-----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, SfKaNI2oTgC4UaYWTUw7DIWAxCsJVM2sGWVdue0XH+Lzp3lBl5BibGpjl4WM6Wkx aoK68Sv8PN7ztwg9khH0FQ== /in/edgar/work/20000811/0000927089-00-000249/0000927089-00-000249.txt : 20000921 0000927089-00-000249.hdr.sgml : 20000921 ACCESSION NUMBER: 0000927089-00-000249 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000811 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIRST INDEPENDENCE CORP /DE/ CENTRAL INDEX KEY: 0000908486 STANDARD INDUSTRIAL CLASSIFICATION: [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: 692919 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 0001.txt JUNE 30, 2000 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 June 30, 2000 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 August 4, 2000, there were 1,018,361 shares of the Registrant's common stock outstanding. FIRST INDEPENDENCE CORPORATION INDEX
PART I. FINANCIAL INFORMATION (unaudited) PAGE NO. Item 1. Consolidated Condensed Financial Statements Consolidated Condensed Balance Sheets as of June 30, 2000 and September 30, 1999 3 Consolidated Condensed Statements of Earnings for the Three and Nine Months Ended June 30, 2000 and 1999 4 Consolidated Condensed Statements of Comprehensive Income for the Three and Nine Months Ended June 30, 2000 and 1999 5 Consolidated Condensed Statement of Stockholders' Equity for the Year Ended September 30, 1999 and Nine Months Ended June 30, 2000 6 Consolidated Condensed Statements of Cash Flows for the Nine Months Ended June 30, 2000 and 1999 7 Notes to Consolidated Condensed Financial Statements 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10 PART II. OTHER INFORMATION 17 Signature Page 18
2 PART I: FINANCIAL INFORMATION FIRST INDEPENDENCE CORPORATION CONSOLIDATED CONDENSED BALANCE SHEETS
June 30, September 30, 2000 1999 -------------- ------------------ (Unaudited) ASSETS Cash and due from banks $ 516,980 $ 1,064,794 Other interest-earning deposits 341,900 375,201 ------------- ------------- Cash and cash equivalents 858,880 1,439,995 Investment securities held to maturity (fair value: June 30, 2000 - $6,455,460; September 30, 1999 - $6,957,733) 6,595,895 7,005,279 Investment securities available for sale 1,982,600 1,999,800 Mortgage-backed securities held to maturity (fair value: June 30, 2000 - $9,213,911; September 30, 1999 - $10,852,983) 9,266,304 10,912,279 Loans receivable, net 122,663,331 112,893,406 Real estate acquired through foreclosure 436,533 109,579 Premises and equipment, net 1,399,478 1,322,128 Federal Home Loan Bank Stock, at cost 1,840,000 1,441,600 Accrued interest receivable 1,065,864 887,465 Other assets 70,722 119,809 ------------- ------------- Total assets $ 146,179,607 $ 138,131,340 ============= ============= LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities Deposits $ 94,247,330 $ 95,452,864 Advances from borrowers for taxes and insurance 499,964 825,330 Advances from Federal Home Loan Bank 36,800,000 27,500,000 Income taxes payable 31,166 71,277 Other accrued expenses and liabilities 1,141,396 1,175,261 ------------- ------------- Total liabilities 132,719,856 125,024,732 Stockholders' equity Preferred stock, $.01 par value, 500,000 shares authorized, none issued --- --- Common stock, $.01 par value, 2,500,000 shares authorized, 1,649,288 shares issued 16,493 16,493 Additional paid-in capital 8,172,849 8,132,391 Retained earnings - substantially restricted 11,604,901 10,876,339 Accumulated other comprehensive income (loss) (10,058) 2,316 Treasury stock at cost, 630,927 shares at June 30, 2000 and 587,458 shares at September 30, 1999 (6,194,540) (5,721,251) Required contributions for shares acquired by ESOP (129,894) (199,680) ------------- ------------- Total stockholders' equity 13,459,751 13,106,608 ------------- ------------- Total liabilities and stockholders' equity $ 146,179,607 $ 138,131,340 ============= =============
