FORM 10-QSB
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________to_______________
Commission file number: 0-21297
Foundation Bancorp, Inc.
_________________________________________________________________
(Exact name of small business issuer as specified in its charter)
Ohio
_________________________________________________________________
(State or other jurisdiction of incorporation or organization)
31-1465239
_________________________________________________________________
(I.R.S. Employer Identification Number)
25 Garfield Place, Cincinnati, Ohio 45202
_________________________________________________________________
(Address of principal executive offices) (zipcode)
(513) 721-0120
_________________________________________________________________
(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 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.
[X] Yes [ ] 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 March 31, 1997: 462,875
FOUNDATION BANCORP, INC.
FORM 10-QSB
QUARTER ENDED MARCH 31, 1997
Part I - 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
-2-
FOUNDATION BANCORP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
March 31, June 30,
1997 1996
------------- -------------
(Unaudited)
ASSETS
Cash and due from banks $ 113,634 $ 61,081
Interest-bearing deposits in other financial institutions 4,959,409 1,111,408
------------ -----------
Cash and cash equivalents 5,073,043 1,172,489
Investment securities-at amortized cost, approximate market
value of $648,125 and $900,635 at March 31, 1997, and
June 30, 1996, respectively 649,688 899,687
Mortgage-backed securities-at cost, approximate market value of
$4,173,924 and $4,553,889 at March 31, 1997, and June 30,
1996, respectively 4,293,277 4,640,509
Loans receivable-net 24,524,955 23,266,664
Office premises and equipment-at depreciated cost 303,193 313,281
Federal Home Loan Bank Stock-at cost 293,500 278,800
Accrued interest receivable on loans 96,023 99,150
Accrued interest receivable on mortgage-backed securities 33,209 36,817
Accrued interest receivable on investments and interest-bearing deposits 18,433 14,198
Prepaid expenses and other assets 62,318 113,560
------------ -----------
TOTAL ASSETS $ 35,347,639 $30,835,155
============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits $ 27,356,790 $26,950,784
Advances from Federal Home Loan Bank 772,374 824,847
Advances by borrowers for taxes, insurance and other 164,650 70,179
Other liabilities 135,804 135,985
Deferred federal income taxes 60,800 60,800
------------ -----------
TOTAL LIABILITIES 28,490,418 28,042,595
Shareholders' equity
Common shares-2,000,000, no par value, authorized;
462,875 shares issued and outstanding -- --
Additional paid-in capital 4,341,126 --
Unallocated shares held by Employee Stock Ownership Plan (311,781) --
Retained earnings-substantially restricted 2,827,876 2,792,560
------------ -----------
TOTAL SHAREHOLDERS' EQUITY 6,857,221 2,792,560
------------ -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 35,347,639 $30,835,155
============ ===========
-3-
FOUNDATION BANCORP, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
Three months ended Nine months ended
March 31, March 31,
(Unaudited) (Unaudited)
1997 1996 1997 1996
--------- --------- ----------- -----------
Interest income
Loans $ 504,727 $ 461,832 $ 1,497,439 $ 1,357,910
Mortgage-backed securities 67,082 72,673 202,949 233,510
Investment securities 19,391 14,816 59,252 51,504
Interest bearing deposits and other 57,605 45,262 134,704 139,921
--------- --------- ----------- -----------
Total interest income 648,805 594,583 1,894,344 1,782,845
Interest expense
Deposits 367,874 385,068 1,107,465 1,167,132
Borrowings 10,821 11,756 33,176 39,490
--------- --------- ----------- -----------
Total interest expense 378,695 396,824 1,140,641 1,206,622
Net interest income before provision
for losses on loans 270,110 197,759 753,703 576,223
Provision for losses on loans (3,000) (28,000) (12,000) (34,000)
--------- --------- ----------- -----------
Net interest income after provision
