<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
--------------------------------
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number 0-22184
FIRST INDEPENDENCE CORPORATION
- -------------------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Delaware 36-3899950
- ----------------------------- -----------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or Identification or
organization) number)
Myrtle & Sixth Streets, Independence, Kansas 67301
- -------------------------------------------------------------------------------
(Address of principal executive offices)
(316) 331-1660
- -------------------------------------------------------------------------------
(issuer's telephone number)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 day Yes [X] No [ ]
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [X]
State the number of Shares outstanding of each of the issuer's classes
of common equity, as of the latest date:
As of May 14, 1997, there were 995,015 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
March 31, 1997 and September 30, 1996 3
Consolidated Condensed Statements of Earnings
for the Three and Six Months Ended March 31,
1997 and 1996 4
Consolidated Condensed Statement of Stockholders'
Equity for the Year Ended September 30, 1996 and
Six Months Ended March 31, 1997 5
Consolidated Condensed Statements of Cash
Flows for the Six Months Ended March 31,
1997 and 1996 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 17
Signature Page 18
2
<PAGE>
PART I: FINANCIAL INFORMATION
FIRST INDEPENDENCE CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, September 30,
1997 1996
------------------ ------------------
(Unaudited)
<S> <C> <C>
ASSETS
Cash and due from bank . . . . . . . . . . . . . . . . . . . . . . $ 709,410 $ 753,134
Federal funds sold . . . . . . . . . . . . . . . . . . . . . . . . 800,000 400,000
Other interest-earning deposits. . . . . . . . . . . . . . . . . . 265,530 610,295
-------------- --------------
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . 1,774,940 1,763,429
Investment securities held to maturity (fair value:
March 31, 1997 - $2,944,980;
September 30, 1996 - $1,970,980) . . . . . . . . . . . . . . . . 3,000,000 2,000,000
Investment securities available for sale . . . . . . . . . . . . . 4,216,183 5,235,073
Mortgage-backed securities held to maturity (fair value:
March 31, 1997 - $25,788,751;
September 30, 1996 - $27,873,630). . . . . . . . . . . . . . . . 25,900,681 28,039,314
Mortgage-backed securities available for sale. . . . . . . . . . . 579,406 659,207
Loans receivable, net. . . . . . . . . . . . . . . . . . . . . . . 70,271,871 67,682,920
Real estate acquired through foreclosure . . . . . . . . . . . . . 8,781 11,845
Premises and equipment, net. . . . . . . . . . . . . . . . . . . . 1,280,852 910,813
Federal Home Loan Bank Stock, at cost. . . . . . . . . . . . . . . 1,321,600 1,239,500
Accrued interest receivable. . . . . . . . . . . . . . . . . . . . 672,716 667,920
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . 202,584 329,208
-------------- --------------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . $109,229,614 $108,539,229
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . $74,140,900 $69,356,422
Advances from borrowers for taxes and insurance. . . . . . . . . 674,075 678,072
Checks issued in excess of cash items. . . . . . . . . . . . . . 225,253 492,627
Advances from Federal Home Loan Bank . . . . . . . . . . . . . . 22,500,000 24,300,000
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . 39,666 ---
Other accrued expenses and liabilities . . . . . . . . . . . . . 175,786 709,599
-------------- --------------
Total liabilities . . . . . . . . . . . . . . . . . . . . . 97,755,680 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 March 31, 1997; 749,196 shares
issued September 30, 1996. . . . . . . . . . . . . . . . . . . 14,984 7,492
Additional paid-in capital . . . . . . . . . . . . . . . . . . . 7,074,724 7,053,143
Retained earnings - substantially restricted . . . . . . . . . . 9,179,689 8,960,098
