<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------------------------------------
FORM 10-QSB
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
---------------- ----------------
Commission File Number 0-22184
FIRST INDEPENDENCE CORPORATION
- - -------------------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Delaware 36-3899950
- - ---------------------------- -----------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or Identification or
organization) number)
Myrtle & Sixth Streets, Independence, Kansas 67301
- - -------------------------------------------------------------------------------
(Address of principal executive offices)
(316) 331-1660
- - -------------------------------------------------------------------------------
(issuer's telephone number)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 day Yes /X/ No / /
Transitional Small Business Disclosure Format (check one):
Yes / / No /X/
State the number of Shares outstanding of each of the issuer's classes of
common equity, as of the latest date:
As of May 14, 1996, there were 583,421 shares of the Registrant's common
stock outstanding (including 13,095 shares of restricted stock).
<PAGE>
FIRST INDEPENDENCE CORPORATION
INDEX
------
PART I. FINANCIAL INFORMATION (unaudited) PAGE NO.
Item 1. Consolidated Condensed Financial Statements
Consolidated Condensed Balance Sheets as of
March 31, 1996 and September 30, 1995 3
Consolidated Condensed Statements of Earnings
for the Three and Six Months Ended March 31,
1996 and 1995 4
Consolidated Condensed Statement of Stockholders'
Equity for the Year Ended September 30, 1995 and
Six Months Ended March 31, 1996 5
Consolidated Condensed Statements of Cash
Flows for the Six Months Ended March 31,
1996 and 1995 6
Notes to Consolidated Condensed Financial
Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 10
PART II. OTHER INFORMATION 18
Signature Page 20
<PAGE>
PART I: FINANCIAL INFORMATION
FIRST INDEPENDENCE CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, September 30,
1996 1995
------------ ------------
(Unaudited)
ASSETS
- - ------
<S> <C> <C>
Cash and due from bank . . . . . . . . . . . . . . . . . . . . . . $ 170,957 $ 369,632
Federal funds sold . . . . . . . . . . . . . . . . . . . . . . . . 1,000,000 1,300,000
Other interest-earning deposits. . . . . . . . . . . . . . . . . . 190,533 444,993
------------ ------------
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . 1,361,490 2,114,625
Investment securities held to maturity (fair value:
March 31, 1996 - $2,000,240;
September 30, 1995 - $1,006,840) . . . . . . . . . . . . . . . . 2,000,000 1,000,000
Investment securities available for sale . . . . . . . . . . . . . 5,258,705 6,524,956
Mortgage-backed securities held to maturity (fair value:
March 31, 1996 - $27,829,408;
September 30, 1995 - $28,416,954). . . . . . . . . . . . . . . . 27,904,016 28,593,826
Mortgage-backed securities available for sale. . . . . . . . . . . 749,341 832,700
Loans receivable, net. . . . . . . . . . . . . . . . . . . . . . . 61,791,212 60,369,956
Real estate acquired through foreclosure . . . . . . . . . . . . . --- 62,020
Premises and equipment, net . . . . . . .. . . . . . . . . . . . . 770,376 663,463
Federal Home Loan Bank Stock, at cost. . . . . . . . . . . . . . . 1,072,700 1,040,000
Accrued interest receivable. . . . . . . . . . . . . . . . . . . . 643,373 618,438
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . 76,368 84,031
------------ ------------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . $101,627,581 $101,904,015
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
- - -------------------------------------
Liabilities
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . $72,907,356 $67,926,628
Advances from borrowers for taxes and insurance. . . . . . . . . 672,470 1,242,941
Checks issued in excess of cash items. . . . . . . . . . . . . . 18,566 ---
Advances from Federal Home Loan Bank . . . . . . . . . . . . . . 15,000,000 18,800,000
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . 9,468 36,855
Other accrued expenses and liabilities . . . . . . . . . . . . . 174,384 297,656
------------ ------------
Total liabilities . . . . . . . . . . . . . . . . . . . . . 88,782,244 88,304,080
Stockholders' equity
Preferred stock, $.01 par value, 500,000
shares authorized, none issued . . . . . . . . . . . . . . . . --- ---
Common stock, $.01 par value, 2,500,000 shares authorized,
749,196 shares issued. . . . . . . . . . . . . . . . . . . . . 7,492 7,492
Additional paid-in capital . . . . . . . . . . . . . . . . . . . 7,024,152 6,998,314
Retained earnings - substantially restricted . . . . . . . . . . 8,870,310 8,358,681
Unrealized gain on securities available for sale, net. . . . . . 8,504 176,580
Treasury stock at cost, 165,775 shares at March 31, 1996
and 104,852 shares at September 30, 1995 . . . . . . . . . . . (2,628,704) (1,446,524)
Required contributions for shares acquired by ESOP . . . . . . . (327,317) (363,686)
Unearned stock compensation - recognition and retention
plan (RRP) . . . . . . . . . . . . . . . . . . . . . . . . . . (109,100) (130,922)
------------ ------------
Total stockholders' equity . . . . . . . . . . . . . . . . . 12,845,337 13,599,935
------------ ------------
Total liabilities and stockholders' equity . . . . . . . . . $101,627,581 $101,904,015
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
PART I: FINANCIAL INFORMATION
FIRST INDEPENDENCE CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
