FORM 10-QSB
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to _________________
Commission file number: 0-21297
Foundation Bancorp, Inc.
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(Exact name of Registrant as specified in its charter)
Ohio
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(State or other jurisdiction of incorporation or organization)
31-1465239
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(I.R.S. Employer Identification Number)
25 Garfield Place, Cincinnati, Ohio 45202
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(Address of principal executive offices) (zip Code)
Registrant's telephone number, including area code: (513) 721-0120
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
during the past 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 days.
___ Yes _X_ No
State the number of shares outstanding of the issuer's classes of common
stock, as of the latest practicable date.
Common shares, no par value Outstanding at September 30, 1996: 462,875
FOUNDATION BANCORP, INC.
FORM 1O-QSB
QUARTER ENDED SEPTEMBER 30, 1996
Part l - Financial Information
Item 1 - Financial Statements
Interim financial information required by Regulation 210.10 - 01 of Regulation
S - X is included in this Form 10-QSB as referenced below:
Consolidated Statements of Financial Condition..................3
Consolidated Statements of Earnings.............................4
Condensed Consolidated Statements of Cash Flows.................5
Notes to Consolidated Financial Statements......................6
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations..................8
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FOUNDATION BANCORP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
September 30, June 30,
1996 1996
(Unaudited)
ASSETS
Cash and due from banks $ 98,605 $ 61,081
Interest-bearing deposits in other financial institutions 3,571,989 1,111,408
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Cash and cash equivalents 3,670,594 1,172,489
Investment securities - at amortized cost,
approximate market value of
$900,458 and $900,635 at September 30,
1996 and June 30, 1996, respectively 899,687 899,687
Mortgage-backed securities - at cost,
approximate market value of $4,385,083
and $4,553,889 at September 30,
1996 and June 30, 1996, respectively 4,500,716 4,640,509
Loans receivable - net 24,759,832 23,266,664
Office premises and equipment - at depreciated cost 309,304 313,281
Federal Home Loan Bank Stock - at cost 278,800 278,800
Accrued interest receivable on loans 89,873 99,150
Accrued interest receivable on mortgage-backed securities 35,060 36,817
Accrued interest receivable on investments and
interest-bearing deposits 23,992 14,198
Prepaid expenses and other assets 106,891 113,560
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TOTAL ASSETS $ 34,674,749 $30,835,155
============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits $ 26,515,111 $26,950,784
Advances from Federal Home Loan Bank 807,593 824,847
Advances by borrowers for taxes, insurance and other 156,008 70,179
Other liabilities 470,821 135,985
Deferred federal income taxes 60,800 60,800
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TOTAL LIABILITIES 28,010,333 28,042,595
Shareholders' equity
Common shares - 2,000,000, no par value, authorized;
462,875 shares issued and outstanding 462,875 --
Additional paid-in capital 3,878,251 --
Unallocated shares held by Employee Stock Ownership (370,300) --
Plan
Retained earnings - substantially restricted 2,693,590 2,792,560
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TOTAL SHAREHOLDERS' EQUITY 6,664,416 2,792,560
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 34,674,749 $30,835,155
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FOUNDATION BANCORP, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
Three months ended September 30,
(Unaudited)
1996 1995
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Interest income
Loans $ 485,076 $ 446,583
Mortgage-backed securities 69,820 80,294
Investment securities 19,754 19,259
Interest-bearing deposits and other 30,737 46,165
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Total interest income 605,387 592,301
Interest expense
Deposits 379,073 387,872
Borrowings 11,295 15,752
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Total interest expense 390,368 403,624
Net interest income before provision for losses on loans 215,019 188,677
Provision for losses on loans (6,000) (3,000)
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Net interest income after provision for losses on loans 209,019 185,677
Other operating income 14,304 13,370
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General, administrative and other expense
Employee compensation and benefits 121,876 82,483
Occupancy and equipment 20,608 19,512
Federal deposit insurance premiums 184,267 14,555
Franchise taxes 8,969 8,117
