SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
--------------------------------
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number 0-22184
FIRST INDEPENDENCE CORPORATION
--------------------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Delaware 36-3899950
------------------------------ -----------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or Identification or
organization) number)
Myrtle & Sixth Streets, Independence, Kansas 67301
--------------------------------------------------------------------------------
(Address of principal executive offices)
(316) 331-1660
--------------------------------------------------------------------------------
(issuer's telephone number)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 day Yes [X] No [ ]
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [X]
State the number of Shares outstanding of each of the issuer's classes of
common equity, as of the latest date:
As of August 4, 2000, there were 1,018,361 shares of the Registrant's
common stock outstanding.
<PAGE>
FIRST INDEPENDENCE CORPORATION
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION (unaudited) PAGE NO.
<S> <C> <C>
Item 1. Consolidated Condensed Financial Statements
Consolidated Condensed Balance Sheets as of
June 30, 2000 and September 30, 1999 3
Consolidated Condensed Statements of Earnings
for the Three and Nine Months Ended June 30,
2000 and 1999 4
Consolidated Condensed Statements of Comprehensive
Income for the Three and Nine Months Ended
June 30, 2000 and 1999 5
Consolidated Condensed Statement of Stockholders'
Equity for the Year Ended September 30, 1999 and
Nine Months Ended June 30, 2000 6
Consolidated Condensed Statements of Cash
Flows for the Nine Months Ended June 30,
2000 and 1999 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 17
Signature Page 18
</TABLE>
2
<PAGE>
PART I: FINANCIAL INFORMATION
FIRST INDEPENDENCE CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, September 30,
2000 1999
-------------- ------------------
(Unaudited)
<S> <C> <C>
ASSETS
Cash and due from banks $ 516,980 $ 1,064,794
Other interest-earning deposits 341,900 375,201
------------- -------------
Cash and cash equivalents 858,880 1,439,995
Investment securities held to maturity (fair value:
June 30, 2000 - $6,455,460;
September 30, 1999 - $6,957,733) 6,595,895 7,005,279
Investment securities available for sale 1,982,600 1,999,800
Mortgage-backed securities held to maturity (fair value:
June 30, 2000 - $9,213,911;
September 30, 1999 - $10,852,983) 9,266,304 10,912,279
Loans receivable, net 122,663,331 112,893,406
Real estate acquired through foreclosure 436,533 109,579
Premises and equipment, net 1,399,478 1,322,128
Federal Home Loan Bank Stock, at cost 1,840,000 1,441,600
Accrued interest receivable 1,065,864 887,465
Other assets 70,722 119,809
------------- -------------
Total assets $ 146,179,607 $ 138,131,340
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits $ 94,247,330 $ 95,452,864
Advances from borrowers for taxes and insurance 499,964 825,330
Advances from Federal Home Loan Bank 36,800,000 27,500,000
Income taxes payable 31,166 71,277
Other accrued expenses and liabilities 1,141,396 1,175,261
------------- -------------
Total liabilities 132,719,856 125,024,732
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 8,172,849 8,132,391
Retained earnings - substantially restricted 11,604,901 10,876,339
Accumulated other comprehensive income (loss) (10,058) 2,316
Treasury stock at cost, 630,927 shares at June 30, 2000
and 587,458 shares at September 30, 1999 (6,194,540) (5,721,251)
Required contributions for shares acquired by ESOP (129,894) (199,680)
------------- -------------
Total stockholders' equity 13,459,751 13,106,608
------------- -------------
Total liabilities and stockholders' equity $ 146,179,607 $ 138,131,340
============= =============
</TABLE>
--------------------------------
The accompanying notes are an integral part of these statements.
