<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 June 30, 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 August 9, 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
June 30, 1996 and September 30, 1995 3
Consolidated Condensed Statements of Earnings
for the Three and Nine Months Ended June 30,
1996 and 1995 4
Consolidated Condensed Statement of Stockholders'
Equity for the Year Ended September 30, 1995 and
Nine Months Ended June 30, 1996 5
Consolidated Condensed Statements of Cash
Flows for the Nine Months Ended June 30,
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
2
<PAGE>
PART I: FINANCIAL INFORMATION
FIRST INDEPENDENCE CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, September 30,
1996 1995
------------------ ------------------
(Unaudited)
<S> <C> <C>
ASSETS
Cash and due from bank . . . . . . . . . . . . . . . . . . . . . . $ 347,581 $ 369,632
Federal funds sold . . . . . . . . . . . . . . . . . . . . . . . . 200,000 1,300,000
Other interest-earning deposits. . . . . . . . . . . . . . . . . . 429,754 444,993
-------------- --------------
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . 977,335 2,114,625
Investment securities held to maturity (fair value:
June 30, 1996 - $1,979,680;
September 30, 1995 - $1,006,840) . . . . . . . . . . . . . . . . 2,000,000 1,000,000
Investment securities available for sale . . . . . . . . . . . . . 5,220,656 6,524,956
Mortgage-backed securities held to maturity (fair value:
June 30, 1996 - $28,995,426;
September 30, 1995 - $28,416,954). . . . . . . . . . . . . . . . 29,246,130 28,593,826
Mortgage-backed securities available for sale. . . . . . . . . . . 700,144 832,700
Loans receivable, net. . . . . . . . . . . . . . . . . . . . . . . 64,774,220 60,369,956
Real estate acquired through foreclosure . . . . . . . . . . . . . 11,845 62,020
Premises and equipment, net. . . . . . . . . . . . . . . . . . . . 844,496 663,463
Federal Home Loan Bank Stock, at cost. . . . . . . . . . . . . . . 1,138,000 1,040,000
Accrued interest receivable. . . . . . . . . . . . . . . . . . . . 746,900 618,438
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . 111,411 84,031
-------------- --------------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . $105,771,137 $101,904,015
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . $68,845,433 $67,926,628
Advances from borrowers for taxes and insurance. . . . . . . . . 383,991 1,242,941
Checks issued in excess of cash items. . . . . . . . . . . . . . 601,009 ---
Advances from Federal Home Loan Bank . . . . . . . . . . . . . . 22,700,000 18,800,000
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . 4,488 36,855
Other accrued expenses and liabilities . . . . . . . . . . . . . 186,422 297,656
-------------- --------------
Total liabilities . . . . . . . . . . . . . . . . . . . . . 92,721,343 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 . . . . . . . . . . . . . . . . . . . 7,038,525 6,998,314
Retained earnings - substantially restricted . . . . . . . . . . 9,058,615 8,358,681
Unrealized gain (loss) on securities available for sale, net . . (18,812) 176,580
Treasury stock at cost, 165,775 shares at June 30, 1996
and 104,852 shares at September 30, 1995 . . . . . . . . . . . (2,628,704) (1,446,524)
Required contributions for shares acquired by ESOP . . . . . . . (309,133) (363,686)
Unearned stock compensation - recognition and retention
plan (RRP) . . . . . . . . . . . . . . . . . . . . . . . . . . (98,189) (130,922)
-------------- --------------
Total stockholders' equity . . . . . . . . . . . . . . . . . 13,049,794 13,599,935
-------------- --------------
Total liabilities and stockholders' equity . . . . . . . . . $105,771,137 $101,904,015
============== ==============
</TABLE>
- -----------------------------
The accompanying notes are an integral part of these statements.
