<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, 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 February 12, 1998, there were 953,993 shares of the Registrant's
common stock outstanding (including 8,734 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, 1997 and September 30, 1997 3
Consolidated Condensed Statements of Earnings
for the Three Months Ended December 31, 1997
and 1996 4
Consolidated Condensed Statement of Stockholders'
Equity for the Year Ended September 30, 1997 and
Three Months Ended December 31, 1997 5
Consolidated Condensed Statements of Cash
Flows for the Three Months Ended December 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 16
Signature Page 17
2
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PART I: FINANCIAL INFORMATION
FIRST INDEPENDENCE CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, September 30,
1997 1997
------------------ -----------------
(Unaudited)
<S> <C> <C>
ASSETS
- ------
Cash and due from banks $ 832,609 $ 961,350
Federal funds sold 500,000 1,600,000
Other interest-earning deposits 611,050 589,877
------------- -------------
Cash and cash equivalents 1,943,659 3,151,227
Investment securities held to maturity (fair value:
September 30, 1997 - $2,996,300) --- 3,000,000
Investment securities available for sale 4,343,411 4,311,406
Mortgage-backed securities held to maturity (fair value:
December 31, 1997 - $22,349,607;
September 30, 1997 - $23,748,569) 22,118,923 23,527,689
Mortgage-backed securities available for sale 262,730 471,618
Loans receivable, net 81,394,075 74,558,783
Real estate acquired through foreclosure 68,705 12,131
Premises and equipment, net 1,333,385 1,297,500
Federal Home Loan Bank Stock, at cost 1,397,000 1,368,900
Accrued interest receivable 746,093 712,298
Other assets 61,084 111,107
------------- -------------
Total assets $ 113,669,065 $ 112,522,659
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Liabilities
Deposits $ 76,119,370 $ 76,229,176
Advances from borrowers for taxes and insurance 400,698 693,069
Checks issued in excess of cash items 1,065,323 ---
Advances from Federal Home Loan Bank 24,300,000 23,700,000
Income taxes payable 94,937 1,306
Other accrued expenses and liabilities 329,169 369,827
------------- -------------
Total liabilities 102,309,497 100,993,378
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 14,984 14,984
Additional paid-in capital 7,156,375 7,122,744
Retained earnings - substantially restricted 9,562,426 9,441,054
Unrealized gain on securities available for sale, net 24,718 15,112
Treasury stock at cost, 544,399 shares at December 31, 1997
and 520,059 shares at September 30, 1997 (5,166,184) (4,802,767)
Required contributions for shares acquired by ESOP (200,028) (218,212)
Unearned stock compensation - recognition and retention
plan (RRP). (32,723) (43,634)
------------- -------------
Total stockholders' equity 11,359,568 11,529,281
------------- -------------
Total liabilities and stockholders' equity $ 113,669,065 $ 112,522,659
============= =============
</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
Three Months Ended
December 31,
------------------------
1997 1996
---------- ----------
Interest income (Unaudited)
Loans receivable $1,618,651 $1,382,714
Mortgage-backed securities 376,628 450,203
Investment securities 100,673 119,335
Other 49,321 33,354
---------- ----------
Total interest income 2,145,273 1,985,606
---------- ----------
Interest expense
Deposits 956,688 891,844
Borrowed funds 364,831 355,531
---------- ----------
Total interest expense 1,321,519 1,247,375
---------- ----------
Net interest income 823,754 738,231
Provision for loan losses --- ---
---------- ----------
Net interest income after provision
for loan losses 823,754 738,231
Other income
Income from real estate operations 698 3,453
Other income 64,804 50,387
---------- ----------
Total other income 65,502 53,840
---------- ----------
General, administrative and other expense
Employee compensation and benefits 335,237 294,851
Occupancy and equipment 56,702 27,035
Federal deposit insurance premiums 11,797 30,924
Data processing fees 41,606 34,373
Other 127,016 123,233
---------- ----------
Total non-interest expenses 572,358 510,416
---------- ----------
Earnings before income taxes 316,898 281,655
Income tax expense 137,108 114,961
---------- ----------
Net earnings $ 179,790 $ 166,694
========== ==========
Earnings per common share
Basic $ .19 $ .16
========== ==========
Diluted $ .18 $ .15
========== ==========
Dividend per share $ .0625 $ .05
========== ==========