------------------------- --------------------------
1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Interest income (Unaudited) (Unaudited)
Loans receivable . . . . . . . . . . . . . . . . $1,267,380 $1,175,134 $2,534,299 $2,315,712
Mortgage-backed securities . . . . . . . . . . 478,159 462,723 951,514 923,970
Investment securities. . . . . . . . . . . . . . 119,416 68,319 240,419 127,454
Other. . . . . . . . . . . . . . . . . . . . . . 58,971 27,354 114,732 53,522
---------- ---------- ---------- ----------
Total interest income. . . . . . . . . . . . . 1,923,926 1,733,530 3,840,964 3,420,658
---------- ---------- ---------- ----------
Interest expense
Deposits . . . . . . . . . . . . . . . . . . . . 927,268 662,806 1,822,472 1,285,740
Borrowed funds . . . . . . . . . . . . . . . . . 235,134 243,328 496,889 445,699
---------- ---------- ---------- ----------
Total interest expense . . . . . . . . . . . . 1,162,402 906,134 2,319,361 1,731,439
---------- ---------- ---------- ----------
Net interest income. . . . . . . . . . . . . . . . 761,524 827,396 1,521,603 1,689,219
Provision for loan losses. . . . . . . . . . . . . --- --- --- ---
---------- ---------- ---------- ----------
Net interest income after provision
for loan losses. . . . . . . . . . . . . . . . . 761,524 827,396 1,521,603 1,689,219
Other income
Gain on sale of investments. . . . . . . . . . . --- --- 250,945 ---
Income from real estate operations . . . . . . . 106,849 52,983 96,091 49,036
Other income . . . . . . . . . . . . . . . . . . 57,232 55,631 109,984 98,418
---------- ---------- ---------- ----------
Total other income . . . . . . . . . . . . . . 164,081 108,614 457,020 147,454
---------- ---------- ---------- ----------
General, administrative and other expense
Employee compensation and benefits . . . . . . . 275,745 237,572 547,924 498,505
Occupancy and equipment. . . . . . . . . . . . . 33,688 31,062 60,122 55,665
Federal deposit insurance premiums . . . . . . . 39,526 37,170 76,536 76,135
Data processing fees . . . . . . . . . . . . . . 38,920 35,131 70,022 64,387
Other. . . . . . . . . . . . . . . . . . . . . . 110,344 125,885 198,487 219,520
---------- ---------- ---------- ----------
Total non-interest expenses. . . . . . . . . . 498,223 466,820 953,091 914,212
---------- ---------- ---------- ----------
Earnings before income taxes . . . . . . . . . . . 427,382 469,190 1,025,532 922,461
Income tax expense . . . . . . . . . . . . . . . . 178,745 189,339 410,347 357,969
---------- ---------- ---------- ----------
Net earnings . . . . . . . . . . . . . . . . . . . $ 248,637 $ 279,851 $ 615,185 $ 564,492
========== ========== ========== ==========
Earnings per common share - primary and fully
diluted. . . . . . . . . . . . . . . . . . . . . $ .42 $ .43 $ 1.01 $ .85
========== ========== ========== ==========
Dividends per share. . . . . . . . . . . . . . . . $ .10 $ .075 $ .175 $ .125
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
FIRST INDEPENDENCE CORPORATION
CONSOLIDATED CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY
For The Six Months Ended March 31, 1996
and Year Ended September 30, 1995
(Unaudited)
<TABLE>
<CAPTION>
Unrealized Required
Gain on Contribu-
Securities tion for Unearned
Additional Available Shares Stock
Common Paid-in Retained for Sale, Treasury Acquired Compen- Total
Stock Capital Earnings Net Stock by ESOP sation-RRP Equity
----- ------- -------- --- ----- ------- ---------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at October 1, 1994 . . . . . . $7,492 $6,967,859 $7,442,782 $ --- $(456,518) $(436,423) $(174,566) $13,350,626
Cash dividends of $.275 per share. . . --- --- (170,767) --- --- --- --- (170,767)
Purchase of 69,393 shares of
treasury stock . . . . . . . . . . . --- --- --- --- (1,015,256) --- --- (1,015,256)
Amortization of unearned stock
compensation . . . . . . . . . . . . --- --- --- --- --- --- 43,644 43,644
ESOP loan repayments . . . . . . . . . --- --- --- --- --- 72,737 --- 72,737
Fair value adjustment on ESOP shares
committed for release. . . . . . . . --- 35,705 --- --- --- --- --- 35,705
Common stock options exercised . . . . --- (5,250) --- --- 25,250 --- --- 20,000
Unrealized gain on securities
available for sale upon adoption of
SFAS No. 115 . . . . . . . . . . . . --- --- --- 41,382 --- --- --- 41,382
Increase in unrealized gain on
securities available for sale. . . . --- --- --- 135,198 --- --- --- 135,198
Net earnings . . . . . . . . . . . . . --- --- 1,086,666 --- --- --- --- 1,086,666
------ ---------- ---------- --------- ---------- --------- --------- -----------
Balance at September 30, 1995. . . . . 7,492 6,998,314 8,358,681 176,580 (1,446,524) (363,686) (130,922) 13,599,935
Cash dividends of $.175 per share. . . --- --- (103,556) --- --- --- --- (103,556)
Purchase of 62,923 shares of
treasury stock . . . . . . . . . . . --- --- --- --- (1,207,430) --- --- (1,207,430)
Amortization of unearned stock
compensation . . . . . . . . . . . . --- --- --- --- --- --- 21,822 21,822
ESOP loan repayments . . . . . . . . . --- --- --- --- --- 36,369 --- 36,369
Fair value adjustment on ESOP shares
committed for release. . . . . . . . --- 31,088 --- --- --- --- --- 31,088
Common stock options exercised . . . . --- (5,250) --- --- 25,250 --- --- 20,000
Decrease in unrealized gain on
securities available for sale. . . . --- --- --- (168,076) --- --- --- (168,076)
Net earnings . . . . . . . . . . . . . --- --- 615,185 --- --- --- --- 615,185
------ ---------- ---------- --------- ---------- --------- --------- -----------
