<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 1O-QSB
(Mark One)
[x] Quarterly report under Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended March 31, 1996
[ ] Transition report under Section 13 or 15 (d) of the
Exchange Act
For the transition period from to
--------------------------
- --------------------------------
Commission file number: 0-15777
FIRST INDEPENDENCE CORPORATION
------------------------------
(Exact Name of Small Business Issuer in Its Charter)
Michigan 38-2583843
-------- ----------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
44 Michigan, Detroit, Michigan 48226
------------------------------------
(Address of Principal Executive Offices) (Zip Code)
(313) 256-8200
--------------
(Issuer's Telephone Number, Including Area Code)
Securities registered under Section 12 (b) of the Exchange Act:
NONE
Securities registered under Section 12 (g) of the Exchange Act:
Common stock, par value $1.00 per share
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [ ] No [x]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date:
Common Stock, $1 Par Value - 336,760 shares as of June 21, 1996.
<PAGE> 2
FIRST INDEPENDENCE CORPORATION
INDEX
<TABLE>
<CAPTION>
PAGE
<S> <C>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet
March 31, 1996 3
Consolidated Statement of Income
Three Months Ended March 31, 1996 and 1995 4
Consolidated Statement of Cash Flows
Three Months Ended March 31, 1996 and 1995 5
Notes to Consolidated Financial Statements 6 - 7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations 8 - 13
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 2. Changes in Securities 14
Item 3. Defaults upon Senior Securities 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
</TABLE>
2
<PAGE> 3
FIRST INDEPENDENCE CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
March 31
ASSETS 1996
<S> <C>
Cash and due fom banks $ 2,873,292
Federal funds sold 12,650,000
Investment securities
Available for sale 15,693,136
Held to maturity (market value of $16,089,256
and $16,588,945 in 1996 and 1995 respectively) 16,389,573
Total investments 32,082,709
Loans:
Commercial 8,604,074
Real estate mortgages 24,731,910
Consumer 11,635,839
-------------
44,971,823
Allowance for loan losses (1,281,611)
-------------
Net loans 43,690,212
909493 Premises and Equipment, net 3,667,190
Accrued interest receivable and 1,286,252
other assets -------------
TOTAL ASSETS $ 96,249,655
=============
LIABILITIES AND SHAREHOLDERS ' EQUITY
Liabilities:
Deposits:
Noninterest - bearing $ 27,523,126
Interest - bearing 57,713,485
-------------
TOTAL DEPOSITS 85,236,611
Federal funds purchased and securities
sold under retail repurchase
agreements 5,075,571
Accrued expenses and other liabilities 906,735
Notes payable 900,000
-------------
TOTAL LIABILITIES 92,118,917
-------------
Shareholders' equity:
Preferred stock 2,658,908
Common stock, $1 par value: 500,000
shares authorized; 336,760 shares
issued and outstanding 336,760
Surplus 2,369,782
Unrealized holding gains (losses) on
investment securities available for sale 67,357
Accumulated deficit (1,302,069)
-------------
TOTAL SHAREHOLDERS' EQUITY 4,130,738
-------------
TOTAL LIABILITIES AND SHAREHOLDE $ 96,249,655
=============
</TABLE>
3
<PAGE> 4
FIRST INDEPENDENCE CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
March March
1996 1995
<S> <C> <C>
INTEREST INCOME:
Interest and fees on loans $ 1,114,507 $ 984,339
Interest on Investment Securities:
Taxable 451,887 412,359
Tax- exempt 0 4,687
Interest on federal funds sold 141,599 137,644
Interest on deposits with banks 0 0
------------ -------------
TOTAL INTEREST INCOME 1,707,993 1,539,029
INTEREST EXPENSE:
Interest on deposits 414,333 331,136
Interest on borrowed funds 97,463 83,321
------------ -------------
TOTAL INTEREST EXPENSE 511,796 414,457
------------ -------------
NET INTEREST INCOME 1,196,197 1,124,572
PROVISION FOR LOAN LOSSES 317,750 31,000
------------ -------------
NET INTEREST INCOME AFTER 878,447 1,093,572
PROVISION FOR LOAN LOSSES
OTHER OPERATING INCOME:
Service charges on deposit accounts 197,610 204,347
Securities gains,net 116 0
Other 206,485 259,548
------------ -------------
TOTAL OTHER OPERATING INCOME 404,211 463,895
OTHER OPERATING EXPENSES
Salaries and benefits 662,112 655,727
Net occupancy expenses 128,663 99,991
Premises and equipment expenses 217,828 191,117
Other expenses 281,786 466,826
------------ -------------
TOTAL OTHER OPERATING EXPENSES 1,290,389 1,413,661
INCOME BEFORE FEDERAL INCOME TAXES (7,731) 143,806
