-----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, UfECisDIfJBuv4tjxBiytpOd+EbDFF7UByxGRZgxLNdX0Tkez5yy4+NylbZPXvSE /28UejFbwXr71RTo4w+Nvw== 0000927089-99-000271.txt : 19990809 0000927089-99-000271.hdr.sgml : 19990809 ACCESSION NUMBER: 0000927089-99-000271 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990806 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: 99680000 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 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, 1999 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 6, 1999, there were 1,061,830 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, 1999 and September 30, 1998 3 Consolidated Condensed Statements of Earnings for the Three and Nine Months Ended June 30, 1999 and 1998 4 Consolidated Condensed Statements of Comprehensive Income for the Three and Nine Months Ended June 30, 1999 and 1998 5 Consolidated Condensed Statement of Stockholders' Equity for the Year Ended September 30, 1998 and Nine Months Ended June 30, 1999 6 Consolidated Condensed Statements of Cash Flows for the Nine Months Ended June 30, 1999 and 1998 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 19 Signature Page 20 PART I: FINANCIAL INFORMATION FIRST INDEPENDENCE CORPORATION CONSOLIDATED CONDENSED BALANCE SHEETS June 30, September 30, 1999 1998 ---------------- --------------- (Unaudited) ASSETS Cash and due from banks $ 1,141,904 $ 474,406 Federal funds sold 3,900,000 --- Other interest-earning deposits 1,397,746 439,174 --------- ------- Cash and cash equivalents 6,439,650 913,580 Investment securities held to maturity (fair value: June 30, 1999 - $1,988,596; September 30, 1998 - $5,004,700) 2,005,118 5,000,000 Investment securities available for sale 2,003,500 3,418,311 Mortgage-backed securities held to maturity (fair value: June 30, 1999 - $11,667,510; September 30, 1998 - $17,403,143) 11,747,954 17,274,238 Loans receivable, net 110,781,430 93,684,258 Real estate acquired through foreclosure 195,751 71,596 Premises and equipment, net 1,296,009 1,309,633 Federal Home Loan Bank Stock, at cost 1,917,800 1,574,000 Accrued interest receivable 844,159 753,970 Other assets 151,601 337,008 ------------- ------------- Total assets $ 137,382,972 $ 124,336,594 ============= ============= LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities Deposits $ 95,402,059 $ 80,573,077 Advances from borrowers for taxes and insurance 389,291 745,520 Advances from Federal Home Loan Bank 27,500,000 30,100,000 Income taxes payable 64,780 128,473 Other accrued expenses and liabilities 1,194,818 690,483 ----------- ----------- Total liabilities 124,550,948 112,237,553 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 June 30, 1999; 1,498,392 shares issued September 30, 1998 16,493 14,984 Additional paid-in capital 8,111,624 7,239,207 Retained earnings - substantially restricted 10,642,935 10,077,091 Accumulated other comprehensive income 5,165 52,497 Treasury stock at cost, 587,458 shares at June 30, 1999 and 539,073 shares at September 30, 1998 (5,721,251) (5,139,263) Required contributions for shares acquired by ESOP (222,942) (145,475) ---------- ---------- Total stockholders' equity 12,832,024 12,099,041 ----------- ----------- Total liabilities and stockholders' equity $ 137,382,972 $ 124,336,594 ============= =============
- --------------------------------- The accompanying notes are an integral part of these statements. PART I: FINANCIAL INFORMATION FIRST INDEPENDENCE CORPORATION CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS Three Months Ended Nine Months Ended June 30, June 30, ------------------------------- ------------------------------- 1999 1998 1999 1998 -------------- ------------- -------------- ------------- (Unaudited) (Unaudited) Interest income Loans receivable $2,202,439 $1,818,091 $6,304,310 $5,150,575 Mortgage-backed securities 171,108 328,124 633,507 1,056,967 Investment securities 59,567 131,170 254,131 331,146 Other 123,671 70,871 311,289 186,376 --------- --------- --------- --------- Total interest income 2,556,785 2,348,256 7,503,237 6,725,064 --------- --------- --------- --------- Interest expense Deposits 1,126,994 1,041,117 3,252,956 2,985,274 Borrowed funds 382,622 386,180 1,215,591 1,121,628 --------- --------- --------- --------- Total interest expense 1,509,616 1,427,297 4,468,547 4,106,902 --------- --------- --------- --------- Net interest income 1,047,169 920,959 3,034,690 2,618,162 Provision for loan losses 15,000 --- 45,000 --- --------- ------- --------- -------- Net interest income after provision for loan losses 1,032,169 920,959 2,989,690 2,618,162 Noninterest income Loss from real estate operations (23,570) (3,184) (20,889) (4,187) Other 