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, 1999
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 11, 2000, there were 1,015,543 shares of the
Registrant's common stock outstanding.
<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, 1999 and September 30, 1999 3
Consolidated Condensed Statements of Earnings
for the Three Months Ended December 31, 1999
and 1998 4
Consolidated Condensed Statements of Comprehensive
Income for the Three Months Ended December 31,
1999 and 1998 5
Consolidated Condensed Statement of Stockholders'
Equity for the Year Ended September 30, 1999 and
Three Months Ended December 31, 1999 6
Consolidated Condensed Statements of Cash
Flows for the Three Months Ended December 31,
1999 and 1998 7
Notes to Consolidated Condensed Financial
Statements 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 10
PART II. OTHER INFORMATION 16
Signature Page 17
2
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<TABLE>
<CAPTION>
PART I: FINANCIAL INFORMATION
FIRST INDEPENDENCE CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
December 31, September 30,
1999 1999
-------------- --------------
(Unaudited)
<S> <C> <C>
ASSETS
Cash and due from banks $ 989,087 $ 1,064,794
Other interest-earning deposits 1,014,798 375,201
------------- -------------
Cash and cash equivalents 2,003,885 1,439,995
Investment securities held to maturity (fair value:
December 31, 1999 - $6,889,968;
September 30, 1999 - $6,957,733) 7,005,443 7,005,279
Investment securities available for sale 1,985,400 1,999,800
Mortgage-backed securities held to maturity (fair value:
December 31, 1999 - $10,231,571;
September 30, 1999 - $10,852,983) 10,293,742 10,912,279
Loans receivable, net 117,107,119 112,893,406
Real estate acquired through foreclosure 368,159 109,579
Premises and equipment, net 1,389,933 1,322,128
Federal Home Loan Bank Stock, at cost 1,679,000 1,441,600
Accrued interest receivable 990,922 887,465
Other assets 70,439 119,809
------------- -------------
Total assets $ 142,894,042 $ 138,131,340
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits $ 94,480,451 $ 95,452,864
Advances from borrowers for taxes and insurance 487,487 825,330
Advances from Federal Home Loan Bank 33,200,000 27,500,000
Income taxes payable 180,589 71,277
Other accrued expenses and liabilities 1,174,737 1,175,261
------------- -------------
Total liabilities 129,523,264 125,024,732
Stockholders' equity
Preferred stock, $.01 par value, 500,000
shares authorized, none issued -- --
Common stock, $.01 par value, 2,500,000 shares authorized,
1,649,288 shares issued 16,493 16,493
Additional paid-in capital 8,150,838 8,132,391
Retained earnings - substantially restricted 11,096,333 10,876,339
Accumulated other comprehensive income (loss) (7,174) 2,316
Treasury stock at cost, 585,558 shares at December 31, 1999
and 587,458 shares at September 30, 1999 (5,709,294) (5,721,251)
Required contributions for shares acquired by ESOP (176,418) (199,680)
------------- -------------
Total stockholders' equity 13,370,778 13,106,608
------------- -------------
Total liabilities and stockholders' equity $ 142,894,042 $ 138,131,340
============= =============
</TABLE>
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The accompanying notes are an integral part of these statements.