Unrealized loss on securities available for sale, net. . . . . . (33,947) (11,293)
Treasury stock at cost, 493,098 shares at March 31, 1997
and 331,550 shares at September 30, 1996 . . . . . . . . . . . (4,441,480) (2,628,704)
Required contributions for shares acquired by ESOP . . . . . . . (254,580) (290,949)
Unearned stock compensation - recognition and retention
plan (RRP) . . . . . . . . . . . . . . . . . . . . . . . . . . (65,456) (87,278)
-------------- --------------
Total stockholders' equity . . . . . . . . . . . . . . . . . 11,473,934 13,002,509
-------------- --------------
Total liabilities and stockholders' equity . . . . . . . . . $109,229,614 $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 Six Months Ended
March 31, March 31,
------------------------------ -------------------------------
1997 1996 1997 1996
------------- ------------- ------------- -------------
Interest income (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Loans receivable . . . . . . . . . . . . . . . . $1,396,150 $1,267,380 $2,778,864 $2,534,299
Mortgage-backed securities . . . . . . . . . . . 434,608 478,159 884,811 951,514
Investment securities. . . . . . . . . . . . . . 114,746 119,416 234,081 240,419
Other. . . . . . . . . . . . . . . . . . . . . . 38,807 58,971 72,161 114,732
------------- ------------- ------------- -------------
Total interest income. . . . . . . . . . . . . 1,984,311 1,923,926 3,969,917 3,840,964
------------- ------------- ------------- -------------
Interest expense
Deposits . . . . . . . . . . . . . . . . . . . . 889,179 927,268 1,781,023 1,822,472
Borrowed funds . . . . . . . . . . . . . . . . . 351,409 235,134 706,940 496,889
------------- ------------- ------------- -------------
Total interest expense . . . . . . . . . . . . 1,240,588 1,162,402 2,487,963 2,319,361
------------- ------------- ------------- -------------
Net interest income. . . . . . . . . . . . . . . . 743,723 761,524 1,481,954 1,521,603
Provision for loan losses. . . . . . . . . . . . . --- --- --- ---
------------- ------------- ------------- -------------
Net interest income after provision
for loan losses. . . . . . . . . . . . . . . . . 743,723 761,524 1,481,954 1,521,603
Other income
Gain on sale of investments. . . . . . . . . . . --- --- --- 250,945
Income (loss) from real estate operations. . . . (2,041) 106,849 1,412 96,091
Other income . . . . . . . . . . . . . . . . . . 54,079 57,232 104,466 109,984
------------- ------------- ------------- -------------
Total other income . . . . . . . . . . . . . . 52,038 164,081 105,878 457,020
------------- ------------- ------------- -------------
General, administrative and other expense
Employee compensation and benefits . . . . . . . 306,132 275,745 600,983 547,924
Occupancy and equipment. . . . . . . . . . . . . 46,400 33,688 73,435 60,122
Federal deposit insurance premiums . . . . . . . 11,292 39,526 42,216 76,536
Data processing fees . . . . . . . . . . . . . . 40,991 38,920 75,364 70,022
Other. . . . . . . . . . . . . . . . . . . . . . 134,912 110,344 258,145 198,487
------------- ------------- ------------- -------------
Total non-interest expenses. . . . . . . . . . 539,727 498,223 1,050,143 953,091
------------- ------------- ------------- -------------
Earnings before income taxes . . . . . . . . . . . 256,034 427,382 537,689 1,025,532
Income tax expense . . . . . . . . . . . . . . . . 90,454 178,745 205,415 410,347
------------- ------------- ------------- -------------
Net earnings . . . . . . . . . . . . . . . . . . . $ 165,580 $ 248,637 $ 332,274 $ 615,185
============= ============= ============= =============
Earnings per common share - primary and fully
diluted. . . . . . . . . . . . . . . . . . . . . $ .16 $ .21 $ .31 $ .50
============= ============= ============= =============
Dividends per share. . . . . . . . . . . . . . . . $ .0625 $ .05 $ .1125 $ .0875
============= ============= ============= =============
</TABLE>
- -----------------------------
The accompanying notes are an integral part of these statements.
