1
EXHIBIT 13
Dear Shareholders,
I am pleased to present our second Annual Report to Shareholders as a
publicly traded stock company. 1996 was a very successful year, highlighted by
being one of the first savings and loan holding companies in the nation to
return capital to its shareholders. This $3.50 per share special return of
capital distribution was done to enhance shareholder value and to improve
return on equity in the future. In addition to the special return of capital
distribution, Industrial Bancorp, Inc. paid a total of $.325 per share of
dividends to its shareholders during 1996. Also during 1996, the Company
applied for and received approval from the Office of Thrift supervision to
repurchase up to 5% of its total outstanding common shares. The repurchase
program, which began late in 1996 and will be completed in 1997, was also done
to enhance shareholder value.
Transition of management continued during 1996. On August 4, 1996, Mr.
Lawrence R. Rhoades announced his retirement as Chief Executive Officer of the
Company and its subsidiary. Mr. Rhoades began his career with Industrial
Savings and Loan Association in 1964 when the association had two offices and
$8.5 million in assets. Under his leadership and guidance, the association
prospered to a total of 11 offices serving nine communities and over $326
million in assets. Under his direction, Industrial Savings and Loan Association
has continually been recognized as one of the strongest and top performing
thrifts in the State of Ohio, as well as the nation. His leadership skills and
visionary talents distinguished him as one of the most highly regarded leaders
within the thrift industry. He will continue his career with Industrial Savings
as the Chief Financial Officer and Chairman of the Board. I am honored to have
succeeded him as Chief Executive Officer.
Our subsidiary, Industrial Savings and Loan Association, also
completed a very successful year in 1996. Having completed its 106th year of
operation, it continued to grow and prosper. One of the highlights of 1996 was
the opening of our new branch facility in Ashland. We are very proud of this
new facility and the new services it brings to our Ashland customers.
Industrial Savings also expanded its servicing network in 1996 by adding two
new ATMs. In 1996, we also announced the opening of a new loan production
office in Mansfield. Industrial Savings is excited to have the opportunity to
offer our loan products and services to the people of Mansfield and Richland
County.
The strength and vitality of Industrial Bancorp, Inc. continues, as
evidenced by the year-end financial report. We reached a record high of $326.6
million in consolidated assets as of December 31, 1996. Savings deposits
increased to $259.1 million as of year-end, which is also a new record.
Mortgage lending remained strong in 1996, as we originated $81.1 million in new
loans, which represents a 21% increase over the previous year.
On behalf of the directors, management and employees, I would like to
express our appreciation to you, our shareholders, for your confidence and
investment in Industrial Bancorp, Inc. and to our valued customers for their
continued support of Industrial Savings and Loan Association.
David M. Windau
President and Chief Executive Officer
2
BUSINESS OF INDUSTRIAL BANCORP, INC.
================================================================================
Industrial Bancorp, Inc. ("Industrial Bancorp"), a unitary savings and loan
holding company incorporated under the laws of the State of Ohio, owns all of
the issued and outstanding common shares of The Industrial Savings and Loan
Association ("Industrial Savings"), a savings and loan association chartered
under the laws of the State of Ohio. In August 1995, Industrial Bancorp acquired
all of the common shares issued by Industrial Savings upon its conversion from a
mutual savings and loan association to a stock savings and loan association (the
"Conversion"). Since its formation, Industrial Bancorp's activities have been
limited primarily to holding the common shares of Industrial Savings.
As a savings and loan holding company, Industrial Bancorp is subject to
regulation, supervision and examination by the Office of Thrift Supervision of
the United States Department of the Treasury (the "OTS").
BUSINESS OF THE INDUSTRIAL SAVINGS AND LOAN ASSOCIATION
================================================================================
Industrial Savings, which was organized under Ohio law in 1890, conducts
business from its main office at 211 N. Sandusky Street in Bellevue, Ohio, and
its nine branch offices in the northern Ohio communities of Ashland, Clyde,
Findlay, Fremont, Norwalk, Sandusky, Tiffin and Willard. The principal business
of Industrial Savings is the origination of loans secured by one- to four-family
residential real estate located in the primary market area of Industrial
Savings, which consists of the six Ohio counties of Ashland, Erie, Hancock,
Huron, Sandusky and Seneca. Industrial Savings also originates construction and
permanent mortgage loans secured by multifamily residences (over four units) and
nonresidential real estate in its primary market area. In addition to real
estate lending, Industrial Savings originates a limited number of commercial
loans and secured and unsecured consumer loans. For liquidity and interest rate
risk management purposes, Industrial Savings 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, which are insured up to applicable limits by
the Federal Deposit Insurance Corporation (the "FDIC"), borrowings from the
Federal Home Loan Bank (the "FHLB") and principal repayments on loans.
As a savings and loan association incorporated under the laws of Ohio,
Industrial Savings is subject to regulation, supervision and examination by the
OTS and the Division of Financial Institutions of the Ohio Department of
Commerce. Industrial Savings is also a member of the FHLB of Cincinnati.
1
3
SELECTED CONSOLIDATED FINANCIAL DATA
================================================================================
The following table sets forth certain information concerning the consolidated
financial condition, earnings and other data regarding Industrial Bancorp at
the dates and for the periods indicated.
At or for the year ended December 31,
----------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
SELECTED FINANCIAL CONDITION DATA: (Dollars in thousands, except per share data)
Total assets $326,613 $322,994 $268,041 $245,516 $227,736
Investment securities 23,797 27,882 16,014 5,010 8,450
Loans receivable - net 285,803 259,124 235,537 205,001 187,478
Deposits 259,074 238,282 231,966 219,704 205,579
FHLB advances 2,000 - 6,000 - -
Shareholders' equity (1) 62,104 81,055 27,616 23,430 20,195
SUMMARY OF EARNINGS:
Interest income $25,468 $22,858 $19,024 $18,113 $18,420
Interest expense 11,863 11,236 9,181 8,620 9,808
------- ------- ------- ------- -------
Net interest income 13,605 11,622 9,843 9,493 8,612
Provision for loan losses 180 180 200 240 230
------- ------- ------- ------- -------
Net interest income after
provision for loan losses 13,425 11,442 9,643 9,253 8,382
Noninterest income 447 398 461 377 414
Noninterest expense 9,453 5,518 4,734 4,220 3,845
------- ------- ------- ------- -------
Income before income tax and
effect of accounting change 4,419 6,322 5,370 5,410 4,951
Income tax expense 2,020 2,149 1,752 1,853 1,765
Effect of accounting change - - - (166) -
------- ------- ------- ------- -------
- -
Net income $ 2,399 $ 4,173 $ 3,618 $ 3,391 $ 3,186
======= ======= ======= ======= =======
Earnings per share (2) $ 0.47 $ 0.42 - - -
Cash dividends declared per share (2) (3) $ 3.75 $ 0.15 - - -
SELECTED FINANCIAL RATIOS:
Return on average assets 0.75% 1.42% 1.42% 1.45% 1.51%
Return on average equity 3.62 8.21 14.33 15.51 17.06
Average equity to average assets 20.59 17.29 9.88 9.36 8.85
Interest rate spread 3.26 3.26 3.55 3.76 3.68
Net interest margin 4.32 4.04 3.94 4.14 4.15
Efficiency ratio (4) 68.14 46.60 46.85 43.82 43.71
Noninterest expense to average assets 2.94 1.88 1.85 1.81 1.82
Nonperforming assets to total assets 0.38 0.49 0.58 0.81 0.95
Nonperforming loans to total loans 0.42 0.60 0.62 0.92 1.13
Allowance for loan losses to total loans 0.53 0.52 0.50 0.48 0.40
Allowance for loan losses to
nonperforming loans 125.77 87.53 80.71 51.92 35.90
- ---------------------------
(1) Shareholders' equity prior to the Conversion refers to members' equity.
