-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Nth+PPMRi1gHJkXhN0gvpW3w1N33c+L/PYUqn0oqS7KEcRePTbH4AC1LaVB/cSmg /Or5mBkeNuYCm7Ndr2sB2w== 0000891554-98-000610.txt : 19980518 0000891554-98-000610.hdr.sgml : 19980518 ACCESSION NUMBER: 0000891554-98-000610 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980515 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIRST INDEPENDENCE CORP /DE/ CENTRAL INDEX KEY: 0000908486 STANDARD INDUSTRIAL CLASSIFICATION: SAVINGS INSTITUTION, FEDERALLY CHARTERED [6035] IRS NUMBER: 363899950 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-22184 FILM NUMBER: 98622776 BUSINESS ADDRESS: STREET 1: MYRTLE & 6TH STS CITY: INDEPENDENCE STATE: KS ZIP: 67301 BUSINESS PHONE: 3163311660 MAIL ADDRESS: STREET 2: P O DRAWER 947 CITY: INDEPENDENCE STATE: KS ZIP: 67301 10QSB 1 QUARTERLY REPORT SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 -------------------------------- FORM 10-QSB [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to __________ Commission File Number 0-22184 FIRST INDEPENDENCE CORPORATION (Exact name of small business issuer as specified in its charter) Delaware 36-3899950 (State or other jurisdiction (I.R.S. Employer of incorporation or Identification or organization) number) Myrtle & Sixth Streets, Independence, Kansas 67301 (Address of principal executive offices) (316) 331-1660 (issuer's telephone number) 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 day Yes [X] No [ ] Transitional Small Business Disclosure Format (check one): Yes [ ] No [X] State the number of Shares outstanding of each of the issuer's classes of common equity, as of the latest date: As of May 14, 1998, there were 957,319 shares of the Registrant's common stock outstanding (including 8,734 shares of restricted stock). FIRST INDEPENDENCE CORPORATION INDEX PART I. FINANCIAL INFORMATION (unaudited) PAGE NO. Item 1. Consolidated Condensed Financial Statements Consolidated Condensed Balance Sheets as of March 31, 1998 and September 30, 1997 3 Consolidated Condensed Statements of Earnings for the Three and Six Months Ended March 31, 1998 and 1997 4 Consolidated Condensed Statement of Stockholders' Equity for the Year Ended September 30, 1997 and Six Months Ended March 31, 1998 5 Consolidated Condensed Statements of Cash Flows for the Six Months Ended March 31, 1998 and 1997 6 Notes to Consolidated Condensed Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9 PART II. OTHER INFORMATION 17 Signature Page 18 2 PART I: FINANCIAL INFORMATION FIRST INDEPENDENCE CORPORATION CONSOLIDATED CONDENSED BALANCE SHEETS
March 31, September 30, 1998 1997 ------------- ------------- (Unaudited) ASSETS Cash and due from banks $ 869,625 $ 961,350 Federal funds sold 5,300,000 1,600,000 Other interest-earning deposits 207,117 589,877 ------------- ------------- Cash and cash equivalents 6,376,742 3,151,227 Investment securities held to maturity (fair value: March 31, 1998 - $4,960,950; 5,000,000 3,000,000 September 30, 1997 - $2,996,300) Investment securities available for sale 3,346,443 4,311,406 Mortgage-backed securities held to maturity (fair value: March 31, 1998 - $21,093,661; September 30, 1997 - $23,748,569) 20,902,199 23,527,689 Mortgage-backed securities available for sale -- 471,618 Loans receivable, net 85,263,856 74,558,783 Real estate acquired through foreclosure 15,320 12,131 Premises and equipment, net 1,307,769 1,297,500 Federal Home Loan Bank Stock, at cost 1,422,800 1,368,900 Accrued interest receivable 736,675 712,298 Other assets 122,179 111,107 ------------- ------------- Total assets $ 124,493,983 $ 112,522,659 ============= ============= LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities Deposits $ 84,171,855 $ 76,229,176 Advances from borrowers for taxes and insurance 733,076 693,069 Checks issued in excess of cash items 280,881 -- Advances from Federal Home Loan Bank 27,300,000 23,700,000 Income taxes payable 63,882 1,306 Other accrued expenses and liabilities 390,582 369,827 ------------- ------------- Total liabilities 112,940,276 100,993,378 Stockholders' equity Preferred stock, $.01 par value, 500,000 shares authorized, none issued -- -- Common stock, $.01 par value, 2,500,000 shares authorized, 1,498,392 shares issued 14,984 14,984 Additional paid-in capital 7,188,447 7,122,744 Retained earnings - substantially restricted 9,689,322 9,441,054 Unrealized gain on securities available for sale, net 19,955 15,112 Treasury stock at cost, 542,699 shares at March 31, 1998 and 520,059 shares at September 30, 1997 (5,155,346) (4,802,767) Required contributions for shares acquired by ESOP (181,843) (218,212) Unearned stock compensation - recognition and retention plan (RRP) (21,812) (43,634) ------------- ------------- Total stockholders' equity 11,553,707 11,529,281 ------------- ------------- Total liabilities and stockholders' equity $ 124,493,983 $ 112,522,659 ============= =============