3
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PART I: FINANCIAL INFORMATION
FIRST INDEPENDENCE CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
Three Months Ended
December 31,
----------------------------
1999 1998
------------ ------------
Interest income (Unaudited)
Loans receivable $ 2,318,624 $ 1,940,637
Mortgage-backed securities 162,404 251,989
Investment securities 143,980 119,805
Other 42,881 53,472
----------- -----------
Total interest income 2,667,889 2,365,903
----------- -----------
Interest expense
Deposits 1,126,641 1,011,737
Borrowed funds 425,058 426,086
----------- -----------
Total interest expense 1,551,699 1,437,823
----------- -----------
Net interest income 1,116,190 928,080
Provision for loan losses 21,000 15,000
----------- -----------
Net interest income after provision
for loan losses 1,095,190 913,080
Noninterest income
Loss from real estate operations (9,634) (4,885)
Other 118,704 44,331
----------- -----------
Total noninterest income 109,070 39,446
----------- -----------
Noninterest expense
Employee compensation and benefits 406,558 294,013
Occupancy and equipment 84,001 63,580
Federal deposit insurance premiums 14,065 11,839
Data processing fees 62,806 60,918
Other 140,296 116,769
----------- -----------
Total noninterest expenses 707,726 547,119
----------- -----------
Earnings before income taxes 496,534 405,407
Income tax expense 185,915 157,743
----------- -----------
Net earnings $ 310,619 $ 247,664
=========== ===========
Earnings per common share
Basic $ .30 $ .27
=========== ===========
Diluted $ .29 $ .25
=========== ===========
Dividend per share $ .0875 $ .0750
=========== ===========
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The accompanying notes are an integral part of these statements.
4
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<TABLE>
<CAPTION>
PART I: FINANCIAL INFORMATION
FIRST INDEPENDENCE CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME
Three Months Ended
December 31,
------------------------
1999 1998
---------- ----------
(Unaudited)
<S> <C> <C>
Net earnings $ 310,619 $ 247,664
Other comprehensive income
Unrealized losses on securities available for sale
arising during the period, net of tax benefit of $5,816
in 1999 and $10,019 in 1998 (9,490) (16,347)
--------- ---------
Comprehensive income $ 301,129 $ 231,317
========= =========
</TABLE>
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The accompanying notes are an integral part of these statements.
5
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<TABLE>
<CAPTION>
FIRST INDEPENDENCE CORPORATION
CONSOLIDATED CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY
For The Three Months Ended December 31, 1999
and Year Ended September 30, 1999
(Unaudited)
Accumulated
Additional Other Compre-
Common Paid-in Retained hensive Income
Stock Capital Earnings (Loss), Net
----- ------- -------- -----------
<S> <C> <C> <C> <C>
Balance at October 1, 1998 $ 14,984 $ 7,239,207 $ 10,077,091 $ 52,497
Net earnings -- -- 1,143,088 --
Cash dividends of $.3375 per share -- -- (343,840) --
Issuance of 150,896 shares of
common stock 1,509 817,968 -- --
Common stock options exercised -- (3,987) -- --
Depreciation of securities available
for sale, net of income tax -- -- -- (50,181)
ESOP loan repayments -- -- -- --
Fair value adjustment on ESOP
shares committed for release -- 79,203 -- --
Purchase of 55,885 shares of
treasury stock -- -- -- --
------------ ------------ ------------ ------------
Balance at September 30, 1999 16,493 8,132,391 10,876,339 2,316
Net earnings -- -- 310,619 --
Cash dividends of $.0875 per share -- -- (90,625) --
Common stock options exercised -- (2,119) -- --
Depreciation of securities available
for sale, net of income tax -- -- -- (9,490)
ESOP loan repayments -- -- -- --
Fair value adjustment on ESOP
shares committed for release -- 20,566 -- --
------------ ------------ ------------ ------------
Balance at December 31, 1999 $ 16,493 $ 8,150,838 $ 11,096,333 $ (7,174)
============ ============ ============ ============
<PAGE>
Required
Contribu-
tion for
Shares
Treasury Acquired Total
Stock by Esop Equity
----- ------- ------
<S> <C> <C> <C>
Balance at October 1, 1998 $ (5,139,263) $ (145,475) $ 12,099,041
Net earnings -- -- 1,143,088
Cash dividends of $.3375 per share -- -- (343,840)
Issuance of 150,896 shares of
common stock -- (142,176) 677,301
Common stock options exercised 46,831 -- 42,844
Depreciation of securities available
for sale, net of income tax -- -- (50,181)
ESOP loan repayments -- 87,971 87,971
Fair value adjustment on ESOP
shares committed for release -- -- 79,203
Purchase of 55,885 shares of
treasury stock (628,819) -- (628,819)
------------ ------------ ------------
Balance at September 30, 1999 (5,721,251) (199,680) 13,106,608
Net earnings -- -- 310,619
Cash dividends of $.0875 per share -- -- (90,625)
Common stock options exercised 11,957 -- 9,838
Depreciation of securities available
for sale, net of income tax -- -- (9,490)
ESOP loan repayments -- 23,262 23,262
Fair value adjustment on ESOP
shares committed for release -- -- 20,566
------------ ------------ ------------
Balance at December 31, 1999 $ (5,709,294) $ (176,418) $ 13,370,778
============ ============ ============
</TABLE>
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The accompanying notes are an integral part of these statements.