3
<PAGE>
PART I: FINANCIAL INFORMATION
FIRST INDEPENDENCE CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
------------------------------ -------------------------------
1996 1995 1996 1995
------------- ------------- ------------- -------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Interest income
Loans receivable . . . . . . . . . . . . . . . . $1,312,299 $1,223,609 $3,846,598 $3,539,321
Mortgage-backed securities . . . . . . . . . . . 488,358 482,318 1,439,872 1,406,288
Investment securities. . . . . . . . . . . . . . 119,214 100,209 359,632 227,663
Other. . . . . . . . . . . . . . . . . . . . . . 26,698 28,489 141,430 82,011
------------- ------------- ------------- -------------
Total interest income. . . . . . . . . . . . . 1,946,569 1,834,625 5,787,532 5,255,283
------------- ------------- ------------- -------------
Interest expense
Deposits . . . . . . . . . . . . . . . . . . . . 884,372 738,445 2,706,844 2,024,185
Borrowed funds . . . . . . . . . . . . . . . . . 256,911 275,092 753,800 720,790
------------- ------------- ------------- -------------
Total interest expense . . . . . . . . . . . . 1,141,283 1,013,537 3,460,644 2,744,975
------------- ------------- ------------- -------------
Net interest income. . . . . . . . . . . . . . . . 805,286 821,088 2,326,888 2,510,308
Provision for loan losses. . . . . . . . . . . . . -- -- -- --
------------- ------------- ------------- -------------
Net interest income after provision
for loan losses. . . . . . . . . . . . . . . . . 805,286 821,088 2,326,888 2,510,308
Other income
Gain on sale of investments. . . . . . . . . . . -- -- 250,945 --
Income (loss) from real estate operations . . . (894) 3,334 95,197 52,369
Other income . . . . . . . . . . . . . . . . . . 66,783 52,057 176,767 150,475
------------- ------------- ------------- -------------
Total other income . . . . . . . . . . . . . . 65,889 55,391 522,909 202,844
------------- ------------- ------------- -------------
General, administrative and other expense
Employee compensation and benefits . . . . . . . 271,019 268,000 818,943 766,505
Occupancy and equipment. . . . . . . . . . . . . 34,891 32,043 95,013 87,708
Federal deposit insurance premiums . . . . . . . 41,360 37,170 117,896 113,305
Data processing fees . . . . . . . . . . . . . . 34,556 31,051 104,578 95,439
Other. . . . . . . . . . . . . . . . . . . . . . 90,923 94,159 289,409 313,679
------------- ------------- ------------- -------------
Total non-interest expenses. . . . . . . . . . 472,749 462,423 1,425,839 1,376,636
------------- ------------- ------------- -------------
Earnings before income taxes . . . . . . . . . . . 398,426 414,056 1,423,958 1,336,516
Income tax expense . . . . . . . . . . . . . . . . 155,052 158,634 565,399 516,602
------------- ------------- ------------- -------------
Net earnings . . . . . . . . . . . . . . . . . . . $ 243,374 $ 255,422 $ 858,559 $ 819,914
============= ============= ============= =============
Earnings per common share
Primary. . . . . . . . . . . . . . . . . . . . . $ .42 $ .41 $ 1.43 $ 1.27
============= ============= ============= =============
Fully diluted. . . . . . . . . . . . . . . . . . $ .42 $ .41 $ 1.43 $ 1.26
============= ============= ============= =============
Dividends per share. . . . . . . . . . . . . . . . $ .10 $ .075 $ .275 $ .20
============= ============= ============= =============
</TABLE>
- -----------------------------
The accompanying notes are an integral part of these statements.