- -------------------------------- The accompanying notes are an integral part of these statements. 3 PART I: FINANCIAL INFORMATION FIRST INDEPENDENCE CORPORATION CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
Three Months Ended Six Months Ended March 31, March 31, -------------------------- -------------------------- 1998 1997 1998 1997 ----------- ----------- ----------- ----------- (Unaudited) (Unaudited) Interest income Loans receivable $ 1,713,833 $ 1,396,150 $ 3,332,484 $ 2,778,864 Mortgage-backed securities 352,215 434,608 728,843 884,811 Investment securities 99,303 114,746 199,976 234,081 Other 66,184 38,807 115,505 72,161 ----------- ----------- ----------- ----------- Total interest income 2,231,535 1,984,311 4,376,808 3,969,917 ----------- ----------- ----------- ----------- Interest expense Deposits 987,469 889,179 1,944,157 1,781,023 Borrowed funds 370,617 351,409 735,448 706,940 ----------- ----------- ----------- ----------- Total interest expense 1,358,086 1,240,588 2,679,605 2,487,963 ----------- ----------- ----------- ----------- Net interest income 873,449 743,723 1,697,203 1,481,954 Provision for loan losses -- -- -- -- ----------- ----------- ----------- ----------- Net interest income after provision for loan losses 873,449 743,723 1,697,203 1,481,954 Other income Income (loss) from real estate operations (1,701) (2,041) (1,003) 1,412 Other income 49,221 54,079 114,025 104,466 ----------- ----------- ----------- ----------- Total other income 47,520 52,038 113,022 105,878 ----------- ----------- ----------- ----------- General, administrative and other expense Employee compensation and benefits 324,740 306,132 659,977 600,983 Occupancy and equipment 60,975 46,400 117,677 73,435 Federal deposit insurance premiums 12,034 11,292 23,831 42,216 Data processing fees 48,571 40,991 90,177 75,364 Other 128,220 134,912 255,236 258,145 ----------- ----------- ----------- ----------- Total non-interest expenses 574,540 539,727 1,146,898 1,050,143 ----------- ----------- ----------- ----------- Earnings before income taxes 346,429 256,034 663,327 537,689 Income tax expense 150,983 90,454 288,091 205,415 ----------- ----------- ----------- ----------- Net earnings $ 195,446 $ 165,580 $ 375,236 $ 332,274 =========== =========== =========== =========== Earnings per common share Basic $ .21 $ .17 $ .41 $ .33 =========== =========== =========== =========== Diluted $ .20 $ .16 $ .38 $ .31 =========== =========== =========== =========== Dividends per share $ .0750 $ .0625 $ .1375 $ .1125 =========== =========== =========== =========== Weighted average shares outstanding Basic 916,065 992,368 924,407 1,014,119 =========== =========== =========== =========== Diluted 987,257 1,056,187 995,600 1,077,938 =========== =========== =========== ===========
- ----------------------------- The accompanying notes are an integral part of these statements. 4 FIRST INDEPENDENCE CORPORATION CONSOLIDATED CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY For The Six Months Ended March 31, 1998 and Year Ended September 30, 1997 (Unaudited)
Required Unrealized Contribu- Gain (Loss) tion for Unearned Additional on Securities Shares Stock Common Paid-in Retained Available for Treasury Acquired Compen- Total Stock Capital Earnings Sale, Net Stock by ESOP sation-RRP Equity ----- ------- -------- --------- ----- ------- ---------- ------ Balance at October 1, 1996 $ 7,492 $7,053,143 $8,960,098 $(11,293) $(2,628,704) $(290,949) $(87,278) $13,002,509 Net earnings -- -- 711,680 -- -- -- -- 711,680 Cash dividends of $.2375 per -- -- (230,724) -- -- -- -- (230,724) share Common stock options exercised -- (12,499) -- -- 59,769 -- -- 47,270 Appreciation of securities available -- -- -- 26,405 -- -- -- 26,405 for sale ESOP loan repayments -- -- -- -- -- 72,737 -- 72,737 Fair value adjustment on ESOP shares committed for release -- 89,592 -- -- -- -- -- 89,592 Amortization of unearned stock compensation -- -- -- -- -- -- 43,644 43,644 Purchase of 197,963 shares of treasury stock -- -- -- -- (2,233,832) -- -- (2,233,832) Two-for-one stock split 7,492 (7,492) -- -- -- -- -- -- -------- ---------- ---------- -------- ----------- --------- -------- ----------- Balance at September 30, 1997 14,984 7,122,744 9,441,054 15,112 (4,802,767) (218,212) (43,634) 11,529,281 Net earnings -- -- 375,236 -- -- -- -- 375,236 Cash dividends of $.1375 per -- -- (126,968) -- -- -- -- (126,968) share Common stock options exercised -- (2,558) -- -- 11,858 -- -- 9,300 Appreciation of securities available -- -- -- 4,843 -- -- -- 4,843 for sale ESOP loan repayments -- -- -- -- -- 36,369 -- 36,369 Fair value adjustment on ESOP shares committed for release -- 68,261 -- -- -- -- -- 68,261 Amortization of unearned stock compensation -- -- -- -- -- -- 21,822 21,822 Purchase of 24,500 shares of treasury stock -- -- -- -- (364,437) -- -- (364,437) -------- ---------- ---------- -------- ----------- --------- -------- ----------- Balance at March 31, 1998 $ 14,984 $7,188,447 $9,689,322 $ 19,955 $(5,155,346) $(181,843) $(21,812) $11,553,707 ======== ========== ========== ======== =========== ========= ======== ===========