6
<PAGE>
<TABLE>
<CAPTION>
PART I: FINANCIAL INFORMATION
FIRST INDEPENDENCE CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
Three Months Ended December 31,
-------------------------------
1999 1998
------------ ------------
<S> <C> <C>
Cash flows from operating activities (Unaudited)
Net earnings $ 310,619 $ 247,664
Adjustments to reconcile net earnings to net cash
provided by operating activities
Provision for loan losses 21,000 15,000
Depreciation 30,077 28,235
Amortization of premiums and discounts on investments
and mortgage-backed securities 14,509 14,496
Amortization of deferred loan origination fees (48,274) (59,690)
Amortization of expense related to employee
benefit plans 43,828 37,138
Amortization of negative goodwill (23,515) --
Gain on sale of real estate acquired
through foreclosure (1,600) --
Increase (decrease) in cash due to changes in
Accrued interest receivable (103,457) 36,458
Other assets 36,868 (62,270)
Accrued expenses and other liabilities (4,228) 711,465
Income taxes payable 154,849 152,901
----------- -----------
Net cash provided by operating activities 430,676 1,121,397
Cash flows from investing activities
Proceeds from maturities and repayment of securities
Held to maturity 602,958 7,170,573
Purchase of securities
Available for sale -- (180,419)
Net increase in loans (4,445,769) (3,445,259)
Purchase of Federal Home Loan Bank stock (237,400) --
Capital expenditures (97,882) (33,848)
Proceeds from sale of real estate acquired through
foreclosure 2,350 6,200
----------- -----------
Net cash provided by (used in) investing activities (4,175,743) 3,517,247
Cash flows from financing activities
Net increase (decrease) in deposits (972,413) 1,333,990
Net decrease in advances from borrowers
for taxes and insurance (337,843) (340,893)
Advances from Federal Home Loan Bank 9,700,000 6,700,000
Repayment of Federal Home Loan Bank advances (4,000,000) (6,400,000)
Cash dividends paid (90,625) (69,767)
Stock options exercised 9,838 27,844
----------- -----------
Net cash provided by financing activities 4,308,957 1,251,174
----------- -----------
Net increase in cash and cash equivalents 563,890 5,889,818
Cash and cash equivalents at beginning of period 1,439,995 913,580
----------- -----------
Cash and cash equivalents at end of period $ 2,003,885 $ 6,803,398
=========== ===========
</TABLE>
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The accompanying notes are an integral part of these statements.
7
<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, 1999, and the results of
operations and cash flows for all interim periods presented.
Operating results for the three months ended December 31, 1999 are not
necessarily indicative of the results that may be expected for the fiscal year
ending September 30, 2000.
(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 exclude
unallocated and uncommitted shares held by the ESOP trust.
(3) Merger Conversion with The Neodesha Savings and Loan Association
On January 6, 1999 the Board of Directors of First Independence
Corporation, parent of First Federal Savings and Loan Association of
Independence, and The Neodesha Savings and Loan Association, FSA, announced the
completion of Neodesha Savings conversion from a federally-chartered mutual
savings and loan association to a federally-chartered stock savings and loan
association and its simultaneous merger with First Federal. In connection with
the Merger Conversion, First Independence sold 150,896 shares of its Common
Stock at $9.42 per share. Total assets of Neodesha Savings were $13.7 million at
December 31, 1998. The financial statements include results of operations of
Neodesha Savings beginning January 6, 1999. The transaction was accounted for
under the purchase method of accounting for business combinations.
