BELLEVUE, Wash., Aug. 7, 2015 (GLOBE NEWSWIRE) -- Foundation Bancorp, Inc. (OTCPink:FDNB), the holding company for Foundation Bank, today reported that following a $3.0 million total increase to its provision for loan losses, it lost $1.5 million in the second quarter of 2015, compared to net income of $351,000 in the second quarter a year ago. In the first six months of 2015, Foundation reported a net loss of $1.1 million compared to net income of $888,000 in the first six months of 2014.
Earlier this week the company announced the discovery of fraudulent activity by one if its Washington-based customers. The borrower used fraudulent financial statements and bank statements to secure the loan. The fraudulent documents were discovered approximately 60 days after the loan was originated. Foundation is filing a claim with its insurance company seeking a full recovery. While the loan is secured with accounts receivable and inventory, the collateral for the loan may not be satisfactory to ensure the repayment of the loan since these also appear to be fraudulent. Further investigation of these assets is also underway.
"The core operating performance of the Bank has been solid year-to-date, with growing net interest income and solid loan and deposit growth. Consequently, we are disappointed to be faced with fraudulent activity by one of our local customers," said Diane Dewbrey, President and CEO. "We proactively and immediately reserved against this credit by charging off the full amount of the $3.0 million loan. We are also aggressively pursuing all collection efforts while performing a thorough investigation, however, no assurance can be given that we will collect any of the loan proceeds." As a result, the net loss for the second quarter was $0.48 per share, compared to earnings of $0.10 per diluted average share, in the second quarter of 2014. In the first six months of 2015, the net loss was $0.39 per share, compared to earnings of $0.25 per diluted average share in the first six months of 2014. Book value per share was $9.04 at June 30, 2015, compared to $9.68 per share a year ago.
Second Quarter 2015 Highlights:
- Core client deposits (which exclude wholesale deposits) increased over $44.7 million, or 13.4% over the comparable quarter last year.
- Allowance for loan losses remained stable at 1.95% of gross loans.
- Total non-accrual loans were $10.8 million at June 30, 2015, compared to $11.7 million a year earlier.
- Non-interest bearing demand deposits increased 14.5%, compared to a year ago and represent 42.1% of deposits.
- Core deposits represent 99.8% of total deposits at June 30, 2015.
- The ratio of tangible common equity to tangible assets was 7.4% at June 30, 2015.
Asset Quality
"Several loans in our non-accrual portfolio are 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 for clearing these properties off the books," said Dewbrey. "We believe over the course of this year, a few of these properties will liquidate and will result in noticeable reductions in the non-accrual portfolio."
Foundation categorizes borrowers who have been granted concessions that may include interest rate reductions, term extensions, or payment alterations as restructured loans. As of June 30, 2015, Foundation held $4.9 million in performing restructured loans that were paying as agreed but are included in non-accrual loans. Total non-accrual loans were $10.8 million at June 30, 2015, compared to $13.6 million three months earlier and $11.7 million a year earlier, representing a year-over-year decrease of 7.1%.
Non-performing assets (NPAs), consisting of non-accrual loans, Other Real Estate Owned (OREO), Other Property Owned (OPO) and past due loans over 90 days, were $18.9 million, or 4.4% of total assets at June 30, 2015 compared to $21.7 million, or 5.0% of total assets at March 31, 2015 and $22.6 million, or 5.9% of total assets a year ago.
Foreclosed assets including OREO and OPO totaled $8.1 million at June 30, 2015, the same as in the preceding quarter and consisted of seven properties at the end of the quarter. Foreclosed assets totaled $11.0 million a year ago.
Balance Sheet Review
Foundation's total loan portfolio was up 2.7% to $286.8 million at June 30, 2015, compared to $279.2 million a year ago. Commercial real estate (CRE) loans totaled $170.8 million at June 30, 2015, and comprise 59.6% 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 $52.0 million or 18.1% and construction and land loans represented only 4.1%. The commercial and industrial (C&I) portfolio represented 37.7% of the total loan portfolio.
Total assets increased 13.5% to $435.0 million at June 30, 2015, compared to $383.3 million a year earlier. "We have done a good job developing both new client relationships, as well as cultivating additional deposit relationships with existing bank customers, which has led to solid deposit growth year-over-year," said Dewbrey. Total deposits increased 11.8% to $378.5 million at June 30, 2015, compared to $338.5 million a year earlier, with core deposits representing 99.8% of total deposits at quarter-end. Non-interest bearing demand deposits increased 14.5% compared to a year ago. Total transaction accounts represent 54.3%, money market and savings accounts represent 42.8%, and CDs comprise only 2.9% of the total deposit portfolio at June 30, 2015.
Foundation's total stockholder equity increased 38.2% to $47.2 million at June 30, 2015, compared to $34.1 million a year ago. Book value per share was $9.04 at June 30, 2015, compared to $9.68 a year ago and common equity to total assets (common equity ratio) remained strong at 7.4% at June 30, 2015.
