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Foundation Bancorp Earns $351,000, or $0.10 per Diluted Share, in Second Quarter 2014, Results Highlighted by Strong Core Deposit Growth

BELLEVUE, Wash., July 25, 2014 (GLOBE NEWSWIRE) -- Foundation Bancorp, Inc. (OTCBB:FDNB), the holding company for Foundation Bank, today reported that it earned $351,000, or $0.10 per diluted share, in the second quarter of 2014 compared to $522,000, or $0.15 per diluted share in the second quarter of 2013. In the first six months of 2014, Foundation earned $888,000, or $0.25 per diluted share, compared to $1.5 million, or $0.43 per diluted share, in the first six months of 2013. Earnings in the second quarter and first six months of 2014 included a provision for income taxes which was not required previously and reduced net earnings.

"With strong capital, improving asset quality and continued profitability, we have invested in our franchise to position Foundation Bank for future growth," said Diane Dewbrey, President and CEO. "Our initiatives remain focused on strengthening our balance sheet, increasing liquidity and building our capital base."

Second Quarter 2014 Highlights:

  • Net income was $351,000, or $0.10 per diluted share, in the second quarter of 2014 compared to $522,000, or $0.15 per diluted share, in the second quarter a year ago.
  • Second quarter net interest margin was 3.69%, compared to 3.91% in the preceding quarter and 4.00% in the second quarter a year ago.
  • Allowance for loan losses stood at 1.80% of gross loans compared to 1.82% three months earlier.
  • Total non-accrual loans declined 26.5% to $11.7 million at June 30, 2014 when compared to $15.9 million three months earlier and decreased 30.9% when compared to $16.9 million a year earlier.
  • Non-interest bearing demand deposits increased 23.3% compared to a year ago.
  • Core deposits (which exclude time deposits) represent 95.5% of total deposits at June 30, 2014.
  • Book value per share increased 25.3% to $9.68 per share at June 30, 2014, compared to $7.72 per share a year ago.
  • The ratio of tangible common equity to tangible assets improved to 8.9% at June 30, 2014, compared to 7.8% a year ago.

Asset Quality

"The overall trend in credit quality has stabilized, with minimal problem credits added to the non-accrual portfolio during the quarter," said Dewbrey. "As a result of current reserves already in place, representing 1.80% of total loans, as well as declining net charge-offs, we did not record a provision for loan losses for the second quarter of 2014." Foundation also recorded no loan loss provision in both the preceding quarter and in the second quarter a year ago.

Foundation categorizes borrowers who are in financial difficulty and who have been granted concessions that may include interest rate reductions, term extensions, or payment alterations as restructured loans. As of June 30, 2014, Foundation held $9.2 million in performing restructured loans that were paying as agreed but are included in non-accrual loans. Total non-accrual loans declined 26.5% to $11.7 million at June 30, 2014 when compared to $15.9 million three months earlier and decreased 30.9% when compared to $16.9 million a year earlier.

Non-performing assets (NPAs), consisting of non-accrual loans, Other Real Estate Owned (OREO) and performing trouble debt restructured loans, were $26.2 million, or 6.8% of total assets at June 30, 2014 compared to $22.6 million, or 6.2% of total assets at March 31, 2014 and $24.1 million, or 6.9% of total assets, a year ago.

Of the NPAs, foreclosed assets OREO and Other Property Owned (OPO) accounted for $11.0 million at June 31, 2014, compared to $6.6 million at March 31, 2014. "During the second quarter, $4.4 million shifted out of non-accrual loans and into OREO, bringing to total OREO balance, excluding OPO, to $10.1 million at June 30, 2014," said Dewbrey. "OREO consists of seven properties, with one single property located on Lake Washington accounting for 37.9% of the total. This property is currently under contract for sale and expected to close in the 2014." Of the total amount in OREO, Foundation is receiving rent/lease payments on $3.8 million.

Charge-offs during the second quarter of 2014 totaled $227,000 compared to charge-offs of $165,000 in the preceding quarter and $1.2 million in the second quarter a year ago.

Balance Sheet Review

Foundation's gross loans were $279.2 million at June 30, 2014, compared to $280.1 million a year ago. Commercial real estate (CRE) loans totaled $171.5 million at June 30, 2014, and comprise 61.4% of the total loan portfolio. Business loans secured by the property on which the business operates are classified as owner occupied CRE. Of the total loan portfolio, owner occupied CRE loans comprised $47.7 million or 17.1% and construction and land loans represented 7.0%. The commercial and industrial (C&I) portfolio represented 35.9% of the total loan portfolio.

