<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission File Number: 0-15777
FIRST INDEPENDENCE CORPORATION
------------------------------
(Exact Name of Small Business Issuer as Specified in its Charter)
Michigan 38-2583843
-------- ----------
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
44 Michigan, Detroit, Michigan 48226
------------------------------------
(Address of Principal Executive Offices)
(313) 256-8400
--------------
(Issuer's Telephone Number, Including Area Code)
Check whether the issuer (1) filed all reports required to be filed by Section
13 of 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the issuer was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No .
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
376,760 shares of Common Stock ($1 par value) as of April 30, 1999.
Transitional Small Business Disclosure Format (check one): Yes ; No X .
--- ---
<PAGE> 2
FIRST INDEPENDENCE CORPORATION
INDEX
<TABLE>
<CAPTION>
PART 1. Financial Information Page No.
--------------------- --------
<S> <C>
Item 1. Financial Statements
Condensed Consolidated Balance Sheet -
March 31, 1999 (Unaudited)....................................................... 1
Condensed Consolidated Statements of Income - Three
Months Ended March 31, 1999 (Unaudited) and
March 31, 1998 (Unaudited)....................................................... 2
Consolidated Statements of Comprehensive Income - Three
Months Ended March 31, 1999 (Unaudited) and
March 31, 1998 (Unaudited)....................................................... 3
Condensed Consolidated Statements of Cash Flows -
Three Months Ended March 31, 1999 (Unaudited) and
March 31, 1998 (Unaudited)....................................................... 4
Notes to Condensed Consolidated Financial
Statements (Unaudited)........................................................... 5
Item 2. Management's Discussion and Analysis and
Results of Operations............................................................ 6-10
PART II. Other Information
Item 1. Legal Proceedings.................................................................. 11
Item 2. Changes in Securities and Use of Proceeds.......................................... 11
Item 3. Defaults upon Senior Securities.................................................... 11
Item 4. Submission of Matters to a Vote of Security Holders................................ 11
Item 5. Other Information.................................................................. 11
Item 6. Exhibits and Reports on Form 8-K................................................... 11
Signatures ................................................................................... 11
</TABLE>
<PAGE> 3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
FIRST INDEPENDENCE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
March 31,
1999
----
(Unaudited)
<S> <C>
ASSETS
Cash and due from banks $ 1,884,875
Federal funds sold 16,850,000
-------------
Total cash and cash equivalents 18,734,875
Securities available for sale 48,847,951
Securities held to maturity (fair value of $4,608,750) 4,552,933
-------------
53,400,884
Total loans 40,132,554
Allowance for loan losses (1,062,209)
-------------
39,070,345
Premises and equipment - net 3,277,476
Accrued interest receivable and other assets 1,745,552
-------------
Total assets $ 116,229,132
=============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Deposits
Noninterest-bearing $ 35,539,525
Interest-bearing 48,849,301
-------------
84,388,826
Short-term borrowings 24,709,074
Accrued expenses and other liabilities 637,339
Long-term debt 900,000
-------------
Total liabilities 110,635,239
Shareholders' equity
Preferred stock 2,615,797
Common stock, $1 par value: 500,000 shares authorized;
336,760 shares issued and outstanding 336,760
Capital surplus 2,369,784
Retained earnings 600,809
Unrealized loss on securities available for sale (329,257)
-------------
Total shareholders' equity 5,593,893
Total liabilities and shareholders' equity $ 116,229,132
=============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
1.
<PAGE> 4
FIRST INDEPENDENCE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31, March 30,
1999 1998
---- ----
<S> <C> <C>
Interest income
Loans, including fees $ 968,418 $ 972,129
Federal funds sold 232,188 182,693
Securities 799,294 688,529
-------------- ---------------
1,999,900 1,843,351
Interest expense
Deposits 436,443 456,505
Other borrowed funds 260,094 166,970
-------------- ---------------
696,537 623,475
-------------- ---------------
NET INTEREST INCOME 1,303,363 1,219,876
Provision for loan losses 45,000 75,000
-------------- ---------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 1,258,363 1,144,876
Noninterest income
Service charges on deposit accounts 177,430 165,246
Net gain on sales of residential real estate loans 18,790
Other noninterest income 73,315 98,316
-------------- ---------------
250,745 282,352
Noninterest expense
Salaries and employee benefits 660,574 588,779
Occupancy 303,118 288,868
Professional services 59,000 67,500
Other noninterest expense 252,572 241,657
-------------- ---------------
1,275,264 1,186,804
-------------- ---------------
NET INCOME 233,844 240,424
Preferred stock dividend requirement 17,100 8,550
-------------- ---------------
INCOME ATTRIBUTABLE TO COMMON STOCK $ 216,744 $ 231,874
============== ===============
Basic and diluted earnings per common share $ .64 $ .69
======== =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
2.