Results of Operations
Foundation's second quarter net interest margin was 3.59%, compared to 3.47% in the preceding quarter and 3.69% in the second quarter a year ago. "The net interest margin increased slightly compared to the preceding quarter, despite the margin pressure from holding excess cash on our balance sheet," said Dewbrey. "As we deploy this additional cash into investments and loans, the margin should improve." In the first six months of 2015, Foundation's net interest margin was 3.50% compared to 3.80% in the first six months of 2014.
Second quarter net interest income before provision for loan losses increased 10.5% to $3.6 million, compared to $3.2 million in the second quarter a year ago. Year-to-date, net interest income before the provision for loan losses increased 6.0% to $6.9 million, compared to $6.5 million in the first six months one year ago. Non-interest income more than doubled to $499,000 in the second quarter compared to $219,000 in the second quarter a year ago, primarily due to the large gain on sale of securities during the current quarter. In the first six months of 2015, non-interest income increased 39.3% to $670,000 compared to $481,000 in the first six months of 2014.
Foundation's second quarter total non-interest expense increased to $3.4 million, compared to $3.0 million in the preceding quarter and $2.9 million in the second quarter one year ago. The increase is partially attributable to higher costs associated with foreclosed assets and legal fees, as well as personnel changes with additional focus on its improved sales culture. In the first six months of the year, total non-interest expense was $6.4 million compared to $5.6 million in the first six months of 2014.
Capital
Foundation Bank continues to remain well capitalized by regulatory guidelines. Capital ratios for the Bank are presented as follows:
| Jun 30, 2015 | Mar 31, 2015 | Jun 30, 2014 | |
| Tier 1 Leverage (to average assets) | 10.01% | 10.88% | 10.32% |
| Tier 1 Risk-Based (to risk-weighted assets) | 12.37% | 12.93% | 12.71% |
| Tier 1 Common Capital (CET1) | 12.37% | 12.93% | -- |
| Total Risk-Based (to risk-weighted assets) | 13.64% | 14.19% | 13.97% |
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) | |||
| June 30, 2015 | December 31, 2014 | June 30, 2014 | |
| Assets | |||
| Cash and Due from Banks | $ 10,459 | $ 11,245 | $ 14,131 |
| Interest-Bearing Deposits in Banks | 40,192 | 33,976 | 42,522 |
| Investments | 76,253 | 60,720 | 34,490 |
| Loans | 286,795 | 283,173 | 279,157 |
| Allowance for Loan Losses | (5,580) | (5,615) | (5,030) |
| Loans, net | 281,215 | 277,558 | 274,127 |
| Leaseholds and Equipment, net | 622 | 640 | 757 |
| Foreclosed Assets | 8,086 | 7,280 | 10,962 |
| Bank Owned Life Insurance | 11,134 | -- | -- |
| Accrued Interest Receivable and Other Assets | 7,008 | 6,729 | 6,302 |
| Total Assets | $ 434,969 | $ 398,148 | $ 383,291 |
| Liabilities | |||
| Noninterest-Bearing Demand Deposits | $ 159,387 | $ 140,460 | $ 139,162 |
| Interest-Bearing Checking and Savings Accounts | 46,947 | 37,515 | 38,303 |
| Money Market Accounts | 161,261 | 149,367 | 145,618 |
| Certificates of Deposit | 10,951 | 15,251 | 15,371 |
| Total Deposits | 378,546 | 342,593 | 338,454 |
| Borrowings | 7,215 | 17,341 | 8,267 |
| Other Liabilities | 2,049 | 3,851 | 2,435 |
| Total Liabilities | 387,810 | 363,785 | 349,156 |
| Stockholders' Equity | |||
| Preferred Stock (1) | 15 | -- | -- |
| Common Stock (2) | 3,556 | 3,530 | 3,526 |
| Additional Paid-in Capital | 53,144 | 38,921 | 38,822 |
| Retained Earnings (Deficit) | (9,441) | (8,060) | (8,231) |
| Accumulated Other Comprehensive (Loss) Income | (115) | (28) | 18 |
| Total Stockholders' Equity | 47,159 | 34,363 | 34,135 |
| Total Liabilities and Stockholders' Equity | $ 434,969 | $ 398,148 | $ 383,291 |
| (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 3,526,264 respectively. | |||
| Book Value per Share, Common Stock | $ 9.04 | $ 9.73 | $ 9.68 |
| Common Equity Ratio | 7.4% | 8.6% | 8.9% |
| CONSOLIDATED STATEMENTS OF INCOME | |||||