124,571 49,085 273,958 135,564 ------- ------ ------- ------- Total noninterest income 101,001 45,901 253,069 131,377 ------- ------ ------- ------- Noninterest expense Employee compensation and benefits 367,565 310,753 1,055,379 943,184 Occupancy and equipment 72,770 53,066 207,346 170,743 Federal deposit insurance premiums 13,870 11,812 39,744 35,643 Data processing fees 75,249 47,638 202,473 137,815 Other 138,873 91,389 421,804 346,625 ------- ------- --------- --------- Total noninterest expenses 668,327 514,658 1,926,746 1,634,010 ------- ------- --------- --------- Earnings before income taxes 464,843 452,202 1,316,013 1,115,529 Income tax expense 171,194 183,719 496,422 471,810 ------- ------- --------- -------- Net earnings $293,649 $268,483 $819,591 $643,719 ======== ======== ======== ======== Earnings per common share Basic $ .28 $ .29 $ .81 $ .70 ====== ====== ====== ====== Diluted $ .27 $ .27 $ .77 $ .65 ====== ====== ====== ====== Dividends per share $ .0875 $ .0750 $ .2500 $ .2125 ======= ======= ======= ======= Weighted average shares outstanding Basic 1,033,633 922,265 1,009,710 923,320 ========= ======= ========= ======= Diluted 1,085,827 986,282 1,061,904 987,338 ========= ======= ========= =======
- ------------------------------ The accompanying notes are an integral part of these statements. PART I: FINANCIAL INFORMATION FIRST INDEPENDENCE CORPORATION CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME Three Months Ended Nine Months Ended June 30, June 30, ------------------------------- ------------------------------- 1999 1998 1999 1998 -------------- ------------- -------------- ------------- (Unaudited) (Unaudited) Net earnings $ 293,649 $ 268,483 $ 819,591 $ 643,719 Other comprehensive income Unrealized gains (losses) on securities available for sale arising during the period, net of tax (14,905) 385 (47,332) 5,228 --------- --------- --------- --------- Comprehensive income $ 278,744 $ 268,868 $ 772,259 $ 648,947 ========= ========= ========= =========
- ------------------------------ The accompanying notes are an integral part of these statements. FIRST INDEPENDENCE CORPORATION CONSOLIDATED CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY For The Nine Months Ended June 30, 1999 and Year Ended September 30, 1998 (Unaudited) Additional Accumulated Common Paid-in Retained Other Compre- Stock Capital Earnings hensive Income ------ ---------- -------- -------------- Balance at October 1, 1997 $ 14,984 $ 7,122,744 $ 9,441,054 $ 15,112 Net earnings --- --- 901,420 --- Cash dividends of $.2875 per --- --- (265,383) --- share Common stock options exercised --- (8,641) --- --- Appreciation of securities available --- --- --- 37,385 for sale ESOP loan repayments --- --- --- --- Fair value adjustment on ESOP shares committed for release --- 125,104 --- --- Amortization of unearned stock compensation --- --- --- --- Purchase of 25,298 shares of treasury stock --- --- --- --- ------------ ------------ ------------ ------------ Balance at September 30, 1998 14,984 7,239,207 10,077,091 52,497 Net earnings --- --- 819,591 --- Cash dividends of $.25 per share --- --- (253,747) --- Issuance of 150,896 shares of common stock 1,509 817,968 --- --- Common stock options exercised --- (3,987) --- --- Decrease in unrealized gain on securities available for sale --- --- --- (47,332) ESOP loan repayments --- --- --- --- Fair value adjustment on ESOP shares committed for release --- 58,436 --- --- Purchase of 55,885 shares of treasury stock --- --- --- --- ------------ ------------ ------------ ------------ Balance at June 30, 1999 $ 16,493 $ 8,111,624 $ 10,642,935 $ 5,165 ============ ============ ============ ============ Required Contribu- tion for Unearned Shares Stock Treasury Acquired Compen- Total Stock by ESOP sation-RRP Equity -------- -------- ---------- ----------- Balance at October 1, 1997 $ (4,802,767) $ (218,212) $ (43,634) $ 11,529,281 Net earnings --- --- --- 901,420 Cash dividends of $.2875 per --- --- --- (265,383) share Common stock options exercised 40,061 --- --- 31,420 Appreciation of securities available --- --- --- 37,385 for sale ESOP loan repayments --- 72,737 --- 72,737 Fair value adjustment on ESOP shares committed for release --- --- --- 125,104 Amortization of unearned stock compensation --- --- 43,634 43,634 Purchase of 25,298 shares of treasury stock (376,557) --- --- (376,557) ------------ ------------ ------------ ------------ Balance at September 30, 1998 (5,139,263) (145,475) --- 12,099,041 Net earnings --- --- --- 819,591 Cash dividends of $.25 per share --- --- --- (253,747) Issuance of 150,896 shares of common stock --- (142,176) --- 677,301 Common stock options exercised 46,831 --- --- 42,844 Decrease in unrealized gain on securities available for sale --- --- --- (47,332) ESOP loan repayments --- 64,709 --- 64,709 Fair value adjustment on ESOP shares committed for release --- --- --- 58,436 Purchase of 55,885 shares of treasury stock (628,819) --- --- (628,819) ------------ ------------ ------------ ------------ Balance at June 30, 1999 $ (5,721,251) $ (222,942) --- $ 12,832,024 ============ ============ ============ ============