(2) Per share data for 1995 is for the period from the date of completion of
the Conversion, August 1, 1995, to December 31, 1995.
(3) The amount for the year ended December 31, 1996, includes a $3.50 per
share special return of capital distribution in May 1996.
(4) Noninterest expense as a percentage of the sum of net interest income
after provision for loan losses and noninterest income.
2
4
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
================================================================================
GENERAL
- --------------------------------------------------------------------------------
The following discussion and analysis of the financial condition and results of
operations of Industrial Bancorp and Industrial Savings should be read in
conjunction with and with reference to the consolidated financial statements,
and the notes thereto, presented in this Annual Report.
Industrial Bancorp was incorporated for the purpose of owning all of the
outstanding common shares of Industrial Savings following the Conversion, and
the ownership of such shares constitutes its principal business. As a result,
the consolidated financial condition and results of operations discussed below
focus principally on the financial condition and results of operations of
Industrial Savings.
CHANGES IN FINANCIAL CONDITION
- --------------------------------------------------------------------------------
The total consolidated assets of Industrial Bancorp amounted to $326.6 million
at December 31, 1996, an increase of $3.6 million from $323.0 million at
December 31, 1995. Growth in assets was limited by the $3.50 per share special
return of capital distribution in May 1996, which totalled $19.4 million.
Loans receivable increased $26.7 million, or 10%, from $259.1 million at
December 31, 1995, to $285.8 million at December 31, 1996. Substantially all of
this increase was in one- to four-family residential real estate loans, which
represent 85% of the total loan portfolio of Industrial Savings at December 31,
1996.
Investment securities totaled $23.8 million at December 31, 1996, compared
to $27.9 million at December 31, 1995. The decrease occurred as proceeds from
maturities of U.S. Treasury securities were used to partially fund loan growth.
Cash and cash equivalents declined by $19.3 million during 1996. Of the
approximately $25.9 million of Conversion offering proceeds that remained in
interest-bearing deposits at December 31, 1995, $19.4 million was used to make
the special return of capital distribution in May 1996.
Office properties and equipment, net of accumulated depreciation, increased to
$5.0 million at December 31, 1996, from $4.7 million at December 31, 1995. The
$290,000 increase was primarily the result of completing the construction and
relocation of Industrial Savings' branch office in the City of Ashland during
1996.
Total deposits increased $20.8 million, or 9%, to $259.1 million at December
31, 1996, from $238.3 million at December 31, 1995. Passbook savings deposits
and certificates of deposit increased $2.4 million and $16.9 million,
respectively.
FHLB advances were $2.0 million at December 31, 1996. These advances were
acquired late in the year to fund loan growth.
Shareholders' equity was $62.1 million at December 31, 1996, $18.9 million less
than the $81.0 million reported at December 31, 1995. The decline was primarily
a result of the $19.4 million special return of capital distribution in May
1996 and the $2.6 million cost associated with the purchase of shares by The
Industrial Savings and Loan Association Management Recognition Plan (the
"MRP"). These expenditures were partially offset by net income of $2.4 million
in 1996.
3
5
The following table presents certain average-balance information, as well as
average yield on interest-earning assets and average cost of 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.
(Dollars in thousands)
Year ended December 31,
--------------------------------------------------------------------------------------
Weighted 1996 1995 1994
Average ------------------------- ------------------------------------- ----------------------
yield/rate Average
December 31, Average yield/ Average Average Average Average
1996 balance Interest rate balance Interest yield/rate balance Interest yield/rate
----------- ------- -------- -------- ------- -------- ---------- ------- -------- ----------
Interest-earning assets:
Interest-bearing deposits 6.21% $ 13,629 $ 649 4.76%$ 15,915 $ 861 5.41% 17,747$ 679 3.83%
Investment securities (1) 5.69 28,289 1,712 6.05 22,544 1,288 5.71 11,143 566 5.08
Mortgage-back securities 10.56 660 67 10.15 897 91 10.14 1,161 114 9.82
Loans receivable (2) 8.11 271,998 23,040 8.47 248,012 20,618 8.31 220,058 17,665 8.03
-------- ------- ------- ------ -------- -------
Total interest-earning
assets 7.92 314,576 25,468 8.10 287,368 22,858 7.95 250,109 19,024 7.61
Non-interest-earning assets:
Cash and due from banks 933 847 760
Premises and equipment 5,019 4,419 4,056
Other nonearning assets 2,596 2,552 1,769
Allowance for loan losses (1,557) (1,292) (1,104
-------- -------- --------
Total assets $321,567 $293,894 $255,590
======== ======== ========
Interest-bearing liabilities:
Deposits:
NOW accounts 2.50 12,778 298 2.33 $ 11,358 264 2.32 $ 10,796 258 2.39
Money market accounts 3.00 4,653 140 3.01 5,360 162 3.02 5,626 169 3.00
Passbook savings accounts 3.10 52,872 1,631 3.08 55,559 1,719 3.09 71,367 2,208 3.09
Certificates of deposit 5.68 174,590 9,772 5.60 156,811 8,503 5.42 136,836 6,493 4.75
-------- ------- -------- ------- -------- -------
Total deposits 4.86 244,893 11,841 4.84 229,088 10,648 4.65 224,625 9,128 4.06
Conversion stock
purchase funds - - - - 3,838 117 3.05 - - -
FHLB advances 6.15 462 22 4.76 6,615 471 7.12 1,308 53 4.05
-------- --------- -------- -------- ------ ---------
Total interest-bearing
liabilities 4.87 245,355 11,863 4.84 239,541 11,236 4.69 225,933 9,181 4.06
Non-interest-bearing liabilities 10,005 3,526 4,404
-------- --------
Total liabilities 255,360 243,067 230,337
Shareholders' equity (3) 66,207 50,827 25,253
-------- -------- -------
Total liabilities and
shareholders' equity $321,567 $293,894 $255,590
======== ======== ========
Net interest income $13,605 $11,622 $9,843
======= ======= ======
Interest rate spread 3.05% 3.26% 3.26% 3.55%
Net interest margin (4) 4.32% 4.04% 3.94%
Average interest-earning
assets to average
interest-bearing liabilities 128.21% 119.97% 110.70%
- -------------------------
(1) Average yields have been computed based on the amortized cost of
the investment security.
(2) Net of deferred loan fees, loan discounts and loans in process.
Loan fees included in interest income amounted to $625,000, $493,000
and $530,000 in 1996, 1995 and 1994, respectively.