3
<PAGE>
PART I: FINANCIAL INFORMATION
FIRST INDEPENDENCE CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
--------------------------------- --------------------------------
2000 1999 2000 1999
-------------- -------------- -------------- ------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Interest income
Loans receivable $2,473,778 $2,202,439 $7,189,571 $6,304,310
Mortgage-backed securities 161,705 171,108 490,142 633,507
Investment securities 141,626 59,567 428,425 254,131
Other 48,866 123,671 138,695 311,289
---------- ---------- ---------- ----------
Total interest income 2,825,975 2,556,785 8,246,833 7,503,237
---------- ---------- ---------- ----------
Interest expense
Deposits 1,132,168 1,126,994 3,377,074 3,252,956
Borrowed funds 530,083 382,622 1,431,367 1,215,591
---------- ---------- ----------- ---------
Total interest expense 1,662,251 1,509,616 4,808,441 4,468,547
---------- ---------- ---------- ----------
Net interest income 1,163,724 1,047,169 3,438,392 3,034,690
Provision for loan losses 21,000 15,000 63,000 45,000
---------- ---------- ---------- ----------
Net interest income after provision
for loan losses 1,142,724 1,032,169 3,375,392 2,989,690
Noninterest income
Income (loss) from real estate operations 2,280 (23,570) (37,576) (20,889)
Other 107,633 124,571 343,556 273,958
---------- ---------- ---------- ----------
Total noninterest income 109,913 101,001 305,980 253,069
---------- ---------- ---------- ----------
Noninterest expense
Employee compensation and benefits 395,943 367,565 1,203,623 1,055,379
Occupancy and equipment 79,454 72,770 241,876 207,346
Federal deposit insurance premiums 4,944 13,870 24,114 39,744
Data processing fees 51,556 75,249 181,442 202,473
Other 140,575 138,873 430,148 421,804
---------- ---------- ---------- ----------
Total noninterest expenses 672,472 668,327 2,081,203 1,926,746
---------- ---------- ---------- ----------
Earnings before income taxes 580,165 464,843 1,600,169 1,316,013
Income tax expense 208,731 171,194 582,226 496,422
---------- ---------- ---------- ----------
Net earnings $ 371,434 $ 293,649 $1,017,943 $ 819,591
========== ========== ========== ==========
Earnings per common share
Basic $ .37 $ .28 $ 1.00 $ .81
========== ========== ========== ==========
Diluted $ .36 $ .27 $ .96 $ .77
========== ========== ========== ==========
Dividends per share $ .10 $ .0875 $ .2875 $ .2500
========== ========== ========== ==========
Weighted average shares outstanding
Basic 998,827 1,033,633 1,016,033 1,009,710
========== ========== ========== ==========
Diluted 1,039,451 1,085,827 1,056,657 1,061,904
========== ========== ========== ==========
</TABLE>
-----------------------------
The accompanying notes are an integral part of these statements.
4
<PAGE>
<TABLE>
<CAPTION>
PART I: FINANCIAL INFORMATION
FIRST INDEPENDENCE CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME
Three Months Ended Nine Months Ended
June 30, June 30,
------------------------------- --------------------------------
2000 1999 2000 1999
-------------- ------------- -------------- --------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net earnings $ 371,434 $ 293,649 $1,017,943 $ 819,591
Other comprehensive income
Unrealized gains (losses) on securities
available for sale arising during the
period, net of income tax 41 (14,905) (12,374) (47,332)
--------- --------- ---------- ---------
Comprehensive income $ 371,475 $ 278,744 $1,005,569 $ 772,259
========= ========= ========== =========
</TABLE>
-----------------------------
The accompanying notes are an integral part of these statements.
