UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________
Commission File Number: 0-026248
INDUSTRIAL BANCORP, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Ohio 34-1800830
- ------------------------------- ----------------------
(State or other jurisdiction of I.R.S. Employer
incorporation or organization) Identification Number)
211 North Sandusky Street, Bellevue, Ohio 44811
- ---------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number: (419) 483-3375
--------------
Securities registered pursuant to Section 12(b) of the Act:
None None
---------------- -------------------------------------------
(Title of Class) (Name of each exchange on which registered)
Securities registered pursuant to Section 12(g) of the Act:
Common shares, no par value per share
-------------------------------------
(Title of Class)
Indicate by check mark whether the issuer (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Exchange Act during the
past 12 months (or for such shorter period that the issuer was required to
file such reports), and (2) has been subject to such requirements for the
past 90 days. Yes [X] No [ ]
Indicate by check mark if there is no disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K contained in this form, and no
disclosure will be contained, to the best of issuer's knowledge, in
definitive proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates
of the registrant, computed by reference to the average of the bid and asked
prices of such stock on The Nasdaq National Market as of March 16, 2001, was
$20.22. (The exclusion from such amount of the market value of the shares
owned by any person shall not be deemed an admission by the registrant that
such person is an affiliate of the registrant.)
As of March 16, 2001, there were 4,333,833 of the Registrant's Common
Shares issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
(None)
PART I
Item 1. Description of Business
General
Industrial Bancorp, Inc. (the "Holding Company" or the "Corporation")
was incorporated in the State of Ohio in February 1995 for the purpose of
owning all of the outstanding capital stock of The Industrial Savings and
Loan Association ("Industrial" or the "Association") issued upon the
conversion of the Association from a mutual savings association to a
permanent capital stock savings association (the "Conversion"). On August
1, 1995, the effective date of the Conversion, the Holding Company acquired
all 100 shares of the capital stock of the Association.
The Association was organized as a mutual savings association under
Ohio law in 1890. As an Ohio savings association, the Association is
subject to supervision and regulation by the Office of Thrift Supervision
(the "OTS"), the Ohio Department of Commerce, Division of Financial
Institutions (the "Division") and the Federal Deposit Insurance Corporation
(the "FDIC"). The Association is a member of the Federal Home Loan Bank
(the "FHLB") of Cincinnati and the deposits of the Association are insured
up to applicable limits by the FDIC in the Savings Association Insurance
Fund (the "SAIF").
The Association conducts business from its main office at 211 N.
Sandusky Street in Bellevue, Ohio, its eleven branch offices and its one
loan production office in the northern Ohio communities of Ashland,
Bellevue, Clyde, Findlay, Fremont, Lexington, Mansfield, Norwalk, Sandusky,
Tiffin and Willard. The Association is principally engaged in the business
of originating construction and permanent mortgage loans secured by first
mortgages on one- to four-family residential real estate located in the
Association's primary market area, which consists of the seven Ohio counties
in which its offices are located: Ashland, Erie, Hancock, Huron, Richland,
Sandusky and Seneca. The Association also originates construction and
permanent mortgage loans secured by multifamily real estate (over four
units) and nonresidential real estate in its primary market area. In
addition to real estate loans, the Association originates a limited number
of commercial loans and secured and unsecured consumer loans. For liquidity
and interest rate risk management purposes, the Association invests in
interest-bearing deposits in other financial institutions, U.S. Government
and agency obligations, mortgage-backed securities and other investments
permitted by applicable law. Funds for lending and other investment
activities are obtained primarily from savings deposits and loan principal
repayments. Advances from the FHLB of Cincinnati are also utilized as an
additional source of funds.
Interest on loans and investments is the Association's primary source
of income. The Association's principal expense is interest paid on deposit
accounts. Operating results are dependent to a significant degree on the
"net interest income" of the Association, which is the difference between
interest income earned on loans, mortgage-backed securities and other
interest-earning assets and interest paid on deposits and borrowings. Like
most thrift institutions, the Association's interest income and interest
expense are significantly affected by general economic conditions and by the
policies of various regulatory authorities.
Market Area
The Association conducts business from its main office in Bellevue,
Ohio, and its eleven branch offices in the northern Ohio cities of Ashland,
Clyde, Findlay, Fremont, Lexington, Norwalk, Sandusky, Tiffin and Willard.
The Association's primary market area for deposit and lending activity
consists of the seven counties in which the Association has its branch
offices.
The economy of the Association's primary market area is stable.
Population growth and household growth have occurred at rates comparable to
those in the State of Ohio as a whole. The principal segments of the local
economy are manufacturing, wholesale/retail trade, tourism and other service
industries. Erie and Sandusky Counties include popular tourist attractions
along Lake Erie, such as Cedar Point, which provide a significant number of
jobs during the summer season and draw large numbers of visitors to the
area. Other major employers in the Association's primary market area
include Whirlpool Corporation, Cooper Tire & Rubber Company, Consolidated
Biscuit Co., General Motors, Ford Motor Company, Marathon Oil, Sprint,
Therm-O-Disc and R.R. Donnelly Co. There are also several colleges and
universities in the Association's primary market area.
Lending Activities
General. The Association's principal lending activity is the
origination of conventional real estate loans, including construction loans,
secured by one- to four-family homes located in the Association's primary
market area. The Association also offers loans secured by multifamily
properties containing more than four units and nonresidential properties,
including construction loans. The Association does not originate first
mortgage loans insured by the Federal Housing Authority or guaranteed by the
Veterans Administration. In addition to real estate lending, the
Association originates a limited number of commercial loans and consumer
loans, including education loans, loans secured by deposit accounts,
automobile loans and a limited number of unsecured loans. As an approved
Federal Home Loan Mortgage Corporation ("FHLMC") seller/servicer, the
Association sells certain residential real estate mortgage loans in the
secondary market.
Loan Portfolio Composition. The following table presents certain
information regarding the composition of the Association's loan portfolio at
the dates indicated:
At December 31,
-------------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996
------------------- ------------------- ------------------- ------------------- -------------------
Percent Percent Percent Percent Percent
of total of total of total of total of total
Amount loans Amount loans Amount loans Amount loans Amount loans
-------------------------------------------------------------------------------------------------------
(Dollars in thousands)
Real estate loans:
One- to four-family $308,303 80.30% $288,905 83.07% $279,237 83.87% $278,438 85.00% $248,694 85.35%
Home equity 21,733 5.66 18,721 5.38 16,624 4.99 15,407 4.70 11,651 4.00
Multifamily 12,520 3.26 10,873 3.13 9,165 2.75 8,170 2.49 9,028 3.10
Nonresidential 16,585 4.32 11,956 3.44 10,979 3.31 10,521 3.21 8,842 3.03
-----------------------------------------------------------------------------------------------------
Total real estate
loans 372,915 97.13 339,934 97.74 327,612 98.41 322,877 98.56 286,980 98.49
Commercial loans 1,209 0.31 1,265 0.36 451 0.14 297 0.09 398 0.14
Consumer loans:
Education loans 799 0.21 927 0.27 1,073 0.32 1,155 0.35 1,268 0.44
Loans on deposits 1,155 0.30 1,084 0.31 1,307 0.39 1,258 0.39 1,087 0.37
Automobile loans 2,574 0.67 1,901 0.55 1,545 0.46 1,189 0.36 773 0.27
Other consumer loans 5,307 1.38 2,682 0.77 934 0.28 806 0.25 831 0.29
-----------------------------------------------------------------------------------------------------
Total consumer
loans 9,835 2.56 6,594 1.90 4,859 1.45 4,408 1.35 3,959 1.37
-----------------------------------------------------------------------------------------------------
Total loans 383,959 100.00% 347,793 100.00% 332,922 100.00% 327,582 100.00% 291,337 100.00%
====== ====== ====== ====== ======
Less:
Deferred loan
origination fees (3,212) (3,500) (4,020) (4,171) (3,977)
Allowance for
loan losses (2,100) (2,017) (1,930) (1,742) (1,557)
-------- -------- -------- -------- --------
Net loans $378,647 $342,276 $326,972 $321,669 $285,803
======== ======== ======== ======== ========
<FN>
- --------------------
<F1> Net of the undisbursed portion of construction loans.
</FN>
Loan Maturity. The following table sets forth certain information as
of December 31, 2000, regarding the dollar amount of loans maturing in the
Association's portfolio based on their contractual terms to maturity.
Demand loans, home equity loans and other loans having no stated schedule of
repayments or no stated maturity are reported as due in one year or less.
Due in years
------------------------------------------------------------------------
2004 2006 2009 2021
and through through and
2001 2002 2003 2005 2008 2020 After Total
------------------------------------------------------------------------------------
(In thousands)
Real estate loans:
One- to four-family $ 326 $ 971 $3,453 $ 7,945 $13,624 $76,671 $205,313 $308,303
Home equity 21,733 - - - - - - 21,733
Multifamily and nonresidential 473 167 2,549 8,996 976 12,071 3,873 29,105
Construction 1,997 - 35 2,305 244 2,961 6,232 13,774
Commercial loans 1,209 1,209
Consumer loans 5,340 557 950 2,477 188 312 11 9,835
------------------------------------------------------------------------------------
Total $31,078 $1,695 $6,987 $21,723 $15,032 $92,015 $215,429 $383,959
====================================================================================
The following table sets forth the dollar amount of all loans which
will become due more than one year after December 31, 2000, and which have
predetermined interest rates or adjustable interest rates:
Due more than one year after
December 31, 2000
----------------------------
(In thousands)
Fixed interest rates $277,964
Adjustable interest rates 74,917
--------
$352,881
========
Loans Secured by One- to Four-Family Real Estate. The principal
lending activity of the Association is the origination of permanent
conventional loans secured by one- to four-family residences, primarily
single-family residences, located within the Association's primary market
area. Each of such loans is secured by a first mortgage on the underlying
real estate and improvements thereon, if any. At December 31, 2000, the
Association's one- to four-family residential real estate loan portfolio was
$308.3 million, or 80% of total loans.
OTS regulations and Ohio law limit the amount that the Association may
lend in relationship to the appraised value of the real estate and
improvements at the time of loan origination. In accordance with such
regulations and laws, the Association typically makes loans on one- to four-
family residences for up to 80% of the value of the real estate and
improvements (the "LTV") and occasionally makes loans with up to a 95% LTV.
The principal amount of any loan which exceeds an 80% LTV at the time of
origination is usually covered by private mortgage insurance at the expense
of the borrower.
Fixed-rate one- to four-family loans are offered by the Association,
currently for terms of up to 30 years. Adjustable-rate one- to four-family
real estate loans ("ARMs") are also offered by the Association for terms of
up to 30 years. The interest rate adjustment periods on such ARMs are one
year and the rates are tied to the one-year U.S. Treasury bill rate. The
new interest rate at each change date is determined by adding a specified
margin, typically between 2.75% and 3.75%, to the prevailing index. The
maximum allowable adjustment at each adjustment date is 1% or 2% with a
maximum adjustment of 6% over the term of the loan. The initial rate on an
ARM with a 1% cap is typically higher than the initial rate on an ARM with a
2% cap to compensate for the reduced interest rate sensitivity. The initial
rate on ARMs originated by the Association is sometimes less than the sum of
the index at the time of origination plus the specified margin. Such loans
may be subject to greater risk of default as the interest rate adjusts to
the fully-indexed level. The Association attempts to reduce the risks by
underwriting such loans on the basis of the payment amount the borrower will
be required to pay during the second year of the loan, assuming the maximum
possible rate increase.
Adjustable-rate loans decrease the Association's interest rate risk
but involve other risks, primarily credit risk, because as interest rates
rise the payment by the borrower rises to the extent permitted by the terms
of the loan, thereby increasing the potential for default. At the same
time, the marketability of the underlying property may be adversely affected
by higher interest rates. The Association believes that these risks have
not had a material adverse effect on the Association to date.
Home Equity Loans. In recent years, lines of credit secured by the
equity in a borrower's principal residence have become increasingly popular.
The Association offers home equity lines of credit in an amount which, when
added to any prior indebtedness secured by the real estate, does not exceed
95% of the appraised value of the real estate. The Association's home
equity loans have terms of up to 30 years. The borrower can draw on the
line of credit during the first 15 years and must repay the loan during the
second 15 years. Home equity loans are typically secured by a second
mortgage on the real estate. The Association frequently holds the first
mortgage, although the Association will make home equity loans in cases
where another lender holds the first mortgage. The interest rates charged
by the Association on home equity loans adjust quarterly and are tied to the
composite prime rate of 75% of the thirty largest U.S. banks, as published
in The Wall Street Journal.
At December 31, 2000, the Association had $21.7 million, or 6% of
total loans, in home equity loans.
Loans Secured by Multifamily Real Estate. In addition to loans on
one- to four-family properties, the Association originates loans secured by
multifamily properties containing over four units. Multifamily loans are
offered with adjustable rates for terms of up to 30 years and have a maximum
LTV of 80%.
Multifamily lending is generally considered to involve a higher degree
of risk than one- to four-family residential lending because the borrower
typically depends upon income generated by the project to cover operating
expenses and debt service. The profitability of a project can be affected
by economic conditions, government policies and other factors beyond the
control of the borrower. The Association attempts to reduce the risk
associated with multifamily lending by evaluating the creditworthiness of
the borrower and the projected income from the project and by obtaining
personal guarantees on loans made to corporations and partnerships. The
Association requests that borrowers submit rent rolls and that all borrowers
submit financial statements annually to enable the Association to monitor
such loans.
At December 31, 2000, loans secured by multifamily properties totaled
$12.5 million, or 3% of total loans.
Loans Secured by Nonresidential Real Estate. At December 31, 2000,
$16.6 million, or 4%, of the Association's total loans were secured by
permanent mortgages on nonresidential real estate. Such loans have
adjustable rates, terms of up to 25 years and LTVs of up to 75%. Among the
properties securing nonresidential real estate loans are office buildings
and motel and retail properties located in the Association's primary market
area.
Although the loans secured by nonresidential real estate typically
have higher interest rates than one- to four-family residential real estate
loans, nonresidential real estate lending is generally considered to involve
a higher degree of risk than residential lending due to the relatively
larger loan amounts and the effects of general economic conditions on the
successful operation of income-producing properties. The Association has
endeavored to reduce such risk by evaluating the credit history and past
performance of the borrower, the location of the real estate, the financial
condition of the borrower, the quality and characteristics of the income
stream generated by the property and appraisals supporting the property's
valuation. The Association also makes loans for the construction of
nonresidential real estate.
Construction Loans. The Association makes loans for the construction
of single-family houses, multifamily properties and nonresidential real
estate projects. At December 31, 2000, the Association's loan portfolio
included $13.8 million in construction loans, net of undisbursed proceeds,
or 4% of total loans.
The Association's construction loan portfolio at December 31, 2000,
consisted primarily of loans to individuals and builders for the
construction and permanent financing of single-family residences. Such
loans are offered with fixed or adjustable rates for terms of up to 30
years. During the first year, while the residence is being constructed, the
borrower is required to pay interest only. At December 31, 2000, loans for
the construction of nonresidential real estate totaled $1.6 million.
Construction loans, particularly loans involving nonresidential real
estate, generally involve greater underwriting and default risks than do
loans secured by mortgages on existing properties. Loan funds are advanced
upon the security of the project under construction, which is more difficult
to value before the completion of construction. Moreover, because of the
uncertainties inherent in estimating construction costs, it is relatively
difficult to evaluate accurately the LTV and the total loan funds required
to complete a project. In the event default on a construction loan occurs
and foreclosure follows, the Association would have to take control of the
project and attempt either to arrange for completion of construction or
dispose of the unfinished project. All of the Association's construction
loans are secured by property in the Association's primary market area.
Commercial Loans. The Association occasionally makes commercial loans
to businesses in its primary market area. Such loans are typically secured
by a security interest in inventory, accounts receivable or other assets of
the borrower. At December 31, 2000, the Association's commercial loan
portfolio was $1.2 million, or less than 1% of total loans.
Consumer Loans. The Association makes various types of consumer
loans, including education loans, loans made to depositors on the security
of their deposit accounts, automobile loans, unsecured personal loans, and
other secured loans. Consumer loans are made at fixed rates of interest and
for varying terms based on the type of loan. At December 31, 2000, the
Association had $9.8 million, or 3% of total loans, invested in consumer
loans.
Consumer loans, particularly consumer loans that are unsecured or are
secured by rapidly depreciating assets such as automobiles, may entail
greater risk than do residential real estate loans. Repossessed collateral
for a defaulted consumer loan may not provide an adequate source of
repayment of the outstanding loan balance. The risk of default on consumer
loans increases during periods of recession, high unemployment and other
adverse economic conditions.
Loan Solicitation and Processing. Loan originations are developed
from a number of sources, including continuing business with depositors,
other borrowers and residential housing builders, solicitations by the
Association's lending staff and, to a limited extent, through the use of
local independent mortgage brokers, and walk-in customers.
Loan applications for permanent real estate loans are taken by loan
personnel in the office where the loan is originated. The Association
typically obtains a credit report, verification of employment and other
documentation concerning the creditworthiness of the borrower. An appraisal
of the fair market value of the real estate, which will be given as security
for the loan, is prepared by a staff appraiser or a fee appraiser approved
by the Board of Directors. Upon the completion of the appraisal and the
receipt of information on the credit history of the borrower, the
application for a loan is submitted for review in accordance with the
Association's underwriting guidelines to the Association's Executive
Committee or Underwriting Committee. All loans are ratified by the full
Board of Directors.
Under the Association's current loan guidelines, if a real estate loan
application is approved, title insurance is usually obtained on the real
estate that will secure the mortgage loan. In the past, the Association
used an attorney's opinion for single-family loans, whereas title insurance
was typically used for nonresidential real estate loans. Borrowers are
required to carry satisfactory fire and casualty insurance and flood
insurance, if applicable, and to name the Association as an insured
mortgagee.
The procedure for approval of construction loans is the same as for
permanent real estate loans, except that an appraiser evaluates the building
plans, construction specifications and estimates of construction costs. The
Association also evaluates the feasibility of the proposed construction
project and the experience and record of the builder.
Consumer loans are underwritten on the basis of the borrower's credit
history and an analysis of the borrower's income and expenses, ability to
repay the loan and the value of the collateral, if any.
Loan Originations, Purchases and Sales. The Association originates
both fixed-rate and ARM loans for its portfolio. A majority of the loans in
the Association's portfolio conform to the secondary market standards of the
FHLMC or the Federal National Mortgage Association (the "FNMA"). In an
effort to reduce interest rate risk and due to the favorable market
conditions to do so, the Association initiated a program in 1998 to sell a
portion of the Association's fixed-rate loan originations in the secondary
market. The Association intends to continue to charge a higher interest
rate on loans that do not conform to FHLMC or FNMA standards to mitigate the
increased interest rate risk associated with loans that cannot be readily
sold. At December 31, 2000, the Association had $37.9 million of loans
serviced for others.