- -------------------------------- 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 Nine Months Ended June 30, June 30, --------------------------------- -------------------------------- 2000 1999 2000 1999 -------------- -------------- -------------- ------------ (Unaudited) (Unaudited) Interest income Loans receivable $2,473,778 $2,202,439 $7,189,571 $6,304,310 Mortgage-backed securities 161,705 171,108 490,142 633,507 Investment securities 141,626 59,567 428,425 254,131 Other 48,866 123,671 138,695 311,289 ---------- ---------- ---------- ---------- Total interest income 2,825,975 2,556,785 8,246,833 7,503,237 ---------- ---------- ---------- ---------- Interest expense Deposits 1,132,168 1,126,994 3,377,074 3,252,956 Borrowed funds 530,083 382,622 1,431,367 1,215,591 ---------- ---------- ----------- --------- Total interest expense 1,662,251 1,509,616 4,808,441 4,468,547 ---------- ---------- ---------- ---------- Net interest income 1,163,724 1,047,169 3,438,392 3,034,690 Provision for loan losses 21,000 15,000 63,000 45,000 ---------- ---------- ---------- ---------- Net interest income after provision for loan losses 1,142,724 1,032,169 3,375,392 2,989,690 Noninterest income Income (loss) from real estate operations 2,280 (23,570) (37,576) (20,889) Other 107,633 124,571 343,556 273,958 ---------- ---------- ---------- ---------- Total noninterest income 109,913 101,001 305,980 253,069 ---------- ---------- ---------- ---------- Noninterest expense Employee compensation and benefits 395,943 367,565 1,203,623 1,055,379 Occupancy and equipment 79,454 72,770 241,876 207,346 Federal deposit insurance premiums 4,944 13,870 24,114 39,744 Data processing fees 51,556 75,249 181,442 202,473 Other 140,575 138,873 430,148 421,804 ---------- ---------- ---------- ---------- Total noninterest expenses 672,472 668,327 2,081,203 1,926,746 ---------- ---------- ---------- ---------- Earnings before income taxes 580,165 464,843 1,600,169 1,316,013 Income tax expense 208,731 171,194 582,226 496,422 ---------- ---------- ---------- ---------- Net earnings $ 371,434 $ 293,649 $1,017,943 $ 819,591 ========== ========== ========== ========== Earnings per common share Basic $ .37 $ .28 $ 1.00 $ .81 ========== ========== ========== ========== Diluted $ .36 $ .27 $ .96 $ .77 ========== ========== ========== ========== Dividends per share $ .10 $ .0875 $ .2875 $ .2500 ========== ========== ========== ========== Weighted average shares outstanding Basic 998,827 1,033,633 1,016,033 1,009,710 ========== ========== ========== ========== Diluted 1,039,451 1,085,827 1,056,657 1,061,904 ========== ========== ========== ==========
- ----------------------------- The accompanying notes are an integral part of these statements. 4
PART I: FINANCIAL INFORMATION FIRST INDEPENDENCE CORPORATION CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME Three Months Ended Nine Months Ended June 30, June 30, ------------------------------- -------------------------------- 2000 1999 2000 1999 -------------- ------------- -------------- -------------- (Unaudited) (Unaudited) Net earnings $ 371,434 $ 293,649 $1,017,943 $ 819,591 Other comprehensive income Unrealized gains (losses) on securities available for sale arising during the period, net of income tax 41 (14,905) (12,374) (47,332) --------- --------- ---------- --------- Comprehensive income $ 371,475 $ 278,744 $1,005,569 $ 772,259 ========= ========= ========== =========
- ----------------------------- The accompanying notes are an integral part of these statements. 5
FIRST INDEPENDENCE CORPORATION CONSOLIDATED CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY For The Year Ended September 30, 1999 and Nine Months Ended June 30, 2000 (Unaudited) Required Contribu- Accumulated tions for Additional Other Shares Common Paid-in Retained Comprehensive Treasury Acquired Total Stock Capital Earnings Income (Loss) Stock by ESOP Equity ----- ------- -------- ------------- ----- ------- ------ Balance at October 1, 1998 $14,984 $7,239,207 $10,077,091 $ 52,497 $(5,139,263) $(145,475) $12,099,041 Net earnings --- --- 1,143,088 --- --- --- 1,143,088 Cash dividends of $.3375 per share --- --- (343,840) --- --- --- (343,840) Issuance of 150,896 shares of common stock 1,509 817,968 --- --- --- (142,176) 677,301 Common stock options exercised --- (3,987) --- --- 46,831 --- 42,844 Depreciation of securities available for sale, net of income tax --- --- --- (50,181) --- --- (50,181) ESOP loan repayments --- --- --- --- --- 87,971 87,971 Fair value adjustment on ESOP shares committed for release --- 79,203 --- --- --- --- 79,203 Purchase of 55,885 shares of treasury stock --- --- --- --- (628,819) --- (628,819) ------- ---------- ----------- --------- ----------- --------- ----------- Balance at September 30, 1999 16,493 8,132,391 10,876,339 2,316 (5,721,251) (199,680) 13,106,608 Net earnings --- --- 1,017,943 --- --- --- 1,017,943 Cash dividends of $.2875 per share --- --- (289,381) --- --- --- (289,381) Common stock options exercised --- (9,653) --- --- 58,581 --- 48,928 Depreciation of securities available for sale, net of income tax --- --- --- (12,374) --- --- (12,374) ESOP loan repayments --- --- --- --- --- 69,786 69,786 Purchase of 53,187 shares of treasury stock --- --- --- --- (531,870) --- (531,870) Fair value adjustment on ESOP shares committed for release --- 50,111 --- --- --- --- 50,111 ------- ---------- ----------- --------- ----------- --------- ----------- Balance at June 30, 2000 $16,493 $8,172,849 $11,604,901 $ (10,058) $(6,194,540) $(129,894) $13,459,751 ======= ========== =========== ========= =========== ========= ===========