- --------------------------------- The accompanying notes are an integral part of these statements. PART I: FINANCIAL INFORMATION FIRST INDEPENDENCE CORPORATION CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS Nine Months Ended June 30, ----------------------------------------- 1999 1998 --------------- --------------- (Unaudited) Cash flows from operating activities Net Earnings $819,591 $643,719 Adjustments to reconcile net earnings to net cash provided by operating activities Depreciation 83,899 77,851 Amortization of premiums and discounts on investments and mortgage-backed securities 62,601 54,644 Amortization of deferred loan origination fees (164,919) (119,992) Amortization of expense related to employee benefit plans 123,145 188,261 Provision for losses on loans 45,000 --- Net (gain) loss on sale of real estate acquired through foreclosure (13,057) 1,816 Increase (decrease) in cash due to changes in Accrued interest receivable 6,310 (158,760) Other assets 234,687 (176,311) Accrued expenses and other liabilities (351,155) 916,165 Income taxes payable (33,377) 183,164 ------- --------- Net cash provided by operating activities 812,725 1,610,557 Cash flows from investing activities Proceeds from maturities and repayment of securities Available for sale 355,053 1,466,371 Held to maturity 12,670,132 6,938,115 Purchase of securities Available for sale (248,652) (95,223) Held to maturity (1,000,000) (5,000,000) Net increase in loans (8,184,391) (15,971,837) Capital expenditures (70,275) (63,696) Proceeds from sale of real estate acquired through foreclosure 58,825 11,147 Cash acquired in acquisition 2,114,968 --- --------- --------- Net cash provided by (used in) investing activities 5,695,660 (12,715,123) Cash flows from financing activities Net increase in deposits 2,157,969 5,097,606 Net decrease in advances from borrowers for taxes and insurance (377,863) (285,509) Advances from Federal Home Loan Bank 6,700,000 18,700,000 Repayment of Federal Home Loan Bank advances (9,300,000) (14,000,000) Cash dividends paid (253,747) (196,039) Purchase of treasury stock (628,819) (376,557) Net proceeds from sale of stock 677,301 --- Stock options exercised 42,844 21,419 --------- --------- Net cash provided by (used in) financing activities (982,315) 8,960,920 -------- --------- Net increase (decrease) in cash and cash equivalents 5,526,070 (2,143,646) Cash and cash equivalents at beginning of period 913,580 3,151,227 --------- ---------- Cash and cash equivalents at end of period $6,439,650 $1,007,581 =========== ==========
- --------------------------------------- The accompanying notes are an integral part of these statements. 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, 1999, and the results of operations and cash flows for all interim periods presented. Operating results for the three and nine months ended June 30, 1999 are not necessarily indicative of the results that may be expected for the fiscal year ending September 30, 1999. (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) Comprehensive Income As of October 1, 1998, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income." SFAS No. 130 establishes new rules for the reporting and display of comprehensive income and its components; however, the adoption of this statement had no effect on the Company's net earnings or stockholders' equity. SFAS No. 130 requires other comprehensive income to include unrealized gains or losses on securities available for sale, which prior to adoption were reported separately in stockholders' equity. Prior period financial statements have been reclassified to conform to the requirements of SFAS No. 130. (4) Merger Conversion with 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 ("First Federal"), and The Neodesha Savings and Loan Association, FSA ("Neodesha"), announced the completion of Neodesha's 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 Independence's subsidiary, First Federal Savings and Loan Association of Independence. In connection with the merger conversion, First Independence sold 150,896 shares of its common stock at $9.42 per share. Total assets of Neodesha were $13.7 million at December 31, 1998. The financial statements include results of operations of Neodesha beginning January 6, 1999. The transaction was accounted for under the purchase method of accounting for business combinations. (5) 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 June 30, 1999, the capital requirements applicable to First Federal Savings and Loan Association of Independence ("the Association") and its actual capital ratios. As of June 30, 1999, 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 $12,523 18.89% $5,305 >8.0% $6,631 >10.0% Tier 1 risk-based capital 11,763 17.74 2,652 >4.0 3,979 > 6.0 Tier 1 (core) capital 11,763 8.62 4,092 >3.0 6,821 > 5.0 Tangible capital 11,763 8.62 2,046 >1.5 --- ---