The following table presents the Association's loan origination,
purchase and sale activity for the periods indicated:
Year ended December 31,
-------------------------------------------------------
2000 1999 1998 1997 1996
-------------------------------------------------------
(In thousands)
Loans originated:
One- to four-family residential $ 67,594 $ 74,598 $ 88,834 $ 74,289 $58,626
Multifamily residential 2,024 4,979 844 211 702
Nonresidential 6,005 1,707 2,335 817 957
Construction 25,791 20,213 21,298 22,911 18,751
Commercial 8,820 5,213 2,175 1,674 624
Consumer 10,240 5,806 3,327 2,891 2,572
-------------------------------------------------------
Total loans originated 120,474 112,516 118,813 102,793 82,232
Loan participations purchased - - 2,175 1,025 -
Reductions:
Principal repayments 70,514 86,664 101,360 64,950 54,521
Loans sold 13,305 8,450 17,663 - -
Transfers from loans to real estate owned 234 89 46 71 -
-------------------------------------------------------
Total reductions 84,053 95,203 119,069 65,021 54,521
Increase (decrease) in other items, net (1) (50) 2,009 (3,384) 2,931 1,032
-------------------------------------------------------
Net increase $ 36,371 $ 15,304 $ 5,303 $ 35,866 $26,679
=======================================================
<FN>
- --------------------
<F1> Other items consist of the undisbursed portion of construction loans,
net loan origination fees, unearned interest and the allowance for loan
losses.
</FN>
Federal Lending Limit. OTS regulations impose a lending limit on the
aggregate amount that a savings association can lend to one borrower to an
amount equal to 15% of the association's total capital for risk-based
capital purposes plus any loan loss reserves not already included in total
capital (the "Lending Limit Capital"). A savings association may loan to
one borrower an additional amount not to exceed 10% of the association's
Lending Limit Capital, if the additional amount is fully secured by certain
forms of "readily marketable collateral." Real estate is not considered
"readily marketable collateral." An exception to this limit permits loans
of any type to one borrower of up to $500,000. In addition, the OTS, under
certain circumstances, may permit exceptions to the lending limit on a case-
by-case basis. In applying these limits, the regulations require that loans
to certain related or affiliated borrowers be aggregated.
Based on such limits, the Association was able to lend approximately
$6.0 million to one borrower at December 31, 2000. The largest amount the
Association had outstanding to one borrower and related persons or entities
at December 31, 2000, was $5.4 million, consisting of a number of
residential rental and commercial motel properties in the Association's
primary market area.
Loan Origination and Other Fees. The Association realizes loan
origination fee and other fee income from its lending activities and also
realizes income from late payment charges, application fees and fees for
other miscellaneous services.
Loan origination fees and other fees are a volatile source of income,
varying with the volume of lending, loan repayments and general economic
conditions. All nonrefundable loan origination fees and certain direct loan
origination costs are deferred and recognized in accordance with Statement
of Financial Accounting Standards No. 91 as an adjustment to yield over the
life of the related loan.
Delinquent Loans, Nonperforming Assets and Classified Assets.
Delinquent loans are loans for which payment has not been received within 30
days of the payment due date. Loan payments are due on the first day of the
month with the interest portion of the payment applicable to interest
accrued during the prior month. When loan payments have not been made by
the thirtieth of the month, late notices are sent to the borrower. If
payment is not received by the sixtieth day, second notices are sent and
telephone calls are made. Each loan bears a late payment penalty which is
assessed as soon as such loan is more than 15 days delinquent. The late
penalty is 5% of the payment due.
When a loan secured by real estate becomes delinquent more than 90
days, the Board of Directors reviews the loan and foreclosure proceedings
are instituted if the Board determines that the delinquency is not likely to
be resolved in a reasonable period of time. An appraisal of the security is
performed when foreclosure proceedings are initiated. If the appraisal
indicates that the value of the collateral is less than the book value of
the loan, a valuation allowance is established for such loan.
When a consumer loan becomes more than 120 days past due, the loan is
classified loss and a specific reserve is established for the book balance
of the loan.
The following table reflects the amount of loans in a delinquent
status as of the dates indicated:
At December 31,
--------------------------------------------------------------------------------------------
2000 1999 1998
---------------------------- ---------------------------- ----------------------------
Percent Percent Percent
of total of total of total
Number Amount loans Number Amount loans Number Amount loans
--------------------------------------------------------------------------------------------
Loans delinquent for:
30 - 59 days 82 $3,340 0.87% 65 $1,818 0.52% 114 $2,336 0.70%
60 - 89 days 54 1,420 0.37 40 622 0.18 35 1,266 0.38
90 days and over 63 1,422 0.37 56 1,489 0.43 71 1,285 0.39
----------------------------------------------------------------------------------------
Total delinquent loans 199 $6,182 1.61% 161 $3,929 1.13% 220 $4,887 1.47%
========================================================================================
At December 31,
------------------------------------------------------------
1997 1996
---------------------------- ----------------------------
Percent Percent
of total of total
Number Amount loans Number Amount loans
------------------------------------------------------------
Loans delinquent for:
30 - 59 days 75 $2,019 0.62% 65 $1,267 0.43%
60 - 89 days 49 1,327 0.40 34 575 0.20
90 days and over 38 763 0.23 75 999 0.34
--------------------------------------------------------
Total delinquent loans 162 $4,109 1.25% 174 $2,841 0.97%
========================================================
Nonperforming assets include nonaccruing loans, accruing loans that
are delinquent 90 days or more, real estate acquired by foreclosure or by
deed-in-lieu thereof, and repossessed assets. The Association ceases to
accrue interest on real estate loans if the collateral value is not
adequate, in the opinion of management, to cover the outstanding principal
and interest.
The following table sets forth information with respect to the accrual
and nonaccrual status of the Association's loans and other nonperforming
assets at the dates indicated:
At December 31,
--------------------------------------------------
2000 1999 1998 1997 1996
--------------------------------------------------
(Dollars in thousands)
Accruing loans delinquent 90 days or more $ 544 $ 629 $ 512 $ 294 $ 721
Loans accounted for on a nonaccrual basis:
Real estate:
One- to four-family 1,776 914 963 710 504
Nonresidential - - - 10 -
Consumer 44 14 13 18 13
--------------------------------------------------
Total nonaccrual loans 1,820 928 976 738 517
--------------------------------------------------
Total nonperforming loans 2,364 1,557 1,488 1,032 1,238
Real estate owned 91 84 5 76 5
--------------------------------------------------
Total nonperforming assets $2,455 $ 1,641 $ 1,493 $ 1,108 $ 1,243
==================================================
Allowance for loan losses $2,100 $ 2,017 $ 1,930 $ 1,742 $ 1,557
==================================================
Nonperforming assets as a
percent of total assets 0.57% 0.42% 0.38% 0.31% 0.38%
Nonperforming loans as a
percent of total loans 0.62% 0.45% 0.45% 0.32% 0.42%
Allowance for loan losses as a
percent of nonperforming loans 88.83% 129.55% 129.72% 168.76% 125.77%
For the year ended December 31, 2000, gross interest income which
would have been recorded had nonaccruing loans been current in accordance
with their original terms was $45,000. Interest collected on such loans and
included in net income was $20,000.
Real estate acquired by the Association as a result of foreclosure
proceedings is classified as real estate owned ("REO") until it is sold.
REO is recorded by the Association at the estimated fair value of the real
estate at the date of acquisition, less estimated selling expenses, and any
write-down resulting therefrom is charged to the allowance for loan losses.
Interest accrual, if any, ceases no later than the date of acquisition of
the real estate, and all costs incurred from such date in maintaining the
property are expensed. Costs relating to the development and improvement of
the property are capitalized to the extent of fair value.
The Association classifies its own assets on a monthly basis in
accordance with federal regulations. Problem assets are classified as
"substandard," "doubtful" or "loss." "Substandard" assets have one or more
defined weaknesses and are characterized by the distinct possibility that
the Association will sustain some loss if the deficiencies are not
corrected. "Doubtful" assets have the same weaknesses as "substandard"
assets, with the additional characteristics that (i) the weaknesses make
collection or liquidation in full on the basis of currently existing facts,
conditions and values questionable and (ii) there is a high possibility of
loss. An asset classified "loss" is considered uncollectible and of such
little value that its continuance as an asset of the Association is not
warranted.
The aggregate amounts of the Association's classified assets at the
dates indicated were as follows:
At December 31,
-----------------------------------------
2000 1999 1998 1997 1996
-----------------------------------------
(In thousands)
Substandard $1,394 $1,623 $1,482 $786 $874
Doubtful - - - - -
Loss 61 55 23 45 54
------------------------------------------
Total classified assets $1,455 $1,678 $1,505 $831 $928
==========================================
The Association establishes general allowances for loan losses for any
loan classified as substandard or doubtful. If an asset, or portion
thereof, is classified as loss, the Association establishes specific
allowances for losses in the amount of 100% of the portion of the asset
classified loss. Generally, the Association charges off the portion of any
real estate loan deemed to be uncollectible.
The Association analyzes each classified asset on a monthly basis to
determine whether a change in its classification is appropriate under the
circumstances. Such analysis focuses on a variety of factors, including the
amount of any delinquency and the reasons for the delinquency, if any, the
use of the real estate securing the loan, the status of the borrower and the
appraised value of the real estate. As such factors change, the
classification of the asset will change accordingly.
Allowance for Loan Losses. Senior management, with oversight by the
Board, reviews on a monthly basis the allowance for loan losses as it
relates to a number of relevant factors, including but not limited to,
trends in the level of delinquent and nonperforming assets and classified
loans, current economic conditions in the primary lending area, past loss
experience and probable losses arising from specific problem assets. To a
lesser extent, management also considers loan concentrations to single
borrowers and changes in the composition of the loan portfolio. While
management believes that it uses the best information available to determine
the allowance for loan losses, unforeseen market conditions could result in
adjustments, and net income could be significantly affected if circumstances
differ substantially from the assumptions used in making the final
determination.
The foregoing statement regarding the adequacy of the allowance for
loan losses is a "forward-looking" statement within the meaning of Section
27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. Factors that could affect the
adequacy of the loan loss allowance include, but are not limited to, the
following: (1) changes in the national and local economy which may
negatively impact the ability of borrowers to repay their loans and which
may cause the value of real estate and other properties that secure
outstanding loans to decline; (2) unforeseen adverse changes in
circumstances with respect to certain large loans; (3) decreases in the
value of collateral securing consumer loans to amounts less than the
outstanding balances of the consumer loans; and (4) determinations by
various regulatory agencies that the Association must recognize additions to
its loan loss allowance based on such regulators' judgment of information
available to them at the time of their examinations.
The following table sets forth an analysis of the Association's
allowance for loan losses for the periods indicated:
Year ended December 31,
------------------------------------------------
2000 1999 1998 1997 1996
------------------------------------------------
(Dollars in thousands)
Balance at beginning of period $2,017 $1,930 $1,742 $1,557 $1,376
Charge-offs (30) (19) (14) (2) -
Recoveries - 3 2 1 1
------------------------------------------------
Net (charge-offs) recoveries (30) (16) (12) (1) 1
Provision for loan losses 113 103 200 186 180
------------------------------------------------
Balance at end of year $2,100 $2,017 $1,930 $1,742 $1,557
================================================
Net (charge-offs) recoveries to
average loans 0.01% 0.00% 0.00% 0.00% 0.00%
Allowance for loan losses to
total loans 0.55% 0.58% 0.59% 0.54% 0.53%
</TABLE
The following table sets forth the allocation of the Association's
allowance for loan losses by type of loan at the dates indicated:
2000 1999 1998
--------------------- --------------------- ---------------------
Percent of Percent of Percent of
loans loans loans
in each in each in each
category to category to category to
Amount total loans Amount total loans Amount total loans
-----------------------------------------------------------------------
(Dollars in thousands)
Balance at year end
applicable to:
Real estate loans $1,518 87% $1,507 98% $1,442 98% $303 99% $1,166 99%
Commercial loans 36 - 40 - 38 - 34 - 30 -
Consumer loans 235 13 173 2 164 2 151 1 134 1
Unallocated 311 - 297 - 286 - 254 - 227 -
-------------------------------------------------------------------------------------------------
Total $2,100 100% $2,017 100% $1,930 100% $742 100% $1,557 100%
=================================================================================================
1997 1996
--------------------- ---------------------
Percent of Percent of
loans loans
in each in each
category to category to
Amount total loans Amount total loans
----------------------------------------------
(Dollars in thousands)
Balance at year end
applicable to:
Real estate loans $ 303 99% $1,166 99%
Commercial loans 34 - 30 -
Consumer loans 151 1 134 1
Unallocated 254 - 227 -
----------------------------------------
Total $ 742 100% $1,557 100%
========================================
Because the loan loss allowance is based on estimates, it is monitored
monthly and adjusted as necessary to provide an adequate allowance.
Investment Activities
Federal regulation and Ohio law permit the Association to invest in
various types of securities, including interest- bearing deposits in other
financial institutions, U.S. Treasury and agency obligations, mortgage-
backed securities and certain other specified securities. The Board of
Directors of the Association has adopted an investment policy which
authorizes management to make investments in U.S. Government and agency
securities, deposits in the FHLB, certificates of deposit in federally-
insured financial institutions, banker's acceptances issued by major U.S.
banks, corporate debt securities rated at least "AA," or equivalent, by a
major statistical rating firm and municipal or other tax free obligations.
The Association's security policy is designed primarily to provide and
maintain liquidity within regulatory guidelines, to maintain a balance of
high quality security to minimize risk and to maximize return without
sacrificing liquidity and safety.
The following table sets forth the composition of the Association's
interest-bearing deposits, securities and mortgage-backed securities at the
dates indicated:
At December 31,
-----------------------------------------------------------------------------------
2000 1999
---------------------------------------- ----------------------------------------
Carrying % of Fair % of Carrying % of Fair % of
value total value total value total value total
------------------------------------------------------------------------------------
(Dollars in thousands)
Interest-bearing deposits:
Demand deposits $ 5,154 14.59% $ 5,154 14.59% $ 3,253 10.14% $ 3,253 10.13%
Overnight deposits 16,000 45.30 16,000 45.29 4,000 12.46 4,000 12.46
Time deposits - - - - 10,500 32.71 10,500 32.70
-----------------------------------------------------------------------------------
Total interest-bearing deposits 21,154 59.89 21,154 59.88 17,753 55.31 17,753 55.29
Securities:
U.S. Treasury securities:
Available for sale 6,064 17.17 6,064 17.17 6,993 21.79 6,993 21.78
U.S. agency securities:
Available for sale 5,027 14.23 5,027 14.23 4,953 15.43 4,953 15.43
Equity securities (1) 2,960 8.38 2,960 8.38 2,195 6.84 2,195 6.84
-----------------------------------------------------------------------------------
Total securities 14,051 39.78 14,051 39.78 14,141 44.06 14,141 44.05
-----------------------------------------------------------------------------------
Mortgage-backed securities 118 0.33 119 0.34 202 0.63 212 0.66
-----------------------------------------------------------------------------------
Total $35,323 100.00% $35,324 100.00% $32,096 100.00% $32,106 100.00%
===================================================================================
At December 31,
----------------------------------------
1998
----------------------------------------
Carrying % of Fair % of
value total value total
----------------------------------------
(Dollars in thousands)
Interest-bearing deposits:
Demand deposits $ 5,469 11.16% $ 5,469 11.16%
Overnight deposits 22,000 44.91 22,000 44.89
Time deposits - - - -
---------------------------------------
Total interest-bearing deposits 27,469 56.07 27,469 56.05
Securities:
U.S. Treasury securities:
Available for sale 12,156 24.81 12,156 24.81
U.S. agency securities:
Available for sale 6,042 12.33 6,042 12.33
Equity securities (1) 3,037 6.20 3,037 6.20
---------------------------------------
Total securities 21,235 43.34 21,235 43.34
---------------------------------------
Mortgage-backed securities 283 0.59 302 0.61
---------------------------------------
Total $48,987 100.00% $49,006 100.00%
=======================================
<FN>
- --------------------
<F1> Comprised of FHLMC preferred stock.
</FN>
The maturities of the Association's interest-bearing deposits,
securities and mortgage-backed securities at December 31, 2000, are as
follows:
At December 31, 2000
----------------------------------------------------------------------------------------
After one through After five After ten
One year or less five years through ten years years
------------------- ------------------- ------------------- -------------------
Carrying Average Carrying Average Carrying Average Carrying Average
value yield value yield value yield value yield
----------------------------------------------------------------------------------------
(Dollars in thousands)
Interest-bearing deposits $21,154 5.88%
U.S. Treasury securities 2,006 6.38 $4,058 6.41%
U.S. agency securities 998 4.87 4,029 6.13
Mortgage-backed securities 3 8.50 4 10.00 $26 12.90% $85 11.96%
--------------------------------------------------------------------------------------
Total $24,161 5.88% $8,091 6.27% $26 12.90% $85 11.96%
======================================================================================
At December 31, 2000
------------------------------------
Carrying Market Weighted
value value average yield
------------------------------------
(Dollars in thousands)
Interest-bearing deposits $21,154 $21,154 5.88%
U.S. Treasury securities 6,064 6,064 6.40
U.S. agency securities 5,027 5,027 5.88
Mortgage-backed securities 118 119 12.01
--------------------------------
Total $32,363 $32,364 6.00%
================================
Not included in this table is $3.0 million of FHLMC preferred stock
which has no stated maturity.
Deposits and Borrowings
General. Deposits have traditionally been the primary source of the
Association's funds for use in lending and other investment activities. In
addition to deposits, the Association derives funds from interest payments
and principal repayments on loans and income on interest-earning assets.
Loan payments are a relatively stable source of funds, while deposit inflows
and outflows fluctuate more in response to general interest rates and money
market conditions. The Association also utilizes FHLB advances as an
alternative source of funds.
Deposits. Deposits are attracted principally from within the
Association's primary market area through the offering of a broad selection
of deposit instruments, including NOW accounts, demand deposit accounts,
money market accounts, regular passbook savings accounts, term certificate
accounts, IRAs and Keogh accounts. Interest rates paid, maturity terms,
service fees and withdrawal penalties for the various types of accounts are
established periodically by management based on the Association's liquidity
requirements, growth goals and interest rates paid by competitors. The
Association does not use brokers to attract deposits. The amount of
deposits from outside the Association's primary market area is not
significant.