5
<PAGE>
<TABLE>
<CAPTION>
FIRST INDEPENDENCE CORPORATION
CONSOLIDATED CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY
For The Year Ended September 30, 1999
and Nine Months Ended June 30, 2000
(Unaudited)
Required
Contribu-
Accumulated tions for
Additional Other Shares
Common Paid-in Retained Comprehensive Treasury Acquired Total
Stock Capital Earnings Income (Loss) Stock by ESOP Equity
----- ------- -------- ------------- ----- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at October 1, 1998 $14,984 $7,239,207 $10,077,091 $ 52,497 $(5,139,263) $(145,475) $12,099,041
Net earnings --- --- 1,143,088 --- --- --- 1,143,088
Cash dividends of $.3375 per share --- --- (343,840) --- --- --- (343,840)
Issuance of 150,896 shares of
common stock 1,509 817,968 --- --- --- (142,176) 677,301
Common stock options exercised --- (3,987) --- --- 46,831 --- 42,844
Depreciation of securities
available for sale, net of
income tax --- --- --- (50,181) --- --- (50,181)
ESOP loan repayments --- --- --- --- --- 87,971 87,971
Fair value adjustment on ESOP
shares committed for release --- 79,203 --- --- --- --- 79,203
Purchase of 55,885 shares of
treasury stock --- --- --- --- (628,819) --- (628,819)
------- ---------- ----------- --------- ----------- --------- -----------
Balance at September 30, 1999 16,493 8,132,391 10,876,339 2,316 (5,721,251) (199,680) 13,106,608
Net earnings --- --- 1,017,943 --- --- --- 1,017,943
Cash dividends of $.2875 per share --- --- (289,381) --- --- --- (289,381)
Common stock options exercised --- (9,653) --- --- 58,581 --- 48,928
Depreciation of securities
available for sale, net of
income tax --- --- --- (12,374) --- --- (12,374)
ESOP loan repayments --- --- --- --- --- 69,786 69,786
Purchase of 53,187 shares of
treasury stock --- --- --- --- (531,870) --- (531,870)
Fair value adjustment on ESOP
shares committed for release --- 50,111 --- --- --- --- 50,111
------- ---------- ----------- --------- ----------- --------- -----------
Balance at June 30, 2000 $16,493 $8,172,849 $11,604,901 $ (10,058) $(6,194,540) $(129,894) $13,459,751
======= ========== =========== ========= =========== ========= ===========
</TABLE>
------------------------------------
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
Nine Months Ended June 30,
-----------------------------------------
2000 1999
-------------- --------------
Cash flows from operating activities (Unaudited)
<S> <C> <C>
Net earnings $ 1,017,943 $ 819,591
Adjustments to reconcile net earnings to net cash
provided by operating activities
Provision for loan losses 63,000 45,000
Depreciation 93,392 83,899
Amortization of premiums and discounts on investments
and mortgage-backed securities 33,323 62,601
Amortization of deferred loan origination fees (167,747) (164,919)
Amortization of expense related to employee
benefit plans 119,897 123,145
Amortization of negative goodwill (70,544) (47,029)
Net gain on sale of real estate acquired
through foreclosure (35,993) (13,057)
Increase (decrease) in cash due to changes in
Accrued interest receivable (178,399) 6,310
Other assets 28,027 (39,938)
Accrued expenses and other liabilities 23,227 (304,126)
Income taxes payable 5,425 (33,377)
----------- ----------
Net cash provided by operating activities 931,551 538,100
Cash flows from investing activities
Proceeds from sale of investment security --- 355,053
Proceeds from maturities and repayment of securities
Available for sale --- 1,000,000
Held to maturity 2,019,278 11,670,132
Purchase of securities
Available for sale --- (8,452)
Held to maturity --- (1,000,000)
Net increase in loans (10,210,922) (8,184,391)
Purchase of Federal Home Loan Bank stock (398,400) (240,200)
Capital expenditures (200,542) (70,275)
Proceeds from sale of real estate acquired through
foreclosure 281,143 58,825
Cash acquired in acquisition --- 2,114,968
----------- -----------
Net cash provided by (used in) investing activities (8,509,443) 5,695,660
Cash flows from financing activities
Net increase (decrease) in deposits (1,205,534) 2,157,969
Net decrease in advances from borrowers
for taxes and insurance (325,366) (377,863)
Advances from Federal Home Loan Bank 43,300,000 6,700,000
Repayment of Federal Home Loan Bank advances (34,000,000) (9,300,000)
Cash dividends paid (289,381) (253,747)
Purchase of treasury stock (531,870) (628,819)
Net proceeds from sale of stock --- 1,279,264
Stock issuance costs --- (327,338)
Stock options exercised 48,928 42,844
----------- -----------
Net cash provided by (used in) financing activities 6,996,777 (707,690)
----------- -----------
Net increase (decrease) in cash and cash equivalents (581,115) 5,526,070
Cash and cash equivalents at beginning of period 1,439,995 913,580
----------- -----------
Cash and cash equivalents at end of period $ 858,880 $6,439,650
=========== ===========
</TABLE>
--------------------------------
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 June 30, 2000, and the results of
operations and cash flows for all interim periods presented.