Data processing 8,562 6,043
Other 24,698 25,168
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Total general, administrative and other expense 368,980 155,878
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Income (loss) before income taxes (145,657) 43,169
Provision (benefit) for federal income taxes 46,688 (13,814)
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NET EARNINGS (LOSS) ($ 98,969) $ 29,355
========= =========
EARNINGS (LOSS) PER SHARE ($ 0.23)
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FOUNDATION BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three months ended
September 30, 1996 and 1995
1996 1995
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(Unaudited)
Cash flows provided by (used in) operating activities:
Net earnings (loss) for the period $ (98,969) $ 29,355
Adjustments to reconcile net earnings (loss) to net cash
provided by (used in) operating activities:
Amortization of deferred loan origination fees (3,178) (4,264)
Provision for losses on loans 6,000 3,000
Depreciation and amortization 4,718 3,987
Federal Home Loan Bank stock dividends (4,900) (4,500)
Deferred loan fees (costs) (1,198) (4,507)
Amortization of premiums and discounts on mortgage-backed 3,839 6,993
securities
Effects of changes in operating assets and liabilities:
Accrued interest receivable 6,141 10,991
Refundable income tax (46,688) 13,814
Prepaid expenses and other assets 6,095 (1,691)
Accrued expenses 195,421 4,677
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Net cash provided by operating activities 67,281 57,855
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Cash flows provided by (used in) investing activities:
Principal repayments on mortgage-backed securities 135,955 202,022
Principal repayments on loans 827,458 1,063,833
Loan disbursements (2,322,250) (2,007,553)
Purchase of office equipment (742) -
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Net cash provided by (used in) investing activities (1,359,579) (741,698)
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Cash flows provided by (used in) financing activities:
Net increase (decrease) in deposit accounts (435,673) 66,533
Repayment of FHLB advances (17,255) (316,345)
Net increase(decrease) in advances by borrowers for taxes,
insurance and other 85,829 79,065
Proceeds from issuance of common shares 4,157,502 -
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Net cash provided by (used in) financing activities 3,790,403 (170,747)
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Net increase (decrease) in cash and cash equivalents 2,498,105 (854,590)
Cash and cash equivalents at beginning of period 1,172,489 3,942,980
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Cash and cash equivalents at end of period $ 3,670,594 $ 3,088,390
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the year for interest on deposits and $ 386,793 $ 402,100
borrowings
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FOUNDATION BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three months ended
September 30, 1996 and 1995
In May, 1996, the Board of Directors of Foundation Savings Bank
("Foundation") adopted a Plan of Conversion (the "Plan") providing for the
conversion of Foundation to the stock form of organization (the "Conversion").
In connection with the Conversion, Foundation formed a holding company,
Foundation Bancorp, Inc. (the "Company"). On September 25, 1996, Foundation
completed the Conversion, in connection with which Foundation issued all of
its outstanding shares to the Company and the Company issued 462,875 common
shares in a subscription offering and a community offering at a price of
$10.00 per share which, after consideration of offering expenses totaling
$287,624 and shares purchased by employee benefit plans totaling $370,300,
resulted in net cash proceeds of $3,970,826. The financial statements for the
periods prior to September 25, 1996, are those of Foundation prior to the
Conversion.
1. Basis of Presentation
The accompanying unaudited consolidated financial statements were
prepared in accordance with instructions for Form 10-QSB and, therefore, do
not include information or footnotes necessary for a complete presentation of
consolidated financial position, results of operations and cash flows in
conformity with generally accepted accounting principles. However, in the
opinion of management, all adjustments (consisting only of normal recurring
accruals) which are necessary for a fair presentation of the consolidated
financial statements have been included. The results of operations for the
three months ended September 30, 1996 and 1995, are not necessarily indicative
of the results which may be expected for an entire fiscal year.
2. Principles of Consolidation
The accompanying consolidated financial statements include the accounts
of the Company and Foundation. All significant intercompany items have been
eliminated.
