SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended December 31, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number: 0-23370
PERMANENT BANCORP, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 35-1908797
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(State or other jurisdiction of (I.R.S. Employer
Incorporation or Origination) Identification No.)
101 Southeast Third Street, Evansville Indiana 47708
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code: (812) 428-6800
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [ X ] No [ ]
As of January 31, 1999 there were 3,873,286 shares of the Registrant's Common
Stock outstanding.
PERMANENT BANCORP, INC.
FORM 10-Q
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Consolidated Statements of Financial Condition
Consolidated Statements of Income
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Supplemental Data
Item 3. Quantitative & Qualitative Disclosures of Market Risk
PART II. OTHER INFORMATION
Signatures
PERMANENT BANCORP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(UNAUDITED)
December 31, 1998 March 31, 1998
------------- -------------
ASSETS:
Cash .................................................................... $ 14,680,050 $ 4,274,700
Interest-bearing deposits ............................................... 3,000,230 1,808,159
------------- -------------
Total cash and cash equivalents ......................................... 17,680,280 6,082,859
Securities available for sale - at fair value (amortized cost $66,406,528
and $105,529,613) ..................................................... 66,375,666 105,618,621
Mortgage-backed securities available for sale at fair value (amortized
cost $59,428,767 and $62,368,921) ....................................... 59,939,731 62,652,286
Mortgage-backed securities held to maturity (fair value $19,119,093) .... 18,861,416
State and municipal securities held to maturity (fair value $5,718,342) . 5,909,080
Other investments ....................................................... 1,673,922 1,100,826
Loans, net of allowance for loan losses of $2,761,786 and $1,973,410 .... 310,288,824 225,349,258
Interest receivable, net ................................................ 3,244,658 3,270,173
Office properties and equipment, net .................................... 8,721,065 7,533,251
Real estate owned ....................................................... 113,275 93,182
Federal Home Loan Bank stock ............................................ 5,466,000 5,466,000
Cash surrender value of life insurance .................................. 2,282,192 1,625,253
Goodwill, net of accumulated amortization of $2,320,944 and $1,909,003 .. 9,818,770 452,912
Other ................................................................... 6,461,226 1,008,463
------------- -------------
TOTAL ASSETS ............................................................... $ 497,974,689 $ 439,114,500
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY:
LIABILITIES:
Deposits ................................................................ $ 346,449,247 $ 282,942,123
Federal Home Loan Bank advances ......................................... 98,996,967 99,352,678
Other Long-Term Debt .................................................... 3,000,000
Advance payments by borrowers for taxes and insurance ................... 553,333 979,859
Interest payable ........................................................ 2,361,317 2,193,548
Other ................................................................... 6,149,536 10,963,033
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TOTAL LIABILITIES .......................................................... 457,510,400 396,431,241
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PERMANENT BANCORP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(UNAUDITED)
(continued)
December 31, 1998 March 31, 1998
------------- -------------
STOCKHOLDERS' EQUITY:
Serial Preferred Stock ($.01 par value) Authorized and unissued-
1,000,000 shares
Common Stock ($.01 par value) Authorized - 9,000,000 shares; issued -
4,927,000 shares; Outstanding - 3,873,286 and 4,102,094 shares ........ 49,212 49,241
Additional paid-in capital .............................................. 24,860,626 24,525,662
Treasury Stock - 947,244 and 682,674 shares ............................. (10,040,287) (6,255,083)
Retained Earnings - substantially restricted ............................ 26,159,095 25,127,127
Unrealized gain on securities available for sale, net of deferred tax of
$194,592 and $147,127 ................................................. 285,510 225,247
ESOP Borrowing .......................................................... (535,613) (714,150)
Unearned compensation - restricted stock awards ......................... (314,254) (274,785)
------------- -------------
TOTAL STOCKHOLDERS' EQUITY ................................................. 40,464,289 42,683,259
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ................................ $ 497,974,689 $ 439,114,500
============= =============
See notes to consolidated financial statements
PERMANENT BANCORP, INC. AND SUBSIDIARY
PERMANENT BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
----------------------------- -----------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
INTEREST INCOME:
Loans ........................................ $ 5,832,189 $ 4,421,004 $ 15,978,942 $ 13,081,605
Mortgage-backed securities ................... 993,151 1,555,066 3,362,339 5,033,751
Investment securities ........................ 1,298,687 1,467,632 4,468,725 4,519,641
Deposits ..................................... 242,431 33,785 384,634 65,630
Dividends on Federal Home Loan Bank stock .... 110,219 110,220 329,874 325,000
------------ ------------ ------------ ------------
8,476,677 7,587,707 24,524,514 23,025,627
------------ ------------ ------------ ------------