Balance at March 31, 1996. . . . . . . $7,492 $7,024,152 $8,870,310 $ 8,504 $(2,628,704) $(327,317) $(109,100) $12,845,337
====== ========== ========== ========= =========== ========= ========= ===========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
PART I: FINANCIAL INFORMATION
FIRST INDEPENDENCE CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended March 31,
-----------------------------
1996 1995
----------- -----------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities
Net Earnings . . . . . . . . . . . . . . . . . . . . . . . $ 615,185 $ 564,492
Adjustments to reconcile net earnings to net cash
provided by operating activities
Depreciation, amortization and accretion . . . . . . . . 111,040 138,449
Increase in accrued interest receivable. . . . . . . . . (24,935) (28,989)
Increase (decrease) in income taxes payable. . . . . . . 76,716 (56,785)
Gain on sale of investments. . . . . . . . . . . . . . . (250,945) ---
Gain on sale of real estate acquired through
foreclosure. . . . . . . . . . . . . . . . . . . . . . (111,619) (47,293)
Net change in other assets and other liabilities . . . . 5,360 (4,913)
---------- ----------
Net cash provided by operating activities. . . . . . . 420,802 564,961
Cash flows from investing activities
Proceeds from sales of investment securities . . . . . . 263,145 ---
Proceeds from maturities of investment securities. . . . 1,000,000 1,000,000
Proceeds from call of investment securities. . . . . . . 2,000,000 ---
Purchase of investment securities. . . . . . . . . . . . (3,008,824) (1,931,307)
Purchase of mortgage-backed securities . . . . . . . . . (1,899,256) ---
Purchase of Federal Home Loan Bank Stock . . . . . . . . (32,700) ---
Principal repayments on mortgage-backed securities . . . 2,610,109 1,459,454
Net increase in loans. . . . . . . . . . . . . . . . . . (1,348,775) (1,539,630)
Capital expenditures . . . . . . . . . . . . . . . . . . (133,142) (90,427)
Proceeds from sale of real estate acquired through
foreclosure. . . . . . . . . . . . . . . . . . . . . . 37,669 112,734
---------- ----------
Net cash used in investing activities. . . . . . . . . (511,774) (989,176)
Cash flows from financing activities
Net increase in deposits . . . . . . . . . . . . . . . . 4,980,728 402,059
Net decrease in advances from borrowers
for taxes and insurance. . . . . . . . . . . . . . . . (570,471) (484,050)
Net increase in checks issued in excess of cash items. . 18,566 ---
Stock options exercised. . . . . . . . . . . . . . . . . 20,000 10,000
Advances from Federal Home Loan Bank . . . . . . . . . . 4,500,000 5,500,000
Cash dividends paid. . . . . . . . . . . . . . . . . . . (103,556) (85,298)
Purchase of treasury stock . . . . . . . . . . . . . . . (1,207,430) (550,743)
Principal paid on FHLB advances. . . . . . . . . . . . . (8,300,000) (4,200,000)
---------- ----------
Net cash provided by (used in) financing activities. . (662,163) 591,968
---------- ----------
Net decrease in cash and cash equivalents. . . . . . . . . . (753,135) 167,753
Cash and cash equivalents at beginning of period . . . . . . 2,114,625 1,414,920
---------- ----------
Cash and cash equivalents at end of period . . . . . . . . . $1,361,490 $1,582,673
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
FIRST INDEPENDENCE CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(1) Basis of Presentation
The accompanying unaudited Consolidated Condensed Financial Statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-QSB and
Regulation S-X. Accordingly, they do not include all the information and
footnotes required by generally accepted accounting principles for complete
financial statements.
In the opinion of management, the Consolidated Condensed Financial
Statements contain all adjustments (consisting only of normal recurring
adjustments) necessary to present fairly the consolidated financial condition of
First Independence Corporation as of March 31, 1996, and the results of
operations and cash flows for all interim periods presented.
Operating results for the three and six months ended March 31, 1996 are
not necessarily indicative of the results that may be expected for the fiscal
year ending September 30, 1996.
(2) Earnings Per Share of Common Stock
Primary earnings per share is computed by dividing net earnings by the
weighted average number of common shares and common share equivalents
outstanding. Stock options are considered common stock equivalents. Common
shares and common share equivalents outstanding excludes unallocated and
uncommitted shares held by the ESOP trust. Average weighted unallocated and
uncommitted shares in the ESOP trust were 33,641 and 34,550 for the three and
six months ended March 31, 1996 and 40,915 and 41,824 for the three and six
months ended March 31, 1995, respectively.
(3) Regulatory Capital Requirements
Pursuant to the Financial Institution Reform, Recovery, and Enforcement
Act of 1989 ("FIRREA"), as implemented by rules promulgated by the Office of
Thrift Supervision, savings institutions must meet three separate minimum
capital-to-asset requirements. The table on the following page summarizes, as of
March 31, 1996, the capital requirements applicable to First Federal Savings and
Loan Association of Independence ("the Association") and its actual capital
ratios. For purposes of calculating regulatory capital, adjustments required by
Statement of Financial Accounting Standards No. 115 are not taken into account.
As of March 31, 1996, the Association exceeded all current regulatory capital
standards.