Federal income tax 0 0
------------ -------------
NET INCOME (7,731) $ 143,806
============ =============
Income (loss) per share of common stock:
(net income less preferred dividends of
$ 8,550 in 1996 and $8,550 in 1995
divided by 336,760 average shares of
common stock outstanding in each period $ (.05) $ 0.40
presented) ============ =============
</TABLE>
4
<PAGE> 5
FIRST INDEPENDENCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
for the three months ended March 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ (7,731) $ 143,806
Adjustments to reconile net income to net
cash provided by operating activities:
Depreciation and amortization 122,700 64,500
Amortization of premiums and accretion of discounts 7,954 20,162
Provision for loan losses 317,750 31,000
Securities gains, net (116) 0
Changes in:
Accrued interest receivable and other assets (61,402) (61,323)
Accrued expenses and other liabilities (58,572) (184,883)
-------------- --------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 320,583 13,262
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of investment securities available for sale 1,000,938 0
Proceeds from maturities of investment securities available for sale 635,537 116,803
Proceeds from maturities of investment securities held to maturity 3,000,000 26,613
Purchaes of investments securities available for sale (5,049,217) 0
Purchaes of investments securities held to maturity (2,658,811) (2,991,772)
Purchase of interest bearing deposits 0 0
Proceeds from sales of interest bearing deposits 0 0
Proceeds from maturities of interest bearing deposits 0 0
Net changes in loans (457,362) (812,223)
Purchase of premises and equipment (149,706) (469,833)
-------------- --------------
NET CASH USED IN INVESTING ACTIVITIES (3,678,621) (4,130,412)
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Changes in:
Deposits 520,687 2,840,097
Securities sold under repurchase agreements 1,300,993 1,075,362
Proceeds from issuance of preferred stock 0 260,858
-------------- --------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 1,821,680 4,176,317
-------------- --------------
Net increase (decrease) in cash and cash equivalents (1,536,358) 59,167
Cash and cash equivalents, beginning of year 17,059,650 15,482,689
-------------- --------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 15,523,292 $ 15,541,856
============== ==============
15523292 15541856
</TABLE>
5
<PAGE> 6
FIRST INDEPENDENCE CORPORATION AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1996
1. The consolidated balance sheet as of March 31, 1996, the related
consolidated statements of income of the three month period and the statement
of cash flows for the three month period ended March 31, 1996 and 1995 are
unaudited.
2. In the opinion of management, all normal recurring adjustments necessary
for a fair presentation of such financial statements have been included.
Interim results are not necessarily indicative of results for a full year.
3. The consolidated statements include the accounts of First Independence
Corporation (the "Corporation") and its wholly-owned subsidiary, First
Independence National Bank of Detroit (the "Bank").
4. During the first quarter of 1996 the Bank identified approximately
$645,000 of loans with insufficient collateral and inadequate documentation
which were made in late 1995 by a consumer loan officer with no lending
authority (acting in collusion with a loan administrator and one or more
customers) who circumvented the Bank's internal control system. In addition,
about $176,000 of such loans were booked and activated by these two employees
in January, 1996. It also was discovered that these same individuals had made
$390,000 of fictitious "loans" in 1995 and $138,000 in January, 1996. These
persons no longer are employed by the Bank and the fictitious and unauthorized
transactions continue to be under active investigation by the Bank and
appropriate federal agencies and authorities.
As a result of the unauthorized transactions, the Bank charged off
$390,000 of the fictitious "loans" against the allowance as of December 31,
1995, and the remaining $138,000 of fictitious "loans" made in January, 1996,
were charged off against the allowance during the first quarter of 1996. The
Bank made additional provisions for loan losses of $90,000 for the $176,000 of
loans for which collateral and documentation were inadequate. In the opinion
of management the allowance for loan losses at March 31, 1996 is adequate.
