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 September 30, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number: 0-23370
PERMANENT BANCORP, INC.
- --------------------------------------------------------------------------------
(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) 437-2265
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [ X ] No [ ]
As of November 9, 1999, there were 3,987,463 shares of the Registrant's Common
Stock outstanding.
<PAGE>
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
<PAGE>
<TABLE>
<CAPTION>
PERMANENT BANCORP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(UNAUDITED)
September 30, March 31,
1999 1999
------------- -------------
<S> <C> <C>
ASSETS:
Cash ..................................................................... $ 8,674,415 $ 7,591,117
Interest-bearing deposits ................................................ 3,274,229 6,361,293
------------- -------------
Total cash and cash equivalents .......................................... 11,948,644 13,952,410
Securities available for sale - at fair value (amortized cost $117,785,227
and $117,279,217) ...................................................... 115,961,436 117,289,086
Securities held to maturity (fair value - $5,212,405 and $6,627,235) .... 5,908,355 6,919,793
Other investments ........................................................ 1,668,739 1,698,477
Loans (net of allowance for loan losses of $2,485,351 and $2,706,408) .... 333,094,096 321,017,805
Interest receivable, net ................................................. 3,177,666 2,824,211
Office properties and equipment, net ..................................... 9,178,803 8,687,387
Other assets ............................................................. 21,071,094 19,937,789
------------- -------------
TOTAL ASSETS ................................................................ $ 502,008,833 $ 492,326,958
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY:
LIABILITIES:
Deposits ................................................................. $ 353,814,842 $ 345,341,089
Federal Home Loan Bank advances .......................................... 97,359,035 96,503,610
Other long-term debt ..................................................... 3,000,000 3,000,000
Advance payments by borrowers for taxes and insurance .................... 852,269 974,636
Interest payable ......................................................... 2,364,726 2,204,007
Other liabilities ........................................................ 3,784,444 3,442,429
------------- -------------
TOTAL LIABILITIES ........................................................... 461,175,316 451,465,771
------------- -------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PERMANENT BANCORP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(UNAUDITED)
(CONTINUED)
September 30, March 31,
1999 1999
------------- -------------
<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 -
4,927,000 shares; Outstanding - 3,987,063 and 3,978,322 shares ......... 49,241 49,241
Additional paid-in capital ............................................... 24,962,064 24,844,508
Treasury Stock - 928,036 and 947,244 shares .............................. (9,815,369) (9,920,624)
Retained Earnings - substantially restricted ............................. 27,444,667 26,573,401
Accumulated other comprehensive income, net of deferred
tax of ($643,193) and $3,909 ........................................... (1,248,550) 5,960
ESOP Borrowing ........................................................... (357,075) (476,100)
Unearned compensation - restricted stock awards .......................... (201,461) (215,199)
------------- -------------
TOTAL STOCKHOLDERS' EQUITY .................................................. 40,833,517 40,861,187
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ................................. $ 502,008,833 $ 492,326,958
============= =============
</TABLE>
See notes to consolidated financial statements
<PAGE>
<TABLE>
<CAPTION>
PERMANENT BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Three Months Ended Six Months Ended
September 30, September 30,
--------------------------- ---------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Loans ................................... $ 6,420,005 $ 5,740,055 $12,660,087 $10,267,189
Securities .............................. 1,874,511 2,743,161 3,736,078 5,554,095
Deposits ................................ 71,136 50,464 137,466 104,384
Dividends on Federal Home Loan Bank stock 110,618 110,634 219,639 219,655
----------- ----------- ----------- -----------
8,476,270 8,644,314 16,753,270 16,145,323
----------- ----------- ----------- -----------
INTEREST EXPENSE:
Deposits ................................ 3,838,612 3,998,808 7,440,717 7,420,132
Federal Home Loan Bank advances ......... 1,270,919 1,201,856 2,516,474 2,481,278
Long-term borrowings .................... 53,776 29,374 105,494 29,374
Short-term borrowings ................... 7,612 14,374
----------- ----------- ----------- -----------
5,170,919 5,230,038 10,077,059 9,930,784
----------- ----------- ----------- -----------
NET INTEREST INCOME ........................ 3,305,351 3,414,276 6,676,211 6,214,539
PROVISION FOR LOAN LOSSES .................. 81,000 75,000 151,000 150,000
----------- ----------- ----------- -----------
NET INTEREST INCOME AFTER LOAN LOSS
PROVISION ............................... 3,224,351 3,339,276 6,525,211 6,064,539
----------- ----------- ----------- -----------
OTHER INCOME:
Service charges ......................... 432,118 363,060 855,493 633,864
Gain on sale of loans ................... 13,201 32,937 87,872 57,816
Commissions ............................. 161,733 140,426 358,649 303,820
Gain on sale of securities .............. 88,146 152,961
Gain on sale of real estate owned ....... 7,009 12,964 17,319 40,004
Other ................................... 156,942 106,476 255,927 171,134
----------- ----------- ----------- -----------
771,003 744,009 1,575,260 1,359,599
----------- ----------- ----------- -----------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PERMANENT BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(CONTINUED)
Three Months Ended Six Months Ended
September 30, September 30,
--------------------------- ---------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
OTHER EXPENSE:
Salaries and employee benefits .......... 1,488,552 1,509,980 2,941,294 2,754,512
Deposit insurance assessments ........... 65,517 67,392 132,166 134,953
Occupancy ............................... 283,013 275,942 570,983 481,351
Equipment ............................... 204,269 196,080 401,945 355,967
Computer service ........................ 185,830 167,891 389,230 322,651
Advertising ............................. 92,093 140,291 217,401 250,446
Postage and office supplies ............. 121,247 138,138 214,183 230,219
Other ................................... 580,951 428,506 1,055,717 671,945
----------- ----------- ----------- -----------
3,021,472 2,924,220 5,922,919 5,202,044
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAXES ................. 973,882 1,159,065 2,177,552 2,222,094
INCOME TAX PROVISION ....................... 217,113 473,206 643,893 908,887
----------- ----------- ----------- -----------
NET INCOME ................................. $ 756,769 $ 685,859 $ 1,533,659 $ 1,313,207
=========== =========== =========== ===========
EARNINGS PER SHARE OF COMMON STOCK
Basic ................................... $ 0.19 $ 0.17 $ 0.39 $ 0.32
Diluted ................................. $ 0.17 $ 0.16 $ 0.37 $ 0.30
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic ................................... 3,896,037 4,014,550 3,894,485 4,061,701
Diluted ................................. 4,093,072 4,249,693 4,065,723 4,315,675
</TABLE>
See notes to consolidated financial statements
<PAGE>
<TABLE>
<CAPTION>
PERMANENT BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended September 30,
------------------------------
1999 1998
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income .......................................... $ 1,533,659 $ 1,313,207
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation ................................... 280,714 258,127
Amortization and accretion ..................... 489,258 552,024
Vesting of restricted stock awards ............. (7,294)
Provisions for loan and real estate owned losses 193,271 72,532
Loss (Gain) on sale of securities .............. 4,920 (152,961)
(Gain) on sale of loans ........................ (87,872) (60,427)
(Gain) on sale of bank premises .................. (63,163)
(Gain) on sale of real estate owned ............ (24,604) (46,109)
Loss on equity investments ..................... 45,867
ESOP shares earned ............................. 121,547 231,623
Changes in assets and liabilities:
Proceeds from the sales of loans .................. 6,375,034 4,392,468
Origination of loans for resale ................... (6,287,162) (4,332,000)
Other investments ................................. 382 (51,998)
Interest receivable ............................... (65,389) 114,473
Other assets ...................................... (202,629) (2,052,202)
Interest payable .................................. 160,719 31,419
Other liabilities ................................. 735,941 (2,709,704)
------------ ------------
Net cash provided by (used in) operating activities . 3,203,199 (2,439,528)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash acquired through branch acquisitions ........... 26,872,394
Loans originated .................................... (86,846,536) (56,251,768)
Loan principal repayments ........................... 75,711,371 44,588,930
Proceeds from:
Maturities of:
Securities available for sale ................ 66,935,465
Other investments ............................ 1,000,000
Commercial paper ............................. 21,420,000
Sales of:
Securities available for sale ................ 30,607,069
Real estate owned ............................ 205,500 115,060
Office properties, equipment and land ........ 163,632
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PERMANENT BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(CONTINUED)
Six Months Ended September 30,
------------------------------
1999 1998
------------ ------------
<S> <C> <C>
Purchases of:
Securities available for sale ................ (11,810,613) (79,417,891)
Mortgage-backed securities available for sale (14,652,047)
Equity Investments ........................... (9,375)
Loans ........................................ (6,500,712) (5,099,080)
Commercial paper ............................. (16,370,798)
Real estate owned ............................ (90,000)
Office properties, equipment and land ........ (872,072) (556,808)
Payments on mortgage-backed securities .............. 10,001,827 16,243,701
Increase in cash surrender value of life insurance .. (70,723) (623,664)
Dividends received on equity investments ............ 55,356
------------ ------------
Net cash provided by (used in) investing activities . (14,013,143) 28,761,361
------------ ------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PERMANENT BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
(UNAUDITED)
Six Months Ended September 30,
--------------------------------
1999 1998
----------- --------------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid ...................................... (516,834) (480,263)
Net change in deposits .............................. 8,470,303 (10,436,728)
Receipts from FHLB advances ......................... 33,000,000 88,000,000
Payments on FHLB advances ........................... (32,144,575) (91,339,554)
Principal repayment of ESOP borrowing ............... 119,025 119,026
Advance payments by borrowers for taxes and insurance (122,366) (74,827)
Net change in long-term debt ........................ 4,153,875
Purchase of treasury stock .......................... (93,125) (4,163,316)
Sale of common stock ................................ 93,750 90,390
------------ ------------
Net cash provided (used in) by financing activities . 8,806,178 (14,131,397)
------------ ------------
NET (INCREASE) IN CASH AND CASH EQUIVALENTS ............ (2,003,766) 12,190,436
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ....... 13,952,410 6,364,476
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ............. $ 11,948,644 $ 18,554,912
============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest ....................................... $ 9,916,340 $ 9,962,203
Income taxes ................................... 450,000 850,000
Noncash transactions:
Transfers from loans to real estate owned ...... 150,793
</TABLE>
See notes to consolidated financial statements.
