<PAGE> 1
EXHIBIT 13
FOUNDATION BANCORP, INC.
Parent Company of Foundation Savings Bank
(Foundation Bancorp logo)
2000
ANNUAL REPORT
<PAGE> 2
TO OUR SHAREHOLDERS:
On behalf of the Board of Directors of Foundation Bancorp, Inc. (the "Company"),
I am pleased to present the Company's third annual report.
Net income for the 2000 fiscal year ended June 30, 2000 was $154,366, down from
the $169,227 for the 1999 fiscal year. As previously reported, the 2000 fiscal
year results included an increase in professional fees of $56,281 incurred in
connection with the evaluation and negotiation of corporate opportunities that
the Company subsequently concluded did not warrant further consideration.
The Company continues to pursue strict collection policies, which has resulted
in low delinquency and excellent asset quality. As reported in the initial
offering circular, the ESOP is being expensed at IRS maximums, which has a
negative impact on earnings. It is estimated that the ESOP will be fully
expensed at December 31, 2001.
The Company continues to evaluate all opportunities to enhance shareholder
value. Keefe, Bruyette & Woods, Inc., specialists in financial services,
continues to serve as the Company's advisor in this respect.
Thank you for being a shareholder of the Company. You may reach me personally at
513-721-0120 with questions or comments.
<PAGE> 3
BUSINESS OF FOUNDATION BANCORP, INC.
================================================================================
Foundation Bancorp, Inc. (the "Company"), a unitary savings and loan holding
company incorporated under the laws of the State of Ohio, owns all of the issued
and outstanding common shares of Foundation Savings Bank ("Foundation"), a
savings association chartered under the laws of the State of Ohio. In September
1996, the Company acquired all of the common shares issued by Foundation upon
its conversion from a mutual savings association to a permanent capital stock
savings association (the "Conversion"). Since its formation, the Company's
activities have been limited primarily to holding the common shares of
Foundation.
As a savings and loan holding company, the Company is subject to regulation,
supervision and examination by the Office of Thrift Supervision of the United
States Department of the Treasury (the "OTS"). As an Ohio savings association,
Foundation is subject to regulation, supervision and examination by the OTS and
the Ohio Department of Commerce, Division of Financial Institutions (the
"Division") and the Federal Deposit Insurance Corporation. Foundation is also a
member of the Federal Home Loan Bank (the "FHLB") of Cincinnati.
MARKET PRICE OF THE COMPANY'S
COMMON SHARES AND RELATED SHAREHOLDER MATTERS
================================================================================
There were 462,875 common shares of the Company outstanding on June 30, 2000,
and held of record by approximately 157 shareholders. Price information with
respect to the Company's common shares is published by the National Quotation
Bureau ("NQB"). The high and low bids for the common shares of the Company for
the periods indicated, as reported by NQB, were as follows:
FISCAL 1999 CASH DIVIDENDS
QUARTER ENDED HIGH LOW DECLARED
------------- ---- --- --------
September 30, 1998 $17.50 $13.00 $ .40
December 31, 1998 $14.00 $12.875 -
March 31, 1999 $17.00 $12.50 -
June 30, 1999 $13.625 $12.75 -
FISCAL 2000 CASH DIVIDENDS
QUARTER ENDED HIGH LOW DECLARED
------------- ---- --- --------
September 30, 1999 $13.875 $13.50 $ .50
December 31, 1999 $13.625 $12.625 -
March 31, 2000 $13.25 $10.50 -
June 30, 2000 $10.625 $ 9.00 -
1
<PAGE> 4
The income of the Company consists of dividends which may periodically be
declared and paid by the Board of Directors on the common shares of Foundation
held by the Company and earnings on the net proceeds retained by the Company in
connection with the Conversion. In addition to certain federal income tax
considerations, OTS regulations impose limitations on the payment of dividends
and other capital distributions by savings associations. Under OTS regulations
applicable to converted savings associations, Foundation is not permitted to pay
a cash dividend on its common shares if its regulatory capital would, as a
result of the payment of such dividend, be reduced below the amount required for
the liquidation account (which was established for the purpose of granting a
limited priority claim on the assets of Foundation, in the event of a complete
liquidation, to those members of Foundation before the Conversion who maintain a
savings account at Foundation after the Conversion) or applicable regulatory
capital requirements prescribed by the OTS.
Foundation must obtain approval of a proposed dividend from the OTS (1) if the
proposed distribution would cause total distributions for that calendar year to
exceed net income for that year to date plus Foundation's retained net income
for the preceding two years; (2) if Foundation will not be at least adequately
capitalized following the capital distribution; (3) if the proposed distribution
would violate a prohibition contained in any applicable statute, regulation or
agreement between Foundation and the OTS (or the FDIC), or a condition imposed
on Foundation in an OTS-approved application or notice; or (4) if Foundation has
not received certain favorable examination ratings from the OTS. If Foundation
is not required to file an application, it must file a notice with the OTS 30
days before declaring a dividend.
2
<PAGE> 5
SELECTED CONSOLIDATED
FINANCIAL INFORMATION AND OTHER DATA
===============================================================================
The following tables set forth certain information concerning the consolidated
financial condition, earnings and other data regarding the Company at the dates
and for the periods indicated.
<TABLE>
<CAPTION>
At June 30,
---------------------------------------------------------------------
SUMMARY OF FINANCIAL CONDITION: 2000 1999 1998 1997 1996
-------- ------- --------- --------- -------
(In thousands)
<S> <C> <C> <C> <C> <C>
Total amount of:
Assets $33,382 $33,762 $36,189 $35,271 $30,835
Cash and cash equivalents 374 2,414 6,196 3,289 1,172
Investment securities 5,250 5,304 3,568 1,245 1,179
Mortgage-backed securities 4,355 5,018 3,966 4,288 4,641
Loans receivable, net (1) 22,442 20,468 21,846 25,939 23,267
Deposits 25,505 25,754 28,023 27,292 26,951
FHLB advances 519 602 680 754 825
Shareholders' equity (2) 7,075 7,072 7,140 6,934 2,793
<CAPTION>
Year ended June 30,
----------------------------------------------------------------------
SUMMARY OF EARNINGS: 2000 1999 1998 1997 1996
--------- -------- -------- ------- --------
(In thousands)
<S> <C> <C> <C> <C> <C>
Interest income $2,399 $2,402 $2,698 $2,558 $2,359
Interest expense 1,353 1,454 1,641 1,530 1,592
--------- -------- -------- ------- --------
Net interest income 1,046 948 1,057 1,028 767
Provision for loan losses - 12 12 15 44
--------- -------- -------- ------- --------
Net interest income after
provision for loan losses 1,046 936 1,045 1,013 723
Other income 55 126 116 63 64
General, administrative and other
expense 863 793 792 919 674
-------- -------- -------- ------- --------
Earnings before income taxes 238 269 369 157 113
Federal income taxes 84 100 137 45 27
--------- -------- -------- ------- --------
Net earnings $ 154 $ 169 $ 232 $ 112 $ 86
========= ======== ======== ======= ========
<FN>
--------------------------
(1) Includes $475,000 of loans held for sale at June 30, 1998, and $89,200 of loans held for sale at June 30,
1997. There were no loans held for sale at June 30, 2000, 1999, or 1996.
(2) Consisted solely of retained earnings at June 30, 1996.
</TABLE>
3
<PAGE> 6
<TABLE>
<CAPTION>
At June 30,
-------------------------------------------------------------
SELECTED FINANCIAL RATIOS: 2000 1999 1998 1997 1996
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Performance ratios:
Return on average assets 0.46% 0.49% 0.63% 0.33% 0.27%
Return on average equity 2.19 2.39 3.31 1.82 3.11
Interest rate spread 2.12 1.70 1.82 2.10 2.04
Net interest margin 3.22 2.79 2.92 3.06 2.48
Non-interest expense to average total assets 2.60 2.29 2.16 2.68 2.13
Average equity to average assets 21.16 20.43 19.12 17.89 8.72
Equity to assets, end of period 21.19 21.01 19.73 19.66 9.06
Asset quality ratios:
Nonperforming assets to average total assets 0.24 -- 0.15 -- --
Nonperforming loans to total loans 0.36 -- -- -- --
Allowance for loan losses to total loans 0.64 0.73 0.63 0.48 0.47
Allowance for loan losses to nonperforming loans
178.75 -- -- -- --
Net charge-offs to average loans (0.03) -- -- -- (0.14)
Average interest-earning assets to average
interest-bearing liabilities 126.29 125.46 124.17 121.15 108.51
</TABLE>
4
<PAGE> 7
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
===============================================================================
GENERAL
-------------------------------------------------------------------------------
The following discussion and analysis of the financial condition and results of
operations of the Company and Foundation should be read in conjunction with and
with reference to the consolidated financial statements and the notes thereto
presented in this Annual Report.
The Company was incorporated for the purpose of owning all of the outstanding
common shares of Foundation following the Conversion. As a result, the
discussion and analysis that follows pertains primarily to the financial
condition and results of operations of Foundation.
FINANCIAL CONDITION
--------------------------------------------------------------------------------
At June 30, 2000, assets totaled $33.4 million, a decrease of $0.4 million, or
1.1%, compared to June 30, 1999 totals. The decrease in assets primarily funded
a decrease in deposits and repayment of advances from the Federal Home Loan
Bank.