for losses on loans 267,110 169,759 741,703 542,223
Other operating income 15,914 20,706 48,504 51,204
General administrative expense
Employee compensation and benefits 110,491 95,409 342,036 265,134
Occupancy and equipment 20,297 20,109 60,819 59,841
Federal deposit insurance premiums 4,280 15,909 200,546 46,284
Franchise taxes 9,429 8,969 27,366 25,204
Data processing 8,478 9,177 24,872 23,439
Other 32,212 26,704 82,747 75,405
--------- --------- ----------- -----------
Total general, administrative and
other expense 185,187 176,277 738,386 495,307
--------- --------- ----------- -----------
Income before income taxes 97,837 14,188 51,821 98,120
Provision for federal income taxes (30,668) (5,412) (16,505) (32,127)
--------- --------- ----------- -----------
NET EARNINGS $ 67,169 $ 8,776 $ 35,316 $ 65,993
========= ========= =========== ===========
EARNINGS PER SHARE $ 0.16
---------
-4-
FOUNDATION BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the nine months ended March 31,
1997 1996
-------------- --------------
(Unaudited)
Cash flows provided by (used in) operating activities:
Net earnings for the period $ 35,316 $ 65,993
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Gain on sale of loans (5,121) (7,484)
Depreciation and amortization 13,316 9,342
Amortization of premiums and discounts on mortgage-backed
securities 11,613 20,883
ESOP allocation 58,519 --
Federal Home Loan Bank stock dividends (14,700) (13,700)
Provision for losses on loans 12,000 34,000
Amortization of deferred loan origination fees (6,896) (11,388)
Deferred loan fees (costs) originated (637) (4,050)
Effects of changes in operating assets and liabilities:
Accrued interest receivable 2,500 (2,475)
Refundable income tax (10,242) 31,927
Prepaid expenses and other assets 3,981 6,124
Accrued federal income tax -- 10,963
Accrued expenses 10,059 21,694
----------- -----------
Net cash provided by operating activities 109,708 161,829
----------- -----------
Cash flows provided by (used in) investing activities:
Purchase of mortgage-backed securities (97,990) --
Principal repayments on mortgage-backed securities 433,610 554,365
Maturities of investment securities 250,000 650,000
Loan disbursements (4,993,705) (6,319,728)
Principal repayments on loans 2,657,357 4,337,090
Proceeds from sales of loans 1,078,711 1,123,109
Purchase of property and equipment (3,228) (2,986)
----------- -----------
Net cash provided by (used in) investing activities (675,245) 341,850
----------- -----------
Cash flows provided by (used in) financing activities:
Net increase (decrease) in deposit accounts 406,006 43,102
Repayment of FHLB advances (52,473) (349,707)
Net increase (decrease) in advances by borrowers for taxes, insurance
and other 94,471 96,369
Proceeds from issuance of common shares 4,018,087 --
----------- -----------
Net cash provided by (used in) financing activities 4,466,091 (210,236)
----------- -----------
Net increase (decrease) in cash and cash equivalents 3,900,554 293,443
Cash and cash equivalents at beginning of period 1,172,489 3,942,980
----------- -----------
Cash and cash equivalents at end of period $ 5,073,043 $ 4,236,423
=========== ===========
-5-
FOUNDATION BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three and nine months ended
March 31, 1997 and 1996
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
to the stock form of organization, 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 of only 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 and nine month periods
ended March 31, 1997 and 1996, 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 March 31, 1997, is computed
based upon 431,190 weighted-average shares outstanding, which gives effect to a
reduction for the 31,685 unallocated shares held by the Foundation Bancorp, Inc.
Employee Stock Ownership Plan (the "ESOP"), in accordance with Statement of
Position 93-6 ("SOP 93-6") issued by the American institute of Certified Public
Accountants. Because the Conversion was completed in September 1996, earnings
per share for the nine months ended March 31, 1997, and March 31, 1996, cannot
be computed.