5. Under SFAS 114 and 118, which the Bank adopted effective January 1, 1995,
the Bank considers non-performing loans (past due 90 days or more) or matured
but not yet rewritten) and non-accrual loans (on which no interest income is
accrued) as "impaired" loans because there is a question as to whether all
interest and principal will be paid according to the contract. Some loans are
considered "other impaired" loans because of special circumstances that raise a
question about their complete collectibility in accordance with the note,
although they are not non-performing or non-accrual loans. The credit of the
borrower and the value of the collateral for example, could provide a basis for
a decision to consider a loan "other impaired" even if it is performing and is
accruing interest. The measurement of impaired loans is generally based on the
present value of expected future cash flows discounted at the historical
effective interest rate, except that all collateral-dependent loans are
measured for impairment based on the fair value of the collateral. The
adopting of SFAS 114 did not result in any additional provision for loan losses
as of January 1, 1995.
The allowance for possible losses on loans is maintained at a level believed
adequate by management to absorb potential losses from specific assets
identified as having greater than a normal risk of loss as well as losses from
the remainder of the portfolio. Management's determination of the level of the
allowance
6
<PAGE> 7
is based upon evaluation of the portfolio, past experience, current economic
conditions, size and composition of the portfolio, collateral location and
values, cash flows positions, industry concentrations, delinquencies and other
relevant factors.
The following table shows non-performing, non-accrual and other impaired loans
as of March 31, 1996 allocated according to loan types.
<TABLE>
<CAPTION>
Real Estate Consumer Commercial Total
----------- -------- ---------- -----
(In thousands)
<S> <C> <C> <C> <C>
Non-accrual loans $ 603 $1,027 $ 192 $1,822
Other impaired loans -- -- 231 231
Loans past due 90 days 440 259 508 1,207
------ ------ ------ ------
or more
Total $1,043 $1,286 $ 931 $3,260
====== ====== ====== ======
</TABLE>
Interest that would have been accrued on the non-accrual loans at March 31,
1996, had they been on accrual status would have been approximately $44,000.
6. All significant intercompany balances and transactions have been
eliminated in consolidation.
7. In May, 1993, a jury verdict was entered against the Corporation, a
nonoperating subsidiary of the Bank, certain directors and another former
officer thereof, in the amount of $320,000, in a suit filed by a former officer
of the Bank alleging wrongful termination of his employment and retaliatory
discharge. After several post-trial hearings, a judgment was entered on the
verdict in October, 1994. Although an accrual in the amount of the judgment is
reflected in the financial statements, the Corporation has appealed the
judgment and is vigorously pursuing a reversal.
7
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
OVERVIEW
In the first quarter of 1996 the Corporation had a net loss of ($7,731)
compared to net income of $143,806 in the first quarter of 1995. The change
resulted from unauthorized and fictitious loans made by a consumer loan officer
with no lending authority, acting in collusion with a loan administrator and
one or more customers, who circumvented the Bank's internal control system,
yielding significant loan losses. The transactions were discovered during the
Bank's 1995 year end audit and examination. Approximately $176,000 of loans
with insufficient collateral and inadequate documentation were booked and
activated by the two employees in January, 1996 (in addition to approximately
$645,000 of such loans booked in late 1995). The Bank also discovered that
these same individuals had made and booked $138,000 of fictitious "loans" in
January, 1996 (in addition to $390,000 of such fictitious transactions in late
1995). As a result of these unauthorized transactions, the Bank took a
$317,750 provision for loan losses against income in the first quarter of 1996
compared to only $31,000 in the first quarter of 1995--a difference of
$286,750. Management estimates that at least $228,000 of the provision was
directly attributable to losses arising out of the unauthorized and fictitious
transactions made by the employees. Thus, management believes that net income
for the quarter could have been more than $220,000 had these transactions not
occurred.
The employees engaged in the unauthorized transactions are no longer employed
by the Bank and active investigation continues. In addition, the Bank
President's employment was terminated in February, 1996; the Chairman, Don
Davis, was appointed as Interim President and CEO, and a search is being
undertaken by the Board for a new President; the Bank has hired a new consumer
loan officer and two new loan administrators; an experienced senior auditor has
been added to the internal audit department; a loan review consultant is
performing loan file reviews and will submit quarterly reports to the Board of
Directors; the Bank's fidelity insurance underwriters have been notified and
claims are being prepared with respect to the losses experienced; all 1995 and
January, 1996 consumer loans were reviewed to identify any additional
unauthorized or fictitious loans; the Bank implemented an automated consumer
loan documentation and compliance system; documentation and, in some cases,
collateral has been improved with respect to some of the unsecured or
inadequately secured consumer loans; and revised and strengthened controls have
been instituted in the loan department for booking, activating and funding
consumer loans.
