<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 December 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 February 12, 1997, there were 1,057,794 shares of the Registrant's
common stock outstanding (including 17,462 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
December 31, 1996 and September 30, 1996 3
Consolidated Condensed Statements of Earnings
for the Three Months Ended December 31, 1996
and 1995 4
Consolidated Condensed Statement of Stockholders'
Equity for the Year Ended September 30, 1996 and
Three Months Ended December 31, 1996 5
Consolidated Condensed Statements of Cash
Flows for the Three Months Ended December 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 9
PART II. OTHER INFORMATION 16
Signature Page 17
2
<PAGE>
PART I: FINANCIAL INFORMATION
FIRST INDEPENDENCE CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, September 30,
1996 1996
------------ -------------
(Unaudited)
<S> <C> <C>
ASSETS
Cash and due from bank . . . . . . . . . . . . . . . . . . . . . . $ 831,502 $ 753,134
Federal funds sold . . . . . . . . . . . . . . . . . . . . . . . . 100,000 400,000
Other interest-earning deposits. . . . . . . . . . . . . . . . . . 196,493 610,295
------------ ------------
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . 1,127,995 1,763,429
Investment securities held to maturity (fair value:
December 31, 1996 - $2,005,470;
September 30, 1996 - $1,970,980) . . . . . . . . . . . . . . . . 2,000,000 2,000,000
Investment securities available for sale . . . . . . . . . . . . . 5,244,866 5,235,073
Mortgage-backed securities held to maturity (fair value:
December 31, 1996 - $26,750,400;
September 30, 1996 - $27,873,630). . . . . . . . . . . . . . . . 26,756,691 28,039,314
Mortgage-backed securities available for sale. . . . . . . . . . . 621,413 659,207
Loans receivable, net. . . . . . . . . . . . . . . . . . . . . . . 69,738,547 67,682,920
Real estate acquired through foreclosure . . . . . . . . . . . . . 8,976 11,845
Premises and equipment, net. . . . . . . . . . . . . . . . . . . . 1,140,880 910,813
Federal Home Loan Bank Stock, at cost. . . . . . . . . . . . . . . 1,300,300 1,239,500
Accrued interest receivable. . . . . . . . . . . . . . . . . . . . 730,488 667,920
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . 243,684 329,208
------------ ------------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . $108,913,840 $108,539,229
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . $70,138,277 $69,356,422
Advances from borrowers for taxes and insurance. . . . . . . . . 322,776 678,072
Checks issued in excess of cash items. . . . . . . . . . . . . . 847,530 492,627
Advances from Federal Home Loan Bank . . . . . . . . . . . . . . 25,400,000 24,300,000
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . 73,454 ---
Other accrued expenses and liabilities . . . . . . . . . . . . . 151,658 709,599
------------ ------------
Total liabilities . . . . . . . . . . . . . . . . . . . . . 96,933,695 95,536,720
Stockholders' equity
Preferred stock, $.01 par value, 500,000
shares authorized, none issued . . . . . . . . . . . . . . . . --- ---
Common stock, $.01 par value, 2,500,000 shares authorized,
1,498,392 shares issued December 31, 1996; 749,196 shares
issued September 30, 1996. . . . . . . . . . . . . . . . . . . 14,984 7,492
Additional paid-in capital . . . . . . . . . . . . . . . . . . . 7,053,183 7,053,143
Retained earnings - substantially restricted . . . . . . . . . . 9,076,812 8,960,098
Unrealized loss on securities available for sale, net. . . . . . (7,973) (11,293)
Treasury stock at cost, 440,598 shares at December 31, 1996
and 331,550 shares at September 30, 1996 . . . . . . . . . . . (3,807,730) (2,628,704)
Required contributions for shares acquired by ESOP . . . . . . . (272,764) (290,949)
Unearned stock compensation - recognition and retention
plan (RRP) . . . . . . . . . . . . . . . . . . . . . . . . . . (76,367) (87,278)
------------ ------------
Total stockholders' equity . . . . . . . . . . . . . . . . . 11,980,145 13,002,509
------------ ------------
Total liabilities and stockholders' equity . . . . . . . . . $108,913,840 $108,539,229
============ ============
</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
December 31,
-------------------------