<PAGE>
PERMANENT BANCORP, INC.
Notes to Consolidated Financial Statements
1. BASIS OF PRESENTATION - The consolidated financial statements include the
accounts of Permanent Bancorp, Inc. (the "Company") and Permanent Bank (formerly
Permanent Federal Savings Bank), its wholly owned subsidiary (the "Bank"). All
significant intercompany accounts and transactions have been eliminated. These
consolidated interim financial statements at September 30, 1999 and for the
three and six month periods ended September 30, 1999 and 1998 have not been
examined by independent auditors but reflect, in the opinion of the Company's
management, all adjustments (which include only normal recurring adjustments)
necessary to present fairly the financial position and results of operations for
such periods.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. It is therefore suggested that these statements
be read in conjunction with the consolidated financial statements and related
notes which are incorporated by reference in the Company's Annual Report on Form
10-K/A for the year ended March 31, 1999.
2. STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 130, "COMPREHENSIVE INCOME" -
This statement requires that changes in the amounts of certain items, including
foreign currency translation adjustments and unrealized gains and losses on
certain securities be shown in the annual and quarterly financial statements.
The following is a summary of the Company's total comprehensive income for the
interim three and six month periods ended September 30, 1999 and 1998 under FAS
130:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
September 30, September 30,
------------- -------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net income .................................. $ 756,769 $ 685,859 $ 1,533,659 $ 1,313,207
Other comprehensive income, net of tax:
Unrealized gains (losses) on securities:
Unrealized holding gains (losses)
arising during period ............. 606,489 145,961 (1,254,510) 537,207
Reclassification adjustment for (gains)
losses included in net income ..... (53,231) (92,373)
----------- ----------- ----------- -----------
Other comprehensive income .................. 606,489 92,730 (1,254,510) 444,838
----------- ----------- ----------- -----------
COMPREHENSIVE INCOME ........................ $ 1,363,258 $ 778,589 $ 279,149 $ 1,758,041
=========== =========== =========== ===========
</TABLE>
<PAGE>
3. EARNINGS PER SHARE - The difference between basic and diluted earnings per
share represents the dilutive impact of the Company's outstanding stock options.
The following is a reconciliation of the weighted average common shares for the
basic and diluted earnings per share computations.
<TABLE>
<CAPTION>
Three Months Ended September 30, Six Months Ended September 30,
-------------------------------- ------------------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Basic average common shares 3,896,037 4,014,550 3,894,485 4,061,701
Dilutive effect of stock options 197,035 235,143 171,238 253,974
--------- --------- --------- ---------
Diluted average common shares 4,093,072 4,249,693 4,065,723 4,315,675
========= ========= ========= =========
</TABLE>
4. SEGMENT REPORTING - The Company has determined that it operates a single
segment which is community banking. At September 30, 1999 and March 31, 1999,
the Bank had assets of approximately $501.5 million and $493.7 million, or in
excess of 99% of consolidated assets at these dates. Net income of the Bank for
the six months ended September 30, 1999 and 1998 was $1,675,000 and $1,390,000
or 109% and 106% of consolidated net income. Net income of the Bank for the
quarters ended September 30, 1999 and 1998 was 111% and 97%, respectively, of
consolidated net income. Substantially all of net interest income for the six
and three month periods ended September 30, 1999 and 1998 was produced by the
Bank.
5. ACQUISITION - On June 26, 1998 the Company acquired deposits and certain
assets of four branch banking locations from NBD Bank, N.A. in a purchase
transaction. The operating results of the acquired branches have been
consolidated since the acquisition date. As a result of the purchase, the
company acquired $79.1 million of deposits, $43.6 million of loans, $900,000 of
office properties and equipment and received cash of approximately $26.9
million. The purchase created approximately $9.5 million of goodwill.
Pro forma information is not presented since the transaction is not considered
significant.
