SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: June 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
0-26248 34-1800830
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(Commission File No.) (IRS Employer I.D. No.)
INDUSTRIAL BANCORP, INC.
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(Exact name of registrant as specified in its charter)
OHIO
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(State of jurisdiction or incorporation)
211 North Sandusky Street, Bellevue, Ohio 44811
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(Address of principal executive office) (Zip Code)
(419) 483-3375
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities and
Exchange Act of 1934 during the preceding twelve months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes x No
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Outstanding as of July 31, 2000:
4,333,883 common shares, no par value
INDUSTRIAL BANCORP, INC.
Form 10-Q
For the Quarter ended June 30, 2000
Part I - Financial Information
Item 1: Financial Statements
- -------
Interim financial information required by Rule 10-01 of Regulation
S-X is included in this Form 10-Q as referenced below:
Consolidated Balance Sheets 3
Consolidated Statements of Net Income 4
Consolidated Statements of Comprehensive Income 5
Condensed Consolidated Statements of Shareholders' Equity 6
Condensed Consolidated Statements of Cash Flows 7
Notes to Consolidated Financial Statements 8
Item 2: Management's Discussion and Analysis of
- ------- Financial Condition and Results of Operations 10
Item 3: Quantitative and Qualitative Disclosures about Market Risk 14
- -------
Part II - Other Information 15
Signatures 16
INDUSTRIAL BANCORP, INC.
Consolidated Balance Sheets
($ in thousands except per share data)
6/30/00 12/31/99
------- --------
ASSETS
Cash and noninterest-bearing deposits $ 1,182 $ 2,699
Interest-bearing demand deposits 1,492 3,253
Overnight deposits 12,500 4,000
--------------------
Cash and cash equivalents 15,174 9,952
Interest-bearing time deposits - 10,500
Securities available for sale, at fair value 14,854 14,141
Investment securities held to maturity
(fair value: 2000 = $177, 1999 = $214) 165 202
Loans receivable 359,882 344,293
Less: Allowance for Loan Losses (2,051) (2,017)
--------------------
Loans receivable, net 357,831 342,276
Federal Home Loan Bank stock 3,616 3,490
Office properties and equipment, net 5,512 5,709
Accrued interest receivable 2,328 2,273
Other assets 598 460
--------------------
Total assets $400,078 $389,003
====================
LIABILITIES
Deposits $293,005 $294,250
Federal Home Loan Bank advances 48,000 37,000
Accrued interest payable and other liabilities 3,126 3,167
--------------------
Total liabilities 344,131 334,417
SHAREHOLDERS' EQUITY
Common stock, no par value, 10,000,000 shares
authorized; 5,554,500 shares issued 34,669 34,669
Additional paid-in capital 3,112 2,955
Retained earnings 41,217 40,005
Accumulated other comprehensive income 1,255 1,390
Unearned employee stock ownership plan shares (2,491) (2,688)
Unearned compensation (438) (701)
Treasury stock, at cost
(2000: 1,220,617 shares, 1999: 1,195,117 shares) (21,377) (21,044)
--------------------
Total shareholders' equity 55,947 54,586
--------------------
Total liabilities and shareholders' equity $400,078 $389,003
====================
Book value per share $ 12.91 $ 12.52
See accompanying notes to financial statements
INDUSTRIAL BANCORP, INC.
Consolidated Statements of Net Income
($ in thousands except per share data)
Three months ended Six months ended
6/30/00 6/30/99 06/30/00 06/30/99
------- ------- -------- --------
Interest income
Interest and fees on loans $7,343 $6,703 $14,482 $13,544
Interest and dividends on investment securities 282 295 547 631
Interest on deposits 205 379 364 676
-----------------------------------------
Total interest income 7,830 7,377 15,393 14,851
Interest expense
Interest on deposits 3,529 3,344 6,851 6,692
Interest on FHLB advances 647 452 1,256 938
-----------------------------------------
Total interest expense 4,176 3,796 8,107 7,630
-----------------------------------------
Net interest income 3,654 3,581 7,286 7,221
Provision for loan losses 22 20 45 57
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Net interest income after provision for loan losses 3,632 3,561 7,241 7,164
-----------------------------------------
Noninterest income
Service fees and other charges 199 187 408 360
Other 52 24 73 86
-----------------------------------------
Total noninterest income 251 211 481 446
Noninterest expense
Salaries and employee benefits 771 891 1,626 1,806
State franchise tax 104 90 204 191
Federal deposit insurance premiums 15 43 30 86
Occupancy and equipment 110 98 209 188
Depreciation 112 117 224 229
Data processing 123 117 250 229
Advertising 54 65 113 133
Other 449 377 793 675
-----------------------------------------
Total noninterest expense 1,738 1,798 3,449 3,537
-----------------------------------------
Income before income tax 2,145 1,974 4,273 4,073
Provision for income tax 761 696 1,496 1,425
-----------------------------------------
Net income $1,384 $1,278 $ 2,777 $ 2,648
=========================================
Basic earnings per share $ 0.34 $ 0.29 $ 0.68 $ 0.60
Diluted earnings per share 0.34 0.29 0.67 0.58
See accompanying notes to financial statements
INDUSTRIAL BANCORP, INC.
