<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, 1999
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
---------------------------------------
(I.R.S. Employer Identification Number)
25 GARFIELD PLACE, CINCINNATI, OHIO 45202
---------------------------------------------------
(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, 1999: 462,875
<PAGE> 2
FOUNDATION BANCORP, INC.
FORM 10-QSB
QUARTER ENDED SEPTEMBER 30, 1999
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 Income................................4
Statement 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-
<PAGE> 3
FOUNDATION BANCORP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
September 30, June 30,
1999 1999
------------- --------
(Unaudited)
<S> <C> <C>
ASSETS
- ------
Cash and due from banks $97,583 $79,041
Interest-bearing deposits in other financial institutions 255,425 2,335,212
---------- ----------
Cash and cash equivalents 353,008 2,414,253
Certificates of deposit 902,655 1,206,398
Investment securities-at amortized cost (approximate market value of
$5,189,029 and $3,701,563 at September 30, 1999 and June 30, 1999,
respectively) 5,252,744 3,753,920
Mortgage-backed securities-at cost approximate market value of
$4,589,240 and $4,920,386 at September 30, 1999 and June 30, 1999,
respectively) 4,706,094 5,017,882
Loans receivable-net 20,873,140 20,468,039
Office premises and equipment-at depreciated cost 294,900 299,787
Real estate acquired through foreclosure-net - -
Federal Home Loan Bank stock-at cost 350,000 343,800
Accrued interest receivable on loans 101,240 96,078
Accrued interest receivable on mortgage-backed
securities 31,045 33,591
Accrued interest receivable on investments and interest-bearing deposits 96,545 21,866
Prepaid expenses and other assets 52,960 105,966
----------- -----------
TOTAL ASSETS $33,014,331 $33,761,580
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Deposits $25,173,236 $25,754,436
Advances from the Federal Home Loan Bank 581,230 601,530
Advances by borrowers for taxes, insurance and other 143,518 59,551
Other liabilities 128,182 199,619
Deferred federal income taxes 74,300 74,300
----------- -----------
TOTAL LIABILITIES 26,100,466 26,689,436
Shareholders' equity
Common shares-2,000,000 shares, no par value, authorized;
462,875 shares issued and outstanding - -
Additional paid-in capital 4,400,429 4,394,429
Retained earnings-substantially restricted 2,816,581 3,004,988
Shares acquired for restricted stock plan (99,372) (123,500)
Unallocated shares held by Employee Stock Ownership Plan (203,773) (203,773)
----------- -----------
TOTAL SHAREHOLDERS' EQUITY 6,913,865 7,072,144
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $33,014,331 $33,761,580
=========== ===========
</TABLE>
-3-
<PAGE> 4
FOUNDATION BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three months ended
September 30,
----------------------------
1999 1998
---------- -------
(Unaudited)
<S> <C> <C>
Interest Income
Loans $407,573 $435,535
Mortgage-backed securities 69,379 65,368
Investment securities 95,944 62,315
Interest bearing deposits and other 24,085 70,326
-------- --------
Total interest income 596,981 633,544
Interest expense
Deposits $323,337 384,014
Borrowings 9,396 9,320
-------- --------
Net interest expense 332,733 393,334
Net interest income before provision for losses on loans 264,248 240,210
Provision for losses on loans - (3,000)
-------- --------
Net interest income after provision for losses 264,248 237,210
Other operating income 13,489 25,028
General, administrative and other expense
Employee compensation and benefits 119,889 110,791
Occupancy and equipment 20,587 19,469
Federal deposit insurance premiums 3,791 4,398
Franchise taxes 19,997 20,138
Data processing 9,121 9,751
Other 34,660 34,056
-------- --------
Total general, administrative and other expenses 208,045 198,603
-------- --------
Income before income taxes 69,692 63,635
Provision for federal income taxes (25,734) (22,790)
-------- --------
NET INCOME $43,958 $ 40,845
======== ========
BASIC AND DILUTED EARNINGS PER SHARE $0.10 $0.09
===== =====
</TABLE>
-4-
<PAGE> 5
FOUNDATION BANCORP, INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Three months ended
September 30
-------------------------------
1999 1998
------------ ------------
<S> <C> <C>
Cash flows from operating activities
Net income $ 43,958 $ 40,845
Adjustments to reconcile net income to net cash provided by operating
activities
Gain on sale of loans - (11,309)
Depreciation and amortization 4,887 3,235
Amortization of premiums and discounts on mortgage-backed securities 7,089 4,317
FHLB stock dividends (6,200) (5,800)
Provision for loan losses - 3,000
Amortization of deferred loan fees (692) (708)
ESOP expense 6,000 6,000
Deferred loan origination (costs) (975) (1,616)
