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, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number: 0-23370
PERMANENT BANCORP, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 35-1908797
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
Incorporation or Origination) Identification No.)
101 Southeast Third Street, Evansville Indiana 47708
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code: (812) 428-6800
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES [ X ] NO [ ]
As of February 6, 1997, there were 2,141,719 shares of the Registrant's Common
Stock outstanding.
<PAGE>
PERMANENT BANCORP, INC. AND SUBSIDIARY
FORM 10-Q
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Consolidated Statements of Financial Condition
Consolidated Statements of Income
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Supplemental Data
Regulatory Developments
PART II. OTHER INFORMATION
Signatures
<PAGE>
<TABLE>
<CAPTION>
PERMANENT BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(UNAUDITED)
DECEMBER 31, 1996 MARCH 31, 1996
------------- -------------
<S> <C> <C>
ASSETS:
Cash .................................................................... $ 3,839,707 $ 4,900,671
Interest-bearing deposits ............................................... 1,432,508 15,750
------------- -------------
Total cash and cash equivalents ......................................... 5,272,215 4,916,421
Securities available for sale - at fair value (amortized cost $87,000,489
and $73,408,686) ..................................................... 85,937,968 73,170,635
Mortgage-backed securities available for sale at fair value (amortized
cost $65,179,938 and $61,888,585) .................................... 65,010,185 61,953,242
Securities held to maturity (fair value $25,000 and $25,000) ............ 25,000 25,000
Mortgage-backed securities held to maturity (fair value $28,357,752
and $32,319,409) ..................................................... 28,192,253 32,153,595
Other Investments ....................................................... 633,302 633,302
Loans (net of allowance for loan losses of $2,072,383 and $2,237,804) ... 209,889,216 206,909,621
Interest receivable, net ................................................ 2,928,345 2,874,362
Office properties and equipment, net .................................... 7,046,831 7,256,587
Real estate owned, net .................................................. 13,935 21,881
Deferred income tax ..................................................... 747,755 281,495
Federal Home Loan Bank stock ............................................ 5,192,600 3,503,600
Cash surrender value of life insurance .................................. 1,016,428 953,199
Goodwill (net of accumulated amortization of $1,670,715 and $1,523,364) . 397,450 544,801
Other ................................................................... 663,503 705,051
------------- -------------
TOTAL ASSETS ................................................................ $ 412,966,986 $ 395,902,792
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY:
LIABILITIES:
Deposits ................................................................ $ 271,299,234 $ 280,008,062
Federal Home Loan Bank advances ......................................... 96,932,971 68,303,217
Advance payments by borrowers for taxes and insurance ................... 530,978 1,022,263
Other borrowed funds .................................................... 1,365,197 2,681,753
Interest payable ........................................................ 2,003,527 1,922,635
Other ................................................................... 770,585 471,231
------------- -------------
TOTAL LIABILITIES ........................................................... $ 372,902,492 $ 354,409,161
------------- -------------
<PAGE>
<CAPTION>
PERMANENT BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(UNAUDITED)
(CONTINUED)
DECEMBER 31, 1996 MARCH 31, 1996
------------- -------------
<S> <C> <C>
STOCKHOLDERS' EQUITY
Serial Preferred Stock ($.01 par value)
Authorized and unissued - 1,000,000 shares
Common Stock ($.01 par value) Authorized -
9,000,000 shares; Issued -
2,458,982 and 2,460,196 shares;
Outstanding - 2,082,858 and 2,134,515 shares ......................... $ 24,590 $ 24,602
Additional paid-in capital .............................................. 23,968,992 23,849,500
Treasury Stock - 280,894 and 211,803 shares ............................. (4,727,226) (3,361,279)
Retained Earnings - substantially restricted ............................ 22,931,158 22,727,602
Unrealized loss on securities available for sale,
net of deferred tax of
$(484,769) and $(64,521) ............................................. (739,087) (98,371)
ESOP Borrowing .......................................................... (1,011,713) (1,190,250)
Unearned compensation - restricted stock awards ......................... (382,220) (458,173)
------------- -------------
TOTAL STOCKHOLDERS' EQUITY .................................................. $ 40,064,494 $ 41,493,631
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .................................. $ 412,966,986 $ 395,902,792
============= =============
See notes to consolidated financial statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PERMANENT BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
------------------------------ -----------------------------
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Loans ................................... $ 4,283,531 $ 4,145,659 $ 12,597,851 $ 12,113,815
