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Foundation Bancorp Earns $696,000 in Third Quarter; Highlighted by Improved Credit Quality and Strong Loan and Deposit Growth

BELLEVUE, Wash., Oct. 22, 2012 (GLOBE NEWSWIRE) -- Foundation Bancorp, Inc. (OTCBB:FDNB), the holding company for Foundation Bank, today reported it earned $696,000, or $0.20 per diluted share, in the third quarter of 2012 compared to a net loss of $304,000, or $0.20 per diluted share, in the third quarter a year ago. For the first nine months of 2012, Foundation Bancorp earned $1.6 million, or $0.46 per diluted share, compared to a net loss of $2.0 million, or $1.32 per diluted share, for the comparable period in 2011.

Third Quarter 2012 Highlights:

  • Foundation Bancorp's stock became listed on the Over-The-Counter Bulletin Board under the ticker symbol of FDNB.
  • Fifth consecutive quarterly reduction in non-performing assets [non-accrual loans and other real estate owned (OREO)] with a quarter-over-quarter reduction of 12.7%.
  • Return on average equity of 8.7% year to date.
  • Loan growth of 14.6% year to date, excluding non-accrual loans, with continued growth in the third quarter of 6.7% over the prior quarter.
  • Deposits remain strong with core client deposits up $43.0 million or 18.5% year to date. Non-interest bearing deposits remain strong at 38.5% of core deposits compared to 34.4% at year-end 2011.
  • Third quarter net interest margin was 3.81% compared to 4.12% in the preceding quarter and 3.66% in the third quarter a year ago. The margin contraction was driven by continued loan yield pressure from loan refinancing and yield pressures in the market place.

"During the quarter we increased net interest income by growing both loans and deposits, despite the continued pressure on loan yields. As we continue to manage legal costs and OREO related expenses, profitability strengthened even further," said Diane Dewbrey, President and CEO. "We are excited to have been approved by FINRA for trading on the Bulletin Board. Initially it will take a little time to become known by investors but as we move forward, trading the stock will become easier. This is a strategic move for our shareholders and is expected to add liquidity for the stock."

Asset Quality

Non-performing assets (NPAs) made up of non-accrual loans and OREO decreased $3.8 million during the quarter and were down $10.0 million (22.3%) year to date. Since the third quarter last year NPAs have decreased $12.1 million or 31.4%. As a percent of total assets, NPAs are down to 7.5% from 11.1% during the same period last year. Assets classified as performing but internally risk rated special mention and substandard also saw continued improvement year over year with a 35.9% reduction. The loan portfolio continues to post steady improvement year over year. "It should be noted that $14.5 million, or 80.3%, of the loans classified as NPA are paying as agreed on a revised schedule," Dewbrey added.

Loans

Gross loans posted an increase of $22.2 million, or 8.5% year to date. However, excluding non-accrual loans, net loans were up $34.1 million, or 14.6% year to date. Commercial real estate (CRE) loans posted the strongest growth in the quarter. Business loans that are secured by the property on which the business operates are classified as CRE. These owner occupied CRE loans amounted to $43.1 million or 27.3% of total CRE. However, construction and land loans remained static while the financing of completed commercial buildings increased. As a percent of total loans, C&I remained at 36% for the quarter compared to 32% at year-end 2011.

Deposits

Due to the $2.4 million reduction of high cost wholesale deposits during the quarter, total deposits posted a slight decrease to $314.3 million. Compared to $315.5 at the end of June, client deposits remained fairly stable. Excluding wholesale deposits year to date, deposits are up $43 million or 18.6%. Wholesale deposits have declined to $39.5 million or 12.5% of total deposits which is down from 18.2% of total deposits at year end 2011. Non-interest bearing demand deposits remained strong at 33.8% of gross deposits compared to 28.3% at year-end 2011.

Capital

Capital remained strong, even as the size of Foundation increased which puts downward pressure on capital ratios. Capital ratios for the Bank are presented as follows:

Sept 30, 2012 June 30, 2012 Sept 30, 2011
Tier 1 Leverage (to average assets) 9.38% 9.58% 8.33%
Tier 1 risk-based (to risk-weighted assets) 11.14% 11.48% 9.97%
Total risk-based (to risk-weighted assets) 12.41% 12.76% 11.26%

Results of Operations

Income

Net income for the quarter and year to date were improved primarily from large reductions in non-interest expenses. Net interest income before provision was also improved in the current quarter and year to date. Net interest income (NIM) was improved at 3.81% this quarter compared to 3.76% during the same quarter last year. Year to date NIM was 4.03% compared to 3.66% last year. There is downward pressure on loan yields and NIM was down at 3.81% in the third quarter compared to 4.12% in the first and second quarters.

Non-interest income

Non-interest income was down for the quarter compared to the same quarter last year, primarily as a result of other real estate owned (OREO) asset sales that occurred in the third quarter a year ago. Without the one-time asset sales, non-interest income would be comparable to the prior quarter. An other than temporary impairment (OTTI) write down was recognized in the current quarter on a single investment that has resulted in all OTTI write downs in prior quarters. Currently the book value of this investment is $745,000.

Non-interest expense

Non-interest expense was down 29% or $1.2 million over the comparable quarter last year. Year to date improvement is 18%. These improvements have come primarily as a result of reductions in legal costs and OREO expenses. Legal costs are improved as a result fewer legal hours related to problem loan workout costs.

Equity

Boosted by earnings and the $6.9 million capital raise completed in the first quarter of 2012, total shareholder equity increased 23.5% to $25.8 million at September 30, 2012, compared to $20.9 million a year ago. Book value per share was $7.31 at September 30, 2012. Foundation's tangible common equity ratio was 7.3% at quarter's end.