Effects of changes in operating assets and liabilities
Accrued interest receivable (77,295) (40,956)
Prepaid expenses and other assets 53,006 37,356
Accrued expenses (48,237) (31,543)
----------- -----------
Net cash used by operating activities (18,459) 2,821
----------- -----------
Cash flows from investing activities
Repayments of mortgage-backed securities 305,875 211,137
Purchases of mortgage-backed securities - (1,678,750)
Purchases of investment securities - held to maturity (1,500,000) (1,109,146)
Maturities of investment securities - held to maturity - 1,000,000
Purchases of certificate of deposits (3,156) (104,532)
Maturity of certificates of deposits 306,899 -
Loan disbursements (1,819,062) (2,841,705)
Loan principal repayments 1,415,628 2,166,342
Proceeds from sale of loans - 1,077,114
Capitalization of expenses relating to real estate acquired through - (4,235)
foreclosure
Purchases of property and - (24,736)
----------- -----------
Net cash used in investing activities (1,293,816) (1,308,511)
----------- -----------
Cash flows from financing activities
Net increase (decrease) in deposits (581,200) (1,104,595)
Repayment of FHLB advances (20,300) (19,230)
Net increase in advances by borrowers for taxes, insurance and other 83,967 79,805
Dividends paid (231,437) (185,150)
----------- -----------
Net cash used by financing activities (748,970) (1,229,170)
----------- -----------
Net increase (decrease) in cash and cash equivalents (2,061,245) (2,534,860)
Cash and cash equivalents at beginning of period 2,414,253 6,196,370
----------- -----------
Cash and cash equivalents at end of period $ 353,008 $ 3,661,510
=========== ===========
Supplemental disclosure of cash flow information
Cash paid during the period for:
Interest expense $ 329,806 $ 389,467
Income taxes $ $ 69,354
-
Non-cash operating and financing activity:
Conversion of accrued compensation to shares released for $ 23,200
Restricted Stock Plan
</TABLE>
-5-
<PAGE> 6
FOUNDATION BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three months ended
September 30, 1999 and 1998
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, 1999 and 1998, 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 Foundation Bancorp, Inc. ("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, 1999 and 1998, were computed based on weighted average shares
outstanding of 435,581 and 437,420, respectively, which gives effect to a
reduction for the 19,660 and 25,453 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 1998, the FASB issued SFAS No. 128, "Earnings Per Share,"
which is effective for periods ending after December 15, 1998, 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.
-6-
<PAGE> 7
In February 1998, 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 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, 1998.
In June 1998, 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, 1998. Reclassification of financial statements for earlier periods
provided for comparative purposes is required.
In June 1998, 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, 1998. Because the
Company has no non-banking subsidiaries, SFAS No. 131 will not affect the
Company.
-7-
<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
DISCUSSION OF FINANCIAL CONDITION CHANGES FROM JUNE 30, 1999 TO SEPTEMBER 30,
- -----------------------------------------------------------------------------
1999
- ----
At September 30, 1999, the Company's assets totaled $33.0 million, a
decrease of $0.7 million, or 2.2%, from the $33.7 million total at June 30,
1999. Cash and equivalents were $0.3 million at September 30, 1999, a decrease
of $2.1 million, or 85.4%, over the $2.4 million at June 30, 1999. Investments
in certificates of deposit decreased $0.3 million, or 25.2%, as maturing funds
were not reinvested, and mortgage-backed securities decreased $0.3 million, or
6.2%, resulting from repayments. The cash flow from these changes funded an
increase in loans receivable of $0.4 million, or 2.0%, as Foundation changed its
emphasis to portfolio lending rather than sales of loans with the increase in
market rates, and an increase in investment securities of $1.5 million, or
39.9%, as Foundation sought higher returns in the current interest rate
environment.
The decrease in cash and equivalents partially funded a decrease in
deposits of $0.6 million, or 2.3%, as longer term deposits were not renewed.
Advances from the Federal Home Loan Bank decreased $20,300, or 3.4%, as a result
of scheduled repayments. Advances from borrowers for taxes, insurance and other
increased $83,967, or 141.0%, resulting from timing differences in the payment
of real estate taxes. Shareholders' equity decreased $158,279, or 2.2%, as a
result of the $.50 per share dividend which totaled $231,437 paid to
shareholders in September 1999.