6. DEBT REFINANCING AND LINE OF CREDIT - On September 30, 1999 the Company
refinanced $3 million of existing debt with an unaffiliated financial
institution. This loan is secured by the stock of the Bank. The loan bears
interest at LIBOR (as defined in the loan agreement) plus 160 basis points. The
interest rate adjusts monthly. Principal payments of $250,000 commence in
January 2000 and occur quarterly thereafter.
The loan agreement requires that the Company meet defined performance standards
including return on average assets of .50%. The Company is also required to
maintain defined loan loss, asset quality and capital ratios.
In conjunction with this refinancing, the Company also obtained a one year, $1
million revolving line of credit which is also secured by the Bank stock and has
an interest rate of LIBOR plus 160 basis points. The Company has not utilized
this credit facility
7. CHANGES IN PRESENTATION - Certain amounts and items appearing in the
financial statements for the three and six month periods ended September 30,
1998 have been reclassified to conform with September 30, 1999 presentation.
<PAGE>
PERMANENT BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Permanent Bancorp, Inc. (the "Company") is a bank holding company which owns
100% of the capital stock of Permanent Bank (formerly Permanent Federal Savings
Bank, the "Bank") and has no other subsidiaries. Material changes in the
Consolidated Statements of Financial Condition and Consolidated Statements of
Income, except where noted, are attributable primarily to the operations of the
Bank.
FORWARD-LOOKING STATEMENTS
The Company may from time to time make "forward-looking statements," including
statements contained in the Company's filings with the Securities and Exchange
Commission (the "SEC"), in its reports to shareholders and in other
communications, which are made in good faith by the Company pursuant to the
"safe harbor" provisions of the Private Securities Litigation Reform Act of
1995.
These forward-looking statements include statements with respect to the
Company's beliefs, expectations, estimates and intentions, that are subject to
significant risks and uncertainties, and may change based on various factors
(some of which are beyond the Company's control). Those risks and uncertainties
could cause the Company's financial performance to differ materially from
expectations, estimates, and intentions expressed in such forward-looking
statements.
The Company does not undertake, and expressly disclaims any intent or
obligation, to update any forward-looking statement, whether written or oral,
that may be made from time to time by or on behalf of the Company.
INFORMATION SYSTEMS AND THE YEAR 2000
The Company began working on its Year 2000 (or "Y2K") plan, 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, in calendar year
1997. A project leader, who is a member of senior management, was assigned to
the project while senior management oversees it and regularly reports to the
Board of Directors. A comprehensive Year 2000 Plan (the "Plan") that includes
phases relating to awareness, assessment, renovation, validation and
implementation was established and includes a timetable and summarization of
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 system was 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 that system.
The Company has completed these phases of the project.
The Company has outsourced the 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. Testing of these systems, however, is
<PAGE>
the responsibility of the Company. Focusing on these critical systems, the
Company has closely reviewed and monitored this vendor's progress. Year 2000
compliant upgrades to these outsourced critical data processing systems were
installed and the service provider has represented, and the Company has
satisfied itself, that this process is now complete.
Y2K upgrades have been tested. All issues discovered during the testing were
reported to the service provider for remediation. Additional testing was
conducted to assure that each identified issue was correctly repaired. The
Company has not discovered any material issues during the testing. The Company
is currently using the upgraded Y2K software for its critical systems and all
new systems and applications are Y2K compliant.
Other critical and non-critical systems have also been assessed and tested as to
their Year 2000 readiness. A system is deemed Year 2000 compliant if testing,
which has been conducted in accordance with a forward plan, indicates no
problems in processing dates on or after January 1, 2000.
The Company's overall costs associated with year 2000 implementation have been
reduced due to its outsourcing arrangement previously discussed. Incremental
direct expenses to date of approximately $95,000 have been incurred and the
Company believes that substantially all expenses associated with implementing
the Plan have been recognized. Included in this amount are capital improvements
which were accelerated in part due to Year 2000 concerns. The capital
improvements included replacing older technology, personal computers, software
and telecommunication systems. While introduction of this new equipment and
software will resolve certain Year 2000 issues, it will also provide increased
or improved functionality and efficiencies. The cost of this equipment and
software will be charged to expense over the estimated useful lives. These 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 calendar 1999. Substantially all of these hours have
been expended as of September 30, 1999.
The Company has communicated to its customers informing them of its efforts to
become Y2K compliant and is periodically inserting a summary of its progress in
its mailings to customers. The Company has provided to its customers guidelines
for their personal Y2K preparedness. The Company has posted Y2K information on
its Web Site and trained its employees about what it has done to become
compliant. Posters are displayed in the Bank's lobbies with Y2K information.
Information brochures are available to customers at our branch locations. The
Company has also participated in community seminars to inform the general public
about what it has done to become compliant.
