<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 December 31, 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.
Yes x 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 December 31, 1999: 462,875
<PAGE> 2
FOUNDATION BANCORP, INC.
FORM 1O-QSB
QUARTER ENDED DECEMBER 31, 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:
<TABLE>
<S> <C>
Consolidated Statements of Financial Condition................................3
Consolidated Statements of Earnings...........................................4
Consolidated Statements of Cash Flows.........................................5
Notes to Consolidated Financial Statements....................................6
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations........................................7
</TABLE>
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<PAGE> 3
FOUNDATION BANCORP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
December 31, June 30,
1999 1999
------------ ------------
(Unaudited)
<S> <C> <C>
ASSETS
Cash and due from banks $ 313,122 $ 79,041
Interest-bearing deposits in other financial institutions 1,050,486 2,335,212
------------ ------------
Cash and cash equivalents 1,363,608 2,414,253
Certificates of deposit 497,000 1,206,398
Investment securities-at amortized cost (approximate market value of $5,108,639
and $3,701,563 at December 31, 1999 and June 30, 1999, respectively) 5,251,568 3,753,920
Mortgage-backed securities-at cost (approximate market value of $4,449,322 and
$4,920,386 at December 31, 1999 and June 30, 1999, respectively) 4,573,437 5,017,882
Loans receivable-net 20,522,147 20,468,039
Office premises and equipment-at depreciated cost 290,012 299,787
Real estate acquired through foreclosure-net -- --
Federal Home Loan Bank stock-at cost 356,100 343,800
Accrued interest receivable on loans 92,977 96,078
Accrued interest receivable on mortgage-backed securities 29,970 33,591
Accrued interest receivable on investments and interest-bearing deposits 74,139 21,866
Prepaid expenses and other assets 46,654 105,966
------------ ------------
TOTAL ASSETS $ 33,097,612 $ 33,761,580
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits $ 25,168,474 $ 25,754,436
Advances from the Federal Home Loan Bank 560,653 601,530
Advances by borrowers for taxes, insurance and other 234,249 59,551
Other liabilities 44,029 199,619
Deferred federal income taxes 74,300 74,300
------------ ------------
TOTAL LIABILITIES 26,081,705 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 4,406,429 4,394,429
Unallocated shares held by Employee Stock Ownership Plan (150,873) (203,773)
Retained earnings-substantially restricted 2,859,723 3,004,988
Shares acquired for restricted stock plan (99,372) (123,500)
------------ ------------
TOTAL SHAREHOLDERS' EQUITY 7,015,907 7,072,144
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 33,097,612 $ 33,761,580
============ ============
</TABLE>
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<PAGE> 4
FOUNDATION BANCORP, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
Three months ended Six months ended
December 31, December 31,
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
(Unaudited) (Unaudited)
Interest Income
Loans $ 406,918 $ 425,691 $ 814,491 $ 861,226
Mortgage-backed securities 69,841 80,487 139,221 145,855
Investment securities 96,878 28,199 192,821 90,514
Interest bearing deposits and other 15,492 80,242 39,577 150,568
----------- ----------- ----------- -----------
Total interest income 589,129 614,619 1,186,110 1,248,163
Interest expense
Deposits 324,004 370,849 647,341 754,863
Borrowings 9,513 9,058 18,909 18,378
----------- ----------- ----------- -----------
Net interest expense 333,517 379,907 666,250 773,241
Net interest income before provision for losses on loans 255,612 234,712 519,860 474,922
Provision for losses on loans -- (3,000) -- (6,000)
----------- ----------- ----------- -----------
Net interest income after provision for losses 255,612 231,712 519,860 468,922
Other operating income 16,171 59,555 29,660 84,583
General, administrative and other expense
Employee compensation and benefits 117,878 114,227 237,767 225,018
Occupancy and equipment 21,114 19,139 41,701 38,608
Federal deposit insurance premiums 3,807 4,069 7,598 8,467
Franchise taxes 19,996 20,138 39,993 40,276
Data processing 8,654 8,593 17,775 18,344
Other 31,876 33,478 66,536 67,534
----------- ----------- ----------- -----------
Total general, administrative and other expenses 203,325 199,644 411,370 398,247
----------- ----------- ----------- -----------
Income before income taxes 68,458 91,623 138,150 155,258