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 OPERATIONS
(Unaudited) (dollars in 000's) For the Three Months Ended For the Nine Months Ended
September 30, 2012 September 30, 2011 September 30, 2012 September 30, 2011
Interest Income
Loans, including Fees $ 3,446 $ 3,697 $ 10,334 $ 11,221
Investments 194 335 799 1,103
Other 19 12 47 48
Total Interest Income 3,659 4,044 11,180 12,372
Interest Expense
Deposits 310 671 1,025 2,307
Other Borrowings 95 124 300 374
Total Interest Expense 405 795 1,325 2,681
Net Interest Income Before Provision 3,254 3,249 9,855 9,691
Provision for Loan Losses -- -- -- (1,174)
Net Interest Income
After Provision for Loan Losses 3,254 3,249 9,855 8,517
Noninterest Income
Deposit Account and Service Fees 70 63 201 194
OTTI on Investments (14) -- (14) (27)
Other Noninterest Income 256 422 1,020 941
Total Noninterest Income 312 485 1,207 1,108
Noninterest Expense
Salaries and Employee Benefits 1,287 1,192 3,869 3,665
Occupancy and Equipment 218 224 638 646
Data Processing 159 153 470 467
Loan Legal 252 1,227 975 1,770
Professional and Legal 164 154 610 529
Loan Expenses 38 75 239 369
FDIC/State Assessments 189 286 540 822
OREO Expense and Write-Downs 149 292 721 1,858
Insurance 35 77 191 250
City and State Taxes 86 79 240 251
Other 293 279 939 1,010
Total Noninterest Expense 2,870 4,038 9,432 11,637
Income/(Loss) Before Provision for Income Tax 696 (304) 1,630 (2,012)
Provision/(Benefit) for Income Tax -- -- -- --
NET INCOME/(LOSS) $ 696 $ (304) $ 1,630 $ (2,012)
Return on average equity 10.92% -5.56% 8.71% -12.19%
Return on average assets 0.79% -0.34% 0.64% -0.74%
Net Interest Margin 3.81% 3.76% 4.03% 3.66%
Efficiency Ratio 82.55% 117.34% 89.85% 112.51%
Basic Earning Per Share $ 0.20 $ (0.20) $ 0.46 $ (1.32)
Loan to deposit ratio 90.10% 89.24%
Book value per share $ 7.31 $ 13.65
CONSOLIDATED STATEMENTS OF CONDITION
(Unaudited) (dollars in 000's)
September 30, 2012 December 31, 2011 September 30, 2011
Assets
Cash and Due from Banks $ 13,384 $ 10,272 $ 11,825
Interest-Bearing Deposits in Banks 20,245 10,831 19,172
Investments 29,876 34,717 36,248
Loans Held for Sale -- 493 --
Loans 284,803 262,611 280,252
Allowance for Loan Losses (9,087) (11,115) (13,537)
Loans, net 275,716 251,496 266,715
Leaseholds and Equipment, net 573 629 671
Other Real Estate Owned (OREO) 8,382 6,701 8,586
Accrued Interest Receivable and Other Assets 5,322 4,343 5,473
Total Assets $ 353,498 $ 319,482 $ 348,690
Liabilities
Noninterest-Bearing Demand Deposits $ 106,501 $ 80,137 $ 70,754
Interest-Bearing Checking and Savings Accounts 22,567 15,718 17,754
Money Market Accounts 125,993 115,865 124,512
Certificates of Deposit 59,230 71,254 98,708
Total Deposits 314,291 282,974 311,728
Borrowings 10,143 11,148 13,101
Other Liabilities 3,301 1,590 3,013
Total Liabilities 327,735 295,712 327,842
Stockholders' Equity
Common Stock (1) 3,522 3,377 1,527
Additional Paid-in Capital 38,702 38,323 34,052
Retained Earnings (Deficit) (16,768) (18,399) (15,408)
Accumulated Other Comprehensive Income 307 469 677
Total Stockholders' Equity 25,763 23,770 20,848
Total Liabilities and Stockholders' Equity $ 353,498 $ 319,482 348,690
(1) $1 Par Value, Shares Authorized 25,000,000, Issued and outstanding 3,522,341, 3,376,455 and 1,527,245 respectively.
SELECTED INFORMATION Quarter Ended
Sept 30, June 30, Mar. 31, Dec. 31, Sept. 30,
2012 2012 2012 2011 2011
Bank Only
Risk Based Capital Ratio 12.41% 12.76% 12.74% 12.60% 11.26%
Leverage Ratio 9.38% 9.58% 9.55% 9.23% 8.33%
C&I Loans to Loans 37.13% 34.10% 33.90% 32.83% 32.95%
Real Estate Loans to Loans 61.33% 64.11% 64.10% 65.03% 64.74%
Consumer Loans to Loans 0.33% 0.29% 0.37% 0.33% 0.52%
Allowance for Loan Loss Reserves (000's) $ 9,087 $ 9,459 $ 10,788 $ 11,115 $ 13,537
Allowance for Loan Loss Reserves to Loans 3.19% 3.48% 4.12% 4.22% 4.83%
Total Noncurrent Loans to Loans 6.34% 8.08% 9.22% 11.31% 10.75%
Nonperforming assets to assets 8.75% 9.83% 11.29% 13.12% 12.45%
Texas Ratio 73.14% 82.95% 88.44% 97.46% 100.32%
Net Charge-Offs (000's) $ 371 $ 1,329 $ 327 $ 5,010 $ 2,210
Net Charge-Offs in Qtr to Avg Total Loans 0.13% 0.50% 0.12% 1.85% 0.78%
CONTACT: Randy Cloes, EVP & CFO 425 691 5014 www.foundationbank.comSource:Foundation Bancorp