4
<PAGE>
FIRST INDEPENDENCE CORPORATION
CONSOLIDATED CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY
For The Six Months Ended March 31, 1997
and Year Ended September 30, 1996
(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, 1995 . . . . . . $7,492 $6,998,314 $8,358,681 $176,580
Cash dividends of $.1875 per share . . --- --- (213,876) ---
Purchase of 125,846 shares of
treasury stock . . . . . . . . . . . --- --- --- ---
Amortization of unearned stock
compensation . . . . . . . . . . . . --- --- --- ---
ESOP loan repayments . . . . . . . . . --- --- --- ---
Fair value adjustment on ESOP shares
committed for release. . . . . . . . --- 60,079 --- ---
Common stock options exercised . . . . --- (5,250) --- ---
Decrease in unrealized gain on
securities available for sale. . . . --- --- --- (187,873)
Net earnings . . . . . . . . . . . . . --- --- 815,293 ---
------- ---------- ---------- --------
Balance at September 30, 1996. . . . . 7,492 7,053,143 8,960,098 (11,293)
Cash dividends of $.1125 per share . . --- --- (112,683) ---
Purchase of 169,184 shares of
treasury stock. . . . . . . . . . --- --- --- ---
Amortization of unearned stock
compensation . . . . . . . . . . . . --- --- --- ---
ESOP loan repayments . . . . . . . . . --- --- --- ---
Fair value adjustment on ESOP shares
committed for release. . . . . . . . --- 39,095 --- ---
Common stock options exercised . . . . --- 10,022) --- ---
Increase in unrealized loss on
securities available for sale. . . . --- --- --- (22,654)
Net earnings . . . . . . . . . . . . . --- --- 332,274 ---
One hundred percent stock dividend . . 7,492 (7,492) --- ---
------- ---------- ---------- --------
Balance at March 31, 1997. . . . . . . $14,984 $7,074,724 $9,179,689 $(33,947)
======= ========== ========== ========
</TABLE>
<PAGE>
(RESTUBBED TABLE)
<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, 1995 . . . . . . $(1,446,524) $(363,686) $(130,922) $13,599,935
Cash dividends of $.1875 per share . . --- --- --- (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
Common stock options exercised . . . . 25,250 --- --- 20,000
Decrease in unrealized gain on
securities available for sale. . . . --- --- --- (187,873)
Net earnings . . . . . . . . . . . . . --- --- --- 815,293
----------- --------- --------- -----------
Balance at September 30, 1996. . . . . (2,628,704) (290,949) (87,278) 13,002,509
Cash dividends of $.1125 per share . . --- --- --- (112,683)
Purchase of 169,184 shares of
treasury stock . . . . . . . . . (1,860,978) --- --- (1,860,978)
Amortization of unearned stock
compensation . . . . . . . . . . . . --- --- 21,822 21,822
ESOP loan repayments . . . . . . . . . --- 36,369 --- 36,369
Fair value adjustment on ESOP shares
committed for release. . . . . . . . --- --- --- 39,095
Common stock options exercised . . . . 48,202 --- --- 38,180
Increase in unrealized loss on
securities available for sale. . . . --- --- --- (22,654)
Net earnings . . . . . . . . . . . . . --- --- --- 332,274
One hundred percent stock dividend . . --- --- --- ---
----------- --------- --------- -----------
Balance at March 31, 1997. . . . . . . $(4,441,480) $(254,580) $ (65,456) $11,473,934
=========== ========= ========= ===========
</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>
Six Months Ended March 31,
-----------------------------------------
1997 1996
--------------- ---------------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities
Net Earnings . . . . . . . . . . . . . . . . . . . . . . . $ 332,274 $ 615,185
Adjustments to reconcile net earnings to net cash
provided by operating activities
Depreciation, amortization and accretion . . . . . . . . 72,339 52,849
Increase in accrued interest receivable. . . . . . . . . (4,796) (24,935)
Increase in income taxes payable . . . . . . . . . . . . 140,820 76,716
Gain on sale of investments. . . . . . . . . . . . . . . --- (250,945)
Amortization of expense related to employee
benefit plans. . . . . . . . . . . . . . . . . . . . . 97,286 89,279
Net gains on sale of real estate acquired through
foreclosure. . . . . . . . . . . . . . . . . . . . . . (436) (111,619)
Increase (decrease) in accrued expenses. . . . . . . . . (423,883) 9,101
Net change in other assets and other liabilities . . . . (68,486) (34,829)
---------- ----------
Net cash provided by operating activities. . . . . . . 145,118 420,802
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 . . . . . . . . . . . . . . . . . . 2,075,706 3,078,657
Held to maturity . . . . . . . . . . . . . . . . . . . 3,074,425 2,531,452
