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Foundation Bancorp Reports Third Quarter 2015 Results

BELLEVUE, Wash., Oct. 30, 2015 (GLOBE NEWSWIRE) -- Foundation Bancorp, Inc. (OTCPink:FDNB) (Foundation or Company), the holding company for Foundation Bank, today reported that it earned $23,000 in the third quarter, compared to $304,000 in the third quarter a year ago. In the preceding quarter, Foundation lost $1.5 million, following a $3.0 million charge off related to the discovery of loan fraud. In the first nine months of 2015, Foundation reported a net loss of $1.1 million compared to net income of $1.2 million in the first nine months of 2014.

In August, the Company announced the discovery of fraudulent activity by one if its Washington-based customers. The borrower used falsified financial statements and bank statements to qualify for the loan. The fraudulent documents were discovered approximately 60 days after the loan was originated. Foundation has filed a claim with its insurance company seeking a full recovery. At this point, the former customer has been arrested and charged with Bank fraud.

"Our robust asset growth, in particular the strong core deposit growth, is helping to generate an improved top-line operating income. Unfortunately, elevated expenses for legal, loan and foreclosed assets continues to put a drag on the earnings power of the Company," said Randy Cloes, CFO. "While we believe the additional legal costs will moderate in the near future, we are continuing to work to reduce other controllable expenses."

After preferred dividends, the net loss available to common shareholders for the third quarter was $230,000, or $0.06 per share, compared to a net loss of $1.7 million, or $0.48 per share, in the second quarter of 2015 and earnings of $304,000, or $0.09 per diluted average share, in the third quarter of 2014. In the first nine months of 2015, the net loss available to common shareholders was $1.6 million, or $0.45 per share, compared to earnings of $1.2 million, or $0.34 per diluted average share in the first nine months of 2014. Book value per share was $9.12 at September 30, 2015, compared to $9.04 at June 30, 2015 and $9.71 a year ago.

Third Quarter 2015 Highlights:

  • Core client deposits (which exclude wholesale deposits) increased $59.5 million, or 17.3% over the comparable quarter last year. Core deposits represent 100% of total deposits at September 30, 2015.
  • Allowance for loan losses remained stable at 1.91% of gross loans.
  • Total non-accrual loans were $10.9 million at September 30, 2015, compared to $11.8 million a year earlier.
  • Foreclosed assets including Other Real Estate Owned (OREO) and Other Property Owned (OPO) decreased 35.3% compared to a year ago to $6.8 million at September 30, 2015.
  • Non-interest bearing demand deposits increased 33.1%, compared to a year ago and represent 46.4% of deposits.
  • The ratio of tangible common equity to tangible assets was 7.0% at September 30, 2015.

Asset Quality

"As we have disclosed in the past, several loans in our non-accrual portfolio continue to be secured by commercial property that is in excess of the value being carried on the books. Part of the resolution process for these types of loans is to liquidate the property without having to initiate a foreclosure, and thus reducing the time frame for clearing these properties off the books," said Cloes. "We remain optimistic that a few of these properties will liquidate and will result in noticeable reductions in the non-accrual portfolio over the next several months."

Foundation categorizes borrowers who have been granted concessions that may include interest rate reductions, term extensions, or payment alterations as restructured loans. As of September 30, 2015, Foundation held $4.7 million in performing restructured loans that were paying as agreed but are included in non-accrual loans. Total non-accrual loans were $10.9 million at September 30, 2015, compared to $10.8 million three months earlier and $11.8 million a year earlier, representing a year-over-year decrease of 7.4%. Excluding performing restructured loans, non-accrual loans were $6.2 million, or 2.1% of total loans at the end of the quarter.

Non-performing assets (NPAs), consisting of non-accrual loans, (OREO), (OPO) and past due loans over 90 days, were $17.8 million, or 3.9% of total assets at September 30, 2015 compared to $18.9 million, or 4.4% of total assets at June 30, 2015 and $22.2 million, or 5.6% of total assets a year ago.

Foreclosed assets include OREO and OPO and totaled $6.8 million at September 30, 2015, a 16.3% decrease compared to $8.1 million in the preceding quarter and a 35.3% decrease compared to $10.5 million a year ago.

Balance Sheet Review

Total assets increased 16.9% to $461.8 million at September 30, 2015, compared to $395.0 million a year earlier. The total loan portfolio, excluding loans held for sale, was up 3.7% to $297.0 million at September 30, 2015, compared to $286.3 million a year ago. Commercial real estate (CRE) loans totaled $179.4 million at September 30, 2015, and comprise 60.3% 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 $52.9 million or 17.8% and construction and land loans represented 5.4% of the total loan portfolio. The commercial and industrial (C&I) portfolio represented 37.6% of the total loan portfolio.