1996 1995
---------- ----------
(Unaudited)
<S> <C> <C>
Interest income
Loans receivable . . . . . . . . . . . . . . . . . . . . . . $1,382,714 $1,266,919
Mortgage-backed securities . . . . . . . . . . . . . . . . . 450,203 473,355
Investment securities. . . . . . . . . . . . . . . . . . . . 119,335 121,003
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . 33,354 55,761
---------- ----------
Total interest income. . . . . . . . . . . . . . . . . . . 1,985,606 1,917,038
---------- ----------
Interest expense
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . 891,844 895,204
Borrowed funds . . . . . . . . . . . . . . . . . . . . . . . 355,531 261,755
---------- ----------
Total interest expense . . . . . . . . . . . . . . . . . . 1,247,375 1,156,959
---------- ----------
Net interest income. . . . . . . . . . . . . . . . . . . . . . 738,231 760,079
Provision for loan losses. . . . . . . . . . . . . . . . . . . --- ---
---------- ----------
Net interest income after provision
for loan losses. . . . . . . . . . . . . . . . . . . . . . . 738,231 760,079
Other income
Gain on sale of investments. . . . . . . . . . . . . . . . . --- 250,945
Income (loss) from real estate operations. . . . . . . . . . 3,453 (10,758)
Other income . . . . . . . . . . . . . . . . . . . . . . . . 50,387 52,752
---------- ----------
Total other income . . . . . . . . . . . . . . . . . . . . 53,840 292,939
---------- ----------
General, administrative and other expense
Employee compensation and benefits . . . . . . . . . . . . . 294,851 272,179
Occupancy and equipment. . . . . . . . . . . . . . . . . . . 27,035 26,434
Federal deposit insurance premiums . . . . . . . . . . . . . 30,924 37,010
Data processing fees . . . . . . . . . . . . . . . . . . . . 34,373 31,102
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . 123,233 88,143
---------- ----------
Total non-interest expenses. . . . . . . . . . . . . . . . 510,416 454,868
---------- ----------
Earnings before income taxes . . . . . . . . . . . . . . . . . 281,655 598,150
Income tax expense . . . . . . . . . . . . . . . . . . . . . . 114,961 231,602
---------- ----------
Net earnings . . . . . . . . . . . . . . . . . . . . . . . . . $ 166,694 $ 366,548
========== ==========
Earnings per common share - primary and fully diluted. . . . . $ .15 $ .29
========== ==========
Dividend per share . . . . . . . . . . . . . . . . . . . . . . $ .05 $ .0375
========== ==========
</TABLE>
- ------
The accompanying notes are an integral part of these statements.
4
<PAGE>
FIRST INDEPENDENCE CORPORATION
CONSOLIDATED CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY
For The Three Months Ended December 31, 1996
and Year Ended September 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
Unrealized
Gain (Loss) Required
Securities Contribu-
on tion for Unearned
Additional Available Shares Stock
Common Paid-in Retained for Treasury Acquired Compen- Total
Stock Capital Earnings Sale, Net Stock by ESOP sation-RRP Equity
----- ------- -------- --------- ----- ------- ---------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at October 1, 1995 . . . . . . $7,492 $6,998,314 $8,358,681 $176,580 $(1,446,524) $(363,686) $(130,922) $13,599,935
Cash dividends of $.1875 per share . . --- --- (213,876) --- --- --- --- (213,876)
Purchase of 125,846 shares of
treasury stock . . . . . . . . . . . --- --- --- --- (1,207,430) --- --- (1,207,430)
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. . . . . . . . --- 60,079 --- --- --- --- --- 60,079
Common stock options exercised . . . . --- (5,250) --- --- 25,250 --- --- 20,000
Decrease in unrealized gain on
securities available for sale. . . . --- --- --- (187,873) --- --- --- (187,873)
Net earnings . . . . . . . . . . . . . --- --- 815,293 --- --- --- --- 815,293
------- ---------- ---------- -------- ----------- --------- --------- -----------
Balance at September 30, 1996. . . . . 7,492 7,053,143 8,960,098 (11,293) (2,628,704) (290,949) (87,278) 13,002,509
Cash dividends of $.05 per share . . . --- --- (49,980) --- --- --- --- (49,980)
Purchase of 116,684 shares of
treasury stock . . . . . . . . . . . --- --- --- --- (1,227,228) --- --- (1,227,228)
Amortization of unearned stock
compensation . . . . . . . . . . . . --- --- --- --- --- --- 10,911 10,911
