Summary


Business:

Bank holding company

Headquarters:

Glendora

CEO:

George E. Langley

Market Cap:

$72 million Dividend Yield: 3.05%

Assets:

$485.6 million P/E Ratio: 11.6

Deposits:

$454 million

The quarterly net income figures for Foothill Independent Bancorp are ticked off with metronomic regularity: $1.6 million, $1.7 million, $1.7 million, $1.7 million.

What’s surprising, though, is that despite earnings consistency extending back years, the San Gabriel Valley company’s stock has been particularly volatile.

Foothill’s primary operating subsidiary, Foothill Independent Bank, operates 12 branches in Southern California and held $511 million in assets as of June 30, making it the 22nd largest bank in the county. Historically, about 80 percent of its loans have been in the commercial real estate mortgage sector, with about 12 percent classified as commercial/financial/agricultural.

But while earnings and capitalization have not been questioned in recent years, the quality of Foothill’s assets has contributed to varying perceptions of the institution, and resulting stock volatility.

“Three years ago, they had a significant percentage (over 2 percent) of loans as non-accrual (in some form of default),” said Steve Didion, bank research director of Hoefer and Arnett in San Francisco.

As a result, between May 1998 and May of 2000 Foothill’s stock seesawed between $15 and $8 per share (split-adjusted). “Their stock was extremely undervalued because the performance wasn’t there,” said Didion.

The stock has since rebounded to the $13 range, signifying Foothill’s reduction of non-performing loans, increased non-interest income and greater operational efficiencies. Non-performing loans as a percentage of total loans decreased to .77 percent as of June 30, from 1.04 percent a year earlier.

It’s also helped that the banking company has been on an aggressive, two-year stock-repurchasing program. Foothill repurchased 148,000 shares during the first half of 2001, and has repurchased 976,000 shares since September 1998. Foothill Independent Bank opened its 12th branch, in Temecula, on January.

“They’re doing a lot better job of underwriting,” said Didion, adding that Foothill’s loan portfolio has been “significantly cleaned up over the past couple years.”

Bank representatives did not return calls seeking comment.

Didion also believes that Foothill’s Southern California base has helped its stock performance. “The Inland Empire has a reputation as the last affordable place in Southern California,” said Didion, who cited a “strong industrial base and consistent and fairly dynamic business community” as positive factors for financial institutions in the area.

Not only is this reflected in Foothill’s performance, but by the stock of competitor CVB Financial Corp., whose 20-branch subsidiary Citizens Business Bank is based in Ontario. CVB has seen its stock rise by 30 percent in the past six months.

A final factor in the stock rise is the spate of recent consolidations in the California banking industry. “A lot of investors see bank stocks as takeover vehicles, even though (Foothill) management hasn’t made any public statements of a sale,” said Didion.

Foothill reported net income of $1.7 million (28 cents per diluted share) for the second quarter ended June 30, compared with $1.6 million (27 cents) in the like period a year ago.

Didion said Foothill has managed to maintain revenues and earnings levels despite federal rate cuts that have put downward pressure on its net interest income.

“(Foothill is) pretty typical of a community bank that is ‘assets sensitive,'” said Didion. “A big portion of (Foothill’s) loan portfolio is floating and a decent chunk of their deposits are time deposit.”

With timed deposits like CDs locked in at a specific interest rate, declining interest rates on loans means net income can take a hit. Despite this, Foothill has maintained revenues and earnings by increasing its non-interest revenue streams such as banking fees and various service charges over the course of the year.

Bauer Financial Reports Inc. of Coral Gables, Fla., has given Foothill a five-star rating, its highest grade, for 10 consecutive quarters. “(Foothill is) well capitalized, profitable, and their delinquent loans are right in line to what you’d expect,” said Karen Dorway, vice president of the financial ratings organization.

About half the institutions Bauer ranks currently receive five stars, which are given to “institutions with at least twice the capital required by regulators,” according to Bauer’s analytical report of Foothill.