"The robust deposit growth year-over-year is a direct result of our team developing both new client relationships, as well as growing deposits with existing bank customers," said Cloes. Foundation's total deposits increased 15.6% to $403.9 million at September 30, 2015, compared to $349.4 million a year earlier, with core client deposits representing 100% of total deposits at quarter-end. Non-interest bearing demand deposits increased 33.1% compared to a year ago. Total transaction accounts represent 55.6%, money market and savings accounts represent 42.1%, and CDs comprise only 2.3% of the total deposit portfolio at September 30, 2015.

Total stockholder equity increased 38.5% to $47.43 million at September 30, 2015, compared to $34.2 million a year ago. Book value per common share was $9.12 at September 30, 2015, compared to $9.71 a year ago and common equity to total assets (common equity ratio) remained strong at 7.0% at September 30, 2015.

Results of Operations

Third quarter net interest margin was 3.35%, compared to 3.59% in the preceding quarter and 3.61% in the third quarter a year ago. "The excess cash on the balance sheet is putting pressure on our net interest margin during the current quarter," said Cloes. "As we deploy this additional cash into investments and loans, the margin should improve." In the first nine months of 2015, Foundation's net interest margin was 3.43% compared to 3.73% in the first nine months of 2014.

Foundation's third quarter net interest income before provision for loan losses increased 9.0% to $3.7 million, compared to $3.4 million in the third quarter a year ago. Year-to-date, net interest income before the provision for loan losses increased 7.1% to $10.6 million, compared to $9.9 million in the first nine months one year ago. Non-interest income increased to $235,000 in the third quarter compared to $127,000 in the third quarter a year ago. In the first nine months of 2015, non-interest income increased 48.7% to $904,000 compared to $608,000 in the first nine months of 2014. The increase was primarily due to Bank Owned Life Insurance and the gain on sale of securities.

Foundation's third quarter total non-interest expense increased to $3.9 million, compared to $3.4 million in the preceding quarter and $3.0 million in the third quarter one year ago. The increase is primarily attributable to higher costs associated with foreclosed assets and legal fees. In the first nine months of the year, total non-interest expense was $10.3 million compared to $8.7 million in the first nine months of 2014. "The high costs associated with non-performing assets is hiding the true core performance of the Bank which is why one of our primary goals remains to move these assets out of the Bank as quickly as possible," said Cloes.

Capital

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

Sep 30, 2015 Jun 30, 2015 Sep 30, 2014
Tier 1 Leverage (to average assets) 9.70% 10.01% 9.94%
Tier 1 Risk-Based (to risk-weighted assets) 11.96% 12.37% 12.62%
Tier 1 Common Capital (CET1) 11.96% 12.37% --
Total Risk-Based (to risk-weighted assets) 13.22% 13.64% 13.88%

In the first quarter of 2015, Foundation raised $15 million in new equity to fund future growth. The equity was through a private placement of convertible preferred shares. This capital raise allows the Company to continue to meet the growing needs of its existing and future clients in the business community.

