UNITED STATES
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: September 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 October 30, 2000:
4,333,883 common shares, no par value
INDUSTRIAL BANCORP, INC.
Form 10-Q
For the Quarter ended September 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 (Unaudited)
($ in thousands except per share data)
9/30/00 12/31/99
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ASSETS
Cash and noninterest-bearing deposits $ 1,237 $ 2,699
Interest-bearing demand deposits 6,444 3,253
Overnight deposits 11,500 4,000
--------------------
Cash and cash equivalents 19,181 9,952
Interest-bearing time deposits - 10,500
Securities available for sale, at fair value 14,689 14,141
Securities held to maturity
(fair value: 9/30/00 = $148, 12/31/99 = $231) 155 202
Loans receivable 371,745 344,293
Less: Allowance for Loan Losses (2,074) (2,017)
--------------------
Loans receivable, net 369,671 342,276
Federal Home Loan Bank stock 3,684 3,490
Office properties and equipment, net 5,405 5,709
Accrued interest receivable 2,408 2,273
Other assets 483 460
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Total assets $415,676 $389,003
====================
LIABILITIES
Deposits $308,007 $294,250
Federal Home Loan Bank advances 47,000 37,000
Accrued interest payable and other liabilities 3,306 3,167
--------------------
Total liabilities 358,313 334,417
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 3,190 2,955
Retained earnings 41,775 40,005
Accumulated other comprehensive income 1,805 1,390
Unearned employee stock ownership plan shares (2,392) (2,688)
Unearned compensation (307) (701)
Treasury stock, at cost
(9/30/00: 1,220,617 shares, 12/31/99: 1,195,117 shares) (21,377) (21,044)
--------------------
Total shareholders' equity 57,363 54,586
--------------------
Total liabilities and shareholders' equity $415,676 $389,003
====================
Book value per share $ 13.24 $ 12.52
See accompanying notes to financial statements
INDUSTRIAL BANCORP, INC.
Consolidated Statements of Net Income (Unaudited)
($ in thousands except per share data)
Three months ended Nine months ended
9/30/00 9/30/99 09/30/00 09/30/99
------- ------- -------- --------
Interest income
Interest and fees on loans $7,662 $6,689 $22,144 $20,233
Interest and dividends on investment securities 264 257 811 888
Interest on deposits 243 279 607 955
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Total interest income 8,169 7,225 23,562 22,076
Interest expense
Interest on deposits 3,742 3,246 10,593 9,938
Interest on FHLB advances 803 431 2,059 1,369
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Total interest expense 4,545 3,677 12,652 11,307
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Net interest income 3,624 3,548 10,910 10,769
Provision for loan losses 23 23 68 80
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Net interest income after provision for loan losses 3,601 3,525 10,842 10,689
Noninterest income
Service fees and other charges 268 215 676 575
Other 13 12 86 98
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Total noninterest income 281 227 762 673
Noninterest expense
Salaries and employee benefits 829 880 2,455 2,686
State franchise tax 104 101 308 293
Federal deposit insurance premiums 15 42 45 129
Occupancy and equipment 109 148 318 336
Depreciation 114 127 338 355
Data processing 120 114 370 343
Advertising 47 66 160 199
Other 409 348 1,202 1,023
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Total noninterest expense 1,747 1,826 5,196 5,364
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Income before income tax 2,135 1,926 6,408 5,998
Provision for income tax 754 712 2,250 2,136
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Net income $1,381 $1,214 $ 4,158 $ 3,862
=========================================
Basic earnings per share $ 0.34 $ 0.29 $ 1.01 $ 0.89
Diluted earnings per share $ 0.33 $ 0.28 $ 1.00 $ 0.86
See accompanying notes to financial statements
INDUSTRIAL BANCORP, INC.