- ------------------------------------ The accompanying notes are an integral part of these statements. 6
PART I: FINANCIAL INFORMATION FIRST INDEPENDENCE CORPORATION CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS Nine Months Ended June 30, ----------------------------------------- 2000 1999 -------------- -------------- Cash flows from operating activities (Unaudited) Net earnings $ 1,017,943 $ 819,591 Adjustments to reconcile net earnings to net cash provided by operating activities Provision for loan losses 63,000 45,000 Depreciation 93,392 83,899 Amortization of premiums and discounts on investments and mortgage-backed securities 33,323 62,601 Amortization of deferred loan origination fees (167,747) (164,919) Amortization of expense related to employee benefit plans 119,897 123,145 Amortization of negative goodwill (70,544) (47,029) Net gain on sale of real estate acquired through foreclosure (35,993) (13,057) Increase (decrease) in cash due to changes in Accrued interest receivable (178,399) 6,310 Other assets 28,027 (39,938) Accrued expenses and other liabilities 23,227 (304,126) Income taxes payable 5,425 (33,377) ----------- ---------- Net cash provided by operating activities 931,551 538,100 Cash flows from investing activities Proceeds from sale of investment security --- 355,053 Proceeds from maturities and repayment of securities Available for sale --- 1,000,000 Held to maturity 2,019,278 11,670,132 Purchase of securities Available for sale --- (8,452) Held to maturity --- (1,000,000) Net increase in loans (10,210,922) (8,184,391) Purchase of Federal Home Loan Bank stock (398,400) (240,200) Capital expenditures (200,542) (70,275) Proceeds from sale of real estate acquired through foreclosure 281,143 58,825 Cash acquired in acquisition --- 2,114,968 ----------- ----------- Net cash provided by (used in) investing activities (8,509,443) 5,695,660 Cash flows from financing activities Net increase (decrease) in deposits (1,205,534) 2,157,969 Net decrease in advances from borrowers for taxes and insurance (325,366) (377,863) Advances from Federal Home Loan Bank 43,300,000 6,700,000 Repayment of Federal Home Loan Bank advances (34,000,000) (9,300,000) Cash dividends paid (289,381) (253,747) Purchase of treasury stock (531,870) (628,819) Net proceeds from sale of stock --- 1,279,264 Stock issuance costs --- (327,338) Stock options exercised 48,928 42,844 ----------- ----------- Net cash provided by (used in) financing activities 6,996,777 (707,690) ----------- ----------- Net increase (decrease) in cash and cash equivalents (581,115) 5,526,070 Cash and cash equivalents at beginning of period 1,439,995 913,580 ----------- ----------- Cash and cash equivalents at end of period $ 858,880 $6,439,650 =========== ===========
- -------------------------------- The accompanying notes are an integral part of these statements. 7 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 June 30, 2000, and the results of operations and cash flows for all interim periods presented. Operating results for the three and nine months ended June 30, 2000 are not necessarily indicative of the results that may be expected for the fiscal year ending September 30, 2000. (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 exclude unallocated and uncommitted shares held by the ESOP trust. (3) Merger Conversion with The Neodesha Savings and Loan Association On January 6, 1999 the Board of Directors of First Independence Corporation, parent of First Federal Savings and Loan Association of Independence, and The Neodesha Savings and Loan Association, FSA, announced the completion of Neodesha Savings' conversion from a federally-chartered mutual savings and loan association to a federally-chartered stock savings and loan association and its simultaneous merger with First Federal. In connection with the merger conversion of Neodesha Savings, First Independence sold 150,896 shares of its Common Stock at $9.42 per share. Total assets of Neodesha Savings were $13.7 million at December 31, 1998. The financial statements include results of operations of Neodesha Savings beginning January 6, 1999. The transaction was accounted for under the purchase method of accounting for business combinations. 