(3) Shareholders' equity prior to the Conversion refers to members' equity.
(4) Net interest income to average interest-earning assets.
4
6
The table below describes the extent to which changes in interest rates and
changes in volume of interest-earnings assets and interest-bearing liabilities
have affected the interest income and interest expense of Industrial Savings
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.
Year ended December 31,
----------------------------------------------------------------------------------
1996 vs. 1995 1995 vs. 1994
--------------------------------------- ----------------------------------------
Increase Increase
(decrease) due to Total (decrease) due to Total
---------------------- increase ---------------------- increase
Volume Rate (decrease) Volume Rate (decrease)
------ ---- ---------- ------ ---- ----------
(In thousands)
Interest income attributable to:
Interest-bearing deposits $ (116) $ (96) $ (212) $ (76) $ 258 $ 182
Investment securities 344 80 424 644 78 722
Mortgage-backed securities (24) - (24) (27) 4 (23)
Loans receivable 2,026 396 2,422 2,306 647 2,953
------- ----- ------- ------- ------- -------
Total interest income 2,230 380 2,610 2,847 987 3,834
Interest expense attributable to:
Deposits:
NOW accounts 33 1 34 13 (7) 6
Money market accounts (21) (1) (22) (8) 1 (7)
Passbook savings accounts (83) (5) (88) (489) - (489)
Certificates of deposit 988 281 1,269 1,016 994 2,010
----- ----- ------- ------ ------- -------
Total deposits 917 276 1,193 532 988 1,520
Conversion stock purchase
funds (117) - (117) 117 - 117
FHLB advances (331) (118) (449) 352 66 418
------ ----- ------ ------ ------- -------
Total interest expense 469 158 627 1,001 1,054 2,055
------ ----- ------ ------ ------- -------
Increase (decrease) in net
interest income $1,761 $222 $1,983 $1,846 $ (67) $1,779
====== ==== ====== ====== ======= ======
5
7
COMPARISON OF OPERATING RESULTS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
- --------------------------------------------------------------------------------
EARNINGS SUMMARY. Industrial Bancorp had consolidated net income of $2.4
million for the year ended December 31, 1996, compared to $4.2 million recorded
for 1995. The decrease was due principally to two separate, but individually
significant, events which occurred during 1996. The first was the special
assessment levied by the Federal Deposit Insurance Corporation upon
institutions with deposits insured by the Savings Association Insurance Fund
(the "SAIF"). The second was the impact of the $3.50 per share special return
of capital distribution on shares held in trust for Industrial Bancorp's
Employee Stock Ownership Plan (the "ESOP") but not allocated to ESOP
participants. Industrial Bancorp recorded approximately $2.7 million in expense
related to these two events. See Notes 9 and 13 of the Notes to Consolidated
Financial Statements. The effect of these expenses offset an increase in net
interest income of $2.0 million.
NET INTEREST INCOME. The consolidated net interest income of Industrial Bancorp
is primarily dependent upon the net interest income of Industrial Savings,
which 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 increased $2.0 million, or 17%, to $13.6 million in 1996,
compared to $11.6 million in 1995. The increase was primarily attributable to
an increase in the excess of average interest-earning assets over average
interest-bearing liabilities to $69.2 million in 1996 from $47.8 million in
1995, due to the growth in loans receivable and the reduced use of FHLB
borrowings.
Total interest income increased $2.6 million, or 11%, to $25.5 million in 1996,
compared to $22.9 million in 1995. The increase was largely due to average
loans being $24.0 million higher in 1996 than in 1995. Interest and fees on
loans totaled $23.0 million in 1996, compared to $20.6 million in 1995. The
average yield earned on loans increased to 8.47% for 1996, compared to 8.31%
for 1995, as a result of the moderately higher interest rate environment.
Interest earned on investment securities increased to $1.7 million in 1996,
compared to $1.3 million in 1995. The average yield earned on investment
securities increased to 6.05% for 1996, compared to 5.71% for 1995, as a result
of the higher interest rate environment.
Total interest expense increased $627,000, or 6%, to $11.9 million in 1996,
compared to $11.2 million in 1995. The increase was primarily attributable to
growth in average deposits, from $229.1 million in 1995 to $244.9 million in
1996, coupled with the related increase in weighted average rate paid from
4.65% in 1995 to 4.84% in 1996. The increase in interest expense due to deposit
growth was somewhat offset by the limited use of FHLB borrowings, which
averaged $6.2 million less in 1996 than in 1995.
YIELDS EARNED AND RATES PAID. The spread between the average yield on
interest-earning assets and the average cost of interest-bearing liabilities
was 3.26% for 1996, the same as for 1995. The increase in the average yield
earned on interest-earning assets matched the increase in the average rate paid
on interest-bearing liabilities. Average interest-earning assets continued to
exceed average interest-bearing liabilities, increasing to a ratio of 128.21%
at December 31, 1996, from 119.97% at December 31, 1995.
PROVISION FOR LOAN LOSSES. Industrial Savings maintains an allowance for loan
losses in an amount which, in management's judgment, is adequate to absorb
reasonably foreseeable 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
6
8
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 $180,000 in 1996, the same as in 1995.
Industrial Savings had no charge-offs in 1996 and approximately $1,000 in
recoveries, compared to 1995, in which net charge-offs amounted to $13,000.
Nonperforming loans were $334,000 less at December 31, 1996 than at December
31, 1995. At December 31, 1996, the allowance for loan losses was 125.77% of
nonperforming loans and .53% of total loans. Management determined that a
provision for loan losses was warranted in 1996 based on the $26.7 million
growth in loans receivable.
NONINTEREST INCOME. Noninterest income for 1996 increased $49,000 from that
recorded in 1995. Service fees related to the growing deposit base and
expanding ATM usage contributed largely to this increase.
NONINTEREST EXPENSE. Noninterest expense increased significantly, to $9.5
million in 1996, compared to $5.5 million in 1995. The increase was primarily
attributable to the industry-wide special SAIF assessment and the employee
benefits expense associated with accounting for the special return of capital
distribution on unallocated ESOP shares.
Salaries and employee benefits were $4.3 million in 1996, compared to $2.1
million in 1995, due principally to the recording of $1.2 million associated
with the $3.50 per share special return of capital distribution related to
unallocated ESOP shares. The accounting rules for this transaction dictated
that an expense be reported on the income statement and that there be a
compensating increase to an equity account. Salaries and employee benefits were
also affected by the implementation of the MRP and its related expense, an
increase in the number of full-time equivalent employees and normal pay
increases.
Federal deposit insurance premiums, including the special assessment, were $2.1
million in 1996, compared to $531,000 in 1995. The special assessment upon
SAIF-insured deposits amounted to $1.5 million. As a result of the special
assessment in 1996, FDIC insurance premiums paid by Industrial Savings have
been reduced effective October 1, 1996.
The foregoing statement regarding federal deposit insurance premiums 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. Events that could cause FDIC insurance premiums to increase
above current rates include, but are not limited to, failures of thrift
institutions and legislative action increasing the required reserves of the
SAIF.