Cash and cash equivalents decreased $2.0 million, or 84.5%, certificates of
deposit decreased $1.2 million, or 100.0%, and mortgage-backed securities
decreased $0.7 million, or 13.2%. These funded an increase in investment
securities of $1.5 million, or 39.9%, an increase in loans receivable-net of
$2.0 million, or 9.6%, a decrease in deposits of $0.3 million, or 1.0%, and a
decrease in advances from the Federal Home Loan Bank of $82,878, or 13.8%.
Unallocated shares held by the Foundation Bancorp, Inc. Employee Stock Ownership
Plan (the "ESOP"), decreased $52,900, or 26.0%, resulting from the 1999 calendar
year allocation.
Retained earnings decreased $77,070, or 2.6%, the result of the $.50 per share
dividend paid in September 1999, partially offset by fiscal 2000 earnings.
Shares held for the RRP decreased $22,853, or 18.5%, the result of the fiscal
2000 distribution.
5
<PAGE> 8
COMPARISON OF RESULTS OF OPERATIONS
FOR THE YEARS ENDED JUNE 30, 2000 AND 1999
--------------------------------------------------------------------------------
Net earnings for the year ended June 30, 2000 totaled $154,366, a decrease of
$14,861, or 8.8%, from the $169,227 in net earnings for the year ended June 30,
1999. The decrease in earnings was comprised of an increase in net interest
income after provision for losses on loans of $110,054, or 11.8%, and a decrease
in federal income taxes of $15,900, or 15.9%, offset by a decrease in other
income of $71,089, or 56.4%, and an increase in general, administrative and
other expense of $69,726, or 8.8%.
Total interest income for the fiscal year ended June 30, 2000 decreased $2,721,
or 0.1%, as compared to fiscal 1999 totals. Interest on loans increased $12,363,
or 0.8%, and interest on investment securities increased $251,735, or 184.9%,
both the result of higher yields on larger portfolios. These increases were
offset by a decrease in interest on mortgage-backed securities of $23,295, or
7.7%, the result of a smaller portfolio due to repayments, and a decrease in
interest on interest bearing deposits of $243,524, or 74.9%, as funds were
redeployed into higher yielding loans and investment securities.
Total interest expense for the fiscal year ended June 30, 2000 decreased
$110,775, or 6.9%, as compared to fiscal 1999 totals. Interest expense on
deposits decreased $99,090, or 7.0%, the result of lower weighted average costs
on a smaller portfolio. Interest expense on borrowings decreased $1,685, or
4.7%, due to a lower balance as a result of scheduled repayments.
Other income for the fiscal year ended June 30, 2000 decreased $71,089, or
56.4%, as compared to fiscal year 1999 totals. Gains on sales of loans decreased
$59,607, or 94.3%, as loan volume declined and higher yielding loans were placed
in the loan portfolio. Net investment property income decreased $3,077, or 6.0%,
primarily due to higher real estate taxes, and other operating income decreased
$8,405, or 74.3%, primarily due to the gain on sale of real estate owned in
fiscal 1999. There was no real estate owned in fiscal 2000.
General, administrative and other expense for fiscal 2000 increased $69,726, or
8.8%, as compared to fiscal 1999 totals. Employee compensation and benefits
increased $28,198, or 6.3%, primarily as a result of the amortization of the RRP
expense. Occupancy and equipment expense increased $2,972, or 3.7%, resulting
from the depreciation of the new computer system required to meet Y2K operating
standards. Professional services fees increased $56,281, or 252.9%, in
connection with the evaluation and negotiation of corporate opportunities that
Foundation subsequently concluded did not warrant further consideration. These
increases were partially offset by a decrease in federal deposit insurance
premiums of $6,257, or 37.9%, a decrease in data processing expense of $1,958,
or 5.4%, and a decrease in other operating expense of $9,865, or 8.7%. Federal
income taxes decreased $15,900, or 15.9%, primarily due to the lower earnings.
6
<PAGE> 9
COMPARISON OF RESULTS OF OPERATIONS
FOR THE YEARS ENDED JUNE 30, 1999 AND 1998
--------------------------------------------------------------------------------
Net earnings for the year ended June 30, 1999 totaled $169,227, a decrease of
$62,886, or 27.1%, from the $232,113 in net earnings for the year ended June 30,
1998. The decrease in earnings was comprised of a decrease in interest income of
$296,446, or 11.0%, and a slight increase of $1,062, or 0.1%, in general,
administrative and other expense. These changes were partially offset by a
decrease in interest expense of $187,133, or 11.4%, an increase in other income
of $10,289, or 8.9%, and a decrease in federal income tax of $37,200, or 27.1%.
Total interest income for the fiscal year ended June 30, 1999 decreased
$296,446, or 11.0% , as compared to fiscal 1998 totals. Interest rates reached
historic lows during fiscal 1999 and existing borrowers refinanced to obtain the
lower mortgage rates. Foundation followed a strategy of selling the low rate
loans in the secondary market rather than holding them in the loan portfolio.
The investment in mortgage loans was reduced and the average rate of return
decreased as the higher yielding loans were refinanced. This resulted in a
decrease in interest on loans of $409,479, or 20.0%. This decrease was partially
offset by increases in interest on mortgage-backed securities of $60,049, or
24.9%, interest on investments of $46,860, or 52.5%, and interest on
interest-bearing deposits and other of $6,124, or 1.9%, as the cash flow from
loan payoffs was re-invested in short-term, lower yielding instruments.
As the availability of attractive yields on investments decreased and liquidity
increased, Foundation lowered the rates paid on deposit which resulted in
outflows. Interest expense on deposits decreased $182,992, or 11.4%, as the
result of a lower weighted average cost of deposits on a smaller portfolio.
Interest expense on borrowings decreased $4,141, or 10.4%, resulting from
scheduled repayments.
Other operating income increased $10,289, or 8.9%, resulting from an increase in
gains on sales of loans of $5,693, or 9.9%, and an increase in other operating
income of $6,609, or 140.7%, partially offset by a decrease in investment
property income of $2,013, or 3.8%, due to higher real estate taxes. Other
income included a one-time gain on the sale of real estate owned in the amount
of $7,400.
The increase of $1,062, or 0.1%, in general, administrative and other expense
was principally due to the increase in franchise taxes of $18,594, or 31.5%, an
increase in occupancy and equipment of $2,411, or 3.1%, and an increase in data
processing of $2,810, or 8.4%, offset by a decrease in employee compensation and
benefits of $6,581, or 1.5%, a decrease in professional fees of $13,792, or
38.3%, and a decrease in other expenses of $1,345, or 1.2%. The increases in
data processing and occupancy and equipment were Year 2000 related and involved
new computer equipment and testing. Federal income taxes decreased $37,200, or
27.1%, due to the lower earnings.
7
<PAGE> 10
The following table sets forth certain average balance sheet information,
including the average yield on interest-earning assets and the average cost of
interest-bearing liabilities for the years indicated. Such yields and costs are
derived by dividing income or expense by the average monthly balance of
interest-earning assets or interest-bearing liabilities, respectively, for the
years presented. Average balances are derived from monthly balances, which
include nonaccruing loans in the loan portfolio.
<TABLE>
<CAPTION>
Year ended June 30,
----------------------------------------------------------------------------
2000 1999
------------------------------------- ------------------------------------
Weighted average Average Interest Average Average Interest Average
yield/rate outstanding earned/ yield/ outstanding earned/ yield/
at June 30, 2000 balance paid rate balance paid rate
---------------- ------------ -------- --------- ------------ -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Interest-bearing deposits 6.85% $ 1,269 $ 81 6.38% $ 5,999 $ 325 5.42%
Investment securities 7.02 5,606 388 6.92 2,228 136 6.10
Mortgage-backed securities 6.30 4,571 278 6.08 5,068 301 5.94
Loans receivable 7.92 21,086 1,652 7.83 20,717 1,640 7.92
------- ------ -------- -------
Total interest-earning assets 32,532 2,399 7.37 34,012 2,402 7.06
Non-interest-earning assets 678 554
------- --------
Total assets $ 33,210 $ 34,566
======== ========
Interest-bearing liabilities:
Deposits 5.53 $ 25,140 1,319 5.25 $26,471 1,418 5.36
FHLB advances 5.56 619 34 5.49 638 36 5.64
-------- --------
Total interest-bearing liabilities 25,759 1,353 5.25 27,109 1,454 5.36
------ -------
Non-interest-bearing liabilities 424 394
-------- --------
Total liabilities 26,183 27,503
Stockholders' equity 7,027 7,063
-------- --------
Total liabilities and
stockholders' equity $ 33,210 $ 34,566
======== ========
Net interest income $1,046 $ 948
====== =======
Interest rate spread 2.12% 1.70%
==== ====
Net interest margin (net interest
income as a percentage of average
interest-earning assets) 3.22% 2.79%
==== ====
Average interest-earning assets to
average interest-bearing liabilities 126.29% 125.46%
====== ======
<CAPTION>
1998
------------------------------------
Average Interest Average
outstanding earned/ yield/
balance paid rate
------------ --------- --------
<S> <C> <C> <C>
Interest-earning assets:
Interest-bearing deposits $ 5,809 $ 319 5.49%
Investment securities 1,451 89 6.13
Mortgage-backed securities 4,020 241 6.00
Loans receivable 24,871 2,049 8.24
-------- ------
Total interest-earning assets 36,151 2,698 7.46
Non-interest-earning assets 517
---------
Total assets $36,668
=======
Interest-bearing liabilities:
Deposits $28,400 1,606 5.65
FHLB advances 714 35 4.90
--------- --------
Total interest-bearing liabilities 29,114 1,641 5.64
--------
Non-interest-bearing liabilities 542
---------
Total liabilities 29,656
Stockholders' equity 7,012
---------
Total liabilities and
stockholders' equity $36,668
=======
Net interest income $1,057
======
Interest rate spread 1.82%
====
Net interest margin (net interest
income as a percentage of average
interest-earning assets) 2.92%
====
Average interest-earning assets to
average interest-bearing liabilities 124.17%
======
</TABLE>
8
<PAGE> 11
The table below describes the extent to which changes in interest rates and
changes in volume of interest-earning assets and interest-bearing liabilities
have affected the interest income and interest expense of Foundation during the
years indicated. For each category of interest-earning assets and
interest-bearing liabilities, information is provided for changes attributable
to (i) increases and decreases in volume (change in volume multiplied by prior
year rate), (ii) increases and decreases in rate (change in rate multiplied by
prior year volume) and (iii) total increases and decreases in rate and volume.
