-----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, WRs6ifPwvUoxlI9mqRHDd6OfGlbFuDO2Qy5nC3QrsXLAcV5+XcNoehNXyNB5b5CF 71H1bOBsPXQb8Ad3fj6/5A== 0000950116-97-000241.txt : 19970222 0000950116-97-000241.hdr.sgml : 19970222 ACCESSION NUMBER: 0000950116-97-000241 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970213 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIRST INDEPENDENCE CORP /DE/ CENTRAL INDEX KEY: 0000908486 STANDARD INDUSTRIAL CLASSIFICATION: SAVINGS INSTITUTION, FEDERALLY CHARTERED [6035] IRS NUMBER: 363899950 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-22184 FILM NUMBER: 97529511 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 FORM 10-QSB 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 December 31, 1996 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 February 12, 1997, there were 1,057,794 shares of the Registrant's common stock outstanding (including 17,462 shares of restricted stock). FIRST INDEPENDENCE CORPORATION INDEX ----- PART I. FINANCIAL INFORMATION (unaudited) PAGE NO. Item 1. Consolidated Condensed Financial Statements Consolidated Condensed Balance Sheets as of December 31, 1996 and September 30, 1996 3 Consolidated Condensed Statements of Earnings for the Three Months Ended December 31, 1996 and 1995 4 Consolidated Condensed Statement of Stockholders' Equity for the Year Ended September 30, 1996 and Three Months Ended December 31, 1996 5 Consolidated Condensed Statements of Cash Flows for the Three Months Ended December 31, 1996 and 1995 6 Notes to Consolidated Condensed Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9 PART II. OTHER INFORMATION 16 Signature Page 17 2 PART I: FINANCIAL INFORMATION FIRST INDEPENDENCE CORPORATION CONSOLIDATED CONDENSED BALANCE SHEETS
December 31, September 30, 1996 1996 ------------ ------------- (Unaudited) ASSETS Cash and due from bank . . . . . . . . . . . . . . . . . . . . . . $ 831,502 $ 753,134 Federal funds sold . . . . . . . . . . . . . . . . . . . . . . . . 100,000 400,000 Other interest-earning deposits. . . . . . . . . . . . . . . . . . 196,493 610,295 ------------ ------------ Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . 1,127,995 1,763,429 Investment securities held to maturity (fair value: December 31, 1996 - $2,005,470; September 30, 1996 - $1,970,980) . . . . . . . . . . . . . . . . 2,000,000 2,000,000 Investment securities available for sale . . . . . . . . . . . . . 5,244,866 5,235,073 Mortgage-backed securities held to maturity (fair value: December 31, 1996 - $26,750,400; September 30, 1996 - $27,873,630). . . . . . . . . . . . . . . . 26,756,691 28,039,314 Mortgage-backed securities available for sale. . . . . . . . . . . 621,413 659,207 Loans receivable, net. . . . . . . . . . . . . . . . . . . . . . . 69,738,547 67,682,920 Real estate acquired through foreclosure . . . . . . . . . . . . . 8,976 11,845 Premises and equipment, net. . . . . . . . . . . . . . . . . . . . 1,140,880 910,813 Federal Home Loan Bank Stock, at cost. . . . . . . . . . . . . . . 1,300,300 1,239,500 Accrued interest receivable. . . . . . . . . . . . . . . . . . . . 730,488 667,920 Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . 243,684 329,208 ------------ ------------ Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . $108,913,840 $108,539,229 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . $70,138,277 $69,356,422 Advances from borrowers for taxes and insurance. . . . . . . . . 322,776 678,072 Checks issued in excess of cash items. . . . . . . . . . . . . . 847,530 492,627 Advances from Federal Home Loan Bank . . . . . . . . . . . . . . 25,400,000 24,300,000 Income taxes payable . . . . . . . . . . . . . . . . . . . . . . 73,454 --- Other accrued expenses and liabilities . . . . . . . . . . . . . 151,658 709,599 ------------ ------------ Total liabilities . . . . . . . . . . . . . . . . . . . . . 96,933,695 95,536,720 Stockholders' equity Preferred stock, $.01 par value, 500,000 shares authorized, none issued . . . . . . . . . . . . . . . . --- --- Common stock, $.01 par value, 2,500,000 shares authorized, 1,498,392 shares issued December 31, 1996; 749,196 shares issued September 30, 1996. . . . . . . . . . . . . . . . . . . 14,984 7,492 Additional paid-in capital . . . . . . . . . . . . . . . . . . . 7,053,183 7,053,143 Retained earnings - substantially restricted . . . . . . . . . . 9,076,812 8,960,098 Unrealized loss on securities available for sale, net. . . . . . (7,973) (11,293) Treasury stock at cost, 440,598 shares at December 31, 1996 and 331,550 shares at September 30, 1996 . . . . . . . . . . . (3,807,730) (2,628,704) Required contributions for shares acquired by ESOP . . . . . . . (272,764) (290,949) Unearned stock compensation - recognition and retention plan (RRP) . . . . . . . . . . . . . . . . . . . . . . . . . . (76,367) (87,278) ------------ ------------ Total stockholders' equity . . . . . . . . . . . . . . . . . 11,980,145 13,002,509 ------------ ------------ Total liabilities and stockholders' equity . . . . . . . . . $108,913,840 $108,539,229 ============ ============