State franchise tax increased from $748,000 in 1995 to $843,000 in 1996, due to
increased capital at Industrial Savings. Data processing and related fees,
which are based on the outstanding number of loan and deposit accounts,
increased from $339,000 in 1995 to $355,000 in 1996. Total occupancy and
equipment and depreciation expense remained relatively stable at $601,000
7
9
for 1996, compared to $591,000 for 1995. Other expenses increased $139,000 in
1996, compared to 1995, due principally to increased lending activity.
INCOME TAX EXPENSE. Fluctuations in income tax expense are primarily
attributable to the change in net income before taxes. Income before taxes
amounted to $4.4 million in 1996, compared to $6.3 million in 1995. Despite
this 30% decrease in income before taxes, the provision for income taxes
declined only slightly to $2.0 million in 1996, compared to $2.1 million in
1995, as the expense related to the special return of capital distribution as
applied to unallocated ESOP shares was not deductible for tax purposes.
COMPARISON OF OPERATING RESULTS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
- --------------------------------------------------------------------------------
EARNINGS SUMMARY. Industrial Bancorp had consolidated net income of $4.2
million for the year ended December 31, 1995, an increase of 15% over the $3.6
million recorded for 1994. The increase in net income was primarily
attributable to an increase in net interest income of $1.8 million. This
increase was offset by a decrease in noninterest income of $63,000 and
increases in noninterest expense of $784,000 and federal income tax expense of
$397,000.
NET INTEREST INCOME. Net interest income increased $1.8 million, or 18%, to
$11.6 million for 1995, compared to $9.8 million for 1994. The increase was
primarily attributable to an increase in the excess of average interest-earning
assets over average interest-bearing liabilities to $47.8 million in 1995 from
$24.2 million in 1994. The increase in net interest income due to volume,
principally the growth in loans, was marginally offset by reductions in net
interest income due to rate.
Total interest income increased $3.8 million, or 20%, to $22.9 million for
1995, compared to $19.0 million for 1994. The increase was largely due to
average loan and average investment securities balances being $28.0 and $11.4
million higher, respectively, for 1995, compared to 1994. Interest and fees on
loans totaled $20.6 million in 1995, compared to $17.7 million for 1994. The
average yield earned on loans increased to 8.31% for 1995, compared to 8.03%
for 1994, as a result of the higher interest rate environment. Interest earned
on investment securities and interest-bearing deposits increased to $2.1
million in 1995 from $1.2 million in 1994. The average yield earned on
investment securities increased to 5.71% for 1995, from 5.08% for 1994, as a
result of the investment portfolio increase and the higher interest rate
environment.
Total interest expense increased $2.1 million, or 22%, to $11.2 million for
1995, compared to $9.2 million for 1994. The increase was primarily
attributable to the weighted average rate paid on deposits increasing from
4.06% in 1994 to 4.65% in 1995, a result of the higher interest rate
environment. A $4.4 million increase in average interest-bearing deposits and
increased use of FHLB advances, which averaged $5.3 million more in 1995 than
in 1994, also contributed to the increase in interest expense in 1995, compared
to 1994. Interest expense on the funds deposited with Industrial Savings for
the purchase of stock in the Conversion amounted to $117,000.
YIELDS EARNED AND RATES PAID. The spread between the average yield on
interest-earning assets and the average interest cost of interest-bearing
liabilities declined from 3.55% in 1994 to 3.26% in 1995. During 1995, the
average rate paid on interest-bearing liabilities rose to a greater degree than
did the average yields earned on interest-earning assets.
PROVISION FOR LOAN LOSSES. The provision for loan losses decreased by $20,000,
or 10%, for the year ended December 31, 1995, compared to 1994. Industrial
Savings had net charge-offs of $13,000 in 1995, compared to net recoveries of
$8,000 in 1994, and nonperforming loans were $74,000 greater at December 31,
1995, than at December 31, 1994. With the provision in 1995, however, the
allowance for loan losses as a percentage of nonperforming loans increased to
87.5%
8
10
at December 31, 1995, from 80.7% at December 31, 1994. As a percentage of
total loans, the allowance for loan losses was .52% at December 31, 1995.
NONINTEREST INCOME. Noninterest income for 1995 decreased $63,000 from
that recorded in 1994. The total for 1994 included a $70,000 gain on sale
of real estate associated with the relocation of the Ashland branch office.
NONINTEREST EXPENSE. Noninterest expense increased $784,000, or 17%, to $5.5
million for 1995, compared to $4.7 million in 1994. Salaries and employee
benefits increased $246,000, or 13%, for 1995 compared to 1994, as a result of
an increase in the number of full-time equivalent employees and normal pay
increases. State franchise tax, which is based on a percentage of consolidated
capital, more than doubled, from $353,000 in 1994 to $748,000 in 1995, due
primarily to the increase in capital raised through the Conversion.
Federal deposit insurance premiums increased to $531,000 in 1995 from $505,000
in 1994, as total deposit balances subject to such premiums increased. For the
same reason, data processing and related fees, which are based on the
outstanding number of loan and deposit accounts, increased from $302,000 in
1994 to $339,000 in 1995. Total occupancy and equipment and depreciation
expense remained relatively stable at $591,000 for 1995, compared to $575,000
for 1994. Other expenses increased $64,000 in 1995, compared to 1994, as the
capital raised through the Conversion resulted in increased lending activity
and expenses related thereto.
INCOME TAX EXPENSE. Fluctuations in income tax expense are primarily
attributable to the change in net income before taxes. Income before taxes in
1995 amounted to $6.3 million, compared to $5.4 million in 1994. The provision
for income taxes increased, therefore, to $2.1 million in 1995, compared to
$1.8 million in 1994.
ASSET QUALITY
- ------------------------------------------------------------------------------
Industrial Savings has consistently maintained a high quality loan portfolio,
as evidenced by its levels of nonperforming assets and nonperforming loans.
Nonperforming assets (which includes nonperforming loans and real estate
acquired through foreclosure or by deed-in-lieu thereof) declined from $1.6
million at December 31, 1995, to $1.3 million at December 31, 1996.
The following table summarizes Industrial Savings' nonperforming assets for the
periods indicated:
At December 31,
--------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(Dollars in thousands)
Accruing loans delinquent
90 days or more $ 721 $ 939 $ 874 $ 325 $ 387
Nonaccrual loans 517 633 624 1,603 1,766
------ ------ ------ ------ -------
Total nonperforming loans 1,238 1,572 1,498 1,928 2,153
Real estate owned 15 15 48 63 -
------- ------ ------ ------ -------
Total nonperforming assets $1,253 $1,587 $1,546 $1,991 $2,153
====== ====== ====== ====== ======
Nonperforming assets to
total assets 0.38% 0.49% 0.58% 0.81% 0.95%
Nonperforming loans as a
percent of total loans 0.42% 0.60% 0.62% 0.92% 1.13%
Industrial Savings' allowance for loan losses has increased, consistent with
growth in the loan portfolio, over the past five years and stood at $1.6
million at December 31, 1996. Over the last five
9
11
years, Industrial Savings has experienced total charge-offs of $44,000 and total
recoveries of $45,000.
