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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, 1998
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.
[ 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 September 30, 1998: 462,875
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FOUNDATION BANCORP, INC.
FORM 10-QSB
QUARTER ENDED SEPTEMBER 30, 1998
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
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.............7
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FOUNDATION BANCORP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
September 30, June 30,
1998 1998
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(Unaudited)
ASSETS
Cash and due from banks $ 133,367 $ 83,517
Interest-bearing deposits in other financial institutions 3,528,143 6,112,853
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Cash and cash equivalents 3,661,510 6,196,370
Certificates of deposit 404,532 300,000
Investment securities-at amortized cost (approximate market value of
$3,064,295 and $2,943,614 at September 30, 1998 and June 30, 1998, 3,054,920 2,947,033
respectively)
Mortgage-backed securities-at cost (approximate market value of $5,371,785
and $3,905,172 at September 30, 1998 and June 30, 1998, respectively) 5,430,849 3,966,396
Loans receivable-net 21,454,536 21,845,552
Office premises and equipment-at depreciated cost 306,892 285,391
Real estate acquired through foreclosure-net 58,466 54,231
Federal Home Loan Bank stock-at cost 326,600 320,800
Accrued interest receivable on loans 97,530 98,084
Accrued interest receivable on mortgage-backed securities 37,732 37,406
Accrued interest receivable on investments and interest-bearing deposits 70,828 29,644
Prepaid expenses and other assets 71,343 108,699
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TOTAL ASSETS $ 34,975,738 $ 36,189,606
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LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits $ 26,918,319 $ 28,022,914
Advances from the Federal Home Loan Bank 660,807 680,037
Advances by borrowers for taxes, insurance and other 140,838 61,033
Other liabilities 183,047 214,590
Deferred federal income taxes 71,400 71,400
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TOTAL LIABILITIES 27,974,411 29,049,974
Shareholders' equity
Common shares-2,000,000 shares, no par value, authorized; 462,875
shares issued and outstanding - -
Additional paid-in capital 4,381,394 4,375,394
Unallocated shares held by Employee Stock Ownership Plan (256,673) (256,673)
Retained earnings-substantially restricted 2,876,606 3,020,911
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TOTAL SHAREHOLDERS' EQUITY 7,001,327 7,139,632
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 34,975,738 $ 36,189,606
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FOUNDATION BANCORP, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
Three months ended
September 30,
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1998 1997
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(Unaudited)
Interest Income
Loans $435,535 $542,917
Mortgage-backed securities 65,368 65,684
Investment securities 62,315 21,972
Interest bearing deposits and other 70,326 51,502
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Total interest income 633,544 682,075
Interest expense
Deposits 384,014 397,056
Borrowings 9,320 10,334
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Net interest expense 393,334 407,390
Net interest income before provision for losses on loans 240,210 274,685
Provision for losses on loans (3,000) (3,000)
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Net interest income after provision for losses 237,210 271,685
Other operating income 25,028 17,793
General, administrative and other expense
Employee compensation and benefits 110,791 110,545
Occupancy and equipment 19,469 19,582
Federal deposit insurance premiums 4,398 4,307
Franchise taxes 20,138 9,379
Data processing 9,751 8,984
Other 34,056 29,089
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Total general, administrative and other expenses 198,603 181,886
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Income before income taxes 63,635 107,592
Provision for federal income taxes 22,790 36,629
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NET EARNINGS $ 40,845 $ 70,963
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BASIC AND DILUTED EARNINGS PER SHARE $0.09 $0.17
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FOUNDATION BANCORP, INC.