- ------ 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 December 31, ------------------------- 1996 1995 ---------- ---------- (Unaudited) Interest income Loans receivable . . . . . . . . . . . . . . . . . . . . . . $1,382,714 $1,266,919 Mortgage-backed securities . . . . . . . . . . . . . . . . . 450,203 473,355 Investment securities. . . . . . . . . . . . . . . . . . . . 119,335 121,003 Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . 33,354 55,761 ---------- ---------- Total interest income. . . . . . . . . . . . . . . . . . . 1,985,606 1,917,038 ---------- ---------- Interest expense Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . 891,844 895,204 Borrowed funds . . . . . . . . . . . . . . . . . . . . . . . 355,531 261,755 ---------- ---------- Total interest expense . . . . . . . . . . . . . . . . . . 1,247,375 1,156,959 ---------- ---------- Net interest income. . . . . . . . . . . . . . . . . . . . . . 738,231 760,079 Provision for loan losses. . . . . . . . . . . . . . . . . . . --- --- ---------- ---------- Net interest income after provision for loan losses. . . . . . . . . . . . . . . . . . . . . . . 738,231 760,079 Other income Gain on sale of investments. . . . . . . . . . . . . . . . . --- 250,945 Income (loss) from real estate operations. . . . . . . . . . 3,453 (10,758) Other income . . . . . . . . . . . . . . . . . . . . . . . . 50,387 52,752 ---------- ---------- Total other income . . . . . . . . . . . . . . . . . . . . 53,840 292,939 ---------- ---------- General, administrative and other expense Employee compensation and benefits . . . . . . . . . . . . . 294,851 272,179 Occupancy and equipment. . . . . . . . . . . . . . . . . . . 27,035 26,434 Federal deposit insurance premiums . . . . . . . . . . . . . 30,924 37,010 Data processing fees . . . . . . . . . . . . . . . . . . . . 34,373 31,102 Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . 123,233 88,143 ---------- ---------- Total non-interest expenses. . . . . . . . . . . . . . . . 510,416 454,868 ---------- ---------- Earnings before income taxes . . . . . . . . . . . . . . . . . 281,655 598,150 Income tax expense . . . . . . . . . . . . . . . . . . . . . . 114,961 231,602 ---------- ---------- Net earnings . . . . . . . . . . . . . . . . . . . . . . . . . $ 166,694 $ 366,548 ========== ========== Earnings per common share - primary and fully diluted. . . . . $ .15 $ .29 ========== ========== Dividend per share . . . . . . . . . . . . . . . . . . . . . . $ .05 $ .0375 ========== ==========
- ------ The accompanying notes are an integral part of these statements. 4 FIRST INDEPENDENCE CORPORATION CONSOLIDATED CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY For The Three Months Ended December 31, 1996 and Year Ended September 30, 1996 (Unaudited)
Unrealized Gain (Loss) Required Securities Contribu- on tion for Unearned Additional Available Shares Stock Common Paid-in Retained for Treasury Acquired Compen- Total Stock Capital Earnings Sale, Net Stock by ESOP sation-RRP Equity ----- ------- -------- --------- ----- ------- ---------- ------ Balance at October 1, 1995 . . . . . . $7,492 $6,998,314 $8,358,681 $176,580 $(1,446,524) $(363,686) $(130,922) $13,599,935 Cash dividends of $.1875 per share . . --- --- (213,876) --- --- --- --- (213,876) Purchase of 125,846 shares of treasury stock . . . . . . . . . . . --- --- --- --- (1,207,430) --- --- (1,207,430) Amortization of unearned stock compensation . . . . . . . . . . . . --- --- --- --- --- --- 43,644 43,644 ESOP loan repayments . . . . . . . . . --- --- --- --- --- 72,737 --- 72,737 Fair value adjustment on ESOP shares committed for release. . . . . . . . --- 60,079 --- --- --- --- --- 60,079 Common stock options exercised . . . . --- (5,250) --- --- 25,250 --- --- 20,000 Decrease in unrealized gain on securities available for sale. . . . --- --- --- (187,873) --- --- --- (187,873) Net earnings . . . . . . . . . . . . . --- --- 815,293 --- --- --- --- 815,293 ------- ---------- ---------- -------- ----------- --------- --------- ----------- Balance at September 30, 1996. . . . . 