The combined effects of changes in both volume and rate, which cannot be
separately identified, have been allocated proportionately to the change due to
volume and the change due to rate.
<TABLE>
<CAPTION>
Year ended June 30,
---------------------------------------------------------------------------------
2000 vs. 1999 1999 vs. 1998
-------------------------------------- -------------------------------------
Increase Increase
(decrease) due to Total (decrease) due to Total
--------------------- increase --------------------- increase
Volume Rate (decrease) Volume Rate (decrease)
----- ----- ---------- ------ ----- ----------
<S> <C> <C> <C> <C> <C> <C>
Interest income attributable to:
Interest-bearing deposits $(294) $ 50 $(244) $ 10 $ (4) $ 6
Investments 231 21 252 48 (1) 47
Mortgage-backed securities (30) 7 (23) 62 (2) 60
Loans receivable 29 (17) 12 (332) (77) (409)
----- ----- ----- ----- ----- -----
Total interest income (64) 61 (3) (212) (84) (296)
Interest-bearing liabilities
Deposits (70) (29) (99) (106) (77) (183)
FHLB advances (1) (1) (2) (4) -- (4)
----- ----- ----- ----- ----- -----
Total interest expense (71) (30) (101) (110) (77) (187)
----- ----- ----- ----- ----- -----
Increase (decrease) in net
interest income $ 7 $ 91 $ 98 $(102) $ (7) $(109)
===== ===== ===== ===== ===== =====
</TABLE>
ASSET AND LIABILITY MANAGEMENT
--------------------------------------------------------------------------------
Foundation, like other financial institutions, is subject to interest rate risk
to the extent that its interest-earning assets reprice differently than its
interest-bearing liabilities. As part of its effort to monitor and manage
interest rate risk, Foundation uses the guidance issued in Thrift Bulletin 13a
(TB 13a), published by the OTS December 1, 1998. Under TB 13a, the Board of
Directors looks at Foundation's actual capital-to-assets ratio under various
interest rate scenarios. In this way, current levels of capital are considered
when risk is assessed.
9
<PAGE> 12
Presented below, as of June 30, 2000, is an analysis of Foundation's interest
rate risk as measured by changes in net portfolio value (NPV). Generally, NPV is
the discounted present value of the difference between incoming cash flows on
interest-earning and other assets and outgoing cash flows on interest-bearing
and other liabilities. The table below attempts to quantify interest rate risk
as the change in the NPV ratio which would result from a theoretical 100 basis
point (1 basis point equals .01%) change in market interest rates (rate shock).
The table also contains the policy limits set by the Board of Directors of
Foundation in the event of various changes in interest rates.
June 30, 2000
--------------
Change in interest rate Board limit Projected NPV
(basis points) (Minimum NPV Ratio) Ratio
-------------- ------------------- --------------
+300 6% 9.15%
+200 7% 11.91%
+100 8% 14.58%
0 9% 17.01%
-100 9% 18.65%
-200 9% 19.15%
-300 9% 19.39%
As illustrated by the table, Foundation's NPV is more sensitive to rising rates
than declining rates. Such difference in sensitivity occurs principally because,
as rates rise, borrowers do not prepay fixed-rate loans as quickly as they do
when interest rates are declining. Thus, in a rising interest rate environment,
because Foundation has a significant amount of fixed-rate loans in its loan
portfolio, the amount of interest Foundation would receive on its loans would
increase relatively slowly as loans are slowly prepaid and new loans are made at
higher rates. Moreover, the interest Foundation would pay on its deposits would
increase rapidly because Foundation's deposits generally have shorter periods to
repricing.
As with any method of measuring interest rate risk, certain shortcomings are
inherent in the NPV approach. For example, although certain assets and
liabilities may have similar maturities or periods of repricing, they may react
in different degrees to changes in market interest rates. Also, the interest
rates on certain types of assets and liabilities may fluctuate in advance of
changes in market interest rates, while interest rates on other types may lag
behind changes in market rates. Further, in the event of a change in interest
rates, expected rates of prepayment on loans and mortgage-backed securities and
early withdrawal levels from certificates of deposit would likely deviate
significantly from those assumed in making the risk calculations.
A decrease or a significant increase in interest rates from the recent levels
could be expected to affect negatively the net interest income of Foundation.
Moreover, rising interest rates could negatively affect the earnings of
Foundation due to diminished loan demand. Foundation attempts to mitigate
interest rate risk by selling fixed-rate loans originated at low interest rates.
10
<PAGE> 13
LIQUIDITY AND CAPITAL RESOURCES
--------------------------------------------------------------------------------
Foundation's liquidity, primarily represented by cash and cash equivalents, is a
result of the funds used in or provided by Foundation's operating, investing and
financing activities. These activities are summarized below for the years ended
June 30, 2000, 1999 and 1998.
<TABLE>
<CAPTION>
Year ended June 30,
---------------------------------------------------
2000 1999 1998
------- ------- -------
(In thousands)
<S> <C> <C> <C>
Net income $ 154 $ 169 $ 232
Adjustments to reconcile net income to
net cash from operating activities (32) 15 36
------- ------- -------
Net cash from operating activities 122 184 268
Net cash provided by (used in)
investment activities (1,599) (1310) 2,098
Net cash provided by (used in)
financing activities (563) (2,656) 541
------- ------- -------
Net change in cash and cash equivalents (2,040) (3,782) 2,907
Cash and cash equivalents at
beginning of period 2,414 6,196 3,289
------- ------- -------
Cash and cash equivalents at
end of period $ 374 $ 2,414 $ 6,196
======= ======= =======
</TABLE>
The principal sources of funds for Foundation are deposits, loan and
mortgage-backed security repayments, maturities of investment securities and
funds generated through operations. Foundation also has the ability to borrow
from the FHLB of Cincinnati. While scheduled loan repayments and maturing
investments are relatively predictable, deposit flows and loan prepayments are
heavily influenced by interest rates, general economic conditions and
competition. Foundation maintains a level of investment in liquid assets which
is based upon management's assessment of (i) the need for funds, (ii) expected
deposit flows, (iii) the yields available on short-term liquid assets and (iv)
the objectives of the asset and liability management program of Foundation.
OTS regulations presently require Foundation to maintain an average daily
balance of liquid assets, which may include, but are not limited to, investments
in U. S. Treasury and federal agency obligations and other investments in an
amount equal to at least 4% of the sum of Foundation's net withdrawable deposit
accounts and borrowings payable in one year or less computed as of the end of
the prior quarter or based on the average daily balance during the prior
quarter. The liquidity requirement, which may be changed from time to time by
the OTS to reflect changing economic conditions, is intended to provide a source
of relatively liquid funds upon which Foundation may rely if necessary to fund
deposit withdrawals or other short-term funding needs. At June 30, 2000,
Foundation's liquid assets totaled approximately $8.9 million, which exceeded
the OTS minimum requirements by $7.9 million. At such date, Foundation had
commitments to originate loans and loans in process totaling $345,000.
Foundation considers its liquidity and capital reserves sufficient to meet its
outstanding short-term and long-term needs.
11
<PAGE> 14
CLARK, SCHAEFER, HACKETT & CO.
CERTIFIED PUBLIC ACCOUNTANTS
BUSINESS CONSULTANTS
INDEPENDENT AUDITORS' REPORT
----------------------------
The Board of Directors
Foundation Bancorp, Inc.:
We have audited the consolidated statements of financial condition of Foundation
Bancorp, Inc. and its subsidiary as of June 30, 2000 and 1999, and the related
consolidated statements of income, stockholders' equity, and cash flows for each
of the three years in the period ended June 30, 2000. These financial statements
are the responsibility of the Corporation's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Foundation Bancorp, Inc. and
its Subsidiary as of June 30, 2000 and 1999, and the results of its operations
and its cash flows for each of the three years in the period ended June 30,
2000, in conformity with generally accepted accounting principles.
/s/ Clark, Schaefer, Hackett & Co.
Cincinnati, Ohio
July 17, 2000
12
<PAGE> 15
FOUNDATION BANCORP, INC.