At December 31, 2000, the Association's certificates of deposit
totaled $229.3 million, or 73% of total deposits. Of such amount,
approximately $164.0 million in certificates of deposit mature within one
year. Based on past experience and the Association's prevailing pricing
strategies, management believes that a substantial percentage of such
certificates will be renewed with the Association at maturity. If deviation
from historical experience occurs, the Association can utilize borrowings
from the FHLB of Cincinnati as an alternative source of funds, up to the
Association's limit on such borrowings, which was $213.8 million at December
31, 2000.
The following table sets forth the dollar amount of deposits in the
various types of accounts offered by the Association at the dates indicated:
December 31,
---------------------------------------------------------------------------------------------------
Weighted 2000 1999 1998
average rate at ------------------------- ------------------------- -------------------------
December 31, Percent of Percent of Percent of
2000 Amount total deposits Amount total deposits Amount total deposits
---------------------------------------------------------------------------------------------------
(Dollars in thousands)
Transaction accounts:
Noninterest-bearing demand
deposits -% $ 6,425 2.04% $ 4,928 1.67% $ 4,009 1.39%
Passbook savings accounts 3.10 53,461 17.00 57,861 19.66 54,258 18.80
NOW accounts 2.26 21,830 6.94 23,767 8.08 17,750 6.15
Money market accounts 3.00 3,439 1.09 4,364 1.48 4,713 1.63
----------------------------------------------------------------------------
Total transaction accounts 2.65 85,155 27.07 90,920 30.89 80,730 27.97
Certificates of deposit:
4.01% - 6.00% 5.69 68,043 21.64 153,450 52.15 149,696 51.87
6.01% - 8.00% 6.57 138,469 44.03 23,858 8.02 33,578 11.64
Adjustable-rate (1) 6.14 22,836 7.26 26,295 8.94 24,580 8.52
----------------------------------------------------------------------------
Total certificates
of deposit 6.27 229,348 72.93 203,330 69.11 207,854 72.03
----------------------------------------------------------------------------
Total deposits 5.29% $314,503 100.00% $294,250 100.00% $288,584 100.00%
============================================================================
<FN>
- --------------------
<F1> Consists of IRA and Keogh accounts, the rates on which adjust monthly
at the discretion of the Association.
</FN>
The Association bids on deposits of public funds from entities in its
primary market area. The amount of such deposits was approximately $24.7
million at December 31, 2000.
The following table shows rate and maturity information for the
Association's certificates of deposit at December 31, 2000:
Amount Due
----------------------------------------------------------
Over Over
Up to 1 year to 2 years to Over
Rate one year 2 years 3 years 3 years Total
- -------------------------------------------------------------------------------------------------
(In thousands)
4.01% to 6.00% $ 51,991 $11,620 $ 2,141 $2,291 $ 68,043
6.01% to 8.00% 97,504 17,206 22,295 1,464 138,469
Adjustable rate 14,513 8,323 - - 22,836
----------------------------------------------------------
Total certificates of deposit $164,008 $37,149 $24,436 $3,755 $229,348
==========================================================
The following table presents the amount of the Association's
certificates of deposit of $100,000 or more, by the time remaining until
maturity, at December 31, 2000:
Maturity Amount
- --------------------------------------------
(In thousands)
Three months or less $15,770
Over 3 months to 6 months 9,127
Over 6 months to 12 months 14,749
Over 12 months 13,669
-------
Total $53,315
=======
Borrowings. The FHLB system functions as a central reserve bank,
providing credit for its member institutions and certain other financial
institutions. As a member in good standing of the FHLB of Cincinnati, the
Association is authorized to apply for advances from the FHLB of Cincinnati,
provided certain standards of creditworthiness have been met. Under current
regulations, an association must meet certain qualifications to be eligible
for FHLB advances. Generally, if an association does not have positive
tangible capital, it is not eligible for new advances. At December 31,
2000, the Association had positive tangible capital.
The following table sets forth the maximum month-end balance and
average balance of the Association's FHLB advances during the periods
indicated:
Year ended December 31,
-------------------------------
2000 1999 1998
-------------------------------
(Dollars in thousands)
Maximum balance $51,000 $37,000 $37,000
Average balance 44,462 30,846 35,692
Average interest rate paid 6.37% 5.91% 6.15%
At December 31, 2000, the Association had outstanding FHLB advances
totaling $50.0 million, with a weighted average interest rate of 6.52%.
Competition
The Association competes for deposits with other savings associations,
savings banks, commercial banks and credit unions and with the issuers of
commercial paper and other securities, such as shares in money market mutual
funds. The primary factors in competing for deposits are interest rates and
convenience of office location. In making loans, the Association competes
with other savings banks, savings associations, commercial banks, mortgage
brokers, consumer finance companies, credit unions, leasing companies and
other lenders. The Association competes for loan originations primarily
through the interest rates and loan fees it charges and through the
efficiency and quality of services it provides to borrowers. Competition is
intense and is affected by, among other things, the general availability of
lendable funds, general and local economic conditions, current interest rate
levels and other factors that are not readily predictable. The Association
does not offer all of the products and services offered by some of its
competitors, particularly commercial banks. The Association monitors the
product offerings of its competitors and adds new products when it can do so
competitively and cost effectively.
The size of financial institutions competing with the Association is
likely to increase as a result of changes in statutes and regulations
eliminating various restrictions on interstate and inter-industry branching
and acquisitions. Such increased competition may have an adverse effect
upon the Association.
Employees
As of December 31, 2000, the Association had 89 full-time employees
and 10 part-time employees. The Association believes that relations with
its employees are excellent. The Association offers health and disability
benefits, life insurance and an employee stock ownership plan. None of the
employees of the Association are represented by a collective bargaining
unit.
REGULATION
General
As a savings and loan association incorporated under the laws of Ohio,
Industrial is subject to regulation, examination and oversight by the OTS
and the Division. Because Industrial's deposits are insured by the FDIC,
Industrial also is subject to general oversight by the FDIC. Industrial
must file periodic reports with the OTS, the Ohio Superintendent and the
FDIC concerning its activities and financial condition. Examinations are
conducted periodically by federal and state regulators to determine whether
Industrial is in compliance with various regulatory requirements and is
operating in a safe and sound manner. Industrial is a member of the FHLB of
Cincinnati.
The Holding Company is a savings and loan holding company within the
meaning of the Home Owners Loan Act, as amended (the "HOLA") and is,
therefore, subject to regulation, examination, and oversight by the OTS and
is required to submit periodic reports to the OTS. Because the Holding
Company and Industrial are corporations organized under Ohio law, they are
also subject to the provisions of the Ohio Revised Code applicable to
corporations generally.
On November 12, 1999, the Gramm-Leach-Bliley Act (the "GLB Act") was
enacted into law. Prior to the GLB Act, unitary savings and loan holding
companies which met certain requirements were the only financial institution
holding companies that were permitted to engage in any type of business
activity, whether or not the activity was a financial service. The GLB Act
continues those broad powers for unitary thrift holding companies in
existence on May 4, 1999, including the Holding Company.
The GLB authorizes a new "financial holding company," which can own
banks and thrifts and which is also permitted to engage in a variety of
financial activities, including insurance and securities underwriting and
agency activities, as long as the depository institutions it owns are well
capitalized, well managed and meet certain other tests.
The GLB Act is not expected to have a material effect on the
activities in which the Holding Company and Industrial currently engage,
except to the extent that competition from other types of financial
institutions may increase as they engage in activities not permitted prior
to enactment of the GLB Act.
Ohio Savings and Loan Law
The Division is responsible for the regulation and supervision of Ohio
savings and loan associations in accordance with the laws of the State of
Ohio. Ohio law prescribes the permissible investments and activities of
Ohio savings and loan associations, including the types of lending that such
associations may engage in and the investments in real estate, subsidiaries,
and corporate or government securities that such associations may make. The
ability of Ohio associations to engage in these state-authorized investments
and activities is subject to oversight and approval by the FDIC, if such
investments or activities are not permissible for a federally-chartered
savings and loan association.
The Division also has approval authority over any mergers involving,
or acquisitions of control of, Ohio savings and loan associations. The Ohio
Superintendent may initiate certain supervisory measures or formal
enforcement actions against Ohio associations. Ultimately, if the grounds
provided by law exist, the Division may place an Ohio association in
conservatorship or receivership.
The Division conducts regular examinations of Industrial approximately
once every eighteen months. Such examinations are usually conducted jointly
with one or both federal regulators. The Division imposes assessments on
Ohio associations based on their asset size to cover the cost of supervision
and examination.
Office of Thrift Supervision
General. The OTS is an office in the Department of the Treasury and
is responsible for the regulation and supervision of all federally-chartered
savings and loan associations and all other savings and loan associations,
the deposits of which are insured by the FDIC. The OTS issues regulations
governing the operation of savings and loan associations, regularly examines
such associations and imposes assessments on savings associations based on
their asset size to cover the costs of this supervision and examination.
The OTS also may initiate enforcement actions against savings and loan
associations and certain persons affiliated with them for violations of laws
or regulations or for engaging in unsafe or unsound practices. If the
grounds provided by law exist, the OTS may appoint a conservator or receiver
for a savings and loan association.
Savings associations are subject to regulatory oversight under various
consumer protection and fair lending laws. These laws govern, among other
things, truth-in-lending disclosures, equal credit opportunity, fair credit
reporting and community reinvestment. Failure to abide by federal laws and
regulations governing community reinvestment could limit the ability of an
association to open a new branch or engage in a merger. Community
reinvestment regulations evaluate how well and to what extent an institution
lends and invests in its designated service area, with particular emphasis
on low- to moderate-income communities and borrowers in that area.
Industrial has received a "satisfactory" examination rating under those
regulations.
Regulatory Capital Requirements. Industrial is required by OTS
regulations to meet certain minimum capital requirements. Current capital
requirements call for tangible capital of 1.5% of adjusted total assets,
core capital (which for Industrial consists solely of tangible capital) of
3.0% of adjusted total assets, except for institutions with the highest
examination rating and acceptable levels of risk, and risk-based capital
(which for Industrial consists of core capital and general valuation
allowances) of 8.0% of risk-weighted assets (assets, including certain off-
balance sheet items, are weighted at percentage levels ranging from 0% to
100% depending on the relative risk).
The OTS has adopted an interest rate risk component to the risk-based
capital requirement, though the implementation of that component has been
delayed. Pursuant to that requirement a savings association must measure
the effect of an immediate 200 basis point change in interest rates on the
value of its portfolio as determined under the methodology of the OTS. If
the measured interest rate risk is above the level deemed normal under the
regulation, Industrial will be required to deduct one-half of such excess
exposure from its total capital when determining its risk-based capital. In
general, an association with less than $300 million in assets and a risk-
based capital ratio in excess of 12% is not subject to the interest rate
risk component.
The OTS has adopted regulations governing prompt corrective action to
resolve the problems of capital deficient and otherwise troubled savings and
loan associations. At each successively lower defined capital category, an
association is subject to more restrictive and numerous mandatory or
discretionary regulatory actions or limits, and the OTS has less flexibility
in determining how to resolve the problems of the institution. In addition,
the OTS generally can downgrade an association's capital category,
notwithstanding its capital level, if, after notice and opportunity for
hearing, the association is deemed to be engaging in an unsafe or unsound
practice because it has not corrected deficiencies that resulted in it
receiving a less than satisfactory examination rating on matters other than
capital or it is deemed to be in an unsafe or unsound condition. An
undercapitalized association must submit a capital restoration plan to the
OTS within 45 days after it becomes undercapitalized. Undercapitalized
associations will be subject to increased monitoring and asset growth
restrictions and will be required to obtain prior approval for acquisitions,
branching and engaging in new lines of business. Critically
undercapitalized institutions must be placed in conservatorship or
receivership within 90 days of reaching that capitalization level, except
under limited circumstances. Industrial's capital at December 31, 2000, met
the standards for a well-capitalized institution.
Federal law prohibits a savings and loan association from making a
capital distribution to anyone or paying management fees to any person
having control of the association if, after such distribution or payment,
the association would be undercapitalized. In addition, each company
controlling an undercapitalized association must guarantee that the
association will comply with its capital plan until the association has been
adequately capitalized on an average during each of four preceding calendar
quarters and must provide adequate assurances of performance. The aggregate
liability pursuant to such guarantee is limited to the lesser of (i) an
amount equal to 5% of the association's total assets at the time the
association became undercapitalized or (ii) the amount that is necessary to
bring the association into compliance with all capital standards applicable
to such association at the time the association fails to comply with its
capital restoration plan.
Liquidity. OTS regulations require that savings associations maintain
an average daily balance of liquid assets (cash, certain time deposits,
association's acceptances, and specified United States Government, state or
federal agency obligations) equal to a monthly average of not less than 4%
of its net withdrawable savings deposits plus borrowings payable in one year
or less. Monetary penalties may be imposed upon member institutions failing
to meet liquidity requirements. The eligible liquidity of Industrial at
December 31, 2000, was approximately $25.7 million, or 6.42%, which exceeded
the 4% liquidity requirement by approximately $6.1 million.
Qualified Thrift Lender Test. Savings associations must meet one of
two possible tests in order to be a qualified thrift lender ("QTL"). The
first test requires a savings association to maintain a specified level of
investments in assets that are designated as qualifying thrift investments
("QTI"), which are generally related to domestic residential real estate and
manufactured housing and include credit card, student and small business
loans and stock issued by any FHLB, the FHLMC or the FNMA. Under this test
65% of an institution's "portfolio assets" (total assets less goodwill and
other intangibles, property used to conduct business, and 20% of liquid
assets) must consist of QTI on a monthly average basis in nine out of every
12 months. The second test permits a savings association to qualify as a
QTL by meeting the definition of "domestic building and loan association"
under the Internal Revenue Code of 1986, as amended (the "Code"). In order
for an institution to meet the definition of a "domestic building and loan
association" under the Code, at least 60% of such institution's assets must
consist of specified types of property, including cash loans secured by
residential real estate or deposits, educational loans and certain
governmental obligations. The OTS may grant exceptions to the QTL tests
under certain circumstances. If a savings association fails to meet one of
the QTL tests, the association and its holding company become subject to
certain operating and regulatory restrictions. At December 31, 2000,
Industrial qualified as a QTL.
Transactions with Insiders and Affiliates. Loans to executive
officers, directors, and principal shareholders and their related interests
must conform to the lending limit on loans to one borrower, and the total of
such loans to executive officers, directors, principal shareholders, and
their related interests cannot exceed Industrial's Lending Limit Capital (or
200% of Lending Limit Capital for qualifying institutions with less than
$100 million in deposits). Most loans to directors, executive officers, and
principal shareholders must be approved in advance by a majority of the
"disinterested" members of the board of directors of Industrial with any
"interested" director not participating. All loans to directors, executive
officers, and principal shareholders must be made on terms substantially the
same as offered in comparable transactions with the general public or as
offered to all employees in a company-wide benefit program, and loans to
executive officers are subject to additional limitations. Industrial was in
compliance with such restrictions at December 31, 2000.
All transactions between a savings association and its affiliates must
comply with Sections 23A and 23B of the Federal Reserve Act (the "FRA"). An
affiliate of a savings association is any company or entity that controls,
is controlled by or is under common control with, the savings association.
The Holding Company will be an affiliate of Industrial. Generally, Sections
23A and 23B of the FRA (i) limit the extent to which a savings association
or its subsidiaries may engage in "covered transactions" with any one
affiliate to an amount equal to 10% of such institution's capital stock and
surplus, (ii) limit the aggregate of all such transactions with all
affiliates to an amount equal to 20% of such capital stock and surplus, and
(iii) require that all such transactions be on terms substantially the same,
or at least as favorable to the association, as those provided in
transactions with a non-affiliate. The term "covered transaction" includes
the making of loans, purchase of assets, issuance of a guarantee, and other
similar types of transactions. In addition to the limits in Sections 23A
and 23B, a savings association may not make any loan or other extension of
credit to an affiliate unless the affiliate is engaged only in activities
permissible for a bank holding company and may not purchase or invest in
securities of any affiliate except shares of a subsidiary. Industrial was
in compliance with these requirements and restrictions at December 31, 2000.
Limitations on Capital Distributions. The OTS imposes various
restrictions or requirements on the ability of associations to make capital
distributions. Capital distributions include, without limitation, payments
of cash dividends, repurchases, and certain other acquisitions by an
association of its shares and payments to stockholders of another
association in an acquisition of such other association.
An application must be submitted and approval from the OTS must be
obtained by a subsidiary of a savings and loan holding company (i) if the
proposed distribution would cause total distributions for the calendar year
to exceed net income for that year to date plus the retained net income for
the preceding two years; (ii) if the savings association will not be at
least adequately capitalized following the capital distribution; or (iii) if
the proposed distribution would violate a prohibition contained in any
applicable statute, regulation or agreement between the savings association
and the OTS (or the FDIC), or violate a condition imposed on the savings
association in an OTS-approved application or notice. If a savings
association subsidiary of a holding company is not required to file an
application, it must file a notice of the proposed capital distribution with
the OTS.
Industrial is also prohibited from declaring or paying any dividends
or from repurchasing any of its stock if, as a result, the net worth of
Industrial would be reduced below the amount required to be maintained for
the liquidation account established in connection with the Conversion. In
addition, as a subsidiary of the Holding Company, Industrial is also
required to give the OTS 30 days' notice prior to declaring any dividend on
its stock. The OTS may object to the dividend during that 30-day period
based on safety and soundness concerns. Moreover, the OTS may prohibit any
capital distribution otherwise permitted by regulation if the OTS determines
that such distribution would constitute an unsafe or unsound practice.
Holding Company Regulation. The Holding Company is a savings and
loan holding company within the meaning of the HOLA. As such, the Holding
Company has registered with the OTS and is subject to OTS regulations,
examination, supervision, and reporting requirements.
The HOLA generally prohibits a savings and loan holding company from
controlling any other savings and loan association or savings and loan
holding company, without prior approval of the OTS, or from acquiring or
retaining more than 5% of the voting shares of a savings and loan
association or holding company thereof which is not a subsidiary. Under
certain circumstances, a savings and loan holding company is permitted to
acquire, with the approval of the OTS, up to 15% of the previously unissued
voting shares of an undercapitalized savings and loan association for cash
without being deemed to control the association. Except with the prior
approval of the OTS, no director or officer of a savings and loan holding
company or person owning or controlling by proxy or otherwise more than 25%
of such company's stock may also acquire control of any savings institution,
other than a subsidiary institution, or any other savings and loan holding
company.
The Holding Company is a unitary savings and loan holding company.