The Office of Thrift Supervision has two minimum regulatory capital
standards for savings associations. At September 30, 1999, 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, 1999:
<TABLE>
<CAPTION>
ACTUAL REQUIRED EXCESS
------ -------- ------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Core capital $5,612 17.0% $1,321 4.0% $4,291 13.0%
Risk-based capital $5,753 38.9% $1,184 8.0% $4,569 30.9%
</TABLE>
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999
- -----------------------------------------------------------------------------
AND 1998
- --------
General
- -------
The Company recorded net earnings of $43,958 for the three months ended
September 30, 1999, an increase of $3,113, or 7.6%, from the net earnings of
$40,845 recorded for the three months ended September 30, 1998. The increase was
primarily the result of an increase in net
-8-
<PAGE> 9
interest income after provision for loan losses of $27,038, or 11.4%, which was
partially offset by a decrease in other income of $11,539, or 46.1%, an increase
in general, administrative and other expense of $9,442, or 4.8%, and an increase
in federal income taxes of $2,944, or 12.9%
Net Interest Income
- -------------------
Net interest income after provision for losses on loans for the three
months ended September 30, 1999, increased $27,038, or 11.4%, compared to the
same period of 1998. A decrease in total interest income of $36,563, or 5.8%,
was excluded by a decrease in total interest expense of $60,601, or 15.4%.
Interest income on loans decreased $27,962, or 6.4%, the result of a decrease in
loans receivable of $0.6 million and a 27 basis points decline in the yield
since September 30, 1998, as borrowers refinanced for lower interest rates.
Interest on mortgage-backed securities increased $4,011, or 6.1%, due to higher
yields. Interest on investment securities increased $33,629, or 54.0%, due to
higher yields on a larger portfolio. Interest on interest-bearing deposits
decreased $46,241, or 65.8%, due to a decline in average deposits as funds were
reinvested in higher yielding mortgage loans and investment securities. Interest
expense on deposits decreased $60,677, or 15.8%, due to a lower weighted average
rate on a smaller portfolio.
Other Operating Income
- ----------------------
Other operating income for the three months ended September 30, 1999
decreased $11,539, or 46.1%, compared to the same period of 1998 due to the
absence of loan sales during the first quarter of 1999.
General, Administrative and Other Expense
- -----------------------------------------
General, administrative and other expense for the three months ended
September 30, 1999 increased $9,442, or 4.8%, compared to the same period of
1998. This was primarily due to the increase in occupancy and equipment of
$1,118, or 5.7%, the result of the purchase of new Y2K compliant computer
equipment and software, and an increase in employee compensation and benefits of
$9,098, or 8.2%. The employee compensation and benefit expense increase resulted
from the amortization of the expense of the Recognition and Retention Plan and a
lower adjustment to compensation for the accounting treatment of deferred loan
fees due to fewer loan closings. Federal income taxes increased $2,944, or
12.9%, due to higher earnings.
DISCUSSION OF YEAR 2000 ISSUES
- ------------------------------
As with most providers of financial services, Foundation's operations
are heavily dependent on information technology systems. Foundation has
addressed 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.
-9-
<PAGE> 10
The Company's primary data processing applications are handled by a
third-party service bureau which has transferred to a fully year 2000-compliant
processing system which has been fully tested.
The Company has not identified any additional material expenses that
are likely to be incurred by Foundation in connection with this issue. No
assurance can be given, however, that additional expense will not be incurred in
future periods, which could adversely affect the Company's net earnings and
financial condition.
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.
-10-
<PAGE> 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
---------------------------------------------------
Not applicable
ITEM 5. OTHER INFORMATION
-----------------
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
Exhibit 27. Financial Data Schedule
-11-
<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.
/s/ Laird L. Lazelle
--------------------------
Date: November 10, 1999 Laird L. Lazelle
President
/s/ Dianne K. Rabe
--------------------------
Date: November 10, 1999 Dianne K. Rabe
Treasurer
-12-
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 97,583
<INT-BEARING-DEPOSITS> 1,158,080
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 5,252,744
<INVESTMENTS-MARKET> 5,189,029
<LOANS> 20,873,140
<ALLOWANCE> (150,146)
<TOTAL-ASSETS> 33,014,331
<DEPOSITS> 25,173,236
<SHORT-TERM> 0
<LIABILITIES-OTHER> 346,000
<LONG-TERM> 581,230
0
0
<COMMON> 0
<OTHER-SE> 6,913,865
<TOTAL-LIABILITIES-AND-EQUITY> 33,014,331
<INTEREST-LOAN> 407,573
<INTEREST-INVEST> 165,323
<INTEREST-OTHER> 24,085
<INTEREST-TOTAL> 596,981
<INTEREST-DEPOSIT> 323,337
<INTEREST-EXPENSE> 332,733
<INTEREST-INCOME-NET> 264,248
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 208,045
<INCOME-PRETAX> 69,692
<INCOME-PRE-EXTRAORDINARY> 69,692
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 43,958
<EPS-BASIC> .10
<EPS-DILUTED> .10
<YIELD-ACTUAL> 7.3
<LOANS-NON> 81,735
<LOANS-PAST> 51,778
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 150,146
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 150,146
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 150,146
</TABLE>