INTEREST EXPENSE:
Deposits ..................................... 3,794,787 3,337,450 11,214,919 10,161,106
Federal Home Loan Bank advances .............. 1,258,381 1,479,848 3,739,659 4,462,541
Long-term borrowings ......................... 69,800 99,174
Short-term borrowings ........................ 45,827
------------ ------------ ------------ ------------
5,122,968 4,817,298 15,053,752 14,669,474
------------ ------------ ------------ ------------
NET INTEREST INCOME ............................. 3,353,709 2,770,409 9,470,762 8,356,153
PROVISION FOR LOAN LOSSES ....................... 75,000 (500) 225,000 152,050
------------ ------------ ------------ ------------
NET INTEREST INCOME AFTER LOAN LOSS
PROVISION .................................... 3,278,709 2,770,909 9,245,762 8,204,103
------------ ------------ ------------ ------------
OTHER INCOME:
Service charges .............................. 646,188 256,035 1,511,274 716,521
Gain on sale of loans ........................ 93,511 9,270 153,938 57,899
Gain on sale of real estate owned ............ 1,114 3,862 47,223 44,539
Commissions .................................. 140,034 194,592 443,726 494,115
Gain on sale of investment and mortgage-backed
securities ................................. 53,057 30,407 206,018 40,692
Other ........................................ 147,669 97,508 374,204 264,927
------------ ------------ ------------ ------------
1,081,573 591,674 2,736,383 1,618,693
------------ ------------ ------------ ------------
PERMANENT BANCORP, INC. AND SUBSIDIARY
PERMANENT BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(continued)
THREE MONTHS ENDED NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
----------------------------- -----------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
OTHER EXPENSE:
Salaries and employee benefits ............... 1,515,308 1,155,679 4,282,509 3,411,340
Deposit insurance assessments ................ 64,670 69,790 202,849 207,969
Occupancy .................................... 204,781 221,940 609,955 625,107
Equipment .................................... 202,630 151,349 549,830 473,658
Computer service ............................. 221,257 124,920 601,462 388,463
Advertising .................................. 105,515 90,171 355,961 263,123
Postage and office supplies .................. 123,509 67,754 402,855 212,475
Other ........................................ 517,841 314,569 1,395,026 878,230
------------ ------------ ------------ ------------
2,955,511 2,196,172 8,400,447 6,460,365
------------ ------------ ------------ ------------
INCOME BEFORE INCOME TAXES ...................... 1,404,771 1,166,411 3,581,698 3,362,431
INCOME TAX PROVISION ............................ 542,322 461,303 1,406,042 1,374,497
------------ ------------ ------------ ------------
NET INCOME ...................................... $ 862,449 $ 705,108 $ 2,175,656 $ 1,987,934
============ ============ ============ ============
EARNINGS PER SHARE OF COMMON STOCK
Basic ........................................ $ 0.22 $ 0.17 $ 0.54 $ 0.49
Diluted ...................................... $ 0.21 $ 0.16 $ 0.51 $ 0.46
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic ........................................ 3,860,223 4,049,286 3,994,297 4,036,320
Diluted ...................................... 4,075,557 4,298,978 4,235,915 4,275,712
See notes to consolidated financial statements
PERMANENT BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
NINE MONTHS ENDED DECEMBER 31,
---------------------------------
1998 1997
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ........................................................ $ 2,175,656 $ 1,987,934
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation ................................................. 384,691 382,879
Amortization and accretion ................................... 789,394 208,647
Vesting of restricted stock awards ........................... 4,760
Provisions for loan and real estate owned losses ............. 28,376 (27,755)
Income recognized using equity method ........................ (51,998)
(Gain) on sale of securities and mortgage-backed securities .. (206,018) (40,693)
(Gain) on sale of loans ...................................... (153,938) (57,899)
Loss on sale of bank premises ................................ (13,883)
(Gain) on sale of real estate owned .......................... (47,223) (57,728)
ESOP shares earned ........................................... 273,036 261,146
Changes in assets and liabilities:
Proceeds from the sales of loans ................................ 9,450,468 2,274,959
Origination of loans for resale ................................. (8,997,320) (2,217,060)
Other investments ............................................... (573,096) (121,886)
Interest receivable ............................................. 25,515 507,500
Other assets .................................................... (7,449,135) (284,884)
Interest payable ................................................ 167,769 182,062
Other liabilities ............................................... (4,813,497) 1,878,727
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Net cash provided by operating activities ......................... (8,997,320) 4,866,826
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PERMANENT BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(continued)
NINE MONTHS ENDED DECEMBER 31,
---------------------------------
1998 1997
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CASH FLOWS FROM INVESTING ACTIVITIES:
Cash acquired through branch acquisitions ......................... 26,872,394 4,578,736
Loans originated .................................................. (119,389,189) (51,312,339)
Loan principal repayments ......................................... 84,915,478 54,588,301
Proceeds from:
Maturities of:
Securities available for sale .............................. 104,051,465 28,994,050
