Foundation Bancorp Earns $5.2 Million, or $1.48 Per Diluted Share, in Fourth Quarter 2013, Improved Credit Quality Leads to a Recovery of the Deferred Tax Asset

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| Source: Foundation Bancorp

BELLEVUE, Wash., Feb. 6, 2014 (GLOBE NEWSWIRE) -- Foundation Bancorp, Inc. (OTCBB:FDNB), the holding company for Foundation Bank, today reported that it earned $5.2 million, or $1.48 per diluted share, in the fourth quarter of 2013, compared to $551,000, or $0.16 per diluted share, in the fourth quarter a year ago. For the full year, Foundation's earnings increased substantially to $7.1 million, or $2.02 per diluted share, compared to $2.2 million, or $0.62 per diluted share, in 2012. Foundation's results for the quarter ending December 31, 2013 include a $5.6 million tax benefit as a result of the reversal of its deferred tax asset valuation allowance, which was partially offset by a $1.0 million provision for loan losses. This compares to a $700,000 provision for loan losses in the preceding quarter and no provision in the fourth quarter a year ago.

"As a result of continued operating improvements and profitability, we reversed all of the valuation allowance against our deferred tax asset. This decision reflects our confidence in the sustainability of our future profitability as well," said Diane Dewbrey, President and CEO. "Additionally, operating expenses continue to decline at a steady pace, as we reduce legal costs and other expense related to non-performing assets. Our outlook for 2014 looks prosperous, as we continue to make meaningful progress with reducing problem assets and focus on growing our loan portfolio."

Fourth Quarter 2013 Highlights:

  • Net income was $5.2 million, or $1.48 per diluted share, in the fourth quarter of 2013 compared to $551,000, or $0.16 per diluted share, in the fourth quarter a year ago.
  • Net interest margin ended the year at 3.98%, compared to 4.01% in the preceding year and 3.91% in the fourth quarter a year ago.
  • Total non-interest expense decreased 10.8% to $2.9 million in the fourth quarter of 2013, compared to $3.2 million in the fourth quarter a year ago.
  • Recorded a $1.0 million provision for loan losses during the fourth quarter, following net charge-offs of $654,000.
  • Allowance for loan losses increased to 1.86% of gross loans compared to 1.74% three months earlier.
  • Non-performing assets (NPAs), consisting of non-accrual loans, loans past due 90+ days and foreclosed assets, declined to $23.9 million, or 6.6% of total assets, at December 31, 2013 compared to $24.8 million, or 6.8% of total assets, three months earlier.
  • Gross loans were $282.1 million at year-end compared to $288.9 million a year ago.
  • Non-interest bearing demand deposits increased 11.8% compared to a year ago and represent 38.8% of total deposits at December 31, 2013.

Asset Quality

The overall credit quality of the loan portfolio continued to show steady improvements year-over-year with fewer loans rated Special Mention or worse.

"We categorize 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," said Dewbrey. At December 31, 2013, Foundation held $10.5 million in performing restructured loans that were included in nonaccrual loans. Total non-accrual loans declined to $16.1 million at December 31, 2013 compared to $16.8 million three months earlier and $17.6 million a year earlier.

Non-performing assets (NPAs), consisting of non-accrual loans, OREO and performing trouble debt restructured, were $22.9 million, or 6.3% of total assets at December 31, 2013 compared to $23.5 million, or 6.4% of total assets at September 30, 2013 and $30.3 million, or 8.3% of total assets, a year ago. Of the non-performing assets, foreclosed assets (Other Real Estate Owned (OREO) and Other Property Owned (OPO)) accounted for $7.3 million at December 31, 2013, compared to $7.4 million at September 30, 2013. "OREO balances, excluding OPO were $6.1 million, and consist of 7 properties. A single property located on Lake Washington accounts for 60% of the total and is currently under contract for sale and expected to close in the third quarter of 2014," said Dewbrey. Of the total amount in OREO, Foundation is receiving rent/lease payments on $3.8 million.  

"We booked a $1.0 million provision for loan losses during the quarter which increased reserves as a percent of loans to 1.86% from 1.74% in the prior quarter," said Dewbrey. In the preceding quarter, Foundation recorded a $700,000 loan loss provision and in the fourth quarter a year ago recorded no provision for loan losses. For the full year Foundation recorded a $1.7 million loan loss provision, compared to no loan loss provision recorded for all of 2012.

Charge-offs during the fourth quarter of 2013 totaled $654,000 compared to charge-offs of $1.2 million in the preceding quarter and recoveries of $286,000 in the fourth quarter a year ago. "Most of the current quarter's charge-off amount was for loans that we have a high expectation of some recovery on," noted Dewbrey.