Consolidated Statements of Comprehensive Income
($ in thousands)
Three months ended Six months ended
6/30/00 6/30/99 06/30/00 06/30/99
------- ------- -------- --------
Net income $1,384 $1,278 $2,777 $2,648
Other comprehensive income:
Unrealized gain/loss on securities, net of tax 9 (64) (136) (387)
----------------------------------------
Comprehensive Income $1,393 $1,214 $2,641 $2,261
========================================
See accompanying notes to financial statements
INDUSTRIAL BANCORP, INC.
Consolidated Statements of Shareholders' Equity
($ in thousands except per share data)
Total
shareholders'
equity
-------------
Balance at January 1, 1999 $60,741
Net income 2,648
Cash dividends (1,423)
($.32 per share)
Purchase of treasury stock (6,190)
(309,160 shares)
Employee Stock Ownership Plan:
Shares released 405
Management Recognition Plan:
Compensation earned 378
Change in unrealized gain on securities
available for sale (387)
-------
Balance at June 30, 1999 $56,172
=======
Balance at January 1, 2000 $54,586
Net income 2,777
Cash dividends (1,565)
($.36 per share)
Purchase of treasury stock (333)
(25,500 shares)
Employee Stock Ownership Plan:
Shares released 354
Management Recognition Plan:
Compensation earned 263
Change in unrealized gain on securities
available for sale (135)
-------
Balance at June 30, 2000 $55,947
=======
See accompanying notes to financial statements
INDUSTRIAL BANCORP, INC.
Condensed Consolidated Statements of Cash Flows
($ in thousands)
Six months ended
6/30/00 6/30/99
----------------------
Cash flows from operating activities
Net income $ 2,777 $ 2,648
Adjustments to reconcile net income to net cash from
operating activities 634 (125)
----------------------
Net cash from operating activities 3,411 2,523
Cash flows from investing activities
Net decrease (increase) in interest-bearing time deposits 10,500 (20,000)
Investment securities available for sale:
Purchases (6,000) (4,000)
Proceeds from maturities 5,000 9,000
Mortgage-backed securities principal repayments 37 44
Net decrease (increase) in loans (15,555) 6,382
Properties and equipment expenditures, net (28) (630)
----------------------
Net cash from investing activities (6,046) (9,204)
Cash flows from financing activities
Net (decrease) increase in deposits (1,245) (95)
Proceeds from FHLB advances 37,000 -
Repayments of FHLB advances (26,000) (7,000)
Exercise of stock options - -
Purchase of treasury stock (333) (6,190)
Cash dividends paid (1,565) (1,423)
----------------------
Net cash from financing activities 7,857 (14,708)
----------------------
Net change in cash and cash equivalents 5,222 (21,389)
Cash and cash equivalents at beginning of period 9,952 28,536
----------------------
Cash and cash equivalents at end of period $ 15,174 $ 7,147
======================
Cash paid during the period for:
Interest $ 8,522 $ 8,025
Income taxes 1,548 1,433
See accompanying notes to financial statements
INDUSTRIAL BANCORP, INC.
