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Foundation Bancorp Earns $521,000 in Second Quarter Highlighted by Improved Credit Quality and Operating Efficiencies

BELLEVUE, Wash., Aug. 5, 2013 (GLOBE NEWSWIRE) -- Foundation Bancorp, Inc. (OTCBB:FDNB), the holding company for Foundation Bank, today reported it earned $521,000, or $0.15 per diluted share, in the second quarter of 2013, compared to $581,000, or $0.17 per diluted share, in the second quarter a year ago. In the first six months of the year, Foundation's earnings increased 62.6% to $1.5 million, or $0.43 per diluted share, compared to $935,000, or $0.27 per diluted share, in the like period a year ago.

"Our business outlook continues to improve as the local economic recovery takes hold and our loan pipeline is active and growing," said Diane Dewbrey, President and CEO. "Profitability strengthened even further as we continued to substantially reduce legal costs and other expenses related to repossessed properties and continued to grow our core deposit base while letting higher cost wholesale funding run off. We remain optimistic for a strong second half of the year."

Second Quarter 2013 Highlights:

  • Net income was $521,000 in the second quarter of 2013 compared to $581,000 in the second quarter a year ago.
  • Non-performing assets (NPAs), consisting of non-accrual loans and foreclosed assets was $24.1 million, or 6.9% of total assets, at June 30, 2013 down from $31.9 million, or 9.2% of total assets, three months earlier.
  • Net interest margin was 4.00% for the three months ended June 30, 2013 compared to 3.93% in the preceding quarter.
  • Total non-interest expense decreased 11% to $2.9 million in the second quarter of 2013, compared to $3.2 million in the second quarter a year ago.
  • Gross loans increased 3.3% to $280.9 million at June 30, 2013 compared to $271.9 million a year ago.
  • Non-interest bearing demand deposits increased 12% compared to a year ago and represent 37% of total deposits at June 30, 2013.
  • Return on average equity was 7.58% for the quarter and 11.25% for the first six months of 2013.

Asset Quality

Total non-accrual loans declined 23% to $16.9 million at June 30, 2013 compared to $21.9 million both three months earlier and a year earlier. Of the $16.9 million in loans classified as non-accrual, 58 %, or $9.9 million of these loans are performing as agreed under revised payment schedules.

Foreclosed assets (including Other Real Estate Owned (OREO) and Other Property Owned (OPO)) declined during the quarter to $7.2 million at June 30, 2013, compared to $8.0 million at March 31, 2013.

"OREO balances [without OPO] of $6.3 million, consists of eight properties with one property accounting for over 50% of the total. The one property is a single family residence located on Lake Washington and is currently under contract for closing later in the year," said Dewbrey. Of the total amount in OREO, Foundation is receiving rent/lease payments on $3.8 million.

"During the second quarter we had a significant charge off of $3.3 million due to a borrower committing fraud," Dewbrey added. "As a result, net charge-offs totaled $4.0 million in the second quarter and due to continued loan portfolio improvements, no loan loss provision was required. This compares to net loan recoveries of $12,000 in the first quarter of 2013 and net charge-offs of $1.3 million in the second quarter a year ago. We are pursuing different avenues for recovery; however, it is expected to take a long time to recover any money if we are successful."

Non-performing assets (NPAs), consisting of non-accrual loans and foreclosed assets, were $24.1 million, or 6.9% of total assets, at June 30, 2013 compared to $29.9 million, or 8.6% of total assets, at March 31, 2013 and $30.8 million, or 9.8% of total assets, a year ago. The overall credit quality of the loan portfolio continued to show steady improvements year-over-year and assets classified as performing, but internally risk rated special mention and substandard, also continued to improve.

Balance Sheet Review

Gross loans increased 3.3% to $280.9 million at June 30, 2013 compared to $271.9 million a year ago. Excluding non-accrual loans, loans increased 5.7% year-over-year. Commercial real estate (CRE) loans totaled $163.4 million at June 30, 2013 and comprise 58.0% of the total loan portfolio. Business loans secured by the property on which the business operates are classified as owner occupied CRE. Owner occupied CRE loans comprised $51.8 million or 31.7% of the total CRE portfolio. Construction and land loans represented 5.2% of the total loan portfolio and the C&I portfolio represented 34.3% of the total loan portfolio.

