<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-KSB
[X] Annual report under Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended December 31, 1999 Commission File No. 0-15777
FIRST INDEPENDENCE CORPORATION
(Name of small business issuer in its charter)
MICHIGAN 38-2583843
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
44 MICHIGAN AVENUE, DETROIT, MICHIGAN 48226
(Address of principal executive offices)
(313) 256-8400
(Issuer's telephone number)
Securities registered under Section 12(b) of the Act: NONE
Securities registered under Section 12(g) of the Act: COMMON STOCK,
PAR VALUE $1.00 PER SHARE
Check whether the issuer (1) has 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 X NO
--- ---
Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of the registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]
Issuer's revenue for its most recent fiscal year was $9,428,219.
The aggregate market value of voting stock of the registrant held by
non-affiliates was approximately $1,251,023 as of March 31, 2000; based on the
Board of Directors estimate and determination of value in connection with a
proposed one share for 60 share reverse stock split. An opinion of independent
investment bankers was performed to support the fairness of the determination of
value. No established trading market exists for the Corporation's stock. (For
purposes of the foregoing calculation, 217,615 shares owned by the members of
the Corporation's Board of Directors have been excluded and 34,800 shares held
by the Corporation's Employee Stock Ownership Plan, with an estimated market
value of $365,400, were included.)
As of March 31, 2000, 336,760 shares of Common Stock of the issuer were
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
<TABLE>
<S> <C>
Parts II and III Portions of 1999 Annual Report to the Shareholders of the issuer for the year
ended December 31, 1999.
Part III Portions of the Proxy Statement of the issuer for the year ended December 31,
1999.
</TABLE>
Transitional Small Business Disclosure Format YES X NO
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<PAGE> 2
PART I
ITEM 1. DESCRIPTION OF BUSINESS
THE CORPORATION
First Independence Corporation (the "Corporation") is a Michigan corporation
organized in March 1984. The Corporation was organized in order to engage in the
acquisition, operation, and management of banks and banking related businesses
and to engage in such other activities as are permitted and authorized to bank
holding companies under the Bank Holding Company Act of 1956, as amended. On
January 13, 1986, the Corporation consummated a reorganization and merger
pursuant to which the Corporation became the parent bank holding company of
First Independence National Bank of Detroit, Detroit, Michigan (the "Bank"). The
Bank is the only subsidiary of the Corporation.
THE BANK
The Bank was organized in 1969 under the laws of the United States as a
minority-owned, community-oriented national bank. The Bank's principal office is
in the central business district of Detroit at 44 Michigan Avenue, Detroit,
Michigan 48226. It also operates branches in Detroit at 12200 Livernois Avenue,
7020 West Seven Mile Road at Livernois Avenue and 400 Monroe Street in the
Greektown area.
The Bank provides banking services to individuals, businesses, local, state, and
federal governmental units, and institutional customers. Its services include
demand deposits, savings and time deposits, collections, cash management, night
depositories, and consumer, commercial, and real estate loans.
EFFECT OF GOVERNMENT MONETARY POLICIES
The earnings of the Corporation are affected by domestic economic conditions and
the monetary and fiscal policies of the United States government, its agencies,
and the Federal Reserve Board. The Federal Reserve Board's monetary policies
have had, and will likely continue to have, an important impact on the operating
results of commercial banks through its power to implement national monetary
policy in order to, among other things, curb inflation or avoid a recession. The
policies of the Federal Reserve Board have a major effect upon the levels of
bank loans, investments and deposits through its open market operations in
United States government securities, and through its regulation of, among other
things, the discount rate on borrowings of member banks and the reserve
requirements against member bank deposits. It is not possible to predict the
nature and impact of future changes in monetary and fiscal policies. The Bank
maintains reserves directly with the Federal Reserve Bank of Chicago to the
extent required by law.
SUPERVISION AND REGULATION
Various federal laws and regulations affect the businesses of the Corporation
and the Bank. These laws and regulations are administered with respect to the
Corporation and the Bank by the Board of Governors of the Federal Reserve System
(the "Federal Reserve Board") and the Office of the Comptroller of the Currency
(the "Comptroller"), respectively. In 1991, in the exercise of the supervisory
and regulatory authority over the Corporation and the Bank, the Federal Reserve
Board and the Comptroller required the Corporation's and the Bank's Board of
Directors to adopt a resolution with the Federal Reserve Board and enter into a
formal agreement with the Comptroller. The agreement with the Comptroller
required the Bank to manage and improve certain operations, comply with certain
laws and regulations, to conserve and increase capital of the Bank, and manage
and improve loan quality. On January 16, 1998, the Comptroller of the Currency
terminated the formal agreement with the Bank. The Federal Reserve resolution
remains in effect and requires the Corporation to obtain prior written approval
of the Federal Reserve Bank of Chicago for payment of dividends or other
distributions on the Corporation's stock, to increase its borrowings or incur
additional debt, and to add new members to the Board of Directors or Executive
Management.
2.
<PAGE> 3
The Corporation, as a bank holding company under the Bank Holding Company Act,
is required to file an annual report with the Federal Reserve Board and such
additional information as the Federal Reserve Board may require pursuant to the
Bank Holding Company Act, and is subject to examination by the Federal Reserve
Board.
The Bank Holding Company Act limits the activities which may be engaged in by
the Corporation and its subsidiary to those of banking and the management of
banking organizations, and to certain non-banking activities, including those
activities which the Federal Reserve Board may find, by order or regulation, to
be so closely related to banking or managing or controlling banks as to be a
proper incident thereto. The Federal Reserve Board is empowered to differentiate
between activities by a bank holding company, or a subsidiary thereof, and
activities commenced by acquisition of a going concern.
With respect to non-banking activities, the Federal Reserve Board has, by
regulation, determined that certain non-banking activities are closely related
to banking within the meaning of the Bank Holding Company Act. These activities
include, among other things, operating a mortgage company, finance company,
credit card company or factoring company, performing certain data processing
operations, providing certain investment and financial advice, acting as an
insurance agent for certain types of credit related insurance, leasing property
on a full-payout, nonoperating basis; and, subject to certain limitations,
providing discount securities brokerage services for customers. The Corporation
has no current plans to engage in non-banking activities.
The Bank is subject to certain restrictions imposed by federal law on any
extension of credit to the Corporation for investments in stock or other
securities thereof, and on the taking of such stock or securities as collateral
for loans to any borrower. Federal law prevents the Corporation from borrowing
from the Bank unless the loans are secured in designated amounts.
The Corporation is required to obtain the prior approval of the Federal Reserve
Board before it can acquire all or substantially all of the assets of any bank,
or acquire ownership or control of any voting shares of any bank, if, after such
acquisition, it will own or control more than 5% of the voting shares of such
bank.
COMPETITION AND MARKET
The Bank is a community bank primarily serving Wayne County, Michigan. It also
provides some services in Oakland and Macomb Counties. This market area
encompasses a high proportion of lower-middle and low income individuals and
small businesses. Historically, this market may have been underserved by
competing financial institutions. However, management believes that it can serve
this community profitably and control the somewhat higher level of credit risk
inherent in such loan portfolio by careful underwriting and by hiring and
retaining competent, professional staff.
The Bank's main office and three branches are all located in the City of
Detroit. Although the Detroit area economy is affected by the cycle of the
automobile industry, it has become more diverse in the past decade.
Nevertheless, when the automobile industry is strong, employment and wages are
high. When the automobile industry is performing weakly, employment is lower and
many businesses which serve the automobile companies tend to slow down. This
could impact business and retail customers' ability to repay their loans if
their business declines or if they lose their jobs. Management believes that, in
this way, the business of the Bank is indirectly affected by the automobile
industry. Deposits and business activity of governmental units are affected by
the tax revenues which vary with the overall levels of activity in the
automobile industry. However, the volume of business with the Bank is small in
relation to their total banking business.
3.
<PAGE> 4
Thus, factors affecting the general level of economic activity are more likely
to affect the Bank indirectly. In 1994, Detroit's Enterprise Zone was selected
as one of four such zones in the United States for $100 million of Federal
funding over a ten-year period. This has spawned commitments of more than $2
billion of financing and investment in the City of Detroit over the same ten
year period and the Bank expects to participate and benefit from those financing
opportunities and the new development which could occur in the city over that
period.
In the conduct of the commercial banking business by the Bank, there is
significant competition with other federally insured depository institutions,
such as banks, savings associations and credit unions. Additionally, the Bank
faces increasing competition in certain aspects of its business from consumer
finance companies, securities brokerage firms and large national retailers. The
business of the Corporation and the Bank includes several longstanding
relationships with certain customers. The loss of some of these customers could
have a material adverse effect on the Corporation and the Bank, but management
has no reason to believe that there will be any material change in these long
term relationships.
EMPLOYEES
At December 31, 1999, the Bank employed 57 full-time equivalent employees. None
of the employees are unionized. The Corporation has no employees of its own and
no payroll since it engages in no active business. While relationships between
management and other employees are considered good, management is continuing to
build stronger relationships, loyalty, and more efficient work habits.
Techniques used include regular meetings with employees, training opportunities,
and use of consultants form time to time for enhancing communication within the
Bank.
OTHER TRENDS, EVENTS AND UNCERTAINTIES
The passage of the Financial Modernization and Banking Code of 1999 is likely to
result in increased competition for loans and deposits. The legislation is
expected to allow banks, insurance companies, financial advisory firms and
brokerage firms to combine to increase financial services and marketing
opportunities and create operating efficiencies in the delivery of financial
products and services to retail banking customers.
Management is not aware of any other significant trends, events or
uncertainties, or recommendations by regulatory authorities, that will have or
are reasonably likely in management's opinion, to have a material effect on the
Corporation's liquidity, capital resources or operations.
CONSOLIDATED STATISTICAL INFORMATION
Management's discussion and analysis, included herein, includes selected
statistical information.
SECURITIES PORTFOLIO
Detail for the securities portfolio is included in management's discussion and
analysis as well as in Note 2 to the consolidated financial statements, included
herein.
LOAN PORTFOLIO
Detail and information relative to the loan portfolio is included in
management's discussion and analysis, included herein.
4.
<PAGE> 5
ALLOWANCE FOR LOAN LOSSES
In each accounting period, the allowance for loan and lease losses is adjusted
by management to the amount necessary to maintain the allowance at adequate
levels. Through its credit department, management attempts to allocate specific
portions of the allowance for loan losses based on specifically identifiable
problem loans. Management's evaluation of the allowance is further based on
consideration of actual loss experience, the present and prospective financial
condition of borrowers, industry concentrations within the portfolio and general
economic conditions. Management believes that the present allowance is adequate,
based on the broad range of considerations listed above.
The primary risk element considered by management with respect to each
installment and residential real estate loan is lack of timely payment.
Management has a reporting system that monitors past due loans and pursues its
creditor's rights in order to preserve the Bank's financial position. The
primary risk elements with respect to commercial loans are the financial
condition of the borrower, the sufficiency of collateral, and lack of timely
payment. Each of these factors can be affected by the general condition of the
economy. Management has a policy of requesting and reviewing periodic financial
statements from its commercial loan customers, and periodically reviews the
adequacy of collateral and its value.
Additional detail regarding the allowance for loan losses is included in
management's discussion and analysis and Note 3 in the consolidated financial
statements, included herein.
Although management believes that the allowance for loan and lease losses is
adequate to absorb losses as they arise, there can be no assurance that the Bank
will not sustain losses in any given period which could be substantial in
relation to the size of the allowance for loans and lease losses.
RETURN ON EQUITY AND ASSETS
Return on Equity and Asset information is included in management's discussion
and analysis, included herein.
ITEM 2. DESCRIPTION OF PROPERTIES
The 28,500 square foot headquarters of the Corporation and the Bank, located at
44 Michigan Avenue, Detroit, Michigan, was purchased by the Bank in March 1987.
The Bank also owns the land and a 4,000 square foot branch at 12200 Livernois in
Detroit. The Bank leases the premises at its branch at 7020 West Seven Mile
Road, and the Greektown branch location which opened during 1999. These
properties are considered by management to be well maintained and adequate for
the purpose intended.
ITEM 3. LEGAL PROCEEDINGS
In 1991, a former senior officer of the Bank filed a complaint in the Circuit
Court for the County of Wayne, Michigan, against the Bank, a non-operating
subsidiary of the Bank, and the Corporation and certain directors and another
former officer thereof alleging wrongful termination. In May 1993, a jury
verdict was entered against the Corporation and a non-operating subsidiary of
the Bank, certain directors and another former officer thereof in the amount of
$320,000 by a Wayne County Circuit Court. A judgment was entered on the verdict
in October 1994. The Corporation appealed the judgment to the Michigan Court of
Appeals and on March 14, 1997, the judgment was reversed by the Court of Appeals
holding that there was no liability by the Corporation or by the Bank's
subsidiary. The plaintiff sought leave of the Michigan Supreme Court to appeal
the reversal by the Michigan Court of Appeals. On March 17, 1998, the Michigan
Supreme Court denied the appeal holding that the questions presented should not
be reviewed by the Court.
5.
<PAGE> 6
The Bank is routinely engaged in litigation, both as plaintiff and defendant,
which is incidental to its business, and in certain proceedings, claims or
counterclaims have been asserted against it. Management does not currently
anticipate that the ultimate liability of any litigation involving the
Corporation will have a material effect on the consolidated financial position
of the Corporation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
At December 31, 1999, there were 336,760 shares of the Corporation's common
stock issued and outstanding. The stock was held by approximately 2,079
shareholders. An established trading market did not, and does not, exist for
these shares. For purposes of estimating values of the Registrant's common
stock, the estimated value of $10.50 per share was determined by the Board of
Directors as reflective of the current market value of the Corporation's common
stock. An opinion of independent investment bankers was performed to support the
fairness of the determination of value.
Federal law (12 U.S.C. Section 60) limits payment of dividends to the net
profits of a bank remaining after ten (10%) percent of the net profits of each
half year of operations are transferred to capital surplus, and the dividend
paid in any calendar year may not, without the prior approval of the
Comptroller, exceed the net profits of the current year plus the net profits of
the two preceding years (less the required transfers to surplus). 12 U.S.C.