Mortgage-backed securities .............. 1,509,932 1,561,939 4,471,764 4,189,163
Investment securities ................... 1,616,162 883,556 4,767,284 2,383,349
Deposits ................................ 20,298 45,948 74,682 147,337
Dividends on Federal Home Loan Bank stock 102,467 53,481 283,166 155,012
------------ ------------ ------------ ------------
7,532,390 6,690,583 22,194,747 18,988,676
------------ ------------ ------------ ------------
INTEREST EXPENSE:
Deposits ................................ 3,329,365 3,460,556 10,025,728 10,068,108
Federal Home Loan Bank advances ......... 1,403,942 803,525 3,943,744 1,950,233
Short-term borrowings ................... 19,022 19,341 65,434 51,920
------------ ------------ ------------ ------------
4,752,329 4,283,422 14,034,906 12,070,261
------------ ------------ ------------ ------------
NET INTEREST INCOME .......................... 2,780,061 2,407,161 8,159,841 6,918,415
PROVISION FOR LOAN LOSSES .................... (132,040) 48,902 16,446 151,326
------------ ------------ ------------ ------------
NET INTEREST INCOME AFTER LOAN LOSS
PROVISION ............................... 2,912,101 2,358,259 8,143,395 6,767,089
------------ ------------ ------------ ------------
OTHER INCOME:
Service charges ......................... 215,979 161,027 635,150 451,868
Gain on sale of loans ................... 6,149 4,353 11,011 11,299
Net gain (loss) on real estate owned .... 2,566 (147) 4,757 (783)
Commissions ............................. 164,499 115,749 422,400 395,320
Gain (loss) on sale of investment and
mortgage-backed securities ........... 27,176 (803) 29,542 (13,338)
Other ................................... 97,424 86,302 209,504 205,423
------------ ------------ ------------ ------------
513,793 366,481 1,312,364 1,049,789
------------ ------------ ------------ ------------
<PAGE>
<CAPTION>
PERMANENT BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(CONTINUED)
THREE MONTHS ENDED NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
------------------------------ -----------------------------
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
OTHER EXPENSE:
Salaries and employee benefits .......... 1,088,592 1,091,881 3,201,132 3,234,752
Deposit insurance assessments ........... 147,481 175,122 2,281,587 530,944
Occupancy ............................... 191,856 196,958 608,255 621,767
Equipment ............................... 133,037 144,547 430,490 439,160
Computer service ........................ 113,636 120,165 362,659 353,181
Advertising ............................. 81,332 79,874 234,479 226,825
Postage and office supplies ............. 70,297 94,200 198,162 245,600
Other ................................... 309,489 355,837 773,934 875,083
------------ ------------ ------------ ------------
2,135,720 2,258,584 8,090,698 6,527,312
------------ ------------ ------------ ------------
INCOME BEFORE INCOME TAXES ................... 1,290,174 466,156 1,365,061 1,289,566
INCOME TAX PROVISION ......................... 573,492 138,657 704,470 343,396
------------ ------------ ------------ ------------
NET INCOME ................................... $ 716,682 $ 327,499 $ 660,591 $ 946,170
============ ============ ============ ============
EARNINGS PER SHARE OF COMMON STOCK
Primary ................................. $ 0.32 $ 0.14 $ 0.30 $ 0.41
Fully Diluted ........................... $ 0.32 $ 0.14 $ 0.30 $ 0.41
WEIGHTED AVERAGE SHARES OUTSTANDING
Primary ................................. 2,209,134 2,291,255 2,215,163 2,306,664
Fully diluted ........................... 2,232,190 2,297,067 2,238,219 2,312,476
See notes to consolidated financial statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PERMANENT BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
NINE MONTHS ENDED DECEMBER 31,
------------------------------
1996 1995
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ............................................ $ 660,591 $ 946,170
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation ......................................... 368,960 353,535
Amortization and accretion .......................... 76,171 (72,058)
Vesting of restricted stock awards ................... 63,813
Provisions for loan and real estate owned losses ..... (165,421) 241,159
(Gain) loss on sale of office properties and equipment 59,068 (200)
Gain on sale of real estate owned .................... (24,522)
(Gain) loss on sale of securities .................... (44,495) 8,818
(Gain) on sale of mortgage-backed securities ......... (95) (1,886)
(Gain) on sale of loans .............................. (11,012) (11,299)
ESOP shares earned ................................... 131,620 91,221
Changes in assets and liabilities:
Proceeds from the sales of loans ......................... 829,997 2,165,559
Origination of loans for resale .......................... (818,985) (1,888,278)
Interest receivable ...................................... (53,983) (605,414)
Deferred income tax ...................................... (46,012) (94,845)
Other assets ............................................. 41,548 441,628
Interest payable ......................................... 80,892 362,221
Other liabilities ........................................ 299,354 41,205
------------ ------------
Net cash provided by operating activities .................... 1,472,011 1,953,014
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Loans originated ............................................. (47,786,343) (47,054,703)
Loan principal repayments .................................... 58,640,041 41,102,013
Proceeds from:
Maturities of:
Securities held to maturity .......................... 13,638,705
Securities available for sale ........................ 16,974,688 4,000,000
Sales of:
Securities held to maturity .......................... 7,976,526
Securities available for sale ........................ 19,379,854
Mortgage-backed securities held to maturity .......... 741,183
Mortgage-backed securities available for sale ........ 11,158,884
Land, buildings & improvements ....................... 42,239 7,450
Real estate owned .................................... 72,748
Purchases of:
Securities available for sale ........................ (49,920,625) (11,983,125)
Securities held to maturity .......................... (24,394,086)
Mortgage-backed securities held to maturity .......... (17,709,959)
Mortgage-backed securities available for sale ........ (22,389,606) (7,661,940)
Loans ................................................ (13,773,496) (2,489,328)
FHLB Stock ........................................... (1,689,000) (157,300)
Office properties and equipment ...................... (260,511) (364,234)
Payments on mortgage-backed securities ....................... 12,094,301 8,507,993
Continued to next page
<PAGE>
<CAPTION>
PERMANENT BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
NINE MONTHS ENDED DECEMBER 31,
------------------------------
1996 1995
------------ ------------
<S> <C> <C>
Increase in cash surrender value of life insurance ........... (63,229) (82,359)
Payments on real estate owned ................................ 7,946 26,084
------------ ------------
Net cash used in investing activities ........................ (17,584,857) (35,824,332)
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid ............................................... $ (448,482) $ (234,176)
Net change in deposits ....................................... (8,708,828) 8,910,885
Receipts from FHLB advances .................................. 116,450,000 48,000,000
Payments on FHLB advances .................................... (87,820,246) (20,117,384)
Principal repayment of ESOP borrowing ........................ 178,538 178,537
Advance payments by borrowers for taxes and insurance......... (491,285) (541,714)
Net change in other borrowed funds ........................... (1,316,556) (40,362)
Purchase of treasury stock ................................... (1,389,091) (2,603,242)
Sale of common stock ........................................ 14,590 35,690
------------- -------------
Net cash provided by financing activities .................... 16,468,640 33,588,234
------------- -------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS ...................................................... 355,794 (283,084)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ................. 4,916,421 5,573,343
------------- -------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ....................... 5,272,215 5,290,259
============= =============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest ................................................. $ 10,015,622 $ 9,843,924
Income taxes ............................................. 730,000 227,508
Noncash transactions:
Transfers from loans to real estate owned ................ -- 100,777
See notes to consolidated financial statements.
</TABLE>
<PAGE>
PERMANENT BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
1. BASIS OF PRESENTATION - The consolidated financial statements include the
accounts of Permanent Bancorp, Inc. (the "Company"), its wholly owned
subsidiary, Permanent Federal Savings Bank, its wholly owned subsidiary,
Perma-Service Corp, and its wholly owned subsidiary, Permanent Insurance Agency,
Inc. (collectively the "Bank"). All significant intercompany accounts and
transactions have been eliminated. These consolidated interim financial
statements at December 31, 1996 and for the three and nine month periods ended
December 31, 1996, and 1995, have not been examined by independent auditors, but
reflect, in the opinion of the Company's management, all adjustments (which
include only normal recurring adjustments) necessary to present fairly the
financial position and results of operations for such periods.
The preparation of financial statements in conformity with generally accepted
accounting principals 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.
These statements should be read in conjunction with the consolidated financial
statements and related notes which are incorporated by reference in the
Company's Annual Report on Form 10-K for the year ended March 31, 1996.
2. CHANGES IN PRESENTATION - Certain amounts and items appearing in the
financial statements for the quarter and nine months ended December 31,1995 have
been reclassified to conform with the presentation presented for the period
ended December
31, 1996.
3. SAVINGS ASSOCIATION INSURANCE FUND (SAIF) SPECIAL ASSESSMENT - The deposits
of savings associations, such as Permanent Federal Savings Bank, are presently
insured by the SAIF, which together with the Bank Insurance Fund (BIF), are the
two insurance funds administered by the Federal Deposit Insurance Corporation
(FDIC). Financial institutions which are members of the BIF have been
experiencing substantially lower deposit insurance premiums because the BIF has
achieved its required level of reserves while the SAIF has not yet achieved its
required reserves. In order to help eliminate this disparity and any competitive
disadvantage due to disparate deposit insurance premium schedules, legislation
to recapitalize the SAIF was enacted in September 1996.