Total deposits were $308.2 million at June 30, 2013 compared to $315.5 million at June 30, 2012, while non-interest-bearing demand deposits increased 11.6% compared to a year ago. Wholesale funding accounted for $4.1 million of the decrease and was down 9.8% year over year.

Core deposits, defined as non-interest-bearing demand deposits, interest-bearing checking and savings accounts and money market accounts represent 83.4% of total deposits at June 30, 2013, compared to 80.4% of total deposits a year earlier.

Total shareholder equity increased 9.5% to $27.2 million at June 30, 2013, compared to $24.8 million a year ago. Book value per share was $7.72 at the end of June compared to $7.04 at June 30, 2012. Foundation's tangible common equity ratio was 7.8% at June 30, 2013, the same as Foundation's total stockholders' equity to total assets.

Results of Operations

Second quarter net interest income before provision for loan losses was $3.3 million, compared to $3.3 million in the second quarter a year ago. In the first half of 2013, Foundation's net interest income before provision was $6.5 million compared to $6.6 million in the first half of 2012.

Foundation's second quarter net interest margin improved seven basis points to 4.00% compared to 3.93% in the preceding quarter. The net interest margin was 4.12% in the second quarter a year ago. "Our net interest margin expanded from the preceding quarter but was down compared to the second quarter a year ago due to the continued downward pressure on loan yields," said Dewbrey. In the first six months of the year, the net interest margin was 3.98% compared to 4.14% in the first six months of 2012.

Non-interest income was $133,000 in the second quarter of 2013 compared to $490,000 in the second quarter a year ago. Second quarter 2012's non-interest income included $361,000 in gains from securities sales. In the first six months of 2013 non-interest income was $338,000 compared to $617,000 in the first six months of 2012.

Foundation's total non-interest expense decreased 10.9% to $2.9 million in the second quarter, compared to $3.2 million in the second quarter a year ago. In the first six months of the year non-interest expense declined 15.9% to $5.3 million compared to $6.3 million in the same period a year earlier. The decrease in non-interest expense both for the quarter and for the year-to-date period was primarily due to lower legal expenses and lower costs associated with OREO.

Capital

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

Jun 30, 2013 Dec 31, 2013 Jun 30, 2012
Tier 1 Leverage (to average assets) 10.38% 9.56% 9.58%
Tier 1 risk-based (to risk-weighted assets) 12.50% 11.39% 11.48%
Total risk-based (to risk-weighted assets) 13.76% 12.66% 12.76%