Securities held to maturity ................................ 25,000
Sales of:
Securities available for sale and mortgage-backed securities 38,637,869 25,214,498
Bank premises .............................................. 167,742
Real estate owned .......................................... 125,473 123,884
Purchases of:
Securities and mortgage-backed securities available for sale (106,725,270) (56,774,159)
Securities held to maturity ................................ (5,909,080)
Equity Investments ......................................... (250,000)
Loans ...................................................... (7,871,080) (8,160,573)
FHLB Stock ................................................. (273,400)
Office properties, equipment and land ...................... (734,596) (366,325)
Payments on mortgage-backed securities ............................ 24,852,862 14,471,457
Increase in cash surrender value of life insurance ................ (656,939) (55,169)
Other ............................................................. (11,993)
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Net cash provided by (used in) investing activities ............... 38,169,387 10,957,710
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PERMANENT BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(continued)
NINE MONTHS ENDED DECEMBER 31,
--------------------------------
1998 1997
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid ...................................... (704,318) (574,879)
Net change in deposits .............................. (15,241,633) (13,302,013)
Receipts from FHLB advances ......................... 95,000,000 180,000,000
Payments on FHLB advances ........................... (95,322,711) (178,932,031)
Principal repayment of ESOP borrowing ............... 178,538 178,538
Advance payments by borrowers for taxes and insurance (426,526) (518,114)
Net change in other borrowed funds .................. (1,793,967)
Net change in long-term debt ........................ 3,000,000
Purchase of treasury stock .......................... (4,163,316) (993,628)
Sale of common stock ................................ 105,320 80,360
------------- -------------
Net cash provided by (used in) activities ........... (17,574,646) (15,855,734)
------------- -------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ... 11,597,421 (30,198)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ....... 6,082,859 6,364,476
------------- -------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ............. $ 17,680,280 $ 6,334,278
============= =============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest ....................................... $ 14,885,983 $ 10,009,683
Income taxes ................................... 993,000 1,123,000
Noncash transactions:
Transfers from loans to real estate owned ...... 150,901 110,415
See notes to consolidated financial statements.
PERMANENT BANCORP, INC.
Notes to Consolidated Financial Statements
1. BASIS OF PRESENTATION - The consolidated financial statements include the
accounts of Permanent Bancorp, Inc. (the "Company"), its wholly owned subsidiry,
Permanent Federal Savings Bank, its wholly owned subsidiary, Perma-Service Corp,
and its wholly owned subsidiary, Permanent Insurance Agency, Inc. (collectively
the "Bank"). All significant intercompany accounts and transactions have been
eliminated. These consolidated financial statements at December 31, 1998 and for
the three and nine month periods ended December 31, 1998 and 1997 have not been
examined by independent auditors but reflect, in the opinion of the Company's
management, all adjustments (which include only normal recurring adjustments)
necessary to present fairly the financial position and results of operations for
such periods.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. It is therefore suggested that these statements
be read in conjunction with the consolidated financial statements and related
notes which are incorporated by reference in the Company's Annual Report on Form
10-K for the year ended March 31, 1998.
2. BRANCH ACQUISITION - On June 26, 1998 the Company acquired four branch
banking offices from NBD, N.A. in a transaction accounted for as a purchase. The
Company acquired approximately $79 million of deposit liabilities and $43
million of loans in the transaction. Included in the Consolidated Statements of
Financial Condition at December 31, 1998 is approximately $9.5 million of
goodwill related to the acquisition, net of amortization of approximately
$318,000.
Generally accepted accounting principles provide for an allocation period,
generally not to exceed one year, to identify and quantify the fair value of
assets acquired and liabilities assumed. Therefore, the allocations reflected in
the accompanying financial statements are subject to change as additional
information concerning fair values becomes available.
3. STOCK DIVIDEND - In April, 1998 the Company announced a two-for-one stock
split effected in the form of a 100% stock dividend paid on April 14, 1998. The
consolidated financial statements, notes and other references to share and per
share data have been retroactively restated for this stock dividend.
4. STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 130, "COMPREHENSIVE INCOME" -
This statement requires that changes in the amounts of certain items, including
foreign currency translation adjustments and unrealized gains and losses on
certain securities be shown in the annual financial statements. FAS 130 does not
require a specific format for the annual financial statement in which
comprehensive income is reported, but does require that an amount representing
total comprehensive income be reported in that statement. This statement was
adopted by the Company effective April 1, 1998 and all prior year financial
statements have been reclassified for comparative purposes.