8 (4) Regulatory Capital Requirements Pursuant to the Financial Institution Reform, Recovery, and Enforcement Act of 1989, 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 June 30, 2000, the capital requirements applicable to First Federal and its actual capital ratios. For purposes of calculating regulatory capital, adjustments required by Statement of Financial Accounting Standards No. 115 are not taken into account. As of June 30, 2000, First Federal exceeded all 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 $13,941 19.09% $5,843 >8.0% $7,304 >10.0% - - Tier 1 risk-based capital 13,152 18.01 2,922 >4.0 4,383 > 6.0 - - Tier 1 (core) capital 13,152 8.99 4,387 >3.0 7,312 > 5.0 - - Tangible capital 13,152 8.99 2,194 >1.5 --- --- -
(5) Supplemental Disclosure of Cash Flow Information
Nine months ended June 30, -------------------------------- 2000 1999 ---- ---- Cash paid for: Interest $4,725,632 $4,488,473 Income taxes 590,801 529,799 Noncash investing and financing activities: Transfer from loans to real estate acquired through foreclosure 748,569 186,283 Issuance of loans receivable in connection with the sale of real estate acquired through foreclosure 190,450 24,800 Liabilities assumed in conjunction with acquisition --- 13,700,846
9 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 and its wholly-owned subsidiary, First Federal Savings and Loan Association of Independence. All significant inter-company transactions and balances are eliminated in consolidation. Our results of operations are primarily dependent on First Federal's net interest margin, which is the difference between interest income on interest-earning assets and interest expense on interest-bearing liabilities. First Independence'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 us with the Securities and Exchange Commission, in our 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 our market area, changes in policies by regulatory agencies, fluctuations in interest rates, demand for loans in our market area and competition that could cause actual results to differ materially from historical earnings and those presently anticipated or projected. We caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. We advise readers that the factors listed above could affect our financial performance and could cause actual results for future periods to differ materially from any opinions or statements expressed with respect to future periods in any current statements. We do not undertake--and specifically disclaim 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. Financial Condition Total assets increased $8.1 million, or 5.83%, from $138.1 million at September 30, 1999 to $146.2 million at June 30, 2000. This increase was primarily comprised of increases in net loans 10 receivable of $9.8 million, Federal Home Loan Bank stock of $398,000, real estate acquired through foreclosure of $327,000 and accrued interest receivable of $179,000. These increases in assets, along with reductions in savings deposits of $1.3 million and advances from borrowers for taxes and insurance of $325,000, were funded by increases in advances from the Federal Home Loan Bank of Topeka of $9.3 million, the redeployment of funds received from mortgage-backed securities maturing of $1.6 million, investment securities maturing of $427,000 and a reduction in cash and cash equivalents of $581,000. Loans receivable increased $9.8 million from $112.9 million at September 30, 1999, to $122.7 million at June 30, 2000. The increase was primarily due to construction loan originations at our loan production office in Lawrence, Kansas. These construction loans generally have terms of nine months or less and interest rates tied to the prime rate plus a margin. Construction loans reduce interest rate risk and improve earnings due to their shorter terms and higher rate when compared to permanent one- to four-family loans. However, construction loans also increase credit quality risk. To a lesser extent, the increase was due to originations in our market area consisting primarily of 15- and 30- year fixed-rate loans, mortgage loans with a fixed rate for the first five years of the loan term that automatically convert to one-year adjustable rate loans during the sixth year of the loan term, and, to a lesser extent, one-year adjustable rate mortgages. Total deposits decreased $1.3 million from $95.5 million at September 30, 1999, to $94.2 million