The legislation required a special one-time assessment of approximately 65.7
cents per $100 of SAIF insured deposits held by the bank at March 31, 1995. The
one-time special assessment resulted in a tax affected charge to earnings of
approximately $1,067,000 during the quarter ended September 30, 1996. The
legislation is intended to fully recapitalize the SAIF fund so that commercial
bank and thrift deposits will be charged the same FDIC premiums beginning
October 1, 1996. As of such date deposit insurance premiums for highly rated
institutions, such as the Bank, have been eliminated.
<PAGE>
The Bank, however, will continue to be subject to an assessment to fund
repayment of the Financing Corporation (FICO) obligations. The FICO assessment
for SAIF insured institutions was 18 cents per annum per $100 of deposits for
the quarter ended December 31, 1996. Beginning January 1, 1997 financial
institutions insured by BIF will begin sharing in the FICO obligation and SAIF
insured institutions will pay an assessment of 6.48 cents per $100 of deposits
while BIF insured Institutions will pay 1.296 cents per $100 of deposits until
the year 2000 when the assessment will be imposed at the same rate on all FDIC
insured institutions. Accordingly, as a result of the reduction of the SAIF
assessment and the resulting FICO assessment, the annual after tax decrease in
deposit insurance costs is expected to be approximately $272,000 based upon the
September 30, 1996 assessment base.
4. NEW ACCOUNTING PRONOUNCEMENTS
FINANCIAL ACCOUNTING STANDARDS NO. 122 (FAS 122) " ACCOUNTING FOR MORTGAGE
SERVICING RIGHTS" - FAS 122 was adopted by the Company effective April 1, 1996.
This statement specifies conditions under which mortgage servicing rights should
be accounted for separately from the underlying mortgage loans. Generally the
statement applies to mortgages sold with servicing rights retained. An
allocation of the loan's book value is made to the servicing rights retained.
The value of the servicing rights are capitalized and written off as servicing
income is received. The effect is to increase profits recognized when loans are
sold, but to reduce net income recognized on servicing, as loans are repaid. The
application of FAS 122 had a nominal effect on the Company's financial
statements for the three and nine months ended December 31, 1996, but could have
a more material impact if loan sales are increased.
FINANCIAL ACCOUNTING STANDARDS NO. 123 (FAS 123) "ACCOUNTING FOR STOCK BASED
COMPENSATION" - Effective April 1, 1996, the Company adopted FAS 123 by
continuing to account for stock compensation in accordance with Accounting
Principals Board Opinion No. 25 "Accounting for Stock Issued to Employees."
However, the fair value disclosures are not included as the fair values are not
deemed to have a significant impact on the financial position or results of
operations of the Company.
FINANCIAL ACCOUNTING STANDARDS NO. 125 (FAS 125) "ACCOUNTING FOR TRANSFERS AND
SERVICING OF FINANCIAL ASSETS AND EXTINGUISHMENTS OF LIABILITIES" - FAS 125 was
issued in June 1996 and provides accounting and reporting standards for
transfers and servicing of financial assets and extinquishments of liabilities.
FAS 125 applies to transactions occurring after December 31, 1996. Management
has not yet quantified the effect of this new standard on the Consolidated
Financial Statements.
5. SUBSEQUENT EVENTS - During January 1997, the Company completed its previously
announced stock repurchase of 112,419 share during the fiscal year. The weighted
average cost of the shares purchased was $20.34 for a total cost of $2,286,926.
On February 5, 1997, the Company signed a definitive agreement to assume the
deposit liabilities and to acquire certain assets associated with the branch of
NBD Bank, N.A. in Newburgh, Indiana. At October 31, 1996, the branch had deposit
liabilities of approximately $6.3 million. The acquisition is expected to be
completed during the second calendar quarter of 1997.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Permanent Bancorp, Inc. (the "Company") is a Savings & Loan holding company
which owns 100% of the capital stock of Permanent Federal Savings Bank (the
"Bank") and has no other subsidiaries. Material changes in the consolidated
statements of Financial Condition and Results of Operations of the Company,
except where noted, are attributed to the operations of the Bank; therefore the
following analysis is centered on the activities of the Bank.
QUARTER ENDED DECEMBER 31, 1996 COMPARED TO DECEMBER 31, 1995
NET INTEREST INCOME - Net interest income before provision for loan losses
increased by $373,000 or 15.5% for the quarter ended December 31, 1996 compared
to the quarter ended December 31, 1995. This increase was primarily attributable
to an increase in interest earning assets and an improvement in the interest
rate spread (the difference between the rate earned on interest earning assets
and the rate paid on interest bearing liabilities).