ESOP loan repayments . . . . . . . . . --- --- --- --- --- 18,185 --- 18,185
Fair value adjustment on ESOP shares
committed for release. . . . . . . . --- 17,554 --- --- --- --- --- 17,554
Common stock options exercised . . . . --- (10,022) --- --- 48,202 --- --- 38,180
Decrease in unrealized loss on
securities available for sale. . . . --- --- --- 3,320 --- --- --- 3,320
Net earnings . . . . . . . . . . . . . --- --- 166,694 --- --- --- --- 166,694
Reclassification to retroactively
reflect a 100% stock dividend paid
on January 24, 1997. . . . . . . . . 7,492 (7,492) --- --- --- --- --- ---
------- ---------- ---------- -------- ----------- --------- --------- -----------
Balance at December 31, 1996 . . . . . $14,984 $7,053,183 $9,076,812 $ (7,973) $(3,807,730) $(272,764) $ (76,367) $11,980,145
======= ========== ========== ======== =========== ========= ========= ===========
</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>
Three Months Ended December 31,
-------------------------------
1996 1995
----------- -----------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities
Net Earnings . . . . . . . . . . . . . . . . . . . . . . . $ 166,694 $ 366,548
Adjustments to reconcile net earnings to net cash
provided by operating activities
Depreciation, amortization and accretion . . . . . . . . 35,253 23,226
Increase in accrued interest receivable. . . . . . . . . (62,568) (108,990)
Increase in income taxes payable . . . . . . . . . . . . 114,961 202,678
Gain on sale of investments. . . . . . . . . . . . . . . --- (250,945)
Amortization of expense related to employee
benefit plans. . . . . . . . . . . . . . . . . . . . . 46,650 44,692
Gain on sale of real estate acquired through
foreclosure. . . . . . . . . . . . . . . . . . . . . . (1,693) ---
Decrease in accrued expenses . . . . . . . . . . . . . . (434,140) (4,705)
Net change in other assets and other liabilities . . . . (80,126) (25,393)
------------ ------------
Net cash provided by (used in) operating activities. . (214,969) 247,111
Cash flows from investing activities
Proceeds from sale of available for sale securities. . . --- 263,145
Proceeds from maturities and repayment of securities
Available for sale . . . . . . . . . . . . . . . . . . 36,791 43,812
Held to maturity . . . . . . . . . . . . . . . . . . . 1,249,142 1,997,527
Purchase of securities
Available for sale . . . . . . . . . . . . . . . . . . (65,432) (21,532)
Held to maturity . . . . . . . . . . . . . . . . . . . --- (2,899,256)
Net increase in loans. . . . . . . . . . . . . . . . . . (2,039,306) (652,960)
Capital expenditures . . . . . . . . . . . . . . . . . . (246,962) (89,009)
Proceeds from sale of real estate acquired through
foreclosure. . . . . . . . . . . . . . . . . . . . . . 2,869 ---
------------ ------------
Net cash used in investing activities. . . . . . . . . (1,062,898) (1,358,273)
Cash flows from financing activities
Net increase in deposits . . . . . . . . . . . . . . . . 781,855 3,262,345
Net decrease in advances from borrowers
for taxes and insurance. . . . . . . . . . . . . . . . (355,297) (375,577)
Increase in checks issued in excess of cash items. . . . 354,903 561,433
Stock options exercised. . . . . . . . . . . . . . . . . 38,180 ---
Advances from Federal Home Loan Bank . . . . . . . . . . 5,600,000 ---
Repayment of Federal Home Loan Bank advances . . . . . . (4,500,000) (2,300,000)
Cash dividends paid. . . . . . . . . . . . . . . . . . . (49,980) (45,598)
Purchase of treasury stock . . . . . . . . . . . . . . . (1,227,228) (620,177)
------------ ------------
Net cash provided by financing activities. . . . . . . 642,433 482,426
------------ ------------
Net decrease in cash and cash equivalents. . . . . . . . . . (635,434) (628,736)
Cash and cash equivalents at beginning of period . . . . . . 1,763,429 2,114,625
------------ ------------
Cash and cash equivalents at end of period . . . . . . . . . $ 1,127,995 $ 1,485,889
============ ============
</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 December 31, 1996, and the results of
operations and cash flows for all interim periods presented.
Operating results for the three months ended December 31, 1996 are not
necessarily indicative of the results that may be expected for the fiscal year
ending September 30, 1997.
