable 3,270,173 3,270,173 3,539,085 3,539,085
Federal Home Loan Bank stock 5,466,000 5,466,000 5,192,600 5,192,600
Cash surrender value of life insurance 1,625,253 1,625,253 1,552,875 1,552,875
Liabilities:
Deposits 282,942,123 287,384,759 280,753,353 275,017,173
Federal Home Loan Bank advances 99,352,678 98,824,254 98,483,986 98,084,186
Advance payments by borrowers
for taxes and insurance 979,859 979,859 1,014,598 1,014,598
Other borrowed funds 1,793,967 1,793,967
Interest payable 2,193,548 2,193,548 2,049,727 2,049,727
Off balance sheet: commitments
to extend credit 10,485,000 5,002,000
The estimated fair value amounts are determined by the Company, using
available market information and appropriate valuation methodologies. However,
considerable judgment is required in interpreting market data to develop the
estimates of fair value. Accordingly, the estimates presented herein are not
necessarily indicative of the amounts the Company could realize in a current
market exchange. The use of different market assumptions and/or estimation
methodologies may have a material effect on the estimated fair value amounts.
Cash, interest-bearing deposits, Federal Home Loan Bank stock, interest
receivable and payable, advance payments by borrowers for taxes and insurance
and other borrowed funds - The carrying amounts of these items are a reasonable
estimate of their fair value.
Investment securities and mortgage-backed securities - Fair values are
based on prices obtained from independent pricing services.
Loans - The fair value of mortgage loans is estimated using published
loan buy rates for similar loans and quoted market prices for mortgage-backed
securities backed by loans with similar characteristics. The fair value of
non-mortgage loans is estimated by discounting the future cash flows using the
current rates for loans of similar credit risk and maturities.
44
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Deposits - The fair value of demand deposits, savings accounts and
money market deposit accounts is the amount payable on demand at the reporting
date. The fair value of fixed-maturity certificates of deposit is estimated by
discounting future cash flows using rates offered on the reporting date for
deposits of similar remaining maturities.
Federal Home Loan Bank advances - The fair value is estimated by
discounting future cash flows using rates currently available to the bank for
advances of similar maturities.
Commitments - The commitments to originate and purchase loans have
terms that are consistent with current market conditions. Accordingly, the Bank
estimated that the face amounts of these commitments approximates carrying
value.
The fair value estimates presented herein are based on information
available to management as of March 31, 1998 and 1997. Although management is
not aware of any factors that would significantly affect the estimated fair
value amounts, such amounts have not been comprehensively revalued for purposes
of these consolidated financial statements since that date, and therefore,
current estimates of fair value may differ significantly from the amount
presented herein.
45
BOARD OF DIRECTORS AND Permanent
EXECUTIVE OFFICERS Bancorp, Inc.
PERMANENT BANCORP INC.
BOARD OF DIRECTORS
Donald P. Weinzapfel John W. Forster
James W. Vogel James A. McCarty, Jr.
Jack H. Kinkel Daniel F. Korb
Robert L. Northerner John R. Stone
James D. Butterfield Murray J. Brown
Daniel L. Schenk
EXECUTIVE OFFICERS
Donald P. Weinzapfel
Chairman of the Board, President and
Chief Executive Officer
Murray J. Brown
Executive Vice President and
Chief Operating Officer
Robert A. Cern
Chief Financial Officer and Secretary
PERMANENT FEDERAL SAVINGS BANK
BOARD OF DIRECTORS
Donald P. Weinzapfel John W. Forster
James W. Vogel James A. McCarty, Jr.
Jack H. Kinkel Daniel F. Korb
Robert L. Northerner John R. Stone
James D. Butterfield Murray J. Brown
Daniel L.Schenk
Louis H. Boink, Jr. (Director Emeritus)
Carl F. Bernhardt (Director Emeritus)
Kenneth F. Allen (Director Emeritus)
JASPER ADVISORY BOARD
Stephen A. Habig Roger W. Brown
G. Earl Metzger
WHOLLY OWNED SUBSIDIARY
PERMA SERVICE CORP.
Perma Service Corp. provides brokerage services, on an agency basis, through
INVEST(R), and a full line of insurance products through PERMANENT INSURANCE
AGENCY, INC.