-6-
FOUNDATION BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the three and nine months ended March 31, 1997 and 1996
4. Effects of Recent Accounting Pronouncements
SOP 93-6, "Employers' Accounting for Employee Stock Ownership Plans" was issued
in November 1993. SOP 93-6 is effective for fiscal years beginning after
December 15, 1993. SOP 93-6 became applicable for 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, the
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 October 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("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 compensation cost of
all employee stock compensation plans based on the estimated fair value of the
award at the date it is granted. Companies are, however, allowed to continue to
measure compensation cost 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, derecognizes financial assets when control has been surrendered
and derecognizes liabilities when 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.
-7-
FOUNDATION BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Discussion of Financial Changes from June 30, 1996 to March 31, 1997
At March 31, 1997, the Company's assets totaled $35.3 million, an increase of
$4.5 million, or 14.6%, compared to the June 30, 1996, total. The increase in
assets was funded by an increase in shareholders' equity of $4.1 million, or
145.6%, resulting from the Conversion in September 1996, and subsequent net
earnings, plus an increase in deposits of $406,006, or 1.5%.
Cash and equivalents during the nine months ended March 31, 1997, increased $3.9
million, or 332.7%, as a result of the Conversion, deposit growth and maturing
investment securities. Mortgage-backed securities decreased $347,232, or 7.5%,
as the result of repayments during the nine month period. Loans receivable
increased $1.3 million, or 5.4 %, and investment securities decreased $249,999,
or 27.8%, resulting from maturing securities.
Deposits increased $406,006, or 1.5%, during the nine months ended March 31,
1997, despite over $1 million in withdrawals to purchase stock in the
Conversion. Advances from the Federal Home Loan Bank decreased $52,473, or 6.4%,
as a result of scheduled repayments. Advances by borrowers for taxes, insurance
and other increased $94,471, or 134.6%, resulting from a larger number of
accounts and timing differences on the payment of real estate taxes and
insurance.
The Office of Thrift Supervision has three minimum regulatory capital standards
for savings associations. At March 31, 1997, 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 March 31, 1997:
ACTUAL REQUIRED EXCESS
------------------ ----------------- -----------------
(Dollars in thousands)
Tangible Capital $5,464 15.5% $ 530 1.5% $4,934 14.0%
Core Capital $5,464 15.5% $1,060 3.0% $4,404 12.5%
Risk-based Capital $5,587 34.7% $1,288 8.0% $4,299 26.7%
-8-
FOUNDATION BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Comparison of Operating Results For the Nine Months Ended March 31, 1997 and
1996
General
The Company recorded net earnings of $35,316 for the nine months ended March 31,
1997, compared to net earnings of $65,993 for the same period of 1996, a
decrease of $30,677, or 46.5%, primarily as a result of the one-time assessment
of $168,364 imposed on Foundation by the Federal Deposit Insurance Corporation
in September 1996 as part of legislation to recapitalize the Savings Association
Insurance Fund (the "SAIF").
Net Interest Income
Net interest income after the provision for losses on loans for the nine months
ended March 31, 1997, increased $199,480, or 36.8%, compared to the same period
of 1996. This was the result of an increase in total interest income of
$111,499, or 6.3%, a decrease of $65,981, or 5.5%, in net interest expense and a
decrease of $22,000, or 64.7%, in the provision for losses on loans. The
increase in total interest income resulted principally from an increase in
interest earned on loans of $139,529, or 10.3%, due to a larger portfolio, plus
an increase in interest on investments of $7,748, or 15.0%, offset by a decrease
in interest on mortgage-backed securities of $30,561, or 13.1%, due to a smaller
portfolio and higher premium expense, and a decrease in interest-bearing
deposits of $5,217, or 3.7%, resulting from lower yields on lower portfolio
balances. Interest expense on deposits decreased $59,667, or 5.1%, due to lower
average rates paid on lower average portfolio balances. Interest expense on
advances from the Federal Home Loan Bank decreased $6,314, or 16.0%, due to
lower balances resulting from scheduled payments.