Purchase of securities
Available for sale . . . . . . . . . . . . . . . . . . (1,097,163) (2,041,524)
Held to maturity . . . . . . . . . . . . . . . . . . . (2,000,000) (2,899,256)
Net increase in loans. . . . . . . . . . . . . . . . . . (2,566,948) (1,348,775)
Capital expenditures . . . . . . . . . . . . . . . . . . (407,445) (133,142)
Proceeds from sale of real estate acquired through
foreclosure. . . . . . . . . . . . . . . . . . . . . . 10,194 37,669
---------- ----------
Net cash used in investing activities. . . . . . . . . (911,231) (511,774)
Cash flows from financing activities
Net increase in deposits . . . . . . . . . . . . . . . . 4,784,477 4,980,728
Net decrease in advances from borrowers
for taxes and insurance. . . . . . . . . . . . . . . . (3,998) (570,471)
Increase (decrease) in checks issued in excess
of cash items. . . . . . . . . . . . . . . . . . . . . (267,374) 18,566
Stock options exercised. . . . . . . . . . . . . . . . . 38,180 20,000
Advances from Federal Home Loan Bank . . . . . . . . . . 9,800,000 4,500,000
Repayment of Federal Home Loan Bank advances . . . . . . (11,600,000) (8,300,000)
Cash dividends paid. . . . . . . . . . . . . . . . . . . (112,683) (103,556)
Purchase of treasury stock . . . . . . . . . . . . . . . (1,860,978) (1,207,430)
---------- ----------
Net cash provided by (used in) financing activities. . 777,624 (662,163)
---------- ----------
Net increase (decrease) in cash and cash equivalents . . . . 11,511 (753,135)
Cash and cash equivalents at beginning of period . . . . . . 1,763,429 2,114,625
---------- ----------
Cash and cash equivalents at end of period . . . . . . . . . $1,774,940 $1,361,490
========== ==========
</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 March 31, 1997, and the results of
operations and cash flows for all interim periods presented.
Operating results for the three and six months ended March 31, 1997 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 52,734 and 54,553 for the three and
six months ended March 31, 1997 and 67,281 and 69,100 for the three and six
months ended March 31, 1996, 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 1,056,187 and 1,077,938 for the three and six
months ended March 31, 1997 and 1,181,460 and 1,222,068 for the three and six
months ended March 31, 1996, 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
March 31, 1997, the capital requirements applicable to First Federal Savings and
Loan Association of Independence ("the Association") and its actual capital
ratios. For purposes of calculating regulatory capital, adjustments required by
Statement of Financial Accounting Standards No. 115 are not taken into account.
As of March 31, 1997, the Association exceeded all current regulatory capital
standards.
7
<PAGE>
<TABLE>
<CAPTION>
To be well
capaitalized under
For capital prompt corrective
Actual adequacy purposes action provisions
------------------------ ------------------------- -------------------------
Amount Ratio Amount Ratio Amount Ratio
------------ -------- ------------ --------- ------------ ---------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Total risk-based capital $9,544 19.45% $3,926 *8.0% $4,907 *10.0%
Tier 1 risk-based capital 8,930 18.20 1,963 *4.0 2,944 * 6.0
Tier 1 (core) capital 8,930 8.27 3,239 *3.0 5,399 * 5.0
Tangible capital 8,930 8.27 1,620 *1.5 --- ---
</TABLE>
- ------------------
* Greater than or equal to.
(5) Supplemental Disclosure of Cash Flow Information
<TABLE>
<CAPTION>
Six months ended March 31,
--------------------------
1997 1996
---- ----
<S> <C> <C>
Cash paid for:
Interest $2,480,221 $2,310,260
Income taxes 64,595 333,631
Noncash investing and financing activities:
Transfer from loans to real estate
acquired through foreclosure 8,781 ---
Issuance of loans receivable in connection
with the sale of real estate acquired
through foreclosure --- 45,000
</TABLE>
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 $700,000, or .64%, from $108.5
million at September 30, 1996 to $109.2 million at March 31, 1997. This increase
was primarily a result of an increase of $2.6 million in net loans receivable,
$400,000 in premises and equipment, and $100,000 in Federal Home Loan Bank
Stock. These increases in assets, along with reductions in advances from the
Federal Home Loan Bank of Topeka of $1.8 million, other accrued expenses and
liabilities of $500,000, and checks issued in excess of cash items of $300,000
were funded by an increase in savings deposits of $4.7 million and a decrease in
mortgage-backed securities of $2.2 million.