<PAGE> 5
FIRST INDEPENDENCE CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31, March 31,
1999 1998
---- ----
<S> <C> <C>
Net income $ 233,844 $ 240,424
Other comprehensive income, net of tax:
Change in unrealized gains (losses)
on securities (399,454) (74,867)
------------ ------------
Comprehensive income (loss) $ (165,610) $ 165,557
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3.
<PAGE> 6
FIRST INDEPENDENCE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31, March 31,
1999 1998
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 233,844 $ 240,424
Adjustments to reconcile net income
to net cash from operating activities:
Depreciation 139,859 122,505
Amortization of premiums and discounts on
securities, net 24,404 18,453
Provision for loan losses 45,000 75,000
Net change in:
Accrued interest receivable and other assets (318,832) (239,747)
Accrued interest payable and other liabilities 121,111 (127,141)
------------ ------------
Net cash from operating activities 245,386 89,494
CASH FLOWS FROM INVESTING ACTIVITIES
Net change in loans (732,983) (654,683)
Securities available for sale:
Proceeds from maturities and principal paydowns 4,023,577 7,082,118
Purchases (5,298,200) (14,094,375)
Securities held to maturity:
Proceeds from maturities 2,910,000
Premises and equipment expenditures, net (124,300) (62,856)
------------ ------------
Net cash from investing activities (2,131,906) (4,819,796)
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in deposits (10,408,852) 11,182,149
Net change in short-term borrowings 3,059,886 (305,110)
------------ ------------
Net cash from financing activities (7,348,966) 10,877,039
------------ ------------
Net change in cash and cash equivalents (9,235,486) 6,146,737
Cash and cash equivalents at beginning of period 27,970,361 13,692,380
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 18,734,875 $ 19,839,117
============ ============
Supplemental disclosures of cash flow information
Cash paid during the period for
Interest $ 709,899 $ 604,725
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4.
<PAGE> 7
FIRST INDEPENDENCE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION:
The unaudited condensed consolidated financial statements include the
consolidated results of operations of First Independence Corporation ("the
Corporation") and its wholly-owned subsidiary, First Independence National
Bank of Detroit ("the Bank"). These consolidated financial statements have
been prepared in accordance with the Instructions for Form 10-QSB and Item
310(b) of Regulation S-B and do not include all disclosures required by
generally accepted accounting principles for a complete presentation of the
Corporation's financial condition and results of operations. In the opinion
of management, the information reflects all adjustments (consisting only of
normal recurring accruals) which are necessary in order to make the
financial statements not misleading and for a fair presentation of the
results that may be achieved of operations for such periods. The results
for the period ended March 31, 1999 should not be considered as indicative
of results that may be achieved for a full year. For further information,
refer to the consolidated financial statements and footnotes included in
the Corporation's Annual Report on Form 10-KSB for the year ended December
31, 1998.
2. EARNINGS PER COMMON SHARE:
Basic earnings per common share is based on net income divided by the
weighted average number of common shares outstanding during the period.
Diluted earnings per common share further assumes the issue of any
potentially dilutive common shares. The weighted average number of common
shares used in the calculation of both basic and diluted earnings per
common share was 336,760 shares for the three months ended March 31, 1999
and 1998.
3. COMPREHENSIVE INCOME:
Under a new accounting standard, comprehensive income is now reported for
all periods, effective for both interim and year-end financial statements
for fiscal years beginning after December 31, 1997. Comprehensive income
includes both net income and other comprehensive income. Other
comprehensive income includes the change in net unrealized gains and losses
on securities. Interim financial statements need only disclose total
comprehensive income for each reported period.