Under current law, there are generally no restrictions on the activities of
unitary savings and loan holding companies in existence on May 4, 1999 and
such companies are the only financial institution holding companies which
may engage in commercial, securities, and insurance activities without
limitation. The broad latitude under current law can be restricted if the
OTS determines that there is reasonable cause to believe that the
continuation by a savings and loan holding company of an activity
constitutes a serious risk to the financial safety, soundness, or stability
of its subsidiary savings and loan association. The OTS may impose such
restrictions as deemed necessary to address such risk, including limiting
(i) payment of dividends by the savings and loan association; (ii)
transactions between the savings and loan association and its affiliates;
and (iii) any activities of the savings and loan association that might
create a serious risk that the liabilities of the holding company and its
affiliates may be imposed on the savings and loan association.
Notwithstanding the foregoing rules as to permissible business activities of
a unitary savings and loan holding company, if the savings and loan
association subsidiary of a holding company fails to meet the QTL, then such
unitary holding company would become subject to the activities restrictions
applicable to multiple holding companies. At December 31, 2000, Industrial
met the QTL.
If the Holding Company were to acquire control of another savings
institution, other than through a merger or other business combination with
Industrial, the Holding Company would become a multiple savings and loan
holding company and the activities of the Holding Company and any of its
subsidiaries (other than Industrial or other subsidiary savings and loan
associations) would thereafter be subject to activity restrictions.
The OTS may approve an acquisition resulting in the formation of a
multiple savings and loan holding company that controls savings and loan
associations in more than one state only if the multiple savings and loan
holding company involved controls a savings and loan association that
operated a home or branch office in the state of Industrial to be acquired
as of March 5, 1987, or if the laws of the state in which the institution to
be acquired is located specifically permit institutions to be acquired by
state-chartered institutions or savings and loan holding companies located
in the state where the acquiring entity is located (or by a holding company
that controls such state-chartered savings institutions). As under prior
law, the OTS may approve an acquisition resulting in a multiple savings and
loan holding company controlling savings and loan associations in more than
one state in the case of certain emergency thrift acquisitions. Bank
holding companies have had more expansive authority to make interstate
acquisitions than savings and loan holding companies since August 1995.
FDIC Regulations
Deposit Insurance. The FDIC is an independent federal agency that
insures the deposits, up to prescribed statutory limits, of federally-
insured banks and thrifts and safeguards the safety and soundness of the
banking and thrift industries. The FDIC administers two separate insurance
funds, Bank Insurance Fund (the "BIF") for commercial banks and state
savings banks and the SAIF for savings associations. The FDIC is required to
maintain designated levels of reserves in each fund. Industrial's deposit
accounts are insured by the FDIC in the SAIF up to the prescribed limits.
The FDIC has examination authority over all insured depository institutions,
including Industrial, and has authority to initiate enforcement actions
against federally-insured savings associations if the FDIC does not believe
the OTS has taken appropriate action to safeguard safety and soundness and
the deposit insurance fund.
The FDIC is required to maintain designated levels of reserves in each
fund. The FDIC may increase assessment rates for either fund if necessary
to restore the fund's ratio of reserves to insured deposits to its target
level within a reasonable time and may decrease such rates if such target
level has been met. The FDIC has established a risk-based assessment system
for both SAIF and BIF members. Under this system, assessments vary based on
the risk the institution poses to its deposit insurance fund. The risk
level is determined based on the institution's capital level and the FDIC's
level of supervisory concern about the institution.
FRB Regulations
FRB regulations currently require savings associations to maintain
reserves of 3% of net transaction accounts (primarily NOW accounts) up to
$42.8 million (subject to an exemption of up to $5.5 million), and of 10% of
net transaction accounts over $42.8 million. At December 31, 2000,
Industrial was in compliance with this reserve requirement.
Federal Home Loan Banks
The FHLBs provide credit to their members in the form of advances.
Industrial is a member of the FHLB of Cincinnati and must maintain an
investment in the capital stock of the FHLB of Cincinnati in an amount equal
to the greater of 1% of the aggregate outstanding principal amount of
Industrial's residential mortgage loans, home purchase contracts, and
similar obligations at the beginning of each year, and 5% of its advances
from the FHLB. Industrial was in compliance with this requirement with an
investment in stock of the FHLB of Cincinnati of $3.8 million at December
31, 2000.
Generally, the FHLB is not permitted to make new advances to a member
without positive tangible capital. Upon the origination or renewal of a
loan or advance, the FHLB of Cincinnati is required by law to obtain and
maintain a security interest in collateral in one or more of the following
categories: fully disbursed, whole first mortgage loans on improved
residential property or securities representing a whole interest in such
loans; securities issued, insured or guaranteed by the U.S. Government or an
agency thereof; deposits in any FHLB; or other real estate related
collateral (up to 30% of the member association's capital) acceptable to the
applicable FHLB, if such collateral has a readily ascertainable value and
the FHLB can perfect its security interest in the collateral.
Each FHLB is required to establish standards of community investment
or service that its members must maintain for continued access to long-term
advances from the FHLBs. The standards take into account a member's
performance under the Community Reinvestment Act and its record of lending
to first-time home buyers. All long-term advances by each FHLB must be made
only to provide funds for residential housing finance.
TAXATION
Federal Taxation
The Holding Company and Industrial are each subject to the federal tax
laws and regulations that apply to corporations generally. In addition to
the regular income tax, the Holding Company and Industrial may be subject to
an alternative minimum tax. An alternative minimum tax is imposed at a
minimum tax rate of 20% on "alternative minimum taxable income" (which is
the sum of a corporation's regular taxable income, with certain adjustments,
and tax preference items), less any available exemption. Such tax
preference items include interest on certain tax-exempt bonds issued after
August 7, 1986. In addition, 75% of the amount by which a corporation's
"adjusted current earnings" exceeds its alternative minimum taxable income
computed without regard to this preference item and prior to reduction by
net operating losses, is included in alternative minimum taxable income.
Net operating losses can offset no more than 90% of alternative minimum
taxable income. The alternative minimum tax is imposed to the extent it
exceeds the corporation's regular income tax. Payments of alternative
minimum tax may be used as credits against regular tax liabilities in future
years. The Taxpayer Relief Act of 1997 repealed the alternative minimum tax
for certain "small corporations" for tax years beginning after December 31,
1997. A corporation initially qualifies as a small corporation if it had
average gross receipts of $5,000,000 or less for the three tax years ending
with its first tax year beginning after December 31, 1997. Once a
corporation is recognized as a small corporation, it will continue to be
exempt from the alternative minimum tax for as long as its average gross
receipts for the prior three-year period do not exceed $7,500,000. In
determining if a corporation meets this requirement, the first year that it
achieved small corporation status is not taken into consideration. Based on
Industrial's average gross receipts of $30.0 million for the three tax years
ending on December 31, 2000, Industrial would not qualify as a small
corporation exempt from the alternative minimum tax.
Prior to the enactment of the Small Business Jobs Protection Act (the
"Small Business Act"), which was signed into law on August 21, 1996, certain
thrift institutions, were allowed deductions for bad debts under methods
more favorable than those granted to other taxpayers. Qualified thrift
institutions could compute deductions for bad debts using either the
specific charge off method of Section 166 of the Code, or one of the two
reserve methods of Section 593 of the Code. The reserve methods under
Section 593 of the Code permitted a thrift institution annually to elect to
deduct bad debts under either (i) the "percentage of taxable income" method
applicable only to thrift institutions, or (ii) the "experience" method that
also was available to small banks. Under the "percentage of taxable income"
method, a thrift institution generally was allowed a deduction for an
addition to its bad debt reserve equal to 8% of its taxable income
(determined without regard to this deduction and with additional
adjustments). Under the experience method, a thrift institution was
generally allowed a deduction for an addition to its bad debt reserve equal
to the greater of (i) an amount based on its actual average experience for
losses in the current and five preceding taxable years, or (ii) an amount
necessary to restore the reserve to its balance as of the close of the base
year. A thrift institution could elect annually to compute its allowable
addition to bad debt reserves for qualifying loans under either the
experience method or the percentage of taxable income method.
The Small Business Act eliminated the percentage of taxable-income
reserve method of accounting for bad debts by thrift institutions, effective
for taxable years beginning after 1995. Thrift institutions that would be
treated as small banks are allowed to use the experience method applicable
to such institutions, while thrift institutions that are treated as large
banks are required to use only the specific charge off method.
A thrift institution required to change its method of computing
reserves for bad debts will treat such change as a change in the method of
accounting, initiated by the taxpayer, and having been made with the consent
of the Secretary of the Treasury. Section 481(a) of the Code requires
certain amounts to be recaptured with respect to such change. Generally,
the amounts to be recaptured will be determined solely with respect to the
"applicable excess reserves" of the taxpayer. The amount of the applicable
excess reserves will be taken into account ratably over a six-taxable year
period, beginning with the first taxable year beginning after 1995, subject
to the residential loan requirement described below. In the case of a
thrift institution that becomes a large bank, the amount of the
institution's applicable excess reserves generally is the excess of (i) the
balances of its reserve for losses on qualifying real property loans
(generally loans secured by improved real estate) and its reserve for losses
on nonqualifying loans (all other types of loans) as of the close of its
last taxable year beginning before January 1, 1996, over (ii) the balances
of such reserves as of the close of its last taxable year beginning before
January 1, 1988 (i.e., the "pre-1988 reserves"). In the case of a thrift
institution that becomes a small bank, the amount of the institution's
applicable excess reserves generally is the excess of (i) the balances of
its reserve for losses on qualifying real property loans and its reserve
for losses on nonqualifying loans as of the close of its last taxable year
beginning before January 1, 1996, over (ii) the greater of the balance of
(a) its pre-1988 reserves or (b) what the thrift's reserves would have been
at the close of its last year beginning before January 1, 1996, had the
thrift always used the experience method.
For taxable years that begin on or after January 1, 1996, and before
January 1, 1998, if a thrift meets the residential loan requirement for a
tax year, the recapture of the applicable excess reserves otherwise required
to be taken into account as a Code Section 481(a) adjustment for the year
will be suspended. A thrift meets the residential loan requirement if, for
the tax year, the principal amount of residential loans made by the thrift
during the year is not less then its base amount. The "base amount"
generally is the average of the principal amounts of the residential loans
made by the thrift during the six most recent tax years beginning before
January 1, 1996. A residential loan is a loan as described in Section
7701(a)(19)(C)(v) (generally a loan secured by residential real and church
property and certain mobile homes), but only to the extent that the loan is
made to the owner of the property.
The balance of the pre-1988 reserves is subject to the provisions of
Section 593(e) as modified by the Small Business Act which require recapture
in the case of certain excessive distributions to shareholders. The pre-
1988 reserves may not be utilized for payment of cash dividends or other
distributions to a shareholder (including distributions in dissolution or
liquidation) or for any other purpose (except to absorb bad debt losses).
Distribution of a cash dividend by a thrift institution to a shareholder is
treated as made: first, out of the institution's post-1951 accumulated
earnings and profits; second, out of the pre-1988 reserves; and third, out
of such other accounts as may be proper. To the extent a distribution by
Industrial to the Holding Company is deemed paid out of its pre-1988
reserves under these rules, the pre-1988 reserves would be reduced and
Industrial's gross income for tax purposes would be increased by the amount
which, when reduced by the income tax, if any, attributable to the inclusion
of such amount in its gross income, equals the amount deemed paid out of
then pre-1988 reserves. As of December 31, 2000, Industrial's pre-1988
reserves for tax purposes totaled approximately $4.1 million. Industrial
believes it had approximately $1.9 million of accumulated earnings and
profits for tax purposes as of December 31, 2000, which would be available
for dividend distributions, provided regulatory restrictions applicable to
the payment of dividends are met. No representation can be made as to
whether Industrial will have current or accumulated earnings and profits in
subsequent years.
The tax returns of Industrial have been audited or closed without
audit through fiscal year 1996. In the opinion of management, any
examination of open returns would not result in a deficiency which could
have a material adverse effect on the financial condition of Industrial.
Ohio Taxation
The Holding Company is subject to the Ohio corporation franchise tax,
which, as applied to the Holding Company, is a tax measured by both net
earnings and net worth. The rate of tax is the greater of (i) 5.1% on the
first $50,000 of computed Ohio taxable income and 8.5% of computed Ohio
taxable income in excess of $50,000 and (ii) 0.4% times taxable net worth.
Under these alternative measures of computing tax liability, the states to
which a taxpayer's adjusted total net income and adjusted total net worth
are apportioned or allocated are determined by complex formulas. The minimum
tax is $50 per year.
A special litter tax is also applicable to all corporations, including
the Holding Company, subject to the Ohio corporation franchise tax other
than "financial institutions." If the franchise tax is paid on the net
income basis, the litter tax is equal to .11% of the first $50,000 of
computed Ohio taxable income and .22% of computed Ohio taxable income in
excess of $50,000. If the franchise tax is paid on the net worth basis, the
litter tax is equal to .014% times taxable net worth
Certain holding companies, such as the Holding Company, will qualify
for complete exemption from the net worth tax if certain conditions are met.
The Holding Company will most likely meet these conditions, and thus,
calculate its Ohio franchise tax on the net income basis. While there is no
annual limit on the tax calculated on income, the tax calculated on net
worth is limited to $150,000 per year
Industrial is a "financial institution" for State of Ohio tax
purposes. As such, it is subject to the Ohio corporate franchise tax on
"financial institutions," which is imposed annually at a rate of 1.3% of
the Bank's apportioned book net worth, determined in accordance with
generally accepted accounting principles, less any statutory deduction. As
a "financial institution," Industrial is not subject to any tax based upon
net income or net profits imposed by the State of Ohio.
Item 2. Properties
The following table sets forth certain information at December 31,
2000, regarding the office facilities of the Association:
Owned or Date Net book
Location leased acquired Deposits value
--------------------------------------------------------------------
(In thousands)
30 East Main Street
Ashland, Ohio 44805 Owned 11/04/94 $31,190 $1,083
203 North Sandusky Street (1)
Bellevue, Ohio 44811 Owned 02/25/93 - 67
211 North Sandusky Street
Bellevue, Ohio 44811 Owned 05/06/72 76,587 460
225 North Main Street
Clyde, Ohio 43410 Owned 06/05/75 12,345 93
1500 Bright Road
Findlay, Ohio 45840 Owned 01/29/93 17,744 956
321 West State Street
Fremont, Ohio 43420 Owned 06/30/87 16,495 174
40 E. Main Street
Lexington, Ohio 44904 Owned 02/13/99 6,299 357
2080 Ferguson Road (2)
Mansfield, Ohio 44906 Leased - - -
50 West Main Street
Norwalk, Ohio 44857 Owned 08/06/76 45,162 273
51 West Main Street (3)
Norwalk, Ohio 44587 Owned 09/11/92 - 328
4112 Milan Road
Sandusky, Ohio 44870 Owned 02/29/88 15,502 398
48 East Market Street (4)
Tiffin, Ohio 44883 Owned 06/15/83 57,148 305
796 West Market Street (4)
Tiffin, Ohio 44883 Owned 12/18/90 - 204
301 Myrtle Avenue (5)
Willard, Ohio 44890 Owned 05/07/77 36,031 141
121 Blossom Centre (5)
Willard, Ohio 44890 Leased - - 90
<FN>
- --------------------
<F1> Office facility for the Association's appraisal staff.
<F2> Loan production office.
<F3> Drive-up facility only.
<F4> Deposit totals are combined for the two Tiffin offices.
<F5> Deposit totals are combined for the two Willard offices.
</FN>
Item 3. Legal Proceedings
The Association is not presently involved in any material legal
proceedings. From time to time, the Association is a party to legal
proceedings incidental to its business to enforce its security interest in
collateral pledged to secure loans made by the Association.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
PART II
Item 5. Market for Registrant's Common Equity and Related Shareholder
Matters
Common Stock Information
The common shares of Industrial Bancorp are listed on the Nasdaq
National Market under the symbol "INBI". There were 4,333,883 common shares
outstanding at year-end 2000, held of record by approximately 1,310
shareholders. The following dividend and market price information includes
daily high, low and closing sales prices of the common shares of Industrial
Bancorp for each period indicated.
Quarter ended High Low Last Dividend
- -------------------------------------------------------
3/31/99 $20.00 $18.75 $19.44 $.16
6/30/99 21.00 16.00 20.25 .16
9/30/99 20.63 17.75 18.25 .17
12/31/99 18.50 13.88 14.88 .17
3/31/00 17.94 10.00 10.63 .18
6/30/00 12.63 10.50 11.88 .18
9/30/00 13.25 11.75 12.38 .19
12/31/00 19.94 11.13 19.75 .19
Item 6. Selected Financial Data
2000 1999 1998 1997 1996
---------------------------------------------------------
(Dollars in thousands, except per share data)
Selected financial condition data:
Total assets $427,297 $389,003 $388,059 $364,023 $326,613
Securities 14,169 14,343 21,518 21,467 23,797
Loans receivable, net 378,647 342,276 326,972 321,669 285,803
Deposits 314,503 294,250 288,584 270,957 259,074
FHLB advances 50,000 37,000 35,000 29,000 2,000
Shareholders' equity 58,665 54,586 60,741 60,862 62,104
Summary of earnings:
Interest income $ 32,064 $ 29,442 $ 30,562 $ 27,805 $ 25,468
Interest expense 17,527 15,048 15,825 14,065 11,863
---------------------------------------------------------
Net interest income 14,537 14,394 14,737 13,740 13,605
Provision for loan losses 113 103 200 186 180
---------------------------------------------------------
Net interest income after
provision for loan losses 14,424 14,291 14,537 13,554 13,425
Noninterest income 1,288 949 858 509 447
Noninterest expense 6,932 6,995 6,663 6,167 9,453
---------------------------------------------------------
Income before income tax 8,780 8,245 8,732 7,896 4,419
Provision for income tax 3,081 2,935 3,028 2,783 2,020
---------------------------------------------------------
Net income $ 5,699 $ 5,310 $ 5,704 $ 5,113 $ 2,399
=========================================================
Basic earnings per share $ 1.38 $ 1.23 $ 1.22 $ 1.04 $ 0.47
Diluted earnings per share 1.37 1.21 1.19 1.03 0.47
Cash dividends per share (1) .74 0.66 0.59 0.48 3.75
Selected financial ratios:
Return on average assets 1.41% 1.39% 1.50% 1.48% 0.75%
Return on average equity 10.17 9.31 9.36 8.38 3.62
Average equity to average assets 13.87 14.94 16.03 17.63 20.59
Interest rate spread 2.92 3.11 3.11 3.13 3.26
Net interest margin 3.67 3.85 3.95 4.05 4.32
Efficiency ratio (2) 44.12 45.90 43.28 43.85 68.14
Noninterest expense to average assets 1.72 1.83 1.75 1.78 2.94
Nonperforming assets to total assets 0.57 0.42 0.38 0.31 0.38
Nonperforming loans to total loans 0.60 0.45 0.45 0.32 0.42
Allowance for loan losses to total loans 0.55 0.58 0.59 0.54 0.53
Allowance for loan losses to
nonperforming loans 88.83 129.55 129.72 168.76 125.77
<FN>
- --------------------
<F1> The amount for 1996 includes a $3.50 per share special return of
capital distribution.