Provision for Losses on Loans
The provision for losses on loans for the nine months ended March 31, 1997,
decreased $22,000, or 64.7%, as a result of a higher provision taken in the
prior period due to a loan loss. The loan loss allowance totaled $123,146 at
March 31, 1997.
Other Operating Income
Other operating income decreased $2,700, or 5.3%, for the nine months ended
March 31, 1997, as the result of lower gains on sales of loans.
-9-
FOUNDATION BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS(Continued)
General, Administrative and Other Expense
General, administrative and other expense for the nine months ended March 31,
1997, increased $243,079, or 49.1%, primarily due to the SAIF recapitalization
expense paid in September 1996 and the ESOP expense. Employee compensation and
benefits increased $76,902, or 29.0%, primarily due to the ESOP expense and
increased commissions on increased loans closed. Federal deposit insurance
premiums increased $154,262, or 333.3%, resulting from the SAIF recapitalization
premium. Federal taxes decreased $15,622, or 48.6%, as a result of the lower net
earnings.
Comparison of Operating Results For the Three Months Ended March 31, 1997 and
1996
General
The Company recorded net earnings of $67,169 for the three months ended March
31, 1997, an increase of $58,393, or 665.4%, compared to the three months ended
March 31, 1996. The increase resulted from an increase in the net interest
income after the provision for losses on loans of $97,351, or 57.3%, partially
offset by a decrease in other income of $4,792, or 23.1%, and an increase in
general, administrative, and other expense of $8,910, or 5.1%.
Net Interest Income
Net interest income after the provision for losses on loans for the three months
ended March 31, 1997, increased $97,351, or 57.3%, compared to the same period
of 1996, the result of an increase in total interest income of $54,222, or 9.1%,
plus a decrease in net interest expense of $18,129, or 4.6%, and a decrease in
the provision for losses on loans of $25,000, or 89.3%. Interest income on loans
increased $42,895, or 9.3%, due to higher portfolio balances, interest income on
investment securities increased $4,575, or 30.9%, due to higher yields and
interest on interest-bearing deposits increased $12,343, or 27.3%, due to higher
balances. These increases were partially offset by a decrease in interest income
on mortgage-backed securities of $5,591, or 7.7%, as the result of lower average
portfolio balances and higher premium expense. Interest expense on deposits
decreased $17,194, or 4.5%, due to lower rates paid on lower average portfolio
balances, and interest expense on advances from the Federal Home Loan Bank
decreased $935, or 8.0%, due to lower balances resulting from scheduled
repayments.
Provision for Losses on Loans
The provision for losses on loans for the three months ended March 31, 1997,
decreased $25,000, or 89.3%, as a result of a higher provision taken during the
same period in 1996 due to a loan loss.
-10-
FOUNDATION BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS(Continued)
Other Operating Income
Other operating income for the three months ended March 31, 1997, decreased
$4,792, or 23.1%, compared to the same period of 1996 as the result of decreased
gains on loan sales.
General, Administrative and Other Expense
General, administrative and other expense for the three months ended March 31,
1997, increased $8,910, or 5.1%, compared to the same period of 1996. Employee
compensation and benefits increased $15,082, or 15.8%, as the result of the ESOP
expense plus higher commission expense on increased loan closings. Federal
deposit insurance premiums decreased $11,629, or 73.1%, the result of lower
premiums due to the SAIF recapitalization. Other expenses increased $5,508, or
20.6%, primarily due to higher professional services in connection with
Securities and Exchange Commission filings and OTS filings required as a result
of the Conversion. Federal taxes increased $25,256, or 466.7%, due to higher
earnings.
-11-
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
-12-
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.
Laird L. Lazelle
Date: April 30, 1997 ____________________________________
Laird L. Lazelle
President
Dianne K. Rabe
Date: April 30, 1997 ____________________________________
Dianne K. Rabe
Treasurer