<PAGE> 1
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, 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 Registrant as specified in its charter)
Ohio
------------------------------------------------------
(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, 1997: 462,875
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FOUNDATION BANCORP, INC.
FORM 1O-QSB
QUARTER ENDED SEPTEMBER 30, 1997
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:
<TABLE>
<CAPTION>
Page Number
-----------
<S> <C>
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
</TABLE>
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<PAGE> 3
FOUNDATION BANCORP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
September 30, June 30,
1997 1997
------------ ------------
(Unaudited)
<S> <C> <C>
ASSETS
Cash and due from banks $ 52,300 $ 170,153
Interest-bearing deposits in other financial institutions 3,607,683 3,119,122
------------ ------------
Cash and cash equivalents 3,659,983 3,289,275
Investment securities - at amortized cost, approximate market value of
$949,768 and $948,715 at September 30, 1997, and June 30, 1997,
respectively 946,114 945,840
Mortgage-backed securities - at cost, approximate market value of
$4,025,187 and $4,167,556 at September 30, 1997, and June 30,
1997, respectively 4,183,512 4,288,236
Loans receivable - net 26,981,362 25,939,500
Office premises and equipment - at depreciated cost 295,545 298,934
Federal Home Loan Bank Stock - at cost 304,200 298,800
Accrued interest receivable on loans 125,104 104,415
Accrued interest receivable on mortgage-backed securities 32,504 33,226
Accrued interest receivable on investments and interest-bearing
deposits 25,061 8,732
Prepaid expenses and other assets 51,736 64,478
------------ ------------
TOTAL ASSETS $ 36,605,121 $ 35,271,436
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits $ 28,546,966 $ 27,291,765
Advances from Federal Home Loan Bank 736,187 754,403
Advances by borrowers for taxes, insurance and other 167,965 65,271
Other liabilities 210,998 172,236
Deferred federal income taxes 53,900 53,900
------------ ------------
TOTAL LIABILITIES 29,716,016 28,337,575
Shareholders' equity
Common shares - 2,000,000 shares, no par value, authorized;
462,875 shares issued and outstanding - -
Additional paid-in capital 4,341,126 4,341,126
Unallocated shares held by Employee Stock Ownership Plan (311,781) (311,781)
Retained earnings - substantially restricted 2,859,760 2,904,516
------------ ------------
TOTAL SHAREHOLDERS' EQUITY 6,889,105 6,933,861
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 36,605,121 $ 35,271,436
============ ============
</TABLE>
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<PAGE> 4
FOUNDATION BANCORP, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
For the three months ended September 30,
<TABLE>
<CAPTION>
1997 1996
----------- -----------
(Unaudited)
<S> <C> <C>
Interest income
Loans $ 542,917 $ 485,076
Mortgage-backed securities 65,684 69,820
Investment securities 21,972 19,754
Interest-bearing deposits and other 51,502 30,737
--------- ---------
Total interest income 682,075 605,387
Interest expense
Deposits 397,056 379,073
Borrowings 10,334 11,295
--------- ---------
Total interest expense 407,390 390,368
Net interest income before provision for losses on loans 274,685 215,019
Provision for losses on loans (3,000) (6,000)
--------- ---------
Net interest income after provision for losses on loans 271,685 209,019
Other operating income 17,793 14,304
--------- ---------
General, administrative and other expense
Employee compensation and benefits 110,545 121,876
Occupancy and equipment 19,582 20,608
Federal deposit insurance premiums 4,307 184,267
Franchise taxes 9,379 8,969
Data processing 8,984 8,562
Other 29,089 24,698
--------- ---------
Total general, administrative and other expense 181,886 368,980
--------- ---------
Income (loss) before income taxes 107,592 (145,657)
Provision (benefit) for federal income taxes (36,629) 46,688
--------- ---------
NET EARNINGS (LOSS) $ 70,963 ($ 98,969)
========= =========
EARNINGS (LOSS) PER SHARE $ 0.17
</TABLE>
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FOUNDATION BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three months ended September 30,
<TABLE>
<CAPTION>
1997 1996
----------- -----------
(Unaudited)
<S> <C> <C>
Cash flows provided by (used in) operating activities:
Net earnings (loss) for the period $ 70,963 $ (98,969)
Adjustments to reconcile net earnings (loss) to net cash provided by
(used in) operating activities:
Gain on sale of loans (3,910) -
Amortization of deferred loan origination fees (504) (3,178)
Provision for losses on loans 3,000 6,000
Depreciation and amortization 3,118 4,718
Federal Home Loan Bank stock dividends (5,400) (4,900)
Deferred loan fees (costs) (4,001) (1,198)
Amortization of premiums and discounts on mortgage-backed securities
3,073 3,839
Effects of changes in operating assets and liabilities:
Accrued interest receivable (36,296) 6,141
Refundable income tax - (46,688)
Prepaid expenses and other assets 12,742 6,095