As a result of the unauthorized transactions, and in addition to charge offs
and provisions for loan losses made for the 1995 transactions, the Bank charged
off the $138,000 of fictitious "loans" which had been booked in January, 1996,
and made additional provisions for loan losses of $90,000 for the $176,000 of
loans for which collateral and documentation were inadequate. This accounts
for $228,000 of the first quarter $317,750 provision for loan losses.
Management believes, as a result of all of the actions taken and investigations
that it has made, that the allowance for loan losses is adequate as of March
31, 1995.
EARNINGS SUMMARY--THREE MONTHS ENDED MARCH 31, 1996 AND 1995
The Company experienced a consolidated net loss for the three month period
ended March 31, 1996 of ($7,731), a decrease of $151,537 from the $143,806
earnings in the comparable period in 1995. As stated
8
<PAGE> 9
above, the difference is due to loan department losses arising out of
unauthorized and fictitious transactions. Management believes that income for
the quarter would have been at least $220,000 if the unauthorized and
fictitious transactions in the loan department had not occurred.
Net interest income increased $71,625 from the comparable period of 1995. This
was due to an increase in average assets of almost $10 million compared to the
first quarter of 1995, partially offset by a lower net interest margin. The
lower net interest margin was due principally to the high volume of non-accrual
loans (approximately $1,958,000 compared to $498,000) in the 1996 period
compared to 1995. The non-accrual loans were higher in the first quarter of
1996 as a result of the Bank's placing $820,000 of unauthorized loans made in
late 1995 and early 1996 on non-accrual because of their inadequate collateral;
in addition, $458,000 of commercial loans and one $200,000 residential mortgage
loan made to a customer who was involved in the unauthorized transactions also
were placed on non-accrual status. These non-accrual loans resulted in a loss
of approximately $33,000 of interest income in the first quarter of 1996.
Total non-accrual loans resulted in the loss of approximately $44,000 of
interest income in the quarter.
Other operating income for the first quarter was about $60,000 lower than in
the first quarter of 1995 as a result of a $23,000 decline in mortgage
brokerage fees and lower miscellaneous services fees received by the Bank for
depository and funds management services. Other operating expenses were
$123,000 lower in the 1996 quarter compared to the first quarter of 1995. This
decline in operating costs was attributable to a $43,000 reduction in
assessments for FDIC insurance, $32,000 lower data processing costs and
approximately $20,000 lower credit card administration costs. In addition, in
the first quarter of 1995 the Bank had a one time $80,000 Other Assets expense
which was not repeated in 1996. These expense reductions were offset in 1996
by higher occupancy expense (primarily for utilities and repairs and
maintenance) and higher depreciation expense due to increased capital purchases
in 1995 for a new computer system, new telephone system, and building
improvements.
BALANCE SHEET ANALYSIS
LIQUIDITY
Deposits at March 31, 1996 totalled $85,236,611 while Federal Funds Sold were
$12,650,000 (14.8% of total deposits). Total securities available for sale at
March 31, 1996, were $15,693,000 (18.4% of total deposits). In addition,
$10,700,000 (12.6% of total deposits) of the Bank's $32 million of securities
will mature within one year. Thus, the Bank is very liquid and management
believes that it is capable of funding loans or deposit withdrawals with a
March 31, 1996 liquidity ratio of more than 37%.
INVESTMENTS
The Bank had $32,082,709 of investment securities at March 31, 1996 compared to
$29,141,710 of such securities at December 31, 1995. The increase of
approximately $3 million resulted from a small increase in deposits and a shift
of Federal Funds into investment securities because of the Bank's high
liquidity. The increase is comprised principally of securities available for
sale which were $15.7 million at March 31, 1996 compared to $12.4 million at
December 31, 1995. The table below shows the maturities and weighted average
yields from the investment portfolio at March 31, 1996. Yields are not
calculated on a tax equivalent basis.