Operating results for the three and nine months ended June 30, 2000 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 of Neodesha Savings, 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
<PAGE>
(4) Regulatory Capital Requirements
Pursuant to the Financial Institution Reform, Recovery, and Enforcement Act
of 1989, 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 June 30, 2000,
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 June 30, 2000, First Federal exceeded all 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 $13,941 19.09% $5,843 >8.0% $7,304 >10.0%
- -
Tier 1 risk-based capital 13,152 18.01 2,922 >4.0 4,383 > 6.0
- -
Tier 1 (core) capital 13,152 8.99 4,387 >3.0 7,312 > 5.0
- -
Tangible capital 13,152 8.99 2,194 >1.5 --- ---
-
</TABLE>
(5) Supplemental Disclosure of Cash Flow Information
<TABLE>
<CAPTION>
Nine months ended June 30,
--------------------------------
2000 1999
---- ----
<S> <C> <C>
Cash paid for:
Interest $4,725,632 $4,488,473
Income taxes 590,801 529,799
Noncash investing and financing activities:
Transfer from loans to real estate
acquired through foreclosure 748,569
186,283
Issuance of loans receivable in connection
with the sale of real estate acquired
through foreclosure 190,450 24,800
Liabilities assumed in conjunction
with acquisition --- 13,700,846
</TABLE>
9
<PAGE>
PART II
FIRST INDEPENDENCE CORPORATION
Management's Discussion and Analysis of Financial
Condition and Results of Operations
General
The accompanying Consolidated Financial Statements include the accounts of
First Independence Corporation 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'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 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 disclaim 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 $8.1 million, or 5.83%, from $138.1 million at
September 30, 1999 to $146.2 million at June 30, 2000. This increase was
primarily comprised of increases in net loans
10
<PAGE>
receivable of $9.8 million, Federal Home Loan Bank stock of $398,000, real
estate acquired through foreclosure of $327,000 and accrued interest receivable
of $179,000. These increases in assets, along with reductions in savings
deposits of $1.3 million and advances from borrowers for taxes and insurance of
$325,000, were funded by increases in advances from the Federal Home Loan Bank
of Topeka of $9.3 million, the redeployment of funds received from
mortgage-backed securities maturing of $1.6 million, investment securities
maturing of $427,000 and a reduction in cash and cash equivalents of $581,000.
Loans receivable increased $9.8 million from $112.9 million at September
30, 1999, to $122.7 million at June 30, 2000. 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. Construction loans reduce
interest rate risk and improve earnings due to their shorter terms and higher
rate when compared to permanent one- to four-family loans. However, construction
loans also increase credit quality risk. 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 five years of
the loan term that automatically convert to one-year adjustable rate loans
during the sixth year of the loan term, and, to a lesser extent, one-year
adjustable rate mortgages.
Total deposits decreased $1.3 million from $95.5 million at September 30,
1999, to $94.2 million at June 30, 2000. 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 a higher risk to the investor.
Total borrowed funds increased $9.3 million from $27.5 million at September
30, 1999 to $36.8 million at June 30, 2000. 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 $353,000 from $13,107,000 at September
30, 1999 to $13,460,000 at June 30, 2000. The increase was primarily due to net
earnings from operations of $1,018,000, repayment of employee stock ownership
debt of $70,000, fair value adjustment of $50,000 on ESOP shares committed for
release and common stock options exercised of $49,000. These increases were
partially offset by our use of $532,000 to repurchase 53,187 shares of common
stock, dividends of $289,000 paid to stockholders and a decrease in the
unrealized gains on securities available for sale of $12,000.