Concurrent with the execution of the Plan is the evolution of the Company's Year
2000 contingency plan. The contingency plan has been developed and modified
based on the results of the project. The contingency plan includes contingency
procedures for critical data processing and environmental systems and key
suppliers. The contingency plan also addresses a variety of additional issues
including credit risk, liquidity and loan and deposit customers. The key
elements of the contingency plan have been tested to assure the plan will work
if needed.
<PAGE>
The Company has completed an evaluation of Year 2000 risks 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
required lending and other bank officers to meet with their customers to review
and assess their preparedness. The failure of a commercial customer to prepare
adequately for Year 2000 could have a significant adverse effect on such
customer's operations and profitability and thereby inhibit its ability to repay
loans or require the use of its deposited funds. While the process of evaluating
the potential adverse effects of Year 2000 risks on these customers is complete,
it is not possible to quantify the overall potential effect on the Company. All
new commercial customers are evaluated at the time of application. A statement
of the customer's readiness has been made a part of the closing documents each
customer must sign.
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 believes it is 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 SEPTEMBER 30, 1999 COMPARED TO SEPTEMBER 30, 1998
NET INTEREST INCOME - Net interest income before provision for loan losses
decreased by $109,000 or approximately 3.2% for the quarter ended September 30,
1999 compared to the quarter ended September 30, 1998. This decrease is the
result of yield on earning assets declining more rapidly than the cost of
interest bearing liabilities. The weighted average yield on interest earning
assets decreased .25% whereas the weighted average cost of interest bearing
liabilities decreased .02% from the comparable quarter of the prior year. The
factors that caused these decreases are discussed below.
INTEREST INCOME - Total interest income for the three months ended September 30,
1999 decreased $168,044, or approximately 1.9% from the three month period ended
September 30, 1998. This decrease primarily as a result of a .25% decrease in
the yield on earning assets as a result of intense competition for quality loans
and callable securities being refinanced at lower rates. Offsetting this rate
decrease were slightly higher levels of average earning assets.
INTEREST EXPENSE - Total interest expense decreased by $59,000 or approximately
1.1% during the three months ended September 30, 1999 compared to the three
months ended September 30, 1998, despite a decrease in the cost of
interest-bearing liabilities of .02%. While deposit rates have generally
decreased from the comparable quarter of the prior year, local market conditions
have required the Company to pay premium rates to attract retail deposits. As a
result, the Company has increased its utilization of the jumbo ($100,000+)
certificate of deposit market which is a very rate sensitive market. In
addition, many of the Company's FHLB advances contain provisions which allow the
issuer the option to raise the rate. As rates have risen during the quarter
ended September 30, 1999, the costs associated with this source of funding has
increased.
<PAGE>
In addition, the Company's long-term borrowing was outstanding for the entire
quarter ended September 30, 1999 whereas the debt was incurred in August 1998.
This resulted in a $24,000 increase in interest expense despite the fact that
interest rates have decreased from the prior year and there is $1.2 million less
of this debt outstanding at September 30, 1999 compared to September 30, 1998.
OTHER INCOME - Total other income increased by $27,000 during the quarter ended
September 30, 1999 compared to the quarter ended September 30, 1998. Service
charges increased $69,000 during the quarter ended September 30, 1999 compared
to the same quarter of 1998 primarily due to fee level increases. During the
quarter ended September 30, 1999 the Company had gains on sales of loans of
$13,000 compared to $33,000 during the quarter ended September 30, 1998 and
recognized no gains on sales of securities compared to gains of $88,000 during
the quarter ended September 30, 1998. Commissions were $162,000 for the quarter
ended September 30, 1999 compared to $140,000 for the quarter ended September
30, 1998. Miscellaneous other income increased by $50,000 from the comparable
quarter of the prior year primarily due to a gain recognized upon the sale of a
closed branch banking facility.
OTHER EXPENSE - Total other expenses increased by approximately $152,000, or
35%, in quarter ended September 30, 1999 compared to the comparable quarter of
the prior year. The Company had minor changes in the following expense
categories:
Salaries and employee benefits ($21,000 or 1.4% decrease)
Deposit insurance assessments ($2,000 or 2.8% decrease)
Occupancy ($7,000 or 2.6% increase)
The decrease in postage and office supplies expense ($17,000) as well as the
decrease in advertising expense ($48,000) from the comparable quarter of the
prior year represent promotional and administrative costs associated with the
Company's acquisition of four branch banking locations in June 1998. Equipment
expense increased by $8,000 or 4.2% from the comparable quarter of the prior
year due to increased depreciation expense resulting from the replacement of
older, fully depreciated teller and data processing equipment. Other
miscellaneous expenses increased by $152,000 from the comparable quarter of the
prior year. Major components of this increase include the amortization of the
Bank's investment in an affordable housing project ($35,000), various expenses
related to the formulation and operation of the Bank's security management
subsidiary ($32,000) and increased consultant fees ($27,000).