9
<PAGE> 10
<TABLE>
<CAPTION>
AFTER ONE AFTER FIVE
WITHIN BUT WITHIN BUT WITHIN AFTER
(IN THOUSANDS) ONE YEAR FIVE YEARS TEN YEARS TEN YEARS TOTAL
-------- ---------- --------- --------- -----
<S> <C> <C> <C> <C> <C>
Available for sale
U.S. Treasury and U.S. $5,586 $10,107 -0- -0- $15,693
Government Agencies
State -0- -0- -0- -0- -0-
Other -0- -0- -0- -0- -0-
TOTAL: $5,586 $10,107 -0- -0- $15,693
Weighted Average Yield 5.89% 6.50% 6.28%
Held to Maturity
U.S. Treasury and U.S. $3,699 $12,523 -0- -0- $16,222
Government Agencies
State -0- -0- -0- -0- -0-
Other -0- -0- -0- 167 -0-
TOTAL: $3,699 $12,875 -0- 167 $16,389
Weighted Average Yield 6.84% 5.65% -0- 6.00% 5.92%
</TABLE>
LOANS
The following table sets forth the composition of the Bank's loan portfolio at
March 31, 1996.
<TABLE>
<CAPTION>
MARCH 31
(IN THOUSANDS) 1996
----
<S> <C> <C>
Commercial $ 8,604 19.13%
Commercial Real Estate 9,994 22.35
Residential Real Estate 15,553 34.79
Consumer 11,636 25.87
------- ------
$44,972 100.00%
======= ======
</TABLE>
At March 31, 1996, the Bank had $3,260,000 of loans that were nonperforming.
Nonperforming loans include loans with principal or interest past due 90 days
or more; they also include loans that have matured and are being extended or
rewritten after their stated maturity date. Non-accrual loans are those
nonperforming or other impaired loans on which the Bank does not accrue
periodic interest income. Loans are placed on non-accrual status when
principal or interest is in default for a period of 90 days or more unless the
loan is in the process of collection and is well secured so that delinquent
principal and interest would be expected to be satisfied from the collateral.
The Bank also had $1,478,000 of loans on non-accrual status because, in
management's judgment, although the loans were not 90 days delinquent, the
collateral position was not adequate. These were the unauthorized loans
referenced earlier in this report and loans to borrowers involved in the
unauthorized transactions. In addition, there were $236,000 of loans that were
considered impaired although they were performing. These were loans to
borrowers who were delinquent on other loans or were subject to other
circumstances that raised a question about whether all interest and principal
would be paid in accordance with their contract. Nonperforming loans and
non-accrual loans are all considered "impaired loans" under SFAS 114,
"Accounting by Creditors for Impairment of a Loan", and SFAS 118, "Accounting
by Creditors for Impairment of a Loan - Income Recognition and Disclosure." At
March 31, 1996, total nonperforming and impaired loans amounted to 7.25% of the
aggregate loans at March 31, 1996, compared with 7.01% at the end of 1995.
This was due to the unauthorized activities in the loan department in late 1995
and in January, 1996.
10
<PAGE> 11
The Bank requires prompt corrective actions to be implemented on problem loans
as they are identified in order to increase the probability of collection.
Management also has tightened credit standards, closely monitors loan
concentrations, improved collection techniques, and is refinancing credit
worthy matured loans more promptly than the Bank has done in past years.
The table at footnote 5 to the Notes to Financial Statements shows information
concerning nonperforming, non-accrual and other impaired loans as of March 31,
1996, allocated according to loan type. Nonperforming loans amounted to 7.25%
of total loans at March 31, 1996.
The amount of interest income that would have been accrued on the loans on
non-accrual status at March 31, 1996, had those loans remained current was
approximately $44,000. No interest was actually accrued on those loans during
the quarter before they were placed on non-accrual status.
At March 31, 1996, there were no significant loans other than those included in
the above table, for which information was known that caused management to have
serious doubts as to the ability of borrowers to comply with loan repayment
terms.
The allowance for loan losses totaled $1,281,611 at March 31, 1996 compared to
the 1995 year end balance of $1,163,835. The allowance for loan losses
represented 2.85% of loans compared with 2.60% at December 31, 1995. The
increase in the ratio for the first quarter of 1996 is the result of the
addition of $90,000 of reserves for approximately $176,000 of the unauthorized
loans made in January, 1996.