7,492 7,053,143 8,960,098 (11,293) (2,628,704) (290,949) (87,278) 13,002,509 Cash dividends of $.05 per share . . . --- --- (49,980) --- --- --- --- (49,980) Purchase of 116,684 shares of treasury stock . . . . . . . . . . . --- --- --- --- (1,227,228) --- --- (1,227,228) Amortization of unearned stock compensation . . . . . . . . . . . . --- --- --- --- --- --- 10,911 10,911 ESOP loan repayments . . . . . . . . . --- --- --- --- --- 18,185 --- 18,185 Fair value adjustment on ESOP shares committed for release. . . . . . . . --- 17,554 --- --- --- --- --- 17,554 Common stock options exercised . . . . --- (10,022) --- --- 48,202 --- --- 38,180 Decrease in unrealized loss on securities available for sale. . . . --- --- --- 3,320 --- --- --- 3,320 Net earnings . . . . . . . . . . . . . --- --- 166,694 --- --- --- --- 166,694 Reclassification to retroactively reflect a 100% stock dividend paid on January 24, 1997. . . . . . . . . 7,492 (7,492) --- --- --- --- --- --- ------- ---------- ---------- -------- ----------- --------- --------- ----------- Balance at December 31, 1996 . . . . . $14,984 $7,053,183 $9,076,812 $ (7,973) $(3,807,730) $(272,764) $ (76,367) $11,980,145 ======= ========== ========== ======== =========== ========= ========= ===========
- ----- The accompanying notes are an integral part of these statements. 5 PART I: FINANCIAL INFORMATION FIRST INDEPENDENCE CORPORATION CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
Three Months Ended December 31, ------------------------------- 1996 1995 ----------- ----------- (Unaudited) Cash flows from operating activities Net Earnings . . . . . . . . . . . . . . . . . . . . . . . $ 166,694 $ 366,548 Adjustments to reconcile net earnings to net cash provided by operating activities Depreciation, amortization and accretion . . . . . . . . 35,253 23,226 Increase in accrued interest receivable. . . . . . . . . (62,568) (108,990) Increase in income taxes payable . . . . . . . . . . . . 114,961 202,678 Gain on sale of investments. . . . . . . . . . . . . . . --- (250,945) Amortization of expense related to employee benefit plans. . . . . . . . . . . . . . . . . . . . . 46,650 44,692 Gain on sale of real estate acquired through foreclosure. . . . . . . . . . . . . . . . . . . . . . (1,693) --- Decrease in accrued expenses . . . . . . . . . . . . . . (434,140) (4,705) Net change in other assets and other liabilities . . . . (80,126) (25,393) ------------ ------------ Net cash provided by (used in) operating activities. . (214,969) 247,111 Cash flows from investing activities Proceeds from sale of available for sale securities. . . --- 263,145 Proceeds from maturities and repayment of securities Available for sale . . . . . . . . . . . . . . . . . . 36,791 43,812 Held to maturity . . . . . . . . . . . . . . . . . . . 1,249,142 1,997,527 Purchase of securities Available for sale . . . . . . . . . . . . . . . . . . (65,432) (21,532) Held to maturity . . . . . . . . . . . . . . . . . . . --- (2,899,256) Net increase in loans. . . . . . . . . . . . . . . . . . (2,039,306) (652,960) Capital expenditures . . . . . . . . . . . . . . . . . . (246,962) (89,009) Proceeds from sale of real estate acquired through foreclosure. . . . . . . . . . . . . . . . . . . . . . 2,869 --- ------------ ------------ Net cash used in investing activities. . . . . . . . . (1,062,898) (1,358,273) Cash flows from financing activities Net increase in deposits . . . . . . . . . . . . . . . . 781,855 3,262,345 Net decrease in advances from borrowers for taxes and insurance. . . . . . . . . . . . . . . . (355,297) (375,577) Increase in checks issued in excess of cash items. . . . 354,903 561,433 Stock options exercised. . . . . . . . . . . . . . . . . 38,180 --- Advances from Federal Home Loan Bank . . . . . . . . . . 5,600,000 --- Repayment of Federal Home Loan Bank advances . . . . . . (4,500,000) (2,300,000) Cash dividends paid. . . . . . . . . . . . . . . . . . . (49,980) (45,598) Purchase of treasury stock . . . . . . . . . . . . . . . (1,227,228) (620,177) ------------ ------------ Net cash provided by financing activities. . . . . . . 642,433 482,426 ------------ ------------ Net decrease in cash and cash equivalents. . . . . . . . . . (635,434) (628,736) Cash and cash equivalents at beginning of period . . . . . . 1,763,429 2,114,625 ------------ ------------ Cash and cash equivalents at end of period . . . . . . . . . $ 1,127,995 $ 1,485,889 ============ ============