The following table provides a history of Industrial Savings' loan loss
experience and allowance for loan losses:
Year ended December 31,
--------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(Dollars in thousands)
Balance at beginning of year $1,376 $1,209 $1,001 $ 773 $526
Charge-offs - (17) (4) (18) (5)
Recoveries 1 4 12 6 22
------ ------ ------ ------ ----
Net (charge-offs) recoveries 1 (13) 8 (12) 17
Provision for loan losses 180 180 200 240 230
------ ------ ------ ------ ----
Balance at end of year $1,557 $1,376 $1,209 $1,001 $773
====== ====== ====== ====== ====
Net (charge-offs) recoveries to
average loans 0.00% (0.01)% 0.00% (0.01)% 0.01%
Allowance for loan losses to
total loans 0.53% 0.52% 0.50% 0.48% 0.40%
Allowance for loan losses to
nonperforming loans 125.77% 87.53% 80.71% 51.92% 35.90%
ASSET AND LIABILITY MANAGEMENT
- --------------------------------------------------------------------------------
Industrial Savings, like other financial institutions, is subject to interest
rate risk to the extent that its interest-earning assets reprice differently
than its interest-bearing liabilities. As part of its efforts to monitor and
manage interest rate risk, Industrial Savings utilizes the "net portfolio
value" ("NPV") reports provided by the OTS on a quarterly basis.
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 as
the change in the NPV which would result from a theoretical 200 basis point (1
basis point equals .01%) change in market interest rates. Both a 200 basis
point increase and a 200 basis point decrease in market interest rates are
considered.
The OTS has proposed regulations which, if adopted, would require an
institution whose NPV would decrease more than 2% of the present value of the
institution's assets as a result of an increase or a decrease in market
interest rates to deduct 50% of the amount of the decrease in excess of such 2%
in the calculation of the institution's risk-based capital. At December 31,
1996, 2% of the present value of the assets of Industrial Savings was $6.8
million. Because the interest rate risk of a 200 basis point increase in market
interest rates (which was greater than the interest rate risk of a 200 basis
point decrease) was $12.7 million at December 31, 1996, the proposed OTS
regulations, if effective, would require that Industrial Savings deduct $2.9
million from its capital in determining whether Industrial Savings met its
risk-based capital requirement. Even if such deduction was required, the
risk-based capital of Industrial Savings at December 31, 1996, would still
exceed the regulatory risk-based capital requirement by approximately $40.4
million.
10
12
The following table presents, at December 31, 1996, an analysis of the interest
rate risk of Industrial Savings, as measured by changes in NPV for
instantaneous and sustained parallel shifts of 100 basis point increments in
market interest rates. The table also contains the policy limits set by the
Board of Directors of Industrial Savings as the maximum change in NPV that the
Board of Directors deems advisable in the event of various changes in interest
rates. Such limits have been established with consideration of the dollar
impact of various rate changes and the strong capital position of Industrial
Savings.
At December 31, 1996
---------------------------
Change in
interest rate Board limit $ change % change
(basis points) % change in NPV in NPV
-------------- ------------ -------- --------
(Dollars in thousands)
+400 80% $(26,390) (38)%
+300 60 (19,582) (28)
+200 40 (12,650) (18)
+100 20 (5,953) (9)
0 - - -
-100 20 4,016 6
-200 40 5,360 8
-300 60 5,638 8
-400 80 6,914 10
Based on the information presented in the foregoing table, in the event that
interest rates rise from the recent low levels, the net interest income of
Industrial Savings could be negatively affected. Moreover, rising interest
rates could negatively affect the earnings of Industrial Savings due to
diminished loan demand. Industrial Savings attempts to mitigate interest rate
risk by originating adjustable-rate loans and by maintaining its status as an
approved Federal Home Loan Mortgage Corporation seller/servicer. The ability to
sell certain loans will provide Industrial Savings the opportunity to continue
to offer fixed-rate mortgage loans to its customers without retaining all of
the interest rate risk associated with fixed-rate loans.
LIQUIDITY AND CAPITAL RESOURCES
- --------------------------------------------------------------------------------
Industrial Bancorp's liquidity, primarily represented by cash and cash
equivalents, is a result of the operating, investing and financing activities
of Industrial Savings. These activities, on a consolidated basis, are
summarized in the following table for the years indicated:
Year ended December 31,
----------------------------------------
1996 1995 1994
---- ---- ----
(In thousands)
Net income $ 2,399 $ 4,173 $ 3,618
Adjustments to reconcile net income to
net cash from operating activities 2,062 315 (699)
-------- ------- -------
Net cash from operating activities 4,461 4,488 2,919
Net cash from investment activities (22,555) (32,850) (20,381)
Net cash from financing activities (1,204) 49,607 18,262
-------- ------- -------
Net change in cash and cash equivalents (19,298) 21,245 800
Cash and cash equivalents at beginning of year 26,711 5,466 4,666
-------- ------- -------
Cash and cash equivalents at end of year $ 7,413 $26,711 $ 5,466
======== ======= =======
11
13
The principal sources of funds for Industrial Savings are deposits, FHLB
borrowings, loan repayments, 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.
Industrial Savings 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 Industrial
Savings.
OTS regulations presently require Industrial Savings to maintain an average
daily balance of liquid assets, which may include, but are not limited to,
investments in U. S. Treasury and federal agency obligations and other
investments having maturities of five years or less, in an amount equal to 5%
of the sum of Industrial Savings' average daily balance of net withdrawable
deposit accounts and borrowings payable in one year or less. The liquidity
requirement, which may be changed from time to time by the OTS to reflect
changing economic conditions, is intended to provide a source of relatively
liquid funds upon which Industrial Savings may rely if necessary to fund
deposit withdrawals or other short-term funding needs. At December 31, 1996,
the regulatory liquidity ratio of Industrial Savings was 6.10%. At such date,
Industrial Savings had commitments to originate loans and loans in process
totaling $20.8 million and no commitments to purchase or sell loans. Industrial
Savings considers its liquidity and capital reserves sufficient to meet its
foreseeable short-term and long-term needs.
Industrial Savings is required by OTS regulations to maintain specified minimum
amounts of capital. At December 31, 1996, Industrial Savings exceeded all
applicable minimum capital requirements. The following table summarizes the
regulatory capital requirements and actual capital of Industrial Savings at
December 31, 1996:
Amount Percent of Assets
------ -----------------
Capital under generally accepted
accounting principles before adjustments $56,627 17.34%
======= =====
Tangible capital: (1)
Capital level $55,777 17.14%
Requirement 4,881 1.50
------- -----
Excess $50,896 15.64%
======= =====
Leverage capital: (1)
Capital level $55,777 17.14%
Requirement 9,763 3.00
------- -----
Excess $46,014 14.14%
======= =====
Risk-based capital: (2)
Capital level $57,291 32.78%
Requirement 13,984 8.00
------- -----
Excess $43,307 24.78%
======= =====
- -------------------------------
(1) Tangible and leverage capital percentages are based on adjusted total
assets of $325.4 million.
(2) Risk-based capital percentages are based on risk-weighted assets of
$174.8 million.