Net interest income after provision for loan losses increased by $554,000, or
23.5% for the quarter ended December 31, 1996 compared to the quarter ended
December 31, 1995. The loan loss provision was a benefit of $132,000 during the
quarter ended December 31, 1996, compared to a provision of $49,000 during the
comparable period in 1995. During the quarter ended December 31, 1996 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 was
partially offset by increases of $100,000 reflecting actual and anticipated loan
growth.
INTEREST INCOME - Total interest income for the three months ended December 31,
1996 increased $842,000, or 12.6%, from the three month period ended December
31, 1995. This increase was attributable to an increase of 18 basis points in
the average rate earned on total interest earning assets and an increase of
$39.8 million in average balances for the comparable periods.
INTEREST EXPENSE - Total interest expense increased by $469,000, or 10.9%,
during the three months ended December 31, 1996 compared to the three months
ended December 31, 1995. Average interest bearing liabilities increased by $42.1
million, primarily representing an increase in FHLB Advances, but the cost of
such liabilities decreased by 4 basis points, compared to the quarter ended
December 31, 1995.
OTHER INCOME - Total other income increased by $147,000 during the quarter ended
December 31, 1996 compared to the quarter ended December 31, 1995. Service
charge increases resulted in an increase of $55,000 and improved sales,
primarily of investment and annuity products by the Bank's Subsidiary Service
Corporation, resulted in increased commissions of $49,000 during the quarter
ended December 31, 1996 compared to the comparable quarter in 1995. During the
quarter ended December 31, 1996 the Company earned gains on sales of loans of
$6,000 compared to $4,000 during the quarter ended December 31, 1995 and
recognized gains of $27,000 on sales of investment and mortgage-backed
securities compared to losses of $1,000 during the quarter ended December 31,
1995. The remaining other income accounts were up by $11,000 during the current
year quarter, primarily because Perma Service Corp. received a higher return on
its equity investment in Family Financial Life Insurance Company.
<PAGE>
OTHER EXPENSE - Other expense decreased a total of $123,000 during the quarter
ended December 31, 1996 compared to the quarter ended December 31, 1995. The
FDIC assessment decreased by $28,000 (see Note 3 of "Notes to Consolidated
Financial Statements"). Salaries and employee benefits decreased by $3,000
during the quarter ended December 31, 1996 compared to the same period in 1995.
Occupancy expenses decreased by $5,000 and equipment and computer expenses
decreased by $18,000 during the comparable periods. Advertising expenditures
were $1,000 higher than during the quarter ended December 31, 1995. Postage and
office supplies were $24,000 lower during the quarter ended December 31, 1996.
The remaining other expense accounts were down a net $46,000 during the quarter
ended December 31, 1996. Reductions of $63,000 in consultant and management fees
and of $47,000 in ATM and debit card issuance cost were partially offset by a
loss of $59,000 on the sale of bank premises and equipment.
INCOME TAXES - Provisions for income taxes amounted to $573,000, or 44.5% of
income before taxes during the quarter ended December 31, 1996, compared to
$139,000, or 29.7% of income before taxes during the quarter ended December 31,
1995. The low rate of income taxes during the quarter ended December 31, 1995
was primarily the result of loan growth enabling the Bank to claim greater loan
loss provisions for tax purposes than for book purposes.
NINE MONTHS ENDED DECEMBER 31, 1996 COMPARED TO NINE MONTHS ENDED DECEMBER 31,
1995
NET INTEREST INCOME - Net interest income before provision for loan losses
increased by $1,964,000 or 29.7% for the nine months ended December 31, 1996
compared to the nine months ended December 31, 1995. This increase was primarily
attributable to an increase in interest earning assets and an improvement in the
interest rate spread (the difference between the rate earned on interest earning
assets and the rate paid on interest bearing liabilities).
Net interest income after provision for loan losses increased by $1,376,000, or
19.9% for the nine months ended December 31, 1996 compared to the nine months
ended December 31, 1995. The loan loss provision decreased by $135,000 during
the period ended December 31, 1996 compared to the comparable period in 1995.
During the period ended December 31, 1996 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 was offset by increases
of $248,000 reflecting actual and anticipated loan growth.
INTEREST INCOME - Total interest income for the nine months ended December 31,
1996 increased $3,206,000, or 16.9%, from the nine month period ended December
31, 1995. This increase was attributable to an increase of 15 basis points in
the average rate earned on total interest earning assets and an increase of
$45.1 million in average balances for the comparable periods.