INCOME TAXES - Provisions for income taxes amounted to $217,000, or 22.2% of
income before taxes during the quarter ended September 30, 1999 compared to
$473,000, or 40.8% of income before taxes during the quarter ended September 30,
1998. The decrease in the effective tax rate is the result of a managerial and
geographical reorganization of the Company's securities function and utilization
of tax credit opportunities.
SIX MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO SIX MONTHS ENDED SEPTEMBER 30,
1998.
NET INTEREST INCOME - Net interest income before provision for loan losses
increased by $462,000 or 7.4% for the six months ended September 30, 1999
compared to the six months ended September 30, 1998. The increase is primarily
the result of interest revenues and interest expenses associated with the assets
and liabilities of the acquired NBD branch offices being consolidated for six
months in the current year compared to three months, in the prior year.
<PAGE>
Offsetting the increase in net interest income caused by this factor is an
increase in interest expense related to long-term borrowing since this borrowing
occurred in August 1998 and is therefore included for six months in the current
year compared to a month in the prior year quarter.
INTEREST INCOME - Total interest income for the six months ended September 30,
1999 increased $607,947, or 3.8% , from the six month period ended September 30,
1998. This increase is primarily attributable to a larger asset base in the
current year because of the previously noted branch acquisition which was,
however, offset by a decrease in earning asset yield of .17%. Asset yield
decreased because of the intense competitive environment for quality loans and
the fact that many of the Company's securities had "call" provisions which were
exercised as rates fell.
INTEREST EXPENSE - Total interest expense increased by $146,000, or 1.5% during
the six months ended September 30, 1999 compared to the six months ended
September 30, 1998. This increase is primarily due to a larger deposit base due
to the branch acquisition described above. In addition, interest expense
associated with long-term borrowing increased by $76,000 for the six months
ended September 30, 1999 compared to the prior year since this debt was incurred
in August 1998. Offsetting these increases is a decrease in the overall costs of
deposits and other liabilities of .19% from the prior year.
OTHER INCOME - Total other income increased by $216,000, or 15.9% during the six
months ended September 30, 1999 compared to the six months ended September 30,
1998. Service charge income increased by $222,000 due to increased fee levels
and a larger deposit base due to the branch acquisition described above. Gain on
sales of loans increased by $30,000 as the Company has sold more of its current
production of fixed rate loans in the current year compared to the six months
ended September 30, 1999. Commissions have increased by $55,000 as the Company
has aggressively marketed its brokerage services and the stock market has
generally been favorable to investors. Other miscellaneous income items have
increased $85,000 from the comparable six month period of the prior year due
primarily to a gain recognized upon the sale of a closed branch banking facility
and increases in cash surrender value of life insurance policies.
Offsetting these gains is a decrease in gains on the sale of securities of
$153,000 from the prior year as the Company has not sold securities during the
six months ended September 30, 1999.
OTHER EXPENSE - Other expense increased approximately $721,000 during the six
months ended September 30, 1999 compared to the six months ended September 30,
1998. Salaries and employee benefits increased by $187,000, occupancy expenses
increased by $90,000, equipment expenses increased by $46,000 and computer
service expense increased by $67,000 from the comparable period in the prior
year. These increases are primarily attributable to the costs related to the
acquired NBD Bank, N.A. branches being consolidated for the entire six months in
the current year whereas these expenses are included only from the acquisition
date in the prior year. The increased expenses are the result of an expansion of
personnel to staff additional branch locations to service acquired loan and
deposit relationships. Advertising, postage and office supplies expenses
decreased by $33,000 and $16,000, respectively, as significant promotional and
administrative expenses were incurred in the prior year in conjunction with the
NBD branch acquisition. Miscellaneous other expenses increased $384,000 from the
comparable six month period of the prior year. Major components of this increase
include increased amortization of deposit premiums associated with the June 1998
branch purchase ($159,000), increased amortization of the Bank's investment in
an affordable housing project ($58,000), expenses related to the formulation and
operation of the Bank's security management subsidiary ($66,000) and increased
consulting expenses ($42,000).
<PAGE>
INCOME TAXES - Provisions for income taxes were $644,000, or 29.6% of income
before taxes during the six months ended September 30, 1999. During the six
month period ended September 30, 1998 the Company recorded a provision for
income taxes of $908,887 or 40.9% of income before taxes. The decrease in the
effective tax rate is the result of a managerial and geographical reorganization
of the Company's securities function and utilization of tax credit
opportunities.
FINANCIAL CONDITION SEPTEMBER 30, 1999 COMPARED TO MARCH 31, 1999
The Company's total assets at September 30, 1999 were $502 million representing
an increase of $9.7 million, or 2.0%, from March 31, 1999. Securities decreased
by $2.3 million to $121.8 million at September 30, 1999 from $124.2 million at
March 31, 1999 as the Company invested a higher percentage of its resources in
loans. Net loans increased by $12.1 million to $333.1 million at September 30,
1999 compared to $321 million at March 31, 1999. Loan growth was primarily in
the consumer and commercial loan areas. The balance of the loan growth was
funded primarily by an increase in deposit liabilities ($8.5 million).