- --------------------------------
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, 1997
and Year Ended September 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
Required
Unrealized Contribu-
Gain (Loss) tion for Unearned
Additional on Securities Shares Stock
Common Paid-in Retained Available 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, 1996 $7,492 $7,053,143 $8,960,098 $(11,293) $(2,628,704) $(290,949) $(87,278) $13,002,509
Net earnings --- --- 711,680 --- --- --- --- 711,680
Cash dividends of
$.2375 per share --- --- (230,724) --- --- --- --- (230,724)
Common stock
options exercised --- (12,499) --- --- 59,769 --- --- 47,270
Appreciation of
securities available
for sale --- --- --- 26,405 --- --- --- 26,405
ESOP loan
repayments --- --- --- --- --- 72,737 --- 72,737
Fair value
adjustment on ESOP
shares committed
for release --- 89,592 --- --- --- --- --- 89,592
Amortization of
unearned stock
compensation --- --- --- --- --- --- 43,644 43,644
Purchase of
197,963 shares of
treasury stock --- --- --- --- (2,233,832) --- --- (2,233,832)
Two-for-one stock 7,492 (7,492) --- --- --- --- --- ---
------- ---------- ---------- ------- ----------- --------- -------- -----------
Balance at
September 30, 1997 14,984 7,122,744 9,441,054 15,112 (4,802,767) (218,212) (43,634) 11,529,281
Net earnings --- --- 179,790 --- --- --- --- 179,790
Cash dividends of
$.0625 per share --- --- (58,418) --- --- --- --- (58,418)
Common stock
options exercised --- (220) --- --- 1,020 --- --- 800
Appreciation of
securities available
for sale --- --- --- 9,606 --- --- --- 9,606
ESOP loan
repayments --- --- --- --- --- 18,184 --- 18,184
Fair value
adjustment on ESOP
shares committed
for release --- 33,851 --- --- --- --- --- 33,851
Amortization of
unearned stock
compensation --- --- --- --- --- --- 10,911 10,911
Purchase of 24,500
shares of treasury stock --- --- --- --- (364,437) --- --- (364,437)
------- ---------- ---------- ------- ----------- --------- -------- -----------
Balance at
December 31, 1997 $14,984 $7,156,375 $9,562,426 $24,718 $(5,166,184) $(200,028) $(32,723) $11,359,568
======= ========== ========== ======= =========== ========= ======== ===========
</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,
-------------------------------
1997 1996
----------- -----------
<S> <C> <C>
Cash flows from operating activities (Unaudited)
Net Earnings $ 179,790 $ 166,694
Adjustments to reconcile net earnings to net cash
provided by operating activities
Depreciation 26,876 16,895
Amortization of premiums and discounts on investments
and mortgage-backed securities 19,360 34,679
Amortization of deferred loan origination fees (14,886) (16,321)
Amortization of expense related to employee
benefit plans 62,946 46,650
Net gain on sale of real estate acquired
through foreclosure (916) (1,693)
Increase (decrease) in cash due to changes in
Accrued interest receivable (33,795) (62,568)
Other assets 26,454 41,982
Accrued expenses and other liabilities (57,161) (556,248)
Income taxes payable 127,878 114,961
----------- -----------
Net cash provided by (used in) operating activities 336,546 (214,969)
Cash flows from investing activities
Proceeds from maturities and repayment of securities
Available for sale 203,642 36,791
Held to maturity 4,383,085 1,249,142
Purchase of securities
Available for sale (33,044) (65,432)
Net increase in loans (6,876,980) (2,039,306)
Capital expenditures (62,761) (246,962)
Proceeds from sale of real estate acquired through
foreclosure 853 2,869
----------- -----------
Net cash used in investing activities (2,385,205) (1,062,898)
Cash flows from financing activities
Net increase (decrease) in deposits (109,806) 781,855
Net decrease in advances from borrowers
for taxes and insurance (292,371) (355,297)
Increase in checks issued in excess of cash items 1,065,323 354,903
Advances from Federal Home Loan Bank 5,500,000 5,600,000
Repayment of Federal Home Loan Bank advances (4,900,000) (4,500,000)
Cash dividends paid (58,418) (49,980)
Purchase of treasury stock (364,437) (1,227,228)
Stock options exercised 800 38,180
----------- -----------
Net cash provided by financing activities 841,091 642,433
----------- -----------
Net decrease in cash and cash equivalents (1,207,568) (635,434)
Cash and cash equivalents at beginning of period 3,151,227 1,763,429
----------- -----------
Cash and cash equivalents at end of period $ 1,943,659 $ 1,127,995
=========== ===========
</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, 1997, and the results of
operations and cash flows for all interim periods presented.