(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 56,372 and 70,918 for the quarters
ended December 31, 1996 and December 31, 1995, respectively.
(3) Stock Dividend
On December 18, 1996, the Board of Directors declared a 100% stock
dividend paid on January 24, 1997, which is accounted for similar to a 2 for 1
stock split. All earnings and dividends per share have been restated to reflect
the stock dividend. Weighted average number of shares outstanding used to
compute earnings per share were 1,092,398 and 1,265,442 for the 1997 and 1996
periods, respectively.
(4) 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
December 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 December 31, 1996, the Association exceeded all current regulatory capital
standards.
7
<PAGE>
<TABLE>
<CAPTION>
To be well
capitalized under
For capital prompt corrective
Actual adequacy purposes action provisions
---------------------- ---------------------- -------------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
(Dollars in Thousands)
less than less than
or equal to or equal to
----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Total risk-based capital $9,347 19.35% $3,864 8.0% $4,830 10.0%
Tier 1 risk-based capital 8,742 18.10 1,932 4.0 2,898 6.0
Tier 1 (core) capital 8,742 8.12 3,229 3.0 5,382 5.0
Tangible capital 8,742 8.12 1,615 1.5 --- ---
</TABLE>
(5) Supplemental Disclosure of Cash Flow Information
Three months ended December 31,
-------------------------------
1996 1995
---- ----
Cash paid for:
Interest $1,249,890 $1,161,664
Income taxes --- 28,924
8
<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 $400,000, or .35%, from $108.5
million at September 30, 1996 to $108.9 million at December 31, 1996. This
increase was primarily a result of an increase of $2.0 million in net loans
receivable, $200,000 in premises and equipment, $100,000 in accrued interest
receivable, and $100,000 in Federal Home Loan Bank Stock. These increases in
assets, along with a reduction in other accrued expenses and liabilities of
$600,000 and advanced payments by borrowers' for taxes and insurance of $400,000
were funded by decreases in mortgage-backed securities of $1.3 million and cash
and cash equivalents of $600,000 and increases in savings deposits of $700,000
and checks issued in excess of cash items of $400,000.
9
<PAGE>
Total loans receivable increased $2.0 million from $67.7 million at
September 30, 1996, to $69.7 million at December 31, 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 .99% of total loans
at December 31, 1996, which represented no change from the $690,000, or 1.02% of
total loans, at September 30, 1996. The ratio of the allowance for loan losses
as a percent of non-performing loans increased from 114.57% at September 30,
1996 to 136.62% at December 31, 1996. At December 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 $700,000 from $69.4 million at September 30,
1996, to $70.1 million at December 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 to
deposit customers considering higher risk investments in order to get higher
yields than money market accounts.
Total borrowed funds increased $1.1 million from $24.3 million at
September 30, 1996 to $25.4 million at December 31, 1996. The increase was from
advances obtained from the Federal Home Loan Bank of Topeka. The FHLB advances
allowed the Association to invest the funds borrowed in loans receivable at a
positive spread
Total stockholders' equity decreased $1.0 million from $13.0 million at
September 30, 1996 to $12.0 million at December 31, 1996. The decrease was
primarily the result of the Company's use of $1,227,000 to repurchase 116,684
shares of common stock at an average price of 94% of book value per share, and
dividends of $50,000 paid to stockholders. These decreases were partially offset
by the Company's net earnings from operations of $167,000, common stock options
exercised of $38,000, the repayment of employee stock ownership debt of $18,000,
a fair value adjustment of $18,000 on ESOP shares committed for release, the
amortization of unearned stock compensation of $11,000, and a decrease in the
unrealized loss on securities available for sale of $3,000.
10
<PAGE>
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 December 31, 1996,
non-performing assets were approximately $514,000, which represents a decrease
of $100,000, or 16.3%, as compared to September 30, 1996. A summary of
non-performing assets by category is set forth in the following table:
December 31, September 30,
1996 1996
------------ ------------
(Dollars In Thousands)
Non-Accruing Loans. . . . . . . . . . . . . . . $ 304 $ 367
Accruing Loans Delinquent 90 Days or More . . . 149 183
Trouble Debt Restructurings . . . . . . . . . . 52 52
Foreclosed Assets . . . . . . . . . . . . . . . 9 12
------ ------
Total Non-Performing Assets . . . . . . . . . . $ 514 $ 614
====== ======
Total Non-Performing Assets as a
Percentage of Total Assets . . . . . . . . . 0.47% 0.57%
==== ====
Included in non-accruing loans at December 31, 1996, were ten loans
totaling $179,000 secured by one- to four-family real estate, one loan totaling
$99,000 secured by non-residential real estate, and six consumer loans totaling
$26,000. All non-accruing loans at December 31, 1996, were located in the
Company's primary market area. At December 31, 1996, accruing loans delinquent
90 days or more included seven loans totaling $149,000 secured by one- to
four-family real estate. At December 31, 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 December 31, 1996, there was also one $209,000
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 December 31, 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 $9,000.