<PAGE>
Regulatory Actual Capital
Capital Requirement (Association Only)
-----------------------------------------------
Amount Percent Amount Percent
------ ------- ------ -------
(Dollars in Thousands)
Risk-Based . . . . . . . . $3,500 8.0% $10,861 24.83%
Core Capital . . . . . . 2,996 3.0 10,312 10.32
Tangible Capital . . . . . 1,498 1.5 10,312 10.32
(4) Recent Regulatory Developments
The equity of the Association may be affected in the near future by the
under capitalization of the Savings Association Insurance Fund of the Federal
Deposit Insurance Corporation (the "SAIF"). The SAIF's current reserve level is
below the statutorily required reserve level of 1.25% of deposits. The Bank
Insurance Fund ("BIF") is subject to the same reserve level and meets its
statutory reserve requirement. In November 1995, the FDIC revised the premium
schedule for BIF-insured associations to provide for a range of 0% to .27% of
deposits (as compared to the current range of .23% to .31% of deposits for
SAIF-insured institutions) with an annual statutory minimum payment of $2,000.
As a result of the BIF reaching the required reserve ratio, the revised premium
schedule took effect in January 1996.
The FDIC action does not affect the premium rates currently applicable
to SAIF members, such as the Association, which range from .23% to .31% of
deposits depending on the institution's capital level and other factors. As a
result, BIF members would generally pay lower premiums than SAIF members.
Legislation currently under consideration in Congress to recapitalize
the SAIF and avoid a disparity between SAIF and BIF assessments in its present
form, would require each institution holding SAIF-assessable deposits to pay a
one-time assessment of .80% to .90% of deposits held by such institutions at
March 31, 1995, to bring the SAIF to the 1.25% statutory reserve level. Weak
thrifts would be exempted from these changes and would continue to pay higher
SAIF assessments through 1999.
If the one-time special assessment in the proposal is enacted into law,
the Association would be required to pay an additional assessment of
approximately $591,000 (based upon deposits at March 31, 1995 as currently
proposed), which, after consideration of an assumed income tax benefit, will
reduce equity and earnings by approximately $366,000. Accordingly, this special
assessment would significantly increase non-interest expense. Conversely,
depending upon the Association's capital level and supervisory rating and
assuming the insurance premium levels for BIF and SAIF members are again
equalized, future deposit insurance premiums could decrease significantly to as
low as $2,000 per year from the 0.23% of deposits currently being paid by the
Association, which would reduce non-interest expenses for future periods.
No assurance can be given that the proposal will be enacted into law or
in what form it might be enacted. If it is not enacted into law, SAIF
assessments will likely be significantly higher than BIF assessments, which
would have a negative competitive impact on the Association and other savings
associations.
<PAGE>
(5) Supplemental Disclosure of Cash Flow Information
Six months ended March 31,
--------------------------
1996 1995
---- ----
Cash paid for:
Interest $2,310,260 $1,713,350
Income taxes 333,631 414,754
Noncash investing and financing activities:
Transfer from loans to real estate
acquired through foreclosure --- 58,951
Issuance of loans receivable in connection
with the sale of real estate acquired
through foreclosure 45,000 271,800
<PAGE>
PART II
FIRST INDEPENDENCE CORPORATION
Management's Discussion and Analysis of Financial
Condition and Results of Operations
General
The accompanying Consolidated Financial Statements include the accounts
of First Independence Corporation (the "Company") and its wholly-owned
subsidiary, First Federal Savings and Loan Association of Independence (the
"Association"). All significant inter-company transactions and balances are
eliminated in consolidation. The Company's results of operations are primarily
dependent on the Association's net interest margin, which is the difference
between interest income on interest-earning assets and interest expense on
interest-bearing liabilities. The Company's net earnings are also affected by
the level of its non-interest expenses, such as employee compensation and
benefits, occupancy expenses, and other expenses.
When used in this Form 10-Q and in future filings by the Company with
the Securities and Exchange Commission, in the Company's press releases or other
public or shareholder communications, and in oral statements made with the
approval of an authorized executive officer, the words or phrases "will likely
results", "are expected to", "will continue", "is anticipated", "estimate",
"project" or similar expressions are intended to identify "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Such statements are subject to certain risks and uncertainties, that
could cause actual results to differ materially from historical earnings and
those presently anticipated or projected. The Company wishes to caution readers
not to place undue reliance on any such forward-looking statements, which speak
only as of the date made. The Company wishes to advise readers that the factors
listed below could affect the Company's financial performance and could cause
the Company's actual results for future periods to differ materially from any
opinions or statements expressed with respect to future periods in any current
statements.
The Company does not undertake-and specifically declines any obligation
- - -to publicly release the result of any revisions which may be made to any
forward-looking statements to reflect events or circumstances after the date of
such statements or to reflect the occurrence of anticipated or unanticipated
events.
Financial Condition
The Company's total assets decreased $300,000, or .27%, from $101.9
million at September 30, 1995 to $101.6 million at March 31, 1996. The decrease
was primarily due to decreases in mortgage-backed securities of $800,000, cash
and cash equivalents of $800,000 and investment securities of $300,000. These
decreases in assets, along with an increase in savings deposits of $5.0 million,
were used to fund principal repayments of $3.8 million on advances obtained from
the Federal Home Loan Bank of Topeka, an increase of $1.4 million in loans
receivable, payments for borrower's taxes and insurance of $600,000, and an
increase of $100,000 in premises and equipment.
<PAGE>
Total loans receivable increased $1.4 million from $60.4 million at
September 30, 1995, to $61.8 million at March 31, 1996. An increase in the
economic activity in the Company's lending area resulted in loan originations
exceeding loan repayments. The increase in mortgage loans consisted primarily of
15- and 30-year fixed-rate loans, mortgage loans with a fixed rate for the first
three years of the loan term that automatically convert to one-year adjustable
rate loans during the fourth year of the loan term, and, to a lesser extent,
one-year adjustable rate mortgages.