- -------------------- The accompanying notes are an integral part of these statements. 5 PART I: FINANCIAL INFORMATION FIRST INDEPENDENCE CORPORATION CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
Six Months Ended March 31, ---------------------------- 1998 1997 ------------ ------------ (Unaudited) Cash flows from operating activities Net Earnings $ 375,236 $ 332,274 Adjustments to reconcile net earnings to net cash provided by operating activities Depreciation 52,893 37,406 Amortization of premiums and discounts on investments and mortgage-backed securities 37,309 65,717 Amortization of deferred loan origination fees (74,853) (30,784) Amortization of expense related to employee benefit plans 126,452 97,286 Net gain on sale of real estate acquired through foreclosure (2,499) (436) Increase (decrease) in cash due to changes in Accrued interest receivable (24,377) (4,796) Other assets (67,281) 39,357 Accrued expenses and other liabilities (2,536) (531,726) Income taxes payable 139,268 140,820 ------------ ------------ Net cash provided by operating activities 559,612 145,118 Cash flows from investing activities Proceeds from maturities and repayment of securities Available for sale 1,466,371 2,075,706 Held to maturity 5,576,007 3,074,425 Purchase of securities Available for sale (63,705) (1,097,163) Held to maturity (5,000,000) (2,000,000) Net increase in loans (10,631,244) (2,566,948) Capital expenditures (63,162) (407,445) Proceeds from sale of real estate acquired through foreclosure 174 10,194 ------------ ------------ Net cash used in investing activities (8,715,559) (911,231) Cash flows from financing activities Net increase in deposits 7,942,679 4,784,477 Net increase (decrease) in advances from borrowers for taxes and insurance 40,007 (3,998) Increase (decrease) in checks issued in excess of cash items 280,881 (267,374) Advances from Federal Home Loan Bank 15,500,000 9,800,000 Repayment of Federal Home Loan Bank advances (11,900,000) (11,600,000) Cash dividends paid (126,968) (112,683) Purchase of treasury stock (364,437) (1,860,978) Stock options exercised 9,300 38,180 ------------ ------------ Net cash provided by financing activities 11,381,462 777,624 ------------ ------------ Net increase in cash and cash equivalents 3,225,515 11,511 Cash and cash equivalents at beginning of period 3,151,227 1,763,429 ------------ ------------ Cash and cash equivalents at end of period $ 6,376,742 $ 1,774,940 ============ ============
- -------------------------------- The accompanying notes are an integral part of these statements. 6 FIRST INDEPENDENCE CORPORATION NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED) (1) Basis of Presentation The accompanying unaudited Consolidated Condensed Financial Statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-QSB and Regulation S-X. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, the Consolidated Condensed Financial Statements contain all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the consolidated financial condition of First Independence Corporation as of March 31, 1998, and the results of operations and cash flows for all interim periods presented. Operating results for the three and six months ended March 31, 1998 are not necessarily indicative of the results that may be expected for the fiscal year ending September 30, 1998. (2) Earnings Per Share of Common Stock Basic earnings per share is computed by dividing net earnings by the weighted average number of common shares outstanding for the period. Diluted earnings per share is computed by dividing net earnings by the weighted average number of common shares and common share equivalents outstanding. Stock options are considered common share equivalents. Common shares outstanding excludes unallocated and uncommitted shares held by the ESOP trust. (3) Stock Dividend On December 18, 1996, the Board of Directors declared a 100% stock dividend paid on January 24, 1997, which is accounted for similar to a two for one stock split. All earnings and dividends per share have been restated to reflect the stock dividend. Weighted average number of shares outstanding used to compute diluted earnings per share were 987,257 and 995,600 for the three and six months ended March 31, 1998 and 1,056,187 and 1,077,938 for the three and six months ended March 31, 1997. 7 (4) Regulatory Capital Requirements Pursuant to the Financial Institution Reform, Recovery, and Enforcement Act of 1989 ("FIRREA"), as implemented by rules promulgated by the Office of Thrift Supervision, savings institutions must meet the following separate minimum capital-to-asset requirements. The table below summarizes, as of March 31, 1998, the capital requirements applicable to First Federal Savings and Loan Association of Independence ("the Association") and its actual capital ratios. As of March 31, 1998, the Association exceeded all current regulatory capital standards.