| (Unaudited) (dollars in 000's, except per | For the Quarter Ended | For the Six Months Ended | |||
| share amounts) | June 30, 2015 | March 31, 2015 | June 30, 2014 | June 30, 2015 | June 30, 2014 |
| Interest Income | |||||
| Loans, Including Fees | $ 3,504 | $ 3,338 | $ 3,298 | $ 6,841 | $ 6,664 |
| Investments | 312 | 301 | 196 | 614 | 378 |
| Other | 32 | 28 | 25 | 60 | 38 |
| Total Interest Income | 3,848 | 3,667 | 3,519 | 7,515 | 7,080 |
| Interest Expense | |||||
| Deposits | 206 | 204 | 212 | 410 | 418 |
| Borrowings | 56 | 125 | 63 | 181 | 132 |
| Total Interest Expense | 262 | 329 | 275 | 591 | 550 |
| Net Interest Income Before Provision | 3,586 | 3,338 | 3,244 | 6,924 | 6,530 |
| Provision for Loan Losses | (2,996) | -- | -- | (2,996) | -- |
| Net Interest Income | |||||
| After Provision for Loan Losses | 590 | 3,338 | 3,244 | 3,928 | 6,530 |
| Noninterest Income | |||||
| Service Fees | 119 | 116 | 123 | 235 | 231 |
| Bank Owned Life Insurance | 89 | 45 | -- | 134 | |
| Gain on Sale of Loans | 74 | 2 | 45 | 76 | 189 |
| Gain on Sale of Securities | 211 | -- | 43 | 211 | 43 |
| Other Noninterest Income | 6 | 8 | 8 | 14 | 18 |
| Total Noninterest Income | 499 | 171 | 219 | 670 | 481 |
| Noninterest Expense | |||||
| Salaries and Employee Benefits | 1,610 | 1,568 | 1,389 | 3,177 | 2,824 |
| Occupancy and Equipment | 262 | 211 | 323 | 473 | 635 |
| Data Processing | 187 | 187 | 178 | 375 | 366 |
| Legal | 434 | 238 | 136 | 671 | 253 |
| Professional | 20 | 22 | 81 | 42 | 117 |
| Loan Expenses | 82 | 82 | 64 | 164 | 111 |
| FDIC/State Assessments | 144 | 140 | 126 | 284 | 245 |
| Foreclosed Assets, Net | 74 | 63 | (21) | 129 | (88) |
| Insurance | 57 | 57 | 60 | 115 | 120 |
| City and State Taxes | 66 | 63 | 62 | 129 | 125 |
| Other | 433 | 388 | 526 | 829 | 938 |
| Total Noninterest Expense | 3,369 | 3,019 | 2,924 | 6,388 | 5,646 |
| Income (Loss) Before Provision | |||||
| (Benefit) for Income Tax | (2,280) | 490 | 539 | (1,790) | 1,365 |
| Provision for Income Tax | (831) | 156 | 188 | (675) | 477 |
| NET INCOME (LOSS) | $ (1,449) | $ 334 | $ 351 | $ (1,115) | $ 888 |
| Preferred dividends | 253 | 14 | -- | 267 | -- |
| NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS | $ (1,702) | $ 320 | $ 351 | $ (1,382) | $ 888 |
| Return on average equity | -19.51% | 3.71% | 4.13% | -7.88% | 5.30% |
| Return on average assets | -1.60% | 0.31% | 0.38% | -0.66% | 0.49% |
| Net interest margin | 3.59% | 3.47% | 3.69% | 3.50% | 3.80% |
| Efficiency ratio | 88.66% | 86.15% | 86.83% | 87.46% | 85.79% |
| Basic earning (loss) per avg. share | $ (0.48) | $ 0.09 | $ 0.10 | $ (0.39) | $ 0.25 |
| Diluted earning (loss) per avg. share (1) | $ -- | $ 0.07 | $ 0.10 | $ -- | $ 0.25 |
| Weighted avg common shares outstanding | 3,555,976 | 3,555,976 | 3,526,264 | 3,551,379 | 3,522,488 |
| Weighted avg dilutive shares outstanding | 5,112,665 | 5,106,649 | 3,547,132 | 5,108,068 | 3,543,356 |
| Loan to deposit ratio | 74.54% | 74.89% | 82.42% | ||
| (1) Common stock equivalents were not included for 2015 as the shares were antidilutive. | |||||
| SELECTED INFORMATION | Quarter Ended | ||||
| June 30 | Mar 31, | Dec 31, | Sept 30, | June 30, | |
| 2015 | 2015 | 2014 | 2014 | 2014 | |
| Bank Only | |||||
| Risk Based Capital Ratio | 13.64% | 14.19% | 14.04% | 13.88% | 13.97% |
| Leverage Ratio | 10.01% | 10.88% | 9.54% | 9.94% | 10.32% |
| C&I Loans to Loans | 37.75% | 35.05% | 35.96% | 35.05% | 35.89% |
| Real Estate Loans to Loans | 59.57% | 61.73% | 60.75% | 61.67% | 61.45% |
| Consumer Loans to Loans | 0.08% | 0.15% | 0.19% | 0.17% | 0.14% |
| Allowance for Loan Losses (000's) | $ 5,580 | $ 5,488 | $ 5,615 | $ 5,258 | $ 5,030 |
| Allowance for Loan Losses to Loans | 1.95% | 1.94% | 1.98% | 1.84% | 1.80% |
| Total Noncurrent Loans to Loans | 3.78% | 4.80% | 4.43% | 4.11% | 5.45% |
| Nonperforming assets to assets | 4.93% | 5.59% | 5.60% | 6.44% | 6.65% |
| Net Charge-Offs (Recoveries) (000's) | $ 2,904 | $ 128 | $ (415) | $ (228) | $ 63 |
| Net Charge-Offs in Qtr to Avg Total Loans | 1.02% | 0.05% | -0.15% | -0.08% | 0.02% |