<F2> Noninterest expense as a percentage of the sum of net interest income
after provision for loan losses and noninterest income.
</FN>
The dividend pay-out ratio (dividends declared per share as a
percentage of basic earnings per share) of the Corporation was 53.7% for
2000, 53.7% for 1999 and 48.4% for 1998.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
In August 1995, the Corporation acquired all of the common shares
issued by The Industrial Savings and Loan Association ("Industrial Savings")
upon its conversion from a mutual savings and loan association to a stock
savings and loan association (the "Conversion"). Since the ownership of such
shares constitutes the principal business of Industrial Bancorp, the
discussion below focuses principally on the financial condition and results
of operations of Industrial Savings.
On December 9, 2000, the Corporation and the Association entered into
an Agreement and Plan of Merger, which was amended on January 30, 2001 (the
"Agreement"), with United Community Financial Corp. ("UCFC") and The Home
Savings and Loan Company of Youngstown, Ohio ("Home Savings"). The
Agreement provides for the acquisition of the Corporation and the
Association by UCFC and Home Savings. The acquisition will not be completed
unless a majority of the shareholders of the Corporation approve the
Agreement at the Special Meeting of Shareholders to be held on April 17,
2001.
The following discussion and analysis of the Corporation, and its
wholly-owned subsidiary, the Association, (together referred to as the
"Company") should be read in conjunction with and with reference to the
consolidated financial statements and accompanying notes.
Changes In Financial Condition
Total consolidated assets of the Company were $427.3 million at year-
end 2000 compared to $389.0 million at year-end 1999.
Loans receivable increased $36.3 million to $378.6 million at year-end
2000 from $342.3 million at year-end 1999. Loan originations exceeded $100
million for the fourth year in a row, with 79.2% of the originations being
in the residential mortgage and real estate construction loan categories.
Sales of fixed-rate mortgage loans in the secondary market totaled $13.3
million in 2000. Securities were $14.2 million at year-end 2000 compared to
$14.3 million at year-end 1999. Maturities of U.S. Treasury and agency
securities totaled $11.0 million and were replenished by purchases totaling
$9.9 million. Unrealized gains on securities increased by $956,000 during
the year. Cash and cash equivalents were $22.4 million at year-end 2000
compared to $10.0 million at year-end 1999. Office properties and
equipment, net of accumulated depreciation, decreased to $5.3 million at
year-end 2000 from $5.7 million at year-end 1999. The decrease is
principally due to the depreciation of Company office properties and
equipment.
Total deposits increased $20.3 million, or 6.9%, to $314.5 at year-end
2000 from $294.2 million at year-end 1999. Transaction accounts, including
passbook savings deposits, decreased $5.8 million while certificates of
deposit increased $26.0 million. The Company has used advances from the
FHLB to fund loan growth in excess of deposit growth. FHLB advances were
$50.0 million at year-end 2000 compared to $37.0 million at year-end 1999.
Shareholders' equity was $58.7 million at year-end 2000, compared to
$54.6 million at year-end 1999. Net income of $5.7 million was offset by
dividends to shareholders of $3.0 million and purchases of treasury shares
at a cost of $300,000 during 2000. Unrealized gains on securities and other
miscellaneous additions to shareholder equity amounted to $1.7 million in
2000.
The table on the following page presents certain average-balance
information, average yields and average costs for interest-earning assets
and interest-bearing liabilities for the years indicated. Such yields and
costs are derived by dividing income or expense by the average monthly
balance of interest-earning assets or interest-bearing liabilities,
respectively, for the years presented. Average balances are derived from
monthly ending balances, which do not vary significantly from daily average
balances.
2000 1999
---------------------------------- ----------------------------------
Average Average Average Average
balance Interest yield/rate balance Interest yield/rate
------------------------------------------------------------------------
(Dollars in thousands)
Interest-earning assets:
Interest-bearing deposits $ 16,073 $ 874 5.44% $ 27,968 $ 1,123 4.02%
Securities (1) 18,200 1,065 5.86 17,156 1,116 6.51
Mortgage-backed securities 165 15 9.09 239 24 10.04
Loans receivable (2) 361,617 30,110 8.33 328,583 27,179 8.27
------------------- -------------------
Total interest-earning assets 396,055 32,064 8.10 373,946 29,442 7.87
Noninterest-earning assets:
Cash and noninterest-bearing deposits 1,565 1,407
Office properties and equipment 5,508 5,705
Other non-earning assets 2,927 2,699
Allowance for loan losses (2,088) (1,984)
-------- --------
Total assets $403,967 $381,773
======== ========
Interest-bearing liabilities:
Deposits:
NOW accounts $ 21,016 451 2.15 $ 19,115 414 2.17
Money market accounts 3,926 120 3.06 4,650 141 3.03
Passbook savings accounts 56,358 1,742 3.09 56,686 1,756 3.10
Certificates of deposit 212,398 12,381 5.83 204,696 10,914 5.33
------------------- -------------------
Total deposits 293,698 14,694 5.00 285,147 13,225 4.64
FHLB advances 44,462 2,833 6.37 30,846 1,823 5.91
------------------- -------------------
Total interest-bearing liabilities 338,160 17,527 5.18 315,993 15,048 4.76
Noninterest-bearing liabilities 9,782 8,731
-------- --------
Total liabilities 347,942 324,724
Shareholders' equity 56,025 57,049
-------- --------
Total liabilities and
shareholders' equity $403,967 $381,773
======== ========
Net interest income $14,537 $14,394
======= =======
Interest rate spread 2.92% 3.11%
Net interest margin (3) 3.67% 3.85%
Average interest-earning assets to
average interest-bearing liabilities 117.12% 118.34%
1998
----------------------------------
Average Average
balance Interest yield/rate
----------------------------------
(Dollars in thousands)
Interest-earning assets:
Interest-bearing deposits $ 18,656 $ 708 3.79%
Securities (1) 20,396 1,344 6.59
Mortgage-backed securities 345 34 9.98
Loans receivable (2) 333,775 28,476 8.53
-------------------
Total interest-earning assets 373,172 30,562 8.19
Noninterest-earning assets:
Cash and noninterest-bearing deposits 1,109
Office properties and equipment 5,302
Other non-earning assets 2,371
Allowance for loan losses (1,832)
--------
Total assets $380,122
========
Interest-bearing liabilities:
Deposits:
NOW accounts $ 16,139 355 2.20
Money market accounts 4,391 133 3.03
Passbook savings accounts 53,014 1,626 3.07
Certificates of deposit 202,198 11,516 5.70
-------------------
Total deposits 275,742 13,630 4.94
FHLB advances 35,692 2,195 6.15
-------------------
Total interest-bearing liabilities 311,434 15,825 5.08
Noninterest-bearing liabilities 7,763
--------
Total liabilities 319,197
Shareholders' equity 60,925
--------
Total liabilities and
shareholders' equity $380,122
========
Net interest income $14,737
=======
Interest rate spread 3.11%
Net interest margin (3) 3.95%
Average interest-earning assets to
average interest-bearing liabilities 119.82%
<FN>
- --------------------
<F1> Average yields have been computed based on the amortized cost of the
investment security.
<F2> Net of deferred loan fees, loan discounts and loans in process. Loan
fees included in interest income amounted to $533,000, $933,000, and
$1.0 million in 2000, 1999 and 1998.
<F3> Net interest income to average interest-earning assets.
</FN>
The table below describes the extent to which changes in interest
rates and changes in volume of interest-earning assets and interest-bearing
liabilities have affected the interest income and interest expense of the
Company during the years indicated. For each category of interest-earning
assets and interest-bearing liabilities, information is provided for changes
attributable to (i) increases and decreases in volume (change in volume
multiplied by prior year rate), (ii) increases and decreases in rate (change
in rate multiplied by prior year volume) and (iii) total increases and
decreases in rate and volume. The combined effects of changes in both
volume and rate, which cannot be separately identified, have been allocated
proportionately to the change due to volume and the change due to rate.
2000 vs. 1999 1999 vs. 1998
---------------------------------- ---------------------------------
Increase (decrease) Increase (decrease)
due to Total due to Total
------------------- increase ------------------- increase
Volume Rate (decrease) Volume Rate (decrease)
-----------------------------------------------------------------------
(In thousands)
Interest income attributable to:
Interest-bearing deposits $ (478) $ 229 $ (249) $ 370 $ 45 $ 415
Securities 68 (119) (51) (211) (17) (228)
Mortgage-backed securities (7) (2) (9) (10) - (10)
Loans receivable 2,732 199 2,931 (438) (859) (1,297)
--------------------------------------------------------------------
Total interest income 2,315 307 2,622 (289) (831) (1,120)
Interest expense attributable to:
Deposits:
NOW accounts 41 (4) 37 65 (6) 59
Money market accounts (22) 1 (21) 8 - 8
Passbook savings accounts (10) (4) (14) 114 16 130
Certificates of deposit 411 1,056 1,467 141 (743) (602)
--------------------------------------------------------------------
Total deposits 420 1,049 1,469 328 (733) (405)
FHLB advances 805 205 1,010 (289) (83) (372)
--------------------------------------------------------------------
Total interest expense 1,225 1,254 2,479 39 (816) (777)
--------------------------------------------------------------------
Increase (decrease) in net
interest income $1,090 $ (947) $ 143 $(328) $ (15) $ (343)
====================================================================
Comparison of Operating Results
Earnings Summary. The Company had consolidated net income of $5.7
million for 2000, compared to $5.3 million for 1999 and $5.7 million for
1998. The primary reason for the change in total net income between years
was the change in net interest income and the gain on security sales in
2000.
Net Interest Income. Net interest income of the Company is a function
of the difference, or spread, between the average yield earned on loans and
other interest-earning assets and the average rate paid on deposits and
borrowings as well as the relative amounts of such assets and liabilities.
The interest rate spread is affected by the economic and competitive factors
that influence interest rates, loan demand and deposit flows.
Net interest income was $14.5 million in 2000, an increase of $143,000
from $14.4 million in 1999, which was a decrease of $343,000 over $14.7
million in 1998. The higher net interest income in 2000 was primarily a
result of increased levels of interest-earning assets, particularly loans
receivable. The effect of the higher volume of loans receivable was
somewhat offset by a narrower interest rate spread in 2000. An increase of
23 basis points in the average yield on interest-earning assets was more
than offset by a 42 basis point in the average rate paid on interest-bearing
liabilities. The decrease in net interest income in 1999 was primarily the
result of reduced levels of average interest-bearing assets, particularly
loan and securities, coupled with the lower interest rate environment during
1999.
Total interest income was $32.1 million in 2000 up from $29.4 million
in 1999, which was down from $30.6 million in 1998. New mortgage loan
originations increased in 2000, while refinances declined. As a result, the
average balance of loans receivable increased $33.0 million in 2000. The
yield on loans increased to 8.33% in 2000 from 8.27% in 1999. The large
number of refinances in 1999 resulted in a reduction of the average balance
of loans receivable from 1998. The yield on loans decreased from 8.53% in
1998 to 8.27% in 1999.
Interest earned on securities in both 2000 and 1999 was $1.1 million,
a decline from $1.4 million in 1998. Income from interest-bearing deposits
declined to $900,000 in 2000 from $1.1 million in 1999 and increased from
$0.7 million in 1998. The Company allowed average balances of its
securities portfolio to decline from the 1998 level of $20.4 million during
2000 and 1999. Additional growth in securities has been limited during the
past three years due to the excess growth of loans over deposits and the
increased use of FHLB advances to fund the excess.
Total interest expense was $17.5 million in 2000, an increase of $2.5
from $15.0 million recorded in 1999, which in turn was a decrease of
$800,000 from $15.8 million recorded in 1998. The increase in 2000 was a
result of higher interest rates paid on larger average balances of deposits
and a $1.0 million increase in interest expense on FHLB advances. Average
FHLB advances increased $13.6 million in 2000. The average rate paid for
deposits increased to 5.00% in 2000 from 4.64% paid in 1999 which was a
decrease from the 5.08% paid in 1998.
Yields Earned and Rates Paid. The spread between the average yield on
interest-earning assets and the average cost of interest-bearing liabilities
declined to 2.92% in 2000 from 3.11% in both 1999 and 1998. The decline was
due to a rising interest rate environment late in 1999 and for most of 2000,
during which the Company's interest-bearing liabilities repriced more
rapidly than its interest-earning assets.
The ratio of average interest-earning assets to average interest-
bearing liabilities was 117.12% for 2000, compared to 118.34% for 1999 and
119.82% for 1998. The decline in the ratio is due to the Company's purchase
of treasury stock. Management has used FHLB advances and the deposit growth
to fund the increased loan demand over the last three years.
Provision for Loan Losses. The Company maintains an allowance for
loan losses in an amount which, in management's judgment, is adequate to
absorb probable losses inherent in its loan portfolio. The amount of the
provision which is charged against earnings each year and added to the
allowance is based upon management's ongoing review of such factors as
historical loss performance, general prevailing economic conditions, changes
in the size and composition of the loan portfolio and considerations
relating to specific loans, including the ability of the borrower to repay
the loan and the estimated value of the underlying collateral.
The foregoing statement regarding the adequacy of the allowance for
loan losses is a "forward-looking " statement within the meaning of Section
27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. Factors that could affect the
adequacy of the allowance for loan losses include, but are not limited to,
the following: (1) changes in the national and local economy which may
negatively impact the ability of borrowers to repay their loans and which
may cause the value of real estate and other properties that secure
outstanding loans to decline; (2) unforeseen adverse changes in
circumstances with respect to certain large loans; (3) decreases in the
value of collateral securing consumer loans to amounts equal to less than
the outstanding balances of the consumer loans; and (4) determinations by
various regulatory agencies that Industrial Savings must recognize additions
to its loan loss allowance based on such regulators' judgment of information
available to them at the time of their examinations.
The provision for loan losses was $113,000 in 2000, compared to
$103,000 in 1999 and $200,000 in 1998. The Company had $30,000 in charge-
offs during 2000, compared to $19,000 in 1999 and $14,000 in 1998.
Recoveries totaled $3,000 in 1999 and $2,000 in 1998. Nonperforming loans
were $2.4 million at year-end 2000, compared to $1.6 million at year-end
1999. At year-end 2000, the allowance for loan losses was 88.8% of
nonperforming loans and 0.55% of total loans compared to 129.55% and 0.58%
at year-end 1999. Management determined that a provision for loan losses
was warranted in 2000 based on the increased level of nonperforming loans
and the increase in loans receivable during 2000.
Noninterest Income. Noninterest income increased to $1.3 million in
2000, compared to $949,000 in 1999 and $858,000 in 1998. Service fees
related to the steadily growing deposit base and expanding ATM and debit
card usage contributed largely to these increases during each of the three
years. In 2000 and 1999, income of $133,000 and $82,000 was recognized as a
result of the capitalization of mortgage servicing rights. A gain on sale
of FHLMC stock of $182,000 was recorded in 2000.
Noninterest Expense. Noninterest expense amounted to $6.9 million in
2000, compared to $7.0 million in 1999 and $6.7 million in 1998. The
largest single item of noninterest expense, salaries and employee benefits,
decreased during 2000 to $3.2 million. The change was due to the decrease
in the expense related to the employee stock ownership plan.
State franchise tax has decreased from $442,000 in 1998 to $329,000 in
1999 and then increased to $399,000 in 2000. The fluctuation in franchise
tax is a result of changing tax rates and varying capital levels. Federal
deposit insurance premiums decreased to $61,000 in 2000 compared to $172,000
in 1999 and $168,000 in 1998. The reduction in 2000 is a result of a
reduction of the premium rate for federal deposit insurance.
Data processing and related fees decreased to $486,000 in 2000 from
$503,000 in 1999, which increased from $437,000 in 1998. Advertising
expense decreased in 2000 due to the marketing expenses associated with the
opening of two new branch offices in 1999. Other expenses increased to $1.7
million in 2000, compared to $1.4 million in 1999 and $1.2 million in 1998.
Provision for Income Tax. Fluctuations in income tax expense are
primarily attributable to the change in income before taxes. Income before
taxes amounted to $8.8 million in 2000, compared to $8.2 million in 1999 and
$8.7 million in 1998. The Company's effective tax rates were 35.1% in 2000,
compared to 35.6% in 1999 and 34.7% in 1998.
Asset Quality
The Company has consistently maintained a high quality loan portfolio,
as evidenced by its level of nonperforming assets which consists of loans
accounted for on a nonaccrual basis, accruing loans past due 90 days or
more, and real estate acquired through or in lieu of foreclosure.
Nonperforming assets were $2.5 million at year-end 2000, compared to $1.6
million at year-end 1999. As a percentage of year-end total assets,
nonperforming assets were 0.57% in 2000 and 0.42% in 1999.
The Company's allowance for loan losses has increased, consistent with
growth in the loan portfolio, over the past two years and stood at $2.1
million at year-end 2000 compared to $2.0 million at year-end 1999. As a
percentage of nonperforming loans, the allowance for loan losses has
decreased from 129.55% at year-end 1999 to 88.83% at year-end 2000.
Liquidity and Capital Resources
The Company's liquidity, primarily represented by cash and cash
equivalents, is a result of its operating, investing and financing
activities, which are summarized as follows:
2000 1999 1998
----------------------------------
(In thousands)
Net income $ 5,699 $ 5,310 $ 5,704
Adjustments 1,189 277 744
----------------------------------
Net cash from operating activities 6,888 5,587 6,448
Net cash from investment activities (24,352) (19,673) (4,186)
Net cash from financing activities 29,908 (4,498) 15,502
----------------------------------
Net change in cash and cash equivalents 12,444 (18,584) 17,764
Cash and cash equivalents at beginning of year 9,952 28,536 10,772
----------------------------------
Cash and cash equivalents at end of year $ 22,396 $ 9,952 $ 28,536
==================================
The principal sources of funds for the Company are deposits, FHLB
borrowings, loan repayments, the sale of mortgage loans in the secondary
market, maturity of investment securities and funds generated through
operations. While scheduled loan repayments and maturing investments are
relatively predictable, deposit flows and loan prepayments are more
influenced by interest rates, general economic conditions and competition.