8
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(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 the following separate
minimum capital-to-asset requirements. The table below summarizes, as of
December 31, 1999, the capital requirements applicable to First Federal 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, 1999, First Federal 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 $13,176 19.02% $5,543 >8.0% $6,929 >10.0%
- -
Tier 1 risk-based capital 12,414 17.92 2,772 >4.0 4,157 > 6.0
- -
Tier 1 (core) capital 12,414 8.68 4,289 >3.0 7,148 > 5.0
- -
Tangible capital 12,414 8.68 2,144 >1.5 --- ---
-
</TABLE>
(5) Supplemental Disclosure of Cash Flow Information
Three Months Ended December 31,
1999 1998
---- ----
Cash paid for:
Interest $1,511,869 $1,436,941
Income taxes 33,066 4,842
Noncash investing and financing activities:
Transfer from loans to real estate
acquired through foreclosure 259,330 38,405
Issuance of loans receivable in connection
with the sale of real estate acquired
through foreclosure --- 24,800
9
<PAGE>
PART II
FIRST INDEPENDENCE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
The accompanying Consolidated Financial Statements include the accounts
of First Independence Corporation and its wholly-owned subsidiary, First Federal
Savings and Loan Association of Independence. All significant inter-company
transactions and balances are eliminated in consolidation. Our results of
operations are primarily dependent on First Federal's net interest margin, which
is the difference between interest income on interest-earning assets and
interest expense on interest-bearing liabilities. First Independence 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 us with the
Securities and Exchange Commission, in our 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 our market area, changes in policies by regulatory
agencies, fluctuations in interest rates, demand for loans in our market area
and competition that could cause actual results to differ materially from
historical earnings and those presently anticipated or projected. We caution
readers not to place undue reliance on any such forward-looking statements,
which speak only as of the date made. We advise readers that the factors listed
above could affect our financial performance and could cause actual results for
future periods to differ materially from any opinions or statements expressed
with respect to future periods in any current statements.
We do 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
Total assets increased $4.8 million, or 3.45%, from $138.1 million at
September 30, 1999 to $142.9 million at December 31, 1999. This increase was
primarily comprised of increases in net loans receivable of $4.2 million, cash
and cash equivalents of $564,000, real estate acquired through foreclosure of
10
<PAGE>
$258,000, Federal Home Loan Bank stock of $237,000 and accrued interest
receivable of $104,000. These increases in assets, along with a reduction in
savings deposits of $1.0 million and advanced payments by borrowers for taxes
and insurance of $338,000, were funded by increases in advances from the Federal
Home Loan Bank of Topeka of $5.7 million and the redeployment of funds received
from decreases in mortgage-backed securities of $618,000.
Loans receivable increased $4.2 million from $112.9 million at
September 30, 1999, to $117.1 million at December 31, 1999. The increase was
primarily due to construction loan originations at our loan production office in
Lawrence, Kansas. These construction loans generally have terms of nine 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 our 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.
Total deposits decreased $1.0 million from $95.5 million at September
30, 1999, to $94.5 million at December 31, 1999. The outflow of deposits was a
result of competition from local financial institutions which are aggressively
seeking public unit 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 $5.7 million from $27.5 million at
September 30, 1999 to $33.2 million at December 31, 1999. The increase was from
advances obtained from the Federal Home Loan Bank of Topeka. The advances
allowed us to invest the funds borrowed in loans receivable at a positive
spread.
Total stockholders' equity increased $264,000 from $13.1 million at
September 30, 1999 to $13.4 million at December 31, 1999. The increase was
primarily due to net earnings from operations of $311,000, repayment of employee
stock ownership debt of $23,000, fair value adjustment of $21,000 on ESOP shares
committed for release and common stock options exercised of $10,000. These
increases were partially offset by dividends of $91,000 paid to stockholders and
a decrease in the unrealized gains on securities available for sale of $9,000.