at June 30, 2000. The outflow of deposits was a result of competition from local financial institutions which are aggressively seeking public unit deposits by offering relatively high interest rates; and competition from other investment products that offer the potential of a higher rate of return, but also represent a higher risk to the investor. Total borrowed funds increased $9.3 million from $27.5 million at September 30, 1999 to $36.8 million at June 30, 2000. The increase was from advances obtained from the Federal Home Loan Bank of Topeka. The advances allowed us to invest the funds borrowed in loans receivable at a positive spread. Total stockholders' equity increased $353,000 from $13,107,000 at September 30, 1999 to $13,460,000 at June 30, 2000. The increase was primarily due to net earnings from operations of $1,018,000, repayment of employee stock ownership debt of $70,000, fair value adjustment of $50,000 on ESOP shares committed for release and common stock options exercised of $49,000. These increases were partially offset by our use of $532,000 to repurchase 53,187 shares of common stock, dividends of $289,000 paid to stockholders and a decrease in the unrealized gains on securities available for sale of $12,000. Non-performing Assets The ratio of non-performing assets to total assets is one indicator of our exposure to credit risk. Non-performing assets consist of non-accruing loans, accruing loans delinquent 90 days or more, troubled debt restructurings, and foreclosed assets which have 11 been acquired as a result of foreclosure or deed-in-lieu of foreclosure. At June 30, 2000, non-performing assets were approximately $1.9 million, which represents a decrease of $630,000, or 24.8%, as compared to September 30, 1999. The ratio of non-performing assets to total assets at June 30, 2000 was 1.31% compared to 1.84% at September 30, 1999. These decreases were due primarily to a concentrated collection effort of our construction loans originated in the Lawrence loan production office. A summary of non-performing assets by category is set forth in the following table:
June 30, September 30, 2000 1999 ------------------ ------------------ (Dollars In Thousands) Non-Accruing Loans $1,085 $1,311 Accruing Loans Delinquent 90 Days or More 364 1,118 Troubled Debt Restructurings 23 --- Foreclosed Assets 437 110 ------- ------ Total Non-Performing Assets $1,909 $2,539 ====== ====== Total Non-Performing Assets as a Percentage of Total Assets 1.31% 1.84% ==== ====
Included in non-accruing loans at June 30, 2000, were 19 loans totaling $488,000 secured by one- to four-family real estate, 5 construction loans totaling $521,000 secured by one- to four-family real estate and 16 consumer loans totaling $76,000. All non-accruing loans at June 30, 2000, were located in our primary market area, except for 1 loan totaling $48,000 secured by a single family residence located in Texas. At June 30, 2000, accruing loans delinquent 90 days or more included 5 loans totaling $58,000 secured by one- to four-family real estate, 2 construction loans totaling $237,000 secured by one- to four-family real estate and 2 loans totaling $69,000 secured by non-residential real estate. At June 30, 2000, all of our accruing loans delinquent 90 days or more were secured by real estate located in our primary market area. At June 30, 2000, real estate acquired through foreclosure consisted of 12 single family residences located in our primary market area. The properties have a carrying value of $437,000 and are currently offered for sale. We have taken into account our non-performing assets and the composition of the loan portfolio in establishing the allowance for loan losses. The allowance for loan losses totaled $789,000 at June 30, 2000, which represented a $36,000 increase from the allowance for loan losses at September 30, 1999. The ratio of the allowance for loan losses as a percent of total loans decreased from .67% at September 30, 1999 to .64% at June 30, 2000, primarily due to the increase in total loans receivable at June 30, 2000. The allowance for loan losses as a percent of non-performing loans increased from 31.0% at September 30, 1999 to 53.6% at June 30, 2000, due to the decrease in non-performing loans at June 30, 2000. The allowance for loan losses is determined based upon an evaluation of pertinent factors underlying the types and qualities of our loans. We consider 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 12 anticipated economic conditions which might affect the borrower's ability to