(6) Supplemental Disclosure of Cash Flow Information Nine months ended June 30, -------------------------- 1999 1998 ---- ---- Cash paid for: Interest $4,488,473 $4,071,510 Income taxes 529,799 288,646 Noncash investing and financing activities: Transfer from loans to real estate acquired through foreclosure 186,283 102,333 Issuance of loans receivable in connection with the sale of real estate acquired through foreclosure 24,800 65,550 Liabilities assumed in conjunction with acquisition 13,700,846 ---
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. Financial Condition The Company's total assets increased $13.1 million, or 10.5%, from $124.3 million at September 30, 1998 to $137.4 million at June 30, 1999. This increase was primarily due to increases in net loans receivable of $17.1 million, cash and cash equivalents of $5.5 million and Federal Home Loan Bank Stock of $344,000. These increases in assets, along with reductions in advances from the Federal Home Loan Bank of Topeka of $2.6 million, were funded by increases in savings deposits of $14.8 million and other accrued expenses and liabilities of $505,000, and the redeployment of funds received from decreases in mortgage-backed securities of $5.6 million and investment securities of $4.4 million. These increases were primarily due to assets and liabilities acquired in the merger conversion with The Neodesha Savings and Loan Association, FSA ("Neodesha"). Loans receivable increased $17.1 million from $93.7 million at September 30, 1998, to $110.8 million at June 30, 1999. The increase was primarily due to loans acquired in the Neodesha merger conversion totaling $8.9 million and, to a lesser extent, construction loan originations at the Company's 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. The increase was also 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. Total deposits increased $14.8 million from $80.6 million at September 30, 1998, to $95.4 million at June 30, 1999. Deposits increased primarily due to deposits acquired in the Neodesha merger conversion totaling $12.7 million. To a lesser extent, the increase was due to public units depositing short-term funds into the "Platinum" money fund account and new accounts being opened at the Coffeyville, Kansas branch office. 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 standard money market accounts. Total borrowed funds decreased $2.6 million from $30.1 million at September 30, 1998 to $27.5 million at June 30, 1999. The decrease was due to scheduled principal repayment of advances obtained from the Federal Home Loan Bank of Topeka. Most of the advances obtained from the Federal Home Loan Bank of Topeka were used by the Company to invest in loans receivable at a positive spread over the term of the advances. Total stockholders' equity increased $700,000 from $12.1 million at September 30, 1998 to $12.8 million at June 30, 1999. The increase was primarily due to net earnings from operations of $820,000 and net proceeds of $677,000 from the Company's issuance of 150,896 shares of common stock in connection with the merger conversion of Neodesha. To a lesser extent, the increase was due to the repayment of employee stock ownership debt of $65,000, a fair value adjustment of $58,000 on ESOP shares committed for release and common stock options exercised of $43,000. These increases were partially offset by the Company's use of $629,000 to repurchase 55,885 shares of common stock, dividends of $254,000 paid to stockholders, and a decrease in the unrealized gains on securities available for sale of $47,000. 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 June 30, 1999, non-performing assets were approximately $2,284,000, which represents an increase of $959,000, or 72.4%, as compared to September 30, 1998. The ratio of non-performing assets to total assets at June 30, 1999 was 1.66% compared to 1.07% at September 30, 1998. A summary of non-performing assets by category is set forth in the following table: June 30, September 30, 1999 1998 ------------------ ----------------- (Dollars In Thousands) Non-Accruing Loans $1,442 $ 335 Accruing Loans Delinquent 90 Days or More 640 918 Foreclosed Assets 202 72 ------ ------ Total Non-Performing Assets $2,284 $1,325 ====== ====== Total Non-Performing Assets as a Percentage of Total Assets 1.66% 1.07% ==== ====