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
11
<PAGE>
been acquired as a result of foreclosure or deed-in-lieu of foreclosure. At June
30, 2000, non-performing assets were approximately $1.9 million, which
represents a decrease of $630,000, or 24.8%, as compared to September 30, 1999.
The ratio of non-performing assets to total assets at June 30, 2000 was 1.31%
compared to 1.84% at September 30, 1999. These decreases were due primarily to a
concentrated collection effort of our construction loans originated in the
Lawrence loan production office. A summary of non-performing assets by category
is set forth in the following table:
<TABLE>
<CAPTION>
June 30, September 30,
2000 1999
------------------ ------------------
(Dollars In Thousands)
<S> <C> <C>
Non-Accruing Loans $1,085 $1,311
Accruing Loans Delinquent 90 Days or More 364 1,118
Troubled Debt Restructurings 23 ---
Foreclosed Assets 437 110
------- ------
Total Non-Performing Assets $1,909 $2,539
====== ======
Total Non-Performing Assets as a
Percentage of Total Assets 1.31% 1.84%
==== ====
</TABLE>
Included in non-accruing loans at June 30, 2000, were 19 loans totaling
$488,000 secured by one- to four-family real estate, 5 construction loans
totaling $521,000 secured by one- to four-family real estate and 16 consumer
loans totaling $76,000. All non-accruing loans at June 30, 2000, were located in
our primary market area, except for 1 loan totaling $48,000 secured by a single
family residence located in Texas. At June 30, 2000, accruing loans delinquent
90 days or more included 5 loans totaling $58,000 secured by one- to four-family
real estate, 2 construction loans totaling $237,000 secured by one- to
four-family real estate and 2 loans totaling $69,000 secured by non-residential
real estate. At June 30, 2000, all of our accruing loans delinquent 90 days or
more were secured by real estate located in our primary market area. At June 30,
2000, real estate acquired through foreclosure consisted of 12 single family
residences located in our primary market area. The properties have a carrying
value of $437,000 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 $789,000 at June 30, 2000, which represented a $36,000
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 .64% at June 30, 2000, primarily due to the increase in
total loans receivable at June 30, 2000. The allowance for loan losses as a
percent of non-performing loans increased from 31.0% at September 30, 1999 to
53.6% at June 30, 2000, due to the decrease in non-performing loans at June 30,
2000.
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
12
<PAGE>
anticipated economic conditions which might affect the borrower's ability to
repay the loan and our past statistical history concerning charge-offs.
Results of Operations - Comparison of Three and Nine Months Ended June 30, 2000
and June 30, 1999
General. Net earnings for the three months ended June 30, 2000 were
$371,000 as compared to $294,000 for the three months ended June 30, 1999, an
increase of $77,000, or 26.5%. The increase in net earnings was primarily due to
increases in net interest income of $117,000 and non-interest income of $9,000.
These increases to net earnings were partially offset by increases in income tax
expense of $38,000, provision for loan losses of $6,000 and non-interest expense
of $4,000.
Net earnings for the nine months ended June 30, 2000 were $1,018,000 as
compared to $820,000 for the nine months ended June 30, 1999, an increase of
$198,000, or 24.2%. The increase in net earnings was primarily due to increases
in net interest income of $403,000 and non-interest income of $53,000. These
increases were partially offset by increases in non-interest expense of
$154,000, income tax expense of $86,000 and the provision for loan losses of
$18,000.
Net Interest Income. Net interest income increased $117,000, or 11.1%, for
the three months ended June 30, 2000, as compared to the three months ended June
30, 1999. This increase was due primarily to an increase in interest income of
$269,000, or 10.5%, offset partially by an increase in interest expense of
$152,000, or 10.1%. Interest income increased primarily due to an $8.1 million
increase in the average balance of interest-earning assets and, to a lesser
extent, a 33 basis point increase in the average yield on interest-earning
assets. Interest expense increased primarily due to a $6.9 million increase in
the average balance of interest-bearing liabilities and, to a lesser extent, a
20 basis point increase in the average rate paid on interest-bearing
liabilities. The average rate earned on interest-earning assets and paid on
interest-bearing liabilities increased primarily due to an increase in market
interest rates. The ratio of average interest-earning assets to average
interest-bearing liabilities increased from 109.0% for the three months ended
June 30, 1999 to 109.4% for the three months ended June 30, 2000.