Section 56 provides that dividends may be paid only from net earnings and not
from the Bank's capital. On January 16, 1998, the Comptroller of the Currency
terminated the formal agreement with the Bank, which previously required the
Bank to obtain prior approval of the Comptroller of the Currency to pay
dividends. Pursuant to the supervisory resolution with the Federal Reserve Bank
of Chicago, acting on behalf of the Federal Reserve Board, the Corporation is
required to obtain prior written approval of the Federal Reserve Bank for
payment of dividends or other distributions on the Corporation's stock, to
increase its borrowings or incur additional debt, and to add new members to the
Board of Directors or Executive Management.
The Bank is current on all long-term debt interest obligations and all Preferred
Stock dividends. Cash dividends on common stock were not declared or paid in
1989 through 1999. No cash dividends may be paid on the Common Stock until
dividends are paid or provided for on the Class A and Class B Preferred Stock
and Class C Preferred Stock, Series 1994-1 and Series MI-1.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULT OF OPERATIONS
This Management's Discussion and Analysis should be read in conjunction with the
consolidated financial statements contained herein. This discussion provides
information about the consolidated financial condition and results of operations
of First Independence Corporation ("Corporation") and its wholly-owned
subsidiary, First Independence National Bank of Detroit ("Bank").
6.
<PAGE> 7
FORWARD-LOOKING STATEMENTS
The following discussion contains forward-looking statements that are based on
management's beliefs, assumptions, current expectations, estimates and
projections about the financial services industry, the economy, and about the
Corporation and Bank. Words such as "anticipates," "believes," "estimates,"
"expects," "forecasts," "intends," "is likely," "plans," "projects," variations
of such words and similar expressions are intended to identify such
forward-looking statements. These statements are not guarantees of future
performance and involve certain risks, uncertainties and assumptions ("Future
Factors") that are difficult to predict with regard to timing, extent,
likelihood and degree of occurrence. Therefore, actual results and outcomes may
materially differ from what may be expressed or forecasted in such
forward-looking statements. The Corporation undertakes no obligation to update,
amend, or clarify forward-looking statements, whether as a result of new
information, future events (whether anticipated or unanticipated), or otherwise.
Future Factors include, but are not limited to, changes in interest rates and
interest rate relationships; demand for products and services; the degree of
competition by traditional and non-traditional competitors; changes in banking
regulation; changes in tax laws; changes in prices, levies, and assessments; the
impact of technological advances; governmental and regulatory policy changes;
changes in competition and competitive factors; the outcomes of contingencies;
trends in customer behavior as well as their ability to repay loans; and changes
in the national and local economy. These are representative of the Future
Factors that could cause a difference between an ultimate actual outcome and a
preceding forward-looking statement.
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
1999 1998
---- ----
(Dollars in thousands except per share data)
CONSOLIDATED RESULTS OF OPERATIONS:
<S> <C> <C>
Interest income $ 8,096 $ 7,463
Interest expense 2,910 2,546
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Net interest income 5,186 4,917
Provision for loan losses 105 255
Noninterest income 1,332 1,073
Noninterest expense 5,370 4,789
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Income (loss) before income tax expense 1,043 946
Income tax expense 72 0
----------- -----------
Net income (loss) $ 971 $ 946
=========== ===========
CONSOLIDATED BALANCE SHEET DATA:
Total assets $ 162,174 $ 123,623
Cash and cash equivalents 57,748 27,970
Securities 49,573 52,756
Loans, net of deferred loan fees 48,475 39,557
Allowance for loan losses 906 1,175
Deposits 117,637 94,798
Securities sold under agreements to repurchase 28,755 16,649
Secured borrowings under loan participation agreements 3,880 0
Long-term debt 900 900
Mandatorily redeemable shares under ESOP, at fair value 365 287
Shareholders' equity 4,934 5,490
</TABLE>
7.
<PAGE> 8
<TABLE>
<CAPTION>
1999 1998
---- ----
(Dollars in thousands except per share data)
CONSOLIDATED FINANCIAL RATIOS:
<S> <C> <C>
Return on average assets 0.78% 0.88%
Return on average shareholders' equity (1) 17.32% 17.33%
Return on average shareholders' equity (2) 18.39% 18.17%
Average equity to average assets (1) 4.51% 5.09%
Average equity to average assets (2) 4.25% 4.85%
Nonperforming loans to total loans 1.57% 2.65%
Allowance for loan losses to total loans 1.87% 2.97%
Tier 1 leverage risk-based capital (Bank only) 10.08% 12.06%
Tier 1 leverage capital (Bank only) 5.32% 5.75%
Total risk-based capital (Bank only) 11.33% 13.32%
PER SHARE DATA (1):
Net Income:
Basic $ 2.64 $ 2.71
Diluted 2.63 2.70
Book value per common share at end of period 8.37 9.39
</TABLE>
(1) Includes mandatorily redeemable shares under Employee Stock Ownership Plan
as a component of common shares and common shareholders' equity.
(2) Excludes mandatorily redeemable shares under Employee Stock Ownership Plan
as a component of common shareholders' equity.
FINANCIAL CONDITION
Assets of the Corporation increased from $123.6 million on December 31, 1998 to
$162.2 on December 31, 1999. This represents an increase of $38.6 million, which
was primarily comprised of a $24.6 million increase in federal funds sold (as
fully discussed below) and a $8.9 million increase in total loans. The increase
in assets was primarily funded by a $22.8 million increase in deposits (as fully
discussed below), and a $12.1 million increase in securities sold under
agreements to repurchase.
FEDERAL FUNDS SOLD
Federal funds sold, consisting of excess funds sold overnight to correspondent
banks, are used to manage daily liquidity needs and interest rate sensitivity.
During 1999, the average balance of these funds equaled 16.6% of average earning
assets.
Federal funds sold increased $24.6 million to $48.8 million at December 31,
1999. Frequently, at the end of the year, the Bank receives large deposits from
large corporations or government agencies for very short terms which are
invested in Federal funds due to the short-term nature of such deposits. At
December 31, 1999, one customer had approximately $20.0 million in excess funds
deposited with the Bank which were invested in Federal funds. This represents
the majority of the increase in Federal funds over the prior year.
8.
<PAGE> 9
LOANS
The loan portfolio increased approximately $8.9 million during 1999, from $39.6
million at December 31, 1998 to $48.5 million at December 31, 1999. The
Corporation's management continues to place an emphasis on increasing the loan
portfolio for the purpose of enhancing yield on earning assets and increasing
the level of investment by the Corporation in its urban community. In
conjunction with planned growth, management continues to focus on high credit
quality standards in order to improve the performance of the portfolio while
incurring fewer loan losses.
Commercial loans grew $6.3 million during 1999, from $10.8 million at December
31, 1998 to $17.1 million at December 31, 1999. Approximately $3.9 million of
the increase relates to certain loans originated by the Bank and participated
with other financial institutions. Due to control provisions included in the
loan participation agreements with such institutions, these loans are treated as
a financing arrangement and are reported as loans, with a corresponding secured
borrowing due to the participating financial institutions. These agreements have
been amended subsequent to December 31, 1999, and will be reported as net loan
sales for future reporting purposes.
Commercial loans are generally secured by accounts receivable, inventory, and
machinery and equipment. These loans are subject to the risks of the industries
in which they do business, such as auto supply, restaurants, retail sales, or
various kinds of distribution. Business cash flow represents the primary source
of repayment on such loans. Commercial real estate grew $1.4 million to $9.8
million at December 31, 1999. Commercial real estate includes apartment
buildings, churches, warehouses, strip shopping areas and other retail
buildings. The cash flow from these properties is the primary source of
repayment. The collateral provides the ultimate source of repayment in the event
of default. Commercial real estate loans to religious organizations represent
the largest concentration in the portfolio, comprising 10.7% of the Bank's total
loans at December 31, 1999.
Residential real estate represents the largest loan category as of December 31,
1999, with a balance of $16.7 million, up $2.1 million over the prior year. Cash
flow is primarily dependent on individual owners, influenced by employment and
the business climate. Most homeowners will make their home mortgage the highest
priority of their financial obligations, but when they are unable to pay, the
value of the home and its location are important factors for repayment of the
loan.
Consumer loans have declined approximately $833,000 to $4.9 million at December
31, 1999, as management has placed less emphasis on such loans due to the
riskier nature of these types of loans. Consumer loans are primarily secured by
second mortgages on homes for home improvements. In some cases, the Bank obtains
FHA mortgage insurance on the loan (which insures 90% of the loan), but such
insurance depends upon the size of the Bank's portfolio. The insurance fund is
limited to 10% of the total amount of such loans owned by the Bank. The primary
collateral for home improvement loans is the home. Thus, the value of collateral
and the amount of the first mortgage are important to repayment.
Other consumer loans include automobile, boat, and credit card loans. In
addition, there are consumer lines of credit which, in some cases, are secured
by the borrower's home equity. In all of these cases, the principal risk is the
cash flow of the borrower. The secondary risk is the value of the collateral
and, in the case of home equity loans, the amount of the first mortgage in
relation to the Bank's second mortgage bears strongly on the actual value of the
Bank's lien position.
9.
<PAGE> 10
The following table presents the maturity of total loans outstanding as of
December 31, 1999, according to scheduled repayments of principal. All figures
are stated in thousands of dollars.
<TABLE>
<CAPTION>
0-1 1-5 After 5
Year Years Years Total
---- ----- ----- -----
<S> <C> <C> <C> <C>
Commercial real estate - fixed rate $ 844 $ 5,259 $ 839 $ 6,942
Commercial real estate - variable rate 1,764 482 609 2,855
Commercial - fixed rate 4,768 3,480 19 8,267
Commercial - variable rate 7,283 1,566 0 8,849
Real estate - fixed rate 564 7,776 8,215 16,555
Real estate - variable rate 5 115 36 156
Installment - fixed rate 809 2,456 1,205 4,470
Installment - variable rate 66 315 0 381
----------- ----------- --------- -----------
$ 16,103 $ 21,449 $ 10,923 $ 48,475
=========== =========== ========= ===========
</TABLE>
The Corporation's credit policies establish guidelines to manage credit risk and
asset quality. In addition, the Bank has established a loan review function to
ensure the timely identification of problem loans for the effective
administration of the loan portfolio. The credit policies and procedures are
meant to minimize the risk and uncertainties inherent in lending. In following
these policies and procedures, the Corporation must rely on estimates,
appraisals and evaluations of loans and the possibility that changes in these
could occur quickly because of changing economic conditions. Identified problem
loans, which exhibit characteristics (financial or otherwise) that could cause
the loans to become nonperforming or require restructuring in the future, are
included on the internal "Watch List." Senior management reviews this list
regularly and adjusts for changing conditions.
Nonperforming loans include loans with principal or interest past due 90 days or
more and still accruing interest and loans placed on nonaccrual. Nonaccrual
loans are those nonperforming loans on which the Bank does not accrue periodic
interest income. Loans are placed on nonaccrual 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 following
table details information concerning nonperforming loans as of December 31 for
the years indicated (dollars in thousands). The improvement in the level of
nonperforming loans is the result of management's increased emphasis on
portfolio monitoring and collection efforts.
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Nonaccrual loans $ 762 $ 889
Loans past due 90 days or more, still accruing interest 0 158
--------- ---------
Total nonperforming loans $ 762 $ 1,047
========= =========
Allowance for loan losses as a percentage of nonperforming loans 119% 112%
</TABLE>
In each accounting period, the allowance for loan and lease losses is adjusted
by management to the amount necessary to maintain the allowance at adequate
levels. Through its credit department, management allocates specific portions of
the allowance for loan losses based on specifically identifiable problem loans.
Management's evaluation of the allowance is further based on consideration of
actual loss experience, the present and prospective financial condition of
borrowers, industry concentrations within the portfolio and general economic
conditions. Management believes that the present allowance is adequate, based on
the broad range of considerations listed above.
10.
<PAGE> 11
The allowance for loan losses totaled $905,873 at December 31, 1999 compared to
the 1998 year end balance of $1,174,888. The allowance for loan losses
represented 1.87% of loans at December 31, 1999 compared with 2.97% at December
31, 1998.
The loan review system and charge-off policy assist management in identifying
problem loans and credit deterioration and continuing implementation of the loan
review system is expected to improve this process further. Management believes
that effective collection efforts, when implemented early, generally result in
lower losses. Management intends to improve this process of loan administration
by streamlining operations and, if necessary, hire additional collectors. Loans
charged off in 1999 aggregated $553,626 compared with $240,627 in 1998.
Recoveries in 1999 and 1998 were $179,611 and $224,425, respectively.
The following table summarizes, for the periods indicated, average loans
outstanding, loans charged off, recoveries and provision charged to operations
(dollars in thousands).
<TABLE>
<CAPTION>
As of and for the years
ended December 31,
1999 1998
---- ----
<S> <C> <C>
Average loans outstanding $ 41,600 $ 39,918
=========== ===========
Balance at beginning of year $ 1,175 $ 936
Provision charged to operating expense 105 255
Recoveries on loans previously charged to the allowance 180 225
Loans charged off (554) (241)
----------- -----------
Net (charge offs)/recoveries (374) (16)
----------- -----------
Balance at end of year $ 906 $ 1,175
=========== ===========
Allowance for loan losses as a percentage of
total loans as of year-end 1.87% 2.97%
Ratio of net (charge-offs)/recoveries to average total loans outstanding
during the year (0.90) (0.04)
</TABLE>
The allowance for loan losses was allocated in the amount deemed reasonably
necessary to provide for possible losses within the following loan categories as
of December 31 (dollars in thousands):
<TABLE>
<CAPTION>
1 9 9 9 1 9 9 8
------- -------
Balance at End of Principal Allocated % of Total Principal Allocated % of Total
Period Allocated to Balance Allowance Loans Balance Allowance Loans
------------------- ------- --------- ----- ------- --------- -----
<S> <C> <C> <C> <C> <C> <C>
Commercial $ 26,914 $ 267 55% $ 19,254 $ 515 49%
Real estate mortgage 16,711 14 35 14,620 20 37
Consumer 4,850 134 10 5,683 123 14
Unallocated 491 517
---------- ---------- ---- --------- ---------- ----
$ 48,475 $ 906 100% $ 39,557 $ 1,175 100%
========== ========== ==== ========= ========== ====
</TABLE>
Management continues to maintain the allowance for loan losses at a level
considered by management to cover possible losses inherent in the portfolio.