Included in non-accruing loans at June 30, 1999, were seven construction loans totaling $649,000 secured by one- to four-family real estate, eighteen loans totaling $609,000 secured by one- to four-family real estate, one loan totaling $20,000 secured by non-residential real estate and forty-five consumer loans totaling $164,000. All non-accruing loans at June 30, 1999, were located in the Company's primary market area. At June 30, 1999, accruing loans delinquent 90 days or more included fourteen loans totaling $640,000 secured by one- to four-family real estate. All of the Company's accruing loans delinquent 90 days or more were secured by real estate located in the Company's primary market area. At June 30, 1999, the Company's real estate acquired through foreclosure consisted of eight single family residences located in the Company's primary market area. The properties have a total carrying value of $202,000 and are currently offered for sale. The increase in non-performing assets was due to growth in the respective loan portfolios and also from non-performing loans and foreclosed assets totaling $405,000 acquired in the Neodesha merger conversion. Management has taken into account its non-performing assets and the composition of the loan portfolio in establishing its allowance for loan losses. The allowance for loan losses totaled $760,000 at June 30, 1999, which represented a $104,000 increase from the allowance for loan losses at September 30, 1998. This increase was primarily due to the transfer of $84,000 in allowance for loan losses from Neodesha. The ratio of the allowance for loan losses as a percent of total loans decreased from .70% at September 30, 1998 to .69% at June 30, 1999. The allowance for loan losses as a percent of non-performing loans decreased from 52.30% at September 30, 1998 to 36.50% at June 30, 1999, due to the increase in non-performing loans at June 30, 1999. At June 30, 1999, the Company's non-performing loans were comprised primarily of one- to four-family residential loans. 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. Results of Operations - Comparison of Three and Nine Months Ended June 30, 1999 and June 30, 1998 General. Net earnings for the nine months ended June 30, 1999 were $820,000 as compared to $644,000 for the nine months ended June 30, 1998, resulting in an increase of $176,000, or 27.3%. The increase in net earnings was primarily due to increases in net interest income of $417,000 and non-interest income of $122,000. These increases were partially offset by increases in non-interest expense of $293,000, provision for loan losses of $45,000 and income tax expense of $24,000. Net earnings for the three months ended June 30, 1999 were $294,000 as compared to $268,000 for the three months ended June 30, 1998, resulting in an increase of $26,000, or 9.7%. The increase in net earnings was primarily due to an increase in net interest income of $126,000, non-interest income of $55,000 and a decrease in income tax expense of $13,000. These changes were partially offset by increases in non-interest expense of $153,000 and provision for loan losses of $15,000. Net Interest Income. Net interest income increased $417,000, or 15.93%, for the nine months ended June 30, 1999 as compared to the nine months ended June 30, 1998. This increase was due primarily to an increase in interest income of $778,000, or 11.57%, offset partially by an increase in interest expense of $362,000, or 8.81%. Interest income increased primarily due to a $15.6 million increase in the average balance of interest-earning assets, offset partially by a 13 basis point decrease in the average yield on interest-earning assets. Interest expense increased primarily due to a $15.0 million increase in the average balance of interest-bearing liabilities, offset partially by a 24 basis point decrease 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 merger conversion. The average rate earned on interest-earning assets and paid on interest-bearing liabilities decreased primarily due to a decrease in market interest rates. The variance in the decrease was due to interest-earning assets and interest-bearing liabilities acquired in the Neodesha merger conversion having a greater spread than interest-earning assets and interest-bearing liabilities on the Company's balance sheet. Net interest income increased $126,000, or 