Consolidated Statements of Financial Condition
June 30, 2000 and 1999
<TABLE>
<CAPTION>
ASSETS
June 30,
----------------------------
2000 1999
------------ ------------
<S> <C> <C>
Cash $ 13,279 79,041
Interest-bearing deposits in other financial institutions 360,262 2,335,212
------------ ------------
373,541 2,414,253
Certificates of deposit -- 1,206,398
Investment securities - at amortized cost (fair value of $5,097,605 and
$3,701,563 at June 30, 2000 and 1999, respectively) 5,250,000 3,753,920
Mortgage-backed securities - at amortized cost (fair value of $4,152,316
and $4,920,386 at June 30, 2000 and 1999, respectively) 4,355,022 5,017,882
Loans receivable, net 22,441,795 20,468,039
Accrued interest receivable:
Loans 100,882 96,078
Investments and interest-bearing deposits 73,151 21,866
Mortgage-backed securities 29,841 33,591
Real estate owned -- --
Federal Home Loan Bank stock - at cost 368,800 343,800
Property and equipment, net 281,405 299,787
Prepaid expenses and other assets 107,459 105,966
------------ ------------
Total assets $ 33,381,896 33,761,580
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $ 25,505,422 25,754,436
Advances from Federal Home Loan Bank 518,652 601,530
Advances by borrowers for taxes, insurance and other 57,872 59,551
Accrued expenses 123,330 183,241
Accrued federal income tax -- 16,378
Deferred federal income tax 101,300 74,300
------------ ------------
Total liabilities 26,306,576 26,689,436
Common stock, no par value; 2,000,000 shares authorized; 462,875 shares
issued and outstanding as of June 30, 2000 and 1999 -- --
Additional paid in capital 4,398,922 4,394,429
Retained earnings, substantially restricted 2,927,918 3,004,988
Shares acquired for restricted stock plan (100,647) (123,500)
Less unallocated ESOP shares (150,873) (203,773)
------------ ------------
Total stockholders' equity 7,075,320 7,072,144
------------ ------------
Total liabilities and stockholders' equity $ 33,381,896 33,761,580
============ ============
</TABLE>
See accompanying notes to financial statements.
13
<PAGE> 16
FOUNDATION BANCORP, INC.
Consolidated Statements of Income
Three Years Ended June 30, 2000
<TABLE>
<CAPTION>
June 30,
------------------------------------
2000 1999 1998
---------- ---------- ----------
<S> <C> <C> <C>
Interest income:
Loans $1,651,921 1,639,558 2,049,037
Mortgage-backed securities 277,949 301,244 241,195
Investment securities 387,850 136,115 89,255
Interest-bearing deposits 81,507 325,031 318,907
---------- ---------- ----------
Total interest income 2,399,227 2,401,948 2,698,394
---------- ---------- ----------
Interest expense:
Deposits 1,319,298 1,418,388 1,601,380
Borrowings 34,008 35,693 39,834
---------- ---------- ----------
Total interest expense 1,353,306 1,454,081 1,641,214
---------- ---------- ----------
Net interest income 1,045,921 947,867 1,057,180
Provision for loan losses -- 12,000 12,000
---------- ---------- ----------
Net interest income after provision for loan losses 1,045,921 935,867 1,045,180
---------- ---------- ----------
Other income:
Gain on sale of loans 3,598 63,205 57,512
Net investment property income 48,549 51,626 53,639
Other operating income 2,900 11,305 4,696
---------- ---------- ----------
Total other income 55,047 126,136 115,847
---------- ---------- ----------
General, administrative and other expense:
Employee compensation and benefits 473,700 445,502 452,083
Occupancy and equipment 83,922 80,950 78,539
Deposit insurance 10,249 16,506 17,541
Franchise tax 77,981 77,626 59,032
Professional fees 78,539 22,258 36,050
Computer processing costs 34,470 36,428 33,618
Other operating expense 103,741 113,606 114,951
---------- ---------- ----------
Total general, administrative and other operating expenses 862,602 792,876 791,814
---------- ---------- ----------
Income before income taxes 238,366 269,127 369,213
---------- ---------- ----------
Federal income taxes:
Current 57,000 97,000 119,600
Deferred 27,000 2,900 17,500
---------- ---------- ----------
84,000 99,900 137,100
---------- ---------- ----------
Net income $ 154,366 169,227 232,113
========== ========== ==========
Basic and diluted earnings per share $ 0.35 0.38 0.53
========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
14
<PAGE> 17
FOUNDATION BANCORP, INC.
Consolidated Statements of Stockholders' Equity
Three Years Ended June 30, 2000
<TABLE>
<CAPTION>
Additional Restricted Unallocated
Common Paid-In Retained Stock ESOP
Stock Capital Earnings Plan Shares Total
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1997 $ -- 4,341,126 2,904,516 -- (311,781) 6,933,861
ESOP shares to be
allocated at average
market price -- 34,268 -- -- 55,108 89,376
Dividends paid -- -- (115,718) -- -- (115,718)
Net income for the
year ended
June 30, 1998 -- -- 232,113 -- -- 232,113
---------- ---------- ---------- ---------- ---------- ----------
Balance at June 30, 1998 $ -- 4,375,394 3,020,911 -- (256,673) 7,139,632
ESOP shares to be
allocated at average
market price -- 19,035 -- -- 52,900 71,935
Dividends paid -- -- (185,150) -- -- (185,150)
Shares acquired for restricted
stock plan -- -- -- (123,500) -- (123,500)
Net income for the
year ended
June 30, 1999 -- -- 169,227 -- -- 169,227
---------- ---------- ---------- ---------- ---------- ----------
Balance at June 30, 1999 -- 4,394,429 3,004,988 (123,500) (203,773) 7,072,144
ESOP shares to be
allocated at average
market price -- 4,493 -- -- 52,900 57,393
Dividends paid -- -- (231,436) -- -- (231,436)
Shares redeemed for restricted
stock plan -- -- -- 22,853 -- 22,853
Net income for the
year ended
June 30, 2000 -- -- 154,366 -- -- 154,366
---------- ---------- ---------- ---------- ---------- ----------
Balance at June 30, 2000 -- 4,398,922 2,927,918 (100,647) (150,873) 7,075,320
========== ========== ========== ========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
15
<PAGE> 18
FOUNDATION BANCORP, INC.
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Years Ended June 30,
-----------------------------------------
2000 1999 1998
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Interest received $ 2,322,591 2,397,761 2,665,353
Interest paid (1,352,153) (1,455,203) (1,642,190)
Cash paid to suppliers and employees (862,795) (648,355) (756,657)
Fees and commissions received 2,901 3,829 4,696
Income taxes paid (62,282) (187,357) (76,521)
Rental income received 73,200 73,200 73,200
----------- ----------- -----------
Net cash provided by operating
activities 121,462 183,875 267,881
----------- ----------- -----------
Cash flows from investing activities:
Purchase of mortgage-backed securities -- (1,951,453) (454,477)
Repayments of mortgage-backed securities 652,000 885,347 758,290
Redemption (purchase) of certificates of
deposit 1,206,398 (906,398) (300,000)
Purchase of investment securities (1,500,000) (4,459,514) (2,801,193)
Maturities of investment securities -- 3,650,000 800,000
Loan disbursements (6,166,978) (11,849,619) (11,418,611)
Loan principal repayments 3,916,797 6,736,060 8,285,610
Proceeds from sale of loans 294,104 6,554,310 7,228,530
Proceeds from sale of other real estate owned -- 61,707 --
Purchase of property and equipment (1,167) (30,797) --
----------- ----------- -----------
Net cash provided by (used in)
investing activities (1,598,846) (1,310,357) 2,098,149
----------- ----------- -----------
Cash flows from financing activities:
Net increase (decrease) in deposits (249,014) (2,268,478) 731,149
Borrowings from Federal Home Loan Bank 750,000 -- --
Repayment of Federal Home Loan Bank
advances (832,878) (78,507) (74,366)
Shares purchased for restricted stock plan -- (123,500) --
Dividends paid (231,436) (185,150) (115,718)
----------- ----------- -----------
Net cash provided by (used in)
financing activities (563,328) (2,655,635) 541,065
----------- ----------- -----------
Net increase (decrease) in cash and
cash equivalents (2,040,712) (3,782,117) 2,907,095
Cash and cash equivalents at beginning
of period 2,414,253 6,196,370 3,289,275
----------- ----------- -----------
Cash and cash equivalents at end of period $ 373,541 2,414,253 6,196,370
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
16
<PAGE> 19
FOUNDATION BANCORP, INC.
Consolidated Statement of Cash Flows
Three Years Ended June 30, 2000
Reconciliation of Net Income to Net Cash
Provided By Operating Activities
--------------------------------
<TABLE>
<CAPTION>
2000 1999 1998
--------- --------- ---------
<S> <C> <C> <C>
Net income $ 154,366 169,227 232,113
Adjustments to reconcile net income to net cash
provided by operating activities:
Gain on sale of loans (3,598) (63,205) (57,512)
Gain on sale of other real estate owned -- (7,476) --
Depreciation 19,549 16,401 13,545
Amortization of premiums and discounts
on investments and mortgage-backed securities 14,780 17,247 18,027
Federal Home Loan Bank stock dividends (25,000) (23,000) (22,000)
Provision for loan losses -- 12,000 12,000
Amortization of deferred loan fees (14,081) (12,033) (10,302)
Deferred federal income tax 27,000 2,900 17,500
ESOP expense 57,393 71,935 89,376
Restricted stock plan expense 22,853 -- --
Effects of change in operating assets and
liabilities:
Accrued interest receivable (52,339) 13,599 (18,761)
Prepaid expenses and other assets (1,493) 2,733 (44,221)
Advances by borrowers for taxes,
insurance and other (1,679) (1,482) (4,238)
Accrued expenses (59,911) 38,184 (725)
Accrued federal income tax (16,378) (53,155) 43,079
--------- --------- ---------
Net cash provided by operating
activities $ 121,462 183,875 267,881
========= ========= =========
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
The Company acquired real estate in settlement of a loan receivable of $54,231
during the year ended June 30, 1998.