The following is a summary of the Company's total comprehensive income for the
interim three month and nine month periods ended December 31, 1998 and 1997
under FAS 130:
Three Months Ended Nine Months Ended
December 31, December 31,
---------------------------- ----------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
Net income
Other comprehensive income, net of tax: ..... $ 862,449 $ 705,108 $ 2,175,656 $ 1,987,934
Unrealized gains (losses) on securities:
Unrealized holding gains (losses)
arising during period ............. (416,612) 308,346 184,677 1,955,673
Reclassification adjustment for (gains)
losses included in net income ..... (32,041) (18,363) (124,414) (24,574)
----------- ----------- ----------- -----------
Other comprehensive income .................. (384,571) 289,983 60,263 1,931,099
----------- ----------- ----------- -----------
COMPREHENSIVE INCOME ........................ $ 477,878 $ 995,091 $ 2,235,919 $ 3,919,033
=========== =========== =========== ===========
5. STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 131, "DISCLOSURES ABOUT
SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION". The statement is not
required to be applied to interim reporting and will be applied in the Company's
fiscal 1999 annual financial statements. The statement requires financial
disclosure and descriptive information about reportable operating segments. Upon
its adoption, this statement may result in additional financial statement
disclosures.
6. STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 133, "ACCOUNTING FOR
DERIVATIVE INSTRUMENTS" - This statement was issued on June 16, 1998 and
adoption is mandatory for all quarters of fiscal years beginning after June 15,
1999. This statement establishes accounting and reporting standards for
derivative instruments, including derivative instruments embedded in financial
contracts and for hedging. The Company adopted this statement as of October 1,
1998. Except as noted below, adoption of this statement did not have a
significant impact on the current financial condition, results of operations or
cash flows of the Company.
As permitted by the statement, the Company, as of October 1, 1998, transferred
debt securities previously classified as held-to-maturity into the
available-for-sale category. These securities had a book value of $16,113,992
and a fair value of $16,324,314 and accordingly the company recognized an
unrealized gain in stockholders' equity of approximately $127,000.
7. STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 134, "ACCOUNTING FOR
MORTGAGE-BACKED SECURITIES RETAINED AFTER THE SECURITIZATION OF MORTGAGE LOANS
HELD FOR SALE BY A MORTGAGE BANKING ENTERPRISE." This statement was issued on
October 9, 1998 and is effective for fiscal quarters beginning after December
15, 1998. This statement conforms the accounting for securities retained after
securitization of mortgage loans by a mortgage banking enterprise with the
accounting for securities retained after the securitization of other types of
assets by a non-mortgage banking enterprise. The Company is currently evaluating
the statement to determine the impact, if any, that it will have on its results
of operations or financial condition.
8. COMPANY BORROWING. - On August 25, 1998, the Company borrowed $4,153,875 from
an unaffiliated financial institution to purchase 302,100 shares of the
Company's common stock. The debt is secured by the Bank stock owned by the
Company. Interest only on the debt is payable quarterly and is, at the option of
the Company, based upon the prime rate or the ninety day LIBOR rate plus 1.80%.
Annual principal repayments in the amount of $500,000 commence on February 29,
2000 and continue until August 15, 2003 at which time any principal which
remains outstanding is due and payable. The Company may repay principal at
anytime without penalty.
The loan agreement requires that the Company maintain minimum levels of capital
(as regulatory defined), attain a defined minimum annual return on assets and
maintain a defined level of loan loss reserve to non-performing loans. In
addition, the loan agreement specifies that non-performing loans shall not
exceed 25% of equity. The Company is in compliance with the loan agreement
requirements as of December 31, 1998.
At December 31, 1998 the balance of this debt is $3,000,000.
9. CHANGES IN PRESENTATION - Certain amounts and items appearing in the
financial statements for the quarter and nine months ended December 31, 1997
have been reclassified to conform with December 31, 1998 presentation.
PERMANENT BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Permanent Bancorp, Inc. (the "Company") is a bank holding company which owns
100% of the capital stock of Permanent Federal Savings Bank (the "Bank") and has
no other subsidiaries. Material changes in the Consolidated Statements of
Financial Condition and Consolidated Statements of Income, except where noted
are primarily attributable to the operations of the Bank.
YEAR 2000
The Company may be impacted by the "Year 2000" problem, a term which refers to
uncertainties about the ability of data processing hardware and software to
properly interpret dates after the beginning of the Year 2000. The Company began
working on its Year 2000 plan in calendar year 1997. A project leader who is a
member of senior management has been assigned to the project while senior
management oversees it and regularly reports to the Board of Directors. A
comprehensive Year 2000 Plan (Plan) that includes phases relating to awareness,
assessment, renovation, validation and implementation has been established and
includes a timetable and summarizes each major phase of the project and the
estimated costs to renovate and test systems in preparation for the Year 2000.
The awareness phase included a Company-wide campaign to communicate and identify
the problem and the potential ramifications to the organization. Concurrent with
this phase, the assessment phase began which included the inventorying of
systems that may be impacted. The business use of each inventoried system was
then analyzed and prioritized based upon the perceived adverse effect on the
financial condition of the Company in the event of a loss or interruption in the
use of each system. The Company has completed the awareness and assessment
phases of the project.