repay the loan and our past statistical history concerning charge-offs. Results of Operations - Comparison of Three and Nine Months Ended June 30, 2000 and June 30, 1999 General. Net earnings for the three months ended June 30, 2000 were $371,000 as compared to $294,000 for the three months ended June 30, 1999, an increase of $77,000, or 26.5%. The increase in net earnings was primarily due to increases in net interest income of $117,000 and non-interest income of $9,000. These increases to net earnings were partially offset by increases in income tax expense of $38,000, provision for loan losses of $6,000 and non-interest expense of $4,000. Net earnings for the nine months ended June 30, 2000 were $1,018,000 as compared to $820,000 for the nine months ended June 30, 1999, an increase of $198,000, or 24.2%. The increase in net earnings was primarily due to increases in net interest income of $403,000 and non-interest income of $53,000. These increases were partially offset by increases in non-interest expense of $154,000, income tax expense of $86,000 and the provision for loan losses of $18,000. Net Interest Income. Net interest income increased $117,000, or 11.1%, for the three months ended June 30, 2000, as compared to the three months ended June 30, 1999. This increase was due primarily to an increase in interest income of $269,000, or 10.5%, offset partially by an increase in interest expense of $152,000, or 10.1%. Interest income increased primarily due to an $8.1 million increase in the average balance of interest-earning assets and, to a lesser extent, a 33 basis point increase in the average yield on interest-earning assets. Interest expense increased primarily due to a $6.9 million increase in the average balance of interest-bearing liabilities and, to a lesser extent, a 20 basis point increase in the average rate paid on interest-bearing liabilities. The average rate earned on interest-earning assets and paid on interest-bearing liabilities increased primarily due to an increase in market interest rates. The ratio of average interest-earning assets to average interest-bearing liabilities increased from 109.0% for the three months ended June 30, 1999 to 109.4% for the three months ended June 30, 2000. Net interest income increased $403,000, or 13.3%, for the nine months ended June 30, 2000 as compared to the nine months ended June 30, 1999. This increase was due primarily to an increase in interest income of $743,000, or 9.9%, offset partially by an increase in interest expense of $340,000, or 7.6%. Interest income increased primarily due to a $9.1 million increase in the average balance of interest-earning assets and, to a lesser extent, a 21 basis point increase in the average yield on interest-earning assets. Interest expense increased primarily due to an $8.0 million increase in the average balance of interest-bearing liabilities and, to a lesser extent, a 4 basis point increase in the average rate paid on interest-bearing liabilities. The average balance of interest-earning assets and interest-bearing liabilities increased primarily due to the Neodesha Savings merger conversion. 13 Interest Income. Interest income for the quarter ended June 30, 2000, increased to $2.8 million from $2.6 million for the quarter ended June 30, 1999. This increase was caused primarily by an $8.1 million increase in the average outstanding amount of interest-earning assets during the three months ended June 30, 2000, as compared to the three months ended June 30, 1999. This increase was due to an increase in the average balance of loans receivable financed by advances obtained from the Federal Home Loan Bank of Topeka and Federal Home Loan Bank overnight 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 by 33 basis points to 7.95% during the third quarter of fiscal 2000, from 7.62% during the third quarter of fiscal 1999. This increase was due to the same reasons as stated above. Interest income for the nine months ended June 30, 2000, increased to $8.2 million from $7.5 million for the nine months ended June 30, 1999. This increase resulted primarily from a $9.1 million increase in the average outstanding amount of interest-earning assets during the nine months ended June 30, 2000, as compared to the nine months ended June 30, 1999 due to assets acquired in the Neodesha Savings merger conversion. 