NON-PERFORMING ASSETS
The ratio of non-performing assets to total assets is one indicator of
our exposure to credit risk. Non-performing assets 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, 1999, non-performing assets were
approximately $2,178,000, which represents a decrease of $361,000, or 14.2%, as
compared to September 30, 1999. The ratio of non-performing assets to total
11
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assets at December 31, 1999 was 1.52% compared to 1.84% at September 30, 1999. A
summary of non-performing assets by category is set forth in the following
table:
December 31, September 30,
1999 1999
------------ -------------
(Dollars In Thousands)
Non-Accruing Loans $1,482 $1,311
Accruing Loans Delinquent 90 Days or More 311 1,118
Trouble Debt Restructurings 17 ---
Foreclosed Assets 368 110
------ ------
Total Non-Performing Assets $2,178 $2,539
====== ======
Total Non-Performing Assets as a
Percentage of Total Assets 1.52% 1.84%
==== ====
Included in non-accruing loans at December 31, 1999, were 18 loans
totaling $707,000 secured by one- to four-family real estate, 7 construction
loans totaling $650,000 secured by one- to four-family real estate, and 23
consumer loans totaling $125,000. All non-accruing loans at December 31, 1999,
were located in our primary market area, except for 3 loans totaling $215,000
secured by single family residences located in Texas. At December 31, 1999,
accruing loans delinquent 90 days or more included 10 loans totaling $160,000
secured by one- to four-family real estate and two construction loans totaling
$151,000 secured by one- to four-family real estate. At December 31, 1999, all
of our accruing loans delinquent 90 days or more were secured by real estate
located in our primary market area. At December 31, 1999, real estate acquired
through foreclosure consisted of 12 single family residences located in our
primary market area. The properties have a carrying value of $368,000 and are
currently offered for sale.
We have taken into account our non-performing assets and the composition
of the loan portfolio in establishing the allowance for loan losses. The
allowance for loan losses totaled $762,000 at December 31, 1999, which
represented a $9,000 increase from the allowance for loan losses at September
30, 1999. The ratio of the allowance for loan losses as a percent of total loans
decreased from .67% at September 30, 1999 to .65% at December 31, 1999,
primarily due to the increase in total loans receivable at December 31, 1999.
The allowance for loan losses as a percent of non-performing loans increased
from 31.0% at September 30, 1999 to 42.1% at December 31, 1999, due to the
decrease in non-performing loans at December 31, 1999.
The allowance for loan losses is determined based upon an evaluation of
pertinent factors underlying the types and qualities of our loans. We consider
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 our past statistical history concerning
charge-offs.
12
<PAGE>
RESULTS OF OPERATIONS - COMPARISON OF THREE MONTHS ENDED DECEMBER 31, 1999 AND
DECEMBER 31, 1998
GENERAL. Net earnings for the three months ended December 31, 1999 were
$311,000 as compared to $248,000 for the three months ended December 31, 1998,
an increase of $63,000, or 25.4%. The increase in net earnings was primarily due
to increases in net interest income of $188,000 and non-interest income of
$70,000. These increases were partially offset by increases in non-interest
expense of $161,000, income tax expense of $28,000 and the provision for loan
losses of $6,000.
NET INTEREST INCOME. Net interest income increased $188,000, or 20.3%,
for the three months ended December 31, 1999 as compared to the three months
ended December 31, 1998. This increase was due primarily to an increase in
interest income of $302,000, or 12.8%, offset partially by an increase in
interest expense of $114,000, or 7.9%. Interest income increased primarily due
to a $10.6 million increase in average interest-earning assets and, to a lesser
extent, a 7 basis point increase in yield on interest-earning assets. Interest
expense increased primarily due to a $12.8 million increase in average
interest-bearing liabilities, partially offset by a 16 basis point decrease in
the average rate paid on interest-bearing liabilities. The average balance of
interest-earning assets and interest-bearing liabilities increased primarily due
to the Neodesha Savings merger conversion. The variance between the increase in
yield and the decrease in average rate paid was due to interest-earning assets
and interest-bearing liabilities acquired in the Neodesha Savings merger
conversion having a greater spread than interest-earning assets and
interest-bearing liabilities on our balance sheet.