9
<PAGE>
Total loans receivable increased $2.6 million from $67.7 million at
September 30, 1996, to $70.3 million at March 31, 1997. 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 mortgage 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 .98% of total loans
at March 31, 1997, 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 decreased from 114.57% at September 30,
1996 to 70.46% at March 31, 1997. At March 31, 1997, 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 $4.7 million from $69.4 million at September
30, 1996, to $74.1 million at March 31, 1997. 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 decreased $1.8 million from $24.3 million at
September 30, 1996 to $22.5 million at March 31, 1997. The decrease was due to
the principal repayment of advances obtained from the Federal Home Loan Bank of
Topeka. Most of the advances obtained from the Federal Home Loan Bank of Topeka
were used by the Company to invest in loans receivable at a positive spread over
the term of the advances.
Total stockholders' equity decreased $1.5 million from $13.0 million at
September 30, 1996 to $11.5 million at March 31, 1997. The decrease was
primarily the result of the Company's use of $1,861,000 to repurchase 169,184
shares of common stock at an average price of 98% of book value per share, the
use of $113,000 to pay dividends to stockholders, and an increase in the
unrealized loss on securities available for sale of $23,000. These decreases to
stockholders' equity were partially offset by the Company's net earnings from
operations of $332,000, a fair value adjustment of $39,000 on ESOP shares
committed for release, common stock options exercised of $38,000, the repayment
of employee stock ownership debt of $36,000, and the amortization of unearned
stock compensation of $22,000.
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 March 31, 1997,
non-performing assets were approximately $988,000, which represents an increase
of $374,000, or 60.9%, as compared to September 30, 1996. The increase in
non-performing assets was due primarily to one loan totaling $347,000 secured by
a single family residence in Texas. The borrowers previously filed for
protection under the bankruptcy statutes in February 1991, but once again
experienced financial difficulties during the second quarter of fiscal 1997. A
summary of non-performing assets by category is set forth in the following
table:
March 31, September 30,
1997 1996
--------- -------------
(Dollars In Thousands)
Non-Accruing Loans. . . . . . . . . . . . . . . $ 440 $ 367
Accruing Loans Delinquent 90 Days or More . . . 487 183
Trouble Debt Restructurings . . . . . . . . . . 52 52
Foreclosed Assets . . . . . . . . . . . . . . . 9 12
------ ------
Total Non-Performing Assets . . . . . . . . . . $ 988 $ 614
====== ======
Total Non-Performing Assets as a
Percentage of Total Assets . . . . . . . . . 0.91% 0.57%
==== ====
Included in non-accruing loans at March 31, 1997, were nineteen loans
totaling $320,000 secured by one- to four-family real estate, one loan totaling
$98,000 secured by non-residential real estate, and five consumer loans totaling
$22,000. All non-accruing loans at March 31, 1997, were located in the Company's
primary market area. At March 31, 1997, accruing loans delinquent 90 days or
more included eight loans totaling $487,000 secured by one- to four-family real
estate. At March 31, 1997, 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 except for one loan mentioned above totaling $347,000 secured by a single
family residence in Texas.
Other Loans of Concern. In addition to the non-performing assets set
forth in the table above, as of March 31, 1997, 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 March 31, 1997, 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 and Six Months Ended March 31, 1997
and March 31, 1996
- -------------------------------------------------------------------------------
General. Net earnings for the six months ended March 31, 1997 were
$332,000 as compared to $615,000 for the six months ended March 31, 1996,
resulting in a decrease of $283,000, or 46.0%. 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 six months ended March 31, 1996, with no similar activity
in the six months ended March 31, 1997. To a lesser extent, the decrease in net
earnings was due to an increase in non-interest expense of $97,000 and decreases
in income from real estate operations of $95,000 and net interest income of
$40,000. These decreases in net earnings were partially offset by a decrease in
income tax expense of $205,000.