Balance Sheet Review

Foundation's gross loans were $282.1 million at December 31, 2013 compared to $288.9 million a year ago. Commercial real estate (CRE) loans totaled $170.0 million at December 31, 2013 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. Owner occupied CRE loans comprised $46.5 million or 16.5% of the total CRE portfolio. The C&I portfolio represented 37.1% of the total loan portfolio and construction and land loans represented 7.1% of the total loan portfolio. 

Total deposits declined 1.7% to $320.0 million at December 31, 2013, compared to $325.5 million a year earlier. Non-interest bearing demand deposits increased 11.8% compared to a year ago. Total transaction accounts represent 44%, money market and savings accounts represent 43% and CDs comprise 13% of the total deposit portfolio at December 31, 2013. 

Core deposits, (which exclude time deposits) represent 86.9% of total deposits at December 31, 2013, compared to 82.1% of total deposits a year earlier.

Total shareholder equity increased 23.5% to $32.5 million at December 31, 2013, compared to $26.3 million a year ago. Book value per share increased to $9.21 at the end of the year compared to $7.47 at December 31, 2012. Foundation's common equity ratio was 8.9% at December 31, 2013.

Results of Operations

"The net interest margin contracted slightly compared to the preceding quarter, but improved 5 basis points compared to the fourth quarter a year ago, despite continued downward pressure on loan yields," said Dewbrey. Fourth quarter interest margin was 3.96%, compared to 4.00% in the preceding quarter and 3.91% in the fourth quarter a year ago. For the year, net interest margin was 3.98% compared to 4.01% in 2012.

Foundation's fourth quarter net interest income before provision for loan losses increased 2.3% to $3.4 million, compared to $3.3 million in the fourth quarter a year ago. For all of 2013, Foundation's net interest income before provision increased modestly to $13.3 million, compared to $13.2 million in 2012. 

Primarily as a result of the decline in gain on sale of loans, non-interest income was $125,000 in the fourth quarter of 2013, compared to $454,000 in the fourth quarter a year ago. For the full year, non-interest income was $690,000 compared to $1.3 million in 2012. 

Foundation's total non-interest expense decreased 10.8% to $2.9 million in the fourth quarter, compared to $3.2 million in the fourth quarter a year ago. For all of 2013, non-interest expense declined 12.4% to $10.7 million compared to $12.3 million a year earlier. The decrease in non-interest expense both for the quarter and for the year-over-year period was primarily due to lower legal expenses and lower costs associated with foreclosed assets.

Capital

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

  Dec 31, 2013 Sep 30, 2013 Dec 31, 2012
       
Tier 1 Leverage (to average assets) 10.39% 10.11% 9.56%
       
Tier 1 risk-based (to risk-weighted assets) 12.60% 12.51% 11.39%
       
Total risk-based (to risk-weighted assets) 13.86% 13.77% 12.66%

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)      
  December 31, 2013 September 30, 2013 December 31, 2012
       
Assets      
Cash and Due from Banks  $ 10,613  $ 16,000  $ 12,657
Interest-Bearing Deposits in Banks  28,239  32,292  33,965
Investments  33,458  30,094  25,050
Loans Held for Sale  233  545  192
Loans  282,110  281,154  288,895
Allowance for Loan Losses  (5,258)  (4,911)  (9,373)
Loans, net  276,852  276,243  279,522
Leaseholds and Equipment, net  836  891  609
Foreclosed Assets  7,268  7,437  9,163
Accrued Interest Receivable and Other Assets  7,192  1,714  3,149
Total Assets   $ 364,691  $ 365,216  $ 364,307
       
Liabilities      
Noninterest-Bearing Demand Deposits  $ 124,226  $ 128,077  $ 111,135
Interest-Bearing Checking and Savings Accounts  15,901  17,218  27,892
       
Money Market Accounts  138,004  130,686  128,243
Certificates of Deposit  41,901  49,625  58,223
Total Deposits  320,032  325,606  325,493
Borrowings  9,595  9,344  9,875
Other Liabilities  2,578  2,659  2,644
Total Liabilities   332,205  337,609  338,012
       
Stockholders' Equity      
Common Stock (1)  3,526  3,522  3,522
Additional Paid-in Capital  38,706  38,719  38,703
Retained Earnings (Deficit)  (9,118)  (14,341)  (16,217)
Accumulated Other Comprehensive (Loss) Income  (628)  (293)  287
Total Stockholders' Equity   32,486  27,607  26,295
Total Liabilities and Stockholders' Equity   $ 364,691  $ 365,216  $ 364,307
       
(1) $1 Par Value, Shares Authorized 25,000,000, issued and outstanding 3,526,064, 3,522,359 and 3,522,341 respectively.
       