The Company maintains a level of investment in liquid assets which is based
upon management's assessment of (i) the need for funds, (ii) expected
deposit flows, (iii) the yields available on short-term liquid assets and
(iv) the objectives of the asset and liability management program of the
Company.
The OTS removed its regulations relating to minimum liquidity
requirements in March 2001. Prior to their elimination, the liquidity
regulations required the Company to maintain an average daily balance of
liquid assets, which may include, but were not limited to, investments in
U.S. Treasury and federal agency obligations and other investments generally
having maturities of five years or less, in an amount equal to 4% of the sum
of the Company's average daily balance of net withdrawable deposit accounts
and borrowings payable in one year or less. At year-end 2000, the
regulatory liquidity ratio of the Company was 6.42%. At such date, the
Company had commitments to originate loans and loans in process totaling
$13.9 million and no commitments to sell loans. The Company considers its
liquidity and capital reserves sufficient to meet its foreseeable short-term
and long-term needs.
The Association is required by OTS regulations to maintain
specified minimum amounts of capital. At year-end 2000, the association
exceeded all applicable minimum capital requirements. The association's
actual capital and regulatory capital requirements at year-end 2000 were as
follows:
Amount Percent of assets
-----------------------------------
(In thousands)
Tangible capital: (1)
Capital level $36,632 8.63%
Requirement 6,367 1.50
-------------------------
Excess $30,265 7.13%
=========================
Tier 1 (Core) capital: (1)
Capital level $36,632 8.63%
Requirement 16,978 4.00
-------------------------
Excess $19,654 4.63%
=========================
Risk-based capital: (2)
Capital level $39,983 14.91%
Requirement 21,457 8.00
-------------------------
Excess $18,526 6.91%
=========================
<FN>
- --------------------
<F1> Tangible and Tier 1 (Core) capital percentages are based on adjusted
total assets of $424.4 million.
<F2> Risk-based capital percentages are based on risk-weighted assets of
$268.2 million.
</FN>
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, 2000.
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting
for Derivative Instruments and Hedging Activities," subsequently amended by
SFAS No. 137 and 138, which the Company was required to adopt effective
January 1, 2001. SFAS 133, addresses the accounting for derivative
instruments, including 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 did not 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.
Item 7A. 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.
Generally, NPV is the discounted present value of the difference
between incoming cash flows on interest-earning assets and other assets and
outgoing cash flows on interest-bearing liabilities and other liabilities.
The application of the NPV methodology attempts to quantify interest rate
risk in the event of a sudden and sustained 1 to 3 percent increase or
decrease in market rates.
It is the intent of the Board not to exceed a moderate risk level, as
defined by the Office of Thrift Supervision in Thrift Bulletin 13A with a
200 basis point permanent change in interest rates. As of December 31,
2000, the Company's interest rate risk level was in the minimum range for a
100 basis point permanent change in interest rates, moderate range for a 200
basis point permanent change in interest rates and moderate range for a 300
basis point permanent change in interest rates. In comparison, at December
31, 1999, the interest rate level was in the minimum range for a 100 basis
point permanent change in interest rates, moderate range for a 200 basis
point permanent change in interest rates and significant level for a 300
basis point permanent change in interest rates. In terms of relative
impact on the Company's NPV, a 200 basis point permanent change in interest
rates would have the effect of reducing NPV by $18.0 million at December 31,
2000 compared to a reduction of $17.0 million at December 31, 1999. The
Company's increased sensitivity to rising interest rates is a result of an
increase in the level of fixed-rate loans and a general shortening of the
maturity structure of deposits and borrowings. Although the Company
attempts to mitigate interest rate risk by originating adjustable-rate loans
and by selling fixed-rate mortgage loans in the secondary market to Freddie
Mac, however customer preferences for loan products may limit the Company's
ability to achieve this objective.
NPV is calculated by the OTS using information provided by the
Company. Computation of prospective effects of hypothetical interest rate
changes are based on numerous assumptions, including relative levels of
market interest rates, loan prepayments and deposit run-off, and should not
be relied upon as indicative of actual results. Further, the computations
do not include capital at the holding company level nor does it contemplate
any actions the Company may undertake in response to changes in interest
rates.
Item 8. Financial Statements and Supplemental Data
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholders
Industrial Bancorp, Inc.
Bellevue, Ohio
We have audited the accompanying consolidated balance sheets of Industrial
Bancorp, Inc. as of December 31, 2000 and 1999, and the related consolidated
statements of income, comprehensive income, changes in shareholders' equity
and cash flows for each of the three years in the period ended December 31,
2000. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
Industrial Bancorp, Inc. as of December 31, 2000 and 1999, and the results
of its operations and its cash flows for each of the three years in the
period ended December 31, 2000, in conformity with generally accepted
accounting principles.
Crowe, Chizek and Company LLP
Cleveland, Ohio
January 11, 2001
INDUSTRIAL BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
December 31
---------------------
2000 1999
---------------------
ASSETS
Cash and noninterest-bearing deposits $ 1,242 $ 2,699
Interest-bearing demand deposits 5,154 3,253
Overnight deposits 16,000 4,000
---------------------
Cash and cash equivalents 22,396 9,952
Interest-bearing time deposits - 10,500
Securities available for sale,
at fair value 14,051 14,141
Securities held to maturity
(fair value: 2000 - $119; 1999 - $212) 118 202
Loans receivable, net 378,647 342,276
Federal Home Loan Bank stock 3,753 3,490
Office properties and equipment 5,292 5,709
Accrued interest receivable 2,490 2,273
Other assets 550 460
---------------------
Total assets $427,297 $389,003
=====================
LIABILITIES
Deposits $314,503 $294,250
Federal Home Loan Bank advances 50,000 37,000
Accrued interest payable and other liabilities 4,129 3,167
---------------------
Total liabilities 368,632 334,417
=====================
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 3,129 2,955
Retained earnings 42,691 40,005
Accumulated other comprehensive income 2,021 1,390
Unearned employee stock ownership plan shares (2,294) (2,688)
Unearned compensation (175) (701)
Treasury stock, at cost
(2000 - 1,220,617 shares; 1999 - 1,195,117 shares) (21,376) (21,044)
---------------------
Total shareholders' equity 58,665 54,586
---------------------
Total liabilities and shareholders' equity $427,297 $389,003
=====================
See accompanying notes to consolidated financial statements.
INDUSTRIAL BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share amounts)
For the year ended December 31
------------------------------
2000 1999 1998
------------------------------
Interest income
Interest and fees on loans $30,110 $27,179 $28,476
Interest and dividends on investment securities 1,080 1,140 1,378
Interest on deposits 874 1,123 708
------------------------------
32,064 29,442 30,562
------------------------------
Interest expense
Interest on deposits 14,694 13,225 13,630
Interest on Federal Home Loan Bank advances 2,833 1,823 2,195
------------------------------
17,527 15,048 15,825
------------------------------
Net interest income 14,537 14,394 14,737
Provision for loan losses 113 103 200
------------------------------
Net interest income after provision
for loan losses 14,424 14,291 14,537
------------------------------
Noninterest income
Service fees and other charges 834 839 635
Gain on sale of securities 182 - -
Other 272 110 223
------------------------------
1,288 949 858
------------------------------
Noninterest expense
Salaries and employee benefits 3,196 3,436 3,430
State franchise tax 399 329 442
Federal deposit insurance premiums 61 172 168
Occupancy and equipment 421 437 368
Data processing 486 503 437
Depreciation 451 455 389
Advertising 221 244 188
Other 1,697 1,419 1,241
------------------------------
6,932 6,995 6,663
------------------------------
Income before income tax 8,780 8,245 8,732
Provision for income tax 3,081 2,935 3,028
------------------------------
Net income $ 5,699 $ 5,310 $ 5,704
==============================
Basic earnings per share $ 1.38 $ 1.23 $ 1.22
Diluted earnings per share 1.37 1.21 1.19
See accompanying notes to consolidated financial statements.
INDUSTRIAL BANCORP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in thousands)
For the year ended December 31
2000 1999 1998
------------------------------
Net income $5,699 $5,310 $5,704
Other comprehensive income:
Unrealized holding gains and (losses) on securities
available for sale 1,138 (1,078) 1,164
Adjustments for gains recognized in income (182) - -
------------------------------
Net unrealized gains and (losses) 956 (1,078) 1,164
Tax effect (325) 367 (396)
------------------------------
631 (711) 768
------------------------------
Comprehensive income $6,330 $4,599 $6,472
==============================
See accompanying notes to consolidated financial statements.
INDUSTRIAL BANCORP, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Dollars in thousands, except per share amounts)
Unrealized
Gain on
Additional Securities Unearned Unearned
Common Paid in Retained Available ESOP Compen- Treasury
Stock Capital Earnings for Sale Shares sation Stock Total
-----------------------------------------------------------------------------------------------
Balance at January 1, 1998 $34,669 $1,879 $34,569 $1,333 $(3,529) $(1,753) $ (6,306) $60,862
Net income 5,704 5,704
Purchase of treasury stock
(271,764 shares) (5,466) (5,466)
Cash dividends declared
($.59 per share) (2,751) (2,751)
Exercise of stock options 16 76 92
Employee Stock Ownership Plan:
Shares released 415 429 844
Management Recognition Plan:
Compensation earned 162 526 688
Change in unrealized gain on
securities available for sale 768 768
-----------------------------------------------------------------------------------------------
Balance at December 31, 1998 34,669 2,472 37,522 2,101 (3,100) (1,227) (11,696) 60,741
Net income 5,310 5,310
Purchase of treasury stock
(471,653 shares) (9,517) (9,517)
Cash dividends declared
($.66 per share) (2,827) (2,827)
Exercise of stock options 11 169 180
Employee Stock Ownership Plan:
Shares released 357 412 769
Management Recognition Plan:
Compensation earned 115 526 641
Change in unrealized gain on
securities available for sale (711) (711)
-----------------------------------------------------------------------------------------------
Balance at December 31, 1999 34,669 2,955 40,005 1,390 (2,688) (701) (21,044) 54,586
Net income 5,699 5,699
Purchase of treasury stock
(25,500 shares) (332) (332)
Cash dividends declared
($.74 per share) (3,013) (3,013)
Employee Stock Ownership Plan:
Shares released 133 394 527
Management Recognition Plan:
Compensation earned 41 526 567
Change in unrealized gain on
securities available for sale 631 631
-----------------------------------------------------------------------------------------------
Balance at December 31, 2000 $34,669 $3,129 $42,691 $2,021 $(2,294) $ (175) $(21,376) $58,665
===============================================================================================
See accompanying notes to consolidated financial statements.
INDUSTRIAL BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
For the year ended December 31
----------------------------------
2000 1999 1998
----------------------------------
Cash flows from operating activities
Net income $ 5,699 $ 5,310 $ 5,704
Adjustments to reconcile net income to net cash
from operating activities
Depreciation 451 503 389
Provision for loan losses 113 103 200
Accretion of deferred loan fees (561) (978) (1,107)
FHLB stock dividends (263) (234) (224)
Gain on sale of securities (182) - -
Net accretion on securities (27) 16 (41)
ESOP expense 527 769 844
MRP compensation expense 567 641 688
Net change in:
Deferred taxes (71) (24) 124
Accrued interest receivable and other assets (73) (343) (139)
Accrued interest payable and other liabilities 708 (176) 10
----------------------------------
Net cash from operating activities 6,888 5,587 6,448
----------------------------------
Cash flows from investing activities
Net change in interest-bearing time deposits 10,500 (10,500) -
Proceeds from maturities of securities
available for sale 11,000 10,000 6,000
Proceeds from sale of securities available for sale 184 - -
Purchases of securities available for sale (9,929) (4,000) (5,000)
Principal repayments of securities held to maturity 84 81 154
Net increase in loans (36,157) (14,429) (4,442)
FHLB stock purchases - - (94)
Properties and equipment expenditures (34) (825) (804)
----------------------------------
Net cash from investing activities (24,352) (19,673) (4,186)
----------------------------------
Cash flows from financing activities
Net increase in deposits 20,253 5,666 17,627
Proceeds from FHLB advances 51,000 9,000 10,000
Repayment of FHLB advances (38,000) (7,000) (4,000)
Proceeds from exercise of stock options - 180 92
Cash dividends paid (3,013) (2,827) (2,751)
Purchase of treasury stock (332) (9,517) (5,466)
----------------------------------
Net cash from financing activities 29,908 (4,498) 15,502
----------------------------------
Net change in cash and cash equivalents 12,444 (18,584) 17,764
Cash and cash equivalents at beginning of year 9,952 28,536 10,772
----------------------------------
Cash and cash equivalents at end of year $ 22,396 $ 9,952 $ 28,536
==================================
Cash paid during the year for:
Interest $ 16,976 $ 15,287 $ 15,765
Income taxes 2,998 2,748 2,707
Noncash transactions:
Transfer of loans to real estate owned 234 89 46
See accompanying notes to consolidated financial statements.
INDUSTRIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000, 1999 and 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation: The consolidated financial statements include
Industrial Bancorp, Inc. and its wholly-owned subsidiary, Industrial Savings
and Loan Association, together referred to as "the Company". Intercompany
transactions and balances are eliminated. Footnote tables are presented in
thousands, except per share data.
Nature of Operations: The Corporation provides financial services through
its offices in North Central Ohio. Its primary deposit products are
checking, savings, and term certificate accounts, and its primary lending
products are residential mortgage, commercial, and installment loans.
Substantially all loans are secured by specific items of collateral
including business assets, consumer assets and real estate. Commercial
loans are expected to be repaid from cash flow from operations of
businesses. Real estate loans are secured by both residential and
commercial real estate. Other financial instruments which potentially
represent concentrations of credit risk include deposit accounts in other
financial institutions.
Use of Estimates: To prepare financial statements in conformity with
generally accepted accounting principles, management makes estimates and
assumptions based on available information. These estimates and assumptions
affect the amounts reported in the financial statements and disclosures
provided, and future results could differ. The allowance for loan losses
and fair values of financial instruments are particularly subject to change.
Cash Flows: Cash and cash equivalents include cash, demand deposits with
other financial institutions and overnight deposits. Net cash flows are
reported for loan and deposit transactions.
Securities: Securities are classified as held to maturity and carried at
amortized cost when management has the positive intent and ability to hold
to maturity. Securities are classified as available for sale when they
might be sold before maturity. Securities available for sale are carried at
fair value, with unrealized gains and losses reported in other comprehensive
income. Other securities such as Federal Home Loan Bank stock are carried
at cost.
Interest income includes amortization of purchase premium or discount.
Gains and losses on sales are based on the amortized cost of the security
sold. Securities are written down to fair value when a decline in fair
value is not temporary.
Loans Receivable: Loans are reported at the principal balance outstanding,
net of unearned interest, deferred loan fees and costs, and an allowance for
loan losses. Loans held for sale are reported at the lower of cost or
market, on an aggregate basis.
Interest income is reported on the interest method and includes amortization
of net deferred loan fees and costs over the loan term. Interest income is
not reported when full loan repayment is in doubt, typically when the loan
is impaired or payments are past due over 90 days.
Allowance for Loan Losses: The allowance for loan losses is a valuation
allowance for probable credit losses, increased by the provision for loan
losses and decreased by charge-offs less recoveries. Management estimates
the allowance balance required using past loan loss experience, known and
inherent risks in the nature and volume of the portfolio, information about
specific borrower situations and estimated collateral values, economic
conditions, and other factors. Allocations of the allowance may be made for
specific loans, but the entire allowance is available for any loan that, in
management's judgment, should be charged-off.
A loan is impaired if full payment under the loan terms is not expected.
Impairment is evaluated in total for smaller-balance loans of similar nature
such as residential mortgage or consumer loans, and on an individual loan
basis for other loans. If a loan is impaired, a portion of the allowance is
allocated so that the loan is reported net, at the present value of
estimated future cash flows using the loan's existing rate or at the fair
value of collateral if repayment is expected solely from the collateral.
Servicing Rights: Servicing rights are recognized as assets for purchased
rights and for the allocated value of retained servicing rights on loans
sold. Servicing rights are expensed in proportion to, and over the period
of, estimated net servicing revenues. Impairment is evaluated based on the
fair value of the rights, using groupings of the underlying loans as to
interest rates and then, secondarily, as to geographic and prepayment
characteristics. Any impairment of a grouping is reported as a valuation
allowance.
Real Estate Owned: Real estate acquired through or instead of foreclosure
is initially recorded at the fair value when acquired, establishing a new
cost basis. If fair value declines, a valuation allowance is recorded
through expense. Costs after acquisition are expensed.
Office Properties and Equipment: Office properties and equipment are stated
at cost less accumulated depreciation. Depreciation is computed over the
estimated useful lives on an accelerated basis, except for buildings for
which the straight line basis is principally used.
Stock Compensation: Employee compensation expense under stock option plans
is reported if options are granted below market price at grant date. Pro
forma disclosures of net income and earnings per share are shown using the
fair value method of Statement of Financial Accounting Standards (SFAS)
No.123 to measure expense for options granted after 1994, using an option
pricing model to estimate fair value.
Income Taxes: The provision for income tax is the total of the current year
income tax due or refundable and the change in deferred tax assets and
liabilities. Deferred tax assets and liabilities are the expected future
tax amounts for the temporary differences between carrying amounts and tax
bases of assets and liabilities, computed using enacted tax rates.
Employee Stock Ownership Plan: The cost of shares issued to the ESOP, but
not yet allocated to participants, is shown as a reduction of shareholders'
equity. Compensation expense is based on the market price of shares as they
are committed to be released to participant accounts. Dividends on
allocated ESOP shares reduce retained earnings; dividends on unearned ESOP
shares reduce debt and accrued interest.
Financial Instruments: Fair values of financial instruments are estimated
using relevant market information and other assumptions, as more fully
disclosed separately. Fair value estimates involve uncertainties and
matters of significant judgment regarding interest rates, credit risk,
prepayments, and other factors, especially in the absence of broad markets
for particular items. Changes in assumptions or in market conditions could
significantly affect the estimates.
Comprehensive Income: Comprehensive income consists of net income and other
comprehensive income. Other comprehensive income consists of unrealized
gains and losses on investment securities, which are also recognized as
separate components of equity.
Earnings Per Share: Basic earnings per share is net income divided by the
weighted average number of common shares outstanding during the period. ESOP
shares are considered outstanding for this calculation unless unearned.
Diluted earnings per share includes the dilutive effect of additional
potential common shares issuable under stock options.
Loss Contingencies: Loss contingencies, including claims and legal actions
arising in the ordinary course of business, are recorded as liabilities when
the likelihood of loss is probable and an amount or range of loss can be
reasonably estimated. Management does not believe that there are now any
such matters that would have a material effect on the financial statements.