INTEREST EXPENSE - Total interest expense increased by $1,965,000, or 16.3%,
during the nine months ended December 31, 1996 compared to the nine months ended
December 31, 1995. Average interest bearing liabilities increased by $46.7
million, primarily reflecting increased FHLB Advances, but the cost of such
liabilities decreased by 2 basis points, compared to the nine months ended
December 31, 1995.
<PAGE>
OTHER INCOME - Total other income increased by $263,000 during the nine months
ended December 31, 1996 compared to the nine months ended December 31, 1995.
Service charges were $183,000 more, primarily as a result of fee increases and
commissions, principally earned by the Bank's subsidiary service corporation
were $27,000 more during the nine months ended December 31, 1996 than during the
comparable period in 1995. During the nine months ended December 31, 1996 the
Company recognized gains of $30,000 on sales of investment and mortgage-backed
securities compared to losses of $13,000 during the nine months ended December
31, 1995. The remaining other income accounts were up by $4,000 during the
current year period.
OTHER EXPENSE - Other expense increased a total of $1,563,000 during the nine
months ended December 31, 1996 compared to the nine months ended December 31,
1995, primarily because of the one time FDIC assessment in the amount of
$1,766,000 (see Note 3 of "Notes to Consolidated Financial Statements").
Salaries and employee benefits decreased by $34,000 during the nine months ended
December 31, 1996 compared to the same period in 1995. Occupancy expenses
decreased by $14,000 and equipment and computer expenses decreased by $1,000
during the comparable periods. Deposit insurance assessments, exclusive of the
one time assessment, were $15,000 lower during the nine months ended December
31, 1996, and advertising expenditures were $8,000 higher than during the nine
months ended December 31, 1995. Postage and office supplies were $47,000 lower
during the nine months ended December 31, 1996. The remaining other expense
categories were reduced by $101,000 during the nine months ended December 31,
1996 compared to the comparable period in 1995. Reductions of $58,000 in
consultant and management fees, and of $47,000 in ATM card issuance cost and
$21,000 in goodwill amortization were partially offset by a loss of $59,000 on
the sale of bank premises and equipment.
INCOME TAXES - Provisions for income taxes amounted to $704,000, or 51.6% of
income before taxes during the nine months ended December 31, 1996, compared to
$343,000, or 26.6% of income before taxes during the nine months ended December
31, 1995. The 1996 taxes in excess of statutory rates was the result of the
Bank's inability to claim loan loss provisions for tax purposes as high as the
expense recognized for book purposes during the nine months ended December 31,
1996 and because of other differences in income per books and taxable income.
The low rate of income taxes during the nine months ended December 31, 1995 was
primarily the result of loan growth enabling the Bank to claim greater loan loss
provisions for tax purposes than for book purposes.
FINANCIAL CONDITION DECEMBER 31, 1996 COMPARED TO MARCH 31, 1996
The Company's total assets at December 31, 1996 were $412.9 million representing
an increase of $17.1 million, or 4.3%, from March 31, 1996. Investment and
mortgage-backed securities, including those classified as available for sale,
increased by $11.9 million to $179.2 million at December 31, 1996 from $167.3
million at March 31, 1996. Net loans increased by $3.0 million to $209.9 million
at December 31, 1996 compared to $206.9 million at March 31, 1996.
The loan growth, primarily in single family mortgage loans and in automobile
loans, is indicative of the strength of the local economy. By policy, the Bank
retains all adjustable rate loans and all fixed rate loans with terms of 20
years or less in its portfolio, and sells all fixed rate loans of terms
exceeding 20 years. During the nine months ended December 31, 1996, customers
showed a marked preference for the Bank's mortgage loan program offering loans
at an interest rate which is fixed for ten years, then adjustable annually.
<PAGE>
In July, 1996 the bank received a payoff on a (Cardinal Industries) multi-family
housing loan. The loan, with a principal balance of $1,439,858 was carried as a
criticized asset in the "other assets especially mentioned" category. The Bank
received its full principal balance on the loan. During November 1996, the Bank
received a negotiated settlement on two additional Cardinal Industries' impaired
loans with principal balances of $3.1 million and carrying values of $2.6
million. The bank received slightly more than the carrying value of the loans
and received the full amount of interest due. The Bank holds an additional three
Cardinal Industries' loans with aggregate principal balances of $3.6 million;
one of the three remaining loans with a principal balance of approximately $1.1
million is carried as an impaired loan and one with a principal balance of
nearly $2.0 million is a troubled debt restructuring. The remaining loan is a
50% participation purchased and has performed according to the note terms.