The Company redeemed shares in the restricted stock plan of $22,853 during the
year ended June 30, 2000.
See accompanying notes to financial statements.
17
<PAGE> 20
FOUNDATION BANCORP, INC.
Notes to Financial Statements
Three Years Ended June 30, 2000, 1999 and 1998
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The following describes the organization and the significant accounting
policies followed in the preparation of these consolidated financial
statements.
NATURE OF OPERATIONS AND PRINCIPLES OF CONSOLIDATION
Foundation Bancorp, Inc. (the Company) is a holding company formed in
1996 in conjunction with the conversion of Foundation Savings Bank
from a mutual savings bank to a stock savings bank in September 1996.
The conversion culminated in the Corporation's issuance of 462,875
shares. The Company's financial statements include the accounts of
its wholly owned subsidiary, Foundation Savings Bank (the Savings
Bank). All significant intercompany transactions have been
eliminated.
The Savings Bank is a state-chartered savings and loan association
and a member of the Federal Home Loan Bank System and subject to
regulation by the Office of Thrift Supervision (OTS), an office of
the U. S. Department of the Treasury. As a member of this system, the
Savings Bank maintains a required investment in capital stock of the
Federal Home Loan Bank of Cincinnati. The Savings Bank provides loans
to customers and receives deposits from customers primarily in the
metropolitan Cincinnati area.
Savings accounts are insured by the Savings Association Insurance
Fund (SAIF), administered by the Federal Deposit Insurance
Corporation (FDIC), within certain limitations. An annual premium is
required by the SAIF for the insurance of such savings accounts.
CASH AND CASH EQUIVALENTS
For the purpose of reporting cash flows, the Company considers all
highly liquid debt instruments with original maturity when purchased
of three months or less to be cash equivalents.
COMPREHENSIVE INCOME
As described, the Company has no items of comprehensive income,
therefore no statement of comprehensive income is presented.
INVESTMENT AND MORTGAGE-BACKED SECURITIES
Investments and mortgage-backed securities are classified upon
acquisition into one of three categories; held to maturity, trading,
and available for sale. Debt securities that the Savings Bank has the
positive intent and ability to hold to maturity are classified as
held to maturity securities and reported at amortized cost.
Presently, the Savings Bank has classified all investments and
mortgage backed securities as held to maturity.
Premiums and discounts on investment securities and mortgage-backed
securities are amortized and accreted using the interest method over
the expected lives of the related securities.
LOANS RECEIVABLE
Loans held in portfolio are stated at the principal amount
outstanding, adjusted for deferred loan origination fees and costs,
and the allowance for loan losses.
Loan origination fees and certain direct origination costs are
capitalized and recognized as an adjustment of the yield on the
related loan over the contractual life of the loan.
18
<PAGE> 21
Interest is accrued as earned unless the collectibility of the loan
is in doubt. Uncollectible interest on loans that are contractually
past due is charged off, or an allowance is established based on
management's periodic evaluation. The allowance is established by a
charge to interest income equal to the interest accrued past the
first 90 days, and income is subsequently recognized only to the
extent that cash payments are received until, in management's
judgment, the borrower's ability to make periodic interest and
principal payments has returned to normal, in which case the loan is
returned to accrual status.
Loans held for sale are carried at the lower of cost or market,
determined in the aggregate. In computing cost, deferred loan
origination fees and costs are aggregated with the principal balances
of the related loans.
It is the Savings Bank's policy to provide valuation allowances for
estimated losses on loans based on past loss experience, trends in
the level of delinquent and problem loans, adverse situations that
may affect the borrower's ability to repay, the estimated value of
any underlying collateral and current and anticipated economic
conditions in the primary lending area. When the collection of a loan
becomes doubtful, or otherwise troubled, the Savings Bank records a
loan loss provision equal to the difference between the fair value of
the property securing the loan and the loan's carrying value. Major
loans and major lending areas are reviewed periodically to determine
potential problems at an early date. The allowance for loan losses is
increased by charges to earnings and decreased by charge-offs (net of
recoveries). The amount of actual write-offs could differ from the
estimate. Because of uncertainties inherent in the estimation
process, management's estimate of credit losses inherent in the loan
portfolio and the related allowance may change in the near term.
However, the amount of the change that is reasonably possible cannot
be estimated.
For impairment recognized in accordance with SFAS No. 114, as
amended, the entire change in present value of expected cash flows is
reported as bad debt expense in the same manner in which impairment
initially was recognized or as a reduction in the amount of bad debt
expense that otherwise would be reported. Interest on impaired loans
is reported on the cash basis. Impaired loans are loans that are
considered to be permanently impaired in relation to principal or
interest based on the original contract. Impaired loans would be
charged off in the same manner as all loans subject to charge off.
The Savings Bank considers its investment in one to four family and
multi-family residential loans, non-residential loans and consumer
loans to be homogeneous and therefore excluded from separate
identification for evaluation of impairment. The Savings Bank's
policy is that collateral dependent loans, which are more than ninety
days delinquent, are considered to constitute more than a minimum
delay in repayment and are evaluated for impairment under SFAS No.
114 at that time. For the years ended June 30, 2000 and 1999, the
Savings Bank had no loans that were impaired as described in the
pronouncement and therefore no interest income was recognized or
received on impaired loans.
REAL ESTATE ACQUIRED THROUGH FORECLOSURE
Real estate acquired through foreclosure results when property
collateralizing a loan is foreclosed upon or otherwise acquired by
the Savings Bank in satisfaction of the loan. Real estate acquired in
settlement of loans is recorded at the lower of the recorded
investment in the loan satisfied or the fair value of the assets
received at the time of acquisition less estimated costs to sell at
the date of foreclosure. The fair value of the assets received is
based upon a current appraisal adjusted for estimated carrying and
selling costs. Valuations are periodically performed by management,
and an allowance for losses is established by a charge to the
allowance for loan losses if the carrying value of a property exceeds
its estimated net realizable value. The Savings Bank acquired real
estate through foreclosure at June 30, 1998 for $54,231. The real
estate acquired through foreclosure was sold in 1999.
19
<PAGE> 22
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Depreciation of property
and equipment is provided by the straight-line method over the
estimated useful lives (range of lives five to fifteen years) of the
related classes of assets.
INCOME TAXES
Deferred income tax assets and liabilities are computed annually for
differences between the financial statement and tax basis of assets
and liabilities that will result in taxable or deductible amounts in
the future based on enacted tax laws and rates applicable to the
periods in which the differences are expected to affect taxable
income. Deferred tax assets are reduced by a valuation allowance
when, in the opinion of management, it is more likely than not that
some portion or all of the deferred tax assets will not be realized.
Deferred tax assets and liabilities are adjusted for the effects of
changes in tax laws and rates on the date of enactment. Income tax
expense is the tax payable or refundable for the period plus or minus
the change during the period in deferred tax assets and liabilities.
ACCOUNTING ESTIMATES
The presentation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
CONCENTRATIONS OF CREDIT RISK
The Savings Bank grants first mortgage and other loans to customers
located primarily in the metropolitan Cincinnati area. Accordingly, a
substantial portion of its debtors' ability to honor their contracts
is dependent upon the financial health of the local economy and
market.
Management may at times, maintain deposit accounts with financial
institutions in excess of federal deposit insurance limits.
EMPLOYEE STOCK OWNERSHIP PLAN
Shares committed to be allocated to the Employee Stock Ownership Plan
(ESOP) are charged to expense at the average market price for the
year. The excess of average market value over cost is added to
additional paid-in capital.
RECENT ACCOUNTING PRONOUNCEMENTS
SFAS No. 133 "Accounting for Derivative Instruments and Hedging
Activities" was issued by the FASB which established standards for
derivative instruments, including derivative instruments imbedded in
other contracts, and for hedging activities. It requires that an
entity recognize all derivatives as either assets or liabilities in
the statement of financial position and measure those instruments at
fair value. SFAS No. 133, as amended by SFAS No. 137, is effective
for all fiscal quarters beginning after June 15, 2000. Management
does not believe that the adoption of this standard will impact the
Company because at the current time the Company does not hold any
instruments covered by this standard.
EARNINGS PER SHARE
Earnings per common share have been computed on the basis of weighted
average number of common shares outstanding, and when applicable,
those stock options that are dilutive. Weighted-average shares
outstanding do not include unallocated shares purchased by the ESOP.
20
<PAGE> 23
2. INVESTMENT SECURITIES:
The amortized cost, gross unrealized gains, gross unrealized losses and
fair values of investment securities are as follows:
<TABLE>
<CAPTION>
June 30, 2000
-----------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
<S> <C> <C> <C> <C>
Obligations of U.S.