STATEMENT OF CASH FLOWS
Three months ended
September 30
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1998 1997
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Cash flows from operating activities
Net income $ 40,845 $ 70,963
Adjustments to reconcile net income to net cash provided by operating
activities
Gain on sale of loans (11,309) (3,910)
Depreciation and amortization 3,235 3,118
Amortization of premiums and discounts on mortgage-backed securities 4,317 3,073
FHLB stock dividends (5,800) (5,400)
Provision for loan losses 3,000 3,000
Amortization of deferred loan fees (708) (504)
ESOP expense 6,000 --
Deferred loan fees origination (costs) (1,616) (4,001)
Effects of changes in operating assets and liabilities
Accrued interest receivable (40,956) (36,296)
Prepaid expenses and other assets 37,356 12,742
Accrued expenses (31,543) 36,856
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Net cash provided by operating activities 2,821 79,641
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Cash flows from investing activities
Repayments of mortgage-backed securities 211,137 101,651
Purchases of mortgage-backed securities (1,678,750)
Purchases of investment securities - held to maturity (1,109,146) --
Maturities of investment securities - held to maturity 1,000,000 --
Purchases of certificate of deposits (104,532) --
Loan disbursements (2,841,705) (1,854,466)
Loan principal repayments 2,166,342 520,322
Proceeds from sale of loans 1,077,114 297,694
Capitalization of expenses relating to real estate acquired through (4,235) --
foreclosure
Purchases of property and equipment (24,736) --
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Net cash provided by used in investing activities (1,308,511) (934,799)
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Cash flows from financing activities
Net increase (decrease) in deposits (1,104,595) 1,255,201
Repayment of FHLB advances (19,230) (18,216)
Net increase (decrease) in advances by borrowers for taxes, insurance 79,805 102,694
and other
Dividends paid (185,150) (113,813)
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Net cash provided by (used in) financing activities (1,229,170) 1,225,866
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Net increase (decrease) in cash and cash equivalents (2,534,860) 370,708
Cash and cash equivalents at beginning of period 6,196,370 3,289,275
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Cash and cash equivalents at end of period $ 3,661,510 $ 3,659,983
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Supplemental disclosure of cash flow information
Cash paid during the period for:
Interest expense $ 389,467 $ 403,305
Income taxes $ 69,354 $ 26,000
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FOUNDATION BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three months ended
September 30, 1998 and 1997
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, 1998 and 1997, 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 its wholly-owned subsidiary, Foundation Savings Bank
("Foundation"). All significant intercompany items have been eliminated.
3. EARNINGS PER SHARE
Basic earnings per share for the three month periods ended September
30, 1998 and 1997, were computed based on weighted average shares outstanding of
437,420 and 431,190, respectively, which gives effect to a reduction for the
25,454 and 31,685 unallocated shares held by the Foundation Bancorp, Inc.
Employee Stock Ownership Plan (the "ESOP") at such dates, respectively, in
accordance with Statement of Position 93-6 ("SOP 93-6") issued by the American
Institute of Certified Public Accountants.
4. EFFECTS OF RECENT ACCOUNTING PRONOUNCEMENTS
In March 1997, the FASB issued SFAS No. 128, "Earnings Per Share,"
which is effective for periods ending after December 15, 1997, including interim
periods. SFAS No. 128 simplifies the calculation of earnings per share ("EPS")
by replacing primary EPS with basic EPS. It also requires dual presentation of
basic EPS and diluted EPS for entities with complex capital structures. Basic
EPS includes no dilution and is computed by dividing income available to common
shareholders by the weighted-average common shares outstanding for the period.
Diluted EPS reflects the potential dilution of securities that could share in
earnings such as stock options, warrants or other common stock equivalents. All
prior period EPS data must be restated to conform with the new presentation.
In February 1997, the FASB issued SFAS No. 129, "Disclosures of
Information about Capital Structure." SFAS No. 129 consolidates existing
accounting guidance relating to disclosure about a company's capital structure.