Reclassifications: Certain items in the 1999 and 1998 financial statements
have been reclassified to correspond with the 2000 presentation.
NOTE 2 - ACQUISITION
On December 9, 2000, a merger agreement was signed between United Community
Financial Corp. (and its wholly-owned subsidiary The Home Savings and Loan
Company of Youngstown, Ohio) and Industrial Bancorp, Inc. (and its
wholly-owned subsidiary The Industrial Savings and Loan Association.) The
agreement was amended on January 30, 2001. At the effective time of the
merger, each share of Industrial Bancorp, Inc. will be exchanged for $20.375
per share, all in cash. The agreement provides for Industrial Bancorp, Inc.
to be merged into an acquiring subsidiary and then merged into The Home
Savings and Loan Company of Youngstown, Ohio. The shareholders of Industrial
Bancorp, Inc. will be asked to ratify the agreement at a shareholders'
meeting to be held on April 17, 2001. The acquisition is expected to be
consummated in the second quarter of 2001 and is subject to approvals by
various regulatory authorities and shareholders.
NOTE 3 - SECURITIES
Securities as of the end of the year were as follows:
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------------------------------------------
Available for sale
2000
- ----
U.S. Treasury securities $ 5,993 $ 71 $ 6,064
U.S. agency securities 4,952 77 $ (2) 5,027
Federal Home Loan Mortgage
Corporation preferred stock 44 2,916 2,960
-----------------------------------------------
$10,989 $3,064 $ (2) $14,051
===============================================
1999
- ----
U.S. Treasury securities $ 6,994 $ 10 $(11) $ 6,993
U.S. agency securities 4,995 (42) 4,953
Federal Home Loan Mortgage
Corporation preferred stock 46 2,149 2,195
-----------------------------------------------
$12,035 $2,159 $(53) $14,141
===============================================
Held to maturity
2000
- ----
Mortgage-backed securities $ 118 $ 1 $ 119
===============================================
1999
- ----
Mortgage-backed securities $ 202 $ 10 $ 212
===============================================
Contractual maturities of securities at year-end 2000 were as follows:
Amortized
Cost Fair Value
-----------------------
Available for sale
Due in one year or less $ 3,000 $ 3,004
Due after one year through five years 7,945 8,087
---------------------
10,945 11,091
Federal Home Loan Mortgage Corporation
preferred stock 44 2,960
---------------------
$10,989 $14,051
=====================
Held to maturity
Mortgage-backed securities $ 118 $ 119
=====================
Proceeds from the sale of FHLMC preferred stock were $184 in 2000. Gross
gains realized on the sale were $182. No securities were sold during 1999
or 1998. Securities pledged to secure public deposits at year-end 2000 and
1999 had carrying values of $7.7 million and $9.3 million.
NOTE 4 - LOANS RECEIVABLE
Loans receivable as of the end of the year were as follows:
2000 1999
---------------------
Real estate loans:
One- to four-family $308,303 $288,905
Home equity 21,733 18,721
Construction 22,867 18,172
Multi-family 12,520 10,873
Nonresidential 16,585 11,956
---------------------
Total real estate loans 382,008 348,627
Commercial loans 1,209 1,265
Consumer loans 9,835 6,594
---------------------
Total loans 393,052 356,486
Less:
Undisbursed construction loan funds (9,093) (8,693)
Net deferred loan fees (3,212) (3,500)
Allowance for loan losses (2,100) (2,017)
---------------------
$378,647 $342,276
=====================
Activity in the allowance for loan losses for the year was as follows:
2000 1999 1998
----------------------------
Balance at beginning of year $2,017 $1,930 $1,742
Provision for losses 113 103 200
Charge-offs (30) (19) (14)
Recoveries - 3 2
----------------------------
Balance at end of year $2,100 $2,017 $1,930
============================
No loans were classified as impaired at year-end 2000, 1999 and 1998 or
during the years then ended. Non-performing loans as of the end of the year
were as follows:
2000 1999
----------------
Loans accounted for on a nonaccrual basis $1,820 $ 928
Accruing loans past due 90 days or more 544 629
----------------
Total nonperforming loans $2,364 $1,557
================
Loans serviced for others, which are not reported as assets, total $37.9
million and $27.3 million at year-end 2000 and 1999. Activity for
capitalized mortgage servicing rights was as follows:
2000 1999
-------------
Balance at beginning of year $193 $169
Additions 134 82
Amortized to expense (70) (58)
-------------
Balance at end of year $257 $193
=============
Loans to principal officers, directors and their related businesses,
aggregating $60 thousand or more to any one related party, were as follows:
2000
----
Balance at beginning of year $229
Loans originated 117
Repayments (37)
----
Balance at end of year $309
====
NOTE 5 - OFFICE PROPERTIES AND EQUIPMENT
Office properties and equipment as of the end of the year were as follows:
2000 1999
----------------
Land $2,044 $2,044
Buildings and improvements 5,454 5,434
Furniture and equipment 1,732 1,714
Leasehold improvements 103 103
Construction in progress - 4
----------------
Total cost 9,333 9,299
Accumulated depreciation 4,041 3,590
----------------
$5,292 $5,709
================
NOTE 6 - DEPOSITS
Deposits as of the end of the year were as follows:
2000 1999
--------------------
Noninterest-bearing demand deposits $ 6,425 $ 4,928
Money market accounts 3,439 4,364
NOW accounts 21,830 23,767
Passbook savings accounts 53,461 57,861
Certificates of deposit 229,348 203,330
--------------------
$314,503 $294,250
====================
Certificates of deposit with balances of $100 thousand or more were $53.3
million and $49.0 million at year-end 2000 and 1999.
Scheduled maturities of certificates of deposit at year-end 2000 were as
follows:
Amount
------
2001 $164,008
2002 37,149
2003 24,436
2004 2,278
2005 1,133
Thereafter 344
--------
$229,348
========
NOTE 7 - FEDERAL HOME LOAN BANK ADVANCES
Advances from the Federal Home Loan Bank at year-end were as follows:
2000 1999
------------------------ -------------------------
Year of Maturity Interest Rate Amount Interest Rate Amount
---------------------------------------------------------------------------------------
2000 4.70 - 6.60% $16,000
2001 4.80 - 7.43% $29,000 5.73 - 6.21 9,000
2002 5.95 - 7.22 13,000 5.95 - 6.25 9,000
2003 5.83 - 7.16 8,000 5.83 3,000
------- -------
$50,000 $37,000
======= =======
Weighted average interest rate 6.52% 5.88%
These advances were collateralized by $62.5 million and $55.5 million of
residential mortgage loans under a blanket lien agreement and by Federal
Home Loan Bank stock at year-end 2000 and 1999. As of December 31, 2000,
the Company had $17.3 million in letters of credit with the Federal Home
Loan Bank. These letters of credit were used to pledge against public
deposits. These instruments were collateralized by $21.6 million of
residential mortgage loans under a blanket lien agreement and by Federal
Home Loan Bank stock at year-end 2000.
NOTE 8 - EMPLOYEE STOCK OWNERSHIP PLAN
Employees of the Company participate in an employee stock ownership plan
(ESOP). The ESOP borrowed from the Company to acquire 443,610 shares of
stock at $10 per share. The Company makes discretionary contributions to
the ESOP, as well as paying dividends on unallocated shares to the ESOP, and
the ESOP uses funds it receives to repay the loan. As loan payments are
made, ESOP shares are allocated to participants based on relative
compensation, and expense is recorded. Dividends on allocated shares
increase participant accounts. Participants receive the shares at the end
of employment. In the event of a change in control, all shares would be
allocated to participants.
Contributions to the ESOP during 2000, 1999 and 1998 were $394,000, $374,000
and $398,000. ESOP expense for 2000, 1999 and 1998 was $527,000, $769,000
and $844,000.
Shares held by the ESOP as of the end of the year were as follows:
2000 1999
--------------------
Shares allocated to participants 293,984 262,937
Unearned shares 229,356 268,850
--------------------
Total ESOP shares 523,340 531,787
====================
Fair value of unearned shares (in thousands) $ 4,530 $ 3,715
NOTE 9 - STOCK OPTION AND INCENTIVE PLAN
Options to buy stock of the Company are granted to directors and certain key
employees under the Stock Option and Incentive Plan, which provides for the
award of up to 555,450 options. Exercise price is the market price at date
of grant. The maximum option term is ten years, and options vest over five
years.
A summary of activity in the plan is as follows:
2000 1999
-------------------- --------------------
Weighted Weighted
Number Average Number Average
of Exercise of Exercise
Shares Price Shares Price
--------------------------------------------
Outstanding at beginning of year 369,485 382,815
Exercised - (13,330) $11.00
------- -------
Outstanding at end of year 369,485 369,485
======= =======
Options exercisable at year-end 291,722 213,989
No options were granted in 2000 or 1999. All options outstanding or
exercisable at year-end, have an exercise price of $11.00 per share.
Had compensation cost for stock options been measured using FASB Statement
No. 123, net income and earnings per share would have been the pro forma
amounts indicated below. The pro forma effect may increase in the future if
more options are granted.
2000 1999 1998
------------------------ ------------------------ ------------------------
As reported Pro forma As reported Pro forma As reported Pro Forma
--------------------------------------------------------------------------------
Net income $5,699 $5,516 $5,310 $5,127 $5,704 $5,521
Basic earnings per share 1.38 1.34 1.23 1.19 1.22 1.18
Diluted earnings per share 1.37 1.33 1.21 1.16 1.19 1.15
The pro forma effects are computed using option pricing models which used
the following weighted-average assumptions as of grant date: a risk-free
interest rate of 6.34%, a dividend yield of 3.86%, volatility factors of the
expected market price of the Company's common stock of 40.8%, and an
expected life of the option of 7.5 years. Based on these assumptions the
estimated fair value of the options granted during 1996 was $3.57 per share.
All options were granted in 1996.
NOTE 10 - MANAGEMENT RECOGNITION PLAN
The management recognition plan (MRP) provides to directors and certain key
employees an ownership interest in the Company designed to compensate such
directors and key employees for services to the Company. The Company
contributed sufficient funds to enable the MRP to purchase and issue awards
for 222,180 common shares of the Company. The shares awarded vest over a
five-year period beginning in 1996. Compensation expense, which is based
upon the cost of the shares, was $526,000 in each of 2000, 1999 and 1998.
NOTE 11 - INCOME TAXES
The provision for income tax was as follows:
2000 1999 1998
----------------------------
Current expense $3,152 $2,959 $2,904
Deferred expense (71) (24) 124
----------------------------
$3,081 $2,935 $3,028
============================
Effective tax rates differ from federal statutory rates applied to financial
statement income due to the following:
2000 1999 1998
----------------------------
Income tax computed at the
statutory federal rate $2,985 $2,803 $2,969
Effect of ESOP deduction 43 122 196
Effect of MRP awards expense - - (16)
Other 53 10 (121)
----------------------------
$3,081 $2,935 $3,028
============================
Effective tax rate 35.1% 35.6% 34.7%
Deferred tax assets and liabilities as of the end of the year were as
follows:
2000 1999
-------------------
Deferred tax assets
Deferred loan fees $ 890 $ 870
Accrued MRP awards 137 126
Construction period interest 15 16
Accrued vacation - 49
ESOP shares allocated 100 91
Bad debt deduction 209 13
Other 1 11
-------------------
1,352 1,176
-------------------
Deferred tax liabilities
FHLB stock dividends (760) (670)
Unrealized gain on investment
securities available for sale (1,082) (716)
Depreciation expense (104) (105)
Loan servicing rights (87) (66)
Accumulated accretion (3) (8)
-------------------
(2,036) (1,565)
-------------------
Net deferred tax asset /(liability) $ (684) $ (389)
===================
The Company has not established a valuation allowance, as it is management's
belief that it has adequate taxable income and carrybacks to realize
recorded deferred tax assets.
Federal income tax laws provided additional bad debt deductions through
1987, totaling $4.2 million. Accounting standards do not require a deferred
tax liability to be recorded on this amount, which liability otherwise would
total $1.4 million at December 31, 2000. If Industrial Savings were
liquidated or otherwise ceases to be a thrift or if tax laws were to change,
this amount would be expensed. Under 1996 tax law changes, bad debts are
based on actual loss experience and tax bad debt reserves accumulated since
1987 are to be reduced. This requires payment of approximately $168,000
annually over six years, which began in 1998.
NOTE 12 - RESTRICTIONS ON RETAINED EARNINGS AND CAPITAL REQUIREMENTS
Industrial Savings is subject to regulatory capital requirements
administered by federal banking agencies. Capital adequacy guidelines and
prompt correction action regulations involve quantitative measures of
assets, liabilities, and certain off-balance-sheet items calculated under
regulatory accounting practices. Capital amounts and classifications are
also subject to qualitative judgments by regulators. Failure to meet
capital requirements can initiate regulatory action. As of December 31,
2000, Industrial Savings is considered well capitalized based on computed
regulatory capital ratios. Management is not aware of any event or
circumstances after December 31, 2000 that would change the capital
category.
Federal regulations limit all capital distributions, including cash
dividends, by savings associations. The regulation establishes a three-
tiered system of restrictions, with the greatest flexibility afforded to
thrifts which are both well-capitalized and given favorable qualitative
examination ratings.
Actual and required capital amounts (in thousands) and ratios as of the end
of the year were as follows:
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Regulations
------------------------------------------------------------
2000
- ----
Total capital
(to risk weighted assets) $39,983 14.91% $21,457 8.0% $26,821 10.0%
Tier 1 (core) capital
(to risk weighted assets) $36,632 13.66% $10,728 4.0% $16,093 6.0%
Tier 1 (core) capital
(to adjusted total assets) $36,632 8.63% $16,978 4.0% $21,222 5.0%
Tangible capital
(to adjusted total assets) $36,632 8.63% $ 6,367 1.5% N/A
Amount Ratio Amount Ratio Amount Ratio
-----------------------------------------------------------
1999
- ----
Total capital
(to risk weighted assets) $38,066 15.84% $19,229 8.0% $24,036 10.0%
Tier 1 (core) capital
(to risk weighted assets) $35,115 14.61% $ 9,614 4.0% $14,421 6.0%
Tier 1 (core) capital
(to adjusted total assets) $35,115 9.07% $15,479 4.0% $19,348 5.0%
Tangible capital
(to adjusted total assets) $35,115 9.07% $ 5,805 1.5% N/A
NOTE 13 - OFF-BALANCE-SHEET ACTIVITIES
Some financial instruments, such as loan commitments, credit lines, letters
of credit and overdraft protection, are issued to meet customer financing
demands. These are agreements to provide credit or to support the credit of
others, as long as conditions established in the contract are met, and
usually have expiration dates. Commitments may expire without being used.
Off-balance-sheet risk to credit loss exists up to the face amount of these
instruments, although material losses are not anticipated. The same credit
policies are used to make such commitments as are used for loans, including
obtaining collateral at exercise of the commitment.
Financial instruments with off-balance-sheet risk as of the end of the year
were as follows:
2000 1999
------------------ ------------------
Fixed Variable Fixed Variable
Rate Rate Rate Rate
----------------------------------------
Commitments to make loans $4,159 $ 619 $3,939 $ 1,380
Undisbursed construction loan funds 7,293 1,800 7,633 1,060
Unused lines of credit - 17,250 19 17,258
Commitments to make loans are generally made for 30 days or less. The fixed
rate loan commitments on mortgage loans have interest rates ranging from
7.13% to 9.25% and maturities ranging from 10 years to 30 years as of
December 31, 2000.
The Company was required by the Federal Reserve Bank to maintain cash
reserves of $636,000 and $640,000 as of year-end 2000 and 1999. These
reserves do not earn interest.
NOTE 14 - FAIR VALUE OF FINANCIAL INSTRUMENTS
Carrying amounts and estimated fair values of financial instruments as of
the end of the year were as follows:
2000 1999
----------------------- ------------------------
Carrying Carrying
Amount Fair Value Amount Fair Value
---------------------------------------------------
Financial assets
Cash and cash equivalents $ 22,396 $ 22,396 $ 9,952 $ 9,952
Interest-bearing time deposits - - 10,500 10,500
Securities 14,169 14,170 14,343 14,353
Loans receivable, net 378,647 374,105 342,276 335,314
Federal Home Loan Bank stock 3,753 3,753 3,490 3,490
Accrued interest receivable 2,490 2,490 2,273 2,273
Financial liabilities
Deposits $(314,503) $(315,204) $(294,250) $(294,647)
FHLB advances (50,000) (50,276) (37,000) (36,586)
Accrued interest payable (1,081) (1,081) (530) (530)
The methods and assumptions used to estimate fair value are described as
follows. Carrying amount is the estimated fair value for cash and cash
equivalents, Federal Home Loan Bank stock, accrued interest receivable and
payable, demand deposits and variable rate loans or deposits that reprice
frequently and fully. Investment securities fair values are based on market
prices. For fixed rate loans or deposits and for variable rate loans or
deposits with infrequent repricing or repricing limits, fair value is based
on discounted cash flows using current market rates applied to the estimated
life and credit risk. Fair value of loans held for sale is based on market
quotes. Fair value of FHLB advances is based on current rates for similar
financing. Fair value of Commitments is not materially different from the
nominal value.