3. Earnings Per Share
Earnings per share for the three month period ended September 30, 1996,
is computed based upon 425,845 weighted-average shares outstanding, which
gives effect to a reduction for the 37,030 unallocated shares held by the
Foundation Bancorp, Inc. Employee Stock Ownership Plan (the "ESOP") in
accordance with Statement of Position 93-6. Earnings per share for the three
months ended September 30, 1995, is not applicable as the Company completed
the Conversion in September, 1996.
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FOUNDATION BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the three months ended
September 30, 1996 and 1995
4. Effects of Recent Accounting Pronouncements
In November 1993, the American Institute of Certified Public Accountants
("AICPA") issued SOP 93-6, "Employers' Accounting for Employee Stock Ownership
Plans," which is effective for fiscal years beginning after December 15, 1993.
SOP 93-6 became applicable to Foundation for its fiscal year which began July
1, 1996. SOP 93-6 will, among other things, change the measure of compensation
expense recorded by employers for leveraged ESOPs from the cost of ESOP shares
to the fair value of ESOP shares. Under SOP 93-6, the Company will recognize
compensation cost equal to the fair value of the ESOP shares during the
periods in which they become committed to be released. To the extent that the
fair value of the ESOP shares differs from the cost of such shares, this
differential will be charged or credited to equity. Employers with internally
leveraged ESOPs, such as the Company, will not report the loan receivable from
the ESOP as an asset and will not report the ESOP debt from the employer as a
liability.
In May 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 122, "Accounting for
Mortgage Servicing Rights." SFAS No. 122 requires that a mortgage banking
enterprise recognize as separate assets rights to service mortgage loans for
others, however those servicing rights are acquired. A mortgage banking
enterprise that acquires mortgage servicing rights through either the purchase
or origination of mortgage loans and sells or securitizes those loans with
servicing rights retained would allocate the total cost of the mortgage loans
to the mortgage servicing rights and the loans based on their relative fair
value. SFAS No. 122 is effective for fiscal years beginning after December 15,
1995. Management does not expect an impact from the adoption of SFAS No. 122.
In October 1995, the FASB issued SFAS No. 123, "Accounting for
Stock-Based Compensation," establishing financial accounting and reporting
standards for stock-based employee compensation plans. SFAS No. 123 encourages
all entities to adopt a new method of accounting to measure the compensation
cost of all employee stock compensation plans based on the estimated fair
value of awards at the date they are granted. Companies are, however, allowed
to continue to measure compensation costs for those plans using the intrinsic
value based method of accounting, which generally does not result in
compensation expense recognition for most plans. Companies that elect to
retain their existing accounting method are required to disclose in a footnote
to the financial statements pro forma net income and, if presented, earnings
per share, as if SFAS No. 123 had been adopted. The accounting requirements of
SFAS No. 123 are effective for transactions entered into during fiscal years
that begin after December 15, 1995. Companies are required, however, to
disclose information for awards granted in their first fiscal year ending
after December 15, 1994. Management has not completed an analysis of the
potential effects of SFAS No. 123 on its financial condition or results of
operations.
In June 1996, the FASB issued SFAS No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities," which
established accounting and reporting standards for transfers and servicing of
financial assets and extinguishments of liabilities. The standards are based
on a consistent application of a financial-components approach that focuses on
control. Under that approach, after a transfer of financial assets an entity
recognizes the financial and servicing assets it controls and the liabilities
it has incurred and ceases recognizing financial assets when control has been
surrendered and ceases recognizing liabilities when they have been
extinguished. SFAS No. 125 provides consistent standards for distinguishing
transfers of financial assets that are sales from transfers that are secured
borrowings. SFAS No. 125 supersedes SFAS No. 122. SFAS No. 125 is effective
for transactions occurring after December 31, 1996. Management does not expect
an impact from adoption of SFAS No. 125.