- ------ The accompanying notes are an integral part of these statements. 6 FIRST INDEPENDENCE CORPORATION NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED) (1) Basis of Presentation The accompanying unaudited Consolidated Condensed Financial Statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-QSB and Regulation S-X. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, the Consolidated Condensed Financial Statements contain all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the consolidated financial condition of First Independence Corporation as of December 31, 1996, and the results of operations and cash flows for all interim periods presented. Operating results for the three months ended December 31, 1996 are not necessarily indicative of the results that may be expected for the fiscal year ending September 30, 1997. (2) Earnings Per Share of Common Stock Primary 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 stock equivalents. Common shares and common share equivalents outstanding excludes unallocated and uncommitted shares held by the ESOP trust. Average weighted unallocated and uncommitted shares in the ESOP trust were 56,372 and 70,918 for the quarters ended December 31, 1996 and December 31, 1995, respectively. (3) Stock Dividend On December 18, 1996, the Board of Directors declared a 100% stock dividend paid on January 24, 1997, which is accounted for similar to a 2 for 1 stock split. All earnings and dividends per share have been restated to reflect the stock dividend. Weighted average number of shares outstanding used to compute earnings per share were 1,092,398 and 1,265,442 for the 1997 and 1996 periods, respectively. (4) Regulatory Capital Requirements Pursuant to the Financial Institution Reform, Recovery, and Enforcement Act of 1989 ("FIRREA"), as implemented by rules promulgated by the Office of Thrift Supervision, savings institutions must meet three separate minimum capital-to-asset requirements. The table on the following page summarizes, as of December 31, 1996, the capital requirements applicable to First Federal Savings and Loan Association of Independence ("the Association") 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 December 31, 1996, the Association exceeded all current regulatory capital standards. 7
To be well capitalized under For capital prompt corrective Actual adequacy purposes action provisions ---------------------- ---------------------- ------------------------- Amount Ratio Amount Ratio Amount Ratio ------ ----- ------ ----- ------ ----- (Dollars in Thousands) less than less than or equal to or equal to ----------- ----------- Total risk-based capital $9,347 19.35% $3,864 8.0% $4,830 10.0% Tier 1 risk-based capital 8,742 18.10 1,932 4.0 2,898 6.0 Tier 1 (core) capital 8,742 8.12 3,229 3.0 5,382 5.0 Tangible capital 8,742 8.12 1,615 1.5 --- ---
(5) Supplemental Disclosure of Cash Flow Information Three months ended December 31, ------------------------------- 1996 1995 ---- ---- Cash paid for: Interest $1,249,890 $1,161,664 Income taxes --- 28,924 8 PART II FIRST INDEPENDENCE CORPORATION Management's Discussion and Analysis of Financial Condition and Results of Operations General - ------- The accompanying Consolidated Financial Statements include the accounts of First Independence Corporation (the "Company") and its wholly-owned subsidiary, First Federal Savings and Loan Association of Independence (the "Association"). All significant inter-company transactions and balances are eliminated in consolidation. The Company's results of operations are primarily dependent on the Association's net interest margin, which is the difference between interest income on interest-earning assets and interest expense on interest-bearing liabilities. The Company's net earnings are also affected by the level of its non-interest expenses, such as employee compensation and benefits, occupancy expenses, and other expenses. Forward-Looking Statements - -------------------------- When used in this Form 10-QSB and in future filings by the Company with the Securities and Exchange Commission, in the Company's press releases or other public or shareholder communications, and in oral statements made with the approval of an authorized executive officer, the words or phrases "will likely result", "are expected to", "will continue", "is anticipated", "estimate", "project" or similar expressions are intended