INTEREST INCOME. Interest income for the quarter ended December 31,
1999, increased to $2.7 million from $2.4 million for the quarter ended December
31, 1998. This increase resulted primarily from a $10.6 million increase in the
average outstanding balance of interest-earning assets during the three months
ended December 31, 1999 as compared to the three months ended December 31, 1998
due to assets acquired in the Neodesha Savings merger conversion. 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
by 7 basis points to 7.72% during the first quarter of fiscal 1999, from 7.65%
during the first quarter of fiscal 1998. This increase was caused primarily by a
change in mix of interest-earning assets to a higher percentage of loans
receivable, which earn a higher rate of return than our other assets, even
though the average yield on loans receivable decreased from 8.07% during the
first quarter of fiscal 1998, to 7.98% during the first quarter of fiscal 1999.
INTEREST EXPENSE. Interest expense for the quarter ended December 31,
1999, increased by $114,000 to $1.6 million as compared to $1.4 million for the
quarter ended December 31, 1998. This increase was primarily the result of a
$12.8 million increase in the average outstanding balance of interest-bearing
liabilities during the three months ended December 31, 1999 as compared to the
three months ended December 31, 1998. This increase was partially offset by a 16
13
<PAGE>
basis point decrease in the average interest rate paid on interest-bearing
liabilities, caused by a decrease in interest rates on savings deposits and
Federal Home Loan Bank advances. The increase in interest-bearing liabilities
was primarily due to a $12.8 million increase in the average outstanding amount
of deposits as a result of deposits acquired in the Neodesha Savings merger
conversion.
PROVISION FOR LOAN LOSSES. The provision for loan losses represents a
charge to earnings to maintain the allowance for loan losses at a level we
believe is adequate to absorb probable losses in the loan portfolio. The
provision for loan losses amounted to $21,000 for the three months ended
December 31, 1999 as compared to $15,000 for the same period in 1998. We believe
we use the best information available in providing for probable loan losses and
we believe that the allowance is adequate at December 31, 1999. Future
adjustments to the allowance could be necessary, however, and net earnings could
be affected if circumstances and/or economic conditions differ substantially
from the assumptions used in making the initial determinations.
NON-INTEREST INCOME. Non-interest income increased $70,000 to $109,000
during the three months ended December 31, 1999 as compared to $39,000 for the
three months ended December 31, 1998. The increase was primarily due to
increased checking and deposit account fees as a result of accounts acquired in
the Neodesha Savings merger conversion. To a lesser extent, the increase was due
to amortization of $24,000 related to negative goodwill acquired in the Neodesha
Savings merger conversion and increased late charges and other fees associated
with mortgage loans.
NON-INTEREST EXPENSE. Total non-interest expense increased to $708,000
for the three months ended December 31, 1999 from $547,000 for the three months
ended December 31, 1998, an increase of $161,000, or 29.4%. The increase was
primarily due to increases in compensation and employee benefits of $113,000,
other expense of $24,000, occupancy and equipment of $20,000, data processing
fees of $2,000, and federal deposit insurance premiums of $2,000. These
increases were primarily due to the acquisition of Neodesha Savings, resulting
in additional staff, occupancy and equipment, stationery, printing and office
supplies expense. To a lesser extent, the increase in compensation expense was
the result of normal, annual cost of living increases in salaries and bonuses.
INCOME TAX EXPENSE. Income tax expense was $186,000 for the quarter
ended December 31, 1999 compared to $158,000 for the quarter ended December 31,
1998, an increase of $28,000. This increase was primarily due to an increase in
pre-tax earnings during the 1999 period as compared to the 1998 period. Our
effective tax rates were 37.4% and 38.9% for the three months ended December 31,
1999 and December 31, 1998, respectively.