Total deposits increased 9.8% to $338.5 million at June 30, 2014, compared to $308.2 million a year earlier. Non-interest bearing demand deposits increased 23.3% compared to a year ago. Total transaction accounts represent 52.3%, money market and savings accounts represent 43.2% and CDs comprise 4.5% of the total deposit portfolio at June 30, 2014.

Core deposits (which exclude time deposits) represent 95.5% of total deposits at June 30, 2014, compared to 90.6% of total deposits a year earlier.

Total shareholder equity increased 25.6% to $34.1 million at June 30, 2014, compared to $27.2 million a year ago. Book value per share increased to $9.68 at June 30, 2014, compared to $7.72 a year ago. Foundation's common equity to total assets (common equity ratio) stood at 8.9% at June 30, 2014.

Results of Operations

"Due to continued downward pressure on loan yields, the net interest margin contracted again this quarter. We expect continued margin pressure as long as this current low interest rate environment persists," said Dewbrey. Foundation's second quarter net interest margin was 3.69%, compared to 3.91% in the preceding quarter and 4.00% in the second quarter a year ago. In the first six months of 2014, Foundation's net interest margin was 3.80% compared to 3.98% in the first six months of 2013.

Foundation's second quarter net interest income before provision for loan losses was $3.2 million, compared to $3.3 million in the second quarter a year ago. In the first six months of the year, net interest income was $6.5 million, the same as in the first six months one year ago.

Non-interest income increased 82.5% to $219,000 in the second quarter of 2014, compared to $120,000 in the second quarter a year ago. Gain on sale of loans and gain on sale of securities accounted for the majority of the increase compared to the prior year second quarter. In the first six months of the year non-interest income increased 48.5% to $481,000, from $324,000 in the same period one year ago.

Foundation's total non-interest expense was up slightly to $2.9 million in the second quarter of 2014, compared to $2.7 million in the preceding quarter but remained unchanged when compared to the second quarter a year ago. Year-to-date, Foundation's total non-interest expense was $5.6 million, compared to $5.3 million in the same period a year earlier.

Capital

Foundation Bank continues to remain well capitalized by regulatory guidelines. Capital ratios for the Bank are presented as follows:

Jun 30, 2014 Mar 31, 2014 Jun 30, 2013
Tier 1 Leverage (to average assets) 10.32% 10.50% 10.38%
Tier 1 risk-based (to risk-weighted assets) 12.71% 12.97% 12.50%
Total risk-based (to risk-weighted assets) 13.97% 14.22% 13.76%

About the Company

Foundation Bancorp (FDNB) is a bank holding company based in Bellevue, Washington, that operates Foundation Bank, a locally-owned, full service, state chartered commercial bank. Foundation Bank has been serving the greater Puget Sound region since 2000.

Safe Harbor Statement. This release contains comments or information that constitutes forward-looking statements (within the meaning of the Private Securities Litigation Reform Act of 1995) that are based on current expectations that involve a number of risks and uncertainties. Actual results may differ materially from the results expressed in forward-looking statements. Factors that might cause such a difference include changes in interest rates and interest rate relationships; demand for products and services; the degree of competition by traditional and non-traditional competitors; changes in banking regulation; changes in tax laws; changes in prices; levies and assessments; the impact of technological advances; governmental and regulatory policy changes; the outcomes of contingencies; trends in customer behavior as well as their ability to repay loans; changes in the national and local economy; and other factors, including risk factors. The Company undertakes no obligation to update or clarify forward-looking statements, whether as a result of new information, future events or otherwise.