4
<PAGE>
FIRST INDEPENDENCE CORPORATION
CONSOLIDATED CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY
For The Nine Months Ended June 30, 1996
and Year Ended September 30, 1995
(Unaudited)
<TABLE>
<CAPTION>
Unrealized
Gain (loss)
Additional on Securities
Common Paid-in Retained Available for
Stock Capital Earnings Sale, Net
------- ---------- ----------- -------------
<S> <C> <C> <C> <C>
Balance at October 1, 1994 . . . . . . $7,492 $6,967,859 $7,442,782 $ --
Cash dividends of $.275 per share. . . -- -- (170,767) --
Purchase of 69,393 shares of
treasury stock . . . . . . . . . . . -- -- -- --
Amortization of unearned stock
compensation . . . . . . . . . . . . -- -- -- --
ESOP loan repayments . . . . . . . . . -- -- -- --
Fair value adjustment on ESOP shares
committed for release. . . . . . . . -- 35,705 -- --
Common stock options exercised . . . . -- (5,250) -- --
Unrealized gain on securities
available for sale upon adoption of
SFAS No. 115 . . . . . . . . . . . . -- -- -- 41,382
Increase in unrealized gain on
securities available for sale. . . . -- -- -- 135,198
Net earnings . . . . . . . . . . . . . -- -- 1,086,666 --
------- ---------- ---------- ---------
Balance at September 30, 1995. . . . . 7,492 6,998,314 8,358,681 176,580
Cash dividends of $.275 per share. . . -- -- (158,625) --
Purchase of 62,923 shares of
treasury stock . . . . . . . . . . . -- -- -- --
Amortization of unearned stock
compensation . . . . . . . . . . . . -- -- -- --
ESOP loan repayments . . . . . . . . . -- -- -- --
Fair value adjustment on ESOP shares
committed for release. . . . . . . . -- 45,461 -- --
Common stock options exercised . . . . -- (5,250) -- --
Decrease in unrealized gain on
securities available for sale. . . . -- -- -- (195,392)
Net earnings . . . . . . . . . . . . . -- -- 858,559 --
------- ---------- ---------- ---------
Balance at June 30, 1996 . . . . . . . $7,492 $7,038,525 $9,058,615 $ (18,812)
======= ========== ========== =========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Required
Contribu-
tion for Unearned
Shares Stock
Treasury Acquired Compen- Total
Stock by ESOP sation-RRP Equity
----------- --------- ---------- -----------
<S> <C> <C> <C> <C>
Balance at October 1, 1994 . . . . . . $ (456,518) $(436,423) $(174,566) $13,350,626
Cash dividends of $.275 per share. . . -- -- -- (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
Common stock options exercised . . . . 25,250 -- -- 20,000
Unrealized gain on securities
available for sale upon adoption of
SFAS No. 115 . . . . . . . . . . . . -- -- -- 41,382
Increase in unrealized gain on
securities available for sale. . . . -- -- -- 135,198
Net earnings . . . . . . . . . . . . . -- -- -- 1,086,666
----------- --------- --------- -----------
Balance at September 30, 1995. . . . . (1,446,524) (363,686) (130,922) 13,599,935
Cash dividends of $.275 per share. . . -- -- -- (158,625)
Purchase of 62,923 shares of
treasury stock . . . . . . . . . . . (1,207,430) -- -- (1,207,430)
Amortization of unearned stock
compensation . . . . . . . . . . . . -- -- 32,733 32,733
ESOP loan repayments . . . . . . . . . -- 54,553 -- 54,553
Fair value adjustment on ESOP shares
committed for release. . . . . . . . -- -- -- 45,461
Common stock options exercised . . . . 25,250 -- -- 20,000
Decrease in unrealized gain on
securities available for sale. . . . -- -- -- (195,392)
Net earnings . . . . . . . . . . . . . -- -- -- 858,559
----------- --------- --------- -----------
Balance at June 30, 1996 . . . . . . . $(2,628,704) $(309,133) $ (98,189) $13,049,794
=========== ========= ========= ===========
</TABLE>
- ----------------
The accompanying notes are an integral part of these statements.