Notes to Consolidated Financial Statements
Summary of Significant Accounting Policies
These interim financial statements are presented in accordance with
the SEC's rules for quarterly financial information without audit and
reflect all adjustments which, in the opinion of management, are necessary
to present fairly the financial position of Industrial Bancorp, Inc. (the
"Company") and its wholly owned subsidiary, The Industrial Savings and Loan
Association (the "Association"), at June 30, 2000 and the results of
operations and cash flows for the periods presented. All such adjustments
are normal and recurring in nature. All significant intercompany accounts
and transactions have been eliminated in consolidation. The accompanying
condensed financial statements do not purport to contain all the necessary
disclosures required by generally accepted accounting principles that might
otherwise be necessary in the circumstances and should be read in
conjunction with the financial statements included in the 1999 Annual Report
of Industrial Bancorp, Inc. The results of the six months presented are not
necessarily representative of the results of operations and cash flows which
may be expected for the entire year.
Earnings Per Share
Earnings per common share have been computed based on the applicable
weighted average number of common shares outstanding during the period as
indicated below:
For the quarter ended For the six months ended
6/30/00 6/30/99 6/30/00 6/30/99
------- ------- ------- -------
Basic earnings per share 4,105,825 4,362,649 4,110,935 4,433,642
Dilutive effects of assumed
exercises of stock options 8,164 113,787 32,642 111,019
Diluted earnings per share 4,113,989 4,476,436 4,143,577 4,544,661
The calculation of diluted earnings per share considers the dilutive
effect of the assumed exercise of options outstanding during the period.
Employee Stock Ownership Plan shares that have not been allocated to
participants are not considered outstanding for purposes of computing
earnings per share.
Commitments and Contingencies
As of June 30, 2000, commitments to originate loans and loans in
process to be funded totaled $26.4 million and there were commitments to
sell loans totaling $.03 million. All of the commitments to originate loans
expire within twelve months.
As of June 30, 2000, the Association had outstanding $9.2 million in
letters of credit from the Federal Home Loan Bank as security pledged
against public deposits.
Segments
All banking operations were considered by management to be aggregated
in one reportable operating segment of banking.
Provision for Income Taxes
The provision for income taxes is based upon the effective tax rate
expected to be applicable for the entire year.
INDUSTRIAL BANCORP, INC.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Forward Looking Statements
Certain statements contained in this report that are not historical
facts are forward looking statements that are subject to certain risks and
uncertainties. When used herein, the terms "anticipates," "plans,"
"expects," "believes," and similar expressions as they relate to the Company
or its management are intended to identify such forward looking statements.
The Company's actual results, performance or achievements may materially
differ from those expressed or implied in the forward looking statements.
Risks and uncertainties that could cause or contribute to such material
differences include, but are not limited to, general economic conditions,
interest rate environment, competitive conditions in the financial services
industry, changes in law, governmental policies and regulations, and rapidly
changing technology affecting financial services.
Financial Condition
Total assets increased to $400.1 million at June 30, 2000 from $389.0
million at December 31, 1999. The increase in total assets is primarily
attributable to a $15.6 million growth in loans receivable and a $5.2
million increase in cash and cash equivalents. Proceeds from $10.5 million
in maturing time deposits were used to partially fund the increase in loans.
Growth in mortgage loans secured by single family residences was the major
contributor to growth in loans receivable. Liquidity of the Association
exceeded the regulatory requirement at June 30, 2000.
Similarly, total liabilities increased as FHLB advances increased
$11.0 million to $48.0 million at June 30, 2000 compared to $37.0 million at
December 31, 1999. Proceeds from the growth in FHLB advances was used
primarily to fund loan growth. Total deposits decreased slightly during the
period from $294.3 million at December 31, 1999 to $293.0 million of June
30, 2000.
Total shareholders' equity increased to $55.9 million at June 30, 2000
from $54.6 million at December 31, 1999. Earnings of $2.8 million for the
six month period ending June 30, 2000 less dividends of $1.6 million paid to
common stock shareholders during the same period accounted for the major
difference in shareholder equity. The Company repurchased 25,500 shares of
its common stock during the first six months of 2000.
The Association is required by the Office of Thrift Supervision to
maintain certain minimum levels of tangible, core, and risk-based capital.