13.68%, for the three months ended June 30, 1999, as compared to the three months ended June 30, 1998. This increase was due primarily to an increase in interest income of $209,000, or 8.90%, offset partially by an increase in interest expense of $83,000 or 5.82%. The increase was due to the same reasons as stated above for the nine months ended June 30, 1999, as compared to the nine months ended June 30, 1998. The ratio of average interest-earning assets to average interest-bearing liabilities decreased from 110.0% for the three months ended June 30, 1998 to 109.0% for the three months ended June 30, 1999. Interest Income. Interest income for the nine months ended June 30, 1999, increased to $7,503,000 from $6,725,000 for the nine months ended June 30, 1998. This increase was caused primarily by a $15.6 million increase in the average outstanding amount of interest-earning assets during the nine months ended June 30, 1999, as compared to the nine months ended June 30, 1998 due to assets acquired in the Neodesha merger conversion. To a lesser extent, the increase in interest-earning assets 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 increased savings deposits. This increase was partially offset by a decrease in the average yield on interest-earning assets. The average yield on interest-earning assets decreased 13 basis points to 7.61% for the nine months ended June 30, 1999, from 7.74% for the nine months ended June 30, 1998. This decrease was caused primarily by the general decline in interest rates resulting in a reduction in yield on the Company's loan portfolio from 8.19% to 8.06%. To a lesser extent, the decrease in yield was due to a decrease in yield on the Company's mortgage-backed securities portfolio from 6.57% to 6.10% for the nine months ended June 30, 1999, as compared to the same period in fiscal 1998. The decreased yield was caused by accelerated amortization of premiums on the mortgage-backed securities due to an increase in prepayment speeds. Interest income for the quarter ended June 30, 1999, increased to $2,557,000 from $2,348,000 for the quarter ended June 30, 1998. This increase was caused primarily by a $13.5 million increase in the average outstanding amount of interest-earning assets during the three months ended June 30, 1999, as compared to the three months ended June 30, 1998. The increase was due to the same reasons as stated above for the nine months ended June 30, 1999, as compared to the nine months ended June 30, 1998. This increase was partially offset by a decrease in the average yield on interest-earning assets. The average yield on interest-earning assets decreased 16 basis points to 7.62% at June 30, 1999, from 7.78% at June 30, 1998. This decrease was caused primarily by the general decline in interest rates resulting in a reduction in yield on the Company's loan portfolio from 8.18% to 8.04%. To a lesser extent, the decrease in yield was due to a decrease in yield on the Company's mortgage-backed securities portfolio from 6.57% to 5.63% for the quarter ended June 30, 1999, as compared to the same period in fiscal 1998. The decrease in yield on the mortgage-backed securities portfolio was due to the same reason as stated above. Interest Expense. Interest expense for the nine months ended June 30, 1999, increased by $362,000 to $4,469,000 as compared to $4,107,000 for the nine months ended June 30, 1998. This increase in interest expense was due primarily to a $15.0 million increase in the average outstanding amount of interest-bearing liabilities during the nine months ended June 30, 1999 as compared to the nine months ended June 30, 1998. This increase was partially offset by a 24 basis point decrease in average interest rates paid on interest-bearing liabilities, caused by decreases in market interest rates and the addition of deposits from the Neodesha merger conversion at a lower average interest rate than the Company's deposits. The increase in interest-bearing liabilities was primarily due to a $10.8 million increase in the average outstanding balance of deposits due primarily to savings deposits acquired in the Neodesha merger conversion and, to a lesser extent, an increase in advances obtained from the Federal Home Loan Bank of Topeka. Interest expense for the quarter ended June 30, 1999, increased by $83,000 to $1,510,000 as compared to $1,427,000 for the quarter ended June 30, 1998. This increase in interest expense was due primarily to a $13.4 million increase in the average outstanding amount of interest-bearing liabilities during the three months ended June 30, 1999, as compared to the three months ended June 30, 1998. This increase in interest-bearing liabilities was due primarily