NOTE 15 - EARNINGS PER SHARE
The factors used in the earnings per share computation were as follows:
2000 1999 1998
--------------------------------------
Net income $ 5,699 $ 5,310 $ 5,704
Basic:
- -----
Weighted average common shares outstanding 4,339,205 4,581,534 5,005,852
Less: Average unallocated ESOP shares 223,610 279,065 330,616
--------------------------------------
Average shares 4,115,595 4,302,469 4,675,236
======================================
Basic earnings per share $ 1.38 $ 1.23 $ 1.22
Diluted:
- -------
Weighted average common shares outstanding
for basic earnings per share 4,115,595 4,302,469 4,675,236
Add: Dilutive effects of assumed exercises of stock options 35,998 103,525 110,299
--------------------------------------
Average shares and dilutive potential common shares 4,151,593 4,405,994 4,785,535
======================================
Diluted earnings per share $ 1.37 $ 1.21 $ 1.19
NOTE 16 - PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION
CONDENSED BALANCE SHEETS
December 31,
------------------
2000 1999
------------------
ASSETS
Cash and cash equivalents $ 41 $ 79
Investment in subsidiary 38,653 36,505
Loan receivable from ESOP 2,587 2,957
Loan receivable from subsidiary 17,300 14,900
Other assets 71 80
------------------
$58,652 $54,521
==================
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities $ (13) $ (65)
Shareholders' equity 58,665 54,586
------------------
$58,652 $54,521
==================
CONDENSED STATEMENTS OF INCOME
For the year ended December 31,
-------------------------------
2000 1999 1998
-------------------------------
Interest income on loan from subsidiary $ 969 $ 859 $ 1,030
Dividends from subsidiary 5,500 6,000 9,000
Management fees expense (900) (900) (900)
Other operating expenses (106) (70) (78)
Income before income tax and undistributed subsidiary income 5,463 5,889 9,052
Provision (benefit) for income taxes (12) (36) 17
Equity in undistributed subsidiary income
(Distribution in excess of subsidiary income) 224 (615) (3,331)
------------------------------
Net income $5,699 $5,310 $ 5,704
==============================
NOTE 16 - PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION
CONDENSED STATEMENTS OF CASH FLOWS
For the year ended December 31,
-------------------------------
2000 1999 1998
-------------------------------
Cash flows from operating activities
Net income $ 5,699 $ 5,310 $ 5,704
Adjustments:
Equity in undistributed subsidiary income (224) 615 3,331
Dividends on unallocated ESOP shares (199) (215) (214)
Changes in other assets and liabilities 61 10 9
-------------------------------
Net cash from operating activities 5,337 5,720 8,830
-------------------------------
Cash flows from investing activities
Loans to subsidiary (5,500) (6,000) (9,000)
Principal repayment on loans to subsidiary 3,100 12,100 7,500
Principal repayment on loan to ESOP 370 370 370
-------------------------------
Net cash from investing activities (2,030) 6,470 (1,130)
-------------------------------
Cash flows from financing activities
Cash dividends paid (3,013) (2,827) (2,751)
Purchase of treasury stock (332) (9,517) (5,466)
Proceeds from exercise of stock options - 146 66
Net cash from financing activities (3,345) (12,198) (8,151)
Net change in cash and cash equivalents (38) (8) (451)
Cash and cash equivalents at beginning of period 79 87 538
-------------------------------
Cash and cash equivalents at end of period $ 41 $ 79 $ 87
===============================
NOTE 17 - QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
March 31 June 30 September 30 December 31
2000
Interest income $7,563 $7,830 $8,169 $8,502
Interest expense 3,931 4,176 4,545 4,875
Net interest income 3,632 3,654 3,624 3,627
Provision for loan losses 23 22 23 45
Other income 230 251 281 526
Other expense 1,711 1,738 1,747 1,736
-----------------------------------------------
Income before taxes 2,128 2,145 2,135 2,372
Provision for incomes taxes 735 761 754 831
-----------------------------------------------
Net income $1,393 $1,384 $1,381 $1,541
===============================================
Basic earnings per share $ .34 $ .34 $ .34 $ .37
Diluted earnings per share .33 .34 .33 .37
1999
Interest income $7,474 $7,377 $7,224 $7,367
Interest expense 3,833 3,796 3,677 3,742
-----------------------------------------------
Net interest income 3,641 3,581 3,547 3,625
Provision for loan losses 38 20 22 23
Other income 235 211 227 276
Other expense 1,738 1,798 1,826 1,633
-----------------------------------------------
Income before taxes 2,100 1,974 1,926 2,245
Provision for incomes taxes 729 696 712 798
-----------------------------------------------
Net income $1,371 $1,278 $1,214 $1,447
===============================================
Basic earnings per share $ 0.30 $ 0.29 $ 0.29 $ 0.35
Diluted earnings per share 0.30 0.29 0.28 0.34
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant
Directors
The Corporation has seven directors. Each of the directors of the
Corporation is also a director of the Association. Each director of the
Corporation became a director of the Corporation in connection with the
Conversion and the formation of the Corporation as the holding company for
the Association. The current directors of the Corporation are listed below:
Director of the
Name Age (1) Position(s) held Corporation since Term expires
- ------------------------------------------------------------------------------------------------
Graydon H. Hayward 55 Director 1995 2001
Leon W. Maginnis 66 Director 1995 2001
Bob Moore 72 Director 1995 2001
David M. Windau 50 Director, President,
CEO and Treasurer 1995 2001
Lawrence R. Rhoades 71 Chairman of the Board,
Chief Financial Officer,
and Director 1995 2002
Fredric C. Spurck 53 Director 1995 2002
Roger O. Wilkinson 52 Director 1995 2002
<FN>
- --------------------
<F1> As of March 1, 2001.
</FN>
Mr. Hayward has been the President and owner of Hayward Rigging and
Construction, Inc. Bellevue, Ohio, a firm which specializes in setting and
relocating large machinery in industrial plants, since 1981.
Mr. Maginnis is a Certified Public Accountant and Certified Fraud
Examiner and has been the Vice President-Finance of Hirt Publishing
Corporation, Inc. since 1993. Previously, Mr. Maginnis was the owner of
Maginnis and Associates, a public accounting firm in Bellevue, Ohio.
Mr. Moore is retired. He previously served as the President of
Willard Foods, Inc. in Willard, Ohio.
Mr. Windau has served as the President and Treasurer of the
Association since October 1994 and as the CEO since August 1996. Mr. Windau
has been employed by the Association for 23 years and was a Senior Vice
President in charge of branch operations and deposit acquisitions prior to
becoming the President. Mr. Windau is also the President and CEO of the
Corporation.
Mr. Rhoades served as the President of the Association from 1965 to
1994, as Chief Executive Officer ("CEO") of the Association from November
1965 to August 1996, and as CEO of the Corporation from its formation in
February 1995 to August 1996. Mr. Rhoades currently serves as the Chairman
of the Board and Chief Financial Officer of the Association and the
Corporation.
Mr. Spurck is a Certified Public Accountant and has been the President
and CEO of Webster Industries, Inc., Tiffin, Ohio since 1978. Webster
Industries operates facilities in four states, producing chains and other
component parts used in conveyor systems.
Mr. Wilkinson has been the Finance Director, and previously the Deputy
Director, of the Huron County Alcohol, Drug Addiction and Mental Health
Services Board, based in Norwalk, Ohio, since 1995. For the prior fourteen
years, he was the manager of Norwalk Clinic, Inc., Norwalk, Ohio.
Executive Officers
In addition to Mr. Rhoades, who is the Chairman of the Board and Chief
Financial Officer of the Corporation, and Mr. Windau, who is the President
and Chief Executive Officer of the Corporation, the following persons are
executive officers of the Corporation and hold the designated positions.
Each executive officer of the Corporation serves at the pleasure of the
Board of Directors.
Name Age (1) Position held Executive officer since
- ---- ------- ------------- -----------------------
David W. Ball 59 Secretary February 1995
Stephan S. Beal 40 Treasurer February 1995
<FN>
- --------------------
<F1> As of March 1, 2001.
</FN>
Mr. Ball is the Secretary of the Corporation and a Senior Vice
President and the Secretary of the Association. He is responsible for
lending operations and has been an employee of the Association for the past
32 years.
Mr. Beal is the Treasurer of the Corporation and a Senior Vice
President of the Association. He has been responsible for branch operations
and deposit acquisition since October 1994 and has been an employee of the
Association for the past 15 years.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the
Corporation's officers and directors, and persons who own more than ten
percent of a registered class of the Corporation's equity securities, to
file reports of ownership and changes in ownership on Forms 3, 4 and 5 with
the SEC. Officers, directors and greater than ten percent shareholders are
required by SEC regulations to furnish the Corporation with copies of all
Forms 3, 4 and 5 they file.
Based on the Corporation's review of the copies of such forms it has
received, the Corporation believes that all of its officers and directors
complied with all filing requirements applicable to them with respect to
transactions during fiscal 2000.
Item 11. Executive Compensation
Summary Compensation Table
The following table sets forth the compensation paid to David M.
Windau, the CEO of the Corporation and the Association, for the years ended
December 31, 2000, 1999 and 1998. No other executive officer of the
Corporation or the Association received compensation in excess of $100,000
during 2000.
Annual compensation All other compensation
----------------------- ----------------------
Name and
principal position Year Salary ($) Bonus ($)
- --------------------------------------------------------------------------------
David M. Windau CEO 2000 $159,950 $ 9,500 $86,669 (1)
1999 142,194 9,500 62,940 (2)
1998 135,961 27,000 75,620 (3)
<FN>
- --------------------
<F1> Consists of director's fees and the $77,894 value of current year
allocations to the account of Mr. Windau under the Industrial Bancorp,
Inc. Employee Stock Ownership Plan (the "ESOP").
<F2> Consists of director's fees and the $53,490 value of allocations to
the ESOP account of Mr. Windau.
<F3> Consists of director's fees and the $66,520 value of allocations to
the ESOP account of Mr. Windau.
</FN>
Stock Option Plan
The shareholders of the Corporation adopted the Industrial Bancorp,
Inc. 1996 Stock Option and Incentive Plan at the 1996 Annual Meeting of
Shareholders. Options are granted by the Stock Option Committee to
directors, officers and employees of the Association and the Corporation on
the basis of an individual's responsibility, tenure and future potential.
The total number of shares with respect to which awards may be made is
555,450. As of December 31, 2000, options to purchase 388,815 shares had
been granted, of which 369,485 options remained outstanding at December 31,
2000.
The following table sets forth information regarding the number and
value of unexercised options held by Mr. Windau at December 31, 2000:
Number of Securities Value of Unexercised
Underlying Unexercised "In-the-Money" Options
Shares Acquired Value Options at 12/31/00 at 12/31/00 (1)
Name on Exercise Realized Exercisable/Unexercisable Exercisable/Unexercisable
- ---- --------------- -------- ------------------------- -------------------------
(#) ($) (#) ($)
David M. Windau -0- -0- 106,644/26,663 933,135/233,301
<FN>
- --------------------
<F1> For purposes of this table, the value of the options was determined by
multiplying the number of options by the difference between the $11.00
exercise price and the fair market value of the Corporation's common
shares, which was $19.75 on December 31, 2000, based on the closing
bid price reported by Nasdaq.
</FN>
Management Recognition Plan
The shareholders of the Corporation adopted the Industrial Savings and
Loan Association Management Recognition Plan and Trust Agreement ("MRP") at
the 1996 Annual Meeting of Shareholders. The MRP Committee awards shares to
directors, officers and employees of the Association and the Corporation
based on an individual's responsibility, tenure and future potential. In
1996, the MRP purchased 222,180 common shares of the Corporation, all of
which were awarded to directors and executive officers of the Association
during fiscal 1996. No shares were purchased or awarded in fiscal years
2000, 1999 or 1998.
Employee Stock Ownership Plan
The Corporation has established the ESOP for the benefit of employees
of the Corporation and its subsidiaries, including the Association, who are
age 21 or older and who have completed at least one year of service with the
Corporation and its subsidiaries. The ESOP provides an ownership interest
in the Corporation to all eligible full-time employees of the Corporation.
The common shares and other ESOP funds are held in the ESOP Trust and
invested by the trustee of the ESOP Trust. As of March 1, 2001, 293,983 of
the 523,340 common shares of the Corporation held in the ESOP Trust had been
allocated to the accounts of participants.
Bonus Plan
The Association provides a bonus plan (the "Bonus Plan") to encourage
its employees to contribute to the financial success of the Association and
thus share in its profits. Both full- and part-time employees are eligible
to participate in the Bonus Plan if they have been employed by the
Association for more than one year of continuous service. The amount
received by individual employees pursuant to the Bonus Plan is determined by
the Personnel and Salary Committee based on various factors, including
performance and tenure. For the year ended December 31, 2000, the
Association contributed $160,140 to the Bonus Plan. The Bonus Plan is
subject to annual review by the Association's Board of Directors.
Employment Agreements
The Association has entered into employment agreements with Messrs.
Windau, Ball and Beal (the "Employment Agreements"). The Employment
Agreements, which became effective on January 1, 1996, provided for initial
terms of three years and have been extended through December 31, 2001. The
Employment Agreements provide for salary and performance reviews by the
Board of Directors not less often than annually. Each of the Employment
Agreements provides for inclusion of the employee in any formally
established employee benefit, bonus, pension and profit-sharing plans for
which senior management personnel are eligible and for vacation and sick
leave in accordance with the Association's prevailing policies.
The Employment Agreements are terminable by the Association at any
time. In the event of termination by the Association for "just cause," as
defined in the Employment Agreements, the employee will have no right to
receive any compensation or other benefits for any period following such
termination. In the event of a termination other than for "just cause" and
not in connection with a "change of control", as defined in the Employment
Agreements, the employee will be entitled to payment of an amount equal to
the employee's annual salary. The Employment Agreements further provide
that in the event of a termination in connection with or within one year of
a "change of control," the employee will be entitled to payment of an amount
equal to three times the employee's annual salary. The amount which would
be payable to Mr. Windau in the event of a "change of control," based upon
his salary as of December 31, 2000, is $479,850.
Director Compensation
Each director of the Association, other than the Chairman of the
Board, currently receives a fee of $675 per meeting, with one excused
absence per year. The Chairman of the Board receives $700 per meeting. In
addition, each member of a committee who is not a full-time employee of the
Association receives $250 per committee meeting attended. No fees are paid
for service as a director of the Corporation.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth information regarding the only persons
known by the Corporation to be the beneficial owners of more than five
percent of the shares of the Corporation, as of March 1, 2001:
Amount and nature of
beneficial ownership
--------------------------------------
Shared voting
Sole voting and/or and/or Percent of
Name and Address Investment power investment power shares outstanding
- ---------------- ------------------ ---------------- ------------------
The Industrial Bancorp, Inc. 229,356 293,983 12.08%
Employee Stock Ownership Plan
First Bankers Trust Company, N.A., Trustee
1201 Broadway
Quincy, Illinois 62301
Private Capital Management, Inc. - 465,034 10.73%
3003 Tamiami Trail North
Naples, Florida 33940
The following table sets forth certain information regarding the
number of shares of the Corporation beneficially owned by each director and
each executive officer of the Corporation and by all directors and executive
officers of the Corporation as a group, as of March 1, 2001:
Amount and nature of
beneficial ownership
--------------------------------------
Shared voting
Sole voting and/or and/or Percent of
Name and address (1) Investment power investment power shares outstanding
- -------------------- ------------------ ---------------- ------------------
Graydon H. Hayward 41,664 (2) - .96%
Leon W. Maginnis 30,864 (2) 52,632 (3) 1.92%
Bob Moore 77,464 (2) - 1.78%
Lawrence R. Rhoades 152,986 (4) 57,032 (3) 4.79%
Fredric C. Spurck 13,334 (5) 7,500 .48%
Roger O. Wilkinson 33,445 (2) - .77%
David M. Windau 160,034 (6) 51,939 (3) 4.77%
All directors and executive
officers as a group (9 persons) 606,746 (7) 79,258 14.83%
<FN>
- --------------------
<F1> Each of the persons listed may be contacted at the address of the
Corporation.
<F2> Includes 17,776 shares that may be acquired through the exercise of
stock options.
<F3> Includes 49,132 unearned shares held by the MRP, as to which Messrs.
Maginnis, Rhoades and Windau share voting power as trustees of the
MRP. The unearned MRP shares are counted only once in calculating the
number of shares outstanding that are beneficially owned by all
directors and executive officers as a group.
<F4> Includes 53,324 shares that Mr. Rhoades may acquire through the
exercise of stock options.
<F5> Includes 4,446 shares that Mr. Spurck may acquire through the exercise
of stock options.
<F6> Includes 106,644 shares that Mr. Windau may acquire through the
exercise of stock options.
<F7> Includes 291,722 shares that may be acquired by directors and
executive officers through the exercise of stock options.
</FN>
The Corporation entered into an Agreement and Plan of Merger (the
"Agreement"), by and among United Community Financial Corp. ("UCFC"), The
Home Savings and Loan Company of Youngstown, Ohio (the "HSLC"), the
Corporation and the Association, dated December 9, 2000 and Amended and
Restated as of January 30, 2001, which provides for the acquisition of the
Corporation and the Association by UCFC and HSLC. The acquisition must be
approved by a majority of the Corporation's shareholders. They will vote
upon the adoption of the Agreement at a Special Meeting of Shareholders to
be held on April 17, 2001.
Item 13. Certain Relationships and Related Transactions
The Association has followed a policy of granting consumer loans and
loans secured by the borrower's personal residence to officers, directors
and employees. Loans to executive officers and directors are made in the
ordinary course of business and on the same terms and conditions as those of
comparable transactions prevailing at the time and in accordance with the
Association's underwriting guidelines and do not involve more than the
normal risk of collectibility or present other unfavorable features.
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) 3(a) Articles of Incorporation
3(b) Certificate of Amendment to Articles of Incorporation
3(c) Certificate of Amendment to Articles of Incorporation
11 Statement Regarding Computation of Per Share Earnings
21 Subsidiaries of the Registrant
(b) The Corporation filed a current report on Form 8-K dated
December 9, 2000, disclosing the execution of an Agreement and
Plan of Merger by an among United Community Financial Corp.
("UCFC"), The Home Savings and Loan Company of Youngstown, Ohio
("Home Savings"), the Corporation and the Association.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
By: /s/ David M. Windau
----------------------------------
David M. Windau, Chief Executive
Officer (Duly Authorized
Representative)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons in the capacities
and on the dates indicated.
/s/ David M. Windau /s/ Lawrence R. Rhoades
- --------------------------------- ---------------------------------------
David M. Windau, President, Lawrence R. Rhoades, Chairman of
Chief Executive Officer and the Board,Chief Financial
Director Officer and Director
Date: March 30, 2001 Date: March 30, 2001
/s/ Graydon H. Hayward /s/ Leon W. Maginnis
- --------------------------------- ---------------------------------------
Graydon H. Hayward, Director Leon W. Maginnis, Director
Date: March 30, 2001 Date: March 30, 2001
/s/ Bob Moore /s/ Fredric C. Spurck
- --------------------------------- ---------------------------------------
Bob Moore, Director Fredric C. Spurck, Director
Date: March 30, 2001 Date: March 30, 2001
/s/ Roger O. Wilkinson
- ---------------------------------
Roger O. Wilkinson, Director
Date: March 30, 2001
INDEX TO EXHIBITS
Exhibit
Number
3(a) Articles of Incorporation Incorporated by reference to the
Registration Statement on Form S-1
filed by the Holding Company on
March 23, 1995 (the "S-1") with the
Securities and Exchange Commission,
Exhibit 3.1
3(b) Certificate of Amendment to Incorporated by reference to the S-1,
Articles of Incorporation Exhibit 3.2
3(c) Code of Regulations Incorporated by reference to the S-1,
Exhibit 3.3
11 Statement Regarding Incorporated by reference to Note 1
Computation of Per to the Financial Statements
Share Earnings included herewith.
21 Subsidiaries of the
Registrant
23 Consent of Independent Auditors