12
14
MARKET PRICE OF COMMON SHARES
AND RELATED SHAREHOLDER MATTERS
================================================================================
There were 5,504,500 common shares of Industrial Bancorp outstanding on
December 31, 1996, held of record by approximately 1,584 shareholders. The
common shares of Industrial Bancorp are listed on the Nasdaq National Market
("Nasdaq") under the symbol "INBI".
The following table sets forth the high and low sales prices of the common
shares of Industrial Bancorp during the periods indicated, as reported by
Nasdaq. These quotations reflect inter-dealer prices, without retail mark-up,
mark-down or commission, and may not represent actual transactions.
High Low Period-end
---- --- ----------
Quarter ended:
September 30, 1995 (1) $13.125 $12.000 $12.875
December 31, 1995 14.125 12.375 13.750
March 31, 1996 15.375 13.250 15.250
June 30, 1996 (2) 16.000 11.250 11.250
September 30, 1996 12.375 9.875 12.250
December 31, 1996 13.500 12.125 12.750
- -----------------------------
(1) For the period from August 1, 1995, the date of completion of the
Conversion, to September 30, 1995.
(2) In May 1996, Industrial Bancorp paid a $3.50 per share special return
of capital distribution.
Industrial Bancorp has declared and paid quarterly cash dividends in each full
fiscal quarter since the Conversion. Prior to the fourth quarter of 1996, all
of such dividends were in the amount of $.075 per share. For the fourth quarter
of 1996 and the first quarter of 1997, Industrial Bancorp increased the amount
of the quarterly cash dividend to $.10 per share.
The income of Industrial Bancorp on an unconsolidated basis consists of
dividends which may periodically be declared and paid by the Board of Directors
of Industrial Savings on the common shares of Industrial Savings held by
Industrial Bancorp and earnings on other investments. At December 31, 1996,
investments of Industrial Bancorp, other than its investment in Industrial
Savings, consisted of a $4.0 million loan to the ESOP, a loan of $700,000 to
Industrial Savings to be used for operations and investment purposes and
$662,000 on deposit with Industrial Savings.
In addition to certain federal income tax considerations, OTS regulations
impose limitations on the payment of dividends and other capital distributions
by savings associations. Under OTS regulations applicable to converted savings
associations, Industrial Savings is not permitted to pay a cash dividend on its
common shares if the regulatory capital of Industrial Savings would, as a
result of the payment of such dividend, be reduced below the amount required
for the liquidation account (which was established for the purpose of granting
a limited priority claim on the assets of Industrial Savings, in the event of a
complete liquidation, to those members of Industrial Savings before the
Conversion who maintain a savings account at Industrial Savings after the
Conversion) or applicable regulatory capital requirements prescribed by the
OTS. OTS regulations applicable to all savings associations provide that a
savings association which immediately prior to, and on a pro forma basis after
giving effect to, a proposed capital distribution (including a dividend) has
total capital (as defined by OTS regulations) that is equal to or greater than
the amount of its capital requirements is generally permitted without OTS
approval (but subsequent to 30 days' prior notice to the OTS) to make capital
distributions, including dividends, during a calendar year in an amount not to
exceed the greater of (1) 100% of its net earnings to date during the calendar
year, plus an amount equal to one-half the amount by which its total capital to
assets ratio exceeded its required capital to assets ratio at the beginning of
the calendar year, or (2) 75% of its net earnings for the most recent
four-quarter period. Savings associations with total capital in excess of the
capital requirements that have been
13
15
notified by the OTS that they are in need of more than normal supervision will
be subject to restrictions on dividends. A savings association that fails to
meet current minimum capital requirements is prohibited from making any capital
distributions without the prior approval of the OTS.
Industrial Savings currently meets all of its regulatory capital requirements
and, unless the OTS determines that Industrial Savings is an institution
requiring more than normal supervision, Industrial Savings may pay dividends in
accordance with the foregoing provisions of the OTS regulations.
EFFECT OF NEW ACCOUNTING PRONOUNCEMENTS
- --------------------------------------------------------------------------------
Several new accounting pronouncements have been issued by the Financial
Accounting Standards Board that were effective for Industrial Bancorp's
consolidated financial statements for the year ended December 31, 1996.
Statement of Financial Accounting Standard ("SFAS") No. 121, "Accounting for
the Impairment of Long-Lived Assets and Long-Lived Assets To Be Disposed Of,"
requires a review of long-term assets for impairment of recorded value and
resulting write-downs if the value is impaired. SFAS No. 122, "Accounting for
Mortgage Servicing Rights," requires recognition of an asset when servicing
rights are retained on in-house originated loans that are sold. SFAS No. 123,
"Accounting for Stock-Based Compensation," encourages, but does not require,
entities to use a "fair value based method" to account for stock-based
compensation plans. If the fair value accounting is not adopted, entities must
disclose the pro forma effect on net income and on earnings per share as if the
accounting had been adopted. These statements did not have a material effect on
Industrial Bancorp's consolidated financial position or its results of
operations.
In addition, SFAS No. 125, "Accounting for Transfer and Servicing of Financial
Assets and Extinguishment of Liabilities," provides accounting and reporting
standards for transfers and servicing of financial assets and extinguishments
of liabilities and requires a consistent application of a financial-components
approach that focuses on control. Under that approach, after a transfer of
financial assets, an entity recognizes the financial and servicing assets it
controls and the liabilities it has incurred and derecognizes liabilities when
extinguished. SFAS No. 125, which supersedes SFAS No. 122, requires that
servicing assets and liabilities be subsequently measured by amortization in
proportion to and over the period of estimated net servicing income or loss and
requires assessment for asset impairment or increased obligation based on their
fair values. SFAS No. 125 applies to transfers and extinguishments occurring
after December 31, 1996, and early or retroactive application is not permitted.
This statement is not expected to have a material impact on Industrial
Bancorp's consolidated financial position or its results of operations.
IMPACT OF INFLATION AND CHANGING PRICES
- --------------------------------------------------------------------------------
The financial statements and notes thereto included herein have been prepared
in accordance with generally accepted accounting principles, which require
Industrial Savings to measure financial position and operating results in terms
of historical dollars, with the exception of investment securities
available-for-sale, which are carried at fair value. Changes in the relative
value of money due to inflation or recession are generally not considered. In
management's opinion, changes in interest rates affect the financial condition
of a financial institution to a far greater degree than changes in the rate of
inflation. While interest rates are greatly influenced by changes in the rate
of inflation, they do not change at the same rate or in the same magnitude as
the rate of inflation. Rather, interest rate volatility is based on changes in
the expected rate of inflation, as well as changes in monetary and fiscal
policies.
14
16
INDUSTRIAL BANCORP, INC.
1996 ANNUAL REPORT
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
REPORT OF INDEPENDENT AUDITORS ....................................................................16
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets..................................................................17
Consolidated Statements of Income............................................................18
Consolidated Statements of Shareholders' Equity..............................................19
Consolidated Statements of Cash Flows........................................................21
Notes to Consolidated Financial Statements ..................................................23
15
17
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, 1996 and 1995, and the related consolidated
statements of income, shareholders' equity and cash flows for each of the three
years in the period ended December 31, 1996. 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, 1996 and 1995, and the results of its operations and
its cash flows for each of the three years in the period ended December 31,
1996, in conformity with generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, the Company
changed its method of accounting for impaired loans in 1995.