to identify "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are subject to certain risks and uncertainties, including changes in economic conditions in the Company's market area, changes in policies by regulatory agencies, fluctuations in interest rates, demand for loans in the Company's market area and competition that could cause actual results to differ materially from historical earnings and those presently anticipated or projected. The Company wishes to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. The Company wishes to advise readers that the factors listed above could affect the Company's financial performance and could cause the Company's actual results for future periods to differ materially from any opinions or statements expressed with respect to future periods in any current statements. The Company does not undertake-and specifically disclaims any obligation-to publicly release the result of any revisions which may be made to any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events. Financial Condition - ------------------- The Company's total assets increased $400,000, or .35%, from $108.5 million at September 30, 1996 to $108.9 million at December 31, 1996. This increase was primarily a result of an increase of $2.0 million in net loans receivable, $200,000 in premises and equipment, $100,000 in accrued interest receivable, and $100,000 in Federal Home Loan Bank Stock. These increases in assets, along with a reduction in other accrued expenses and liabilities of $600,000 and advanced payments by borrowers' for taxes and insurance of $400,000 were funded by decreases in mortgage-backed securities of $1.3 million and cash and cash equivalents of $600,000 and increases in savings deposits of $700,000 and checks issued in excess of cash items of $400,000. 9 Total loans receivable increased $2.0 million from $67.7 million at September 30, 1996, to $69.7 million at December 31, 1996. Increased economic activity in the company's lending area resulted in loan originations exceeding loan repayments. The increase in mortgage loans consisted primarily of 15- and 30-year fixed-rate loans, mortgage loans with a fixed rate for the first three years of the loan term that automatically convert to one-year adjustable rate loans during the fourth year of the loan term, and, to a lesser extent, one-year adjustable rate mortgages. The allowance for loan losses totaled $690,000, or .99% of total loans at December 31, 1996, which represented no change from the $690,000, or 1.02% of total loans, at September 30, 1996. The ratio of the allowance for loan losses as a percent of non-performing loans increased from 114.57% at September 30, 1996 to 136.62% at December 31, 1996. At December 31, 1996, the Company's non-performing loans were comprised primarily of one- to four-family residential loans. See "Non-performing Assets." The allowance for loan losses is determined based upon an evaluation of pertinent factors underlying the types and qualities of the Company's loans. Management considers such factors as the repayment status of a loan, the estimated net realizable value of the underlying collateral, the borrower's ability to repay the loan, current and anticipated economic conditions which might affect the borrower's ability to repay the loan and the Company's past statistical history concerning charge-offs. Total deposits increased $700,000 from $69.4 million at September 30, 1996, to $70.1 million at December 31, 1996. Deposits increased primarily as a result of the "Platinum" money fund account introduced in May 1995. 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 to deposit customers considering higher risk investments in order to get higher yields than money market accounts. Total borrowed funds increased $1.1 million from $24.3 million at September 30, 1996 to $25.4 million at December 31, 1996. The increase was from advances obtained from the Federal Home Loan Bank of Topeka. The FHLB advances allowed the Association to invest the funds borrowed in loans receivable at a positive spread Total stockholders' equity decreased $1.0 million from $13.0 million at September 30, 1996 to $12.0 million at December 31, 1996. The decrease was primarily the result of the Company's use of $1,227,000 to repurchase 116,684 shares of common stock at an average price of 94% of book value per share, and dividends of $50,000 paid to stockholders. These decreases were partially offset by the Company's net earnings from operations of $167,000, common stock options exercised of $38,000, the repayment of employee stock ownership debt of $18,000, a fair value adjustment of $18,000 on ESOP shares committed for release, the amortization of unearned stock compensation of $11,000, and a decrease in the unrealized loss on securities available for sale of $3,000. 