5.
<PAGE> 8
FIRST INDEPENDENCE CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
AND RESULTS OF OPERATIONS
SUMMARY OF OPERATIONS
Net income attributable to common stock for the first quarter of 1999 was
$216,744, or $.64 per common share, compared to $231,874 or $.69 per common
share for the first quarter of 1998. The decrease in net income for the first
quarter 1999, as compared to 1998, was primarily the result of an increase in
noninterest expense offset by an increase in net interest income.
Net Interest Income: Net interest income for the first quarter of 1999 was
$1,303,363, an increase of $83,487 from the first quarter of 1998 net interest
income of $1,219,876. The increase was attributable to an increase of average
earning assets and a decrease in average interest-bearing liabilities. This
increase was offset by a reduction in net interest margin due to the yields on
interest-earning assets decreasing by more than the decrease in deposit rates.
Provision for Loan Losses: The provision for loan losses in the first quarter of
1999 was $45,000, a decrease of $30,000 from the first quarter of 1998. The
allowance for loan losses as a percentage of total loans outstanding as of March
31, 1999 was 2.65%. The Bank maintains the allowance for loan losses at a level
management feels is adequate to absorb losses inherent in the loan portfolio.
The evaluation is based upon a continuous review of the Bank's and banking
industry's historical loan loss experience, known and inherent risks contained
in the loan portfolio, composition and growth of the loan portfolio, current and
projected economic conditions and other factors.
Noninterest Income: Noninterest income for the first quarter of 1999 amounted to
$250,745, a decrease of $31,607, or 11%, from the first quarter of 1998. The
decrease was the result of a decrease in other noninterest income of $25,001 and
a decrease in gains on sales of residential real estate loans of $18,790,
partially offset by an increase in service charges on deposits of $12,184. The
decrease in other noninterest income was due to a reduction in miscellaneous
fees. The decrease in gains on sales of residential real estate loans is
primarily the result of less emphasis placed by management on the origination
and sale of residential real estate loans.
Noninterest Expense: Noninterest expense for the first quarter of 1999 amounted
to $1,275,264, an increase of $88,460, or 7%, from the first quarter of 1998
noninterest expense of $1,186,804. The increase was primarily the result of
increases in salary and wages of $71,795 and occupancy expense of $14,250.
BALANCE SHEET ANALYSIS
Liquidity: Federal funds sold were $16,850,000, or 20% of total deposits of
$84,388,826 at March 31, 1999. Total securities available-for-sale at March 31,
1999 were $48,847,951, or 58% of total deposits. Thus, the Bank has a liquidity
position such that management believes it is capable of funding loan demand or
deposit withdrawals.
Securities: The Bank had $53,400,884 of securities at March 31, 1999, compared
to $52,755,899 at December 31, 1998. The increase in securities is the result of
management's strategy to invest the excess funds made available from an increase
in deposits into higher earning assets. Securities primarily consist of U.S.
Treasury and U.S. Government and federal agency securities.
(Continued)
6.
<PAGE> 9
FIRST INDEPENDENCE CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
AND RESULTS OF OPERATIONS
BALANCE SHEET ANALYSIS (Continued)
Loans: The following table sets forth the composition of the Bank's loan
portfolio (in thousands) at March 31, 1999:
<TABLE>
<CAPTION>
<S> <C> <C>
Commercial $ 10,832 27%
Commercial real estate 7,872 19
Residential real estate 15,887 40
Consumer 5,542 14
---------------- ------
$ 40,133 100%
================ ======
</TABLE>
At March 31, 1999, the Bank had $1,019,394 of loans that were considered
nonperforming. Nonperforming loans include non-accrual loans, loans with
principal or interest past due 90 days or more, and other impaired loans.
Non-accrual loans are those loans on which the Bank does not accrue 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. Impaired loans are those loans
which management does not expect to fully collect all principal and interest
under the original terms of the loan. At March 31, 1999, total nonperforming and
impaired loans amounted to 2.54% of aggregate loans at March 31, 1999, compared
to 3.37% at December 31, 1998.