5
<PAGE>
PART I: FINANCIAL INFORMATION
FIRST INDEPENDENCE CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended June 30,
--------------------------------
1996 1995
------------ -------------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities
Net Earnings ............................................. $ 858,559 $ 819,914
Adjustments to reconcile net earnings to net cash
provided by operating activities
Depreciation, amortization and accretion ............... 176,058 194,419
Increase in accrued interest receivable ................ (128,462) (105,638)
Increase (decrease) in income taxes payable ............ 67,320 (59,467)
Gain on sale of investments ............................ (250,945) --
Gain on sale of real estate acquired through
foreclosure .......................................... (111,669) (53,425)
Net change in other assets and other liabilities ....... 17,936 (17,065)
------------ ------------
Net cash provided by operating activities ............ 628,797 778,738
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 1,000,000
Purchase of investment securities ...................... (3,013,334) (1,935,844)
Purchase of mortgage-backed securities ................. (4,790,534) (3,059,060)
Purchase of Federal Home Loan Bank Stock ............... (98,000) (17,800)
Principal repayments on mortgage-backed securities ..... 4,169,788 2,125,564
Net increase in loans .................................. (4,322,699) (2,437,807)
Capital expenditures ................................... (226,931) (133,800)
Proceeds from sale of real estate acquired through
foreclosure .......................................... 37,669 112,734
------------ ------------
Net cash used in investing activities ................ (4,980,896) (3,346,013)
Cash flows from financing activities
Net increase (decrease) in deposits .................... 918,805 (664,842)
Net decrease in advances from borrowers
for taxes and insurance .............................. (858,950) (252,642)
Net increase in checks issued in excess of cash items .. 601,009 --
Stock options exercised ................................ 20,000 20,000
Advances from Federal Home Loan Bank ................... 13,100,000 10,200,000
Cash dividends paid .................................... (158,625) (133,624)
Purchase of treasury stock ............................. (1,207,430) (1,015,256)
Principal paid on FHLB advances ........................ (9,200,000) (5,900,000)
------------ ------------
Net cash provided by financing activities ............ 3,214,809 2,253,636
------------ ------------
Net decrease in cash and cash equivalents .................. (1,137,290) (313,639)
Cash and cash equivalents at beginning of period ........... 2,114,625 1,414,920
------------ ------------
Cash and cash equivalents at end of period ................. $ 977,335 $ 1,101,281
============ ============
</TABLE>
- ---------------------------
The accompanying notes are an integral part of these statements.
6
<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 June 30, 1996, and the results of
operations and cash flows for all interim periods presented.
Operating results for the three and nine months ended June 30, 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 31,823 and 33,641 for the three and
nine months ended June 30, 1996 and 39,096 and 40,915 for the three and nine
months ended June 30, 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 June 30, 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 June 30, 1996, the Association exceeded all current
regulatory capital standards.
7
<PAGE>
<TABLE>
<CAPTION>
Regulatory Actual Capital
Capital Requirement (Association Only)
---------------------------------------------------------------
Amount Percent Amount Percent
------ ------- ------ -------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Risk-Based . . . . . . . . $3,604 8.0% $11,137 24.72%
Core Capital . . . . . . . 3,121 3.0 10,572 10.16
Tangible Capital . . . . . 1,561 1.5 10,572 10.16
</TABLE>
(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 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
8
<PAGE>
assessments will likely be significantly higher than BIF assessments, which
would have a negative competitive impact on the Association and other savings
associations.
(5) Supplemental Disclosure of Cash Flow Information
<TABLE>
<CAPTION>
Nine months ended June 30,
------------------------------
1996 1995
---- ----
<S> <C> <C>
Cash paid for:
Interest $3,475,481 $2,738,092
Income taxes 498,079 576,069
Noncash investing and financing activities:
Transfer from loans to real estate
acquired through foreclosure 11,845 58,951
Issuance of loans receivable in connection
with the sale of real estate acquired
through foreclosure 45,000 354,302
</TABLE>
9
<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.