Net earnings for the three months ended March 31, 1997 were $166,000 as
compared to $249,000 for the three months ended March 31, 1996, resulting in a
decrease of $83,000, or 33.3%. The decrease in net earnings was primarily due to
a decrease in other income of $112,000, an increase in non-interest expense of
$42,000, and a decrease in net interest income of $18,000, partially offset by a
decrease in income tax expense of $89,000.
Net Interest Income. Net interest income decreased $40,000, or 2.63%,
for the six months ended March 31, 1997 as compared to the six months ended
March 31, 1996. This decrease was due primarily to an increase in interest
expense of $169,000, or 7.29%; offset partially by an increase in interest
income of $129,000, or 3.36%. Interest expense increased primarily due to an
$8.2 million increase in the average balance of interest-bearing liabilities,
offset partially by an 11 basis point decrease in the average rate paid on
interest-bearing liabilities. Interest income increased primarily due to a $5.7
million increase in the average balance of interest-earning assets, offset
partially by a 16 basis point decrease in yield on interest-earning assets. The
variance between the increase in interest-bearing liabilities and
interest-earning assets was caused primarily by the use of $1.9 million in
interest-earning assets to purchase treasury stock.
Net interest income decreased $18,000, or 2.4%, for the three months
ended March 31, 1997, as compared to the three months ended March 31, 1996. This
decrease was due primarily to an increase in interest expense of $79,000, or
6.8%; offset partially by an increase in interest income of $60,000 or 3.12%.
The decrease was due to the same reasons as stated above for the six months
ended March 31, 1997, as compared to the six months ended March 31, 1996. The
ratio of average interest-earning assets to average interest-bearing liabilities
decreased from 113.7% for the three months ended March 31, 1996 to 110.5% for
the three months ended March 31, 1997.
Interest Income. Interest income for the six months ended March 31,
1997, increased to $3,970,000 from $3,841,000 for the six months ended March 31,
1996. This increase was caused primarily by a $5.7 million increase in the
average outstanding amount of interest-earning assets during the six months
ended March 31, 1997, as compared to the six months ended March 31, 1996; due to
12
<PAGE>
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 16 basis points to 7.48% for
the six months ended March 31, 1997, from 7.64% for the six months ended March
31, 1996. 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
8.31% to 7.99%. To a lesser extent, the decrease in yield was due to a decrease
in yield on the Company's investment securities portfolio from 6.65% to 6.63%
for the six months ended March 31, 1997, as compared to the same period in
fiscal 1996.
Interest income for the quarter ended March 31, 1997, increased to
$1,984,000 from $1,924,000 for the quarter ended March 31, 1996. This increase
was caused primarily by a $5.3 million increase in the average outstanding
amount of interest-earning assets during the three months ended March 31, 1997,
as compared to the three months ended March 31, 1996 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 16 basis points to 7.49% for the three months
ended March 31, 1997, from 7.65% for the three months ended March 31, 1996. 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 8.26% to 8.01%. To
a lesser extent, the decrease in yield was due to a decrease in yield on the
Company's mortgage-backed securities portfolio from 6.55% to 6.48% for the
quarter ended March 31, 1997, as compared to the same period in fiscal 1996.
Interest Expense. Interest expense for the six months ended March 31,
1997, increased by $169,000 to $2,488,000 as compared to $2,319,000 for the six
months ended March 31, 1996. This increase in interest expense was due primarily
to an $8.2 million increase in the average outstanding amount of
interest-bearing liabilities during the six months ended March 31, 1997 as
compared to the six months ended March 31, 1996. This increase was partially
offset by an 11 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 $7.4 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.
Interest expense for the quarter ended March 31, 1997, increased by
$79,000 to $1,241,000 as compared to $1,162,000 for the quarter ended March 31,
1996. This increase in interest expense was due primarily to a $6.9 million
increase in the average outstanding amount of interest-bearing liabilities
during the three months ended March 31, 1997, as compared to the three months
ended March 31, 1996. This increase in interest-bearing liabilities was due
primarily to the same reasons as stated above. However, the interest expense was
partially offset by a 3 basis point decrease in average interest rates paid on
interest-bearing liabilities, caused by decreases in market interest rates.