To be well capitalized under For capital prompt corrective Actual adequacy purposes action provisions ------------------------ ------------------------- ------------------------- Amount Ratio Amount Ratio Amount Ratio ------------ -------- ------------ --------- ------------ --------- (Dollars in Thousands) Total risk-based capital $10,443 18.17% $4,598 >|+8.0% $5,748 >|+10.0% Tier 1 risk-based capital 9,787 17.03 2,299 >|+4.0 3,449 >|+ 6.0 Tier 1 (core) capital 9,787 7.93 3,704 >|+3.0 6,173 >|+ 5.0 Tangible capital 9,787 7.93 1,852 >|+1.5 -- --
(5) Supplemental Disclosure of Cash Flow Information Six months ended March 31, ------------------------- 1998 1997 ---------- ---------- Cash paid for: Interest $2,642,896 $2,480,221 Income taxes 148,823 64,595 Noncash investing and financing activities: Transfer from loans to real estate acquired through foreclosure 56,574 8,781 Issuance of loans receivable in connection with the sale of real estate acquired through foreclosure 55,550 -- (6) Merger Conversion with Neodesha Savings and Loan Association On February 26, 1998 the Board of Directors of First Independence Corporation, parent of First Federal Savings and Loan Association of Independence ("First Federal"), and Neodesha Savings and Loan Association ("Neodesha"), announced the execution of a definitive agreement pursuant to which Neodesha will merge with and into First Federal. In connection with the Merger, Neodesha will undertake to convert form a mutual to a stock institution. The definitive agreement and proposed Plan of Merger Conversion is subject to regulatory approval and must be approved by a majority of Neodesha member votes in person or by proxy at a special meeting on a date to be announced. 8 PART II FIRST INDEPENDENCE CORPORATION Management's Discussion and Analysis of Financial Condition and Results of Operations General The accompanying Consolidated Financial Statements include the accounts of First Independence Corporation (the "Company") and its wholly-owned subsidiary, First Federal Savings and Loan Association of Independence (the "Association"). All significant inter-company transactions and balances are eliminated in consolidation. The Company's results of operations are primarily dependent on the Association's net interest margin, which is the difference between interest income on interest-earning assets and interest expense on interest-bearing liabilities. The Company's net earnings are also affected by the level of its non-interest expenses, such as employee compensation and benefits, occupancy expenses, and other expenses. Forward-Looking Statements When used in this Form 10-QSB and in future filings by the Company with the Securities and Exchange Commission, in the Company's press releases or other public or shareholder communications, and in oral statements made with the approval of an authorized executive officer, the words or phrases "will likely result", "are expected to", "will continue", "is anticipated", "estimate", "project" or similar expressions are intended to identify "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are subject to certain risks and uncertainties, including changes in economic conditions in the Company's market area, changes in policies by regulatory agencies, fluctuations in interest rates, demand for loans in the Company's market area and competition that could cause actual results to differ materially from historical earnings and those presently anticipated or projected. The Company wishes to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. The Company wishes to advise readers that the factors listed above could affect the Company's financial performance and could cause the Company's actual results for future periods to differ materially from any opinions or statements expressed with respect to future periods in any current statements. The Company does not undertake--and specifically disclaims any obligation--to publicly release the result of any revisions which may be made to any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events. Year 2000 Compliance Issues The Company has established a Year 2000 Committee to assess the risk of potential problems that might arise from the failures of computer programming to recognize the year 2000 and to develop a plan to mitigate any such risk. The committee has determined that the 9 greatest potential impact upon the Company is the risk related to vendors used by the Company, particularly First Independence's data processing service bureau. Quarterly progress reports from the service bureau indicate levels of manpower and expertise sufficient to amend and test the adequacy of their computer programming and systems prior to the arrival of the year 2000. All other vendors used by the Company have been identified and requests for year 2000 certifications have been forwarded. The year 2000 compliance program established by the committee includes quarterly progress reports submitted to the Board of Directors and a target date of December 31, 1998 for required internal testing, which is expected to be minimal. The committee estimates that the impact upon the Company's results of operations, liquidity and capital resources will be immaterial. Financial Condition The Company's total assets increased $12.0 million, or 10.64%, from $112.5 million at September 30, 1997 to $124.5 million at March 31, 1998. This increase was primarily a result of an increase of $10.7 million in net loans receivable, $3.2 million in cash and cash equivalents, and $1.0 million in investment securities. These increases in assets were funded by increases in savings deposits of $8.0 million, advances from the Federal Home Loan Bank of Topeka of $3.6 million, checks issued in excess of cash items of $300,000, and a decrease in mortgage-backed securities of $3.1 million. Loans receivable increased $10.7 million from $74.6 million at September 30, 1997, to $85.3 million at March 31, 1998. The increase was primarily due to construction loan originations at the Company's new loan production office in Lawrence, Kansas. These construction loans generally have terms of six months or less and