Provision for federal income taxes (25,316) (32,413) (51,050) (55,203)
----------- ----------- ----------- -----------
Net earnings $ 43,142 $ 59,210 $ 87,100 $ 100,055
=========== =========== =========== ===========
Primary and diluted earnings per share $ 0.10 $ 0.14 $ 0.20 $ 0.23
=========== =========== =========== ===========
</TABLE>
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<PAGE> 5
FOUNDATION BANCORP, INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Six months ended
December 31
----------- -----------
1999 1998
----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C>
Cash flows from operating activities
Net income $ 87,100 $ 100,055
Adjustments to reconcile net income to net cash provided by operating
activities
Gain on sale of loans (2,578) (49,580)
Loss(Gain)on sale of REO acquired in foreclosure 3,954 (7,476)
Depreciation and amortization 9,775 6,470
Amortization of premiums and discounts on mortgage-backed securities
9,927 7,703
FHLB stock dividends (12,300) (11,500)
Provision for loan losses -- 6,000
Amortization of deferred loan fees (148) (668)
ESOP expense 64,900 64,900
Deferred loan origination costs (3,223) (5,780)
Effects of changes in operating assets and liabilities
Accrued interest receivable (45,551) 34,992
Prepaid expenses and other assets 59,312 56,949
Accrued expenses (132,390) (123,384)
----------- -----------
Net cash provided by operating activities 38,778 78,681
----------- -----------
Cash flows from investing activities
Repayments of mortgage-backed securities 436,870 482,416
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 -- 3,650,000
Maturity of certificates of deposits 714,144 --
Purchases of certificate of deposits (4,746) (1,000,476)
Loan disbursements (2,683,337) (7,042,455)
Loan principal repayments 2,421,225 4,203,198
Proceeds from sale of loans 213,953 4,710,835
Purchase of REO acquired in foreclosure (50,000) (4,235)
Proceeds from sale of REO acquired in foreclosure 46,046 65,942
Purchases of property and equipment -- (28,989)
----------- -----------
Net cash provided (used) in investing activities (405,845) 2,248,340
----------- -----------
Cash flows from financing activities
Net decrease in deposits (585,962) (1,434,360)
Repayment of FHLB advances (40,877) (38,722)
Net increase in advances by borrowers for taxes, insurance and other 174,698 164,028
Purchase of shares for restricted stock plan -- (26,000)
Dividends paid (231,437) (185,150)
----------- -----------
Net cash used in financing activities (683,578) (1,520,204)
----------- -----------
Net increase (decrease) in cash and cash equivalents (1,050,645) 806,817
Cash and cash equivalents at beginning of period 2,414,253 6,196,370
----------- -----------
Cash and cash equivalents at end of period $ 1,363,608 $ 7,003,187
=========== ===========
Supplemental disclosure of cash flow information
Cash paid during the period for:
Interest expense $ 662,539 $ 777,678
Income taxes $ 23,000 $ 99,364
Non-cash operating and financing activity:
Conversion of accrued compensation to shares released for
Restricted Stock Plan 23,200 --
</TABLE>
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<PAGE> 6
FOUNDATION BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the six months ended
December 31, 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 six
months ended December 31, 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 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 six month periods ended December 31,
1999 and 1998, were computed based on weighted average shares outstanding of
436,611 and 433,267, respectively, which gives effect to a reduction for the
19,651 and 25,454 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.
-7-
<PAGE> 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
DISCUSSION OF FINANCIAL CONDITION CHANGES FROM JUNE 30, 1999 TO DECEMBER 31,
- ----------------------------------------------------------------------------
1999
- ----
At December 31, 1999, the Company's assets totaled $33.1 million, a
decrease of $0.7 million, or 2.0%, from the $33.8 million total at June 30,
1999. Loans receivable totaled $20.5 million at December 31, 1999, an increase
of $54,108, or 0.3%, from the June 30, 1999 total. Cash and equivalents declined
$1.1 million, or 43.5%, as funds were moved into investment securities to obtain
higher yields. Investment securities totaled $5.3 million at December 31, 1999,
an increase of $1.5 million, or 39.9%, from the June 30, 1999 total.
Certificates of deposit decreased $0.7 million, as maturing investments were not
renewed, and mortgage-backed securities decreased $0.4 million resulting from
repayments.