Accrued expenses 38,762 195,421
----------- -----------
Net cash provided by operating activities 81,547 67,281
----------- -----------
Cash flows provided by (used in) investing activities:
Principal repayments on mortgage-backed securities 101,651 135,955
Principal repayments on loans 520,322 827,458
Proceeds from sale of loans 297,694 -
Loan disbursements (1,854,466) (2,322,250)
Purchase of office equipment - (742)
----------- -----------
Net cash provided by (used in) investing activities (934,799) (1,359,579)
----------- -----------
Cash flows provided by (used in) financing activities:
Net increase (decrease) in deposit accounts 1,255,201 (435,673)
Repayment of FHLB advances (18,216) (17,255)
Net increase(decrease) in advances by borrowers for taxes, insurance
and other 102,694 85,829
Dividends paid (115,719) -
Proceeds from issuance of common shares - 4,157,502
----------- -----------
Net cash provided by (used in) financing activities 1,223,960 3,790,403
----------- -----------
Net increase (decrease) in cash and cash equivalents 370,708 2,498,105
Cash and cash equivalents at beginning of period 3,289,275 1,172,489
----------- -----------
Cash and cash equivalents at end of period $ 3,659,983 $ 3,670,594
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the year for interest on deposits and borrowings $ 403,305 $ 386,793
Income taxes paid 26,000 -
</TABLE>
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FOUNDATION BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three months ended
September 30, 1997 and 1996
On September 25, 1996, Foundation Savings Bank ("Foundation") completed
its conversion from mutual to stock form, in connection with which Foundation
issued all of its outstanding shares to its holding company, Foundation Bancorp,
Inc. (the "Company"), and the Company sold 462,875 common shares in a public
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.
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, 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 September 30, 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") at such date in
accordance with Statement of Position 93-6.
4. EFFECTS OF RECENT ACCOUNTING PRONOUNCEMENTS
-------------------------------------------
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 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
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<PAGE> 7
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 the
adoption of SFAS No. 125.
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<PAGE> 8
FOUNDATION BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
- -------------------
At September 30, 1997, the Company's assets totaled $36.6 million, an
increase of $1.3 million, or 3.8%, over the $35.3 million total at June 30,
1997. Cash and equivalents equaled $3.7 million at September 30, 1997, an
increase of $371,000, or 11.3%, over the $3.3 million at June 30, 1997.
Mortgage-backed securities decreased $104,724, or 2.4%, from the June 30, 1997,
total as the result of scheduled repayments. Loans receivable totaled $27.0
million at September 30, 1997, an increase of $1.0 million, or 4.0%, over the
June 30, 1997, total, resulting from production in excess of payoffs and
scheduled repayments.
The increase in assets was funded primarily by an increase in deposits
of $1.3 million, or 4.6%. Advances by borrowers for taxes and insurance
increased $102,694, or 157.3%, resulting from timing differences in the payment
of real estate taxes and an increase in the loan portfolio. Advances from the
Federal Home Loan Bank decreased $18,216, or 2.4%, and shareholders' equity
decreased $44,756, or 0.6%. The decrease in shareholders' equity was the result
of an annual dividend in the amount of $.25 per share paid to shareholders on
August 25, 1997, which more than offset earnings for the quarter.
The Office of Thrift Supervision has three minimum regulatory capital
standards for savings associations. At September 30, 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 September 30, 1997:
<TABLE>
<CAPTION>
ACTUAL REQUIRED EXCESS
----------------------- ----------------------- -----------------------
<S> <C> <C> <C> <C> <C> <C>
Tangible Capital $5,517,000 15.1% $ 549,000 1.5% $4,968,000 13.6%
Core Capital $5,517,000 15.1% $1,098,000 3.0% $4,419,000 12.1%
Risk-based Capital $5,646,000 32.4% $1,393,000 8.0% $4,253,000 24.4%
</TABLE>
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997
- -----------------------------------------------------------------------------
AND 1996
- --------
General
- -------
The Company recorded net earnings of $70,963 for the three months ended
September 30, 1997, an increase of $169,932, or 171.7%, from the net loss of
$98,969 recorded for the three months ended September 30, 1996. The net loss for
the three months ended September 30, 1996, was the result of the one-time
assessment of $168,364 imposed on Foundation by the Federal Deposit Insurance
Corporation in September 1996 as part of the legislation to recapitalize the
Savings Association Insurance Fund (the "SAIF").