During 1999, the Bank experienced strong improvement in the credit quality of
the Bank's loan portfolio, largely in the commercial loan area. Non-performing
loans continue to decline, representing only 1.57% of total loans at December
31, 1999 as compared to 2.65% at December 31, 1998. As a result of such
improvement, management was able to decrease the allowance for loan losses
through a decrease in the provision for loan losses during 1999, while still
maintaining an allowance considered adequate to cover possible losses inherent
in the portfolio.
11.
<PAGE> 12
The primary risk element considered by management with respect to each
installment and residential real estate loan is lack of timely payment.
Management has a reporting system that monitors past due loans and has adopted
policies to pursue its creditor's rights in order to preserve the Bank's
position. The primary risk elements with respect to commercial loans are the
financial condition of the borrower, the sufficiency of collateral, and lack of
timely payment. Management has a policy of requesting and reviewing periodic
financial statements from its commercial loan customers, and periodically
reviews existence of collateral and its value.
Although management believes that the allowance for loan and lease losses is
adequate to absorb losses as they arise, there can be no assurance that the Bank
will not sustain losses in any given period which could be substantial in
relation to the size of the allowance for loans and lease losses.
INVESTMENTS
The investment securities portfolio is a source of earnings with relatively
minimal principal risk. The Bank's portfolio is comprised solely of U.S.
Treasury and Government agency obligations. The investment securities portfolio
experienced a small decline during 1999, decreasing from $52.6 million at
December 31, 1998 to $49.1 million at December 31, 1999. The Corporation
maintains the portfolio at levels to provide adequate pledging for the
repurchase agreement program and secondary liquidity for the Corporation's daily
operations.
The following table shows the maturities and weighted average yields of the
investment portfolio at December 31, 1999 (dollars in thousands).
<TABLE>
<CAPTION>
Carrying Average
Value Yield
----- -----
<S> <C> <C>
Available for sale
U.S. Treasury securities and obligations of U.S. Government agencies
One year or less $ 1,996,563 5.82%
Over one through five years 24,150,088 6.15
Over five through ten years 20,926,900 6.43
--------------
47,073,551 6.27
Mortgage backed securities 24,759 8.50
--------------
47,098,310 6.27
Held to maturity
U.S. Treasury securities and obligations of U.S. Government agencies
One year or less 1,001,790 7.86%
Over one through five years 1,007,530 6.72
--------------
2,009,320 7.29
--------------
$ 49,107,630 6.31%
==============
</TABLE>
As of December 31, 1999, the securities of no issuer, except the U.S.
Government, had an aggregate carrying value that exceeded 10% of shareholders'
equity.
DEPOSITS
The Corporation's major source of funds is from deposits. Total deposits
increased from $94.8 million at December 31, 1998, to $117.6 million at December
31, 1999. A significant increase occurred in demand deposit accounts, and was
due to substantial deposits from local governments and governmental agencies.
Frequently, at the end of a year, the Bank receives large deposits from large
corporations or government agencies for very short terms. Sometimes these are
tax deposits, or tax revenues collected and not ready to be used. Because the
Bank receives a significant amount of these deposits, it maintains a high degree
of liquidity so that withdrawals may be funded easily. These deposits are not
all predictable, but some do follow patterns such as payroll cycles or tax
revenue receipts.
12.
<PAGE> 13
Time deposits decreased from $32.0 million at December 31, 1998 to $25.1 million
at December 31, 1999. Time deposits individually exceeding $100,000 totaled
$11.0 million and $17.4 million at December 31, 1999 and 1998. The maturities of
time deposits individually exceeding $100,000 at year-end were as follows
(dollars in thousands):
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Three months or less $ 6,067 $ 12,092
Three months through six months 2,549 1,589
Six months through twelve months 2,111 1,614
Greater than twelve months 302 2,126
----------- -----------
Total $ 11,029 $ 17,421
=========== ===========
</TABLE>
SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE (REPURCHASE AGREEMENTS)
Repurchase agreements increased $12.2 million from $16.6 million at December 31,
1998 to $28.8 million at December 31, 1999. The securities involved in the
repurchase agreement program are recorded as assets of the Corporation. Although
not considered deposits, and therefore not afforded Federal Deposit Insurance
Corporation insurance, this product enables the Corporation to provide the
equivalent of an interest-bearing checking account to incorporated businesses
that are prohibited by banking regulations from owning such an account. The
repurchase agreement program is designed for businesses that would maintain
relatively large checking account balances. Repurchase agreements as of December
31 were as follows (dollars in thousands):
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Outstanding at year end 28,755 16,649
Average interest rate at year end 4.66% 4.38%
Average month-end balance during the year 22,033 7,164
Average interest rate during the year 4.22% 4.69%
Maximum month-end balance during the year 28,755 16,649
</TABLE>
SHAREHOLDERS' EQUITY
Shareholders' equity, including mandatorily redeemable shares held in the
Employee Stock Ownership Plan, decreased from $5.8 million at December 31, 1998
to $5.3 million at December 31, 1999. The decrease during 1999 was directly
attributable to the after-tax effects of the unrealized losses on available for
sale investment securities, as a result of an increasing interest rate
environment. Management anticipates that interest rates will continue to
modestly increase during 2000 and plans to hold the majority of the available
for sale securities until maturity at which time no loss will be recognized.
The Corporation did not pay any dividends to common shareholders during 1999 or
1998. Preferred dividends in the amount of $34,200 were paid to Class A and B
preferred shareholders during 1998 and 1999. Preferred dividends in the amount
of $47,775 were paid to Class C preferred shareholders during 1999.
The Corporation and Bank continues to maintain capital ratios which exceed the
minimum levels prescribed by its regulatory agencies, as shown in Note 8 of the
consolidated financial statements.
13.
<PAGE> 14
RESULTS OF OPERATIONS
The Corporation reported income attributable to common stock of $889,389 or
$2.64 per common share for 1999. This was 2.5% lower than the $912,193, or $2.71
per share, earned in 1998.
An increase in net interest income and non-interest income, and a decrease in
the provision for loan losses positively impacted net income for 1999, which
were offset by an increase in non-interest expense and the recording of tax
expense for 1999.
During 1999, the Corporation became taxable, recording income taxes of
approximately $72,000, primarily due to a reduction in a previously established
valuation allowance and the recording of a net deferred tax asset as a result of
a trend of positive net income and management's belief that such trend will
continue. At December 31, 1999, the Corporation had net operating loss
carryforwards for federal income tax purposes of approximately $200,000 which,
if not used, will expire beginning in 2005.
The following table shows some of the key equity performance ratios for the year
ended December 31, 1999 and December 31, 1998.
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Return on average total assets 0.78% 0.88%
Return on average equity 17.32 17.33
Average equity to average assets 4.51 5.09
</TABLE>
NET INTEREST INCOME
Net interest income, the difference between revenue generated from earning
assets and the interest cost of funding those assets, is the Corporation's
primary source of earnings. Interest income and interest expense totaled $8.1
million and $2.9 million during 1999, respectively, providing for net interest
income of $5.2 million. The net yield on average earning assets during 1999 was
4.54%. The level of net interest income is primarily a function of asset size,
as the weighted average interest rate received on earning assets is greater than
the weighted average interest cost of funding sources; however, factors such as
types of assets and liabilities, interest rate risk, liquidity, and customer
behavior also impact net interest income as well as the net yield. The following
table depicts the average balance, interest earned and paid, and weighted
average rate of the Corporation's assets, liabilities and shareholders' equity
during 1999 and 1998:
<PAGE> 15
<TABLE>
<CAPTION>
Years ended December 31,
---------------------1 9 9 9--------------- --------------------1 9 9 8---------------
Average Average Average Average
Balance Interest Rate Balance Interest Rate
------- -------- ---- ------- -------- ----
<S> <C> <C> <C> <C> <C> <C>
Loans, net (1) $ 41,600 $ 3,914 9.41% $ 39,918 $ 3,928 9.84%
Investment securities 53,627 3,251 6.06 46,046 2,802 6.09
Federal funds sold 18,898 931 4.93 14,070 733 5.21
----------- --------- ---------- ----------
Total earning assets 114,125 8,096 7.09 100,034 7,463 7.46
Other non-earning assets 10,190 7,262
----------- ----------
Total assets $ 124,315 $ 107,296
=========== ==========
Money market deposits $ 9,781 $ 204 2.09% $ 8,627 $ 183 2.12%
Savings deposits 15,001 256 1.71 14,523 327 2.25
Time deposits 28,335 1,215 4.29 31,218 1,374 4.40
----------- --------- ---------- ----------
Total interest-bearing
deposits 53,117 1,675 3.15 54,368 1,884 3.47
Short term borrowings 27,034 1,181 4.37 12,164 608 5.00
Long term debt 900 54 6.00 900 54 6.00
----------- --------- ---------- ----------
Total interest-bearing
liabilities 81,051 2,910 3.59 67,432 2,546 3.78
--------- ----------
Other liabilities 37,656 34,402
----------- ----------
Total liabilities 118,707 101,834
Average equity 5,608 5,462
----------- ----------
Total liabilities and
equity $ 124,315 $ 107,296
=========== ==========
Net interest income $ 5,186 $ 4,917
========= ==========
Rate spread 3.50 3.68
Net interest margin 4.54 4.92
</TABLE>
(1) Net of secured loan borrowings under loan participation agreements.
The following table presents the dollar amount of change in interest income and
interest expense for major components of interest-earning assets and
interest-bearing liabilities. For purposes of this table, changes attributable
to both rate and volume, which cannot be segregated, have been allocated
proportionately to the change due to volume and change due to rate.
<TABLE>
<CAPTION>
Year ended December 31,
-----------1999 over 1998--------- ----------1998 over 1997----------
Total Volume Rate Total Volume Rate
----- ------ ---- ----- ------ ----
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in interest income
Loans $ (14) $ 162 $ (176) $ (165) $ (158) $ (7)
Investment securities 449 460 (11) 831 768 63
Federal funds sold 198 240 (42) 14 48 (34)
---------- ---------- --------- --------- ---------- -----------
Net change in tax-equivalent income 633 862 (229) 680 658 22
Increase (decrease) in interest expense
Money market deposits 21 24 (3) 50 55 (5)
Savings deposits (71) 10 (81) (17) (2) (15)
Time deposits (159) (124) (35) 18 (63) 81
Short term borrowings 573 658 (85) 314 314
---------- ---------- --------- --------- ---------- ----------
Net change in interest expense 364 568 (204) 365 (10) 375
---------- ---------- --------- --------- ---------- ----------
Net change in tax-equivalent
net interest income $ 269 $ 294 $ (25) $ 315 $ 668 $ (353)
========== ========== ========= ========= ========== ==========
</TABLE>
<PAGE> 16
Interest income is primarily generated from the loan portfolio, which comprised
33.5% of average total assets during 1999. The loan portfolio, with an average
yield of 9.41%, earned $3.9 million, or 48.3% of total interest income. The
investment securities portfolio and Federal funds sold equaled 43.1% and 15.2%
of average total assets during 1999, respectively. With an average yield of
6.1%, investment securities contributed $3.3 million, or 40.2% of total interest
income, while Federal funds sold ended 1999 with an average yield of 4.9%, and
earned $0.9 million, or 11.5% of total interest income.
Interest expense is primarily generated from interest-bearing deposits, which
equaled 42.7% of average total assets during 1999. Time deposits, with an
average rate of 4.3%, represents $1.2 million, or 41.8% of total interest
expense. With an average rate of 1.7%, savings deposits represent $0.2 million,
or 8.8% of total interest expense, while money market deposits ended 1999 with
an average rate of 2.1%, representing $0.2 million, or 7.0% of total interest
expense. Short term borrowings, comprised primarily of repurchase agreements but
also including Federal funds purchased, had an average rate of 4.4% during 1999.
The Corporation paid $1.2 million in short term interest expense, or 40.6% of
total interest expense. Long term debt is comprised solely of senior notes; with
an average rate of 6%, senior notes cost $54,000, or 1.9% of total interest
expense.
PROVISION FOR LOAN LOSSES
Management establishes the provision for loan losses each quarter to maintain
the allowance for loan losses at a level sufficient to absorb potential losses
in the loan portfolio. Economic conditions, risks inherent in the portfolio,
loan loss experience, and conditions peculiar to specific industries are factors
considered in determining the adequacy of the loan loss allowance. However, it
is possible that potential losses exist in the loan portfolio that have not been
specifically identified.
The provision for loan losses was $105,000 and $255,000 for 1999 and 1998. The
decrease in the provision for loan losses is a direct result of a decrease in
the nonperforming loans within the portfolio as of December 31, 1999 as compared
to December 31, 1998, as more fully discussed above. The provision for loan
losses represents the adjustment to the allowance for loan losses needed to
maintain the allowance at a level determined by management to cover inherent
losses within the Corporation's loan portfolio. The allowance for loan losses is
based on the application of projected loss ratios to the risk-ratings of loans,
both individually and by category. Projected loss ratios incorporate such
factors as recent loss experience, current economic conditions and trends,
trends in past due and impaired loans, and risk characteristics of various
categories and concentrations of loans.
NONINTEREST INCOME
Noninterest income was $1,332,284 during 1999, compared to $1,073,683 during
1998. The primary increase was due to an increase of ATM surcharge income of
approximately $380,000 over the prior year to $571,067 for 1999. The increase in
ATM surcharge income is due to the addition of several ATMs in the new Detroit
casinos. Management anticipates that ATM surcharge income will continue to
increase during 2000, as the Bank continues to add ATMs within the Detroit
casinos. During 1999, service charges on deposit accounts remained relatively
stable at $692,001 for 1999. Net losses on sales of residential real estate
loans were $2,484, decreasing $28,000 as less volume on residential real estate
occurred.
16
<PAGE> 17
NONINTEREST EXPENSE
Noninterest expense increased $581,290 or 12.1% to $5,370,096 in 1999, from
$4,788,806 in 1998. The increase was primarily a result of an increase in
salaries and employee benefits during 1999, from $2.4 million during 1998 to
$2.6 million during 1999, largely due to an increase in the average number of
employees, primarily from the opening of the new branch in Greektown. In
addition, during 1999, occupancy expense increased $176,000 to $1.3 million as a
result of repairs at the main office and branch locations, professional services
increased $80,000 to $389,118, and stationery, printing and supplies increased
$15,000 to $104,814.