Deposits totaled $25.2 million at December 31, 1999, a decrease of $0.6
million from the June 30, 1999. Advances from the Federal Home Loan Bank
decreased $40,877, or 6.8%, from scheduled repayments. Advances from borrowers
for taxes, insurance and other increased $174,698, or 293.4%, resulting from
timing differences in the payment of real estate taxes. Other liabilities
decreased $155,590, or 77.9%, due to timing differences in the payment of
accounts payable. Shareholders' equity decreased $56,237, or 0.8%, the result of
the $.50 per share annual dividend which totaled $231,438 paid to shareholders
in September 1999.
The Office of Thrift Supervision has two minimum regulatory capital
standards for savings associations. At December 31, 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 December 31, 1999:
<TABLE>
<CAPTION>
ACTUAL REQUIRED EXCESS
------ -------- ------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Core capital $5,708 17.2% $1,324 4.0% $4,384 13.2%
Risk-based capital $5,846 40.3% $1,160 8.0% $4,686 32.3%
</TABLE>
COMPARISON OF OPERATING RESULTS FOR THE SIX MONTHS ENDED DECEMBER 31, 1999 AND
- ------------------------------------------------------------------------------
1998
- ----
General
- -------
The Company recorded net earnings of $87,100 for the six months ended
December 31, 1999, a decrease of $12,955, or 12.9%, from the net earnings of
$100,055 recorded for the six months ended December 31, 1998. The decrease was
the result of an increase in the net interest income after provision for loan
losses of $50,938, or 10.9%, and lower federal income taxes of $4,153, or 7.5%,
offset by an increase in general, administrative and other expense of $13,123,
or 3.3%, and a decrease in other income of $54,923, or 64.9%.
-8-
<PAGE> 8
Net Interest Income
- -------------------
Net interest income after the provision for losses on loans for the six
months ended December 31, 1999, increased $50,938, or 10.9%, compared to the
same period of 1998. This was the result of a decrease in total interest income
of $62,053, or 5.0%, offset by a decrease in total interest expense of $106,991,
or 13.8%. The decrease in total interest income resulted from a decrease in
interest earned on loans of $46,735, or 5.4%, resulting from a lower yield on a
smaller weighted average portfolio. Interest on mortgage-backed securities
decreased $6,634, or 4.5%, resulting from a lower portfolio balance. Interest on
interest-bearing deposits decreased $110,991, or 73.7%, resulting from lower
portfolio balances. These decreases were partially offset by an increase in
interest income on investment securities of $102,307, or 113.0%, resulting from
a larger portfolio balance. The decrease in total interest expense was primarily
attributable to the decrease in interest expense on deposits of $107,522, or
14.2%, due to a lower weighted average rate on a smaller portfolio.
Other Operating Income
- ----------------------
Other operating income totaled $29,660 for the six months ended December
31, 1999, a decrease of $54,923, or 64.9%, compared to the same period in 1998,
due to a substantial decrease in gains on sales of loans as lending volume
declined resulting from the reduced refinancing activity as interest rates
increased.
General, Administrative and Other Expense
- -----------------------------------------
General, administrative and other expense for the six months ended December
31, 1999 increased $13,123, or 3.3%, compared to the same period of 1998. This
was primarily due to the increase in occupancy and equipment expense of $3,093,
or 8.0%, resulting from increased depreciation on the new Y2K compliant computer
system, and an increase in employee compensation and benefits of $12,749, or
5.7%, resulting from the amortization of the RRP shares and the FASB accrual
based on fewer loan originations. Federal income taxes decreased $4,153, or
7.5%, due to lower net income before taxes.
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED DECEMBER 31, 1999 AND
- --------------------------------------------------------------------------------
1998
- ----
General
- -------
The Company recorded net earnings of $43,142 for the three months ended
December 31, 1999, a decrease of $16,068, or 27.1%, from the net earnings of
$59,210 recorded for the three months ended December 31, 1998. The decrease was
primarily the result of an increase in net interest income after provision for
loan losses of $23,900, or 10.3%, and lower federal income taxes of $7,097, or
21.9%, which were substantially offset by a decrease in other income of $43,384,
or 72.8%, and an increase in general, administrative and other expense of
$3,681, or 1.8%.