Operating results for the three months ended December 31, 1997 are
not necessarily indicative of the results that may be expected for the fiscal
year ending September 30, 1998.
(2) Earnings Per Share of Common Stock
Basic earnings per share is computed by dividing net earnings by the
weighted average number of common shares outstanding for the period. Diluted
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 share equivalents. Common shares
outstanding excludes unallocated and uncommitted shares held by the ESOP
trust. Average weighted unallocated and uncommitted shares in the ESOP trust
were 41,826 and 56,372 for the quarters ended December 31, 1997 and December
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 two for
one 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 diluted earnings per share were 1,004,151 and 1,092,399 for the
quarters ended December 31, 1997 and December 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
7
<PAGE>
Office of Thrift Supervision, savings institutions must meet the following
separate minimum capital-to-asset requirements. The table below summarizes, as
of December 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 December 31, 1997, the Association exceeded
all current regulatory capital standards.
<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)
<S> <C> <C> <C> <C> <C> <C>
Total risk-based capital $10,196 19.87% $4,105 greater than 8.0% $5,132 greater than 10.0%
equal to equal to
Tier 1 risk-based capital 9,554 18.62 2,052 greater than 4.0 3,079 greater than 6.0
equal to equal to
Tier 1 (core) capital 9,554 8.51 3,367 greater than 3.0 5,612 greater than 5.0
equal to equal to
Tangible capital 9,554 8.51 1,683 greater than 1.5 --- ---
equal to
</TABLE>
(5) Supplemental Disclosure of Cash Flow Information
<TABLE>
<CAPTION>
Three months ended December 31,
-------------------------------
1997 1996
---- ----
<S> <C> <C>
Cash paid for:
Interest $1,347,815 $1,249,890
Income taxes 9,230 ---
Noncash investing and financing activities:
Transfer from loans to real estate
acquired through foreclosure 56,574 ---
</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 $1.2 million, or 1.02%, from
$112.5 million at September 30, 1997 to $113.7 million at December 31, 1997.
This increase was primarily a result of an increase of $6.8 million in net
loans receivable. This increase in net loans receivable, along with a
9
<PAGE>
reduction in advanced payments by borrowers' for taxes and insurance of
$300,000 and savings deposits of $100,000, was funded by decreases in
investment securities of $3.0 million, mortgage-backed securities of $1.6
million and cash and cash equivalents of $1.2 million and increases in checks
issued in excess of cash items of $1.1 million and advances from the Federal
Home Loan Bank of Topeka of $600,000.
Loans receivable increased $6.8 million from $74.6 million at
September 30, 1997, to $81.4 million at December 31, 1997. The increase was
primarily due to construction loan originations at the Company's new loan
production office in Lawrence, Kansas. These construction loans generally have
terms of six months or less and interest rates tied to the prime rate plus a
margin. To a lesser extent, the increase was due to originations in the
Company's market area consisting 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 $668,000, or .82% of total
loans at December 31, 1997, which represented no change from the $668,000, or
.90% of total loans, at September 30, 1997. The ratio of the allowance for
loan losses as a percent of non-performing loans decreased from 48.05% at
September 30, 1997 to 42.73% at December 31, 1997. At December 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 decreased $100,000 from $76.2 million at September 30,
1997, to $76.1 million at December 31, 1997. The outflow of deposits was a
result of competition from local financial institutions which are aggressively
seeking deposits by offering relatively high interest rates and competition
from other investment products that offer the potential of a higher rate of
return, but also represent higher risk investments.
Total borrowed funds increased $600,000 from $23.7 million at
September 30, 1997 to $24.3 million at December 31, 1997. 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 $100,000 from $11.5 million at
September 30, 1997 to $11.4 million at December 31, 1997. The decrease was
primarily the result of the Company's use of $364,000 to repurchase 24,500
shares of common stock and dividends of $58,000 paid to stockholders. These
decreases were partially offset by the Company's net earnings from operations
of $180,000, a fair value adjustment of $34,000 on ESOP shares committed for
release, the repayment of employee stock ownership debt of $18,000, the
amortization of unearned stock compensation of $11,000, and common stock
options exercised of $1,000.