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 by 21 basis points to 7.82% during the first nine months of fiscal 2000, from 7.61% during the first nine months of fiscal 1999. This increase was caused primarily by a change in the mix of interest-earning assets to a higher percentage of loans receivable, even though the average yield on loans receivable only increased from 8.06% during the first nine months of fiscal 1999, to 8.07% during the first nine months of fiscal 2000. Interest Expense. Interest expense for the quarter ended June 30, 2000, increased by $152,000 to $1.7 million as compared to $1.5 million for the quarter ended June 30, 1999. This increase in interest expense was due primarily to a $6.9 million increase in the average outstanding amount of interest-bearing liabilities during the three months ended June 30, 2000, as compared to the three months ended June 30, 1999. This increase in interest-bearing liabilities was due primarily to an increase in advances obtained from the Federal Home Loan Bank of Topeka used to finance loans receivable. To a lesser extent, the increase in interest expense was due to a 20 basis point increase in average interest rates paid on interest-bearing liabilities, caused by an increase in rates on demand and Now deposits and Federal Home Loan Bank advances. Interest expense for the nine months ended June 30, 2000, increased by $339,000 to $4.8 million as compared to $4.5 million for the nine months ended June 30, 1999. This increase in interest expense was due primarily to an $8.0 million increase in the average outstanding amount of interest-bearing liabilities during the nine months ended June 30, 2000 as compared to the nine months ended June 30, 1999. To a lesser extent, the increase was due to an increase in the average interest rates paid on interest-bearing liabilities. 14 The average rates paid on interest-bearing liabilities increased by 4 basis points. The increase in interest-bearing liabilities was primarily due to a $4.2 million increase in advances obtained from the Federal Home Loan Bank of Topeka and, to a lesser extent, a $3.9 million increase in the average outstanding balance of deposits due primarily to savings deposits acquired in the Neodesha Savings merger conversion. Provision for Loan Losses. The provision for loan losses represents a charge to earnings to maintain the allowance for loan losses at a level we believe is adequate to absorb probable losses in the loan portfolio. The provision for loan losses amounted to $21,000 and $63,000 for the three and nine months ended June 30, 2000 as compared to $15,000 and $45,000 for the same periods in 1999. This increase in provision for loan losses was in recognition of the increased balance of construction loans in our loan portfolio. We believe we use the best information available in providing for probable loan losses and we believe that the allowance is adequate at June 30, 2000. Future adjustments to the allowance could be necessary, however, and net earnings could be affected if circumstances and/or economic conditions differ substantially from the assumptions used in making the initial determinations. Non-interest Income. Non-interest income increased $9,000 to $110,000 during the three months ended June 30, 2000 as compared to $101,000 for the three months ended June 30, 1999. The increase was primarily a result of an increase in net earnings on real estate operations of $26,000 for the period ended June 30, 2000 compared to the period ended June 30, 1999. This increase was partially offset by a decrease in other non-operating income of $18,000 during the same periods. Recurring non-interest income generally consists of servicing fees as well as deposit and other types of fees. Non-interest income increased $53,000 to $306,000 during the nine months ended June 30, 2000 as compared to $253,000 for the nine months ended June 30, 1999. The increase was primarily due to a $24,000 increase in amortization related to negative goodwill acquired in the Neodesha Savings merger conversion. To a lesser extent, the increase was due to increased late charges and other fees of $21,000 associated with mortgage loans and increased checking and deposit account fees of $13,000 as a result of accounts acquired in the Neodesha Savings merger conversion. These increases were partially offset by a $17,000 increase in the net loss from real estate operations for the nine months ended June 30, 2000 compared to the nine months ended June 30, 1999. Non-interest Expense. Total non-interest expense increased by $4,000 for the three months ended June 30, 2000, as compared to the three months ended June 30, 1999. The increase was due primarily to increases in employee compensation and benefits