The allowance for loan losses totaled $690,000, or 1.12% of total loans
at March 31, 1996, which represented no change from the $690,000, or 1.14% of
total loans, at September 30, 1995. The ratio of the allowance for loan losses
as a percent of non-performing loans decreased from 94.91% at September 30, 1995
to 70.41% at March 31, 1996. At March 31, 1996, the Company's non-performing
loans were comprised primarily of one- to four-family residential loans. See
"Non-performing Assets."
The allowance for loan losses is determined based upon an evaluation of
pertinent factors underlying the types and qualities of the Company's loans.
Management considers such factors as the repayment status of a loan, the
estimated net realizable value of the underlying collateral, the borrower's
ability to repay the loan, current and anticipated economic conditions which
might affect the borrower's ability to repay the loan and the Company's past
statistical history concerning charge-offs.
Total deposits increased $5.0 million from $67.9 million at September
30, 1995, to $72.9 million at March 31, 1996. Deposits increased primarily as a
result of the "Platinum" money fund account introduced in May 1995. The
"Platinum" money fund account offers tiered rates on a limited transaction
account with the highest rate paid on balances of $50,000 and above. Management
feels the "Platinum" money fund provides a lower risk, insured alternative for
deposit customers considering higher risk investments in order to get higher
yields than money market accounts.
Total borrowed funds decreased $3.8 million from $18.8 million at
September 30, 1995 to $15.0 million at March 31, 1996. The decrease was due to
the principal repayment of advances obtained from the Federal Home Loan Bank of
Topeka. Most of the advances obtained from the Federal Home Loan Bank of Topeka
were used by the Company to invest in mortgage-backed securities at a positive
spread over the term of the advances. This was accomplished by matching
short-term variable-rate advances against longer term variable and fixed-rate
mortgage-backed securities. Management believes that the Company, while exposed
to an increase in interest rate risk with increasing rates, has sufficient
assets repricing within one year or less to allow it to take on this additional
interest rate risk.
<PAGE>
Total stockholders' equity decreased $755,000 from $13.6 million at
September 30, 1995 to $12.8 million at March 31, 1996. The decrease was
primarily the result of the Company's use of $1,207,000 to repurchase 62,923
shares of common stock, a decrease in unrealized gains on securities available
for sale of $168,000 primarily due to the sale of FHLMC stock which had been
designated as available for sale at September 30, 1995, therefore, an unrealized
gain of $150,000, net of applicable income taxes, had been recognized as a
component of stockholders' equity at that date and dividends of $104,000 paid to
stockholders. These decreases were partially offset by the Company's net
earnings from operations of $615,000, the repayment of employee stock ownership
debt of $36,000, a fair value adjustment of $31,000 on ESOP shares committed for
release, the amortization of unearned stock compensation of $22,000, and common
stock options exercised of $20,000.
Non-performing Assets
The ratio of non-performing assets to total assets is one indicator of
the Company's exposure to credit risk. Non-performing assets of the Company
consist of non-accruing loans, accruing loans delinquent 90 days or more,
troubled debt restructurings, and foreclosed assets which have been acquired as
a result of foreclosure or deed-in-lieu of foreclosure. At March 31, 1996,
non-performing assets were approximately $980,000, which represents an increase
of $191,000, or 24.21%, as compared to September 30, 1995. A summary of
non-performing assets by category is set forth in the following table:
March 31, September 30,
1996 1995
--------- -------------
(Dollars In Thousands
Non-Accruing Loans. . . . . . . . . . . . . . . $ 668 $ 555
Accruing Loans Delinquent 90 Days or More . . . 256 116
Trouble Debt Restructurings . . . . . . . . . . 56 56
Foreclosed Assets . . . . . . . . . . . . . . . --- 62
------ ------
Total Non-Performing Assets . . . . . . . . . . $ 980 $ 789
====== ======
Total Non-Performing Assets as a
Percentage of Total Assets . . . . . . . . . 0.96% 0.77%
==== ====
Included in non-accruing loans at March 31, 1996, were ten loans
totaling $558,000 secured by one- to four-family real estate, one loan totaling
$100,000 secured by non-residential real estate, and one consumer loan totaling
$10,000. All non-accruing loans at March 31, 1996, were located in the Company's
primary market area except for one loan totaling $342,000 secured by a single
family residence in Texas. In February 1991, the borrowers experienced financial
difficulties and filed for protection under the bankruptcy statutes. Pursuant to
the plan of reorganization approved by the Bankruptcy Court, the borrowers are
required to make additional payments each month to make up the delinquent
payments and interest. At March 31, 1996, the borrowers were complying with the
terms of the repayment plan. Based upon the most current information available
and the borrowers' compliance with the terms of the repayment plan, the Company
believes that the borrowers have substantial equity in the property. At March
31, 1996, accruing loans delinquent 90 days or more included seven loans
totaling $256,000 secured by one- to four-family real estate. At March 31, 1996,
all of the Company's accruing loans deliquent 90 days or more were secured
by real estate located in the Company's primary market area.
<PAGE>
Other Loans of Concern. In addition to the non-performing assets set
forth in the table above, as of March 31, 1996, there was also one $216,000 loan
secured by fifteen single family residences with respect to which the value of
the collateral is questionable and known information about possible credit
problems of the borrower have caused management to have doubts as to the ability
of the borrower to comply with the present loan repayment terms and which may
result in the future inclusion of such item in the non-performing asset
categories.
Foreclosed Assets. At March 31, 1996, the Company had no real estate
acquired through foreclosure.
Results of Operations - Comparison of Three and Six Months Ended March 31, 1996
and March 31, 1995
- - -------------------------------------------------------------------------------
General. Net earnings for the six months ended March 31, 1996 were
$615,000 as compared to $564,000 for the six months ended March 31, 1995,
resulting in an increase of $51,000, or 9.04%. The increase in net earnings was
primarily due to a non-recurring $251,000 gain on the sale of FHLMC stock which
was recognized in the six months ended March 31, 1996, with no similar activity
in the six months ended March 31, 1995. This increase in net earnings was
partially offset by a decrease in net interest income of $167,000 and an
increase in income tax expense of $52,000.