13
<PAGE>
Provision for Loan Losses. Based upon management's analysis of
established reserves and review of the composition of the loan portfolio,
including non-performing assets and other loans of concern, there was no
provision for losses on loans for the three and six months ended March 31, 1997
and March 31, 1996. 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 $351,000 to $106,000
during the six months ended March 31, 1997 as compared to $457,000 for the six
months ended March 31, 1996. The decrease was primarily due to a non-recurring
$251,000 gain on the sale of FHLMC stock which was recognized in the six months
ended March 31, 1996, with no gains on the sale of securities recognized in the
six months ended March 31, 1997. To a lesser extent, the decrease was due to the
recognition during the fiscal 1996 period of a deferred gain of $105,000 from
the sale of real estate owned, with no corresponding gains during the fiscal
1997 period.
Non-interest income decreased $112,000 to $52,000 during the three
months ended March 31, 1997 as compared to $164,000 for the three months ended
March 31, 1996. The decrease was primarily due to the recognition of a deferred
gain of $105,000 from the sale of real estate owned during the fiscal 1996
period with no corresponding gain during the fiscal 1997 period. The deferred
gain originated from real estate owned that was sold during fiscal 1995 and was
amortized in full during the second quarter of fiscal 1996. Recurring
non-interest income generally consists of servicing fees as well as deposit and
other types of fees.
Non-interest Expense. Total non-interest expense increased to
$1,050,000 for the six months ended March 31, 1997 from $953,000 for the six
months ended March 31, 1996, an increase of $97,000, or 10.2%. The increase was
primarily due to increases in other expenses of $60,000, compensation and
employee benefits of $53,000, occupancy and equipment of $13,000, and data
processing fees of $5,000. These increases were partially offset by a decrease
in federal deposit insurance premiums of $35,000. The increase in other expenses
was primarily due to the opening of a new branch office resulting in additional
advertising, stationery, printing and office supplies expense. The increase in
compensation expense was primarily the result of normal, 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.
Total non-interest expense increased by $42,000 for the three months
ended March 31, 1997, as compared to the three months ended March 31, 1996. The
increase was due primarily to increases in compensation and employee benefits of
$30,000, other expenses of $25,000, occupancy and equipment of $12,000, and data
processing fees of $2,000. These increases were partially offset by a decrease
in federal deposit insurance premiums of $29,000. The increase in non-interest
expense for the three months ended March 31, 1997 was due to the same reasons as
stated above.
14
<PAGE>
Income Tax Expense. Income tax expense was $205,000 for the six months
ended March 31, 1997 compared to $410,000 for the six months ended March 31,
1996, a decrease of $205,000. The Association's effective tax rates were 38.2%
and 40.0% for the six months ended March 31, 1997 and March 31, 1996,
respectively.
Income tax expense was $90,000 for the quarter ended March 31, 1997
compared to $179,000 for the quarter ended March 31, 1996, a decrease of
$89,000. The Association's effective tax rates were 35.3% and 41.8% for the
three months ended March 31, 1997 and March 31, 1996, respectively. The decrease
in the effective tax rates for both the quarter and six month periods during
fiscal 1997, was due primarily to a state tax credit received by the Company
after a charitable contribution was made to a non-profit organization.
Liquidity and Capital Resources. The Company's primary sources of funds
are deposits, principal and interest payments on loans and mortgage-backed
securities, Federal Home Loan Bank of Topeka advances and funds provided by
operations. While scheduled loan and mortgage-backed security repayments and
maturity of short-term investments are a relatively predictable source of funds,
deposit flows are greatly influenced by general interest rates, economic
conditions and competition. Current Office of Thrift Supervision ("OTS")
regulations require the Association to maintain cash and eligible investments in
an amount equal to at least 5% of the sum of its average daily balance of net
withdrawable deposit accounts and borrowings payable in one year or less. Such
requirements may be changed from time to time by the OTS to reflect changing
economic conditions. Such investments are intended to provide a source of
relatively liquid funds upon which the Association may rely, if necessary, to
fund deposit withdrawals and other short-term funding needs. As of March 31,
1997, the Association's liquidity ratio was 9.70% as compared to 8.01% at
September 30, 1996. These ratios exceeded the minimum regulatory liquidity
requirements on both dates.