Government agencies $ 5,250,000 - 152,395 5,097,605
========= ============ ======= =========
</TABLE>
<TABLE>
<CAPTION>
June 30, 2000
-----------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
<S> <C> <C> <C> <C>
Obligations of U.S.
Government agencies $ 3,753,920 - 52,357 3,701,563
========= ============ ====== =========
</TABLE>
The amortized cost and fair value of investment securities at June 30,
2000 and 1999 by contractual maturity are shown below. Actual maturities
may differ from contractual maturities because borrowers may have the
right to call or prepay obligations with or without call or prepayment
penalties.
<TABLE>
<CAPTION>
June 30, 2000
---------------------------------------
Amortized Fair
Cost Value
---- -----
<S> <C> <C>
Due or callable in one year or less $ 5,250,000 5,097,605
========= =========
</TABLE>
Included in investments at June 30, 2000, are $500,000 of callable notes
with a final maturity in 2003, $4,450,000 of callable notes with a final
maturity between of 2004 and 2009 and $300,000 of callable notes with
final maturity of 2014.
<TABLE>
<CAPTION>
June 30, 1999
-----------------------------------------
Amortized Fair
Cost Value
---- -----
<S> <C> <C>
Due or callable in one year or less $ 3,453,920 3,401,563
Due or callable in three years 300,000 300,000
---------- ----------
$ 3,753,920 3,701,563
========= =========
</TABLE>
Included in investments at June 30, 1999, are $500,000 of callable notes
with a final maturity in 2003, $2,950,000 of callable notes with a final
maturity between 2004 and 2009 and $300,000 of callable notes with final
maturity of 2014.
21
<PAGE> 24
3. MORTGAGE-BACKED SECURITIES:
The amortized cost, gross unrealized gains, gross unrealized losses and
fair value of mortgage-backed securities are as follows:
<TABLE>
<CAPTION>
June 30, 2000
--------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
<S> <C> <C> <C> <C>
Federal Home Loan Mortgage Corp. $ 1,486,686 1,456 43,759 1,444,383
Federal National Mortgage Association 1,744,504 2,078 71,978 1,674,604
Government National Mortgage
Association 84,832 597 - 85,429
Collateralized Mortgage Obligations 1,039,000 - 91,100 947,900
--------- -------- -------- ----------
$ 4,355,022 4,131 206,837 4,152,316
========= ======== ======= =========
</TABLE>
<TABLE>
<CAPTION>
June 30, 1999
---------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
<S> <C> <C> <C> <C>
Federal Home Loan Mortgage Corp. $ 1,744,966 256 29,602 1,715,620
Federal National Mortgage Association 2,132,527 294 45,979 2,086,842
Government National Mortgage
Association 101,389 815 - 102,204
Collateralized Mortgage Obligations 1,039,000 - 23,280 1,015,720
--------- ---------- ------ ---------
$ 5,017,882 1,365 98,861 4,920,386
========= ========== ====== =========
</TABLE>
The maturity of the mortgage-backed securities is based on the repayment
terms of the underlying mortgages.
4. LOANS RECEIVABLE:
Loans receivable, including loans held for sale, consists of the
following:
<TABLE>
<CAPTION>
June 30
-----------------------------------
2000 1999
---- ----
<S> <C> <C>
Residential one-to-four family real estate $ 20,182,585 18,013,796
Multi-family residential real estate 1,354,682 1,489,085
Commercial real estate 906,488 1,196,702
Consumer 150,105 198,467
Passbook 26,312 22,019
------------ ----------
22,620,172 20,920,069
Less:
Loans in process (54,970) (307,302)
Allowance for loan losses (142,907) (150,147)
Deferred loan (fees) costs 19,500 5,419
------------ ----------
$ 22,441,795 20,468,039
============ ==========
</TABLE>
At June 30, 2000 and 1999, adjustable rate loans approximated $5,663,000
and $6,001,000.
22
<PAGE> 25
Activity in the allowance for loan losses was as follows:
<TABLE>
<CAPTION>
Year Ended June 30,
--------------------------------------------------
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Beginning balance $ 150,147 138,147 126,147
Provision for loan losses - 12,000 12,000
Write-offs net of recoveries (7,240) - -
-------- ------- ----------
Ending balance $ 142,907 150,147 138,147
======= ======= =======
</TABLE>
Gross proceeds on sales of loans were $294,104, $6,544,310 and $7,228,530
for the years ended June 30, 2000, 1999 and 1998, respectively. Net
realized gains on sales of loans were $3,598, $63,205 and $57,512 for the
years ended June 30, 2000, 1999 and 1998. Loans serviced for others as of
June 30, 2000, 1999 and 1998, were $-0-, $249,270, and $-0- respectively.
At June 30, 2000, the Company had one non-accrual loan with a balance of
$73,243 and non-accrual interest of $1,038. The Company had no
non-accrual loans at June 30, 1999.
The Company had no loans to officers, directors and employees at June 30,
2000 and 1999.
5. PROPERTY AND EQUIPMENT:
Property and equipment are summarized as follows:
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Real estate owned - investment property $ 251,847 251,847
Furniture and equipment 173,351 172,184
Leasehold improvements 34,246 34,246
------- --------
459,444 458,277
Less accumulated depreciation 178,039 158,490
------- --------
$ 281,405 299,787
======= ========
</TABLE>
The Company leases its office facility under a ten-year non-cancelable
lease, which expires in March 2001 with additional renewal options. Rent
expense for each of the years ended June 30, 2000, 1999 and 1998, was
$53,356.
Minimum commitments under the term of the lease are as follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
<S> <C>
2001 $ 38,722
========
</TABLE>
6. INVESTMENT PROPERTY:
The Savings Bank acquired real estate at the southeast corner of Eighth
and Vine Streets in 1980. The Savings Bank has a lease agreement on the
property as a parking lot under a three-year lease beginning July 1,
1997. The lease payments are $6,100 per month. Rent income for the years
ended June 30, 2000, 1999 and 1998, was $73,200, $73,200 and $73,200,
respectively.
23
<PAGE> 26
7. DEPOSITS:
Deposits consist of the following:
<TABLE>
<CAPTION>
June 30,
--------------------------------------------------------------------
2000 1999
----------------------------- -----------------------------------
Weighted Weighted
Average Average
Rate Amount Rate Amount
---- ------ ---- ------
<S> <C> <C> <C> <C>
Passbook 2.54% $ 707,885 2.54% $ 706,509
NOW and money market accounts 2.24 1,471,154 2.30 1,290,500
----------- -----------
2.34 2,179,039 2.37 1,997,009
----------- -----------
Certificates of deposit:
3 months 4.43 103,227 4.41 151,565
6 months 5.78 991,092 4.64 1,121,367
12 months 5.84 10,160,547 5.05 9,974,359
18 months 5.79 97,399 2.45 21,023
2 years 5.74 7,242,018 5.64 8,043,601
3 years 5.78 1,443,136 5.84 1,679,207
4 years 5.86 245,375 5.78 291,498
5 years 6.07 3,043,589 5.99 2,474,807
----------- -----------
5.82 23,326,383 5.38 23,757,427
---------- ----------
5.53% $ 25,505,422 5.15% $ 25,754,436
========== ==========
</TABLE>
Maturities of outstanding certificates of deposit are summarized as
follows:
<TABLE>
<CAPTION>
June 30,
---------------------------------
2000 1999
---- ----
(In Thousands)
<S> <C> <C>
One year or less $ 15,438 16,164
1 - 2 years 5,454 4,723
2 - 3 years 1,087 1,482
Over 3 years 1,347 1,388
------ ------
$ 23,326 23,757
====== ======
</TABLE>
Interest expense on deposits is summarized as follows:
<TABLE>
<CAPTION>
Year Ended June 30,
----------------------------------------------------
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Passbook $ 18,701 16,163 18,300
NOW and money market account 43,811 36,931 43,819
Certificates of deposit 1,256,786 1,365,294 1,539,261
--------- --------- ---------
$ 1,319,298 1,418,388 1,601,380
========= ========= =========
</TABLE>
The aggregate amount of certificates of deposits in denominations of
$100,000 or more was $2,970,366 and $3,100,010 at June 30, 2000 and 1999,
respectively. Deposit accounts exceeding $100,000 are not federally
insured.
24
<PAGE> 27
8. ADVANCES FROM FEDERAL HOME LOAN BANK:
The Savings Bank borrowed $1,000,000 in 1994 from the Federal Home Loan
Bank under a mortgage matched advance program. Interest is charged on the
advance at a weighted average rate of 5.50% and is due in 120 to 180
monthly installments of $9,517 including interest.
Future maturities on the advance are as follows:
<TABLE>
<CAPTION>
Year Ended June 30,
-------------------
<S> <C>
2001 $ 87,494
2002 92,368
2003 97,512
2004 53,809
2005 40,091
2006 and subsequent 147,378
-------
$ 518,652
=======
</TABLE>
The advances are collateralized by a blanket agreement on residential
mortgage loans held by the Savings Bank. The Savings Bank has also
pledged its Federal Home Loan Bank stock and mortgage notes with unpaid
principal balances of approximately $790,000 for future advances.