Public companies generally have always been required to make disclosures
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now required by SFAS No. 129 and, therefore, SFAS No. 129 should have no impact
on the Company. SFAS No. 129 is effective for financial statements for periods
ending after December 15, 1997.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." SFAS No. 130 establishes standards for reporting and display of
comprehensive income and its components (revenues, expenses, gains and losses)
in a full set of general-purpose financial statements. SFAS No. 130 requires
that all items that are required to be recognized under accounting standards as
components of comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements. It does not
require a specific format for that financial statement but requires that an
enterprise display an amount representing total comprehensive income for the
period in that financial statement.
SFAS No. 130 requires that an enterprise (1) classify items of other
comprehensive income by their nature in a financial statement and (2) display
the accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in capital in the equity section of a statement of
financial position. SFAS No. 130 is effective for fiscal years beginning after
December 15, 1997. Reclassification of financial statements for earlier periods
provided for comparative purposes is required.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information." SFAS No. 131 significantly changes
the way that public business enterprises report information about operating
segments in annual financial statements and requires that those enterprises
report selected information about reportable segments in interim financial
reports issued to shareholders. It also establishes standards for related
disclosures about products and services, geographic areas and major customers.
SFAS No. 131 uses a "management approach" to disclose financial and descriptive
information about an enterprise's reportable operating segments which is based
on reporting information the way that management organizes the segments within
the enterprise for making operating decisions and assessing performance. For
many enterprises, the management approach will likely result in more segments
being reported. In addition, SFAS No. 131 requires significantly more
information to be disclosed for each reportable segment than is presently being
reported in annual financial statements and requires that selected information
be reported in interim financial statements. SFAS No. 131 is effective for
financial statements for periods beginning after December 15, 1997. Because the
Company has no non-banking subsidiaries, SFAS No. 131 will not affect the
Company.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
DISCUSSION OF FINANCIAL CONDITION CHANGES FROM JUNE 30, 1998 TO SEPTEMBER 30,
1998
At September 30, 1998, the Company's assets totaled $34.9 million, a
decrease of $1.2 million, or 3.4%, from the $36.2 million total at June 30,
1998. Cash and equivalents were $3.7 million at September 30, 1998, a decrease
of $2.5 million, or 40.9%, over the $6.2 million at June 30, 1998. Loans
receivable totaled $21.5 million at September 30, 1998, a decrease of $400,000,
or 1.8%, from the June 30, 1998 total, resulting from borrowers refinancing to
obtain lower interest rates and the Company's sale of lower rate, long term
mortgages in the secondary market. These changes were offset somewhat
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by increases in certificates of deposit of $104,532, or 34.8%, investment
securities of $107,887, or 3.7%, and mortgage-backed securities of $1.5 million,
or 36.9%, as the Company sought more liquid, shorter term investments.
The decrease in cash and equivalents funded a decrease in deposits of
$1.1 million, or 3.9%, as higher rate certificates were not renewed. Advances
from the Federal Home Loan Bank decreased $19,230, or 2.8%, from scheduled
repayments. Advances from borrowers for taxes, insurance and other increased
$79,805, or 130.8%, resulting from timing differences in the payment of real
estate taxes. Shareholders' equity decreased $138,305, or 1.9%, the result of
the $.40 per share dividend which totaled $185,150 paid to shareholders in
August of 1998.