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, 2013 December 31, 2012 June 30, 2012
Assets
Cash and Due from Banks $ 11,849 $ 12,657 $ 10,805
Interest-Bearing Deposits in Banks 26,639 33,965 40,217
Investments 24,309 25,050 26,501
Loans Held for Sale -- 192 --
Loans 280,915 288,895 271,938
Allowance for Loan Losses (5,388) (9,373) (9,459)
Loans, net 275,527 279,522 262,479
Leaseholds and Equipment, net 813 609 574
Foreclosed Assets 7,186 9,163 8,911
Accrued Interest Receivable and Other Assets 2,157 3,149 3,316
Total Assets $ 348,480 $ 364,307 $ 352,803
Liabilities
Noninterest-Bearing Demand Deposits $ 112,855 $ 111,135 $ 101,107
Interest-Bearing Checking and Savings Accounts 16,197 27,892 24,985
Money Market Accounts 127,984 128,243 127,550
Certificates of Deposit 51,145 58,223 61,825
Total Deposits 308,181 325,493 315,467
Borrowings 9,015 9,875 9,942
Other Liabilities 4,109 2,644 2,582
Total Liabilities 321,305 338,012 327,991
Stockholders' Equity
Common Stock (1) 3,522 3,522 3,522
Additional Paid-in Capital 38,714 38,703 38,688
Retained Earnings (Deficit) (14,704) (16,217) (17,463)
Accumulated Other Comprehensive (Loss) Income (357) 287 65
Total Stockholders' Equity 27,175 26,295 24,812
Total Liabilities and Stockholders' Equity $ 348,480 $ 364,307 $ 352,803
(1) $1 Par Value, Shares Authorized 25,000,000, issued and outstanding 3,522,359, 3,522,341 and 3,517,158 respectively.
Book Value per Share 7.72 7.47 7.04
Tangible Common Equity Ratio 7.8% 7.2% 7.0%
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited) (dollars in 000's) For the Three Months Ended For the Six Months Ended
June 30, 2013 March 31, 2013 June 30, 2012 June 30, 2013 June 30, 2012
Interest Income
Loans, including Fees $ 3,441 $ 3,380 $ 3,458 $ 6,821 $ 6,888
Investments 128 133 293 261 606
Other 13 15 15 28 27
Total Interest Income 3,582 3,528 3,766 7,110 7,521
Interest Expense
Deposits 231 249 339 480 715
Borrowings 80 84 102 164 205
Total Interest Expense 311 333 441 644 920
Net Interest Income Before Provision 3,271 3,195 3,325 6,466 6,601
Provision for Loan Losses -- -- -- -- --
Net Interest Income
After Provision for Loan Losses 3,271 3,195 3,325 6,466 6,601
Noninterest Income
Deposit Account and Service Fees 62 70 69 132 132
OTTI on Investments -- (6) -- (6) --
Gain on Sale of Loans -- 56 -- 56 4
Gain on Sale of Securities -- -- 361 -- 361
Other Noninterest Income 71 85 60 156 120
Total Noninterest Income 133 205 490 338 617
Noninterest Expense
Salaries and Employee Benefits 1,491 1,413 1,341 2,903 2,581
Occupancy and Equipment 230 217 217 447 419
Data Processing 220 178 158 398 311
Legal 257 73 460 330 769
Professional 124 118 192 242 417
Loan Expenses 33 92 84 125 201
FDIC/State Assessments 186 186 178 372 351
Foreclosed Assets, Net (24) (242) 303 (266) 488
Insurance 56 56 78 112 156
City and State Taxes 78 80 77 158 154
Other 232 230 146 463 436
Total Noninterest Expense 2,883 2,402 3,234 5,284 6,283
Income Before Provision for Income Tax 521 998 581 1,520 935
Provision for Income Tax -- -- -- -- --
NET INCOME $ 521 $ 998 $ 581 $ 1,520 $ 935
Return on average equity 7.58% 15.12% 9.30% 11.25% 7.56%
Return on average assets 0.61% 1.18% 0.69% 0.89% 0.56%
Net Interest Margin 4.00% 3.93% 4.12% 3.98% 4.14%
Efficiency Ratio 86.25% 79.87% 96.83% 83.07% 93.46%
Diluted Earnings Per Avg. Share $ 0.15 $ 0.28 $ 0.17 $ 0.43 $ 0.27
Loan to deposit ratio 90.84% 92.38% 85.64%
Book value per share $ 7.72 $ 7.72 $ 7.04
SELECTED INFORMATION Quarter Ended
June 30, Mar 31, Dec 31, Sept 30, June 30,
2013 2013 2012 2012 2012
Bank Only
Risk Based Capital Ratio 13.76% 13.31% 12.66% 12.41% 12.76%
Leverage Ratio 10.38% 10.13% 9.56% 9.38% 9.58%
C&I Loans to Loans 34.24% 32.54% 33.91% 37.13% 34.10%
Real Estate Loans to Loans 62.82% 66.13% 64.67% 61.33% 64.11%
Consumer Loans to Loans 0.24% 0.36% 0.28% 0.33% 0.29%
Allowance for Loan Loss Reserves (000's) $ 5,388 $ 9,385 $ 9,373 $ 9,087 $ 9,459
Allowance for Loan Loss Reserves to Loans 1.92% 3.28% 3.24% 3.19% 3.48%
Total Noncurrent Loans to Loans 6.01% 7.69% 6.08% 6.34% 8.08%
Nonperforming assets to assets 7.53% 9.25% 8.33% 8.78% 9.83%
Texas Ratio 64.79% 72.33% 69.88% 73.13% 82.95%
Net Charge-Offs (Recoveries) (000's) $ 3,997 $ (12) $ (286) $ 372 $ 1,329
Net Charge-Offs in Qtr to Avg Total Loans 1.42% 0.00% -0.10% 0.13% 0.50%

CONTACT: Randy Cloes, EVP & CFO 425 691 5014 www.foundationbank.com The Cereghino Group Corporate Investor Relations 206.388.5785 www.stockvalues.comSource:Foundation Bancorp