INCOME TAX EXPENSE
As discussed above, during 1999, the Corporation became taxable, recording
income taxes of approximately $72,000, primarily due to a reduction in a
previously established valuation allowance and the recording of a net deferred
tax asset as a result of a trend of positive net income and management's belief
that such trend will continue. No income taxes were necessary for 1998. At
December 31, 1999, the Corporation had net operating loss carryforwards for
federal income tax purposes of approximately $200,000 which, if not used, will
expire beginning in 2005.
CAPITAL RESOURCES
Shareholders' equity is a noninterest-bearing source of funds which provides
support for asset growth. Shareholders' equity, including mandatorily redeemable
shares held in the Employee Stock Ownership Plan, was $5.3 million and $5.8
million at December 31, 1999 and 1998, respectively. The decrease is due to the
increase in unrealized loss on securities available for sale during 1999.
The Corporation and Bank are subject to regulatory capital requirements
administered by federal banking agencies. Failure to meet the various capital
requirements can initiate regulatory action that could have a direct material
effect on the financial statements. The Bank has been categorized as "Well
Capitalized," the highest classification contained within the banking
regulations. The capital ratios of the Corporation and Bank as of December 31,
1999 and 1998 are disclosed in Note 8 of the Notes to Consolidated Financial
Statements.
The ability of the Corporation to pay cash and stock dividends is subject to
limitations under various laws and regulations and to prudent and sound banking
practices, including maintaining adequate capital for growth of the Bank's
business. No cash or stock dividends were paid to common shareholders in 1999 or
1998.
17
<PAGE> 18
LIQUIDITY
Liquidity is measured by the Corporation's ability to raise funds through
deposits, borrowed funds, capital or cash flow from the repayment of loans and
investment securities. These funds are used to meet deposit withdrawals,
maintain reserve requirements, fund loans and operate the Corporation. Liquidity
is primarily achieved through the growth of deposits and liquid assets such as
securities available for sale, matured securities, and Federal funds sold. Asset
and liability management is the process of managing the balance sheet to achieve
a mix of earning assets and liabilities that maximizes profitability, while
providing adequate liquidity. The Corporation's liquidity strategy is to fund
loan growth with deposits and repurchase agreements and to maintain an adequate
level of short- and medium-term investments to meet typical daily loan and
deposit activity.
The Corporation has the ability to borrow money on a daily basis through
correspondent banks (Federal funds purchased), which it did on several occasions
during 1999; however, this is viewed as only a secondary and temporary source of
funds. During 1999, the Corporation's Federal funds sold position averaged $18.9
million.
During 1999, an increase in deposits of $22.8 million and an increase in
repurchase agreements of $12.1 million was primarily used to fund the growth in
loans and Federal funds sold.
In addition to normal loan funding and deposit flow, the Corporation also needs
to maintain liquidity to meet the demands of certain unfunded loan commitments
and standby letters of credit. As of December 31, 1999, the Corporation had a
total of $18.4 million in unfunded loan commitments and $0.7 million in unfunded
standby letters of credit. The Corporation monitors fluctuations in loan
balances and commitment levels, and includes such data in its overall liquidity
management.
MARKET RISK
The Corporation's primary market risk exposure is interest rate risk and, to a
lesser extent, liquidity risk. All of the Corporation's transactions are
denominated in U.S. dollars with no specific foreign exchange exposure. The
Corporation has only limited agricultural-related loan assets and therefore has
no significant exposure to changes in commodity prices. Any impacts that changes
in foreign exchange rates and commodity prices would have on interest rates are
assumed to be insignificant.
Interest rate risk is the exposure of the Corporation's financial condition to
adverse movements in interest rates. The Corporation derives its income
primarily from the excess of interest collected on its interest-earning assets
over the interest paid on its interest-bearing liabilities. The rates of
interest the Corporation earns on its assets and owes on its liabilities
generally are established contractually for a period of time. Since market
interest rates change over time, the Corporation is exposed to lower
profitability if it cannot adapt to interest rate changes. Accepting interest
rate risk can be an important source of profitability and shareholder value;
however, excessive levels of interest rate risk could pose a significant threat
to the Corporation's earnings and capital base. Accordingly, effective risk
management that maintains interest rate risk at prudent levels is essential to
the Corporation's safety and soundness.
Evaluating the exposure to changes in interest rates includes assessing both the
adequacy of the process used to control interest rate risk and the quantitative
level of exposure. The Corporation's interest rate risk management process seeks
to ensure that appropriate policies, procedures, management information systems
and internal controls are in place to maintain interest rate risk at prudent
levels with consistency and continuity. In evaluating the quantitative level of
interest rate risk the Corporation assesses the existing and potential future
effects of changes in interest rates on its financial condition, including
capital adequacy, earnings, liquidity and asset quality.
18
<PAGE> 19
The Corporation uses a GAP analysis to measure interest rate risk. The matching
of maturity or repricing of assets and liabilities may be analyzed by examining
the extent to which such assets and liabilities are "interest rate sensitive",
and by monitoring an institution's interest rate sensitivity "gap". An asset or
liability is said to be interest rate sensitive within a specific time period if
it will mature or reprice within that time period. A significant repricing gap
could result in a negative impact to the Corporation's net interest margin
during periods of changing market interest rates.
The interest rate sensitivity gap is defined as the difference between the
amount of interest-earning assets anticipated, based upon certain assumptions,
to mature or reprice within a specific time period and the amount of
interest-bearing liabilities maturing or repricing within that same time period.
A gap is considered positive when the amount of interest rate sensitive assets
exceeds the amount of interest rate sensitive liabilities. A gap is considered
negative when the amount of interest rate sensitive liabilities exceeds the
amount of interest rate sensitive assets. During a period of rising interest
rates, a negative gap would tend to adversely affect net interest income while a
positive gap would tend to result in an increase in net interest income,
although the magnitude of repricing of individual items also will effect the
change in net interest income.
At December 31, 1999, the Corporation's total interest-bearing liabilities
maturing or repricing within one year exceeded total interest-earning assets
maturing or repricing in the same period by $19.0 million, representing a
negative cumulative one-year gap ratio of 13.3% of total interest-earning
assets. Therefore, management believes that the Corporation could be adversely
affected during a period of rising interest rates depending on the magnitude of
repricing of individual items.
The following table depicts the Corporation's GAP position as of December 31,
1999 (dollars in thousands):
<TABLE>
<CAPTION>
Within Three to One to After
Three Twelve Five Five
Months Months Years Years Total
------ ------ ----- ----- -----
<S> <C> <C> <C> <C> <C>
Assets:
Gross loans $ 17,229 $ 4,480 $ 23,359 $ 3,407 $ 48,475
Federal funds sold 48,800 48,800
Investment securities 5,003 5,998 24,150 14,422 49,573
----------- ----------- ----------- ----------- -----------
Total interest-earning assets 71,032 10,478 47,509 17,829 146,848
Liabilities and shareholders' equity:
Savings 14,249 14,249
NOW accounts 25,217 25,217
Time deposits less than $100,000 5,056 7,566 1,449 14,071
Time deposits $100,000 and over 6,167 4,660 201 11,028
Repurchase agreements 28,755 28,755
Short term borrowings 5,000 5,000
Secured borrowings 3,880 3,880
Long term debt 900 900
----------- ----------- ----------- ----------- -----------
Total interest-bearing liabilities 88,324 12,226 1,650 900 103,100
----------- ----------- ----------- ----------- -----------
Interest-earning assets less
interest-bearing liabilities $ (17,292) $ (1,748) $ 45,859 $ 16,929 $ 43,748
=========== =========== =========== =========== ===========
Cumulative GAP $ (17,292) $ (19,040) $ 26,819 $ 43,748
=========== =========== =========== ===========
Percent of cumulative GAP to
total interest-earning assets (12.1)% (13.3)% 18.8% 30.6%
=========== =========== =========== ===========
</TABLE>
19
<PAGE> 20
For purposes of the GAP table, Savings and NOW deposit accounts are considered
as maturing within 90 days, as management has broad discretion in repricing
these deposits should the overall interest rate environment change
significantly, and time deposits are not considered to be withdrawn prior to
maturity.
One limitation of the traditional GAP analysis is that it does not consider the
timing or magnitude of noncontractual repricing or expected prepayments.
Considering these assumptions and limitations of the GAP analysis, and based on
the results of other interest rate risk management tools used by the
Corporation, management believes the Corporation is properly positioned against
significant changes in interest rates without significantly altering operating
results.
YEAR 2000 ISSUE
During 1999, the Corporation completed its comprehensive Year 2000 (Y2K) plan in
preparing for the Year 2000 date change. The plan involved identifying and
providing a remedy for date recognition problems that might pertain to any
facets of the Corporation's business. These included problems in computer
hardware and software, physical plant and other equipment, working with third
parties to address their Year 2000 issues, assessing major loan and deposit
customers for potential risk and developing contingency plans to address
potential risks in the event of Year 2000 failures. To date, the Corporation has
experienced no disruption in service of any type in the transition to 2000.
During 1999 and 1998, approximately $60,000 and 65,000, respectively, were
charged to expense for depreciation, employee wages and professional services to
test, remediate and upgrade computer workstations, software and networks.
Although considered unlikely, unanticipated problems in the Corporation's core
business process, including problems associated with non-compliant third parties
and disruptions to the economy in general, could still occur despite efforts to
date to remedy affected systems and develop contingency plans. All business
processes will continue to be monitored, including interaction with the
Corporation's customers, vendors and other third parties, throughout 2000 to
address any issues and ensure all processes continue to function properly.
ITEM 7. FINANCIAL STATEMENTS
The consolidated financial statements beginning at page 23 of this annual report
on Form 10-KSB and are incorporated herein by reference.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
20
<PAGE> 21
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
The table below presents information regarding the members of the Board
of Directors of the Corporation and the Bank as of December 31, 1999. All of the
members of the Board of Directors are United States citizens.
<TABLE>
<CAPTION>
SHARES OF
COMMON STOCK OF
BANK CORPORATION PERCENT OF
NAME AND PRINCIPAL OCCUPATION OR DIRECTOR SINCE BENEFICIALLY COMMON
EMPLOYMENT FOR LAST FIVE YEARS (A) AGE OWNED (B) STOCK
========================================================================================================================
<S> <C> <C> <C> <C>
Barry Clay...................................... 1996 38 824 (d)
President, Barclay Mortgage Funding
Group (1997 to present), mortgage
lender; Team Leader, Capacity Strategy
and Production Planning Department
(1994-1997)
Don Davis....................................... 1980 61 211,376(b) 62.8
Chairman of the Board of the
Corporation and of the Bank; President,
United Sound Systems, Inc. and
President, Conquistador / Groovesville
Music, Inc., record producers and
recording studios; President, Liberty
Risk Management, Inc., insurance
agency; President Mahogany Investment
Advisors, investment advisory firm
William Fuller.................................. 1999 56 379 (d)
President of the Corporation and of the Bank
since 1998; Executive Vice President, Shore
Bank Corporation, (1995-1998); Senior Vice
President, Shawmut Bank (1989-1995). Member
of Board of Directors of One Stop Capital
Shop, Metro Matrix, Greater Detroit Area
Health Council, and Eureka Detroit, all
community service organizations
Georgis I. Garmo................................ 1996 61 334 (d)
President, Garmo & Co., P.C., Certified
Public Accountants (1975 - Present)
</TABLE>
21
<PAGE> 22
<TABLE>
<CAPTION>
SHARES OF
COMMON STOCK OF
BANK CORPORATION PERCENT OF
NAME AND PRINCIPAL OCCUPATION OR DIRECTOR SINCE BENEFICIALLY COMMON
EMPLOYMENT FOR LAST FIVE YEARS (A) AGE OWNED (B) STOCK
========================================================================================================================
<S> <C> <C> <C> <C>
Shares of
Dr. Charles E. Morton........................... 1969 74 3,700(b)(c) 1.1
Emeritus Pastor, Metropolitan Baptist
Church; Adjunct Professor of
Philosophy, Oakland University
Jamal Shallal................................... 1996 60 334 (d)
Executive Vice President, Lincorp
Research, Inc., a management consulting
and investment management firm
(1985 - Present)
Geneva J. Williams.............................. 1997 51 334 (d)
Executive Vice President and Chief
Operating Officer, United Way
Community Services, Detroit, Michigan
(1995-present); President and Chief
Executive Officer, United Community
Services of Metropolitan Detroit
(1991 - 1995)
Alan C. Young................................... 1996 45 334 (d)
Managing Director, Alan C. Young &
Associates, P.C. (1983 - Present)
All directors and officers as a group (9 219,332 65.2
persons including those named above)
========================================================================================================================
</TABLE>
(a) The Corporation was formed in 1986 and the incumbent directors have
been directors of the Corporation since its formation except those
persons for which a year after 1986 is shown.
(b) Each director possesses sole voting and investment power with respect
to the shares shown unless indicated otherwise below. The numbers of
shares shown for Mr. Don Davis include 3,969 shares allocated to his
account under the First Independence Corporation Employee Stock
Ownership Plan for which he has only sole voting power. The number of
shares shown for Dr. Morton includes 300 shares held jointly with his
wife in which they share voting and investment power.
(c) Includes option to purchase up to 3,000 shares of Common Stock at $5
per share for a five-year period ending May 23, 2000. These options
cannot be voted because they were not exercised before April 14, 2000.
(d) Less than one percent.
EXECUTIVE OFFICERS
In addition to Mr. Don Davis listed in the table above, executive
officers of the Corporation, as of December 31, 1999, included William Fuller,
President of the Corporation and the Bank since 1998, Rose Ann Lacy, Senior Vice
22
<PAGE> 23
President and Chief Financial Officer of the Corporation since 1989 and of the
Bank since 1986, who beneficially owns 1,717 shares of Common Stock and John
Boudreau, Executive Vice President of the Bank since 1997; Senior Vice President
- - Administration (1994-1997). All the executive officers are United States
citizens.
ITEM 10. EXECUTIVE COMPENSATION.
EXECUTIVE COMPENSATION
The following table presents the cash compensation paid to the
Corporation's officers whose total annual salary and bonus exceeded $100,000 in
1997 - 1999.