to the same reasons as stated above. However, the increase in interest expense was partially offset by a 29 basis point decrease in average interest rates paid on interest-bearing liabilities, caused by decreases in market interest rates. Provision for Loan Losses. The provision for loan losses represents a charge to earnings to maintain the allowance for loan losses at a level management believes is adequate to absorb potential losses in the loan portfolio. The provision for loan losses amounted to $15,000 and $45,000 for the three and nine months ended June 30, 1999 as compared to no provision for the same periods in 1998. This increase in provision for loan losses was in recognition of the increased balance of construction loans in the Company's loan portfolio and the increase in non-performing loans. Although management believes that it uses the best information available in providing for possible loan losses and believes that the allowance is adequate at June 30, 1999, future adjustments to the allowance could be necessary 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 $122,000 to $253,000 during the nine months ended June 30, 1999 as compared to $131,000 for the nine months ended June 30, 1998. The increase was primarily due to increased checking and deposit account fees as a result of accounts acquired in the Neodesha merger conversion. To a lesser extent, the increase was due to amortization of $47,000 related to negative goodwill acquired in the Neodesha merger conversion and increased late charges and other fees associated with mortgage loans. Non-interest income increased $55,000 to $101,000 during the three months ended June 30, 1999 as compared to $46,000 for the three months ended June 30, 1998. The increase was due to the same reasons as stated above for the nine months ended June 30, 1999, as compared to the nine months ended June 30, 1998. 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 $1,927,000 for the nine months ended June 30, 1999 from $1,634,000 for the nine months ended June 30, 1998, an increase of $293,000, or 17.93%. The increase was primarily due to increases in data processing fees of $64,000, compensation and employee benefits of $112,000, other expense of $75,000, occupancy and equipment of $36,000, and federal deposit insurance premiums of $4,000. These increases were primarily due to the merger conversion with Neodesha Savings and Loan, 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, offset partially by a decrease in compensation expense associated with the Company's ESOP due to the decrease in the Company's stock price. Total non-interest expense increased by $153,000 for the three months ended June 30, 1999, as compared to the three months ended June 30, 1998. The increase was due primarily to increases in compensation and employee benefits of $57,000, other expense of $48,000, data processing fees of $27,000, occupancy and equipment of $20,000, and federal deposit insurance premiums of $2,000. The increase in non-interest expense for the three months ended June 30, 1999 was due to the same reasons as stated above. Income Tax Expense. Income tax expense was $496,000 for the nine months ended June 30, 1999 compared to $472,000 for the nine months ended June 30, 1998, an increase of $24,000. This increase was primarily due to an increase in pre-tax earnings during the 1999 period as compared to the 1998 period. The Company's effective tax rates were 37.7% and 42.3% for the nine months ended June 30, 1999 and June 30, 1998, respectively. Rates exceeded expected rates for the June 30, 1998 period due primarily to compensation expense associated with the ESOP which is not deductible for income tax purposes. The non-deductible ESOP compensation expense was partially offset for the June 30, 1999 period by negative goodwill amortization which is not included in income for income tax calculation purposes, resulting in a lower effective tax rate. Income tax expense was $171,000 for the quarter ended June 30, 1999 compared to $184,000 for the quarter ended June 30, 1998, a decrease of $13,000. This decrease was primarily due to a decrease in the effective tax rate during the 1999 period as compared to the 1998 period. The Company's effective tax rates were 36.8% and 40.6% for the three months ended June 30, 1999 and June 30, 1998, respectively. The effective tax rate decreased for the three months ended June 30, 1999 due to the same reasons as stated above. 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 June 30, 1999, the Association's liquidity ratio was 8.07% as compared to 7.01% at September 30, 1998. 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 June 30, 1999, the Company had commitments to originate loans totaling $2,367,000. 