At March 31, 1999, there were no significant loans other than those identified
above, for which information was known that would cause management to have
serious doubts as to the ability of borrowers to comply with loan repayment
terms.
The allowance for loan losses totaled $1,062,209 at March 31, 1999, compared to
December 31, 1998 of $1,174,888. The allowance for loan losses represented 2.65%
of total loans at March 31, 1999 compared with 2.97% at December 31, 1998. The
allowance for loan losses was 104% of nonperforming loans at March 31, 1999 as
compared to 88% of nonperforming loans at December 31, 1998. 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 the borrowers,
delinquencies and other factors deemed relevant. The allowance for loan losses,
in management's opinion, is adequate taking all such considerations into
account.
Loans charged off in the first quarter of 1999 aggregated $185,678. The charge
offs are part of the Bank's continuing effort to address problem loans in the
loan portfolio and improve the quality of the loan assets. The Bank's collection
efforts in the first quarter of 1999 resulted in recoveries of $27,999 on loans
previously charged off.
(Continued)
7.
<PAGE> 10
FIRST INDEPENDENCE CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
AND RESULTS OF OPERATIONS
BALANCE SHEET ANALYSIS (Continued)
The table below presents management's allocation of the allowance for loan
losses by loan portfolio at March 31, 1999.
<TABLE>
<CAPTION>
(In thousands) Allowance Percent
--------- -------
<S> <C> <C>
Commercial/commercial real estate $ 337 32%
Real estate mortgage 22 2
Consumer 146 14
Unallocated 557 52
---------- ------
$ 1,062 100%
========== ======
</TABLE>
The following table summarizes activity in the allowance for loan losses during
the three months ended March 31, 1999.
<TABLE>
<CAPTION>
<S> <C>
Average loans outstanding during the period $ 39,906,206
================
Allowance for loan losses
Beginning balance $ 1,174,888
Provision for loan losses 45,000
Charge-offs (185,678)
Recoveries 27,999
----------------
Balance at end of period $ 1,062,209
================
Charge-offs by category
Commercial $ 134,586
Consumer 50,180
Real estate mortgages 912
----------------
Total charge-offs $ 185,678
================
Recoveries by category
Commercial $ 4,708
Consumer 23,144
Real estate mortgages 147
----------------
Total recoveries $ 27,999
================
Net loans charged off $ 157,679
Provision for loan losses as a percent of average loans .11%
Net loans charged off as a percent of average loans .40%
Total loans charged off as a percent of average loans .47%
</TABLE>
(Continued)
8.
<PAGE> 11
FIRST INDEPENDENCE CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
AND RESULTS OF OPERATIONS
BALANCE SHEET ANALYSIS (Continued)
Deposits: The following is a summary of the average balances and average rates
paid on deposits for the three months ending March 31, 1999.
<TABLE>
<CAPTION>
Average Average
(In thousands) Balance Rate
------- ----
<S> <C> <C>
Noninterest-bearing demand deposits $ 36,641
Interest-bearing demand deposits 8,687 2.03%
Savings deposits 14,993 1.81
Time deposits
$100,000 or more * 15,126 4.27
Other time deposits 15,047 4.34
----------
$ 90,494
==========
</TABLE>
* Includes approximately $2 million of noninterest-bearing time deposits from
the U.S. Treasury.
Capital Resources: The following table presents the components of Tier 1 Capital
and Total Capital as of March 31, 1999. Both Tier 1 and Total Capital exceed
regulatory minimum requirements of 4% and 8%, respectively. The Tier 1 Leverage
Ratio, also presented below, exceeds the regulatory minimum of 3%.
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
---- ----
<S> <C> <C>
Ratios (end of period):
Risk-Based Capital Ratios:
Tier 1 Capital Ratio 12.67% 12.06%
Total Capital Ratio 13.92% 13.32%
Tier 1 Leverage Ratio 5.70% 5.75%
</TABLE>
YEAR 2000
The approach of the year 2000 presents potential problems to businesses that
utilize computers in their daily operations. Some computer systems may not be
able to properly interpret dates after December 31, 1999, because they use only
two digits to indicate the year in the date. Therefore, a date using "00" as the
year may recognize the year as 1900 rather than the year 2000.