Crowe, Chizek and Company LLP
Cleveland, Ohio
January 15, 1997
- --------------------------------------------------------------------------------
16
18
INDUSTRIAL BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
December 31, 1996 and 1995
(In Thousands of Dollars Except Per Share Amounts)
- --------------------------------------------------------------------------------
1996 1995
---- ----
ASSETS
Cash and noninterest-bearing deposits (Note 14) $ 1,312 $ 817
Interest-bearing demand deposits 2,101 4,894
Overnight deposits 4,000 21,000
------------- ------------
Cash and cash equivalents 7,413 26,711
Investment securities available for sale, at fair value (Note 3) 23,236 17,128
Investment securities held to maturity (fair value: 1996 - $608;
1995 - $10,871) (Note 3) 561 10,754
Loans receivable - net (Notes 4 and 7) 285,803 259,124
Office properties and equipment - net (Note 5) 5,029 4,739
Accrued interest receivable 1,784 1,765
Other assets 2,787 2,773
------------- ------------
$ 326,613 $ 322,994
============= ============
LIABILITIES
Deposits (Note 6) $ 259,074 $ 238,282
Federal Home Loan Bank advances (Note 7) 2,000
Accrued interest payable and other liabilities 3,435 3,657
------------- ------------
264,509 241,939
------------- ------------
Commitments (Note 14)
SHAREHOLDERS' EQUITY (Notes 2 and 15)
Common stock, no par value, 10,000,000 shares authorized,
5,554,500 shares issued 34,669 54,110
Additional paid-in capital 1,669
Retained earnings 31,803 30,682
Treasury stock, 50,000 shares at cost (634)
Unearned employee stock ownership plan shares (Note 9) (3,974) (4,436)
Unearned compensation (Note 11) (2,279)
Minimum additional pension liability (Note 8) (49)
Unrealized gain on securities available for sale 850 748
------------- ------------
62,104 81,055
------------- ------------
$ 326,613 $ 322,994
============= ============
- --------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
17
19
INDUSTRIAL BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31, 1996, 1995 and 1994
(In Thousands of Dollars Except Per Share Amounts)
- --------------------------------------------------------------------------------
1996 1995 1994
---- ---- ----
INTEREST INCOME
Interest and fees on loans $ 23,040 $ 20,618 $ 17,665
Interest and dividends on investment securities 1,779 1,379 680
Interest on deposits 649 861 679
----------- ----------- -----------
25,468 22,858 19,024
----------- ----------- -----------
INTEREST EXPENSE
Interest on deposits (Note 6) 11,841 10,648 9,128
Interest on FHLB advances 22 471 53
Interest on conversion stock purchase funds 117
----------- -----------
11,863 11,236 9,181
----------- ----------- -----------
NET INTEREST INCOME 13,605 11,622 9,843
Provision for loan losses (Note 4) 180 180 200
----------- ----------- -----------
Net interest income after provision for loan losses 13,425 11,442 9,643
----------- ----------- -----------
NONINTEREST INCOME
Service fees and other charges 401 348 330
Other 46 50 131
----------- ----------- -----------
447 398 461
----------- ----------- -----------
NONINTEREST EXPENSE
Salaries and employee benefits (Notes 8, 9, 10 and 11) 4,291 2,145 1,899
State franchise tax 843 748 353
Federal deposit insurance premiums (Note 13) 2,060 531 505
Occupancy and equipment 330 353 361
Data processing 355 339 302
Depreciation 271 238 214
Other 1,303 1,164 1,100
----------- ----------- -----------
9,453 5,518 4,734
----------- ----------- -----------
Income before income tax 4,419 6,322 5,370
Provision for income tax (Note 12) 2,020 2,149 1,752
----------- ----------- -----------
NET INCOME $ 2,399 $ 4,173 $ 3,618
=========== =========== ===========
Earnings per share (Note 1) $ .47 $ .42
=========== ===========
- --------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
18
20
INDUSTRIAL BANCORP, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Years ended December 31, 1996, 1995 and 1994
(In Thousands of Dollars Except Per Share Amounts)
- --------------------------------------------------------------------------------
Unearned Unrealized
Employee Minimum Gain on
Additional Stock Additional Securities
Common Paid in Retained Treasury Ownership Unearned Pension Available
Stock Capital Earnings Stock Plan Shares Compensation Liability for Sale Total
------ ---------- -------- -------- ----------- ------------ ---------- ---------- ---------
BALANCE AT JANUARY 1, 1994 $ 23,658 $ (227) $ 23,431
Net income 3,618 3,618
Effect of change
in accounting for investment
securities (Note 1) $ 357 357
Change in unrealized gain on
securities available for sale (2) (2)
Change in minimum additional
pension liability 212 212
--------- --------- --------- ---------
BALANCE AT DECEMBER 31, 1994 27,276 (15) 355 27,616
Net income 4,173 4,173
Sale of 5,554,500 shares of no
par common stock, net of
conversion costs (Note 2) 54,110 54,110
Shares purchased under
Employee Stock Ownership
Plan (Note 9) $ (4,436) (4,436)
Cash dividends declared
($.15 per share) (767) (767)
Change in unrealized gain on
securities available for sale 393 393
Change in minimum additional
pension liability (34) (34)
------- --------- --------- --------- -------- --------- --------- --------- ---------
BALANCE AT DECEMBER 31, 1995 54,110 30,682 (4,436) (49) 748 81,055
- --------------------------------------------------------------------------------
(Continued)
19
21
INDUSTRIAL BANCORP, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Years ended December 31, 1996, 1995 and 1994
(In Thousands of Dollars Except Per Share Amounts)
- --------------------------------------------------------------------------------
Unearned Unrealized
Employee Minimum Gain on
Additional Stock Additional Securities
Common Paid in Retained Treasury Ownership Unearned Pension Available
Stock Capital Earnings Stock Plan Shares Compensation Liability for Sale Total
----- ---------- -------- -------- ----------- ------------ --------- -------- -----
BALANCE AT JANUARY 1, 1996 $ 54,110 $ 30,682 $ (4,436) $ (49) $ 748 $ 81,055
Net income 2,399 2,399
Capital distribution declared
($3.50 per share) (Note 15) (19,441) (19,441)
Employee stock ownership plan:
Capital distribution on
unallocated shares $ 1,553 1,553
Shares released 116 462 578
Management Recognition plan:
Shares purchased $ (2,630) (2,630)
Compensation earned 351 351
Cash dividends declared
($.25 per share) (1,278) (1,278)
Purchase of treasury stock
(50,000 shares) $ (634) (634)
Change in unrealized gain on
securities available for sale 102 102
Change in minimum additional
pension liability 49 49
-------- -------- --------- --------- -------- --------- --------- --------- ---------
BALANCE AT DECEMBER 31, 1996 $ 34,669 $ 1,669 $ 31,803 $ (634) $ (3,974) $ (2,279) $ 0 $ 850 $ 62,104
======== ======== ========= ========= ======== ========= ========= ========= =========
- --------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
20
22
INDUSTRIAL BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 1995, 1994 and 1993
(In Thousands of Dollars)
- --------------------------------------------------------------------------------
1996 1995 1994
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 2,399 $ 4,173 $ 3,618
Adjustments to reconcile net income to net cash from
operating activities
Depreciation 271 238 214
Provision for loan losses 180 180 200
Accretion of deferred loan fees (639) (497) (537)
FHLB stock dividends (176) (153) (111)
Net accretion on investment securities (55) (50) (20)
Gain on sale of fixed assets (70)
ESOP expense 1,794
MRP compensation expense 351
Change in
Deferred taxes 29 312 (145)
Accrued interest receivable and other assets 96 (462) (541)
Accrued interest payable and other liabilities 211 747 311
-------- -------- --------
Net cash from operating activities 4,461 4,488 2,919
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Net change in interest-bearing time deposits 2,500 21,000