10 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 December 31, 1996, non-performing assets were approximately $514,000, which represents a decrease of $100,000, or 16.3%, as compared to September 30, 1996. A summary of non-performing assets by category is set forth in the following table: December 31, September 30, 1996 1996 ------------ ------------ (Dollars In Thousands) Non-Accruing Loans. . . . . . . . . . . . . . . $ 304 $ 367 Accruing Loans Delinquent 90 Days or More . . . 149 183 Trouble Debt Restructurings . . . . . . . . . . 52 52 Foreclosed Assets . . . . . . . . . . . . . . . 9 12 ------ ------ Total Non-Performing Assets . . . . . . . . . . $ 514 $ 614 ====== ====== Total Non-Performing Assets as a Percentage of Total Assets . . . . . . . . . 0.47% 0.57% ==== ==== Included in non-accruing loans at December 31, 1996, were ten loans totaling $179,000 secured by one- to four-family real estate, one loan totaling $99,000 secured by non-residential real estate, and six consumer loans totaling $26,000. All non-accruing loans at December 31, 1996, were located in the Company's primary market area. At December 31, 1996, accruing loans delinquent 90 days or more included seven loans totaling $149,000 secured by one- to four-family real estate. At December 31, 1996, 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. Other Loans of Concern. In addition to the non-performing assets set forth in the table above, as of December 31, 1996, there was also one $209,000 loan secured by fifteen single family residences with respect to which the value of the collateral is questionable and known information about possible credit problems of the borrower have caused management to have doubts as to the ability of the borrower to comply with the present loan repayment terms and which may result in the future inclusion of such item in the non-performing asset categories. Foreclosed Assets. At December 31, 1996, the Company's real estate acquired through foreclosure included one single family residence located in the Company's primary market area with a carrying value of $9,000. 11 Results of Operations - Comparison of Three Months Ended December 31, 1996 and December 31, 1995 - ------------------------------------------------------------------------------- General. Net earnings for the three months ended December 31, 1996 were $167,000 as compared to $367,000 for the three months ended December 31, 1995, resulting in a decrease of $200,000, or 54.5%. The decrease in net earnings was primarily due to a non-recurring $251,000 gain on the sale of FHLMC stock which was recognized in the three months ended December 31, 1995, with no similar activity in the three months ended December 31, 1996. This decrease was offset partially by a $117,000 decrease in income tax expense. To a lesser extent, the decrease in net earnings was due to a $55,000 increase in non-interest expense and a $22,000 decrease in net interest income. Net Interest Income. Net interest income decreased $22,000, or 2.9%, for the three months ended December 31, 1996 as compared to the three months ended December 31, 1995. This decrease was due primarily to an increase in interest expense of $90,000, or 7.8%, offset partially by an increase in interest income of $69,000, or 3.6%. Interest expense increased primarily due to a $7.7 million increase in average interest-bearing liabilities, offset partially by a 6 basis point decrease in the average rate paid on interest-bearing liabilities. Interest income increased primarily due to a $5.4 million increase in average interest-earning assets, offset partially by a 13 basis point decrease in yield on interest-earning assets. Interest Income. Interest income for the quarter ended December 31, 1996, increased to $1,986,000 from $1,917,000 for the quarter ended December 31, 1995. This increase was caused primarily by a $5.4 million increase in the average outstanding amount of interest-earning assets during the three months ended December 31, 1996, as compared to the three months ended December 31, 1995 due to the increase in the average balance of loans receivable financed by advances obtained from the Federal Home Loan Bank of Topeka. 