Net Interest Income
- -------------------
Net interest income after provision for losses on loans for the three
months ended December 31, 1999, increased $23,900, or 10.3%, compared to the
same period of 1998. This was the result of a decrease in total interest income
of $25,490, or 4.1%, offset by a decrease in total interest expense of
-9-
<PAGE> 9
$46,390, or 12.2%. Interest income on loans decreased $18,773, or 4.4%, the
result of a decrease in the loan portfolio. Interest on mortgage-backed
securities decreased $10,646, or 13.2%, and interest on interest bearing
deposits decreased $64,750, or 80.7%, both the result of lower outstanding
portfolio balances. These decreases were partially offset by an increase in
interest on investment securities of $68,679, or 243.6%, as excess liquidity was
invested in higher yielding federal agency notes. Interest expense on deposits
decreased $46,845, or 12.6%, due to a lower weighted average rate on a smaller
portfolio.
Other Operating Income
- ----------------------
Other operating income for the three months ended December 31, 1999
decreased $43,384, or 72.8%, compared to the same period of 1998, the result of
substantially decreased gains on loan sales due to the increase in market rates
on loans, resulting in lower loan production.
General, Administrative and Other Expense
- -----------------------------------------
General, administrative and other expense for the three months ended
December 31, 1999 increased $3,681, or 1.8%, compared to the same period of
1998. This was the result of an increase in occupancy and equipment of $1,975,
or 10.3%, relating to increased real estate taxes and the depreciation of the
Y2K compliant computer system. Employee compensation and benefits increased
$3,651, or 3.2%, the result of the FASB adjustment on lower loan production and
the amortization of the RRP expenses. Federal income taxes decreased $7,097, or
21.9% due to lower net income before taxes.
Discussion of Year 2000 Issues
- ------------------------------
Foundation experienced no problems with the year 2000 date change, and
the final cost of updating the Company's computer systems was within the $30,000
previously reported.
-10-
<PAGE> 10
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
---------------------------------------------------
At the 1999 Annual Meeting of the Corporation's shareholders,
held on October 19, 1999 (the "Annual Meeting"), the following
matters were voted upon:
1) Election of directors:
For Withheld
Mardelle Dickhaut 362,011 13,500
Laird L. Lazelle 362,011 13,500
Robert E. Levitch 361,211 14,300
Michael S. Schwartz 362,011 13,500
2) Ratification of the appointment of Clark, Schaefer,
Hackett & Co. as independent auditors of the Corporation
for the fiscal year ended June 30, 2000.
For: 374,511 Against: 1,000 Abstain: 200
ITEM 5. OTHER INFORMATION
-----------------
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
Exhibit 27. Financial Data Schedule
-11-
<PAGE> 11
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: February 11, 2000 Laird L. Lazelle
President
/s/ Dianne K. Rabe
--------------------------------------------
Date: February 11, 2000 Dianne K. Rabe
Treasurer
-12-
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> OCT-01-1999
<PERIOD-END> DEC-01-1999
<CASH> 313,122
<INT-BEARING-DEPOSITS> 1,547,486
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 9,825,005
<INVESTMENTS-MARKET> 9,557,961
<LOANS> 20,522,147
<ALLOWANCE> 137,899
<TOTAL-ASSETS> 33,097,612
<DEPOSITS> 25,168,474
<SHORT-TERM> 0
<LIABILITIES-OTHER> 352,578
<LONG-TERM> 560,653
0
0
<COMMON> 4,406,429
<OTHER-SE> 2,609,478
<TOTAL-LIABILITIES-AND-EQUITY> 33,097,612
<INTEREST-LOAN> 406,918
<INTEREST-INVEST> 166,719
<INTEREST-OTHER> 15,492
<INTEREST-TOTAL> 589,129
<INTEREST-DEPOSIT> 324,004
<INTEREST-EXPENSE> 333,517
<INTEREST-INCOME-NET> 255,612
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 203,325
<INCOME-PRETAX> 68,458
<INCOME-PRE-EXTRAORDINARY> 43,142
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 43,142
<EPS-BASIC> .10
<EPS-DILUTED> .10
<YIELD-ACTUAL> 7.24
<LOANS-NON> 0
<LOANS-PAST> 51,778
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 150,147
<CHARGE-OFFS> 12,248
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 137,899
<ALLOWANCE-DOMESTIC> 137,899
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 137,899
</TABLE>