Non-performing assets were at $4.4 million at December 31, 1996, compared to
$6.9 million at March 31, 1996 and $8.3 million at December 31, 1995. As of
December 31, 1996, the Bank's loan loss allowance was $2,072,383. Although no
assurance can be provided, management believes this amount to be sufficient
based upon historical averages and current trends. Based on management's
analysis of classified assets, loss histories and future projections, the
allowance for loan losses (presented below in tabular form) was deemed by
management to be adequate at December 31, 1996. Figures presented for April 1,
1995 have been restated to reflect the reclassification of impaired loans from
in-substance foreclosure back to loan categories pursuant to the provisions of
Statement of Financial Accounting Standards No. 114 (FAS 114), which was adopted
during the quarter ended June 30, 1995.
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Balance, April 1 $2,237,804 $2,093,491
Provision for loan losses 16,446 151,326
Net charge offs (181,867) (36,029)
---------- ----------
Balance, December 31 $2,072,383 $2,171,571
</TABLE>
The loan growth and the increase in investment and mortgage-backed securities
was funded through Federal Home Loan Bank advances which increased by $28.6
million to $97.0 million at December 31, 1996 compared to $68.3 million at March
31, 1996. Deposits decreased by $8.7 million to $271.3 million at December 31,
1996 compared to $280.0 million at March 31, 1996.
Total stockholders' equity decreased by $1.4 million to $40.1 million at
December 31, 1996 from $41.5 million at March 31, 1996. The decrease was
attributable to an increase of $641,000 in unrealized losses on securities
available for sale, dividends paid of $448,000 and purchase of treasury stock at
a cost of $1,389,000 during the nine months ended December 31, 1996. Increases
resulted from the retention of earnings, reduction of employee stock ownership
liability, vesting of restricted stock awards, and through the exercise of stock
options resulting in the sale of 1,459 shares of treasury stock at $10 per
share.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES - The standard measure of liquidity for the
thrift industry is the ratio of cash and eligible investments to a certain
percentage of borrowings due within one year and net withdrawable deposit
accounts. The minimum required level is currently set by OTS regulation at 5%.
At December 31, 1996, the Bank's liquidity ratio was 9.22%. 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, 1996, the Bank had $96,933,000 in such borrowings. As of that date,
the Bank had commitments to fund loan origination's of approximately $1.5
million and commitments to purchase mortgage-backed securities in the amount of
$8.4 million. The Company had no commitments to sell either loans or securities.
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, 1996.
<TABLE>
<CAPTION>
Amount Percent (*)
----------- -----
<S> <C> <C>
Tangible Capital:
Capital level $33,860,419 8.30%
Requirement 6,122,421 1.50%
----------- -----
Excess $27,737,998 6.80%
----------- -----
Core Capital:
Capital level $33,860,419 8.30%
Requirement 12,244,843 3.00%
----------- -----
Excess $21,615,576 5.30%
----------- -----
Risk-Based Capital:
Capital level $35,621,282 20.84%
Requirement 13,673,751 8.00%
----------- -----
Excess $21,947,531 12.84%
----------- ------
(*) Tangible and core capital are computed as a percentage of adjusted total
assets of $408,161,430. Risk-based capital is computed as a percentage of
risk-weighted assets of $170,921,891.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SUPPLEMENTAL DATA
THREE MONTHS ENDED NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
------------------ -----------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Weighted average interest rate earned on
total interest-earning assets .............. 7.62% 7.44% 7.48% 7.33%
Weighted average cost of total
interest-bearing liabilities ............... 5.16% 5.20% 5.08% 5.10%
Interest rate spread during period ........... 2.46% 2.24% 2.40% 2.23%
Net yield on interest-earning assets
(net interest income divided by average
interest-earning assets on annualized basis) 2.78% 2.68% 2.79% 2.67%
Total interest income divided by average
total assets (on annualized basis) ......... 7.22% 7.14% 7.32% 7.03%
Total interest expense divided by
average total assets (on annualized basis) . 4.56% 4.57% 4.63% 4.47%
Net interest income divided by average
total assets (on annualized basis) ......... 2.66% 2.57% 2.69% 2.56%
Return on assets (net income divided by
average total assets on annualized basis) .. 0.69% 0.35% 0.22% 0.35%
Return on equity (net income divided by
average total equity on annualized basis) .. 7.17% 3.11% 2.16% 2.95%
Interest rate spread at end of period ........ 2.36% 2.29% 2.36% 2.29%
</TABLE>
<TABLE>
<CAPTION>
Data as of
December 31, March 31,
1996 1996
------ ------
(IN THOUSANDS)
<S> <C> <C>
NONPERFORMING ASSETS:
Loans: Non-accrual .............................. $2,255 $4,705
Restructured ............................ 2,137 2,165
------ ------
Total nonperforming loans ........................ $4,392 $6,870
Real estate owned, net ........................... 14 22
Other repossessed assets, net .................... 64 29
------ ------
Total Nonperforming Assets ......................... $4,470 $6,921
Nonperforming assets divided by total assets ....... 1.08% 1.75%
Nonperforming loans divided by total loans ......... 2.09% 3.22%
Balance in Allowance for Loan Losses ............... $2,072 $2,238
</TABLE>
<PAGE>
REGULATORY DEVELOPMENTS
Pending Legislation Regarding Bad Debt Reserves - Under Section 593 of the
Internal Revenue Code of 1986, as amended (the "Code"), thrift institutions such
as the Bank, which meet certain definitional tests primarily relating to their
assets and the nature of their business, are permitted to establish a tax
reserve for bad debts and to make annual additions thereto, which additions may,
within specified limitations, be deducted in arriving at their taxable income.