<TABLE>
<CAPTION>
NAME PRINCIPAL POSITION YEAR SALARY BONUS
========================================================================================================================
<S> <C> <C> <C> <C>
Don Davis Chairman of the Board of Directors of the 1999 $172,800 $44,220
Corporation and the Bank; Interim President 1998 175,000 20,000
and Chief Executive Officer since 1996 1997 148,293
John Boudreau Executive Vice President of the Bank and 1998 104,991 12,000
Chief Operating Officer
William Fuller President of the Bank and the Corporation 1999 138,455 5,000
========================================================================================================================
</TABLE>
Mr. Fuller and the Bank entered into an employment contract dated July
20, 1998 for two years under which he was paid $130,000 in the first year of
employment plus $15,000 when he was appointed President by the Board of
Directors. He is being paid $135,000 in the second year of the contract. In
addition, Mr. Fuller receives an automobile allowance of $300 per month and the
same employee benefits afforded to all other employees of the Bank. In the event
of an involuntary termination of Mr. Fuller's employment by the Bank, Mr. Fuller
will be paid sixty days' compensation at his then-existing base rate.
The Corporation and the Bank do not presently have any long-term
incentive compensation plans, except the 1995 Employee Stock Option Plan and a
401-K retirement plan which are described below. The Corporation has not granted
any stock options since 1995 and no officer or director exercised any options
previously granted to him or her.
The Employee Stock Option Plan was adopted in 1995. It authorizes the
issuance of up to 67,352 shares of Common Stock to key salaried employees and
directors of the Corporation as an incentive to such key employees. Options
granted under the Plan may be incentive stock options within the meaning of
Section 422 of the Internal Revenue Code of 1986 or they may be non-qualified
options which do not meet the requirements of that section. The Plan is
administered by a stock option committee. At April 14, 2000, there were 64,352
shares available for issuance under the Plan and options were outstanding and
unexercised for 3,000 shares.
The Corporation had an Employee Stock Ownership Plan which is qualified
under Section 401(a) of the Internal Revenue Code of 1986, but it was suspended
in 1996. There have been no contributions to the plan since 1991 and no new
employees have become participants in the Plan since 1994. All shares of stock
in the plan are allocated to the accounts of the participants. Unvested shares
forfeited by terminated employees are reallocated among all Plan participants as
of the last day of the year of forfeiture in the proportion which each
participant's annual compensation bears to the total annual compensation of all
Plan participants. As of December 31, 1999, there were 3,969 shares allocated
under the Plan to Don Davis' account.
The Bank adopted a 401(k) Plan in 1998 in which all full-time employees
may participate after one year of employment. Employees may contribute up to 15%
of their compensation into the plan each year, but not in excess of
23
<PAGE> 24
$10,000 per year. The maximum amount of contribution to the Plan is established
by law and regulations. The Bank contributes a matching amount on behalf of each
participating and contributing employee equal to 50% of the employee's
contribution each year, but not exceeding 3% of the employee's salary.
Investments in the Plan are directed by each participating employee and they
have a range of investment options including stock, bond and guaranteed interest
investments.
Directors who were not officers were paid the following fees for Bank
Board of Directors and Committee meetings until June 30, 1999: a monthly stipend
of $200; a meeting fee of $240 for each Board meeting; and $100 for each
Committee meeting. Beginning July 1, 1999, each non-employee Director is paid an
annual retainer of $7,500, and $100 for each Bank committee meeting attended.
There is no separate payment for attending Bank Board meetings. After 10 years
of service, Directors will be entitled to a $300/month pension. The pension
becomes payable at the later of age 65 or retirement from the Board. No fees are
paid for attendance at the Corporation's Board or Committee meetings.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
OWNERSHIP OF THE CORPORATION'S EQUITY SECURITIES
The following table furnishes information with respect to the
beneficial owners of more than five percent of any class of the Corporation's
equity securities as of December 31, 1999.
<TABLE>
<CAPTION>
AMOUNT AND NATURE
NAME AND ADDRESS OF OF BENEFICIAL
TITLE OF CLASS BENEFICIAL OWNER OWNERSHIP* PERCENT OF CLASS
========================================================================================================================
<S> <C> <C> <C>
Common Stock Don Davis 211,376 62.8
5840 Second Avenue
Detroit, Michigan 48202
Common Stock First Independence Corp. 34,800 10.33
Employee Stock Ownership Plan
44 Michigan Avenue
Detroit, Michigan
Class A Preferred Don Davis 3,000 75.00
5840 Second Avenue
Detroit, Michigan 48202
Class A Preferred Tower Ventures, Inc. 1,000 25.00
12655 North Central Expressway
Dallas, TX 75243
Class B Preferred Dearborn Capital Corp. 2,000 62.50
P.O. Box 1729
Dearborn, Michigan
Class B Preferred Hudson-Webber Foundation 1,200 37.50
333 West Fort Street
Detroit, Michigan
</TABLE>
24
<PAGE> 25
<TABLE>
<CAPTION>
AMOUNT AND NATURE
NAME AND ADDRESS OF OF BENEFICIAL
TITLE OF CLASS BENEFICIAL OWNER OWNERSHIP* PERCENT OF CLASS
========================================================================================================================
<S> <C> <C> <C>
Amount and Nature
Class C Preferred Michigan State Housing 1,500 100.00
(Series MI-1) Development Authority
1200 6th Street
Detroit, Michigan 48226
Class C Preferred Blue Cross-Blue Shield of Michigan 45.716 17.44
(Series 1994-1) 600 E. Lafayette
Detroit, Michigan 48226
Class C Preferred Dearborn Capital Corp. 89.000 33.96
(Series 1994-1) P.O. Box 1729
Dearborn, Michigan
Class C Preferred Don Davis 29.500 11.26
(Series 1994-1) 5840 Second Avenue
Detroit, Michigan 48202
Class C Preferred Tower Ventures 22.959 8.76
(Series 1994-1) 12655 North Central Expressway
Dallas, TX 75243
Class C Preferred Motor Enterprises 39.375 15.02
(Series 1994-1) 3044 W. Grand Blvd.
Detroit, Michigan 48202
</TABLE>
* Each owner possesses sole voting and investment power with respect to
the shares shown except as follows. The number of shares of Common
Stock shown for Mr. Davis includes 3,969 shares credited to his account
under the First Independence Corporation Employee Stock Ownership Plan
as of April 14, 2000, for which he only has voting power. The shares
shown for the First Independence Employee Stock Ownership Trust are
voted by the independent Trustee, except that participants in the First
Independence Corporation Employee Stock Ownership Plan are entitled to
direct the Trustee as to the manner of voting shares allocated to their
accounts. As of April 14, 2000, all shares held by the Trust were
allocated to participant's accounts. Shares of preferred stock are not
entitled to vote in the election of directors, except that shares of
Class A Preferred Stock may elect additional directors in the case of
certain dividend arrearage which does not currently apply.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
INTEREST IN CERTAIN TRANSACTIONS
In the ordinary course of its business, the Bank had, during 1999, and
expects to have in the future, transactions with some of its directors and
officers, and their families and the companies with which they are associated.
All such transactions, which included commitments for loans and loans made by
the Bank, were based on terms, including rates, collateral and repayment terms,
substantially the same as those prevailing at the time for comparable
transactions with other persons, and in the opinion of the Board of Directors
and the management of the Bank such transactions did not and do not involve more
than the normal risk of collectibility or present other unfavorable features.
25
<PAGE> 26
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
<TABLE>
<S><C>
EXHIBIT NO. EXHIBIT DESCRIPTION
3 Articles of Incorporation and By-Laws of the registrant were
previously filed as an exhibit to the Annual Report on Form 10-K for the year
ended December 31, 1992 (File No. 0-15777) and are incorporated herein by
reference. Amendments to Articles of Incorporation authorizing additional
common stock, authorizing Class C Preferred Stock, crediting the terms and
conditions of Class C Preferred Stock, Series 1994-1, and Series MI-1, were
set forth as Exhibits to the Proxy Statement dated September 8, 1994.
4 Instruments defining the rights of security holders are
the Articles of Incorporation and By-Laws (see Exhibit 3, above) and certain
debt instruments which do not authorize an amount of debt exceeding 10 percent
of the Corporation's assets. The Corporation agrees to furnish such
instruments to the Commission on request.
10.(i)-1 Agreement by and between First Independence
National Bank and the Office of the Comptroller of the Currency dated as of
April 15, 1991, was previously filed as an exhibit to the Annual Report on
Form 10-K for the year ended December 31, 1990 (File No. 0-15777) and is
incorporated herein by reference.
</TABLE>
26.
<PAGE> 27
<TABLE>
<S><C>
10.(ii)(A)-2 1995 Employee Stock Option Plan of First Independence
Corporation, adopted at annual shareholders meeting on May 23, 1995, was set
forth as Exhibit A to the Proxy Statement dated April 18, 1995 (File No.
0-15777) and is incorporated herein by reference.
99(A) Letter of authorization from the Federal Reserve Bank of
Chicago to First Independence Corporation to incur additional debt, dated
August 23, 1991, was previously filed as an exhibit to the Annual Report on
Form 10-K for the year ended December 31, 1991 (File No. 0-15777) and is
incorporated herein by reference.
99(B) Letter from the Federal Reserve Bank of Chicago dated
September 28, 1994, approving terms and conditions of Class C Preferred Stock,
Series MI-1, and Class C Preferred Stock, Series 1994-1 was previously filed
as an exhibit to the Annual Report on Form 10-K for the year ended December
31, 1994 (File No. 0-15777) and is incorporated herein by reference.
Stipulation and consent to the issuance of a consent order, and the consent
order by and between First Independence National Bank and the Office of the
Comptroller of the Currency dated October 7, 1992 was previously filed as an
exhibit to the Annual Report on Form 10-K for the year ended December 31, 1992
(File No. 0-15777) and is incorporated herein by reference.
10.(i)-2 A report on Form 8-K was filed on October 25, 1996, which
included information on the change in First Independence's Certifying
Accountants from Coopers and Lybrand LLP to Crowe, Chizek and Company LLP and
is incorporated herein by reference.
27 Financial Data Schedule
</TABLE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
FIRST INDEPENDENCE CORPORATION
/s/ William Fuller
- ------------------
William Fuller
President
Date: March 31, 2000
/s/ Rose Ann Lacy
- ------------------
Rose Ann Lacy
Senior Vice President and Chief
Financial Officer
Date: March 31, 2000
27.
<PAGE> 28
FIRST INDEPENDENCE CORPORATION
Detroit, Michigan
CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
CONTENTS
<TABLE>
<S> <C>
REPORT OF INDEPENDENT AUDITORS......................................... 29
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS....................................... 30
CONSOLIDATED STATEMENTS OF INCOME................................. 31
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY................... 32
CONSOLIDATED STATEMENTS OF CASH FLOWS............................. 33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS........................ 34-52
</TABLE>
28.
<PAGE> 29
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholders
First Independence Corporation
Detroit, Michigan
We have audited the accompanying consolidated balance sheets of First
Independence Corporation as of December 31, 1999 and 1998, and the related
consolidated statements of income, shareholders' equity and cash flows for the
years then ended. These financial statements are the responsibility of the
Corporation's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of First Independence
Corporation as of December 31, 1999 and 1998, and the results of its operations
and its cash flows for the years then ended in conformity with generally
accepted accounting principles.
Crowe, Chizek and Company LLP
Grand Rapids, Michigan
February 25, 2000
29.
<PAGE> 30
FIRST INDEPENDENCE CORPORATION
CONSOLIDATED BALANCE SHEETS
December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
ASSETS
Cash and due from banks $ 8,947,521 $ 3,765,361
Federal funds sold 48,800,000 24,205,000
--------------- ----------------
Total cash and cash equivalents 57,747,521 27,970,361
Securities available for sale 47,098,310 48,018,245
Securities held to maturity (fair value of
$2,007,300 and $4,632,188 in 1999 and 1998) 2,009,320 4,570,554
Federal Home Loan Bank and Federal Reserve Bank stock 465,300 167,100
Loans
Commercial 17,116,659 10,836,714
Commercial real estate 9,797,005 8,416,970
Residential real estate 16,710,989 14,620,041
Consumer 4,850,431 5,683,525
--------------- ----------------
Total loans 48,475,084 39,557,250
Allowance for loan losses (905,873) (1,174,888)
--------------- ----------------
47,569,211 38,382,362
Premises and equipment, net 3,778,476 3,293,035
Accrued interest receivable and other assets 3,506,339 1,220,941
--------------- ----------------
Total assets $ 162,174,477 $ 123,622,598
=============== ================
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Deposits
Noninterest-bearing $ 53,071,541 $ 41,048,374
Interest-bearing 64,565,358 53,749,304
--------------- ----------------
Total deposits 117,636,899 94,797,678
Securities sold under agreements to repurchase 28,754,604 16,649,188
Federal funds purchased 5,000,000 5,000,000
Accrued interest payable and other liabilities 703,581 499,128
Secured borrowings under loan participation agreements 3,879,882 0
Long-term debt 900,000 900,000
--------------- ----------------
Total liabilities 156,874,966 117,845,994
Mandatorily redeemable shares under ESOP, at fair value 365,400 287,100
Shareholders' equity
Preferred stock 2,482,086 2,615,797
Common stock, $1 par value; 1,000,000 shares authorized;
336,760 shares issued and outstanding; 301,960 shares outstanding after
reduction for 34,800 mandatorily
redeemable shares under ESOP 301,960 301,960
Capital surplus 2,039,182 2,117,482
Retained earnings 1,273,456 384,067
Accumulated other comprehensive income (loss) (1,162,573) 70,198
--------------- ----------------
Total shareholders' equity 4,934,111 5,489,504
--------------- ----------------
Total liabilities and shareholders' equity $ 162,174,477 $ 123,622,598
=============== ================
</TABLE>
See accompanying notes to consolidated financial statements.
30.