The Company has outsourced most critical data processing activities to an
industry-known service provider who is responsible for modifying its programs to
be compliant with Year 2000 processing; however, testing of those systems falls
within the scope of the Company. Focusing on these critical systems, the Company
has closely reviewed and monitored the vendor's progress. Year 2000 compliant
upgrades to these outsourced critical data processing systems were installed
throughout 1998 and the service provider has represented that as of November,
1998 this process is 99% complete. Other critical systems have also been
assessed as to their Year 2000 readiness. These systems have been purchased from
other industry-known vendors and are generally used in their purchased
configuration. The Company is closely reviewing and monitoring these systems in
addition to reviewing less critical systems as to each vendor's progress and
testing. A test lab has been established and systems are being tested in a
non-production environment. Assurance of Year 2000 compliance for these systems
has been received from substantially all of our vendors including all those
deemed critical. Integrated testing on all critical applications will continue
through the first half of calendar year 1999. The review of non-critical systems
has begun and is also expected to be completed by June 30, 1999. A system is
deemed validated upon completion of an appropriate test plan and system testing
of the Year 2000 compliant version without problems.
The Company's overall costs associated with year 2000 implementation will be
reduced due to its outsourcing arrangement previously discussed; however,
incremental direct expenses to date of approximately $10,000 have been incurred
and the Company anticipates incurring approximately $90,000 of additional
incremental expenses in 1999. Included in this amount are capital improvements
which will be accelerated, in part due to Year 2000. The capital improvements
include replacing older technology, personal computers and software, and
telecommunication systems. Although implementation of this equipment and
software will resolve certain Year 2000 issues, they will also provide increased
or improved functionality and efficiencies. The cost of this equipment and
software is expected to be charged to expense over their estimated useful lives.
The aforementioned costs do not include the salary of the project leader or the
time of management and staff assisting on the project which are estimated to
total 2,000 hours from fourth quarter 1998 through 1999. The total cost could
vary significantly from those currently estimated because of unforeseen
circumstances which could develop in implementing the Plan.
Concurrent with the development and execution of the Plan is the evolution of
the Company's Year 2000 contingency plan. The contingency plan is intended to be
a changing document developed based on the on-going results of the project. The
contingency plan currently includes the contingency procedures for critical data
processing and environmental systems and key suppliers. The contingency plan
will be expanded to address a variety of additional issues including credit
risk, liquidity and loan and deposit customers.
The Company is also completing an evaluation of Year 2000 risks relating to its
lines of business separate from its dependence on data processing that includes
a review of larger commercial customers to ascertain their overall preparedness
for Year 2000. The process requires lending and other bank officers to meet with
their customers to review and access their preparedness. The failure of a
commercial customer to prepare adequately for Year 2000 could have a significant
adverse effect of such customer's operations and profitability, and inhibit its
ability to repay loans in accordance with their terms or requiring the use of
its deposited funds. While the process of evaluating the potential adverse
effects of Year 2000 risks on these customers is substantially complete, it is
not possible to quantify the overall potential effect to the Company.
The plan also includes provisions which address the Year 2000 compliance of
environmental systems, which include items such as elevators, security systems
and heating and air conditioning systems. No significant business risks have
been revealed regarding these types of systems.
While the Company is making a substantial effort to become Year 2000 compliant,
there is no assurance that the failure to adequately address all issues relating
to the Year 2000 problem would not have a material adverse effect on its
financial condition or results of operations.
QUARTER ENDED DECEMBER 31, 1998 COMPARED TO DECEMBER 31, 1997
NET INTEREST INCOME - Net interest income before provision for loan losses
increased by $583,300 or approximately 21.1% for the quarter ended December 31,
1998 compared to the quarter ended December 31, 1997. This increase is primarily
the result of the acquisition of assets and liabilities of branch locations from
NBD Bank, N.A..
Net interest income after provision for loan losses increased by $507,800, or
approximately 18.3% for the quarter ended December 31, 1998 compared to the
quarter ended December 31, 1997. The increase was smaller than the increase in
net interest income before provision for loan losses because of an increase in
the loss provision from the comparable quarter of the prior year as a result the
reversal of specific loss reserves in the prior year.
INTEREST INCOME - Total interest income for the three months ended December 31,
1998 increased $888,970, or approximately 11.7% from the three month period
ended December 31, 1997. This increase occurred despite a decrease of 26 basis
points (.26%) on the interest rate earned on earning assets from the comparable
quarter of 1997, since the balance of average interest earning assets at the
Bank increased by approximately $57 million from the quarter ended December 31,
1997 to the quarter ended December 31, 1998.