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,
1997, non-performing assets were approximately $1,633,000, which represents an
increase of $230,000, or 16.4%, as compared to September 30, 1997. A summary
of non-performing assets by category is set forth in the following table:
December 31, September 30,
1997 1997
------------- -------------
(Dollars In Thousands)
Non-Accruing Loans $ 893 $1,049
Accruing Loans Delinquent 90 Days or More 622 292
Trouble Debt Restructurings 49 50
Foreclosed Assets 69 12
------ ------
Total Non-Performing Assets $1,633 $1,403
====== ======
Total Non-Performing Assets as a
Percentage of Total Assets 1.44% 1.25%
==== ====
Included in non-accruing loans at December 31, 1997, were twenty
loans totaling $857,000 secured by one- to four-family real estate and two
consumer loans totaling $36,000. All non-accruing loans at December 31, 1997,
were located in the Company's primary market area except for one loan totaling
$343,000, secured by a single family residence located in Texas. Accruing
loans delinquent 90 days or more increased $330,000 from $292,000 at September
30, 1997, to $622,000 at December 31, 1997. This increase was primarily due to
the reclassification of one loan totaling $200,000 from non-accruing loans at
September 30, 1997, to accruing loans delinquent 90 days or more at December
31, 1997. At December 31, 1997, accruing loans delinquent 90 days or more
included nine loans totaling $507,000 secured by one- to four-family real
estate and one loan totaling $115,000 secured by non-residential real estate.
At December 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 totaling $56,000, secured by a single family
residence located in Texas.
Foreclosed Assets. At December 31, 1997, the Company's real estate
acquired through foreclosure included three single family residences located
in the Company's primary market area with a carrying value of $69,000.
11
<PAGE>
Results of Operations - Comparison of Three Months Ended December 31, 1997 and
December 31, 1996
- -------------------------------------------------------------------------------
General. Net earnings for the three months ended December 31, 1997
were $180,000 as compared to $167,000 for the three months ended December 31,
1996, resulting in an increase of $13,000, or 7.86%. The increase in net
earnings was primarily due to increases of $86,000 in net interest income and
$12,000 in non-interest income. These increases were partially offset by a
$62,000 increase in non-interest expense and a $22,000 increase in income tax
expense.
Net Interest Income. Net interest income increased $86,000, or 11.6%,
for the three months ended December 31, 1997 as compared to the three months
ended December 31, 1996. This increase was due primarily to an increase in
interest income of $160,000, or 8.0%, offset partially by an increase in
interest expense of $74,000, or 5.9%. Interest income increased primarily due
to a $4.5 million increase in average interest-earning assets and, to a lesser
extent, a 27 basis point increase in yield on interest-earning assets.
Interest expense increased primarily due to a $4.9 million increase in average
interest-bearing liabilities and, to a lesser extent, a 4 basis point increase
in the average rate paid on interest-bearing liabilities.
Interest Income. Interest income for the quarter ended December 31,
1997, increased to $2,145,000 from $1,985,000 for the quarter ended December
31, 1996. This increase was caused primarily by a $4.5 million increase in the
average outstanding amount of interest-earning assets during the three months
ended December 31, 1997, as compared to the three months ended December 31,
1996 due to the increase in the average balance of loans receivable financed
by the increased average balance of savings deposits. The average balance of
savings deposits during the quarter ended December 31, 1997 was $6.2 million
higher than during the quarter ended December 31, 1996. 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 27 basis points
to 7.78% at December 31, 1997, from 7.51% at December 31, 1996. This increase
was caused primarily by increases in yield on the Association's investment
securities portfolio from 6.59% to 7.60%, Federal Home Loan Bank stock from
6.44% to 8.16%, mortgage-backed securities portfolio from 6.46% to 6.55%, and
loan portfolio from 8.03% to 8.20% at December 31, 1997, as compared to
December 31, 1996.
Interest Expense. Interest expense for the quarter ended December 31,
1997, increased by $74,000 to $1,321,000 as compared to $1,247,000 for the
quarter ended December 31, 1996. This increase in interest expense was due
primarily to a $4.9 million increase in the average outstanding amount of
interest-bearing liabilities during the three months ended December 31, 1997
as compared to the three months ended December 31, 1996. To a lesser extent,
the increase in interest expense was due to a 4 basis point increase in
average interest rates paid on interest-bearing liabilities. The increase in
interest-bearing liabilities was the result of a $6.2 million increase in the
average outstanding balance of deposits due primarily to new accounts opened
at the branch office in Coffeyville, Kansas, offset partially by a $1.2
million decrease in the average balance of advances obtained from the Federal
Home Loan Bank of Topeka.