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 June 30, 1999, the Association exceeded all fully phased-in regulatory capital standards. At June 30, 1999, the Association's tangible capital was $11.8 million, or 8.62% of adjusted total assets, which is in excess of the 1.5% requirement by $9.7 million. In addition, at June 30, 1999, the Association had core capital of $11.8 million, or 8.62% of adjusted total assets, which exceeds the 3% requirement by $7.7 million. The Association had total risk-based capital of $12.5 million at June 30, 1999, or 18.89% of risk-adjusted assets, which exceeds the 8.0% risk-based capital requirements by $7.2 million. Year 2000 Compliance Issues The year 2000 ("Y2K") issue confronting the Company and its suppliers, customers' suppliers and competitors centers on the inability of computer systems to recognize the year 2000. Many existing computer programs and systems originally were programmed with six digit dates that provided only two digits to identify the calendar year in the date field. With the impending new millennium, these programs and computers will recognize "00" as the year 1900 rather than the year 2000. The Board of Directors and management view the year 2000-date (Y2K) issue as a potentially serious interruption to the conduct of our day-to-day operations. To alleviate this potential interruption, 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. This committee reports to the Board at least quarterly about the status and progress of our Y2K plan. Our Y2K action plan covers five areas; awareness of the problem, inventory & assessment of hardware and software for Y2K problems, renovation of necessary systems, validation of testing plans and implementation of system changes. We have completed all areas of the plan and are believed to be Y2K compliant at the time of this report. The Company is expensing all costs associated with training and software as those costs are incurred, and such costs are being funded through operating cash flows. Hardware cost will be capitalized and expensed under our fixed asset guidelines. The total cost of the Y2K conversion project for the Company is estimated to be $110,000. Expenses of approximately $101,000 were incurred and expensed by the Company through June 30, 1999. Management will review our budget monthly to help ensure that sufficient resources have been allocated to this project. Any deviations to the preliminary budget will be reported to the Board of Directors. During the assessment phase, the Company developed back-up or contingency plans for each of its mission critical systems. Virtually all of the Company's mission critical systems are dependent upon third-party vendors or service providers. Therefore, contingency plans include selecting a new vendor or service provider and converting to their system. For some systems, contingency plans consist of using spreadsheet software or reverting to manual systems until system problems can be corrected. Responses from third party vendors indicate that the significant providers are currently Y2K compliant. Specifically, the Corporation's core data processing is provided by an outside vendor, which has certified their software is Year 2000 compliant. The potential impact on the Company for Y2K risk includes, but is not limited to, the risk of insufficient liquidity, communication loss, power loss and the inability to process customer data. The potential impact to the profitability of the Company related to these risks and those not yet identified cannot be measured or known at this time. 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 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 6, 1999 /s/Larry G. Spencer -------------- ------------------- Larry G. Spencer President and Chief Executive Officer Date: August 6, 1999 /s/James B. Mitchell -------------- -------------------- James B. Mitchell Vice President and Chief Financial Accounting Officer EX-27 2 FINANCIAL DATA SCHEDULE
9 The schedule contains summary financial information extracted from the quarterly report on Form 10-QSB for the fiscal quarter ended June 30, 1999 and is qualified in its entirety by reference to such financial statements. 1 9-MOS SEP-30-1999 JUN-30-1999 1,141,904 1,397,746 3,900,000 0 2,003,500 13,753,072 13,656,106 111,541,194 759,764 137,382,972 95,402,059 0 1,648,889 27,500,000 16,493 0 0 12,815,531 137,382,972 6,304,310 887,638 311,289 7,503,237 3,252,956 4,468,547 3,034,690 45,000 0 1,926,746 1,316,013 819,591 0 0 819,591 .81 .77 7.61 1,441,777 639,845 0 0 655,745 24,815 0 759,764 0 0 759,764
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