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FOUNDATION BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Financial Condition
At September 30, 1996, the Company's assets totaled $34.7 million, an
increase of $3.8 million, or 12.5%, compared to June 30, 1996, totals. Cash
and equivalents increased $2.5 million, or 213.1%, as a result of the
Conversion. Mortgage-backed securities decreased $139,793, or 3.0%, at
September 30, 1996, compared to September 30, 1995, as a result of monthly
repayments, and mortgage loans increased $1.5 million, or 6.4%, as a result of
continuing loan production. Deposits at September 30, 1996, decreased
$435,673, or 1.6%, compared to September 30, 1995, primarily as a result of
depositors withdrawing funds to purchase stock in the Conversion. FHLB
advances decreased $17,254, or 2.1%, as a result of scheduled monthly
payments. Shareholders' equity increased $3.9 million, or 138.6%, as a result
of net Conversion proceeds of $4.3 million, which were offset somewhat by the
ESOP stock purchase of $370,300 and the Company's net loss of $98,969 for the
three months ended September 30, 1996.
The Office of Thrift Supervision has three minimum regulatory capital
standards for savings associations. At September 30, 1996, Foundation's
capital substantially exceeded each of the requirements. The following is a
summary of Foundation's approximate regulatory capital position, in dollars
and as a percentage of regulatory assets at September 30, 1996:
ACTUAL REQUIRED EXCESS
(Dollars in Thousands)
Tangible Capital $5,300 15.3% $ 500 1.5% $4,800 13.8%
Core Capital $5,300 15.3% $1,000 3.0% $4,300 12.3%
Risk-based Capital $5,400 33.4% $1,300 8.0% $4,100 25.4%
Comparison of Operating Results For the Three Months Ended September 30, 1996
and 1995
The Company recorded a net loss of $98,969 for the quarter ended
September 30, 1996, compared to net earnings of $29,355 for the same period of
fiscal 1995. This was primarily the result of the SAIF recapitalization
assessment of $168,364.
Net interest income for the three months ended September 30, 1996,
increased $26,342, or 14.0%, compared to the three months ended September 30,
1995. This was the result of an increase of $13,086, or 2.2%, in total
interest income and a decrease of $13,256, or 3.3%, in total interest expense.
The increase in total interest income resulted principally from an increase of
$38,493, or 8.6%, in interest earned on loans, due to a larger portfolio
balance, offset by a decrease of $10,474, or 13.0%, in interest earned on
mortgage-backed securities, due to lower portfolio balances, and a decrease of
$15,248, or 33.4%, in interest earned on interest-bearing deposits, resulting
from lower yields on lower average portfolio balances.
The decrease in total interest expense was the result of a decrease of
$8,799, or 2.3%, in interest expense on deposits, due to lower average rates
paid on deposits, and a decrease of $4,457, or 28.3%, in interest expense on
borrowings, resulting from lower balances owed.
The provision for losses on loans increased $3,000, or 100.0%, for the
three months ended September 30, 1996, compared to the same period in 1995,
due to increased loan production and the related inherent risk in lending. The
increase in the provision for losses on loans resulted in an increase of
$23,342, or 12.6%, in the net interest margin.
General, administrative and other expense increased $213,102, or 136.7%,
for the three months ended September 30, 1996, compared to the same period in
1995, due principally to an increase of $169,712, or 1166.0%, in federal
deposit insurance premiums, as a result of the SAIF recapitalization
assessment. Employer compensation and benefits expense increased by $39,393,
or 47.8%, for the quarter ended September 30, 1996, compared to the quarter
ended September 30, 1995, primarily as a result of the ESOP accruals for the
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quarter. Occupancy and equipment expense increased $1,096, or 5.6%, for the
three months ended September 30, 1996, compared to the same period in 1995,
due to higher utilities and depreciation and an increase of $2,519, or 41.7%,
in computer costs, resulting from a credit received for a processing error in
1995.
Federal income taxes decreased $60,502, or 438.0%, for the quarter ended
June 30, 1996, compared to the quarter ended June 30, 1995, as a result of the
operating loss in the first quarter of fiscal 1997.
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FOUNDATION BANCORP, INC.
10-QSB
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
Exhibit 27. Financial Data Schedule
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SIGNATURES
Pursuant to the requirements 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.
Date: November 7, 1996 Laird L. Lazelle
President
Date: November 7, 1996 Dianne K. Rabe
Treasurer
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