Forward-Looking Statements
When used in this Form 10-QSB and in future filings by the Company with
the Securities and Exchange Commission, in the Company's press releases or
other public or shareholder communications, and in oral statements made with
the approval of an authorized executive officer, the words or phrases "will
likely result", "are expected to", "will continue", "is anticipated",
"estimate", "project" or similar expressions are intended to identify
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such statements are subject to certain risks
and uncertainties, including changes in economic conditions in the Company's
market area, changes in policies by regulatory agencies, fluctuations in
interest rates, demand for loans in the Company's market area and competition
that could cause actual results to differ materially from historical earnings
and those presently anticipated or projected. The Company wishes to caution
readers not to place undue reliance on any such forward-looking statements,
which speak only as of the date made. The Company wishes to advise readers
that the factors listed above could affect the Company's financial performance
and could cause the Company's actual results for future periods to differ
materially from any opinions or statements expressed with respect to future
periods in any current statements.
The Company does not undertake--and specifically disclaims any
obligation--to publicly release the result of any revisions which may be made
to any forward-looking statements to reflect events or circumstances after the
date of such statements or to reflect the occurrence of anticipated or
unanticipated events.
Financial Condition
The Company's total assets increased $3.9 million, or 3.79%, from $101.9
million at September 30, 1995 to $105.8 million at June 30, 1996. This
increase was primarily due to increases in net loans receivable of $4.4
million, mortgage-backed securities of $500,000, premises and equipment of
10
<PAGE>
$200,000 and accrued interest receivable of $100,000. These increases in
assets, along with a reduction in advanced payments by borrowers for taxes and
insurance of $900,000 and other accrued expenses and liabilities of $100,000
were funded by increases in advances obtained from the Federal Home Loan Bank
of Topeka of $3.9 million, savings deposits of $900,000, checks issued in
excess of cash items of $600,000 and decreases in cash and cash equivalents of
$1.1 million and investment securities of $300,000.
Total loans receivable increased $4.4 million from $60.4 million at
September 30, 1995, to $64.8 million at June 30, 1996. Increased economic
activity in the Company's lending area resulted in loan originations exceeding
loan repayments. The increase in mortgage loans consisted primarily of 15- and
30-year fixed-rate loans, mortgage loans with a fixed rate for the first three
years of the loan term that automatically convert to one-year adjustable rate
loans during the fourth year of the loan term, and, to a lesser extent,
one-year adjustable rate mortgages.
The allowance for loan losses totaled $690,000, or 1.07% of total loans
at June 30, 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 increased from 94.91% at September 30,
1995 to 183.05% at June 30, 1996. At June 30, 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.
Premises and equipment increased $181,000 from $663,000 at September 30,
1995, to $844,000 at June 30, 1996. The increase was primarily due to the
upgrade of the Company's facilities which included the addition of drive-thru
teller lanes. To a lesser extent, the increase in premises and equipment was
due to an update of the Company's computer equipment. Management feels these
changes will enable the Company to serve customers more efficiently in
addition to providing a pleasant environment for both customers and staff.
Total deposits increased $900,000 from $67.9 million at September 30,
1995, to $68.8 million at June 30, 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 increased $3.9 million from $18.8 million at
September 30, 1995 to $22.7 million at June 30, 1996. These short-term
borrowings were utilized primarily to fund increasing loan originations as
11
<PAGE>
well as to invest in mortgage-backed securities at a positive spread over the
term of the advances. By investing borrowed funds in securities with yields
slightly higher than the rate paid on borrowings, the Company is attempting to
enhance its net interest income. 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.