Net earnings for the three months ended March 31, 1996 were $249,000 as
compared to $280,000 for the three months ended March 31, 1995, resulting in a
decrease of $31,000, or 11.07%. The decrease in net earnings was primarily due
to a decrease in net interest income of $65,000 and an increase in non-interest
expense of $31,000, partially offset by an increase in other income of $55,000
and a decrease in income tax expense of $10,000.
Net Interest Income. Net interest income decreased $167,000, or 9.89%,
for the six months ended March 31, 1996 as compared to the six months ended
March 31, 1995. This decrease was due primarily to an increase in interest
expense of $588,000, or 34.0%, offset partially by an increase in interest
income of $420,000, or 12.3%. Interest expense increased primarily due to a 93
basis point increase in the average rate paid on interest-bearing liabilities
and, to a lesser extent, an $8.2 million increase in the average balance of
interest-bearing liabilities. Interest income increased primarily due to an $8.0
million increase in the average balance of interest-earning assets and, to a
lesser extent, a 24 basis point increase in yield on interest-earning assets.
Net interest income decreased $65,000, or 7.9%, for the three months
ended March 31, 1996, as compared to the three months ended March 31, 1995. This
decrease was due primarily to an increase in interest expense of $256,000, or
28.3%; offset partially by an increase in interest income of $190,000 or 11.0%.
The decrease was due to the same reasons as stated above for the six months
ended March 31, 1996, as compared to the six months ended March 31, 1995. The
ratio of average interest-earning assets to average interest-bearing liabilities
decreased from 115.8% for the three months ended March 31, 1995 to 113.7% for
the three months ended March 31, 1996.
<PAGE>
Interest Income. Interest income for the six months ended March 31,
1996, increased to $3.8 million from $3.4 million for the six months ended March
31, 1995. This increase was caused primarily by an $8.0 million increase in the
average outstanding amount of interest-earning assets during the six month ended
March 31, 1996, as compared to the six months ended March 31, 1995 due to the
increase in the average balance of loans receivable and investment securities
financed by increased savings deposits. To a lesser extent, the increase was due
to an increase in the average yield on interest-earning assets. The average
yield on interest-earning assets increased 24 basis points to 7.64% at March 31,
1996, from 7.40% at March 31, 1995. This increase in yield was caused primarily
by an increase in yield on the Company's loan portfolio from 8.04% to 8.31%. To
a lesser extent, the increase in yield was due to an increase in yield on the
Company's investment securities portfolio yield from 5.78% to 6.65% and the
mortgage-backed securities portfolio yield from 6.45% to 6.51% for the six
months ended March 31, 1996, as compared to the same period in fiscal 1995. The
increase in yield resulted from new loans originated at higher, current market
rates of interest, as well as a portion of the Company's adjustable rate loans
adjusting upward in response to increases in market rates and higher yielding
mortgage-backed and investment securities being purchased during the period.
Interest income for the quarter ended March 31, 1996, increased to $1.9
million from $1.7 million for the quarter ended March 31, 1995. This increase
was caused primarily by the general increase in interest rates resulting in an
increase in yield on the Association's loans from 8.09% to 8.26%, and on the
investment securities portfolio from 5.99% to 6.60%. The average yield on
interest-earning assets increased 20 basis points to 7.65% at March 31, 1996,
from 7.45% at March 31, 1995.
Interest Expense. Interest expense for the six months ended March 31,
1996, increased by $588,000 to $2.3 million as compared to $1.7 million for the
six months ended March 31, 1995. This increase was primarily the result of a 93
basis point increase in average interest rates paid on interest-bearing
liabilities, caused by increases in market interest rates and higher rates paid
on new deposit products developed in fiscal 1995. To a lesser extent, the
increase in interest expense was due to an $8.2 million increase in the average
outstanding amount of interest-bearing liabilities during the six months ended
March 31, 1996 as compared to the six months ended March 31, 1995. This increase
in interest-bearing liabilities was primarily the result of a $7.7 million
increase in the average outstanding balance of deposits due primarily to the
"Platinum" money fund account introduced in May 1995. The "Platinum" money fund
account is a limited transaction account which offers tiered rates with the
highest rate paid on balances of $50,000 and above. To a lesser extent, the
increase was due to a $500,000 increase in the average outstanding amount of
advances obtained from the Federal Home Loan Bank of Topeka. The advances were
used by the Company to invest in mortgage-backed securities at a positive spread
over the term of the advances. A portion of the advances were paid off during
the period which reduced the amount outstanding at March 31, 1996.
Interest expense for the quarter ended March 31, 1996, increased by
$256,000 to $1,162,000 as compared to $906,000 for the quarter ended March 31,
1995. This increase was primarily the result of a higher cost of funds in the
second quarter of fiscal 1996 as compared to the same period of fiscal 1995. The
average cost of funds was 5.25% in the fiscal 1996 period as compared to 4.51%
for the fiscal 1995 period. This 74 basis point increase in the average cost of
<PAGE>
funds was due to higher interest rates in the market for savings deposits, which
resulted in maturing certificates of deposit repricing at higher rates. To a
lesser extent, the increase was due to an $8.1 million increase in the average
outstanding balance of interest-bearing liabilities during the three months
ended March 31, 1996 as compared to the three months ended March 31, 1995. This
increase in interest-bearing liabilities was due to the same reasons as stated
above.