11
<PAGE>
Results of Operations - Comparison of Three Months Ended December 31, 1996 and
December 31, 1995
- -------------------------------------------------------------------------------
General. Net earnings for the three months ended December 31, 1996 were
$167,000 as compared to $367,000 for the three months ended December 31, 1995,
resulting in a decrease of $200,000, or 54.5%. The decrease in net earnings was
primarily due to a non-recurring $251,000 gain on the sale of FHLMC stock which
was recognized in the three months ended December 31, 1995, with no similar
activity in the three months ended December 31, 1996. This decrease was offset
partially by a $117,000 decrease in income tax expense. To a lesser extent, the
decrease in net earnings was due to a $55,000 increase in non-interest expense
and a $22,000 decrease in net interest income.
Net Interest Income. Net interest income decreased $22,000, or 2.9%, for
the three months ended December 31, 1996 as compared to the three months ended
December 31, 1995. This decrease was due primarily to an increase in interest
expense of $90,000, or 7.8%, offset partially by an increase in interest income
of $69,000, or 3.6%. Interest expense increased primarily due to a $7.7 million
increase in average interest-bearing liabilities, offset partially by a 6 basis
point decrease in the average rate paid on interest-bearing liabilities.
Interest income increased primarily due to a $5.4 million increase in average
interest-earning assets, offset partially by a 13 basis point decrease in yield
on interest-earning assets.
Interest Income. Interest income for the quarter ended December 31,
1996, increased to $1,986,000 from $1,917,000 for the quarter ended December 31,
1995. This increase was caused primarily by a $5.4 million increase in the
average outstanding amount of interest-earning assets during the three months
ended December 31, 1996, as compared to the three months ended December 31, 1995
due to the increase in the average balance of loans receivable financed by
advances obtained from the Federal Home Loan Bank of Topeka. This increase was
partially offset by a decrease in the average yield on interest-earning assets.
The average yield on interest-earning assets decreased 13 basis points to 7.51%
at December 31, 1996, from 7.64% at December 31, 1995. This decrease was caused
primarily by the general decline in interest rates resulting in a reduction in
yield on the Company's loan portfolio from 8.36% to 8.03%. To a lesser extent,
the decrease in yield was due to a decrease in yield on the Company's investment
securities portfolio from 6.70% to 6.59% for the quarter ended December 31,
1996, as compared to the same period in fiscal 1996.
Interest Expense. Interest expense for the quarter ended December 31,
1996, increased by $90,000 to $1,247,000 as compared to $1,157,000 for the
quarter ended December 31, 1995. This increase in interest expense was due
primarily to a $7.7 million increase in the average outstanding amount of
interest-bearing liabilities during the three months ended December 31, 1996 as
compared to the three months ended December 31, 1995. This increase was
partially offset by a 6 basis point decrease in average interest rates paid on
interest-bearing liabilities, caused by decreases in market interest rates. The
increase in interest-bearing liabilities was primarily due to a $7.8 million
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
loans receivable at a positive spread over the term of the advances.
12
<PAGE>
Provision for Loan Losses. Based upon management's analysis of
established reserves and a 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 months ended December 31, 1996 or
December 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 decreased $239,000 to $54,000
during the three months ended December 31, 1996 as compared to $293,000 for the
three months ended December 31, 1995. The decrease was primarily due to a
non-recurring gain of $251,000 on the sale of FHLMC stock which was recognized
in the three months ended December 31, 1995, with no gains on the sale of
securities recognized in the three months ended December 31, 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 $510,000
for the three months ended December 31, 1996 from $455,000 for the three months
ended December 31, 1995, an increase of $55,000, or 12.2%. The increase was due
primarily to increases in other expenses of $35,000, compensation and employee
benefits of $23,000, and data processing fees of $3,000. These increases were
partially offset by a decrease in federal deposit insurance premiums of $6,000.