Total stockholders' equity decreased $550,000 from $13.6 million at
September 30, 1995 to $13.0 million at June 30, 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 $195,000 (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 $159,000 paid to stockholders. These decreases were partially offset by the
Company's net earnings from operations of $859,000, the repayment of employee
stock ownership debt of $55,000, a fair value adjustment of $45,000 on ESOP
shares committed for release, the amortization of unearned stock compensation
of $33,000, 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 June 30, 1996,
non-performing assets were approximately $389,000, which represents a decrease
of $400,000, or 50.7%, as compared to September 30, 1995. This decrease was
due primarily to one loan totaling $351,000 secured by a single family
residence in Texas which had been classified as non-accruing at September 30,
1995, but was less than 90 days delinquent at June 30, 1996. 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 June
30, 1996 the borrowers were complying with the terms of the repayment plan. A
summary of non-performing assets by category is set forth in the following
table:
<TABLE>
<CAPTION>
June 30, September 30,
1996 1995
--------- --------
(Dollars In Thousands)
<S> <C> <C>
Non-Accruing Loans. . . . . . . . . . . . . . . $ 239 $ 555
Accruing Loans Delinquent 90 Days or More . . . 85 116
Trouble Debt Restructurings . . . . . . . . . . 53 56
Foreclosed Assets . . . . . . . . . . . . . . . 12 62
------ ------
Total Non-Performing Assets . . . . . . . . . . $ 389 $ 789
====== ======
Total Non-Performing Assets as a
Percentage of Total Assets . . . . . . . . . 0.37% 0.77%
====== ======
</TABLE>
12
<PAGE>
Included in non-accruing loans at June 30, 1996, were seven loans
totaling $125,000 secured by one- to four-family real estate, one loan
totaling $100,000 secured by non-residential real estate, and two consumer
loans totaling $14,000. All non-accruing loans at June 30, 1996, were located
in the Company's primary market area. At June 30, 1996, accruing loans
delinquent 90 days or more included four loans totaling $85,000 secured by
one- to four-family real estate. At June 30, 1996, all of the Company's
accruing loans delinquent 90 days or more were secured by real estate located
in the Company's primary market area.
Other Loans of Concern. In addition to the non-performing assets set
forth in the table above, as of June 30, 1996, there was also one $212,000
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 June 30, 1996, the Company's real estate acquired
through foreclosure included one single family residence located in the
Company's primary market area with a carrying value of $12,000.
Results of Operations - Comparison of Three and Nine Months Ended June 30,
1996 and June 30, 1995
General. Net earnings for the nine months ended June 30, 1996 were
$859,000 as compared to $820,000 for the nine months ended June 30, 1995,
resulting in an increase of $39,000, or 4.76%. 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 nine months ended June 30, 1996, with no similar
activity in the nine months ended June 30, 1995. This increase in net earnings
was partially offset by a decrease in net interest income of $183,000 and an
increase in income tax expense of $48,000.
Net earnings for the three months ended June 30, 1996 were $243,000 as
compared to $255,000 for the three months ended June 30, 1995, resulting in a
decrease of $12,000, or 4.71%. The decrease in net earnings was primarily due
to a decrease in net interest income of $16,000 and an increase in
non-interest expense of $11,000, partially offset by an increase in other
income of $11,000 and a decrease in income tax expense of $4,000.
Net Interest Income. Net interest income decreased $183,000, or 7.29%,
for the nine months ended June 30, 1996 as compared to the nine months ended
June 30, 1995. This decrease was due primarily to an increase in interest
expense of $716,000, or 26.08%, offset partially by an increase in interest
income of $533,000, or 10.14%. Interest expense increased primarily due to a
66 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 a $7.9 million increase in the average balance of interest-earning
13
<PAGE>
assets and, to a lesser extent, an 11 basis point increase in yield on
interest-earning assets.
Net interest income decreased $16,000, or 1.95%, for the three months
ended June 30, 1996, as compared to the three months ended June 30, 1995. This
decrease was due primarily to an increase in interest expense of $127,000, or
12.52%; offset partially by an increase in interest income of $112,000 or
6.10%. The decrease was due to the same reasons as stated above for the nine
months ended June 30, 1996, as compared to the nine months ended June 30,
1995. The ratio of average interest-earning assets to average interest-bearing
liabilities decreased from 115.4% for the three months ended June 30, 1995 to
113.6% for the three months ended June 30, 1996. The net decrease in
interest-earning assets was due primarily to the repurchase of common stock
and dividends paid in excess of current period earnings.