Non-performing assets were $1.3 million at September 30, 1999 and $1.2 million
at March 31, 1999. As of September 30, 1999, the Bank's loan loss allowance was
$2.5 million. 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 other quantitative and qualitative factors, the allowance for loan losses
(presented below in tabular form) was deemed by management to be adequate at
September 30, 1999. The Bank conducts an on-going review of its loan portfolio
for potential problems in conjunction with its analysis of the adequacy of the
loss allowance.
1999 1998
---------- ----------
Balance, April 1 $2,706,408 $1,973,410
Provision for loan losses 151,000 150,000
Net charge offs (372,057) (77,468)
---------- ----------
Balance, September 30 $2,485,351 $2,045,942
========== ==========
Federal Home Loan Bank advances increased by $855,000 to $97.4 million at
September 30, 1999 compared to $96.5 million at March 31, 1999. The Company has
in the past and anticipates continuing to utilize advances in its funding
strategy since the cost of advances can be lower than the cost of acquiring or
retaining deposits. Deposits increased by $8.5 million to $353.8 million at
September 30, 1999 compared to $345.3 million at March 31, 1999 as the Company
continues to pay competitive rates on its deposit accounts. Certificates of
deposit greater than $100,000 amounted to $44.3 million at September 30, 1999
compared to $30 million at March 31, 1999.
Total stockholders' equity was $40.8 million at September 30, 1999 compared to
$40.9 million at March 31, 1999.
LIQUIDITY AND CAPITAL RESOURCES - The standard measure of liquidity for the
thrift industry is the ratio of cash and eligible investments to a certain
percentage of borrowings due within one year and net withdrawable deposit
accounts. The minimum required level is currently set by OTS regulation at 4%.
At September 30, 1999, the Bank's liquidity ratio was 34.4%. Historically, the
Bank has maintained its liquid assets which qualify for purposes of the OTS
<PAGE>
liquidity regulations above the minimum requirements imposed by such regulations
and at a level believed adequate to meet requirements of normal daily
activities, repayment of maturing debt, and potential deposit outflows. Cash
flow projections are periodically reviewed to assure that adequate liquidity is
maintained. Cash for these purposes is generated through the maturity of
investment securities and loan sales and repayments, and may be generated
through increases in deposits. Loan payments are a relatively stable source of
funds while deposit flows are influenced significantly by the level of interest
rates and general money market conditions.
Borrowings may be used to compensate for reductions in other sources of funds
such as deposits. As a member of the FHLB system, the Bank may borrow from the
FHLB of Indianapolis. At September 30, 1999, the Bank had $97.4 million in such
borrowings. As of that date, the Bank had commitments to fund loans of
approximately $29.5 million (which includes unfunded lines and letters of credit
of approximately $25.6 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 September 30, 1999.
<TABLE>
<CAPTION>
Amount Percent (*)
----------- ----
<S> <C> <C>
Core Capital:
Capital level $34,011,000 6.89%
Requirement 19,708,000 4.00%
----------- ----
Excess $14,303,000 2.89%
=========== ====
Risk-Based Capital:
Capital level $36,246,000 13.01%
Requirement 22,291,000 8.00%
----------- ----
Excess $13,955,000 5.01%
=========== ====
</TABLE>
(*) Core capital is computed as a percentage of adjusted total assets of
$493,289,000. Risk-based capital is computed as a percentage of risk-weighted
assets of $278,643,000.
<PAGE>
<TABLE>
<CAPTION>
SUPPLEMENTAL DATA Three Months Ended Six Months Ended
September 30, September 30,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Weighted average interest rate earned on
total interest-earning assets .............. 7.18% 7.43% 7.21% 7.38%
Weighted average cost of total
interest-bearing liabilities ............... 4.67 4.69 4.62 4.81
Interest rate spread during period ............ 2.51 2.79 2.59 2.57
Net yield on interest-earning assets
(net interest income divided by average
interest-earning assets on annualized basis) 2.78 2.88 2.87 2.83
Total interest income divided by average
total assets (on annualized basis) ......... 6.68 6.79 6.69 7.00
Total interest expense divided by
average total assets (on annualized basis) . 4.08 4.13 4.02 4.31
Net interest income divided by average
total assets (on annualized basis) ......... 2.61 2.66 2.67 2.69
Return on assets (net income divided by
average total assets on annualized basis) .. 0.60 0.54 0.61 0.57
Return on equity (net income divided by
average total equity on annualized basis) .. 6.90 6.52 7.25 6.24
Interest rate spread at end of period ......... 2.81 2.78 2.81 2.78
<CAPTION>
Data as of
September 30, March 31,
1999 1999
---- ----
(IN THOUSANDS EXCEPT %)
<S> <C> <C>
NONPERFORMING ASSETS:
Loans: Non-accrual ................................ $ 914 $ 818
Restructured .......................... 0 0
Total nonperforming loans .......................... 914 818
Real estate owned, net ................ 114 112
Other repossessed assets, net ......... 223 236
------ ------
Total Nonperforming Assets ......................... $1,251 $1,166
====== ======
Nonperforming assets divided by total assets ....... .25% .24%
Nonperforming loans divided by total loans ......... .27% .25%
Balance in Allowance for Loan Losses ............... $2,485 $2,706
</TABLE>
<PAGE>
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 believes that there has been no material change in prepayment
assumptions or the estimated sensitivity of the Company's MVPE to parallel yield
curve shifts in comparison to the disclosures set forth in the Company's 1999
annual report to shareholders.