<PAGE> 31
FIRST INDEPENDENCE CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Interest income
Loans, including fees $ 3,913,936 $ 3,927,728
Taxable securities 3,250,508 2,801,849
Federal funds sold and other 931,491 733,165
-------------- ---------------
8,095,935 7,462,742
Interest expense
Deposits 1,674,623 1,884,038
Securities sold under agreements to repurchase 930,171 336,075
Other borrowed funds 305,055 326,113
-------------- ---------------
2,909,849 2,546,226
-------------- ---------------
NET INTEREST INCOME 5,186,086 4,916,516
Provision for loan losses 105,000 255,000
-------------- ---------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 5,081,086 4,661,516
Noninterest income
Services charges on deposit accounts 692,001 701,674
Net gains (losses) on sales of residential real estate loans (2,484) 25,753
ATM income 571,067 191,078
Other 71,700 155,178
-------------- ---------------
1,332,284 1,073,683
Noninterest expenses
Salaries and employee benefits 2,644,804 2,388,976
Occupancy 1,300,077 1,124,113
Professional services 389,118 308,896
Stationery, printing and supplies 104,814 89,545
Insurance expense 62,094 54,911
Other 869,189 822,365
-------------- ---------------
5,370,096 4,788,806
-------------- ---------------
INCOME BEFORE FEDERAL INCOME TAXES 1,043,274 946,393
Federal income tax expense 71,910 0
-------------- ---------------
NET INCOME 971,364 946,393
Preferred stock dividends 81,975 34,200
-------------- ---------------
INCOME ATTRIBUTABLE TO COMMON STOCK $ 889,389 $ 912,193
============== ===============
Basic earnings per common share $ 2.64 $ 2.71
========== =========
Diluted earnings per common share $ 2.63 $ 2.70
========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
31.
<PAGE> 32
FIRST INDEPENDENCE CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Years ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
Retained Accumulated
Earnings Other
Preferred Common Capital (Accumulated Comprehensive
Stock Stock Surplus Deficit) Income (Loss)
----- ----- ------- ------- ------------
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1998 $ 2,749,508 $ 301,831 $ 2,181,165 $ (528,126) $ 39,564
Comprehensive income:
Net income 946,393
Unrealized gain on securities available
for sale, net of tax 30,634
Amortization of unrealized loss
on securities transferred
Total comprehensive income
Change in common shares subject to repurchase 129 (63,683)
Buyback of 134 shares of Class C
Preferred Stock Series 1994-1 (133,711)
Dividends declared on preferred stock (34,200)
----------- --------- ----------- ---------- ------------
BALANCE, DECEMBER 31, 1998 2,615,797 301,960 2,117,482 384,067 70,198
Comprehensive loss:
Net income 971,364
Unrealized loss on securities available
for sale, net of tax (1,232,771)
Total comprehensive loss
Change in common shares subject to repurchase (78,300)
Buyback of 134 shares of Class C
Preferred Stock Series 1994-1 (133,711)
Dividends declared on preferred stock (81,975)
----------- --------- ----------- ---------- ------------
BALANCE, DECEMBER 31, 1999 $ 2,482,086 $ 301,960 $ 2,039,182 $1,273,456 $ (1,162,573)
=========== ========= =========== ========== ============
<CAPTION>
Net
Unrealized
Loss on Total
Securities Shareholders'
Transferred Equity
----------- ------
<S> <C> <C>
BALANCE, JANUARY 1, 1998 $ (5,062) $ 4,738,880
Comprehensive income:
Net income 946,393
Unrealized gain on securities available
for sale, net of tax 30,634
Amortization of unrealized loss
on securities transferred 5,062 5,062
------------
Total comprehensive income 982,089
Change in common shares subject to repurchase (63,554)
Buyback of 134 shares of Class C
Preferred Stock Series 1994-1 (133,711)
Dividends declared on preferred stock (34,200)
-------- ------------
BALANCE, DECEMBER 31, 1998 0 5,489,504
Comprehensive loss:
Net income 971,364
Unrealized loss on securities available
for sale, net of tax (1,232,771)
------------
Total comprehensive loss (261,407)
Change in common shares subject to repurchase (78,300)
Buyback of 134 shares of Class C
Preferred Stock Series 1994-1 (133,711)
Dividends declared on preferred stock (81,975)
-------- -----------
BALANCE, DECEMBER 31, 1999 $ 0 $ 4,934,111
======== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
32.
<PAGE> 33
FIRST INDEPENDENCE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 971,364 $ 946,393
Adjustments to reconcile net income to
net cash from operating activities
Provision for loan losses 105,000 255,000
Depreciation 612,457 494,676
Net amortization of premiums and discounts 82,768 84,920
Loans originated for sale (288,400) (1,169,308)
Proceeds from loans originated for sale 285,916 1,195,061
Net (gains) losses on sale of residential real estate loans 2,484 (25,753)
Changes in assets and liabilities:
Accrued interest receivable and other assets (1,297,391) (273,482)
Accrued interest payable and other liabilities 204,453 (168,471)
-------------- ---------------
Net cash from operating activities 678,651 1,339,036
CASH FLOWS FROM INVESTING ACTIVITIES
Securities available for sale:
Purchases (8,999,375) (46,087,969)
Maturities, calls and principal payments 8,012,262 29,808,652
Securities held to maturity:
Maturities 2,517,679 5,410,000
Purchase of Federal Home Loan Bank stock (298,200) 0
Net change in loans (9,644,792) 1,288,482
Premises and equipment expenditures (1,097,898) (541,806)
-------------- ---------------
Net cash from investing activities (9,510,324) (10,122,641)
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in deposits 22,839,221 13,697,925
Net change in securities sold under agreements to repurchase 12,105,416 9,531,572
Secured borrowings under loan participation agreements 3,879,882 0
Buyback of Class C Preferred Stock Series 1994-1 (133,711) (133,711)
Dividends paid on preferred stock (81,975) (34,200)
-------------- ---------------
Net cash from financing activities 38,608,833 23,061,586
-------------- ---------------
Net change in cash and cash equivalents 29,777,160 14,277,981
Cash and cash equivalents at beginning of year 27,970,361 13,692,380
-------------- ---------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 57,747,521 $ 27,970,361
============== ===============
Supplemental cash flow information
Cash paid for interest $ 2,795,789 $ 2,502,855
Cash paid for taxes 2,800 0
Supplemental noncash disclosures
Loans transferred to other real estate 352,943 219,955
Securities held to maturity transferred to available for sale 0 6,995,778
</TABLE>
See accompanying notes to consolidated financial statements.
33.
<PAGE> 34
FIRST INDEPENDENCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation: The consolidated financial statements include the
accounts of First Independence Corporation (the "Corporation") and its
wholly-owned subsidiary, First Independence National Bank of Detroit (the
"Bank"). All significant intercompany balances and transactions have been
eliminated in consolidation.
Nature of Operations: The Corporation is engaged in commercial and retail
banking services to individuals, businesses, local, state and federal government
units, and institutional customers. Its services include accepting demand,
savings and time deposits; collections; cash management; night depositories; and
consumer, commercial, and real estate lending.
The Bank is a minority-owned, community-oriented national bank with its main
office in the central business district of Detroit, Michigan. It also operates
three other branches within the city of Detroit.
Since the business of banking accounts for more than 90% of the Corporation's
revenues, and internal financial reporting is primarily reported and aggregated
in the line of business of banking, no segment reporting has been presented.
Use of Estimates: To prepare financial statements in conformity with generally
accepted accounting principles, management makes estimates and assumptions based
on available information. These estimates and assumptions affect the amounts
reported in the consolidated financial statements and the disclosures provided,
and future results could differ. The allowance for loan losses, fair value of
common stock used to value mandatorily redeemable ESOP shares, fair value of
long-term assets, and fair values of financial instruments are particularly
sensitive estimates and subject to change.
Cash Flows: Cash and cash equivalents includes cash, deposits with other
financial institutions with original maturities under 90 days, and federal funds
sold. Net cash flows are reported for loan and deposit transactions.
Securities: Securities are classified as held to maturity and carried at
amortized cost when management has the positive intent and ability to hold them
to maturity. Securities are classified as available for sale when they might be
sold before maturity. Securities available for sale are carried at fair value,
with unrealized holding gains and losses reported separately, net of tax, as
other comprehensive income (loss). Other securities such as Federal Home Loan
Bank and Federal Reserve Bank stock are carried at cost. Securities are written
down to fair value with a charge to net income when a decline in fair value is
not considered temporary.
Gains and losses on sales of securities are determined using the amortized cost
of the specific security sold. Interest income includes amortization of
purchased premiums and discounts.
(Continued)
34.
<PAGE> 35
FIRST INDEPENDENCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Statement of Financial Accounting Standards (SFAS) No. 133, Accounting for
Derivative Instruments and Hedging Activities, requires all derivatives to be
recorded at fair value. Unless designated as hedges, changes in these fair
values will be recorded in the income statement. Fair value changes involving
hedges will generally be recorded by offsetting gains and losses on the hedge
and on the hedged item, even if the fair value of the hedged item is not
otherwise recorded. As of July 1, 1998, the Corporation adopted this Statement
and, in accordance with its provisions, chose to reclassify certain securities
from held-to-maturity to available-for-sale. The amortized cost of the
securities transferred to available-for-sale was $6,995,778. The Corporation
does not have derivative instruments in its portfolio to account for under
provisions of this Statement.
Loans Held for Sale: Loans held for sale are included with residential real
estate loans. These loans are reported at the lower of cost or market value in
the aggregate. Loans held for sale were not significant as of December 31, 1999
and 1998.
Loans: Loans that management has the intent and ability to hold for the
foreseeable future or until maturity or payoff are reported at the principal
balance outstanding, net of unearned interest, deferred loan fees and costs, and
an allowance for loan losses. Loans held for sale are reported at the lower of
cost or market, on an aggregate basis.
Loans that are sold or participated with other institutions are reported net if
control, as defined, is relinquished upon sale. If control, as defined, is
retained, the loans sold or participated are treated as a financing arrangement
and reported gross, with a corresponding secured borrowing due to the
participating institution. At December 31, 1999, the Corporation has accounted
for certain loan participations sold in the amount of $3,879,882 as secured loan
borrowings.
Interest income is reported on the interest method and includes amortization of
net deferred loan fees and costs over the loan term. Interest income is not
reported when full loan repayment is in doubt, typically when the loan is
impaired or payments are past due over 90 days (180 days for residential
mortgages). Payments received on such loans are reported as principal
reductions.
Allowance for Loan Losses: The allowance for loan losses is a valuation
allowance, increased by the provision for loan losses and decreased by
charge-offs less recoveries. Management estimates the allowance balance required
based on past loan loss experience, known and inherent risks in the portfolio,
information about specific borrower situations and estimated collateral values,
economic conditions, and other factors. Allocations of the allowance may be made
for specific loans, but the entire allowance is available for any loan that, in
management's judgment, should be charged-off.
(Continued)
35.
<PAGE> 36
FIRST INDEPENDENCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Loan impairment is reported when full payment under the loan terms is not
expected. Impairment is evaluated in total for smaller-balance loans of similar
nature such as residential mortgage, consumer, and credit card loans, and on an
individual loan basis for other loans. If a loan is impaired, a portion of the
allowance is allocated so that the loan is reported, net, at the present value
of estimated future cash flows using the loan's existing rate or at the fair
value of the collateral if the loan is collateral dependent. When credit
analysis of a borrower's operating results and financial condition indicates
that the underlying cash flows of the borrower's business are not adequate to
meet its debt service requirements, including the Bank's loans to the borrower,
the loan is evaluated for impairment. Often this is associated when payments are
delayed, typically 90 days or more, or when the internal grading system
indicates a substandard or doubtful classification. Nonaccrual loans are often
also considered impaired.
Premises and Equipment: Asset cost is reported net of accumulated depreciation.
Depreciation expense is calculated principally on the straight-line method over
assets' useful lives.
Foreclosed Assets: Assets acquired through or instead of loan foreclosure are
initially recorded at fair value when acquired, establishing a new cost basis.
If fair value declines, a valuation allowance is recorded through expense. Costs
after acquisition are expensed.
Long-term Assets: Premises and equipment and other long-term assets are reviewed
for impairment when events indicate their carrying amount may not be recoverable
from future undiscounted cash flows. If impaired, the assets are recorded at
discounted amounts.
Repurchase Agreements: Substantially all repurchase agreement liabilities
represent amounts advanced by various customers. Securities are pledged to cover
these liabilities, which are not covered by federal deposit insurance.
401(k) Plan: The Bank maintains a 401(k) plan covering employees who are at
least age 21 and have completed one year and 1,000 hours of service with the
Bank. The Bank's contributions to the plan are based on a percentage of eligible
salaries, limited to 50% of the first 6% of salary contributed. Expense under
the plan was $27,736 and $24,337 for 1999 and 1998.
Restrictions on Cash: The Corporation was required to have $1,319,000 and
$818,000 of cash on hand or on deposit with the Federal Reserve Bank to meet
regulatory reserve and clearing requirements at year end 1999 and 1998. These
balances do not earn interest.
(Continued)
36.
<PAGE> 37
FIRST INDEPENDENCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Income Taxes: Income tax expense is the sum of the current year income tax due
or refundable and the change in deferred tax assets and liabilities. Deferred
tax assets and liabilities are the expected future tax consequences of temporary
differences between the carrying amounts and tax bases of assets and
liabilities, computed using enacted tax rates. A valuation allowance, if needed,
reduces deferred tax assets to the amount expected to be realized. Deferred tax
assets are recognized for net operating losses that expire primarily in 2005
because the benefit is more likely than not to be realized.
Fair Values of Financial Instruments: Fair values of financial instruments are
estimated using relevant market information and other assumptions as discussed
in a separate note. Fair value estimates involve uncertainties and matters of
significant judgment regarding interest rates, credit risk, prepayments, and
other factors, especially in the absence of broad markets for particular items.
Changes in assumptions or in market conditions could significantly affect the
estimates.
Earnings Per Common Share: Basic earnings per common share is based on
weighted-average common shares outstanding. Diluted earnings per common share
further assumes issue of dilutive potential common shares. The weighted average
number of shares used in the computation of basic and diluted earnings per
common share includes the shares allocated to the ESOP for both 1999 and 1998.
Comprehensive Income (Loss): Comprehensive income (loss) consists of net income
and other comprehensive income (loss). Other comprehensive income (loss)
includes unrealized gains and losses on transferred securities and unrealized
gains and losses on securities available for sale, net of taxes, which are also
recognized as separate components of equity.
Loss Contingencies: Loss contingencies, including claims and legal actions
arising in the ordinary course of business, are recorded as liabilities when the
likelihood of loss is probable and an amount or range of loss can be reasonably
estimated. Management does not believe there now are such matters that will have
a material effect on the financial statements.