Net interest income increased $403,000, or 13.3%, for the nine months ended
June 30, 2000 as compared to the nine months ended June 30, 1999. This increase
was due primarily to an increase in interest income of $743,000, or 9.9%, offset
partially by an increase in interest expense of $340,000, or 7.6%. Interest
income increased primarily due to a $9.1 million increase in the average balance
of interest-earning assets and, to a lesser extent, a 21 basis point increase in
the average yield on interest-earning assets. Interest expense increased
primarily due to an $8.0 million increase in the average balance of
interest-bearing liabilities and, to a lesser extent, a 4 basis point increase
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.
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Interest Income. Interest income for the quarter ended June 30, 2000,
increased to $2.8 million from $2.6 million for the quarter ended June 30, 1999.
This increase was caused primarily by an $8.1 million increase in the average
outstanding amount of interest-earning assets during the three months ended June
30, 2000, as compared to the three months ended June 30, 1999. This increase was
due to an increase in the average balance of loans receivable financed by
advances obtained from the Federal Home Loan Bank of Topeka and Federal Home
Loan Bank overnight deposits. To a lesser extent, the increase was due to an
increase in the average yield on interest-earning assets. The average yield on
interest-earning assets increased by 33 basis points to 7.95% during the third
quarter of fiscal 2000, from 7.62% during the third quarter of fiscal 1999. This
increase was due to the same reasons as stated above.
Interest income for the nine months ended June 30, 2000, increased to $8.2
million from $7.5 million for the nine months ended June 30, 1999. This increase
resulted primarily from a $9.1 million increase in the average outstanding
amount of interest-earning assets during the nine months ended June 30, 2000, as
compared to the nine months ended June 30, 1999 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 21 basis points to 7.82% during the
first nine months of fiscal 2000, from 7.61% during the first nine months of
fiscal 1999. This increase was caused primarily by a change in the mix of
interest-earning assets to a higher percentage of loans receivable, even though
the average yield on loans receivable only increased from 8.06% during the first
nine months of fiscal 1999, to 8.07% during the first nine months of fiscal
2000.
Interest Expense. Interest expense for the quarter ended June 30, 2000,
increased by $152,000 to $1.7 million as compared to $1.5 million for the
quarter ended June 30, 1999. 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 June 30, 2000, as compared to the
three months ended June 30, 1999. This increase in interest-bearing liabilities
was due primarily to an increase in advances obtained from the Federal Home Loan
Bank of Topeka used to finance loans receivable. To a lesser extent, the
increase in interest expense was due to a 20 basis point increase in average
interest rates paid on interest-bearing liabilities, caused by an increase in
rates on demand and Now deposits and Federal Home Loan Bank advances.
Interest expense for the nine months ended June 30, 2000, increased by
$339,000 to $4.8 million as compared to $4.5 million for the nine months ended
June 30, 1999. This increase in interest expense was due primarily to an $8.0
million increase in the average outstanding amount of interest-bearing
liabilities during the nine months ended June 30, 2000 as compared to the nine
months ended June 30, 1999. To a lesser extent, the increase was due to an
increase in the average interest rates paid on interest-bearing liabilities.