Interest Income. Interest income for the nine months ended June 30,
1996, increased to $5.8 million from $5.3 million for the nine months ended
June 30, 1995. This increase was caused primarily by a $7.9 million increase
in the average outstanding amount of interest-earning assets during the nine
month ended June 30, 1996, as compared to the nine months ended June 30, 1995
due to the increase in the average balance of loans receivable and investment
securities financed by advances obtained from the Federal Home Loan Bank of
Topeka and 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 11 basis points to 7.61% at
June 30, 1996, from 7.50% at June 30, 1995. This increase in yield was caused
primarily by an increase in yield on the Company's loan portfolio from 8.12%
to 8.29%. 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.
Interest income for the quarter ended June 30, 1996, increased to $1.9
million from $1.8 million for the quarter ended June 30, 1995. This increase
was caused primarily by a $7.7 million increase in the average outstanding
amount of interest-earning assets during the three months ended June 30, 1996,
as compared to the three months ended June 30, 1995 due to the increase in the
average balance of loans receivable, investment securities and mortgage-backed
securities. These increases were partially offset by a decrease in the average
yield on interest-earning assets of 14 basis points to 7.55% at June 30, 1996,
from 7.69% at June 30, 1995.
Interest Expense. Interest expense for the nine months ended June 30,
1996, increased by $716,000 to $3,461,000 as compared to $2,745,000 for the
nine months ended June 30, 1995. This increase was primarily the result of a
66 basis point increase in average interest rates paid on interest-bearing
liabilities, caused by increases in market interest rates, higher rates paid
on new deposit products developed in fiscal 1995 and an increase in advances
obtained from the Federal Home Loan Bank of Topeka which had higher interest
rates than the deposit portfolio. 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 nine months ended June 30, 1996 as
compared to the nine months ended June 30, 1995. This increase in
interest-bearing liabilities was primarily the result of a $7.4 million
14
<PAGE>
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 $780,000 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.
Interest expense for the quarter ended June 30, 1996, increased by
$127,000 to $1,141,000 as compared to $1,014,000 for the quarter ended June
30, 1995. This increase was primarily due to an $8.0 million increase in the
average outstanding balance of interest-bearing liabilities during the three
months ended June 30, 1996 as compared to the three months ended June 30,
1995. This increase in interest-bearing liabilities was due to the same
reasons as stated above. To a lesser extent, the increase was 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 5.03% in the fiscal
1996 period as compared to 4.90% for the fiscal 1995 period. This 13 basis
point increase in the average cost of funds was due to higher interest rates
in the market for savings deposits, which resulted in maturing certificates of
deposit repricing at higher rates.
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 nine months ended June 30,
1996 and June 30, 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 $320,000 to $523,000
during the nine months ended June 30, 1996 as compared to $203,000 for the
nine months ended June 30, 1995. The increase was primarily due to a
non-recurring $251,000 gain on the sale of FHLMC stock which was recognized in
the nine months ended June 30, 1996, with no gains on the sale of securities
recognized in the nine months ended June 30, 1995. Non-interest income
increased $11,000 to $66,000 during the three months ended June 30, 1996 as
compared to $55,000 for the three months ended June 30, 1995. 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 $1,426,000
for the nine months ended June 30, 1996 from $1,377,000 for the nine months
ended June 30, 1995, an increase of $49,000, or 3.56%. The increase was
primarily due to increases in compensation and employee benefits of $52,000,
data processing fees of $10,000, occupancy and equipment of $7,000 and federal
15
<PAGE>
deposit insurance premiums of $5,000. These increases were partially offset by
a decrease in other expenses of $25,000. 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.
Total non-interest expense increased by $11,000 for the three months
ended June 30, 1996, as compared to the three months ended June 30, 1995. The
increase was due primarily to increases in compensation and employee benefits
of $3,000, data processing fees of $4,000, occupancy and equipment of $3,000,
and federal deposit insurance premiums of $4,000. These increases were
partially offset by a decrease in other expenses of $3,000. The increase in
non-interest expense for the three months ended June 30, 1996 was due to the
same reasons as stated above.