interest rates tied to the prime rate plus a margin. To a lesser extent, the increase was due to originations in the Company's market area consisting primarily of 15- and 30-year fixed-rate loans, mortgage loans with a fixed rate for the first three years of the loan term that automatically convert to one-year adjustable rate loans during the fourth year of the loan term, and, to a lesser extent, one-year adjustable rate mortgages. The allowance for loan losses totaled $656,000, or .77% of total loans at March 31, 1998, which represented a $12,000 decrease from the $668,000, or .90% of total loans, at September 30, 1997. The ratio of the allowance for loan losses as a percent of non-performing loans increased from 48.05% at September 30, 1997 to 105.50% at March 31, 1998. At March 31, 1998, the Company's non-performing loans were comprised primarily of one- to four-family residential loans. See "Non-performing Assets." The allowance for loan losses is determined based upon an evaluation of pertinent factors underlying the types and qualities of the Company's loans. Management considers such factors as the repayment status of a loan, the estimated net realizable value of the underlying collateral, the borrower's ability to repay the loan, current and anticipated economic conditions which might affect the borrower's ability to repay the loan and the Company's past statistical history concerning charge-offs. 10 Total deposits increased $8.0 million from $76.2 million at September 30, 1997, to $84.2 million at March 31, 1998. Deposits increased primarily as a result of public units depositing short-term funds into the "Platinum" money fund account. The "Platinum" money fund account offers tiered rates on a limited transaction account with the highest rate paid on balances of $50,000 and above. Management feels the "Platinum" money fund provides a lower risk, insured alternative for deposit customers considering higher risk investments in order to get higher yields than money market accounts. Total borrowed funds increased $3.6 million from $23.7 million at September 30, 1997 to $27.3 million at March 31, 1998. The increase was from advances obtained from the Federal Home Loan Bank of Topeka. The FHLB advances allowed the Association to invest the funds borrowed in loans receivable at a positive spread. Total stockholders' equity increased $25,000 from $11,529,000 at September 30, 1997 to $11,554,000 at March 31, 1998. The increase was primarily due to the Company's net earnings from operations of $375,000, fair value adjustment of $68,000 on ESOP shares committed for release, the repayment of employee stock ownership debt of $36,000, the amortization of unearned stock compensation of $22,000, common stock options exercised of $9,300, and unrealized gains on securities available for sale of $5,000. These increases were partially offset by the Company's use of $364,000 to repurchase 24,500 shares of common stock and dividends of $127,000 paid to stockholders. Non-performing Assets The ratio of non-performing assets to total assets is one indicator of the Company's exposure to credit risk. Non-performing assets of the Company consist of non-accruing loans, accruing loans delinquent 90 days or more, troubled debt restructurings, and foreclosed assets which have been acquired as a result of foreclosure or deed-in-lieu of foreclosure. At March 31, 1998, non-performing assets were approximately $637,000, which represents a decrease of $766,000, or 54.6%, as compared to September 30, 1997. This decrease was due primarily to one loan totaling $344,000 secured by a single family residence in Texas, which had been classified as non-accruing at September 30, 1997, but was less than 90 days delinquent at March 31, 1998. In February 1991, the borrowers experienced financial difficulties and filed for protection under the bankruptcy statutes. Pursuant to the plan of reorganization approved by the Bankruptcy Court, the borrowers are required to make additional payments each month to make up the delinquent payments and interest. At March 31, 1998 the borrowers were complying with the terms of the repayment plan. To a lesser extent, the decrease was due to one loan totaling $139,000 secured by a single family residence in Texas, which had been classified as accruing delinquent 90 days or more at September 30, 1997, but was less than 90 days delinquent at March 31, 1998. Included in non-accruing loans at March 31, 1998, were ten loans totaling $528,000 secured by one- to four-family real estate, one loan totaling $21,000 secured by non-residential real estate, and two consumer loans totaling $24,000. All non-accruing loans at March 31, 1998, were located in the Company's primary market area. At March 31, 1998 there were no accruing loans delinquent 90 days or more. 11 A summary of non-performing assets by category is set forth in the following table: March 31, September 30, 1998 1997 ------ ------ (Dollars In Thousands) Non-Accruing Loans $ 573 $1,049 Accruing Loans Delinquent 90 Days or More -- 292 Trouble Debt Restructurings 49 50 Foreclosed Assets 15 12 ------ ------ Total Non-Performing Assets $ 637 $1,403 ====== ====== Total Non-Performing Assets as a Percentage of Total Assets .51% 1.25% ====== ====== Foreclosed Assets. At March 31, 1998, the Company's real estate acquired through foreclosure included two single family residences located in the Company's primary market area with a carrying value of $15,000. Results of Operations - Comparison of Three and Six Months Ended March 31, 1998 and March 31, 1997 - -------------------------------------------------------------------------------- General. Net earnings for the six months ended March 31, 1998 were $375,000 as compared to $332,000 for the six months ended March 31, 1997, resulting in an increase of $43,000, or 12.9%. The increase in net earnings was primarily due to increases in net interest income of $215,000 and non-interest income of $7,000. These increases were partially offset by increases in non-interest expense of $97,000 and income tax expense of $83,000. Net earnings for the three months ended March 31, 1998 were $195,000 as compared to $166,000 for the three months ended March 31, 1997, resulting in an increase of $29,000, or 18.04%. The increase in net earnings was primarily due to an increase in net interest income of $129,000, partially offset by increases in income tax expense of $61,000 and non-interest expense of $35,000 and a decrease in other income of $4,000. Net Interest Income. Net interest income increased $215,000, or 14.52%, for the six months ended March 31, 1998 as compared to the six months ended March 31, 1997. This increase was due primarily to an increase in interest income of $407,000, or 10.25%; offset partially by an increase in interest expense of $192,000, or 7.70%. Interest income increased primarily due to a $7.6 million increase in the average balance of interest-earning assets, and a 22 basis point increase in the average yield on interest-earning assets. The average yield on interest-earning assets increased primarily due to construction loan originations at the Lawrence loan production office which carry higher rates of interest than loans originated in the Company's primary market area. Interest expense increased primarily due to a $7.9 million increase in the average balance of interest-bearing liabilities, offset partially by a 3 basis point decrease in the average rate paid on interest-bearing liabilities. The average rate paid on interest-bearing liabilities decreased primarily due to a $5.1 million increase in the average balance of low cost demand and now deposits and, to a lesser extent, a decrease in market interest rates. 12 Net interest income increased $129,000, or 17.44%, for the three months ended March 31, 1998, as compared to the three months ended March 31, 1997. This increase was due primarily to an increase in interest income of $248,000, or 12.46%; offset partially by an increase in interest expense of $117,000 or 9.47%. The increase was due to the same reasons as stated above for the six months ended March 31, 1998, as compared to the six months ended March 31, 1997. The ratio of average interest-earning assets to average interest-bearing liabilities decreased from 110.5% for the three months ended March 31, 1997 to 109.3% for the three months ended March 31, 1998. Interest Income. Interest income for the six months ended March 31, 1998, increased to $4,377,000 from $3,970,000 for the six months ended March 31, 1997. This increase was caused primarily by a $7.6 million increase in the average outstanding amount of interest-earning assets during the six months ended March 31, 1998, as compared to the six months ended March 31, 1997; due to the increase in the average balance of loans receivable financed by the increased average balance of savings deposits. The average balance of savings deposits during the six months ended March 31, 1998 was $7.4 million higher than during the six months ended March 31, 1997. To a lesser extent, the increase in interest income was due to an increase in the average yield on interest-earning assets. The average yield on interest-earning assets increased 22 basis points to 7.71% for the six months ended March 31, 1998, from 7.49% for the six months ended March 31, 1997. This increase was caused primarily by increases in yield on the Association's Federal Home Loan Bank stock from 6.48% to 7.75%, loan portfolio from 8.01% to 8.20%, and mortgage-backed securities portfolio from 6.48% to 6.58% for the six months ended March 31, 1998, as compared to the six months ended March 31, 1997. These increases were partially offset by a decrease in the investment securities portfolio yield from 6.61% to 6.34% for the six months ended March 31, 1998, as compared to the six months ended March 31, 1997. The increase in yield on the loan portfolio was primarily due to construction loan originations at the Company's new loan production office in Lawrence, Kansas. These construction loans generally have terms of six months or less and interest rates tied to the prime rate plus a margin. Interest income for the quarter ended March 31, 1998, increased to $2,232,000 from $1,984,000 for the quarter ended March 31, 1997. This increase was caused primarily by a $10.6 million increase in the average outstanding amount of interest-earning assets during the three months ended March 31, 1998, as compared to the three months ended March 31, 1997 due to the increase in the average balance of loans receivable financed by advances obtained from the Federal Home Loan Bank of Topeka and increased savings deposits. To a lesser extent, the increase was due to an increase in the average yield on interest-earning assets. The average yield on interest-earning assets increased 16 basis points to 7.64% at March 31, 1998, from 7.48% at March 31, 1997. This increase was caused primarily by increases in yield on the Association's Federal Home Loan Bank stock from 6.52% to 7.35%, loan portfolio from 7.99% to 8.20%, and mortgage-backed securities portfolio from 6.51% to 6.60% for the three months ended March 31, 1998, as compared to the three months ended March 31, 1997. The increase in yield on the loan portfolio was due to the same reason as stated above. These increases were partially offset by a decrease in the investment portfolio yield from 6.63% to 5.43% for the three 13 months ended March 31, 1998, as compared to the three months ended March 31, 1997. Interest Expense. Interest expense for the six months ended March 31, 1998, increased by $192,000 to $2,680,000 as compared to $2,488,000 for the six months ended March 31, 1997. This increase in interest expense was due primarily to a $7.9 million increase in the average outstanding amount of interest-bearing liabilities during the six months ended March 31, 1998 as compared to the six months ended March 31, 1997. This increase was partially offset by a 3 basis point decrease in average interest rates paid on interest-bearing liabilities, caused by decreases in market interest rates. The increase in interest-bearing liabilities was primarily due to a $7.4 million increase in the average outstanding balance of deposits due primarily to new accounts opened at the Coffeyville, Kansas