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. Foundation Bancorp 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 except per share amounts)
September 30, 2015 December 31, 2014 September 30, 2014
Assets
Cash and Due from Banks $ 10,293 $ 11,245 $ 8,805
Interest-Bearing Deposits in Banks 45,519 33,976 27,739
Investments 88,622 60,720 59,669
Loans Held for Sale 618 -- --
Loans 296,993 283,173 286,299
Allowance for Loan Losses (5,692) (5,615) (5,258)
Loans, net 291,301 277,558 281,041
Leaseholds and Equipment, net 581 640 703
Foreclosed Assets 6,768 7,280 10,468
Bank Owned Life Insurance 11,231 -- --
Accrued Interest Receivable and Other Assets 6,863 6,729 6,612
Total Assets $ 461,796 $ 398,148 $ 395,037
Liabilities
Noninterest-Bearing Demand Deposits $ 187,487 $ 140,460 $ 140,830
Interest-Bearing Checking and Savings Accounts 38,233 37,515 37,350
Money Market Accounts 169,033 149,367 155,860
Certificates of Deposit 9,129 15,251 15,340
Total Deposits 403,882 342,593 349,380
Borrowings 8,580 17,341 8,723
Other Liabilities 1,907 3,851 2,692
Total Liabilities 414,369 363,785 360,795
Stockholders' Equity
Preferred Stock (1) 15 -- --
Common Stock (2) 3,556 3,530 3,526
Additional Paid-in Capital 53,212 38,921 38,881
Retained Earnings (Deficit) (9,671) (8,060) (7,929)
Accumulated Other Comprehensive (Loss) Income 315 (28) (236)
Total Stockholders' Equity 47,427 34,363 34,242
Total Liabilities and Stockholders' Equity $ 461,796 $ 398,148 $ 395,037
(1) $1 Par Value, Shares Authorized 1,000,000, issued and outstanding 15,000, 0 and 0 respectively.
(2) $1 Par Value, Shares Authorized 25,000,000, issued and outstanding 3,555,976, 3,529,976 and 3,526,089 respectively.
Book Value per Share, Common Stock $ 9.12 $ 9.73 $ 9.71
Common Equity Ratio 7.0% 8.6% 8.7%
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited) (dollars in 000's, except per share amounts) For the Quarter Ended For the Nine Months Ended
September 30, 2015 June 30, 2015 September 30, 2014 September 30, 2015 September 30, 2014
Interest Income
Loans, Including Fees $ 3,432 $ 3,504 $ 3,376 $ 10,274 $ 10,040
Investments 459 312 228 1,073 606
Other 33 32 33 93 71
Total Interest Income 3,924 3,848 3,637 11,440 10,717
Interest Expense
Deposits 212 206 218 622 636
Borrowings 43 56 54 224 186
Total Interest Expense 255 262 272 846 822
Net Interest Income Before Provision 3,669 3,586 3,365 10,594 9,895
Provision for Loan Losses -- (2,996) -- (2,996) --
Net Interest Income
After Provision for Loan Losses 3,669 590 3,365 7,598 9,895
Noninterest Income
Service Fees 118 119 119 353 350
OTTI on Investments (5) -- -- (5) --
Bank Owned Life Insurance 98 89 -- 231 --
Gain on Sale of Loans 16 74 2 92 191
Gain on Sale of Securities -- 211 -- 211 43
Other Noninterest Income 8 6 6 22 24
Total Noninterest Income 235 499 127 904 608
Noninterest Expense
Salaries and Employee Benefits 1,540 1,610 1,420 4,717 4,243
Occupancy and Equipment 259 262 311 734 947
Data Processing 192 187 181 567 547
Legal 428 434 110 1,100 363
Professional 22 20 20 63 137
Loan Expenses 32 82 58 196 169
FDIC/State Assessments 159 144 133 443 378
Foreclosed Assets, Net 628 74 113 778 25
Insurance 62 57 60 177 180
City and State Taxes 77 66 89 207 214
Other 520 433 530 1,324 1,468
Total Noninterest Expense 3,919 3,369 3,025 10,306 8,671
Income (Loss) Before Provision
(Benefit) for Income Tax (15) (2,280) 467 (1,804) 1,832
Provision (Benefit) for Income Tax (38) (831) 163 (712) 640
NET INCOME (LOSS) $ 23 $ (1,449) $ 304 $ (1,092) $ 1,192
Preferred dividends 253 253 -- 520 --
NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS $ (230) $ (1,702) $ 304 $ (1,612) $ 1,192
Return on average equity -2.78% -19.51% 3.48% -6.20% 4.68%
Return on average assets -0.20% -1.60% 0.31% -0.49% 0.42%
Net interest margin 3.35% 3.59% 3.61% 3.43% 3.73%
Efficiency ratio 100.67% 88.66% 86.86% 92.04% 86.15%
Basic earning (loss) per avg. share $ (0.06) $ (0.48) $ 0.09 $ (0.45) $ 0.34
Diluted earning (loss) per avg. share (1) $ -- $ -- $ 0.09 $ -- $ 0.34
Weighted avg common shares outstanding 3,555,976 3,555,976 3,555,976
Weighted avg dilutive shares outstanding 5,121,479 5,112,665 3,556,654
Loan to deposit ratio 72.83% 74.54% 81.88%
(1) Common stock equivalents are not included if there is a loss to common shareholders as the shares were antidilutive.
SELECTED INFORMATION Quarter Ended
Sept 30 June 30 Mar 31, Dec 31, Sept 30,
2015 2015 2015 2014 2014
Bank Only
Risk Based Capital Ratio 13.22% 13.64% 14.19% 14.04% 13.88%
Leverage Ratio 9.70% 10.01% 10.88% 9.54% 9.94%
C&I Loans to Loans 37.55% 37.75% 35.05% 35.96% 35.05%
Real Estate Loans to Loans 60.29% 59.57% 61.73% 60.75% 61.67%
Consumer Loans to Loans 0.08% 0.08% 0.15% 0.19% 0.17%
Allowance for Loan Losses (000's) $ 5,692 $ 5,580 $ 5,488 $ 5,615 $ 5,258
Allowance for Loan Losses to Loans 1.91% 1.95% 1.94% 1.98% 1.84%
Total Noncurrent Loans to Loans 3.70% 3.78% 4.80% 4.43% 4.11%
Nonperforming assets to assets 4.34% 4.93% 5.59% 5.60% 6.44%
Net Charge-Offs (Recoveries) (000's) $ (112) $ 2,904 $ 128 $ (415) $ (228)
Net Charge-Offs in Qtr to Avg Total Loans -0.04% 1.02% 0.05% -0.15% -0.08%

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