9. FINANCIAL INSTRUMENTS:
The following fair value disclosures are made in accordance with the
requirements of SFAS No. 107, "Disclosures About Fair Value of Financial
Instruments." SFAS No. 107 requires the disclosure of fair value
information about both on-and-off-balance sheet financial instruments
where it is practical to estimate that value. In cases where quoted
market prices were not available, fair values were based on estimates
using present value or other valuation methods, as described below. The
use of different assumptions (e.g., discount rates and cash flow
estimates) and estimation methods could have a significant effect on fair
value amounts. Accordingly, the estimates presented herein are not
necessarily indicative of the amounts the Company could realize in a
current market exchange. Because SFAS No. 107 excludes certain financial
instruments and all non-financial instruments from its disclosure
requirements, any aggregation of the fair value amounts presented would
not represent the underlying value of the Company.
The following methods and assumptions were used in estimating the fair
values of financial instruments, cash, interest bearing deposits and
investment in FHLB stock. The carrying value of cash and interest bearing
deposits approximates those assets' fair value.
INVESTMENTS AND MORTGAGE-BACKED SECURITIES
For investment securities (debt instruments) and mortgage-backed
securities, fair values are based on quoted market prices, where
available. If a quoted market price is not available, fair value is
estimated using quoted market prices of comparable instruments.
LOANS RECEIVABLE
The fair value of the loan portfolio is estimated by evaluating
homogeneous categories of loans with similar financial
characteristics. Loans are segregated by types, such as residential
mortgage, commercial real estate and consumer. Each loan category is
further segmented into fixed and adjustable rate interest, terms, and
by performing and nonperforming categories.
The fair value of performing loans, except residential mortgage
loans, is calculated by discounting contractual cash flows using
estimated market discount rates which reflect the credit and interest
rate risk inherent in the loan. For performing residential mortgage
loans, fair value is estimated by discounting contractual cash flows
adjusted for prepayment estimates using discount rates based on
secondary market sources. The fair value for significant
nonperforming loans is based on recent internal or external
25
<PAGE> 28
appraisals. Assumptions regarding credit risk, cash flow, and
discount rates are subjectively determined by using available market
information.
SAVINGS ACCOUNTS
The fair values of passbook accounts, NOW accounts, and money market
savings and demand deposits approximates their carrying values. The
fair value of fixed maturity certificates of deposit is estimated
using a discounted cash flow calculation that applies interest rates
currently offered for deposits of similar remaining maturities.
OFF-BALANCE SHEET ITEMS
Carrying value is a reasonable estimate of fair value. These
instruments are generally variable rate or short-term in nature, with
minimal fees charged.
The estimated fair values of the Company's financial instruments were as
follows at:
<TABLE>
<CAPTION>
June 30, 2000
--------------------------------------
Carrying Fair
Amount Value
------ -----
<S> <C> <C>
Financial assets:
Cash and due from banks, interest bearing
deposits with banks and federal funds sold $ 373,541 373,541
Investment securities 5,250,000 5,097,605
Mortgage-backed securities 4,355,022 4,152,316
Loans receivable 22,441,795 22,087,000
Accrued interest receivable 203,874 203,874
Financial liabilities:
Deposit liabilities 25,505,422 25,329,000
Federal Home Loan Bank advance 518,652 474,000
Off balance sheet items - -
</TABLE>
<TABLE>
<CAPTION>
June 30,1999
--------------------------------------
Carrying Fair
Amount Value
------ -----
<S> <C> <C>
Financial assets:
Cash and due from banks, interest bearing
deposits with banks and federal funds sold $ 3,620,651 3,620,651
Investment securities 3,753,920 3,701,563
Mortgage-backed securities 5,017,882 4,920,386
Loans receivable 20,468,039 20,431,000
Accrued interest receivable 151,535 151,535
Financial liabilities:
Deposit liabilities 25,754,436 25,722,000
Federal Home Loan Bank advances 601,530 581,000
Off balance sheet items - -
</TABLE>
26
<PAGE> 29
10. CAPITAL REQUIREMENTS:
In connection with the insurance of savings deposits by SAIF, the Savings
Bank is subject to minimum regulatory capital requirements promulgated by
the Office of Thrift Supervision (OTS).
In general, the capital standards established for savings institutions
must be no less stringent than capital standards applicable to national
banks set by the Office of the Comptroller of the Currency. At June 30,
2000, the core capital requirement provides for minimum core capital
equal to 4.0% of adjusted total assets. The risk-based capital
requirement at June 30, 2000 provides for the maintenance of core capital
plus general loss allowances equal to 8.0% of risk-weighted assets. In
computing risk-weighted assets, the Savings Bank multiplies the value of
each asset on its statement of financial condition by a defined
risk-weighing factor, e.g., one-to-four family residential loans carry a
risk-weighted factor of 50%.
The Savings Bank's regulatory capital exceeds all minimum capital
requirements as shown in the following table:
<TABLE>
<CAPTION>
June 30, 2000
---------------------------------------------------------
Regulatory Capital
Risk-
Core based
Capital % Capital %
------- - ------- -
(in Thousands)
<S> <C> <C> <C> <C>
Capital under generally accepted
accounting principles $ 5,795 5,795
General valuation allowances - 143
------ ------
Regulatory capital computed 5,795 17.4 5,938 39.2
Minimum capital requirements 1,336 4.0 1,211 8.0
----- ---- ----- ----
Regulatory capital-excess $ 4,459 13.4 4,727 31.2
===== ==== ===== ====
</TABLE>
Capital ratios for June 30, 1999 are shown in the following table.
<TABLE>
<CAPTION>
June 30, 1999
---------------------------------------------------------
Regulatory Capital
Risk-
Core based
Capital % Capital %
------- - ------- -
(in Thousands)
<S> <C> <C> <C> <C>
Capital under generally accepted
accounting principles $ 5,784 5,784
General valuation allowances - 141
------ ------
Regulatory capital computed 5,784 17.1 5,925 39.9
Minimum capital requirements 1,350 4.0 1,186 8.0
----- ---- ----- ----
Regulatory capital-excess $ 4,434 13.1 4,739 31.9
===== ==== ===== ====
</TABLE>
11. COMMITMENTS:
At June 30, 2000, the Savings Bank had commitments to originate loans
totaling $290,000. The entire amount was for fixed rate loans. No portion
of these loans was disbursed prior to June 30, 2000, and the financial
statements do not reflect any liability for such commitments. Management
anticipates that all originations will be funded from existing liquidity
and normal monthly cash flows. Loan commitments as of June 30, 1999 were
$825,000.
27
<PAGE> 30
12. RETIREMENT PLANS:
EMPLOYEE STOCK OWNERSHIP PLAN
Concurrent with the Savings Bank's conversion from the mutual to stock
form of organization, in September 1996, the Company established an ESOP
which provides retirement benefits for substantially all employees who
have completed one year of service and have attained age 21. The ESOP
initially acquired 37,030 common shares in the conversion offering. The
funds used by the ESOP to purchase the stock were provided by a loan from
the Company which will be repaid by contributions to the ESOP by the
Company in the future. Management intends to allocate these shares to
eligible employees' accounts over a five to seven year period starting in
1997. Expense for shares committed to be allocated during 2000, 1999 and
1998 was $57,393, $71,935 and $89,376, respectively. Remaining unearned
shares at June 30, 2000 and 1999 was 14,230 and 19,660.
1997 RECOGNITION AND RETENTION PLAN
During 1997, the shareholders approved the 1997 Recognition and Retention
Plan. Under provisions of the Plan, 18,515 shares of common stock can be
reserved for awards. The Company awarded the maximum number of shares in
January 1999. A recipient earns plan share awards over a ten year period
commencing July 1, 1999. The plan released shares of 1,851 during the
year ended June 30, 2000 and recognized expense of $22,853.
1997 STOCK OPTION AND INCENTIVE PLAN
The shareholders approved the 1997 Stock Option and Incentive Plan in
1997. The Plan allows for 46,288 shares to be reserved for incentive and
non-incentive stock options. Grantees are awarded 10 year options to
acquire shares at the market price on the date the option is granted. The
Company granted 46,288 options on January 25, 1999 at an option price of
$12.50. As of June 30, 2000 all options remain outstanding and no options
have been exercised or forfeited.
The Company applies Accounting Principles Board Opinion 25, "Accounting
for Stock Issued to Employees", and related Interpretations in accounting
for its option plan. Accordingly, no compensation cost has been
recognized. Had compensation cost for the Company's stock-based
compensation plan been determined based on the fair market value at the
grant date for awards under the plan consistent with the method of SFAS
No. 123 "Accounting for Stock-Based Compensation", the effect on net
income and earning per share would have been reduced to pro-forma amounts
indicated below:
<TABLE>
<CAPTION>
JUNE 30, 2000 JUNE 30, 1999
------------- -------------
<S> <C> <C>
Net income:
As reported $154,666 169,227
Additional compensation expense - 89,512
Pro forma 154,666 79,715
Basic earning per share:
As reported $ .35 .38
Pro forma .35 .18
</TABLE>
The estimated fair value of options granted in 1999 was calculated by the
Black-Scholes method. Assumptions used in the calculation are as follows:
<TABLE>
<S> <C>
Risk-free interest rate U.S. Treasury Strips rate on the date of grant
which was 4.91%
Expected life Life of the options which is ten years
Expected volatility 0.17% based on the 33 month history of prices
Expected dividends $.40 per share
</TABLE>
28
<PAGE> 31
13. FEDERAL INCOME TAXES:
The Company has qualified under provisions of the Internal Revenue Code
which permit the Savings Bank to deduct from taxable income an allowance
for bad debts based on a percentage of taxable income before such
deduction. The Tax Reform Act of 1969 gradually reduced this reduction to
40% for years beginning in 1979. The Tax Reform Act of 1986 reduced this
deduction to 8% beginning in 1988 and starting in 1997, the percentage of
taxable income method is no longer allowed.