The allowance for loan losses was 39.3% of the aggregate of non-accrual loans
and loans delinquent 90 days or more at March 31, 1996. At December 31, 1995,
the allowance was 40.1% of such loans. The 1996 percentage is slightly lower
than at the end of 1995 because management reserved for a fraction of the
amount of additional loans which had become delinquent or were put on
non-accrual based on management's assessment of the likelihood of collection.
The total amount of the allowance for loan losses is based on management's
evaluation of the portfolio, past experience, economic conditions, composition
of the portfolio, collateral location and values, cash flow positions of
borrowers, delinquencies and other factors deemed relevant. The allowance for
loan losses, in management's opinion, is adequate taking all such
considerations into account.
The loan review system and charge-off policy assist management in identifying
problem loans and credit deterioration earlier than in the past and continuing
implementation of the loan review system will improve this process further.
Effective collection efforts, when implemented early, generally result in lower
losses. Management expects this trend to resume as a result of recent
strengthening of the collection department. Loans charged off in the first
quarter of 1996 aggregated $214,698. Of this amount, $138,000 was attributed
to fictitious transactions made in January, 1996. The remaining $76,698
charged off was part of the Bank's continuing effort to address problem loans
in the loan portfolio and improve the quality of the loan assets. Collection
efforts in the quarter resulted in recoveries of $14,726 on loans previously
charged off.
11
<PAGE> 12
The table below presents management's allocation of the allowance for loan
losses at March 31, 1996, and shows the percentage of the allowance allocated
to each category of loans.
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
MARCH 31, 1995
---------------
ALLOWANCE %
--------- -
<S> <C> <C>
Commercial $ 483 40%
Real estate mortgage 100 34
Consumer 360 26
Unallocated 221 -
------ ---
$1,164 100%
====== ===
</TABLE>
The following table summarizes activity in the allowance for loan losses during
the first quarter of 1996. The allocation of the allowance for loan losses at
the end of the quarter reflected management's assessment and allocation of risk
at that time after charge offs for the period had occurred. The high charge
off in the consumer loan category reflects the loss which was realized upon
discovering the fictitious transactions in the consumer loan area attributable
to January, 1996. After making those charge offs, management believes the
allowance at March 31, 1996 properly reflects the risks identified among the
parts of the portfolio. The allocation to commercial loans reflects the
allocation of $133,000 of the allowance to commercial loans related to the
consumer loan problem.
<TABLE>
<CAPTION>
1995
----
<S> <C>
Loans at end of year $44,972,000
===========
Average loans outstanding
during the period 45,636,000
===========
Allowance for loan losses
at beginning of year 1,163,854
Loans charged off:
Commercial 30,207
Consumer 171,705
Real estate mortgages 12,786
-----------
TOTAL LOANS CHARGED OFF 214,698
Less recoveries:
Commercial ( 4,069)
Consumer (10,657)
Real estate mortgages
-----------
(14,726)
-----------
NET LOANS CHARGED OFF 199,972
Provision for loan losses 317,750
-----------
Allowance for loan losses
at end of year $ 1,281,721
===========
Provision for loan losses/
average loans .69%
Net loans charged off/average
loans .44%
Allowance for loan losses/
loans at end of year 2.85%
Total loans charged off/
average loans .47%
</TABLE>
12
<PAGE> 13
DEPOSITS
Total deposits of the Bank for the quarter ended March 31, 1996 averaged
$80,933,000. They were composed as shown in the following table.
<TABLE>
<CAPTION>
1996
-----
(IN THOUSANDS) AVERAGE AVERAGE
BALANCE RATE
------- ----
<S> <C> <C>
Non-interest bearing
demand deposits $25,681
U.S. Treasury, tax and
loan deposits* 268
Interest bearing
demand deposits 7,270 2.21
Savings deposits 15,404 2.00
Time deposits:
$100,000 or more 17,450 2.87
Other time deposits 14,860 4.79
-------
Total $80,933
=======
</TABLE>
- ---------------------------------------------------
*Represents non-retail deposits held overnight and remitted to the federal
government the following day.