Provision for Loan Losses. Based upon management's analysis of
established reserves and review of the composition of the loan portfolio,
including non-performing assets and other loans of concern, there was no
provision for losses on loans for the three and six months ended March 31, 1996
and March 31, 1995. The Company will continue to monitor its allowance for loan
losses and make future additions to the allowance through the provision for loan
losses as economic and regulatory conditions dictate. However, there can be no
assurance that future losses will not exceed estimated amounts or that
additional provisions for loan losses will not be required in future periods. In
addition, the Company's determinations as to the amount of the allowance for
loan losses is subject to review by the regulatory agencies which can order the
establishment of additional general or specific allowances.
Non-interest Income. Non-interest income increased $310,000 to $457,000
during the six months ended March 31, 1996 as compared to $147,000 for the six
months ended March 31, 1995. The increase was primarily due to a non-recurring
$251,000 gain on the sale of FHLMC stock which was recognized in the six months
ended March 31, 1996, with no gains on the sale of securities recognized in the
six months ended March 31, 1995. Non-interest income increased $55,000 to
$164,000 during the three months ended March 31, 1996 as compared to $109,000
for the three months ended March 31, 1995. The increase was primarily due to the
amortization of a deferred gain of $105,000 from the sale of real estate owned.
The deferred gain originated from real estate owned that was sold during fiscal
1995 and was amortized in full during the second quarter of fiscal 1996.
Recurring non-interest income generally consists of servicing fees as well as
deposit and other types of fees.
Non-interest Expense. Total non-interest expense increased to $953,000
for the six months ended March 31, 1996 from $914,000 for the six months ended
March 31, 1995, an increase of $39,000, or 4.3%. The increase was primarily due
to increases in compensation and employee benefits of $49,000, data processing
fees of $6,000, and occupancy and equipment of $4,000. These increases were
partially offset by a decrease in other expenses of $22,000. The increase in
compensation expense was primarily the result of annual cost of living increases
in salaries and bonuses, and increased compensation expense associated with the
Company's ESOP plan due to the increase in the Company's stock price. See
"Liquidity and Capital Resources" for information regarding the proposed
legislation related to the proposed special assessment on deposits insured by
the SAIF which may result in an increase in non-interest expense in the future.
<PAGE>
Total non-interest expense increased by $31,000 for the three months
ended March 31, 1996, as compared to the three months ended March 31, 1995. The
increase was due primarily to increases in compensation and employee benefits of
$38,000, data processing fees of $4,000, occupancy and equipment of $3,000, and
federal deposit insurance premiums of $3,000. These increases were partially
offset by a decrease in other expenses of $16,000. The increase in non-interest
expense for the three months ended March 31, 1996 was due to the same reasons as
stated above.
Income Tax Expense. Income tax expense was $410,000 for the six months
ended March 31, 1996 compared to $358,000 for the six months ended March 31,
1995, an increase of $52,000. The Association's effective tax rates were 40.0%
and 38.8% for the six months ended March 31, 1996 and March 31, 1995,
respectively.
Income tax expense was $179,000 for the quarter ended March 31, 1996
compared to $189,000 for the quarter ended March 31, 1995, a decrease of
$10,000. The Association's effective tax rates were 41.8% and 40.4% for the
three months ended March 31, 1996 and March 31, 1995, respectively.
Liquidity and Capital Resources. The Company's primary sources of funds
are deposits, principal and interest payments on loans and mortgage-backed
securities, Federal Home Loan Bank of Topeka advances and funds provided by
operations. While scheduled loan and mortgage-backed security repayments and
maturity of short-term investments are a relatively predictable source of funds,
deposit flows are greatly influenced by general interest rates, economic
conditions and competition. Current Office of Thrift Supervision ("OTS")
regulations require the Association to maintain cash and eligible investments in
an amount equal to at least 5% of the sum of its average daily balance of net
withdrawable deposit accounts and borrowings payable in one year or less. Such
requirements may be changed from time to time by the OTS to reflect changing
economic conditions. Such investments are intended to provide a source of
relatively liquid funds upon which the Association may rely if necessary to fund
deposit withdrawals and other short-term funding needs. As of March 31, 1996,
the Association's liquidity ratio was 8.45% as compared to 8.62% at September
30, 1995. These ratios exceeded the minimum regulatory liquidity requirements on
both dates.
The Company uses its capital resources principally to meet its ongoing
commitments, to fund maturing certificates of deposit and deposit withdrawals,
to invest, to fund existing and future loan commitments, to maintain liquidity,
and to meet operating expenses. At March 31, 1996, the Company had commitments
to originate loans totaling $1,664,000. The Company considers its liquidity and
capital resources to be adequate to meet its foreseeable short- and long-term
needs. The Company expects to be able to fund or refinance, on a timely basis,
its material commitments and long-term liabilities.
Regulatory standards impose the following capital requirements on the
Association: a risk-based capital standard expressed as a percent of
risk-adjusted assets, a leverage ratio of core capital to total adjusted assets,
and a tangible capital ratio expressed as a percent of total adjusted assets. As
of March 31, 1996, the Association exceeded all fully phased-in regulatory
capital standards.
<PAGE>
At March 31, 1996, the Association's tangible capital was $10.3 million,
or 10.32%, of adjusted total assets, which is in excess of the 1.5% requirement
by $8.8 million. In addition, at March 31, 1996, the Association had core
capital of $10.3 million, or 10.32%, of adjusted total assets, which exceeds the
3% requirement by $7.3 million. The Association had risk-based capital of $10.9
million at March 31, 1996, or 24.83% of risk-adjusted assets, which exceeds the
8.0% risk-based capital requirements by $7.4 million.