Dividend Restriction: Banking regulations require maintaining certain capital
levels and may limit the dividends paid by the Bank to the Corporation or by the
Corporation to shareholders.
Reclassifications: Some items in the prior year financial statements were
reclassified to conform to the current presentation.
(Continued)
37.
<PAGE> 38
FIRST INDEPENDENCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
NOTE 2 - SECURITIES
Year-end securities were as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
<S> <C> <C> <C> <C>
Available for sale 1999
U.S. Treasury $ 5,000,837 $ 7,309 $ (9,750) $ 4,998,396
U.S. Government agency 43,834,189 0 (1,759,034) 42,075,155
Mortgage-backed 24,759 0 0 24,759
-------------- ------------ -------------- ---------------
$ 48,859,785 $ 7,309 $ (1,768,784) $ 47,098,310
============== ============ ============== ===============
Available for sale 1998
U.S. Treasury $ 8,016,050 $ 174,575 $ 0 $ 8,190,625
U.S. Government agency 39,841,135 68,472 (136,686) 39,772,921
Mortgage-backed 54,699 0 0 54,699
-------------- ------------ -------------- ---------------
$ 47,911,884 $ 243,047 $ (136,686) $ 48,018,245
============== ============ ============== ===============
Held to maturity 1999
U.S. Government agency $ 2,009,320 $ 310 $ (2,330) $ 2,007,300
============== ============ ============== ===============
Held to maturity 1998
U.S. Government agency $ 4,570,554 $ 61,634 $ 0 $ 4,632,188
============== ============ ============== ===============
</TABLE>
There were no sales of securities during 1999 or 1998.
As of July 1, 1998, the Corporation adopted SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities. In accordance with the provisions
of the Statement, the Company chose to reclassify certain securities from
held-to-maturity to available-for-sale. The amortized cost of securities
transferred to available-for-sale was $6,995,778 and the unrealized net gain was
$57,341, which is included in shareholder's equity, net of income tax of
$19,496.
(Continued)
38.
<PAGE> 39
FIRST INDEPENDENCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
NOTE 2 - SECURITIES (Continued)
Contractual maturities of debt securities at year-end 1999 were as follows.
Securities not due at a single maturity date, primarily mortgage-backed
securities, are shown separately.
<TABLE>
<CAPTION>
Securities Securities
--------Held to Maturity-------- -------Available for Sale---------
Amortized Fair Amortized Fair
Cost Value Cost Value
--------------- -------------- -------------- ----------------
<S> <C> <C> <C> <C>
Due in one year or less $ 1,001,790 $ 1,002,100 $ 1,998,043 $ 1,996,563
Due from one to five years 1,007,530 1,005,200 24,837,845 24,150,088
Due from five to ten years 0 0 21,999,138 20,926,900
Mortgage backed 0 0 24,759 24,759
--------------- -------------- -------------- ----------------
$ 2,009,320 $ 2,007,300 $ 48,859,785 $ 47,098,310
=============== ============== ============== ================
</TABLE>
Securities with an amortized cost of $35,121,000 and $23,866,000 at year-end
1999 and 1998 were pledged to secure public deposits and repurchase agreements.
NOTE 3 - ALLOWANCE FOR LOAN LOSSES
Activity in the allowance for loan losses was as follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Beginning balance $ 1,174,888 $ 936,090
Provision for loan losses 105,000 255,000
Loans charged off (553,626) (240,627)
Recoveries of loans previously charged off 179,611 224,425
---------------- ---------------
Ending balance $ 905,873 $ 1,174,888
================ ===============
</TABLE>
Information regarding impaired loans is as follows for 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Average investment in impaired loans $ 631,460 $ 1,310,913
Interest income recognized on impaired loans 0 134,491
</TABLE>
Interest income recognized on a cash basis for impaired loans was not
significant in 1999 or 1998.
(Continued)
39.
<PAGE> 40
FIRST INDEPENDENCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
NOTE 3 - ALLOWANCE FOR LOAN LOSSES (Continued)
Information regarding impaired loans at year-end is as follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Total impaired loans $ 208,966 $ 1,175,748
Less loans for which no allowance for loan losses is allocated 208,966 39,658
-------------- ---------------
Impaired loans for which an allowance
for loan losses is allocated $ 0 $ 1,136,090
============== ===============
Portion of allowance allocated to these loans $ 0 $ 286,154
Nonperforming loans were as follows.
Loans past due over 90 days still on accrual $ 0 $ 158,000
Nonaccrual loans 761,525 888,659
</TABLE>
NOTE 4 - PREMISES AND EQUIPMENT
Year-end premises and equipment were as follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Land and land improvements $ 482,565 $ 482,565
Buildings 2,207,305 2,171,748
Furniture and fixtures 3,804,252 2,808,631
Leasehold improvements 506,152 439,432
-------------- ---------------
Total cost 7,000,274 5,902,376
Less accumulated depreciation (3,221,798) (2,609,341)
-------------- ---------------
$ 3,778,476 $ 3,293,035
============== ===============
</TABLE>
(Continued)
40.
<PAGE> 41
FIRST INDEPENDENCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
NOTE 5 - DEPOSITS
Year-end deposits consisted of the following:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Demand deposits $ 53,071,541 $ 41,048,374
NOW accounts 25,217,321 6,377,232
Savings deposits 14,249,081 15,332,315
Time deposits 25,098,956 32,039,757
--------------- -------------
$ 117,636,899 $ 94,797,678
=============== =============
</TABLE>
Frequently, at the end of the year, the Bank receives large deposits from large
corporations or government agencies for very short terms. Subsequent to December
31, 1999, one customer withdrew approximately $20.0 million from their NOW
account. This withdrawal was expected by management and did not adversely effect
the Bank's liquidity.
Time deposit accounts individually exceeding $100,000 totaled $11,028,912 and
$17,421,344 at year-end 1999 and 1998.
At year-end 1999, stated maturities of time deposits were:
<TABLE>
<S> <C>
2000 $ 23,121,566
2001 1,471,453
2002 328,442
2003 173,227
2004 4,268
-----------------
$ 25,098,956
=================
</TABLE>
(Continued)
41.
<PAGE> 42
FIRST INDEPENDENCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
NOTE 6 - BORROWINGS
As a source of short-term financing, the Corporation purchases Federal funds and
sells securities under agreements to repurchase at a later date. Information
concerning short-term borrowings is summarized below.
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Federal funds purchased
Outstanding at year end $ 5,000,000 $ 5,000,000
Average interest rate at year end 5.52% 4.91%
Average month-end balance during the year 5,000,000 5,000,000
Average interest rate during the year 5.02% 5.44%
Maximum month-end balance during the year 5,000,000 5,000,000
Securities sold under agreements to repurchase
Outstanding at year end $ 28,754,604 $ 16,649,188
Average interest rate at year end 4.66% 4.38%
Average month-end balance during the year 22,032,743 7,164,038
Average interest rate during the year 4.22% 4.69%
Maximum month-end balance during the year 28,754,604 16,649,188
</TABLE>
Long-term debt consists entirely of senior notes, with an interest rate of 6%,
maturing in 2002. The notes require semi-annual interest payments and may be
prepaid at any time without penalty provided the Corporation is not in default
for the payment of dividends to preferred stockholders.
NOTE 7 - PREFERRED STOCK
Preferred stock at December 31, 1999 and 1998 is comprised of the following:
<TABLE>
<CAPTION>
----------------1 9 9 9------------- -------------1 9 9 8---------------
Issued and Issued and
Authorized Outstanding Authorized Outstanding
Description Shares Shares Amount Shares Shares Amount
----------- ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Preferred stock
Class A, par value $100 4,000 4,000 $ 400,000 4,000 4,000 $ 400,000
Class B, par value $100 3,200 3,200 320,000 3,200 3,200 320,000
Class C, no par value (series
1994-1) 100,000 262 262,086 100,000 396 395,797
Class C, no par value (series
MI-1) 1,500 1,500,000 1,500 1,500,000
------------ ------------
$ 2,482,086 $ 2,615,797
============ ============
</TABLE>
(Continued)
42.
<PAGE> 43
FIRST INDEPENDENCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
NOTE 7 - PREFERRED STOCK (Continued)
Class A and B preferred stockholders are entitled to 4.75% cumulative semiannual
dividends payable March 1 and September 1. Dividends in the amount of $34,200
were paid to Class A and B preferred stockholders in 1999 and 1998. In the event
the Corporation shall be in default of the payment of four consecutive
semiannual preferred dividends, Class A preferred stockholders will be entitled
to elect three additional members to the Corporation's Board of Directors until
such time that the cumulative dividends are paid in full.
The Corporation, at its option, subject to provisions of applicable law and such
regulatory agency approvals as may be necessary, may redeem the Class A and B
preferred shares for $120 per share. In the event redemption in excess of par
value is prohibited by law, the redemption price of preferred stock shall be its
par value.
Class C Preferred Stock is authorized under the Corporation's Articles of
Incorporation, but rights and preferences of this stock are established by the
Board of Directors upon the issuance of a series of Class C Preferred Stock.
The Class C Preferred Stock, Series MI-1, was issued in 1994 to the Michigan
State Housing Development Authority (MSHDA). The Series MI-1 stock is subject to
certain restrictions on transfer, and may be redeemed at the face value at any
time by the Corporation. The Series MI-1 stock is entitled to an annual,
noncumulative dividend up to 6% of the preferred stock outstanding. Dividends
are payable only from net income of the Corporation earned in the calendar year
for which the dividend is paid. If earnings are not sufficient to pay the entire
6% dividend, then no dividend is required to be paid. Dividends are declared and
paid on or before April 30 following the calendar year in which the Corporation
has net income from which dividends can be paid. Dividends may be waived,
partially or in their entirety, if the Bank achieves certain mutually agreed
upon goals established by MSHDA. These goals relate primarily to the origination
of MSHDA guaranteed loan products. As the Bank achieved such goals in 1997, the
dividends payable in 1998 were waived. As the Bank achieved the majority of
these goals in 1998, the dividends payable in 1999 were reduced to $37,290. The
amount of dividends payable in 2000 related to the achievement of goals in 1999
have yet to be determined.
The Class C Preferred Stock, Series 1994-1, was issued in 1995 and 1996 to the
Class A and B preferred stockholders and senior noteholders in lieu of
cumulative dividends in arrears and unpaid accrued interest. It has no voting
rights and is entitled to receive dividends only at the discretion of the Board
of Directors. Its dividend rights are subordinate to those of the holders of the
Series MI-1 Preferred Stock described above. However, a dividend equal to 4% of
the $1,000 face value of the stock must be paid to the holders of the Series
1994-1 Preferred Stock before any dividends may be paid to the common
stockholders in any calendar year. Dividends in the amount of $10,485 were paid
to Class C, Series 1994-1 preferred stockholders during 1999. Pursuant to
agreements with holders of Series 1994-1 preferred stock, shares are subject to
redemption by the Corporation until December 31, 2001. There also are
limitations on the transferability of this stock.
(Continued)
43.
<PAGE> 44
FIRST INDEPENDENCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
NOTE 8 - REGULATORY MATTERS AND RESTRICTIONS ON RETAINED EARNINGS
The Corporation and Bank are subject to regulatory capital requirements
administered by federal banking agencies. Capital adequacy guidelines and prompt
corrective action regulations involve quantitative measures of assets,
liabilities, and certain off-balance-sheet items calculated under regulatory
accounting practices. Capital amounts and classifications are also subject to
qualitative judgments by regulators about components, risk weightings, and other
factors, and the regulators can lower classifications in certain cases. Failure
to meet various capital requirements can initiate regulatory action that could
have a direct material effect on the consolidated financial statements.
The prompt corrective action regulations provide five classifications, including
well capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized, and critically undercapitalized, although these terms are not
used to represent overall financial condition. If adequately capitalized,
regulatory approval is required to accept brokered deposits. If
undercapitalized, capital distributions are limited, as is asset growth and
expansion, and plans for capital restoration are required.
At year end, actual capital levels (in millions) and minimum required levels
were:
<TABLE>
<CAPTION>
Minimum Required
To Be Well
Minimum Required Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Regulations
------ ----------------- ------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
1999
- ----
<S> <C> <C> <C> <C> <C> <C>
Total capital (to risk weighted assets)
Consolidated $ 7.4 10.32% $ 5.7 8.00% $ 7.1 10.00%
Bank 8.1 11.33 5.7 8.00 7.1 10.00
Tier 1 capital (to risk weighted assets)
Consolidated 6.5 9.10 2.9 4.00 4.3 6.00
Bank 7.2 10.08 2.9 4.00 4.3 6.00
Tier 1 capital (to average assets)
Consolidated 6.5 4.81 5.4 4.00 6.8 5.00
Bank 7.2 5.32 5.4 4.00 6.8 5.00
<CAPTION>
1998 (Bank only)
- ----
<S> <C> <C> <C> <C> <C> <C>
Total capital (to risk weighted assets) $ 7.3 13.32% $ 4.4 8.00% $ 5.5 10.00%
Tier 1 capital (to risk weighted assets) 6.6 12.06 2.2 4.00 3.3 6.00
Tier 1 capital (to average assets) 6.6 5.75 4.6 4.00 5.7 5.00
</TABLE>
At December 31, 1999 and 1998, the Bank was considered well capitalized. At
December 31, 1999, the Corporation was considered adequately capitalized.
(Continued)
44.
<PAGE> 45
FIRST INDEPENDENCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
NOTE 8 - REGULATORY MATTERS AND RESTRICTIONS ON RETAINED EARNINGS
(Continued)
Regulatory authorities have imposed certain restrictions on the amounts of
dividends a bank can pay. Under these restrictions, the Bank may not, without
prior regulatory approval, declare dividends in excess of the sum of the current
year's earnings plus the retained undivided profits (as defined) from the prior
two years. Subsequent to year end 1999, the Bank could pay to the holding
company aggregate dividends of approximately $1,356,000 plus the current year's
retained undivided net profits (as defined) without prior regulatory approval.
Pursuant to a supervisory resolution with the Federal Reserve Bank of Chicago,
the Corporation is required to obtain prior written approval of the Federal
Reserve Bank to pay corporate dividends, to increase its borrowings or incur
additional debt, or to add new members to the Board of Directors or Executive
Management.