Income Tax Expense. Income tax expense was $565,000 for the nine months
ended June 30, 1996 compared to $517,000 for the nine months ended June 30,
1995, an increase of $48,000. The Association's effective tax rates were 39.7%
and 38.7% for the nine months ended June 30, 1996 and June 30, 1995,
respectively.
Income tax expense was $155,000 for the quarter ended June 30, 1996
compared to $159,000 for the quarter ended June 30, 1995, a decrease of
$4,000. The Association's effective tax rates were 38.9% and 38.3% for the
three months ended June 30, 1996 and June 30, 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 June 30, 1996, the Association's liquidity ratio was 7.08% 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 June 30, 1996, the Company had
commitments to originate loans totaling $581,000. The Company considers its
liquidity and capital resources to be adequate to meet its foreseeable short-
16
<PAGE>
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 June 30, 1996, the Association exceeded all fully phased-in
regulatory capital standards.
At June 30, 1996, the Association's tangible capital was $10.6 million,
or 10.16%, of adjusted total assets, which is in excess of the 1.5%
requirement by $9.0 million. In addition, at June 30, 1996, the Association
had core capital of $10.6 million, or 10.16%, of adjusted total assets, which
exceeds the 3% requirement by $7.5 million. The Association had risk-based
capital of $11.1 million at June 30, 1996, or 24.72% of risk-adjusted assets,
which exceeds the 8.0% risk-based capital requirements by $7.5 million.
Under the requirements of federal law, all the federal banking agencies,
including the OTS, must revise their risk-based capital requirements to ensure
that such requirements account for interest rate risk, concentration of credit
risk and the risks of non-traditional activities, and that they reflect the
actual performance of and expected loss on multi-family loans.
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
17
<PAGE>
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
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.
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.
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, "Financial Data Schedule" 20
(b) Reports on Form 8-K
None
18
<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: August 9, 1996 /s/ Larry G. Spencer
------------------------------- --------------------
Larry G. Spencer
President and Chief Executive
Officer
Date: August 9, 1996 /s/ James B. Mitchell
------------------------------- ---------------------
James B. Mitchell
Vice President and Chief Financial
Officer
19
<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 June 30, 1996 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> JUN-30-1996
<CASH> 347,581
<INT-BEARING-DEPOSITS> 429,754
<FED-FUNDS-SOLD> 200,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 5,920,800
<INVESTMENTS-CARRYING> 31,246,130
<INVESTMENTS-MARKET> 30,975,106
<LOANS> 65,464,229
<ALLOWANCE> 690,009
<TOTAL-ASSETS> 105,771,137
<DEPOSITS> 68,845,433
<SHORT-TERM> 17,700,000
<LIABILITIES-OTHER> 1,175,910
<LONG-TERM> 5,000,000
0
0
<COMMON> 7,492
<OTHER-SE> 13,042,302
<TOTAL-LIABILITIES-AND-EQUITY> 105,771,137
<INTEREST-LOAN> 3,846,598
<INTEREST-INVEST> 1,799,504
<INTEREST-OTHER> 141,430
<INTEREST-TOTAL> 5,787,532
<INTEREST-DEPOSIT> 2,706,844
<INTEREST-EXPENSE> 3,460,644
<INTEREST-INCOME-NET> 2,326,888
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 250,945
<EXPENSE-OTHER> 1,425,839
<INCOME-PRETAX> 1,423,958
<INCOME-PRE-EXTRAORDINARY> 858,559
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 858,559
<EPS-PRIMARY> 1.43
<EPS-DILUTED> 1.43
<YIELD-ACTUAL> 7.61
<LOANS-NON> 239,000
<LOANS-PAST> 85,000
<LOANS-TROUBLED> 53,000
<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>