CAPITAL RESOURCES
At March 31, 1996, the ratio of equity capital to average assets of the Bank
was 5.53% and in compliance with the Comptroller of Currency requirement of
5.50%. The risk-based Tier 1 capital ratio at March 31, 1996 was 10.70% and
the Bank's total capital ratio at that date was 11.96%. These ratios were
slightly higher compared to December 31, 1995, when they were 5.49%, 10.54%,
and 11.80% respectively. The improvement in the ratios is due to slightly
lower average assets in the first quarter of 1996 compared to the fourth
quarter of 1995.
As a result of the losses experienced in 1995 and the first quarter of 1996,
the Bank is not able to pay dividends to the Corporation. It will have to earn
approximately $365,000 in order to eliminated the deficit in its retained
earnings account. Thereafter, it may pay dividends legally from earnings
subject to prior approval of the Comptroller of the Currency until the
Comptroller Agreement described in the 10-KSB annual report is terminated.
Thus, the corporation does not have the resources to pay interest on its Senior
Notes and cumulative dividends on its Class A and Class B Preferred Stock.
The Corporation in June, 1996, requested the holders of its Class A and Class B
Preferred Stock and of its $900,000 of Senior Notes for a waiver of defaults in
payment of interest on the Senior Notes and dividends on the Class A and B
Preferred Stock during 1996 as a result of the loan department losses. The
waiver would not forgive any dividends or interest due in 1996 but would allow
the Corporation to make the payment any time in 1997 without penalty. The
Series 1994-1 Preferred Stock is not entitled to receive dividends, but a 4%
dividend is required to be paid on the Series 1994-1 Stock before any dividends
may be paid on the Common Stock.
13
<PAGE> 14
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings. No change from report on Form 10-KSB for year
ended December 31, 1995.
ITEM 2. Changes in securities - none.
ITEM 3. Defaults upon senior securities.
Reference is made to the above section on Capital and Resources.
ITEM 4. Submission of matters to vote of security holders.
There were no matters to a vote of the security holders during the
quarter ended March 31, 1996.
ITEM 5. Other information.
The employment of Richard W. Shealey, who had been President and
Chief Executive Officer of the Bank, terminated as of February 23,
1996. Don Davis, the Chairman of the Board of the Corporation and
the Bank, has been named by the Board of Directors as interim
Chief Executive Officer of the Corporation and the Bank.
ITEM 6. Exhibits and reports on Form 8-K.
(a) Financial Data Schedule
(b) Reports on Form 8-K -- None
14
<PAGE> 15
FIRST INDEPENDENCE CORPORATION AND SUBSIDIARY
SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on behalf of the
undersigned thereunto duly authorized.
FIRST INDEPENDENCE CORPORATION AND SUBSIDIARY
Registrant
June 28, 1996 /s/ Don Davis
-------------------------------
Don Davis
Chief Executive Officer
June 28, 1996 /s/ Rose Ann Lacy
-------------------------------
Rose Ann Lacy
Chief Financial Officer and
Chief Accounting Officer
15
<PAGE> 16
Exhibit Index
Exhibit
No.
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1996
<CASH> 2,873,292
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 12,650,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 15,693,136
<INVESTMENTS-CARRYING> 16,389,573
<INVESTMENTS-MARKET> 16,089,156
<LOANS> 44,971,823
<ALLOWANCE> 1,281,611
<TOTAL-ASSETS> 96,249,655
<DEPOSITS> 85,236,611
<SHORT-TERM> 5,075,571
<LIABILITIES-OTHER> 906,735
<LONG-TERM> 900,000
0
2,658,908
<COMMON> 336,760
<OTHER-SE> 1,135,072
<TOTAL-LIABILITIES-AND-EQUITY> 96,249,655
<INTEREST-LOAN> 1,118,507
<INTEREST-INVEST> 451,887
<INTEREST-OTHER> 141,599
<INTEREST-TOTAL> 1,711,993
<INTEREST-DEPOSIT> 414,333
<INTEREST-EXPENSE> 511,796
<INTEREST-INCOME-NET> 1,200,197
<LOAN-LOSSES> 317,750
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,290,389
<INCOME-PRETAX> (7,731)
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,731)
<EPS-PRIMARY> (.05)
<EPS-DILUTED> (.05)
<YIELD-ACTUAL> 4.76
<LOANS-NON> 1,822
<LOANS-PAST> 1,207
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 168
<ALLOWANCE-OPEN> 0
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 0
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