EXECUTIVE OFFICERS
Donald P. Weinzapfel
Chairman of the Board, President &Chief Executive Officer
Murray J. Brown
Executive Vice President &
Chief Operating Officer
Robert A. Cern
Senior Vice President,
Chief Financial Officer
& Secretary
Seth P. Allen
Senior Vice President
George E. Orr
Senior Vice President
Richard A. Condi
Vice President
Glenna J. Kirsch
Vice President
Robert E. Whitfield Jr.
Vice President
For information about enrolling in the Company's Dividend Reinvestment and Stock
Purchase Plan, please write Registrar and Transfer Company, Shareholders
Investment Services, 10 Commerce Drive, Cranford, NJ 07016 or use their toll
free number at 1-800-368-5948.
46
CORPORATE INFORMATION Permanent
Bancorp, Inc.
ANNUAL MEETING
The annual meeting of shareholders will be held Tuesday, July 28, 1998
at 4:00 p.m. Central Daylight Time at the Company's Main office, 101
S.E. Third Street., Evansville, Indiana
CORPORATE OFFICE
Permanent Bancorp, Inc.
101 S.E. Third Street
Evansville, IN 47708
BRANCH OFFICES
University Heights
4615 University Drive
Evansville, Indiana
Town Center
201 Diamond Avenue
Evansville, Indiana
Green River Road
123 South Green River Road
Evansville, Indiana
North Brook
3820 First Avenue
Evansville, Indiana
West Franklin Street
2131 West Franklin Street
Evansville, Indiana
Ross Center
2521 Washington Avenue
Evansville, Indiana
Fort Branch
810 East Locust Street
Fort Branch, Indiana
Jasper
771 West Second Street
Jasper, Indiana
Newburgh
8533 Bell Oaks Drive
Newburgh, Indiana
Oakland City
410 West Morton Street
Oakland City, Indiana
FORM 10-K
The Company's Annual Report on Form 10-K, as required to be filed with the
Securities and Exchange Commission, is available, without charge, upon written
request to:
Robert A. Cern
Chief Financial Officer & Secretary
Permanent Bancorp, Inc.
101 S.E. Third St., Evansville, IN 47708
STOCK INFORMATION
The stock of the Company is traded over-the-counter on the NASDAQ National
Market System under the symbol PERM. At March 31, 1998, the Company's stock was
held by approximately 1,132 holders of record. The stock transfer agent is:
REGISTRAR AND TRANSFER COMPANY
10 Commerce Drive
Cranford, New Jersey 07016
The Company's stock began trading on April 4, 1994.
STOCK TRADING AND DIVIDEND DATA
Volume Dividend
Quarter Ended High Low (000's) Paid
- -------------------------------------------------------------------------
June 30, 1997 $13.00 $10.38 652.2 $.0375
September 30, 1997 13.25 11.38 210.1 .05
December 31, 1997 15.56 12.03 312.6 .05
March 31, 1998 18.75 13.38 356.7 .055
June 30, 1996 $8.25 $7.13 374.0 $.025
September 30, 1996 8.56 7.88 320.6 .0375
December 31, 1996 10.50 6.25 577.6 .0375
March 31, 1997 11.38 10.13 411.8 .0375
47
CORPORATE INFORMATION Permanent
Bancorp, Inc.
REGISTERED MARKET MAKERS
The following firms make a market in Permanent Bancorp Inc.'s stock:
Capital Resources, Inc.
Herzog, Heine, Geduld, Inc.
J.J. B. Hilliard, W.L. Lyons
NatCity Investments, Inc.
Sandler, O'Neill & Partners
Friedman Billings Ramsey & Co.
GENERAL BANK COUNSEL
Bowers, Harrison, Kent and Miller,LLP
25 Northwest Riverside Drive
Evansville, IN 47708
SPECIAL COUNSEL
Silver, Freedman & Taff, L.L.P.
1100 New York Avenue, N.W.
Washington, D.C. 20005
INDEPENDENT AUDITORS
Deloitte & Touche LLP
Suite 3000
Market Tower
10 West Market Street
Indianapolis, IN 46204-2985
48