INTEREST EXPENSE - Total interest expense increased by $305,670 or approximately
6.36% during the three months ended December 31, 1998 compared to the three
months ended December 31, 1997, despite a decrease in the cost of
interest-bearing liabilities of 67 basis points (.67%) which was offset by an
increase in average interest-bearing liabilities at the Bank of approximately
$75 million from the comparable quarter of 1997. In addition, included in
interest expense in the current year's quarter is approximately $69,800 of
interest expense attributable to $4,153,875 of debt incurred in August, 1998
which was utilized to repurchase 302,100 shares of the Company common stock.
OTHER INCOME - Total other income increased by $489,899 during the quarter ended
December 31, 1998 compared to the quarter ended December 31, 1997 primarily as a
result of increased deposit accounts and customers associated with the branch
acquisitions. Service charges increased $390,153 during the quarter ended
December 31, 1998 compared to the same quarter of 1997. During the quarter ended
December 31, 1998 the Company had gains on sales of loans of $93,511 compared to
$9,270 during the quarter ended December 31, 1997 and recognized gains of
$53,057 on sales of investment and mortgage-backed securities compared to gains
of $30,407 during the quarter ended December 31, 1997. The Company recognized
gains on the sale of real estate owned of $1,114 during the current year quarter
compared to gains of $3,862 during the previous year's quarter. Commissions were
$140,034 for the quarter ended December 31, 1998 compared to $194,597 for the
quarter ended December 31, 1997.
OTHER EXPENSE - Other expense increased a total of $759,339 during the quarter
ended December 31, 1998 compared to the quarter ended December 31, 1997.
Salaries and employee benefits increased by $359,629 during the quarter ended
December 31, 1998 compared to the same period in 1997 primarily as a result of
additional personnel acquired in the branch acquisitions. Occupancy expenses
decreased by $17,159 and equipment and computer expenses increased by $51,281
and $96,337, respectively, from the comparable period in the prior year.
Advertising expenses were $15,344 higher than during the quarter ended December
31, 1997. Postage and office supplies were $55,755 higher during the quarter
ended December 31, 1998 compared to the three months ended December 31, 1997.
The remaining other expense categories were $191,429 higher during the quarter
ended December 31, 1998 than during the quarter ended December 31, 1997 with the
most significant change being an increase of $158,870 in amortization of
goodwill.
INCOME TAXES - Provisions for income taxes amounted to $542,322, or 38.6% of
income before taxes during the quarter ended December 31, 1998 compared to
$461,303, or 39.5% of income before taxes during the quarter ended December 31,
1997.
NINE MONTHS ENDED DECEMBER 31, 1998 COMPARED TO NINE MONTHS ENDED DECEMBER 31,
1997.
NET INTEREST INCOME - Net interest income before provision for loan losses
increased by $1,114,609 or 13.3% for the nine months ended December 31, 1998
compared to the nine months ended December 31, 1997.
Net interest income after loan loss provisions increased by $1,041,659 or 12.7%
for the nine months ended December 31, 1998 compared to the nine months ended
December 31, 1997. The increase was smaller than the increase in net interest
income before the provision for loan losses because of an increase of $72,950 in
the provision for loan losses during the first nine months of fiscal 1999
compared to the prior year.
INTEREST INCOME - Total interest income for the nine months ended December 31,
1998 increased $1,498,887, or 6.5% from the nine month period ended December 31,
1997. This increase was attributable to an increase of approximately $40 million
in average interest-earning balances which more than offset a decrease of 31
basis points (.31%) in the average rate earned on total interest earning assets
for the comparable periods.
INTEREST EXPENSE - Total interest expense increased by $384,278 or 2.6% during
the nine months ended December 31, 1998 compared to the nine months ended
December 31, 1997. Average interest bearing liabilities increased by
approximately $52 million, which more than offset the 55 basis point (.55%)
decrease in the average rate on such liabilities, compared to the nine months
ended December 31, 1997. Included in interest expense is $99,174 related to
$4,153,875 of debt incurred in August, 1998 to purchase 302,100 shares of the
Company's common stock.
OTHER INCOME - Total other income increased by $1,117,690 during the nine months
ended December 31, 1998 compared to the nine months ended December 31, 1997
because of a general increase in fee levels and increased deposit accounts and
customers associated with the branch acquisitions. Service charges were $794,753
more and commissions were $50,389 less than during the nine months ended
December 31, 1998 than during the comparable period of 1997. During the nine
months ended December 31, 1998 the Company earned gains on sales of loans of
$153,938 compared to $57,899 during the nine months ended December 31, 1997 and
recognized gains of $206,018 on sales of investment and mortgage-backed
securities compared to gains of $40,692 during the nine months ended December
31, 1997. The Company recognized gains of $47,223 on the sale of real estate
owned during the current year period compared to $44,539 during the prior year
period. The remaining other income accounts were up by $109,277 during the
current year period.
OTHER EXPENSE - Other expense increased a total of $1,940,082 or 30% during the
nine months ended December 31, 1998 compared to the nine months ended December
31, 1997. Salaries and employee benefits increased by $871,169 or 25.5% during
the nine months ended December 31, 1998 compared to the same period in 1997.