LIQUIDITY AND CAPITAL RESOURCES. Our 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
14
<PAGE>
conditions and competition. Current Office of Thrift Supervision regulations
require First Federal 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 Office of Thrift Supervision to reflect
changing economic conditions. Such investments are intended to provide a source
of relatively liquid funds upon which First Federal may rely if necessary to
fund deposit withdrawals and other short-term funding needs. As of December 31,
1999, First Federal's liquidity ratio was 8.54% as compared to 9.66% at
September 30, 1999. These ratios exceeded the minimum regulatory liquidity
requirements on both dates.
We use our capital resources principally to meet our 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, 1999, we had commitments to
originate loans totaling $1,447,000. We consider our liquidity and capital
resources to be adequate to meet foreseeable short- and long-term needs. We
expect to be able to fund or refinance, on a timely basis, our material
commitments and long-term liabilities.
Regulatory standards impose the following capital requirements on First
Federal: 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, 1999, we exceeded all regulatory capital standards.
At December 31, 1999, First Federal's tangible capital was $12.4
million, or 8.68% of adjusted total assets, which is in excess of the 1.5%
requirement by $10.3 million. In addition, at December 31, 1999, we had core
capital of $12.4 million, or 8.68% of adjusted total assets, which exceeds the
3% requirement by $8.1 million. Risk-based capital was $13.2 million at December
31, 1999, or 19.02% of risk-adjusted assets, which exceeds the 8.0% risk-based
capital requirement by $7.6 million.
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 of First Independence Corporation
was held on January 26, 2000. The matters approved by shareholders at the annual
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:
Larry G. Spencer (three years) 773,102 97,665 ---
Harold L. Swearingen (three years) 767,681 103,086 ---
E. JoVonnah Boecker (three years) 770,177 100,590 ---
Broker
For Against Abstain Non-Votes
------------- ------------- -------------- --------------
Ratification of Grant Thornton LLP
as auditors for the fiscal year ending September 30,
2000 870,767 --- --- ---
</TABLE>
Item 5 - OTHER INFORMATION
None.
Item 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - Exhibit 27 - Financial Data Schedule
(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 14, 2000 /s/Larry G. Spencer
---------------------------------
Larry G. Spencer
President and Chief Executive
Officer
Date: February 14, 2000 /s/James B. Mitchell
---------------------------------
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, 1999 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-2000
<PERIOD-END> DEC-31-1999
<CASH> 989,087
<INT-BEARING-DEPOSITS> 1,014,798
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1,985,400
<INVESTMENTS-CARRYING> 17,299,185
<INVESTMENTS-MARKET> 17,121,539
<LOANS> 117,868,778
<ALLOWANCE> 761,659
<TOTAL-ASSETS> 142,894,042
<DEPOSITS> 94,480,451
<SHORT-TERM> 7,200,000
<LIABILITIES-OTHER> 1,842,813
<LONG-TERM> 26,000,000
16,493
0
<COMMON> 0
<OTHER-SE> 13,354,285
<TOTAL-LIABILITIES-AND-EQUITY> 142,894,042
<INTEREST-LOAN> 2,318,624
<INTEREST-INVEST> 306,384
<INTEREST-OTHER> 42,881
<INTEREST-TOTAL> 2,667,889
<INTEREST-DEPOSIT> 1,126,641
<INTEREST-EXPENSE> 1,551,699
<INTEREST-INCOME-NET> 1,116,190
<LOAN-LOSSES> 21,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 707,726
<INCOME-PRETAX> 496,534
<INCOME-PRE-EXTRAORDINARY> 310,619
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 310,619
<EPS-BASIC> .30
<EPS-DILUTED> .29
<YIELD-ACTUAL> 7.72
<LOANS-NON> 1,481,834
<LOANS-PAST> 311,201
<LOANS-TROUBLED> 17,000
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 752,650
<CHARGE-OFFS> 11,991
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 761,659
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 761,659
</TABLE>