CONSOLIDATED STATEMENTS OF CONDITION
(Unaudited) (dollars in 000's)
June 30, 2014 December 31, 2013 June 30, 2013
Assets
Cash and Due from Banks $ 14,131 $ 10,613 $ 11,849
Interest-Bearing Deposits in Banks 42,522 28,238 26,639
Investments 34,490 33,459 24,309
Loans Held for Sale -- 233 --
Loans 279,157 282,110 280,915
Allowance for Loan Losses (5,030) (5,258) (5,388)
Loans, net 274,127 276,852 275,527
Leaseholds and Equipment, net 757 836 813
Foreclosed Assets 10,962 7,268 7,186
Accrued Interest Receivable and Other Assets 6,302 7,191 2,157
Total Assets $ 383,291 $ 364,690 $ 348,480
Liabilities
Noninterest-Bearing Demand Deposits $ 139,162 $ 124,226 $ 112,855
Interest-Bearing Checking and Savings Accounts 38,303 15,900 16,197
Money Market Accounts 145,618 138,005 127,984
Certificates of Deposit 15,371 41,901 51,145
Total Deposits 338,454 320,032 308,181
Borrowings 8,267 9,595 9,015
Other Liabilities 2,435 2,578 4,109
Total Liabilities 349,156 332,205 321,305
Stockholders' Equity
Common Stock (1) 3,526 3,526 3,522
Additional Paid-in Capital 38,822 38,706 38,714
Retained Earnings (Deficit) (8,231) (9,118) (14,704)
Accumulated Other Comprehensive (Loss) Income 18 (629) (357)
Total Stockholders' Equity 34,135 32,485 27,175
Total Liabilities and Stockholders' Equity $ 383,291 $ 364,690 $ 348,480
(1) $1 Par Value, Shares Authorized 25,000,000, issued and outstanding 3,526,264, 3,526,064 and 3,522,359 respectively.
Book Value per Share 9.68 9.21 7.72
Common Equity Ratio 8.9% 8.9% 7.8%
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited) (dollars in 000's) For the Quarter Ended For the Six Months Ended
June 30, 2014 March 31, 2014 June 30, 2013 June 30, 2014 June 30, 2013
Interest Income
Loans, Including Fees $ 3,298 $ 3,366 $ 3,441 $ 6,664 $ 6,820
Investments 196 182 128 378 263
Other 25 13 13 38 27
Total Interest Income 3,519 3,561 3,582 7,080 7,110
Interest Expense
Deposits 212 206 231 418 480
Borrowings 63 69 80 132 165
Total Interest Expense 275 275 311 550 645
Net Interest Income Before Provision 3,244 3,286 3,271 6,530 6,465
Provision for Loan Losses -- -- -- -- --
Net Interest Income
After Provision for Loan Losses 3,244 3,286 3,271 6,530 6,465
Noninterest Income
Service Fees 123 108 115 231 234
OTTI on Investments -- -- -- -- (6)
Gain on Sale of Loans 45 144 -- 189 56
Gain on Sale of Securities 43 -- -- 43 --
Other Noninterest Income 8 10 5 18 40
Total Noninterest Income 219 262 120 481 324
Noninterest Expense
Salaries and Employee Benefits 1,389 1,435 1,407 2,824 2,754
Occupancy and Equipment 323 312 296 635 579
Data Processing 178 188 179 366 313
Legal 136 117 249 253 330
Professional 81 36 64 117 137
Loan Expenses 64 47 34 111 125
FDIC/State Assessments 126 119 186 245 372
Foreclosed Assets, Net (21) (67) (26) (88) (271)
Insurance 60 60 56 120 112
City and State Taxes 62 63 78 125 158
Other 526 412 346 938 660
Total Noninterest Expense 2,924 2,722 2,869 5,646 5,269
Income Before Provision
for Income Tax
539 826 522 1,365 1,520
Provision for Income Tax 188 289 -- 477 --
NET INCOME $ 351 $ 537 $ 522 $ 888 $ 1,520
Return on average equity 4.13% 6.51% 7.58% 5.30% 11.25%
Return on average assets 0.38% 0.60% 0.61% 0.49% 0.89%
Net interest margin 3.69% 3.91% 4.00% 3.80% 3.98%
Efficiency ratio 86.83% 84.76% 86.25% 85.79% 83.07%
Diluted earning per avg. share $ 0.10 $ 0.15 $ 0.15 $ 0.25 $ 0.43
Loan to deposit ratio 82.42% 86.80% 90.84%
Book value per share $ 9.68 $ 9.50 $ 7.72
SELECTED INFORMATION Quarter Ended
June 30, Mar 31, Dec 31, Sept 30, June 30,
2014 2014 2013 2013 2013
Bank Only
Risk Based Capital Ratio 13.97% 14.22% 13.86% 13.77% 13.76%
Leverage Ratio 10.32% 10.50% 10.39% 10.11% 10.38%
C&I Loans to Loans 35.89% 33.20% 37.18% 37.30% 34.24%
Real Estate Loans to Loans 61.45% 64.38% 60.24% 59.42% 62.82%
Consumer Loans to Loans 0.14% 0.15% 0.15% 0.25% 0.24%
Allowance for Loan Loss Reserves (000's) $ 5,030 $ 5,093 $ 5,258 $ 4,911 $ 5,388
Allowance for Loan Loss Reserves to Loans 1.80% 1.82% 1.86% 1.74% 1.92%
Total Noncurrent Loans to Loans 5.45% 5.73% 5.90% 6.15% 6.01%
Nonperforming assets to assets 6.65% 5.89% 6.30% 6.44% 7.53%
Net Charge-Offs (Recoveries) (000's) $ 63 $ 165 $ 653 $ 1,177 $ 3,997
Net Charge-Offs in Qtr to Avg Total Loans 0.02% 0.06% 0.23% 0.42% 1.42%

CONTACT: Randy Cloes, EVP & CFO 425 691 5014 www.foundationbank.comSource:Foundation Bancorp