The following table presents the Association's regulatory capital position
at June 30, 2000:
Minimum Required
For Capital
Actual Adequacy Purposes
----------------- -----------------
($ in thousands)
Total capital (to risk weighted assets) $41,333 16.26% $19,988 8.00%
Tier 1 (core) capital (to risk weighted assets) $38,504 15.41% $ 7,495 3.00%
Tier 1 (core) capital (to adjusted total assets) $38,504 9.66% $11,963 3.00%
Tangible capital (to adjusted total assets) $38,504 9.66% $ 5,981 1.50%
Results of Operations
Quarters ended June 30, 2000 and 1999.
Net income for the quarter ended June 30, 2000 was $1.38 million
compared to $1.28 million for the quarter ended June 30, 1999. As a result
of the increased earnings and the Company's stock buyback program, earnings
to the investor, on a diluted basis, increased from $0.29 per share in 1999
to $0.34 per share in 2000.
The primary reasons for second quarter net income in 2000 to be
greater than the comparable period in 1999 were the increased level of
interest-bearing loans and the reduced salary and employee benefit expense.
Net interest income was $3.65 million for the second quarter of 2000
compared to $3.58 million for the second quarter in 1999. The increase was
the result of growth in average interest-earning assets during the second
quarter of 2000, offset by a decline in the net interest margin from 3.82%
to 3.77% during the same periods.
Total interest income was $453,000, or 6.1% greater for the three
months ended June 30, 2000 than for the comparable period in 1999. The
increase resulted from larger average loans receivable balances in 2000 than
in 1999. Interest and fees on loans increased $640,000 in the quarter ending
June 30, 2000 over the quarter June 30, 1999. The Company transferred funds
from maturing interest bearing time deposits to loans receivable during the
second quarter of 2000. As a result interest income from interest-bearing
deposits declined from $379,000 in the second quarter of 1999 to $205,000 in
the same quarter 2000.
Total interest expense was $380,000, or 10.0% greater for the three
months ended June 30, 2000 than for the comparable period in 1999. The cost
of FHLB advances during the second quarter of 2000 amounted to $647,000
compared to $452,000 during the second quarter of 1999. The higher interest
expense of FHLB advances was attributable to increased advances as well as
higher interest rates in 2000 versus 1999. Interest paid on deposits
increased $185,000 for the quarter ended June 30, 2000 over the same period
in 1999 primarily as a result of higher rates of interest paid (4.78% in
2000 compared to 4.67% in 1999).
The provision for loan losses was $22,000 for the quarter ended June
30, 2000 and $20,000 for the same quarter 1999, based upon management's
assessment of probable losses in the loan portfolio for each period. Also
considered were the size of the loan portfolio and activity in sales of
mortgage loans relative to each period.
Noninterest income for the quarter ended June 30, 2000 was $251,000
compared to $211,000 for the same period in 1999. The $40,000, or 18.9%,
increase is due primarily to higher service fee income on an increased
average balance of deposits, higher income from servicing rights and fees
collected on the early payoff of mortgage loans.
Noninterest expense for the quarter ended June 30, 2000 was $1.74
million compared to $1.80 million for the same quarter in 1999. Salaries and
employee benefits expense for the second quarter of 2000 amounted to
$771,000 compared to $891,000 for the second quarter of 1999. This reduction
is primarily due to a $99,000 less expense related to the Employee Stock
Option Plan. Other noninterest expense was $449,000 for the quarter ended
June 30, 2000 compared to $377,000 for the quarter ended June 30, 1999. This
$72,000 increase results primarily from fees paid to outside loan
originators, additional costs of ATM operations and higher service fees paid
on customer demand accounts as well as other small increases in expense.
Year-to-date periods ended June 30, 2000 and 1999.
Net income for the six months ended June 30, 2000 was $2.78 million,
representing a 5% increase from $2.65 million reported for the comparable
period in 1999. Net interest income was $7.29 million in 2000 compared to
$7.22 million in 1999. Income before taxes was 5% higher in 2000 compared to
1999, while the provision for income tax expense increased to $1.50 million
in 2000 compared to $1.43 million in 1999.
Total interest income was $542,000, or 3.7% greater for the six months
ended June 30, 2000 than for the comparable period in 1999. The increase was
primarily the result of a higher average balance in net loans receivable.
Interest and fees on loans for the first half of 2000 amounted to $14.48
million compared to $13.54 million for the same period in 1999. The interest
earned on the combination of investment securities and interest bearing
deposits, including short term deposits declined $396,000 due to smaller
average balances in these investments during the first 6 months of 2000 as
compared to the first 6 months of 1999.