Under the requirements of federal law, all the federal banking agencies,
including the OTS, must revise their risk-based capital requirements to ensure
that such requirements account for interest rate risk, concentration of credit
risk and the risks of non-traditional activities, and that they reflect the
actual performance of and expected loss on multi-family loans.
The OTS has adopted a final rule that generally requires a savings
association with more than normal interest rate risk to deduct from its total
capital, for purposes of determining compliance with such requirement, an amount
equal to 50% of its interest-rate risk exposure multiplied by the present value
of its assets. This exposure is a measure of the potential decline in the net
portfolio value of a savings association, greater than 2% of the present value
of its assets, based upon a hypothetical 200 basis point increase or decrease in
interest rates (whichever results in a greater decline). Net portfolio value is
the present value of expected cash flows from assets, liabilities and
off-balance sheet contracts. The rule provides for a two-quarter lag between
calculating interest rate risk and recognizing any deductions from capital. The
OTS has announced that it will delay the effectiveness of the rule until it
adopts the process by which savings associations may appeal an interest rate
risk deduction determination. The OTS has instructed all savings associations
not to take any capital deductions for interest rate risk exposure until
notified to do so by the OTS. In addition, any savings association with less
than $300 million in assets and a total risk-based capital ratio in excess of
12%, such as the Association, is exempt from this requirement unless the OTS
determines otherwise.
Federal law requires that the FDIC maintain reserves at both the Savings
Association Insurance Fund ("SAIF") and the Bank Insurance Fund ("BIF") of at
least 1.25% of insured deposits. The reserves are funded through the payment of
insurance premiums by the insured institution members of each fund. The BIF
reached this level during 1995. In November 1995, the FDIC revised the premium
schedule for BIF-insured associations to provide for a range of 0% to .27% of
deposits (as compared to the current range of .23% to .31% of deposits for
SAIF-insured institutions) with an annual statutory minimum payment of $2,000.
As a result of the BIF reaching the required reserve ratio, the revised premium
schedule took effect in January 1996. The FDIC action does not affect the
premium rates currently applicable to SAIF members, such as the Association,
which range from .23% to .31% of deposits depending on the institution's capital
level and other factors. As a result, BIF members would generally pay lower
premiums than SAIF members. While the magnitude of the competitive advantage of
BIF-insured institutions and its impact on the Association's results of
operations cannot be determined at this time, the decrease in BIF premiums could
place the Association at a material competitive disadvantage. The Association
currently qualifies for the minimum SAIF premium level of .23% of deposits.
<PAGE>
Proposed federal legislation provides for a one-time assessment of .80%
to .90% of insured deposits to be imposed on all SAIF-insured deposits,
including those held by commercial banks, and for BIF deposit insurance premiums
to be used to pay the Financing Corporation bond interest on a pro rata basis
together with SAIF premiums. If a requirement were implemented for the
Association to pay a one-time assessment equal to .90% of insured deposits
(based on deposits at March 31, 1995 as currently proposed), the amount of such
assessment would have been approximately $591,000.
<PAGE>
Part II - Other Information
---------------------------
Item 1 - Legal Proceedings
-----------------
Not applicable.
Item 2 - Changes in Securities
---------------------
Not applicable.
Item 3 - Defaults upon Senior Securities
-------------------------------
Not applicable.
Item 4 - Submission of Matters to a Vote of Security Holders
---------------------------------------------------
None
Item 5 - Other Information
-----------------
None.
Item 6 - Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
` Sequentially
Numbered Page
Where Attached
Exhibit
Exhibit Number is located
-------------- --------------
27 Exhibit 27, "Financial Data Schedule" 19
(b) Reports on Form 8-K
None
<PAGE>
SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FIRST INDEPENDENCE CORPORATION
Registrant
Date: May 14, 1996 /s/ Larry G. Spencer
-------------------------- ---------------------------------------
Larry G. Spencer
President and Chief Executive
Officer
Date: May 14, 1996 /s/ James B. Mitchell
-------------------------- ---------------------------------------
James B. Mitchell
Vice President and Chief Financial
Officer
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
The Schedule contains summary financial information extracted from the
quarterly report on Form 10-QSB for the fiscal quarter ended 3/31/96 and
is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> MAR-31-1996
<CASH> 170,957
<INT-BEARING-DEPOSITS> 190,533
<FED-FUNDS-SOLD> 1,000,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 6,008,046
<INVESTMENTS-CARRYING> 29,904,016
<INVESTMENTS-MARKET> 29,829,648
<LOANS> 62,481,221
<ALLOWANCE> 690,009
<TOTAL-ASSETS> 101,627,581
<DEPOSITS> 72,907,356
<SHORT-TERM> 11,100,000
<LIABILITIES-OTHER> 874,888
<LONG-TERM> 3,900,000
0
0
<COMMON> 7,492
<OTHER-SE> 12,837,845
<TOTAL-LIABILITIES-AND-EQUITY> 101,627,581
<INTEREST-LOAN> 2,534,299
<INTEREST-INVEST> 1,191,933
<INTEREST-OTHER> 114,732
<INTEREST-TOTAL> 3,840,964
<INTEREST-DEPOSIT> 1,822,472
<INTEREST-EXPENSE> 2,319,361
<INTEREST-INCOME-NET> 1,521,603
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 250,945
<EXPENSE-OTHER> 953,091
<INCOME-PRETAX> 1,025,532
<INCOME-PRE-EXTRAORDINARY> 615,185
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 615,185
<EPS-PRIMARY> 1.01
<EPS-DILUTED> 1.01
<YIELD-ACTUAL> 7.64
<LOANS-NON> 668,000
<LOANS-PAST> 256,000
<LOANS-TROUBLED> 56,000
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 690,009
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 690,009
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 690,009
</TABLE>