NOTE 9 - INCOME TAXES
Federal income taxes consist of the following:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Current expense $ 569 $ 0
Deferred expense 27,728 26,538
Reduction in net operating loss carryforward 303,303 306,401
Reduction in valuation allowance (259,690) (332,939)
-------------- ---------------
$ 71,910 $ 0
============== ===============
<CAPTION>
Year-end deferred tax assets and liabilities consist of:
1999 1998
---- ----
<S> <C> <C>
Deferred tax assets
Net operating loss carryforwards $ 69,685 $ 372,988
Net unrealized loss on securities available for sale 598,902 0
Allowance for loan losses 16,553 0
Other 34,067 9,101
-------------- ---------------
719,207 382,089
Deferred tax liabilities
Accumulated depreciation 179,029 95,435
Allowance for loan losses 0 19,147
Net unrealized gain on securities available for sale 0 36,163
Other 12,617 7,817
-------------- ---------------
191,646 158,562
Net deferred tax asset 527,561 223,527
Valuation allowance for deferred tax assets 0 (259,690)
-------------- ---------------
Net deferred tax asset (liability) after valuation allowance $ 527,561 $ (36,163)
============== ===============
</TABLE>
(Continued)
45.
<PAGE> 46
FIRST INDEPENDENCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
NOTE 9 - INCOME TAXES (Continued)
At December 31, 1999 and 1998, the Corporation had net operating loss
carryforwards for federal income tax purposes of approximately $200,000 and
$1,100,000, respectively, which, if not used, will expire beginning in 2005.
The change in the valuation allowance from 1998 to 1999 is primarily due to
generating taxable income and the resultant decrease in the net operating loss
carryforward in 1999. Management believes, based on recent operating history and
operating projections for the future, that no valuation allowance is needed.
The difference between the financial statement tax expense and amounts computed
by applying the statutory federal tax rate of 34% to pretax income at December
31 is reconciled as follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Statutory rate applied to income before taxes $ 354,713 $ 321,774
Add (deduct)
Nondeductible expenses 5,186 11,165
Other (28,299) 0
Change in valuation allowance (259,690) (332,939)
-------------- ---------------
Income tax expense $ 71,910 $ 0
============== ===============
</TABLE>
NOTE 10 - EARNINGS PER COMMON SHARE
A reconciliation of the numerators and denominators of basic and diluted
earnings per common share for the years ended December 31 are as follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Basic earnings per common share
Income attributable to common shareholders $ 889,389 $ 912,193
-------------- ---------------
Weighted average common shares outstanding 336,760 336,760
-------------- ---------------
Basic earnings per common share $ 2.64 $ 2.71
============== ===============
Diluted earnings per common share
Income attributable to common shareholders $ 889,389 $ 912,193
-------------- ---------------
Weighted average common shares outstanding 336,760 336,760
Add: dilutive effects of assumed exercise of
stock options 1,356 952
-------------- ---------------
Weighted average common and dilutive
potential common shares outstanding 338,116 337,712
-------------- ---------------
Diluted earnings per common share $ 2.63 $ 2.70
============== ===============
</TABLE>
(Continued)
46.
<PAGE> 47
FIRST INDEPENDENCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
NOTE 11 - EMPLOYEE STOCK OWNERSHIP PLAN
The Corporation maintains an Employee Stock Ownership Plan (ESOP) covering
substantially all salaried employees of the Corporation with at least one year
of service and at least age 21. The ESOP invests primarily in the stock of First
Independence Corporation, and contributions to the plan are determined by the
Board of Directors. The ESOP plan was frozen December 31, 1996, therefore no
further contributions to the ESOP plan will be made. The ESOP held 34,800 shares
of stock at December 31, 1999 and 1998, allocated to employees and voted by the
trustee of the plan. Upon distribution of shares to a participant, the
participant has the right to require the Corporation to purchase shares at their
fair value in accordance with the terms and conditions of the plan. As such,
these shares are not classified in shareholders' equity as permanent equity. The
fair value of the shares allocated as of December 31, 1999 and 1998 was
approximately $365,400 and $287,100.
NOTE 12 - STOCK OPTIONS
An Employee Stock Option Plan was adopted in 1995 for the issuance of up to
67,352 shares of common stock to key salaried employees and directors of the
Corporation. Options are exercisable in whole or in part, but only with respect
to whole shares of stock, beginning one year and expiring five years after the
date of grant. The Plan is administered by a Stock Option Committee.
At December 31, 1999 and 1998, there were 64,352 options available for future
grant under the Plan. No options were granted during 1999 and 1998. There were
3,000 options outstanding and exercisable at yearend 1999 and 1998 at an
exercise price of $5 per share. 3,000 options were forfeited during 1998 and
became available for future grant.
NOTE 13 - COMMITMENTS, CONTINGENCIES AND CONCENTRATIONS OF CREDIT
The Bank leases certain office and branch premises and equipment under operating
lease agreements. Total rental expense for all operating leases aggregated
$134,772 and $143,223 in 1999 and 1998. Future minimum rentals under
noncancelable operating leases as of December 31, 1999 are as follows:
<TABLE>
<S> <C>
2000 $ 134,400
2001 134,400
2002 134,400
2003 93,700
2004 30,000
------------
$ 526,900
============
</TABLE>
(Continued)
47.
<PAGE> 48
FIRST INDEPENDENCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
NOTE 13 - COMMITMENTS, CONTINGENCIES AND CONCENTRATIONS OF CREDIT
(Continued)
The Bank is a party to financial instruments with off-balance sheet risk used in
the normal course of business to meet the financing needs of customers. These
financial instruments include commitments to extend credit and letters of
credit.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the commitment.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since many of the commitments are expected to
expire without being used, the total commitments do not necessarily represent
future cash requirements. Letters of credit are conditional commitments provided
to guarantee a customer's performance to a third party.
Financial instruments with off-balance-sheet risk at year-end are as follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Commitments to extend credit $ 18,412,000 $ 18,325,000
Letters of credit 678,000 868,000
</TABLE>
Exposure to credit loss if the other party does not perform is represented by
the contractual amounts for commitments to extend credit and letters of credit.
The same credit policies are used for commitments and conditional obligations as
are used for loans. Collateral or other security is normally not required to
support financial instruments with off-balance-sheet risk.
The Corporation and Bank are subject to various other claims and legal actions
arising in the ordinary course of business. In the opinion of management, after
consultation with legal counsel, the ultimate disposition of these matters is
not expected to have a material effect on the Corporation's consolidated
financial position or results of operations.
The Bank's loan portfolio is concentrated primarily with residential and
commercial customers in metropolitan Detroit, Michigan. Commercial real estate
loans to religious organizations comprise 10.7% of the Bank's total loans at
December 31, 1999.
NOTE 14 - RELATED PARTY TRANSACTIONS
Related parties include directors and executive officers of the Corporation and
Bank (including their affiliated family members and companies). Loans to related
parties amounted to $230,718 and $143,325 at December 31, 1999 and 1998. During
1999, the Corporation had new loans of $159,256 and repayments of $71,863.
Related party deposits totaled $601,291 and $346,105 at year-end 1999 and 1998.
(Continued)
48.
<PAGE> 49
FIRST INDEPENDENCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
NOTE 15 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate fair values for
financial instruments. The carrying amount is considered to estimate fair value
for cash and cash equivalents, demand deposits, securities sold under retail
repurchase agreements, and variable rate loans or deposits that reprice
frequently and fully. Fair values for securities are based on quoted market
prices or from an independent third party broker. For fixed rate loans or
deposits and for variable rate loans or deposits with infrequent repricing or
repricing limits, the fair value is estimated by discounted cash flow analyses
using current market rates for the estimated life and credit risk. The fair
value of secured borrowings under loan participation agreements and long-term
debt is based on currently available rates for similar financing.
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998
----------------- -----------------
Carrying Fair Carrying Fair
Amount Value Amount Value
------ ----- ------ -----
<S> <C> <C> <C> <C>
Financial Assets
Cash and cash equivalents $ 57,747,521 $ 57,747,521 $ 27,970,361 $ 27,970,361
Securities 49,107,630 49,105,610 52,588,799 52,650,433
Federal Home Loan Bank and
Federal Reserve Bank stock 465,300 465,300 167,100 167,100
Loans, net 47,569,211 46,941,378 38,382,362 39,102,943
Accrued interest receivable 875,333 875,333 929,153 929,153
Financial Liabilities
Deposits:
Demand 53,071,541 53,071,541 41,048,374 41,048,374
NOW 25,217,321 25,217,321 6,377,232 6,377,232
Saving 14,249,081 14,249,081 15,332,315 15,332,315
Certificates of deposit 25,098,956 25,071,854 32,039,757 32,085,071
Securities sold under
agreements to repurchase 28,754,604 28,754,604 16,649,188 16,649,188
Short-term borrowings 5,000,000 5,000,000 5,000,000 5,000,000
Secured borrowings under
loan participation agreements 3,879,882 3,879,882 0 0
Long-term debt 900,000 816,917 900,000 798,057
Accrued interest payable 421,107 421,107 307,047 307,047
</TABLE>
(Continued)
49.
<PAGE> 50
FIRST INDEPENDENCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
NOTE 16 - OTHER COMPREHENSIVE INCOME (LOSS)
Other comprehensive income (loss) components and related taxes were as follows.
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Unrealized gain on transfer of securities held to
maturity to securities available for sale $ 0 $ 57,341
Unrealized loss on available for sale securities (1,867,835) (10,926)
Amortization of unrealized loss on securities transferred 0 7,670
-------------- ---------------
Net unrealized gains and losses (1,867,835) 54,085
Tax effect 635,064 (18,389)
-------------- ---------------
Other comprehensive income (loss) $ (1,232,771) $ 35,696
============== ===============
</TABLE>
NOTE 17 - PARENT COMPANY ONLY FINANCIAL STATEMENTS
The Corporation's condensed balance sheets, statements of income and statements
of cash flows are as follows:
CONDENSED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
ASSETS
Cash$ 1,666 $ 1,666
Investment in subsidiary 6,019,500 6,674,938
Other assets 178,345 0
-------------- ---------------
$ 6,199,511 $ 6,676,604
============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Long-term debt $ 900,000 $ 900,000
Fair value of ESOP shares 365,400 287,100
Total shareholders' equity 4,934,111 5,489,504
-------------- ---------------
$ 6,199,511 $ 6,676,604
============== ===============
</TABLE>
(Continued)
50.
<PAGE> 51
FIRST INDEPENDENCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
NOTE 17 - PARENT COMPANY ONLY FINANCIAL STATEMENTS (Continued)
CONDENSED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Income
Dividend income from subsidiary $ 308,686 $ 221,911
Expense
Interest on borrowings 54,000 54,000
Other 39,000 0
-------------- ---------------
INCOME BEFORE FEDERAL INCOME TAX (BENEFIT) AND
EQUITY IN UNDISTRIBUTED EARNINGS OF BANK SUBSIDIARY 215,686 167,911
Federal income tax (benefit) (178,345) 0
-------------- ---------------
INCOME BEFORE EQUITY IN UNDISTRIBUTED
EARNINGS OF BANK SUBSIDIARY 394,031 167,911
Equity in undistributed earnings of bank subsidiary 577,333 778,482
-------------- ---------------
NET INCOME $ 971,364 $ 946,393
============== ===============
</TABLE>
CONDENSED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 971,364 $ 946,393
Adjustments to reconcile net income to
net cash from operating activities
Increase in other assets (178,345) 0
Equity in net income of subsidiary (577,333) (778,482)
-------------- ---------------
Net cash from operating activities 215,686 167,911
CASH FLOWS FROM FINANCING ACTIVITIES
Buyback of Class C preferred stock (133,711) (133,711)
Dividends (81,975) (34,200)
-------------- ---------------
Net cash from financing activities (215,686) (167,911)
-------------- ---------------
Net change in cash and cash equivalents 0 0
Cash and cash equivalents at beginning of year 1,666 1,666
-------------- ---------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 1,666 $ 1,666
============== ===============
</TABLE>
(Continued)
51.
<PAGE> 52
FIRST INDEPENDENCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
NOTE 18 - SUBSEQUENT EVENT
The Board of Directors of the Corporation has approved a Reverse Stock Split
whereby one common share will be issued for 60 shares, with resulting fractional
shares paid in cash. The effect of the transaction will reduce the number of
shareholders below 300 and allow the Company to de-register as a public
registrant. Shareholders' equity is expected to be reduced by approximately
$300,000 as a result of the payment of fractional shares. Administrative
expenses associated with the transaction are estimated at approximately $60,000.
Consummation of the transaction is expected in the second quarter of 2000 and is
subject to shareholder approval.
52.
<PAGE> 53
Exhibit Index
-------------
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS FINANCIAL INFORMATION FROM THE
CORPORATION'S CONSOLIDATED FINANCIAL STATEMENTS CONTAINED IN ITS ANNUAL
REPORT ON FORM 10-KSB FOR THE PERIOD ENDED DECEMBER 31, 1999 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 8,947,521
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 48,800,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 47,098,310
<INVESTMENTS-CARRYING> 2,009,320
<INVESTMENTS-MARKET> 2,007,300
<LOANS> 48,475,084
<ALLOWANCE> 905,873
<TOTAL-ASSETS> 162,174,477
<DEPOSITS> 117,636,899
<SHORT-TERM> 8,879,882
<LIABILITIES-OTHER> 703,581
<LONG-TERM> 900,000
348,000
2,482,086
<COMMON> 301,960
<OTHER-SE> 2,167,465
<TOTAL-LIABILITIES-AND-EQUITY> 162,174,477
<INTEREST-LOAN> 3,913,936
<INTEREST-INVEST> 3,250,508
<INTEREST-OTHER> 931,491
<INTEREST-TOTAL> 8,095,935
<INTEREST-DEPOSIT> 1,674,623
<INTEREST-EXPENSE> 2,909,849
<INTEREST-INCOME-NET> 5,186,086
<LOAN-LOSSES> 105,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 5,370,096
<INCOME-PRETAX> 1,043,274
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 971,364
<EPS-BASIC> 2.64
<EPS-DILUTED> 2.63
<YIELD-ACTUAL> 4.54
<LOANS-NON> 762,000
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,174,888
<CHARGE-OFFS> 553,626
<RECOVERIES> 179,611
<ALLOWANCE-CLOSE> 905,873
<ALLOWANCE-DOMESTIC> 415,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 491,000
</TABLE>