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<PAGE> 9
FOUNDATION BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Net Interest Income
- -------------------
Net interest income after provision for losses on loans for the three
months ended September 30, 1997, increased $62,666, or 30.0%, as compared to the
same period of 1996. This was the result of an increase in total interest income
of $76,688, or 12.7%, partially offset by an increase in total interest expense
of $17,022, or 4.4%. Interest income on loans increased $57,841, or 11.9%,
interest on investment securities increased $2,218, or 11.2%, and interest on
interest bearing deposits increased $20,765, or 67.6%, all resulting from
increased yields on larger portfolios. These increases were partially offset by
a decrease in interest on mortgage-backed securities of $4,136, or 5.9%, as the
portfolio balance continues to decline from normal repayments. Interest expense
on deposits increased $17,983, or 4.7%, due to an increased weighted average
cost on a larger portfolio. This increase was partially offset by a decrease in
interest expense on borrowings of $961, or 8.5%, due to a lower amount owed
resulting from scheduled repayments.
Other Operating Income
- ----------------------
Other operating income for the three months ended September 30, 1997,
increased $3,489, or 24.4%, compared to the same period of 1996, 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, 1997, decreased $187,094, or 50.7%, when compared to the same
period of 1996. This decrease was primarily the result of a decrease in federal
deposit insurance premiums of $179,960, or 97.7%, due to the one-time SAIF
assessment in 1996. Employee compensation and benefits decreased $11,331, or
9.3%, due to higher ESOP expenses in the 1996 quarter. Other expenses increased
$4,391, or 17.8%, primarily due to higher professional services in connection
with operating as a public stock company. Federal taxes increased $83,317, or
178.5%, due to higher earnings.
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<PAGE> 10
FOUNDATION BANCORP, INC.
10-QSB
PART II
-------
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
---------------------------------------------------
At the 1997 Annual Meeting of the Company's shareholders, held on
October 23, 1997 (the "Annual Meeting"), the following persons were
re-elected as directors of the Company for terms expiring in 1999
pursuant to the following votes:
Mardelle Dickhaut For: 394,197 Withheld: 1,000
Laird L. Lazelle For: 392,597 Withheld: 2,600
Robert E. Levitch For: 394,197 Withheld: 1,000
Michael S. Schwartz For: 392,597 Withheld: 2,600
The terms of Ruth C. Emden, Paul L. Silverglade, and Ivan J. Silverman
will continue until the 1998 Annual Meeting of Shareholders.
The following votes were cast on the other matters submitted to the
shareholders at the Annual Meeting:
Approval of the Foundation Bancorp, Inc. 1997 Stock Option and
Incentive Plan:
For - 333,791 Against - 15,792 Abstain - 400
Approval of the Foundation Savings Bank Recognition and Retention Plan
and Trust:
For - 323,091 Against - 15,775 Abstain - 11,117
Ratification of the appointment of Clark, Schaefer, Hackett & Co. as
independent auditors of the Company for the fiscal year ended June 30,
1998:
For - 394,172 Against - 1,025 Abstain - 0
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<PAGE> 11
ITEM 5. OTHER INFORMATION
-----------------
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
Exhibit 27. Financial Data Schedule
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<PAGE> 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.
Date: October 29, 1997 Laird L. Lazelle
President
Date: October 29, 1997 Dianne K. Rabe
Treasurer
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 52
<INT-BEARING-DEPOSITS> 3,608
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 5,434
<INVESTMENTS-MARKET> 5,279
<LOANS> 26,981
<ALLOWANCE> 129
<TOTAL-ASSETS> 36,605
<DEPOSITS> 28,547
<SHORT-TERM> 168
<LIABILITIES-OTHER> 211
<LONG-TERM> 736
0
0
<COMMON> 0
<OTHER-SE> 36,605
<TOTAL-LIABILITIES-AND-EQUITY> 36,605
<INTEREST-LOAN> 543
<INTEREST-INVEST> 87
<INTEREST-OTHER> 52
<INTEREST-TOTAL> 682
<INTEREST-DEPOSIT> 397
<INTEREST-EXPENSE> 407
<INTEREST-INCOME-NET> 272
<LOAN-LOSSES> 3
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 182
<INCOME-PRETAX> 108
<INCOME-PRE-EXTRAORDINARY> 108
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 71
<EPS-PRIMARY> 174
<EPS-DILUTED> 0
<YIELD-ACTUAL> 762
<LOANS-NON> 0
<LOANS-PAST> 83
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 126
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 129
<ALLOWANCE-DOMESTIC> 129
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 129
</TABLE>