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The average rates paid on interest-bearing liabilities increased by 4 basis
points. The increase in interest-bearing liabilities was primarily due to a $4.2
million increase in advances obtained from the Federal Home Loan Bank of Topeka
and, to a lesser extent, a $3.9 million increase in the average outstanding
balance of deposits due primarily to savings 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 and $63,000 for the three and nine
months ended June 30, 2000 as compared to $15,000 and $45,000 for the same
periods in 1999. This increase in provision for loan losses was in recognition
of the increased balance of construction loans in our loan portfolio. We believe
we use the best information available in providing for probable loan losses and
we believe that the allowance is adequate at June 30, 2000. 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 $9,000 to $110,000
during the three months ended June 30, 2000 as compared to $101,000 for the
three months ended June 30, 1999. The increase was primarily a result of an
increase in net earnings on real estate operations of $26,000 for the period
ended June 30, 2000 compared to the period ended June 30, 1999. This increase
was partially offset by a decrease in other non-operating income of $18,000
during the same periods. Recurring non-interest income generally consists of
servicing fees as well as deposit and other types of fees.
Non-interest income increased $53,000 to $306,000 during the nine months
ended June 30, 2000 as compared to $253,000 for the nine months ended June 30,
1999. The increase was primarily due to a $24,000 increase in amortization
related to negative goodwill acquired in the Neodesha Savings merger conversion.
To a lesser extent, the increase was due to increased late charges and other
fees of $21,000 associated with mortgage loans and increased checking and
deposit account fees of $13,000 as a result of accounts acquired in the Neodesha
Savings merger conversion. These increases were partially offset by a $17,000
increase in the net loss from real estate operations for the nine months ended
June 30, 2000 compared to the nine months ended June 30, 1999.
Non-interest Expense. Total non-interest expense increased by $4,000 for
the three months ended June 30, 2000, as compared to the three months ended June
30, 1999. The increase was due primarily to increases in employee compensation
and benefits of $28,000, occupancy and equipment of $6,000 and other expense of
$2,000. These increases were partially offset by decreases in data processing
fees of $23,000 and federal insurance premiums of $9,000.
Total non-interest expense increased to $2.1 million for the nine
months ended June 30, 2000 from $1.9 million for the nine months ended June 30,
1999, an increase of $154,000, or 8.0%. The
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increase was primarily due to increases in employee compensation and benefits of
$149,000, occupancy and equipment of $35,000 and other expense of $8,000. These
increases were partially offset by a decrease in data processing fees of $21,000
and federal deposit insurance premiums of $16,000 due to a decrease in the
insurance premium rate. The 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 $209,000 for the quarter ended
June 30, 2000 compared to $171,000 for the quarter ended June 30, 1999, an
increase of $38,000. This increase was primarily due to an increase in pre-tax
earnings during the 2000 period as compared to the 1999 period. Our effective
tax rates were 36.0% and 36.8% for the three months ended June 30, 2000 and June
30, 1999, respectively.
Income tax expense was $582,000 for the nine months ended June 30, 2000
compared to $496,000 for the nine months ended June 30, 1999, an increase of
$86,000. This increase was primarily due to an increase in pre-tax earnings
during the 2000 period as compared to the 1999 period. Our effective tax rates
were 36.4% and 37.7% for the nine months ended June 30, 2000 and June 30, 1999,
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 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 June 30, 2000,
First Federal's liquidity ratio was 8.23% as compared to 9.66% at September 30,
1999. The reduction was primarily due to the increase in the loan portfolio.
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 June 30, 2000 we had commitments to originate loans
totaling $3,830,000. 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.
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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
June 30, 2000, we exceeded all regulatory capital standards.
At June 30, 2000, First Federal's tangible capital was $13.2 million, or
8.99% of adjusted total assets, which is in excess of the 1.5% requirement by
$11.0 million. In addition, at June 30, 2000, we had core capital of $13.2
million, or 8.99% of adjusted total assets, which exceeds the 3% requirement by
$8.8 million. Risk-based capital was $13.9 million at June 30, 2000, or 19.09%
of risk-adjusted assets, which exceeds the 8.0% risk-based capital requirement
by $8.1 million.
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 - Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K - none
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SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FIRST INDEPENDENCE CORPORATION
Registrant
Date: August 4, 2000 /s/Larry G. Spencer
-----------------------------------------
Larry G. Spencer
President and Chief Executive
Officer
Date: August 4, 2000 /s/James B. Mitchell
-----------------------------------------
James B. Mitchell
Vice President and Chief
Financial Accounting Officer
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