A bill repealing the thrift bad debt reserve was signed into law and is
effective for taxable years beginning after December 31, 1995. All
savings banks and thrifts are required to account for tax reserves for
bad debts in the same manner as banks. Such entities with assets less
than $500 million will be required to maintain a moving average
expense-based reserve and no longer will be able to calculate a reserve
based on a percentage of taxable income.
Tax reserves accumulated after 1987 will automatically be subject to
recapture. The recapture will occur in equal amounts over six years
beginning in 1997 and can be deferred up to two years, depending on the
level of loans originated.
As a result of the tax law change, the Company is expected to ultimately
recapture approximately $32,500 of tax reserves accumulated after 1987,
resulting in additional tax payments of $11,000. The recapture of these
reserves will not result in any significant income statement effect to
the Company. Pre-1988 tax reserves will not have to be recaptured unless
the thrift or its successor institution liquidates, redeems shares or
pays a dividend in excess of earnings and profits.
Appropriated and unappropriated retained income at June 30, 2000 included
earnings of approximately $653,000, representing such pre-1988 bad debt
deductions for which no provision for federal income taxes has been made.
If the amounts that qualify as deductions for federal income tax purposes
are later used for purposes other than bad debt losses, including
distributions in liquidation, such distributions will be subject to
federal income taxes at the then current corporate income tax rate.
Management does not contemplate any action which would cause such
pre-1988 cumulative bad debt deduction to be subject to federal income
taxes, although it is possible that changes in legislation could, at a
future date require recapture of all or part of this bad debt deduction.
An analysis of income tax expense, setting forth the reasons for the
variations from the statutory rate is as follows:
<TABLE>
<CAPTION>
Year Ended June 30
-------------------------------------------------
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Federal income taxes at the statutory
rate of 34% $ 81,044 91,503 125,532
Employee stock ownership plan 2,956 8,397 11,568
Other, primarily surtax exemptions - - -
------ ------- -------
Federal income taxes per consolidated
financial statements $ 84,000 99,900 137,100
====== ======= =======
Effective tax rate 35.2% 37.1% 37.2%
====== ======= =======
</TABLE>
29
<PAGE> 32
The tax effect of temporary differences that give rise to significant
portions of deferred tax assets and deferred tax liabilities are as
follows:
<TABLE>
<CAPTION>
June 30
---------------------------------------------------
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Deferred tax assets arising from:
Allowance for loan losses $ 41,800 40,000 35,900
Deferred loan fees and costs 3,000 3,700 5,300
Basis of investments 2,000 2,000 2,000
------- ------- -------
Total deferred tax assets 46,800 45,700 43,200
------ ------ ------
Deferred tax liabilities arising from:
Accrual to cash conversion 58,600 34,500 38,800
Depreciation 10,700 15,200 13,300
FHLB stock 78,800 70,300 62,500
------- ------- ------
Total deferred tax liabilities (148,100) (120,000) (114,600)
------- --------- -------
Net deferred tax liability $ 101,300 74,300 71,400
======= ======== ======
</TABLE>
The Savings Bank has not recorded a valuation allowance, as the deferred
tax assets are presently considered to be realizable based on the level
of anticipated future taxable income. Net deferred tax liabilities and
federal income tax expense in future years can be significantly affected
by changes in enacted tax rates.
The components of deferred income tax expense (credit) are as follows:
<TABLE>
<CAPTION>
Year Ended June 30
------------------------------------------------
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Loan origination fees $ 700 1,700 2,600
FHLB stock dividend 8,500 7,800 7,500
Depreciation (4,400) 1,900 (3,700)
Accrual to cash conversion 24,100 (4,400) 15,200
Bad debt reserves and other (1,900) (4,100) (4,100)
------ -------- -----
$ 27,000 2,900 17,500
====== ====== ======
</TABLE>
14. CONVERSION AND LIQUIDATION ACCOUNT:
On May 31, 1996, the Savings Bank's Board of Directors adopted an overall
plan of conversion and reorganization (the Plan) whereby the Savings Bank
would convert to the stock form of ownership, followed by the issuance of
all of the Savings Bank's outstanding common shares to the Company.
In September 1996, the Savings Bank completed its conversion to the stock
form of ownership and issued all of its outstanding common shares to the
Company.
In connection with the conversion, the Company sold 462,875 at a price of
$10.00 per share which, after consideration of offering expenses totaling
$287,624 and shares purchased by employee benefit plans, resulted in net
cash proceeds of $3.97 million.
At the time of the conversion in September 1996, the Savings Bank
established a liquidation account in an amount of $2,772,105, which is
equal to the Savings Bank's regulatory capital at March 31, 1996. The
liquidation account will be maintained for the benefit of eligible
savings account holders who maintain their savings account in the Savings
Bank after conversion.
30
<PAGE> 33
In the event of a complete liquidation (and only in such event), each
eligible savings account holder will be entitled to receive a liquidation
distribution from the liquidation account in the amount of the then
current adjusted balance of savings accounts held before any liquidation
distribution may be made with respect to capital stock. Except for the
repurchase of shares and payment of dividends by the Company, the
existence of the liquidation account will not restrict the use or
application of such related earnings.
The Savings Bank may not declare or pay a cash dividend or repurchase any
of its capital stock if the effect thereof would cause the regulatory
capital of the Savings Bank to be reduced below either the amount
required for the liquidation account or the regulatory capital
requirements imposed by the FDIC.
15. SUMMARIZED FINANCIAL INFORMATION OF THE PARENT COMPANY:
FOUNDATION BANCORP, INC.
Statements of Financial Condition
---------------------------------
June 30, 2000
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
Assets:
Cash $ 10,795 11,034
Certificate of deposit 119,187 96,297
Investment in Foundation Savings Bank 2,970,826 2,970,826
Note receivable-Foundation Savings Bank 1,000,000 1,000,000
Prepaid expenses and other 8,654 958
----------- -----------
$ 4,109,462 4,079,115
=========== ===========
Liabilities and stockholders' equity:
Liabilities:
Accrued expenses $ 13,244 11,020
Accrued federal income taxes -- 16,378
Deferred federal income taxes (3,900) (3,400)
Stockholders' equity:
Common stock -- --
Additional paid in capital 4,341,126 4,341,126
Retained earnings 10,512 41,264
Less unearned ESOP shares (150,873) (203,773)
Shares acquired for restricted stock plan (100,647) (123,500)
----------- -----------
4,100,118 4,055,117
----------- -----------
$ 4,109,462 4,079,115
=========== ===========
STATEMENTS OF INCOME
Year Ended Year Ended
June 30, 2000 June 30, 1999
------------- -------------
Interest income $ 65,510 71,562
Dividend income 215,000 185,000
Other income -- 29
Professional fees (84,539) (29,586)
Other expenses (2,587) (2,888)
Income (tax) benefit 7,300 (13,300)
----------- -----------
Net income $ 200,684 210,817
=========== ===========
</TABLE>
31
<PAGE> 34
16. EARNINGS PER SHARE
Earnings per share for the years ended June 30, 2000, 1999 and 1998 is
calculated as follows.
Basic and diluted earnings per share:
<TABLE>
<CAPTION>
Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ------
<S> <C> <C> <C>
June 30, 2000
Basic $ 154,366 443,415 .35
Diluted $ 154,366 443,415 .35
June 30, 1999
Basic $ 169,227 440,729 .38
Diluted $ 169,227 446,155 .38
The only item with a dilutive effect is stock options which were granted in January 1999.
June 30, 1998
Basic and diluted $232,113 438,547 .53
</TABLE>
17. QUARTERLY FINANCIAL INFORMATION (UNAUDITED):
Summarized quarterly financial information for the year ended June 30,
2000 and 1999 is as follows:
<TABLE>
<CAPTION>
Year Ended June 30, 2000
------------------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
<S> <C> <C> <C> <C>
Interest income $597 589 597 616
Interest expense 333 334 336 350
---- ---- ---- ----
Net interest income 264 255 261 266
Other income 13 16 12 14
Other expenses 208 203 249 203
---- ---- ---- ----
Income before
provision for income taxes 69 68 24 77
Provision for income taxes 25 25 10 24
---- ---- ---- ----
Net income $ 44 43 14 53
==== ===== ===== ====
Basic and diluted earnings
per share $ 0.10 0.10 0.03 .12
==== ==== ==== ====
</TABLE>
32
<PAGE> 35
<TABLE>
<CAPTION>
Year Ended June 30, 1999
------------------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
<S> <C> <C> <C> <C>
Interest income $ 633 615 578 576
Interest expense 393 380 339 342
----- ----- ----- -----
Net interest income 240 235 239 234
Other income 25 59 27 15
Other expenses 201 203 202 199
----- ----- ----- -----
Income before
provision for income taxes 64 91 64 50
Provision for income taxes 23 32 23 22
----- ----- ----- -----
Net income $ 41 59 41 28
===== ===== ===== =====
Basic and diluted earnings
per share $ 0.09 0.14 0.09 0.06
===== ===== ===== =====
</TABLE>
33