of $28,000, occupancy and equipment of $6,000 and other expense of $2,000. These increases were partially offset by decreases in data processing fees of $23,000 and federal insurance premiums of $9,000. Total non-interest expense increased to $2.1 million for the nine months ended June 30, 2000 from $1.9 million for the nine months ended June 30, 1999, an increase of $154,000, or 8.0%. The 15 increase was primarily due to increases in employee compensation and benefits of $149,000, occupancy and equipment of $35,000 and other expense of $8,000. These increases were partially offset by a decrease in data processing fees of $21,000 and federal deposit insurance premiums of $16,000 due to a decrease in the insurance premium rate. The increases were primarily due to the acquisition of Neodesha Savings, 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. Income Tax Expense. Income tax expense was $209,000 for the quarter ended June 30, 2000 compared to $171,000 for the quarter ended June 30, 1999, an increase of $38,000. This increase was primarily due to an increase in pre-tax earnings during the 2000 period as compared to the 1999 period. Our effective tax rates were 36.0% and 36.8% for the three months ended June 30, 2000 and June 30, 1999, respectively. Income tax expense was $582,000 for the nine months ended June 30, 2000 compared to $496,000 for the nine months ended June 30, 1999, an increase of $86,000. This increase was primarily due to an increase in pre-tax earnings during the 2000 period as compared to the 1999 period. Our effective tax rates were 36.4% and 37.7% for the nine months ended June 30, 2000 and June 30, 1999, respectively. Liquidity and Capital Resources. Our 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 regulations require First Federal 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 Office of Thrift Supervision to reflect changing economic conditions. Such investments are intended to provide a source of relatively liquid funds upon which First Federal may rely if necessary to fund deposit withdrawals and other short-term funding needs. As of June 30, 2000, First Federal's liquidity ratio was 8.23% as compared to 9.66% at September 30, 1999. The reduction was primarily due to the increase in the loan portfolio. These ratios exceeded the minimum regulatory liquidity requirements on both dates. We use our capital resources principally to meet our 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 June 30, 2000 we had commitments to originate loans totaling $3,830,000. We consider our liquidity and capital resources to be adequate to meet foreseeable short- and long-term needs. We expect to be able to fund or refinance, on a timely basis, our material commitments and long-term liabilities. 16 Regulatory standards impose the following capital requirements on First Federal: 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 June 30, 2000, we exceeded all regulatory capital standards. At June 30, 2000, First Federal's tangible capital was $13.2 million, or 8.99% of adjusted total assets, which is in excess of the 1.5% requirement by $11.0 million. In addition, at June 30, 2000, we had core capital of $13.2 million, or 8.99% of adjusted total assets, which exceeds the 3% requirement by $8.8 million. Risk-based capital was $13.9 million at June 30, 2000, or 19.09% of risk-adjusted assets, which exceeds the 8.0% risk-based capital requirement by $8.1 million. 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 - Exhibit 27 - Financial Data Schedule (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: August 4, 2000 /s/Larry G. Spencer ----------------------------------------- Larry G. Spencer President and Chief Executive Officer Date: August 4, 2000 /s/James B. Mitchell ----------------------------------------- James B. Mitchell Vice President and Chief Financial Accounting Officer 18 EX-27 2 0002.txt
9 The schedule contains summary financial information extracted from the quarterly report on Form 10-QSB for the fiscal quarter ended June 30, 2000 and is qualified in its entirety by reference to such financial statements. 1 9-MOS SEP-30-2000 JUN-30-2000 516,980 341,900 0 0 1,982,600 15,862,199 15,669,371 23,452,197 788,866 46,179,607 94,247,330 5,800,000 1,672,526 31,000,000 16,493 0 0 13,443,258 46,179,607 7,189,571 918,567 138,695 8,246,833 3,377,074 4,808,441 3,438,392 63,000 0 2,081,203 1,600,169 1,017,943 0 0 1,017,943 1.00 .96 7.82 1,084,795 364,447 23,577 0 752,650 26,784 0 788,866 0 0 788,866
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