The Company's deduction with respect to "qualifying loans", which are generally
loans secured by certain interests in real property, may currently be computed
using an amount based on the Company's loss experience (the "experience
method"), or a percentage equal to 8.0% of the Company's taxable income (the
"percentage of taxable income method"), computed without regard to this
deduction and with additional modifications and reduced by the amount of any
permitted addition to the non-qualifying reserve.
Under recently passed legislation, Section 593 of the Internal Revenue Code of
1986 has been repealed and the Bank will be permitted to use only the experience
method of computing additions to its bad debt reserve. In addition, the Bank
will be unable to make additions to its tax bad debt reserve, and will be
permitted to deduct bad debts only as they occur. The legislation will not
affect the Company's tax calculation during the current fiscal year. Management
can not now predict the impact of the legislation on the results of operations
in future fiscal years.
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
None.
ITEM 2. Changes in Securities
None.
ITEM 3. Defaults Upon Senior Securities
None.
ITEM 4. Submission of Matters to a Vote of Security Holders
None.
ITEM 5. Other Information
None
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None.
(b) Reports on Form 8-K
None
<PAGE>
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 12, 1997 By /s/Donald P. Weinzapfel
-----------------------
Donald P. Weinzapfel,
Chairman of the Board
President and Chief Executive Officer
(Principal Executive Officer)
DATE: February 12, 1997 By /s/Joseph M. Schnapf
--------------------
Joseph M. Schnapf
Chief Financial Officer
(Principal Financial Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE QUARTERLY
REPORT ON FORM 10-Q FOR THE FISCAL QUARTER ENDED SEPTEMBER 30, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> DEC-31-1996
<CASH> 3,839,707
<INT-BEARING-DEPOSITS> 1,432,508
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 150,948,153
<INVESTMENTS-CARRYING> 28,217,253
<INVESTMENTS-MARKET> 28,382,752
<LOANS> 211,961,599
<ALLOWANCE> 2,072,383
<TOTAL-ASSETS> 412,966,986
<DEPOSITS> 271,299,234
<SHORT-TERM> 60,505,622
<LIABILITIES-OTHER> 3,305,090
<LONG-TERM> 37,792,546
0
0
<COMMON> 24,590
<OTHER-SE> 40,039,904
<TOTAL-LIABILITIES-AND-EQUITY> 412,966,986
<INTEREST-LOAN> 12,597,851
<INTEREST-INVEST> 9,239,048
<INTEREST-OTHER> 357,848
<INTEREST-TOTAL> 22,194,747
<INTEREST-DEPOSIT> 10,025,728
<INTEREST-EXPENSE> 14,034,906
<INTEREST-INCOME-NET> 8,159,841
<LOAN-LOSSES> 16,466
<SECURITIES-GAINS> 29,542
<EXPENSE-OTHER> 8,090,698
<INCOME-PRETAX> 1,365,061
<INCOME-PRE-EXTRAORDINARY> 660,591
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 660,591
<EPS-PRIMARY> 0.30
<EPS-DILUTED> 0.30
<YIELD-ACTUAL> 7.48
<LOANS-NON> 2,255,000
<LOANS-PAST> 0
<LOANS-TROUBLED> 2,137,000
<LOANS-PROBLEM> 325,923
<ALLOWANCE-OPEN> 2,237,804
<CHARGE-OFFS> 218,246
<RECOVERIES> 36,379
<ALLOWANCE-CLOSE> 2,072,383
<ALLOWANCE-DOMESTIC> 311,520
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,760,863
</TABLE>