Consolidated Statements of Comprehensive Income (Unaudited)
($ in thousands)
Three months ended Nine months ended
9/30/00 9/30/99 09/30/00 09/30/99
------- ------- -------- --------
Net income $1,381 $1,214 $4,158 $3,862
Other comprehensive income:
Unrealized gain/loss on securities, net of tax 550 (163) 415 (550)
----------------------------------------
Comprehensive Income $1,931 $1,051 $4,573 $3,312
========================================
See accompanying notes to financial statements
INDUSTRIAL BANCORP, INC.
Condensed Consolidated Statements of Shareholders' Equity (Unaudited)
($ in thousands except per share data)
Total
shareholders'
equity
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Balance at January 1, 1999 $60,741
Net income 3,862
Cash dividends (2,129)
($.49 per share)
Purchase of treasury stock (8,271)
(402,960 shares)
Exercise of Stock Options 180
Employee Stock Ownership Plan:
Shares released 597
Management Recognition Plan:
Compensation earned 509
Change in unrealized gain on securities
available for sale (550)
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Balance at September 30, 1999 $54,939
=======
Balance at January 1, 2000 $54,586
Net income 4,158
Cash dividends (2,388)
($.55 per share)
Purchase of treasury stock (333)
(25,500 shares)
Employee Stock Ownership Plan:
Shares released 531
Management Recognition Plan:
Compensation earned 394
Change in unrealized gain on securities
available for sale 415
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Balance at September 30, 2000 $57,363
=======
See accompanying notes to financial statements
INDUSTRIAL BANCORP, INC.
Condensed Consolidated Statements of Cash Flows (Unaudited)
($ in thousands)
Nine months ended
9/30/00 9/30/99
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Cash flows from operating activities
Net income $ 4,158 $ 3,862
Adjustments to reconcile net income to net cash from
operating activities 1,096 (448)
--------------------
Net cash from operating activities 5,254 3,414
Cash flows from investing activities
Net decrease (increase) in interest-bearing time deposits 10,500 (15,500)
Investment securities available for sale:
Purchases (8,000) (4,000)
Proceeds from maturities 8,000 10,000
Principal repayments and maturities of Securities
held to maturity 47 63
Net decrease (increase) in loans (27,395) (1,538)
FHLB stock purchases (194) -
Properties and equipment expenditures, net (19) (740)
--------------------
Net cash from investing activities (17,061) (11,715)
Cash flows from financing activities
Net increase in deposits 13,757 515
Proceeds from FHLB advances 39,000 2,000
Repayments of FHLB advances (29,000) (7,000)
Exercise of stock options - 180
Purchase of treasury stock (333) (8,271)
Cash dividends paid (2,388) (2,129)
--------------------
Net cash from financing activities 21,036 (14,705)
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Net change in cash and cash equivalents 9,229 (23,006)
Cash and cash equivalents at beginning of period 9,952 28,536
--------------------
Cash and cash equivalents at end of period $ 19,181 $ 5,530
====================
Cash paid during the period for:
Interest $ 12,441 $ 11,536
Income taxes 2,283 2,048
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 Securities and Exchange Commission'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
September 30, 2000 and December 31, 1999, 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 nine 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 nine months ended
9/30/00 9/30/99 9/30/00 9/30/99
------- ------- ------- -------
Basic earnings per share 4,115,260 4,211,991 4,112,383 4,358,946
Diluted earnings per share 4,137,584 4,318,393 4,141,698 4,468,448
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. Unallocated shares in the Management Recognition Plan
are considered for purposes of computing diluted earnings per share.
Commitments and Contingencies
As of September 30, 2000, commitments to originate loans and loans in
process to be funded totaled $21.8 million. All of the commitments to
originate loans expire within twelve months.
As of September 30, 2000, the Association had outstanding $15.6
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.
Effect of New Accounting Pronouncements
The Financial Accounting Standards Board has issued new accounting
standards that are effective for the Company's consolidated financial
statements for the years ending after December 31, 1999.