The increase in other expense was primarily due to a charitable contribution to
a non-profit organization. To a lesser extent, the increase in other expense was
due to advertising, stationery, printing and office supplies expense associated
with the opening of a new branch office. The increase in compensation expense
was primarily the result of annual increases in salaries and bonuses and
increased compensation expense associated with the Company's ESOP due to the
increase in the Company's stock price.
Income Tax Expense. Income tax expense was $115,000 for the quarter
ended December 31, 1996 compared to $232,000 for the quarter ended December 31,
1995, a decrease of $117,000. The Company's effective tax rates were 40.8% and
38.7% for the three months ended December 31, 1996 and December 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 December 31, 1996,
the Association's liquidity ratio was 7.74% as compared to 8.01% at September
30, 1996. These ratios exceeded the minimum regulatory liquidity requirements on
both dates.
13
<PAGE>
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 December 31, 1996, the Company had
commitments to originate loans totaling $204,000. 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 December 31, 1996, the Association exceeded all fully phased-in regulatory
capital standards.
At December 31, 1996, the Association's tangible capital was $8.7
million, or 8.12% of adjusted total assets, which is in excess of the 1.5%
requirement by $7.1 million. In addition, at December 31, 1996, the Association
had core capital of $8.7 million, or 8.12% of adjusted total assets, which
exceeds the 3% requirement by $5.5 million. The Association had risk-based
capital of $9.3 million at December 31, 1996, or 19.35% of risk-adjusted assets,
which exceeds the 8.0% risk-based capital requirements by $5.5 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.
14
<PAGE>
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.
15
<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
---------------------------------------------------
The Annual Meeting of Shareholders (the "Meeting") of First Independence
Corporation was held on January 22, 1997. The matters approved by shareholders
at the Meeting and the number of votes cast for, against or withheld (as well as
the number of abstentions and broker non-votes) as to each matter are set forth
below:
PROPOSAL NUMBER OF VOTES (1)
- -------- -------------------
Broker
For Withheld Non-Votes
------- -------- ---------
Election of the following directors
for the terms indicated:
Larry G. Spencer (three years) 870,494 2,000 ---
Harold L. Swearingen (three years) 855,494 17,000 ---
Broker
For Against Abstain Non-Votes
------ ------- ------- ---------
Ratification of Grant Thornton LLP
as auditors for the fiscal year ending
September 30, 1997 872,444 --- 50 ---
(1) Reflects 100% stock dividend.
Item 5 - Other Information
-----------------
None.
Item 6 - Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
None
(b) Reports on Form 8-K
None
16
<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: 2/13/97 /s/ Larry G. Spencer
------------------------ ----------------------------------
Larry G. Spencer
President and Chief Executive
Officer
Date: 2/13/97 /s/ James B. Mitchell
------------------------ ----------------------------------
James B. Mitchell
Vice President and Chief Financial
Accounting Officer
17
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<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 December 31, 1996 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> DEC-31-1996
<CASH> 831,502
<INT-BEARING-DEPOSITS> 196,493
<FED-FUNDS-SOLD> 100,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 5,866,279
<INVESTMENTS-CARRYING> 28,756,691
<INVESTMENTS-MARKET> 28,755,870
<LOANS> 70,428,556
<ALLOWANCE> 690,009
<TOTAL-ASSETS> 108,913,840
<DEPOSITS> 70,138,277
<SHORT-TERM> 14,700,000
<LIABILITIES-OTHER> 1,395,418
<LONG-TERM> 10,700,000
0
0
<COMMON> 14,984
<OTHER-SE> 11,965,161
<TOTAL-LIABILITIES-AND-EQUITY> 108,913,840
<INTEREST-LOAN> 1,382,714
<INTEREST-INVEST> 569,538
<INTEREST-OTHER> 33,354
<INTEREST-TOTAL> 1,985,606
<INTEREST-DEPOSIT> 891,844
<INTEREST-EXPENSE> 1,247,375
<INTEREST-INCOME-NET> 728,231
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 510,416
<INCOME-PRETAX> 281,655
<INCOME-PRE-EXTRAORDINARY> 166,694
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 166,694
<EPS-PRIMARY> .15
<EPS-DILUTED> .15
<YIELD-ACTUAL> 7.51%
<LOANS-NON> 304,000
<LOANS-PAST> 149,000
<LOANS-TROUBLED> 52,000
<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>