The Corporation has formed a Year 2000 Committee (the "Committee") to address
the potential problems associated with the Year 2000 computer issue. The
Committee, consisting of directors, officers and employees of the Corporation,
meets on a regular basis and provides regular reports to the Board of Directors
detailing progress with the Year 2000 issue.
(Continued)
9.
<PAGE> 12
FIRST INDEPENDENCE CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
AND RESULTS OF OPERATIONS
YEAR 2000 (Continued)
Costs of the Corporation related to the Year 2000 issue are estimated to be
approximately $125,000. Costs incurred through March 31, 1999 are $100,000. It
is impossible to predict the exact expenses associated with the Year 2000 issue
and additional funds may be needed for unknown expenses relating to Year 2000
testing, training and education, as well as system and software replacements.
As with any organization that depends on technology, particularly computer
systems and software, a Year 2000 related failure poses a significant threat to
continued business operations. While the Corporation has developed a plan to
ensure Year 2000 readiness, we recognize that the success of our third party
providers is vital to our success. Of primary concern are local utility and
telecommunications companies. These, in addition to other third parties, have
been contacted and the Committee is monitoring their progress towards their own
Year 2000 readiness. Additional risks include the Bank's lending and deposit
relationships. The Committee is currently evaluating these two groups and
assessing any potential risks, as well as establishing any necessary corrective
procedures.
Despite careful planning by the Corporation, we recognize there may be
circumstances beyond our control that may prohibit us from operating "as usual"
after December 31, 1999. The Year 2000 Committee is currently in process of
developing a contingency plan to address potential Year 2000 problems.
10.
<PAGE> 13
FIRST INDEPENDENCE CORPORATION
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
There are no matters required to be reported under this item.
ITEM 2. CHANGES IN SECURITIES.
There are no matters required to be reported under this item.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
There are no matters required to be reported under this item.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There are no matters required to be reported under this item.
ITEM 5. OTHER INFORMATION.
There are no matters required to be reported under this item.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
(1) Exhibit 27 - Financial Data Schedule
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
FIRST INDEPENDENCE CORPORATION
Registrant
Date: 5/14/99 /s/ William Fuller
------------------ --------------------------------------
William Fuller, President
Date: 5/14/99 /s/ Rose Ann Lacy
------------------ --------------------------------------
Rose Ann Lacy, Chief Financial Officer
11.
<PAGE> 14
Exhibit Index
-------------
Exhibit No. Description
- ----------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 1,884,875
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 16,850,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 48,847,951
<INVESTMENTS-CARRYING> 4,552,933
<INVESTMENTS-MARKET> 4,608,750
<LOANS> 40,132,554
<ALLOWANCE> 1,062,209
<TOTAL-ASSETS> 116,229,132
<DEPOSITS> 84,388,826
<SHORT-TERM> 24,709,074
<LIABILITIES-OTHER> 637,339
<LONG-TERM> 900,000
0
2,615,797
<COMMON> 336,760
<OTHER-SE> 2,641,336
<TOTAL-LIABILITIES-AND-EQUITY> 116,229,132
<INTEREST-LOAN> 968,418
<INTEREST-INVEST> 799,294
<INTEREST-OTHER> 232,188
<INTEREST-TOTAL> 1,999,900
<INTEREST-DEPOSIT> 436,443
<INTEREST-EXPENSE> 696,537
<INTEREST-INCOME-NET> 1,303,363
<LOAN-LOSSES> 45,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,275,264
<INCOME-PRETAX> 233,844
<INCOME-PRE-EXTRAORDINARY> 233,844
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 233,844
<EPS-PRIMARY> .64
<EPS-DILUTED> .64
<YIELD-ACTUAL> 0
<LOANS-NON> 775,601
<LOANS-PAST> 243,793
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 1,330,790
<ALLOWANCE-OPEN> 1,174,888
<CHARGE-OFFS> 185,678
<RECOVERIES> 27,999
<ALLOWANCE-CLOSE> 1,062,209
<ALLOWANCE-DOMESTIC> 1,062,209
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 557,000
</TABLE>