branch office and seasonal deposits from public units. Interest expense for the quarter ended March 31, 1998, increased by $117,000 to $1,358,000 as compared to $1,241,000 for the quarter ended March 31, 1997. This increase in interest expense was due primarily to a $10.9 million increase in the average outstanding amount of interest-bearing liabilities during the three months ended March 31, 1998, as compared to the three months ended March 31, 1997. This increase in interest-bearing liabilities was due primarily to the same reasons as stated above. However, the interest expense was partially offset by a 9 basis point decrease in average interest rates paid on interest-bearing liabilities, caused by decreases in market interest rates. Provision for Loan Losses. Based upon management's analysis of established reserves and its ongoing review of the composition of the loan portfolio, including non-performing assets and other loans of concern, there was no provision for losses on loans for the three and six months ended March 31, 1998 and March 31, 1997. The Company will continue to monitor its allowance for loan losses and make future additions to the allowance through the provision for loan losses as economic and regulatory conditions dictate. However, there can be no assurance that future losses will not exceed estimated amounts or that additional provisions for loan losses will not be required in future periods. In addition, the Company's determinations as to the amount of the allowance for loan losses is subject to review by the regulatory agencies which can order the establishment of additional general or specific allowances. Non-interest Income. Non-interest income increased $7,000 to $113,000 during the six months ended March 31, 1998 as compared to $106,000 for the six months ended March 31, 1997. The increase was primarily due to increased checking and deposit account fees as a result of new accounts in the Coffeyville branch. To a lesser extent, the increase was due to increased late charges and other fees associated with mortgage loans. Non-interest income decreased $4,000 to $48,000 during the three months ended March 31, 1998 as compared to $52,000 for the three months ended March 31, 1997. Recurring non-interest income generally consists of servicing fees as well as deposit and other types of fees. Non-interest Expense. Total non-interest expense increased to $1,147,000 for the six months ended March 31, 1998 from $1,050,000 for 14 the six months ended March 31, 1997, an increase of $97,000, or 9.2%. The increase was primarily due to increases in compensation and employee benefits of $59,000, occupancy and equipment of $45,000, and data processing fees of $15,000. These increases were primarily due to the opening of a new loan production office in Lawrence, Kansas, resulting in additional staff, occupancy and equipment, stationery, printing and office supplies expense. To a lesser extent, the increase in compensation expense was the result of normal, annual cost of living increases in salaries and bonuses, and increased compensation expense associated with the Company's ESOP plan due to the increase in the Company's stock price. These increases were partially offset by decreases in federal deposit insurance premiums of $18,000, and other expenses of $3,000. Total non-interest expense increased by $35,000 for the three months ended March 31, 1998, as compared to the three months ended March 31, 1997. The increase was due primarily to increases in compensation and employee benefits of $19,000, occupancy and equipment of $15,000, and data processing fees of $8,000. These increases were partially offset by decreases in other expenses of $7,000. The increase in non-interest expense for the three months ended March 31, 1998 was due to the same reasons as stated above. Income Tax Expense. Income tax expense was $288,000 for the six months ended March 31, 1998 compared to $205,000 for the six months ended March 31, 1997, an increase of $83,000. This increase was primarily due to an increase in pre-tax earnings during the 1998 period as compared to the 1997 period. The Company's effective tax rates were 43.4% and 38.2% for the six months ended March 31, 1998 and March 31, 1997, respectively. Rates exceed expected rates due primarily to compensation expense associated with the ESOP which is not deductible for income tax purposes. Income tax expense was $151,000 for the quarter ended March 31, 1998 compared to $90,000 for the quarter ended March 31, 1997, an increase of $61,000. This increase was primarily due to an increase in pre-tax earnings during the 1998 period as compared to the 1997 period. The Company's effective tax rates were 43.6% and 35.3% for the three months ended March 31, 1998 and March 31, 1997, respectively. Rates exceed expected rates due primarily to compensation expense associated with the ESOP which is not deductible for income tax purposes. Liquidity and Capital Resources. The Company's primary sources of funds are deposits, principal and interest payments on loans and mortgage-backed securities, Federal Home Loan Bank of Topeka advances and funds provided by operations. While scheduled loan and mortgage-backed security repayments and maturity of short-term investments are a relatively predictable source of funds, deposit flows are greatly influenced by general interest rates, economic conditions and competition. Current Office of Thrift Supervision ("OTS") regulations require the Association to maintain cash and eligible investments in an amount equal to at least 4% of the sum of its average daily balance of net withdrawable deposit accounts and borrowings payable in one year or less. Such requirements may be changed from time to time by the OTS to reflect changing economic conditions. Such investments are intended to provide a source of relatively liquid funds upon which the Association may rely if necessary to fund deposit withdrawals and other short-term funding needs. As of March 31, 1998, the 15 Association's liquidity ratio was 15.44% as compared to 7.20% at September 30, 1997. This increase was primarily due to an increase in