Equipment and computer expenses increased by $76,172 and $212,999, respectively,
from the comparable period last year. Advertising expenditures and postage and
office supplies were $92,838 and $190,380 higher, respectively, than during the
nine months ended December 31, 1997. The remaining other expense categories were
up by $516,796 during the nine months ended December 31, 1998 compared to the
comparable period in 1997 primarily due to an increase in the amortization of
goodwill expense.
INCOME TAXES - Provisions for income taxes were $1,406,042, or 39.3% of income
before taxes during the nine months ended December 31, 1998. During the nine
month period ended December 31, 1997 the Company recorded a provision for income
taxes of $1,374,497 or 40.9% of income before taxes.
FINANCIAL CONDITION DECEMBER 31, 1998 COMPARED TO MARCH 31, 1998
The Company's total assets at December 31, 1998 were $498 million representing
an increase of $58.9 million, or 13.4%, from March 31, 1998. Investment and
mortgage-backed securities, including those classified as held to maturity and
as available for sale, decreased by $54.9 million to $132.2 million at December
31, 1998 from $187.1 million at March 31, 1998. Net loans increased by $84.9
million to $310.3 million at December 31, 1998 compared to $225.3 million at
March 31, 1998, primarily as a result of the Company's acquisition of loans
associated with its acquisition of additional branches and growth in its
commercial and consumer loan portfolios.
During June, 1998 the Bank purchased deposits amounting to approximately $78.7
million, loans amounting to approximately $43.4 million, and certain other
assets of four branch offices of NBD, N.A. located in Evansville, Indiana. As
part of the transaction the Bank purchased two of the branch banking facilities,
including land, and assumed the lease liabilities for the other two branch
facilities.
Loans acquired in the branch acquisition included consumer line of credit loans
of approximately $7.8 million, other consumer loans of approximately $11.4
million, commercial real estate loans of approximately $800,000 and commercial
loans of approximately $23.4 million. Approximately 51% of the Company's loan
growth from March 31, 1998 to December 31, 1998 was the result of this
transaction.
Non-performing assets were approximately $1.3 million at December 31, 1998, and
$1.1 million at March 31, 1998, compared to $3.0 million at December 31, 1997.
As of December 31, 1998, the Bank's loan loss allowance was $2,761,786. Although
no assurance can be provided, management believes this amount to be sufficient
based upon historical averages and current trends. Based on management's
analysis of classified and non-performing assets, loss histories and future
projections, the allowance for loan losses (presented below in tabular form) was
deemed by management to be adequate at December 31, 1998. The Bank conducts an
on-going review of its loan portfolio for potential problems and is currently
focusing its analysis on the loans acquired as part of the branch acquisition
described above.
1998 1997
----------- -----------
Balance, April 1 ....................... $ 1,973,410 $ 2,126,225
Provision for loan losses .............. 225,000 152,050
Acquired in branch acquisition ......... 760,000
Net charge offs ........................ (196,624) (179,805)
----------- -----------
Balance, December 31 ................... $ 2,761,786 $ 2,098,470
=========== ===========
Federal Home Loan Bank advances decreased by $356,000 to $99 million at December
31, 1998 compared to $99.4 million at March 31, 1998 and, as a result of the
acquisition described above, deposits increased by $63.5 million to $346.4
million at December 31, 1998 compared to $282.9 million at March 31, 1998.
Substantially all of the Company's deposit growth from March 31, 1998 to
December 31, 1998 is attributable to the branch acquisitions.
Total stockholders' equity decreased by $2.2 million to $40.5 million at
December 31, 1998 from $42.7 million at March 31, 1998. This decrease was
primarily the result of the purchase of 302,100 treasury shares at a cost of
$4,163,316 and dividends of $718,000. Offsetting these decreases were net income
of $2,175,656, an increase of $60,263 (net of taxes) in the fair value of
available-for-sale securities, a reduction of the Employee Stock Ownership Plan
liability of $178,537 and the sale of $105,320 of common stock.
LIQUIDITY AND CAPITAL RESOURCES - The standard measure of liquidity for the
thrift industry is the ratio of cash and eligible investments to a certain
percentage of borrowings due within one year and net withdrawable deposit
accounts. The minimum required level is currently set by OTS regulation at 4%.
At December 31, 1998, the Bank's liquidity ratio was 38.16%. Historically, the
Bank has maintained its liquid assets which qualify for purposes of the OTS
liquidity regulations above the minimum requirements imposed by such regulations
and at a level believed adequate to meet requirements of normal daily
activities, repayment of maturing debt, and potential deposit outflows. Cash
flow projections are regularly reviewed and updated to assure that adequate
liquidity is maintained. Cash for these purposes is generated through the
maturity of investment securities and loan sales and repayments, and may be
generated through increases in deposits. Loan payments are a relatively stable
source of funds while deposit flows are influenced significantly by the level of
interest rates and general money market conditions.