Statement of Financial Accounting Standards ("SFAS") No. 133,
"Accounting for Derivative Instruments and hedging Activities," issued in
June 1998 and effective for fiscal years beginning after June 15, 2000,
addresses the accounting for derivative instruments and certain derivative
instruments embedded in other contracts, and hedging activities. The
statement standardizes the accounting for derivative instruments by
requiring that an entity recognize those items as assets or liabilities in
the statement of financial position and measure them at fair value.
This statement is not expected to have a material effect on the
Company's consolidated financial position or results of operations since
the Company has not historically engaged in these activities.
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 $415.7 million at September 30, 2000 from
$389.0 million at December 31, 1999. The increase in total assets is
primarily attributable to an increase in net loans receivable and an
increase in cash and cash equivalents. Loans receivable increased $27.5
million or 8.0% during the nine months period ending September 30, 2000.
Cash and cash equivalents increased $9.2 million during the same nine month
period. This increase is offset by a $10.5 million decline in interest
bearing time deposits. Interest-bearing demand deposits at September 30,
2000 amounted to $6.4 million and overnight deposits increased from $4.0
million on December 31, 1999 to $11.5 million on September 30, 2000.
Liquidity of the Association exceeded the regulatory requirement at
September 30, 2000.
Similarly, total liabilities increased as deposits were $308.0
million at September 30, 2000 compared to $294.3 million at December 31,
1999. Deposits increased $13.8 million during the nine month period ending
September 30, 2000. Additional funds were needed to fund the loan growth
thus Federal Home Loan Bank advances increased $10.0 million from $37.0
million at December 31, 1999 to $47.0 million at September 30, 2000.
Total shareholder's equity increased to $57.4 million at September 30,
2000 from $54.6 million at December 31, 1999. For the nine months ended
September 30, 2000, net income of $4.2 million and unrealized gain of $0.4
million on investment securities available for sale exceeded dividends to
common shareholders of $2.4 million and the purchase of $0.3 million worth
of treasury shares. Book value of outstanding shares increased from $12.52
per share to $13.24 per share during the nine month period ending September
30, 2000. The Company repurchased 25,500 shares of its common stock during
the first nine months of 2000 and has approximately 36,000 shares remaining
to be purchased under its fifth 5% buyback program
The Association is required by the Office of Thrift Supervision to
maintain certain minimum levels of tangible, core, and risk-based capital.
The following table presents the Association's regulatory capital position
at September 30, 2000:
Minimum Required
For Capital
Actual Adequacy Purposes
---------------- -----------------
($ in thousands)
Total capital (to risk weighted assets) $43,338 16.72% $20,735 8.00%
Tier 1 (core) capital (to risk weighted assets) $40,212 15.51% $ 7,776 3.00%
Tier 1 (core) capital (to adjusted total assets) $40,212 9.73% $12,399 3.00%
Tangible capital (to adjusted total assets) $40,212 9.73% $ 6,200 1.50%
Results of Operations
Quarters ended September 30, 2000 and 1999.
Net income for the quarter ended September 30, 2000 was $1.38 million
compared to $1.21 million for the quarter ended September 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 $0.28 per
share in 1999 to $0.33 per share in 2000.
The primary reasons for third quarter net income in 2000 to be
greater than the comparable period in 1999 were the increased interest
income and the reduced salary and employee benefit expense.
Net interest income was $3.62 million for the third quarter of 2000
compared to $3.55 million for the third quarter in 1999. The increase was
the result of growth in average interest-earning assets during the third
quarter of 2000, offset by a decline in the net interest margin from 3.86%
to 3.66% during the same periods.
Total interest income was $944,000, or 13.1% greater for the three
months ended September 30, 2000 than for the comparable period in 1999. The
increase resulted from larger average loans receivable balances and higher
average interest rates in 2000 than in 1999. Interest and fees on loans
increased $973,000 in the quarter ending September 30, 2000 over the
quarter September 30, 1999.