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 7.51% at December 31, 1996, from 7.64% at December 31, 1995. 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 8.36% to 8.03%. To a lesser extent, the decrease in yield was due to a decrease in yield on the Company's investment securities portfolio from 6.70% to 6.59% for the quarter ended December 31, 1996, as compared to the same period in fiscal 1996. Interest Expense. Interest expense for the quarter ended December 31, 1996, increased by $90,000 to $1,247,000 as compared to $1,157,000 for the quarter ended December 31, 1995. This increase in interest expense was due primarily to a $7.7 million increase in the average outstanding amount of interest-bearing liabilities during the three months ended December 31, 1996 as compared to the three months ended December 31, 1995. This increase was partially offset by a 6 basis point decrease in average interest rates paid on interest-bearing liabilities, caused by decreases in market interest rates. The increase in interest-bearing liabilities was primarily due to a $7.8 million increase in the average outstanding amount of advances obtained from the Federal Home Loan Bank of Topeka. The advances were used by the Company to invest in loans receivable at a positive spread over the term of the advances. 12 Provision for Loan Losses. Based upon management's analysis of established reserves and a review of the composition of the loan portfolio, including non-performing assets and other loans of concern, there was no provision for losses on loans for the three months ended December 31, 1996 or December 31, 1995. The Company will continue to monitor its allowance for loan losses and make future additions to the allowance through the provision for loan losses as economic and regulatory conditions dictate. However, there can be no assurance that future losses will not exceed estimated amounts or that additional provisions for loan losses will not be required in future periods. In addition, the Company's determinations as to the amount of the allowance for loan losses is subject to review by the regulatory agencies which can order the establishment of additional general or specific allowances. Non-interest Income. Non-interest income decreased $239,000 to $54,000 during the three months ended December 31, 1996 as compared to $293,000 for the three months ended December 31, 1995. The decrease was primarily due to a non-recurring gain of $251,000 on the sale of FHLMC stock which was recognized in the three months ended December 31, 1995, with no gains on the sale of securities recognized in the three months ended December 31, 1996. 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 $510,000 for the three months ended December 31, 1996 from $455,000 for the three months ended December 31, 1995, an increase of $55,000, or 12.2%. The increase was due primarily to increases in other expenses of $35,000, compensation and employee benefits of $23,000, and data processing fees of $3,000. These increases were partially offset by a decrease in federal deposit insurance premiums of $6,000. The increase in other expense was primarily due to a charitable contribution to a non-profit organization. To a lesser extent, the increase in other expense was due to advertising, stationery, printing and office supplies expense associated with the opening of a new branch office. The increase in compensation expense was primarily the result of annual increases in salaries and bonuses and increased compensation expense associated with the Company's ESOP due to the increase in the Company's stock price. Income Tax Expense. Income tax expense was $115,000 for the quarter ended December 31, 1996 compared to $232,000 for the quarter ended December 31, 1995, a decrease of $117,000. The Company's effective tax rates were 40.8% and 38.7% for the three months ended December 31, 1996 and December 31, 1995, respectively. 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 5% 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 December 31, 1996, the Association's liquidity ratio was 7.74% as compared to 8.01% at September 30, 1996. These ratios exceeded the minimum regulatory liquidity requirements on both dates. 13 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 December 31, 1996, the Company had commitments to originate loans totaling $204,000. 