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, 1997 or
December 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 increased $12,000 to $66,000
during the three months ended December 31, 1997 as compared to $54,000 for the
three months ended December 31, 1996. The increase was primarily due to
increased checking and deposit account fees as a result of new accounts in the
Coffeyville branch. To a lesser extent, the increase was due to increased late
charges and other fees associated with mortgage loans. 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
$572,000 for the three months ended December 31, 1997 from $510,000 for the
three months ended December 31, 1996, an increase of $62,000, or 12.1%. The
increase was due primarily to increases in compensation and employee benefits
of $40,000, occupancy and equipment of $30,000, data processing fees of
$7,000, and other expenses of $4,000. These increases were partially offset by
a reduction in the Company's ongoing deposit insurance premium of $19,000, as
a result of the recapitalization of the Savings Association Insurance Fund.
The increase in compensation expense was primarily due to the opening of a new
loan production office in Lawrence, Kansas, resulting in additional staff,
advertising stationery, printing and office supplies expense. To a lesser
extent, the increase was due to annual cost of living 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 $137,000 for the quarter
ended December 31, 1997 compared to $115,000 for the quarter ended December
31, 1996, an increase of $22,000. The Company's effective tax rates were 43.3%
and 40.8% for the three months ended December 31, 1997 and December 31, 1996,
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
13
<PAGE>
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 4% 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, 1997, the Association's liquidity
ratio was 6.14% as compared to 7.20% at September 30, 1997. 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 December 31, 1997, the
Company had commitments to originate loans totaling $507,000. 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, 1997, the Association exceeded all fully phased-in
regulatory capital standards.
At December 31, 1997, the Association's tangible capital was $9.6
million, or 8.51% of adjusted total assets, which is in excess of the 1.5%
requirement by $7.9 million. In addition, at December 31, 1997, the
Association had core capital of $9.6 million, or 8.51% of adjusted total
assets, which exceeds the 3% requirement by $6.2 million. The Association had
risk-based capital of $10.2 million at December 31, 1997, or 19.87% of
risk-adjusted assets, which exceeds the 8.0% risk-based capital requirements
by $6.1 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
14
<PAGE>
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 28, 1998. 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:
<TABLE>
<CAPTION>
PROPOSAL NUMBER OF VOTES
Broker
For Withheld Non-Votes
----------------- ------------------ ------------------
<S> <C> <C>
Election of the following directors
for the terms indicated:
William T. Newkirk II (three years) 810,153 820 ---
Joseph M. Smith (three years) 810,153 820 ---
</TABLE>
<TABLE>
<CAPTION>
Broker
For Against Abstain Non-Votes
------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
Ratification of Grant Thornton LLP
as auditors for the fiscal year
ending September 30, 1998 796,973 14,000 --- ---
</TABLE>
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: February 13, 1998
----------------------- --------------------------------------
Larry G. Spencer
President and Chief Executive
Officer
Date: February 13, 1998
----------------------- --------------------------------------
James B. Mitchell
Vice President and Chief Financial
Accounting Officer
17
<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, 1997
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-30-1998
<PERIOD-END> DEC-31-1997
<CASH> 832,606
<INT-BEARING-DEPOSITS> 611,050
<FED-FUNDS-SOLD> 500,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 4,606,141
<INVESTMENTS-CARRYING> 22,118,923
<INVESTMENTS-MARKET> 22,349,607
<LOANS> 82,062,260
<ALLOWANCE> 668,185
<TOTAL-ASSETS> 113,669,065
<DEPOSITS> 76,119,370
<SHORT-TERM> 13,400,000
<LIABILITIES-OTHER> 1,890,127
<LONG-TERM> 10,900,000
0
0
<COMMON> 14,984
<OTHER-SE> 11,344,584
<TOTAL-LIABILITIES-AND-EQUITY> 113,669,065
<INTEREST-LOAN> 1,618,651
<INTEREST-INVEST> 477,301
<INTEREST-OTHER> 49,321
<INTEREST-TOTAL> 2,145,273
<INTEREST-DEPOSIT> 956,688
<INTEREST-EXPENSE> 1,321,519
<INTEREST-INCOME-NET> 823,754
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 572,358
<INCOME-PRETAX> 316,898
<INCOME-PRE-EXTRAORDINARY> 179,790
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 179,790
<EPS-PRIMARY> .19
<EPS-DILUTED> .18
<YIELD-ACTUAL> 7.78
<LOANS-NON> 893,000
<LOANS-PAST> 622,000
<LOANS-TROUBLED> 49,000
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 668,185
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 688,185
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 688,185
</TABLE>