Total interest expense was $868,000 greater for the three months
ended September 30, 2000 than for the comparable period in 1999. The cost
of FHLB advances during the third quarter of 2000 amounted to $803,000
compared to $431,000 during the third 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 $496,000 for the quarter ended September 30, 2000 over the same
period in 1999 primarily as a result of higher rates of interest paid and a
higher average balance of deposits in 2000.
The provision for loan losses was $23,000 for the quarter ended
September 30, 2000 and was the same amount for the third quarter of 1999.
The provision is 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 September 30, 2000 was
$268,000 compared to $215,000 for the same period in 1999. The $53,000, or
24.7% , 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 September 30, 2000 was
$1.75 million compared to $1.83 million for the same quarter in 1999.
Salaries and employee benefits expense for the third quarter of 2000
amounted to $829,000 compared to $880,000 for the third quarter of 1999.
This reduction is primarily due to a $74,000 less expense related to the
Employee Stock Ownership Plan. Other noninterest expense was $409,000 for
the quarter ended September 30, 2000 compared to $348,000 for the quarter
September 30, 1999. This $61,000 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 September 30, 2000 and 1999.
Net income for the nine months ended September 30, 2000 was $4.16
million, representing a 7.8% increase from $3.86 million reported for the
comparable period in 1999. Net interest income was $10.91 million in 2000
compared to $10.77 million in 1999. Income before taxes was 5% higher in
2000 compared to 1999, while the provision for income tax expense increased
to $2.25 million in 2000 compared to $2.14 million in 1999.
Total interest income increased $1.49 million, or 6.7% greater for
the nine months ended September 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 nine months
of 2000 amounted to $22.14 million compared to $20.23 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 $425,000 due to smaller average balances in these investments
during the first nine months of 2000 as compared to the first nine months
of 1999.
Total interest expense was $1.35 million, or 11.9% greater for the
nine months ended September 30, 2000 than for the comparable period in
1999. The cost of interest on deposits during the first nine months of 2000
amounted to $10.59 million compared to $9.94 million during the first nine
months of 1999. Interest paid on FHLB advances increased to $2.06 million
in the first nine months of 2000 from $1.37 million in the first nine
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 $68,000 for the nine months ended
September 30, 2000 and $80,000 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 nine months ended September 30, 2000 was
$762,000 compared to $673,000 for the same period in 1999. The $89,000, or
13.2% increase is due primarily to higher service fee income on an
increased average balance of deposits.
Noninterest expense for the nine months ended September 30, 2000 was
$5.20 million compared to $5.36 million for the comparable period in 1999.
Salaries and employee benefits expense for the first nine months of 2000
amounted to $2.46 million compared to $2.69 million for the first nine
months of 1999. The decline was due to a decrease in the Employee Stock
Ownership Plan expense.
The provision for income tax expense was $114,000 more for the first
nine 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 nine months of 2000 to 33.4% from 9.0% in the first
nine months of 1999. The percentage of adjustable rate loans in the
portfolio however decreased slightly from 22.6% in 1999 to 21.6% in 2000.
Based on internal analysis, management believes Industrial's interest rate
risk sensitivity did increase slightly between December 31, 1999 and
September 30, 2000. 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
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Not applicable.
Item 2. Changes in Securities
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Not applicable.
Item 3. Defaults upon Senior Securities
-------------------------------
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
Not applicable.
Item 5. Other Information
-----------------
Not applicable
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
Exhibit 11. Statements of recomputation of per share earnings
(included in note 1 to consolidated financial statements)
Exhibit 27. Financial Data Schedule
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.
Date: November , 2000 By: /s/ Lawrence R. Rhoades
----------------- --------------------------
Lawrence R. Rhoades
Chairman of the Board and
Chief Financial Officer
Date: November , 2000 By: /s/ David M. Windau
----------------- --------------------------
David M. Windau
President and
Chief Executive Officer