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 December 31, 1996, the Association exceeded all fully phased-in regulatory capital standards. At December 31, 1996, the Association's tangible capital was $8.7 million, or 8.12% of adjusted total assets, which is in excess of the 1.5% requirement by $7.1 million. In addition, at December 31, 1996, the Association had core capital of $8.7 million, or 8.12% of adjusted total assets, which exceeds the 3% requirement by $5.5 million. The Association had risk-based capital of $9.3 million at December 31, 1996, or 19.35% of risk-adjusted assets, which exceeds the 8.0% risk-based capital requirements by $5.5 million. Under the requirements of federal law, all the federal banking agencies, including the OTS, must revise their risk-based capital requirements to ensure that such requirements account for interest rate risk, concentration of credit risk and the risks of non-traditional activities, and that they reflect the actual performance of and expected loss on multi-family loans. 14 The OTS has adopted a final rule that generally requires a savings association with more than normal interest rate risk to deduct from its total capital, for purposes of determining compliance with such requirement, an amount equal to 50% of its interest-rate risk exposure multiplied by the present value of its assets. This exposure is a measure of the potential decline in the net portfolio value of a savings association, greater than 2% of the present value of its assets, based upon a hypothetical 200 basis point increase or decrease in interest rates (whichever results in a greater decline). Net portfolio value is the present value of expected cash flows from assets, liabilities and off-balance sheet contracts. The rule provides for a two-quarter lag between calculating interest rate risk and recognizing any deductions from capital. The OTS has announced that it will delay the effectiveness of the rule until it adopts the process by which savings associations may appeal an interest rate risk deduction determination. The OTS has instructed all savings associations not to take any capital deductions for interest rate risk exposure until notified to do so by the OTS. In addition, any savings association with less than $300 million in assets and a total risk-based capital ratio in excess of 12%, such as the Association, is exempt from this requirement unless the OTS determines otherwise. 15 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 --------------------------------------------------- The Annual Meeting of Shareholders (the "Meeting") of First Independence Corporation was held on January 22, 1997. The matters approved by shareholders at the Meeting and the number of votes cast for, against or withheld (as well as the number of abstentions and broker non-votes) as to each matter are set forth below: PROPOSAL NUMBER OF VOTES (1) - -------- ------------------- Broker For Withheld Non-Votes ------- -------- --------- Election of the following directors for the terms indicated: Larry G. Spencer (three years) 870,494 2,000 --- Harold L. Swearingen (three years) 855,494 17,000 --- Broker For Against Abstain Non-Votes ------ ------- ------- --------- Ratification of Grant Thornton LLP as auditors for the fiscal year ending September 30, 1997 872,444 --- 50 --- (1) Reflects 100% stock dividend. Item 5 - Other Information ----------------- None. Item 6 - Exhibits and Reports on Form 8-K -------------------------------- (a) Exhibits None (b) Reports on Form 8-K None 16 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: 2/13/97 /s/ Larry G. Spencer ------------------------ ---------------------------------- Larry G. Spencer President and Chief Executive Officer Date: 2/13/97 /s/ James B. Mitchell ------------------------ ---------------------------------- James B. Mitchell Vice President and Chief Financial Accounting Officer 17 EX-27 2 FINANCIAL DATA SCHEDULE WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
9 The schedule contains summary financial information extracted from the quarterly report on Form 10-QSB for the fiscal quarter ended December 31, 1996 and is qualified in its entirety by reference to such financial statements. 1 3-MOS SEP-30-1997 DEC-31-1996 831,502 196,493 100,000 0 5,866,279 28,756,691 28,755,870 70,428,556 690,009 108,913,840 70,138,277 14,700,000 1,395,418 10,700,000 0 0 14,984 11,965,161 108,913,840 1,382,714 569,538 33,354 1,985,606 891,844 1,247,375 728,231 0 0 510,416 281,655 166,694 0 0 166,694 .15 .15 7.51% 304,000 149,000 52,000 0 690,009 0 0 690,009 0 0 690,009
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