The Company uses its capital resources principally to meet its ongoing
commitments, to fund maturing certificates of deposit and deposit withdrawals,
to invest, to fund existing and future loan commitments, to maintain liquidity,
and to meet operating expenses. At March 31, 1997, the Company had commitments
to originate loans totaling $520,000. The Company considers its liquidity and
capital resources to be adequate to meet its foreseeable short- and long-term
needs. The Company expects to be able to fund or refinance, on a timely basis,
its material commitments and long-term liabilities.
Regulatory standards impose the following capital requirements on the
Association: a risk-based capital standard expressed as a percent of
risk-adjusted assets, a leverage ratio of core capital to total adjusted assets,
and a tangible capital ratio expressed as a percent of total adjusted assets. As
of March 31, 1997, the Association exceeded all fully phased-in regulatory
capital standards.
15
<PAGE>
At March 31, 1997, the Association's tangible capital was $8.9 million,
or 8.27% of adjusted total assets, which is in excess of the 1.5% requirement by
$7.3 million. In addition, at March 31, 1997, the Association had core capital
of $8.9 million, or 8.27% of adjusted total assets, which exceeds the 3%
requirement by $5.7 million. The Association had risk-based capital of $9.5
million at March 31, 1997, or 19.45% of risk-adjusted assets, which exceeds the
8.0% risk-based capital requirements by $5.6 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.
16
<PAGE>
Part II - Other Information
---------------------------
Item 1 - Legal Proceedings
-----------------
Not applicable.
Item 2 - Changes in Securities
---------------------
Not applicable.
Item 3 - Defaults upon Senior Securities
-------------------------------
Not applicable.
Item 4 - Submission of Matters to a Vote of Security Holders
---------------------------------------------------
None
Item 5 - Other Information
-----------------
None.
Item 6 - Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
Sequentially
Numbered Page
Where attached
Exhibit
Exhibit Number is located
-------------- ----------
Exhibit 27, "Financial Data Schedule" 19
(b) Reports on Form 8-K
None
17
<PAGE>
SIGNATURES
----------
Pursuant to the requirement of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FIRST INDEPENDENCE CORPORATION
Registrant
Date: May 14, 1997 /s/ Larry G. Spencer
------------------------- --------------------------------
Larry G. Spencer
President and Chief Executive
Officer
Date: May 14, 1997 /s/ James B. Mitchell
------------------------- ---------------------------------
James B. Mitchell
Vice President and Chief Financial
Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
The schedule contains summary financial information extracted from the quarterly
report on Form 10-QSB for the fiscal quarter ended March 31, 1997 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> MAR-31-1997
<CASH> 709,410
<INT-BEARING-DEPOSITS> 265,530
<FED-FUNDS-SOLD> 800,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 4,795,589
<INVESTMENTS-CARRYING> 28,900,681
<INVESTMENTS-MARKET> 28,733,731
<LOANS> 70,961,880
<ALLOWANCE> 690,009
<TOTAL-ASSETS> 109,229,614
<DEPOSITS> 74,140,900
<SHORT-TERM> 9,800,000
<LIABILITIES-OTHER> 1,114,780
<LONG-TERM> 12,700,000
0
0
<COMMON> 14,984
<OTHER-SE> 11,458,950
<TOTAL-LIABILITIES-AND-EQUITY> 109,229,614
<INTEREST-LOAN> 2,778,864
<INTEREST-INVEST> 1,118,892
<INTEREST-OTHER> 72,161
<INTEREST-TOTAL> 3,969,917
<INTEREST-DEPOSIT> 1,781,023
<INTEREST-EXPENSE> 2,487,963
<INTEREST-INCOME-NET> 1,481,954
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,050,143
<INCOME-PRETAX> 537,689
<INCOME-PRE-EXTRAORDINARY> 332,274
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 332,274
<EPS-PRIMARY> .31
<EPS-DILUTED> .31
<YIELD-ACTUAL> 7.49
<LOANS-NON> 440,000
<LOANS-PAST> 487,000
<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>