<PAGE>
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
The annual meting of stockholder was held in Evansville, Indiana on
July 27, 1999. A total of 3,437,776 shares of Common Stock, 86.1% of
outstanding shares, were represented in person or by proxy.
The following is a record of votes cast in the election of directors
of the Company for 3-year terms expiring in 2002.
FOR VOTES WITHHELD
--- --------------
Donald P. Weinzapfel 3,049,118 388,587
Daniel L. Schenk 3,075,327 362,448
James D. Butterfield 3,012,589 425,187
Accordingly, the individuals named above were declared to be duly
elected directors of the Company.
Messieurs. Kinkel, Brown, McCarty, Vogel, Korb, and Northener will
continue as directors.
The following is a record of the votes cast in respect of the
proposal to ratify the adoption of the 1999 Omnibus Incentive Plan.
NUMBER
OF VOTES
--------
FOR 1,797,233
AGAINST 776,110
ABSTAIN 69,136
BROKER NON-VOTES 795,296
Accordingly, the proposal described above was declared to be duly
adopted by the stockholders of the Company.
<PAGE>
The following is a record of the votes cast in respect of the
proposal to ratify the appointment of Deloitte & Touche LLP as
auditors of the Company for the fiscal year ending March 31, 2000.
NUMBER
OF VOTES
--------
FOR 3,136,298
AGAINST 294,688
ABSTAIN 6,790
Accordingly, the proposal described above was declared to be duly
adopted by the stockholders of the company.
ITEM 5. Other Information
If a stockholder proposal is not received by the Company by February
25, 2000, 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, 2000.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None.
(b) Reports on Form 8-K
A Form 8-K was filed on July 22, 1999, with the Securities and
Exchange Commission, regarding earnings for the quarter ended
June 30, 1999.
<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: November 12, 1999 By /s/Donald P. Weinzapfel
-----------------------
Donald P. Weinzapfel,
Chairman of the Board
Chief Executive Officer
(Principal Executive Officer)
Date: November 12, 1999 By /s/ Robert A. Cern
------------------
Robert A. Cern
Chief Financial Officer and Secretary
(Principal Financial Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-END> SEP-30-1999
<CASH> 8,674,415
<INT-BEARING-DEPOSITS> 3,274,229
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 115,961,436
<INVESTMENTS-CARRYING> 5,908,355
<INVESTMENTS-MARKET> 5,212,405
<LOANS> 333,579,447
<ALLOWANCE> 2,485,351
<TOTAL-ASSETS> 502,008,833
<DEPOSITS> 353,814,842
<SHORT-TERM> 79,317,402
<LIABILITIES-OTHER> 7,001,439
<LONG-TERM> 21,044,029
0
0
<COMMON> 49,241
<OTHER-SE> 40,784,276
<TOTAL-LIABILITIES-AND-EQUITY> 502,008,833
<INTEREST-LOAN> 12,660,087
<INTEREST-INVEST> 3,736,078
<INTEREST-OTHER> 357,105
<INTEREST-TOTAL> 16,753,270
<INTEREST-DEPOSIT> 7,440,717
<INTEREST-EXPENSE> 10,077,059
<INTEREST-INCOME-NET> 6,676,211
<LOAN-LOSSES> 151,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 5,922,919
<INCOME-PRETAX> 2,177,552
<INCOME-PRE-EXTRAORDINARY> 1,533,659
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,533,659
<EPS-BASIC> .39
<EPS-DILUTED> .37
<YIELD-ACTUAL> 7.38
<LOANS-NON> 913,967
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 5,721,536
<ALLOWANCE-OPEN> 2,706,408
<CHARGE-OFFS> 414,329
<RECOVERIES> 42,272
<ALLOWANCE-CLOSE> 2,485,351
<ALLOWANCE-DOMESTIC> 175,618
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 2,309,733
</TABLE>