Book Value per Share 9.21 7.84 7.47
       
Common Equity Ratio 8.9% 7.6% 7.2%
         
CONSOLIDATED STATEMENTS OF INCOME        
(Unaudited) (dollars in 000's) For the Year Ended For the Twelve Months Ended
  December 31, 2013 September 30, 2013 December 31, 2012 December 31, 2013 December 31, 2012
           
Interest Income          
Loans, including Fees  $ 3,484  $ 3,571  $ 3,498  $ 13,875  $ 13,832
Investments  180  137  173  580  972
Other  13  19  14  60  61
Total Interest Income  3,677  3,727  3,685  14,515  14,865
           
Interest Expense          
Deposits  210  227  277  917  1,302
Borrowings  74  78  91  318  391
Total Interest Expense  284  305  368  1,235  1,693
Net Interest Income Before Provision  3,393  3,422  3,317  13,280  13,172
Provision for Loan Losses  (1,000)  (700)  --  (1,700)  --
Net Interest Income           
After Provision for Loan Losses  2,393  2,722  3,317  11,580  13,172
Noninterest Income          
Deposit Account and Service Fees  59  61  75  252  277
OTTI on Investments  (35)  --  --  (41)  (14)
Gain on Sale of Loans  39  108  290  203  376
Gain on Sale of Securities  --  --  --  --  361
Other Noninterest Income  62  72  89  276  266
Total Noninterest Income   125  241  454  690  1,266
           
Noninterest Expense          
Salaries and Employee Benefits  1,218  1,273  1,379  5,245  4,931
Occupancy and Equipment  324  332  293  1,257  1,126
Data Processing  177  172  122  640  468
Legal  139  61  91  530  1,131
Professional  67  62  67  265  460
Loan Expenses  240  107  109  472  348
FDIC/State Assessments  96  94  168  562  708
Foreclosed Assets, Net  137  (4)  465  (139)  1,043
Insurance  59  60  56  231  248
City and State Taxes  68  70  82  296  322
Other  348  373  388  1,384  1,471
Total Noninterest Expense   2,873  2,600  3,220  10,743  12,256
Income (Loss) Before Provision for Income Tax   (355)  363  551  1,527  2,182
Provision for Income Tax  (5,572)  --  --  (5,572)  --
NET INCOME  $ 5,217 $363  $ 551  $ 7,099  $ 2,182
           
Return on average equity 73.20% 5.18% 8.28% 25.69% 8.59%
Return on average assets 5.81% 0.40% 0.62% 2.03% 0.64%
Net Interest Margin 3.96% 4.00% 3.91% 3.98% 4.01%
Efficiency Ratio 81.98% 73.58% 92.67% 80.36% 90.56%
Diluted Earning Per Avg. Share  $ 1.48 $0.10  $ 0.16  $ 2.02  $ 0.62
           
Loan to deposit ratio 88.02% 86.13% 88.35%    
Book value per share  $ 9.21 $7.84  $ 7.47    
   
SELECTED INFORMATION Quarter Ended
  Dec 31, Sept 30, June 30, Mar 31, Dec 31,
  2013 2013 2013 2013 2012
           
Bank Only          
           
Risk Based Capital Ratio 13.86% 13.77% 13.76% 13.31% 12.66%
Leverage Ratio 10.39% 10.11% 10.38% 10.13% 9.56%
           
C&I Loans to Loans 37.18% 37.30% 34.24% 32.54% 33.91%
Real Estate Loans to Loans 60.24% 59.42% 62.82% 66.13% 64.67%
Consumer Loans to Loans 0.15% 0.25% 0.24% 0.36% 0.28%
           
Allowance for Loan Loss Reserves (000's)  $ 5,258  $ 4,911  $ 5,388  $ 9,385  $ 9,373
Allowance for Loan Loss Reserves to Loans 1.86% 1.74% 1.92% 3.24%  
Total Noncurrent Loans to Loans 5.90% 6.15% 6.01% 7.69% 6.08%
Nonperforming assets to assets 6.30% 6.44% 7.53% 9.25% 8.33%
           
Net Charge-Offs (Recoveries) (000's)  $ 653  $ 1,177  $ 3,997  $ (12)  $ (286)
Net Charge-Offs in Qtr to Avg Total Loans 0.23% 0.42% 1.42% 0.00% -0.10%
Randy Cloes, EVP & CFO
425 691 5014
www.foundationbank.com