Total interest expense was $477,000, or 6.3% greater for the six
months ended June 30, 2000 than for the comparable period in 1999. The cost
of interest on deposits during the first half of 2000 amounted to $6.85
million compared to $6.69 million during the first half of 1999. Interest
paid on FHLB advances increased to $1.26 million in the first six months of
2000 from $.94 million in the first six months of 1999. The increase in
outstanding advance balances plus an increase in the interest rate
contributed to this increase.
The provision for loan losses was $45,000 for the six months ended
June 30, 2000 and $57,000 for the same period in 1999, based upon
management's assessment of probable losses in the loan portfolio for each
period. Also considered were the size of the loan portfolio and activity in
sales of mortgage loans relative to each period.
Noninterest income for the six months ended June 30, 2000 was $481,000
compared to $446,000 for the same period in 1999. The $35,000, or 7.8%
increase is due primarily to higher service fee income on an increased
average balance of deposits.
Noninterest expense for the six months ended June 30, 2000 was $3.45
million compared to $3.54 million for the comparable period in 1999.
Salaries and employee benefits expense for the first half of 2000 amounted
to $1.63 million compared to $1.81 million for the first half of 1999. The
decline was due to a decrease in the Employee Stock Option Plan Expense.
The provision for income tax expense was $71,000 more for the first
six months of 2000 than for the comparable period in 1999, due to increased
taxable income in 2000.
INDUSTRIAL BANCORP, INC
Quantitative and Qualitative Disclosures about Market Risk
Quantitative and Qualitative Disclosures About Market Risk
The Company is subject to interest rate risk to the extent that its
interest-earning assets reprice differently than its interest-bearing
liabilities. Exposure to interest rate risk is measured with the use of
interest rate sensitivity analysis to estimate the change in the Company's
"net portfolio value" ("NPV") in the event of hypothetical changes in
interest rates.
As part of its efforts to monitor and manage interest rate risk, the
Company's asset and liability committee reviews with the Board of Directors,
on a quarterly basis, reports provided by the Office of Thrift Supervision
("OTS") and considers methods of maintaining acceptable levels of changes in
NPV. The Company's assets and liability management is designed to minimize
the impact of sudden and sustained changes in interest rates on NPV. If
estimated changes to NPV are not within the limits established by the Board,
the Board may direct management to adjust the asset and liability mix to
bring interest rate risk within board approved limits.
It is the intent of the Board not to exceed a moderate risk level. The
Association has increased the percentage of adjustable rate loans granted in
the first half of 2000 to 33.6% from 9.0% in the first half of 1999. The
percentage of adjustable rate loans in the portfolio however decreased
slightly from 24.1% in 1999 to 21.8% in 2000. Based on internal analysis,
management believes Industrial's interest rate risk sensitivity did not
materially change between December 31, 1999 and June 30, 2000. However, the
increase in interest rates continues to increase the Association's overall
interest rate sensitivity.
INDUSTRIAL BANCORP, INC.
Form 10-Q
Other Information
Part II
Item 1. Legal Proceedings
-----------------
Not applicable.
Item 2. Changes in Securities
---------------------
Not applicable.
Item 3. Defaults upon Senior Securities
-------------------------------
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
Industrial Bancorp, Inc. held its Annual Meeting of Shareholders
on April 18, 2000, for the purpose of electing three directors
and to transact such other business as would properly come before
the meeting. Results of shareholder voting on these individuals
were as follows:
Election of Directors
Lawrence R Rhoades Fredric Spurck
------------------ --------------
For 3,001,161 2,876,639
Abstain 65,795 190,317
Against 0 0
Roger Wilkinson
---------------
For 3,003,037
Abstain 63,919
Against 0
Item 5. Other Information
-----------------
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
Exhibit Financial Data Schedule for the six months ended June 30,
2000.
INDUSTRIAL BANCORP, INC.
Form 10-Q
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
INDUSTRIAL BANCORP, INC.
(Registrant)
Date: August 14, 2000 By: /s/ Lawrence R. Rhoades
--------------- -------------------------------
Lawrence R. Rhoades
Chairman of the Board and
Chief Financial Officer
Date: August 14, 2000 By: /s/ David M. Windau
--------------- -------------------------------
David M. Windau
President and
Chief Executive Officer