Borrowings may be used to compensate for reductions in other sources of funds
such as deposits. As a member of the FHLB system, the Bank may borrow from the
FHLB of Indianapolis. At December 31, 1998, the Bank had $99 million in such
borrowings. As of that date, the Bank had commitments to fund loans of
approximately $22.5 million (which includes unfunded lines and letters of credit
of approximately $16.3 million). In the opinion of management, the Bank has
sufficient cash flow and borrowing capacity to meet current and anticipated
funding commitments.
The following table sets forth the Bank's compliance with its capital
requirements at December 31, 1998.
Amount Percent (*)
----------- -----
Core Capital:
Capital level $31,338,000 6.43%
Requirement 19,502,000 4.00%
----------- -----
Excess $11,836,000 2.43%
=========== =====
Risk-Based Capital:
Capital level $33,502,000 12.19%
Requirement 21,979,000 8.00%
----------- -----
Excess $11,523,000 4.19%
=========== =====
(*) Core capital is computed as a percentage of adjusted total assets of
$487,543,000. Risk-based capital is computed as a percentage of risk-weighted
assets of $274,739,000.
SUPPLEMENTAL DATA
Three Months Ended Nine Months Ended
December 31, December 31,
1998 1997 1998 1997
---------------------------------------------------------------
Weighted average interest rate earned on
total interest-earning assets 7.35% 7.61% 7.39% 7.70%
Weighted average cost of total
interest-bearing liabilities 4.50 5.17 4.70 5.25
Interest rate spread during period 2.85 2.44 2.69 2.45
Net yield on interest-earning assets
(net interest income divided by average
interest-earning assets on annualized basis) 2.94 2.73 2.88 2.77
Total interest income divided by average
total assets (on annualized basis) 6.73 7.11 6.81 7.28
Total interest expense divided by
average total assets (on annualized basis) 4.07 4.52 4.15 4.64
Net interest income divided by average
total assets (on annualized basis) 2.66 2.59 2.66 2.64
Return on assets (net income divided by
average total assets on annualized basis) 0.68 0.66 0.60 0.63
Return on equity (net income divided by
average total equity on annualized basis) 8.49 6.80 6.94 6.54
Interest rate spread at end of period 2.94 2.44 2.94 2.44
Data as of
December 31, March 31,
1998 1998
------ ------
(IN THOUSANDS)
NONPERFORMING ASSETS:
Loans: Non-accrual ................................ $ 786 $ 911
Restructured .......................... 190 0
------ ------
Total nonperforming loans .......................... 976 911
Real estate owned, net ................ 113 93
Other repossessed assets, net ......... 181 81
------ ------
Total Nonperforming Assets ......................... $1,270 $1,085
====== ======
Nonperforming assets divided by total assets ....... .26% .25%
Nonperforming loans divided by total loans ......... .31% .40%
Balance in Allowance for Loan Losses ............... $2,762 $1,973
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Office of Thrift Supervision (OTS) requires each thrift institution to
calculate the estimated change in the institution's market value of portfolio
equity (MVPE) assuming an instantaneous, parallel shift in the Treasury yield
curve of 100 to 400 basis points either up or down in 100 basis point
increments. MVPE is defined as the net present value of an institution's
existing assets, liabilities and off-balance sheet instruments. The OTS permits
institutions to perform this MVPE analysis using their own internal model based
upon reasonable assumptions.
The Company has determined that, as of December 31, 1998, there has been no
material change in prepayment assumptions or the estimated sensitivity of the
Company's MVPE to parallel yield curve shifts in comparison to the disclosures
set forth in the Company's 1998 annual report to shareholders.
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
Other than ordinary routine litigation incidental to the business,
there are no material pending legal proceedings to which the Company
or the Bank are a party.
ITEM 2. Changes in Securities
None
ITEM 3. Defaults Upon Senior Securities
None
ITEM 4. Submission of Matters to a vote of Security Holders
None
ITEM 5. Other Information
If a stockholder proposal is not received by the Company by February
26, 1999, but otherwise meets the Company's eligibility requirements
to be presented at the next Annual Meeting of Stockholders, the
persons named in the Company's form of proxy and acting thereon will
have the discretion to vote on any such proposal in accordance with
their best judgment if the proposal is received at the Company's main
office later than April 21, 1999.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PERMANENT BANCORP, INC.
Date: February 15, 1999 By /s/ Donald P. Weinzapfel
----------------- -------------------------
Donald P. Weinzapfel,
Chairman of the Board
Chief Executive Officer
(Principal Executive Officer)
Date: February 15, 1999 By /s/ Robert A. Cern
----------------- -------------------
Robert A. Cern
Chief Financial Officer and Secretary
(Principal Financial Accounting Officer)