The Office of Thrift Supervision has two minimum regulatory capital
standards for savings associations. At September 30, 1998, 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, 1998:
ACTUAL REQUIRED EXCESS
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(Dollars in thousands)
Core capital $5,608 16.0% $1,399 4.0% $4,209 12.0%
Risk-based capital $5,749 37.9% $1,213 8.0% $4,536 29.9%
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998
AND 1997
General
The Company recorded net earnings of $40,845 for the three months ended
September 30, 1998, a decrease of $30,118, or 42.4%, from the net earnings of
$70,963 recorded for the three months ended September 30, 1997. The decrease was
primarily the result of a decrease in net interest income of $34,475, or 12.7%,
and an increase in general, administrative and other expense of $16,717, or
9.2%, which were partially offset by an increase in other income of $7,235, or
40.7%, and lower federal income taxes of $13,839, or 37.8%
Net Interest Income
Net interest income after provision for losses on loans for the three
months ended September 30, 1998, decreased $34,475, or 12.7%, compared to the
same period of 1997. This was the result of a decrease in total interest income
of $48,531, or 7.1%, partially offset by a decrease in total interest expense of
$14,056, or 3.5%. Interest income on loans decreased $107,382, or 19.8%, the
result of a decrease in the loan portfolio of $5.5 million since September 30,
1997, as borrowers refinanced for lower interest rates. Interest on
mortgage-backed securities decreased $316, or 0.5%, as higher repayments
increased premium expense. Interest on investment securities increased $40,343,
or 183.6%, and interest on interest bearing deposits increased $18,824, or
36.6%, resulting from larger outstanding balances as the Company sought
short-term, liquid investments for funds from the loan repayments. Interest
expense on deposits decreased $13,042, or 3.3%, due to a slightly lower weighted
average rate on a smaller portfolio. Interest expense on borrowings decreased
$1,014, or 9.8%, due to a lower amount owed resulting from scheduled repayments.
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Other Operating Income
Other operating income for the three months ended September 30, 1998
increased $7,235, or 40.7%, compared to the same period of 1997 as the result of
increased gains on loan sales.
General, Administrative and Other Expense
General, administrative and other expense for the three months ended
September 30, 1998 increased $16,717, or 9.2%, compared to the same period of
1998. This was primarily due to the increase in Ohio franchise taxes of $10,759,
or 114.7%, the result higher taxes on the increased capital from the stock
conversion, plus an increase in other expense of $4,967, or 17.1%, due to higher
professional services in connection with operating as a public stock company and
higher cost of supervisory exams. Federal income taxes decreased $13,839, or
37.8%, due to lower earnings.
DISCUSSION OF YEAR 2000 ISSUES
As with most providers of financial services, Foundation's operations
are heavily dependent on information technology systems. Foundation is
addressing the potential problems associated with the possibility that the
computers that control or operate Foundation's information technology system and
infrastructure may not be programmed to read four-digit date codes and, upon
arrival of the year 2000, may recognize the two-digit code "00" as the year
1900, causing systems to fail to function or to generate erroneous data.
Foundation is working with the companies that supply or service its information
technology systems to identify and remedy any year 2000 related problems.
The Company's primary data processing applications are handled by a
third-party service bureau which has advised the Company that it has transferred
to a fully year 2000-compliant processing system that will be fully tested by
January 1, 1999.
The Company has not identified any material specific expenses that are
reasonably likely to be incurred by Foundation in connection with this issue and
does not expect to incur significant expense to implement the necessary
corrective measures. No assurance can be given, however, that significant
expense will not be incurred in future periods. in the event that Foundation is
ultimately required to purchase replacement computer systems, programs and
equipment, or incur substantial expense to make Foundation's current systems,
programs and equipment year 2000 compliant, the Company's net earnings and
financial condition could be adversely affected. While Foundation is endeavoring
to ensure that its computer-dependent operations are year 2000 compliant, no
assurance can be given that some year 2000 problems will not occur.
In addition to possible expense related to its own systems, the Company
could incur losses if year 2000 issues adversely affect Foundation's depositors
or borrowers. Such problems could include delayed loan payments due to year 2000
problems affecting any significant borrowers or impairing the payroll systems of
large employers in Foundation's primary market area. Because Foundation's loan
portfolio is highly diversified with regard to individual borrowers and types of
businesses and Foundation's primary market area is not significantly dependent
upon one employer or industry, Foundation does not expect any significant or
prolonged difficulties that will affect net earnings or cash flow.
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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
Not applicable
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.
/s/ Laird L. Lazelle
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Date: November 5, 1998 Laird L. Lazelle
President
/s/ Dianne K. Rabe
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Date: November 5, 1998 Dianne K. Rabe
Treasurer
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