short-term investments funded with public unit deposits. These ratios exceeded the minimum regulatory liquidity requirements on both dates. The Company uses its capital resources principally to meet its ongoing commitments, to fund maturing certificates of deposit and deposit withdrawals, to invest, to fund existing and future loan commitments, to maintain liquidity, and to meet operating expenses. At March 31, 1998, the Company had commitments to originate loans totaling $694,000. The Company considers its liquidity and capital resources to be adequate to meet its foreseeable short- and long-term needs. The Company expects to be able to fund or refinance, on a timely basis, its material commitments and long-term liabilities. Regulatory standards impose the following capital requirements on the Association: a risk-based capital standard expressed as a percent of risk-adjusted assets, a leverage ratio of core capital to total adjusted assets, and a tangible capital ratio expressed as a percent of total adjusted assets. As of March 31, 1998, the Association exceeded all fully phased-in regulatory capital standards. At March 31, 1998, the Association's tangible capital was $9.8 million, or 7.93% of adjusted total assets, which is in excess of the 1.5% requirement by $7.9 million. In addition, at March 31, 1998, the Association had core capital of $9.8 million, or 7.93% of adjusted total assets, which exceeds the 3.0% requirement by $6.1 million. The Association had risk-based capital of $10.4 million at March 31, 1998, or 18.17% of risk-adjusted assets, which exceeds the 8.0% risk-based capital requirements by $5.8 million. Under the requirements of federal law, all the federal banking agencies, including the OTS, must revise their risk-based capital requirements to ensure that such requirements account for interest rate risk, concentration of credit risk and the risks of non-traditional activities, and that they reflect the actual performance of and expected loss on multi-family loans. The OTS has adopted a final rule that generally requires a savings association with more than normal interest rate risk to deduct from its total capital, for purposes of determining compliance with such requirement, an amount equal to 50% of its interest-rate risk exposure multiplied by the present value of its assets. This exposure is a measure of the potential decline in the net portfolio value of a savings association, greater than 2% of the present value of its assets, based upon a hypothetical 200 basis point increase or decrease in interest rates (whichever results in a greater decline). Net portfolio value is the present value of expected cash flows from assets, liabilities and off-balance sheet contracts. The rule provides for a two-quarter lag between calculating interest rate risk and recognizing any deductions from capital. The OTS has announced that it will delay the effectiveness of the rule until it adopts the process by which savings associations may appeal an interest rate risk deduction determination. The OTS has instructed all savings associations not to take any capital deductions for interest rate risk exposure until notified to do so by the OTS. In addition, any savings association with less than $300 million in assets and a total risk-based capital ratio in excess of 12%, such as the Association, is exempt from this requirement unless the OTS determines otherwise. 16 Part II - Other Information Item 1 - Legal Proceedings Not applicable. Item 2 - Changes in Securities Not applicable. Item 3 - Defaults upon Senior Securities Not applicable. 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 Sequentially Numbered Page Where attached Exhibit Exhibit Number is located -------------- ---------- Exhibit 27, "Financial Data Schedule" 19 (b) Reports on Form 8-K None 17 SIGNATURES Pursuant to the requirement 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. FIRST INDEPENDENCE CORPORATION Registrant Date: May 14, 1998 /s/ Larry G. Spencer --------------------------------- Larry G. Spencer President and Chief Executive Officer Date: May 14, 1998 /s/ James B. Mitchell --------------------------------- James B. Mitchell Vice President and Chief Financial Accounting Officer 18 EX-27 2 FDS
9 The schedule contains summary financial information extracted from the quarterly report on Form 10-QSB for the fiscal quarter ended March 31, 1998 and is qualified in its entirety by reference to such financial statements. 6-MOS SEP-30-1998 MAR-31-1998 869,625 207,117 5,300,000 0 3,346,443 25,902,199 26,054,611 85,919,601 655,745 124,493,983 84,171,855 6,400,000 1,468,421 20,900,000 0 0 14,984 11,538,723 124,493,983 3,332,484 928,819 115,505 4,376,808 1,944,157 2,679,605 1,697,203 0 0 1,146,898 663,327 375,236 0 0 375,236 .41 .38 7.71 573,000 0 49,000 0 668,185 12,440 0 655,745 0 0 655,745
EX-27.1 3 FINANCIAL DATA SCHEDULE
9 The schedule contains summary financial information extracted from the quarterly report on Form 10-QSB for the fiscal quarter ended December 31, 1996 and is qualified in its entirety by reference to such financial statements. 3-MOS SEP-30-1997 DEC-31-1997 831,502 196,493 100,000 0 5,866,279 28,756,691 28,755,870 70,428,556 690,009 108,913,840 70,138,277 14,700,000 1,395,418 10,700,000 0 0 14,984 11,965,161 108,913,840 1,382,714 569,538 33,354 1,985,606 891,844 1,247,375 738,231 0 0 510,416 281,655 166,694 0 0 166,694 .16 .15 7.51 304,000 149,000 52,000 0 690,009 0 0 690,009 0 0 690,009
EX-27.2 4 FINANCIAL DATA SCHEDULE
9 The schedule contains summary financial information extracted from the quarterly report on Form 10-QSB for the fiscal quarter ended March 31, 1997 and is qualified in its entirety by reference to such financial statements. 6-MOS SEP-30-1997 MAR-31-1997 709,410 265,530 800,000 0 4,795,589 28,900,681 28,733,731 70,961,880 690,009 109,229,614 74,140,900 9,800,000 1,114,780 12,700,000 0 0 14,984 11,458,950 109,229,614 2,778,864 1,118,892 72,161 3,969,917 1,781,023 2,487,963 1,481,954 0 0 1,050,143 537,689 332,274 0 0 332,274 .33 .31 7.49 440,000 487,000 52,000 0 690,009 0 0 690,009 0 0 690,009
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