Proceeds from maturities of investment securities held
to maturity 10,000 6,500 2,000
Purchases of investment securities available for sale (5,910)
Purchases of investment securities held to maturity (17,944) (12,916)
Mortgage-backed securities principal repayments 205 220 471
Net increase in loans (26,220) (23,303) (30,475)
Proceeds from sale of real estate owned 60 284
FHLB stock purchases (69) (241) (5)
Properties and equipment expenditures, net (561) (642) (740)
-------- -------- --------
Net cash from investing activities (22,555) (32,850) (20,381)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits 20,792 6,316 12,262
Proceeds from FHLB advances 2,000 11,000 9,000
Repayment of FHLB advances (17,000) (3,000)
Capital distribution to shareholders (19,071)
Purchase of management recognition plan shares (2,630)
Proceeds from issuance of common stock, net of costs 54,110
Cash provided to ESOP (4,436)
Cash dividends paid (1,661) (383)
Purchase of treasury stock (634)
-------- --------- ---------
Net cash from financing activities (1,204) 49,607 18,262
-------- -------- --------
- --------------------------------------------------------------------------------
(Continued)
21
23
INDUSTRIAL BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Years ended December 31, 1996, 1995 and 1994
(In Thousands of Dollars)
- --------------------------------------------------------------------------------
1996 1995 1994
---- ---- ----
Net change in cash and cash equivalents $ (19,298) $ 21,245 $ 800
Cash and cash equivalents at beginning of year 26,711 5,466 4,666
----------- ---------- -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 7,413 $ 26,711 $ 5,466
=========== ========== ===========
Supplemental disclosures of cash flow information
Cash paid during the year for:
Interest $ 11,655 $ 11,060 $ 9,096
Income taxes 1,780 1,646 2,439
Noncash transactions:
Transfer of loans to real estate owned 33 276
Transfer of securities to available for sale at fair value 16,144 585
- --------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
22
24
INDUSTRIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation: The accompanying consolidated financial statements
include the accounts of Industrial Bancorp, Inc. (Company) and its
wholly-owned subsidiary, Industrial Savings and Loan Association (Industrial).
All significant intercompany transactions have been eliminated.
Industry Segment Information: The Company grants residential, consumer and
commercial loans to customers located primarily in north-central Ohio. These
loans account for substantially all of the Company's revenues. Mortgage loans
make up approximately 98% of the Company's loan portfolio and the remaining 2%
is made up of consumer and commercial loans.
Estimates: The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the
reporting period. Areas involving the use of management's estimates and
assumptions include the allowance for loan losses, the realization of deferred
tax assets, the determination and carrying value of impaired loans,
depreciation of premises and equipment, the net accrued pension liability and
the carrying value of other real estate recognized in the Company's financial
statements. Actual results could differ from those estimates.
Fair Values of 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. The fair value estimates of existing on-
and off-balance sheet financial instruments do not include the value of
anticipated future business or the values of assets and liabilities not
considered financial instruments.
Cash Equivalents: For purposes of reporting cash flows, cash and cash
equivalents include cash on hand, demand deposits with financial institutions
and overnight deposits. Overnight deposits are sold for one-day periods. The
Company reports net cash flows for customer loan transactions, deposit
transactions and time deposits made with other financial institutions.
- --------------------------------------------------------------------------------
(Continued)
23
25
INDUSTRIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
- -------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Investment Securities: Effective January 1, 1994, the Company adopted the
provisions of Statement of Financial Accounting Standards (SFAS) No. 115,
"Accounting for Certain Investments in Debt and Equity Securities." This
accounting guidance requires the Company to classify debt and marketable
securities as held to maturity, trading or available for sale. The cumulative
effect on shareholders' equity at January 1, 1994 of adopting SFAS No. 115 is
included as a separate component of shareholders' equity in the statement of
shareholders' equity and represents the after tax effect of adjusting
securities available for sale to fair value. Prior to the adoption of SFAS No.
115, the Company recorded investment securities at amortized cost.
Securities classified as held to maturity are those that management has the
positive intent and ability to hold to maturity. Securities held to maturity
are stated at cost, adjusted for amortization of premiums and accretion of
discounts. Securities classified as available for sale are those that have no
stated maturity or those that management intends to sell or that could be sold
for liquidity, investment management, or similar reasons, even if there is not
a present intention for such a sale. Securities available for sale are carried
at fair value with unrealized gains and losses included as a separate component
of shareholders' equity, net of tax.
Gains or losses on dispositions are based on net proceeds and the adjusted
carrying amount of securities sold, using the specific identification method.
Office Properties and Equipment: Office properties and equipment are stated at
cost less accumulated depreciation. Depreciation is computed principally on the
straight-line and declining-balance methods over the estimated useful lives of
the respective properties and equipment. Maintenance and repairs are charged to
expense as incurred and improvements are capitalized.
Real Estate Owned: Real estate acquired through foreclosure or
deed-in-lieu-of-foreclosure is initially recorded at the estimated fair value
less estimated selling expenses. The costs of preparing properties for their
intended use are capitalized, whereas costs relating to the holding of
properties are expensed. Any subsequent reductions in the estimated fair value
are reflected through a charge to operations.
- -------------------------------------------------------------------------------
(Continued)
24
26
INDUSTRIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
- -------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Allowance for Loan Losses: Because some loans may not be repaid in full, an
allowance for loan losses is maintained. Increases to the allowance are
recorded by a provision for loan losses charged to expense. Estimating the risk
of loss and the amount of loss on any loan is necessarily subjective.
Accordingly, the allowance is maintained by management at a level considered
adequate to cover possible losses that are currently anticipated based on past
loss experience, general economic conditions, information about specific
borrower situations, including their financial position and collateral values,
and other factors and estimates which are subject to change over time. While
management may periodically allocate portions of the allowance for specific
problem loans, the whole allowance is available for any loan charge-offs that
occur. A loan is charged off by management as a loss when deemed uncollectible,
although collection efforts continue and future recoveries may occur.
SFAS No. 114, as amended by SFAS No. 118, "Accounting by Creditors for
Impairment of a Loan," became effective January 1, 1995 and requires
recognition of loan impairment. Loans are considered impaired if full principal
or interest payments are not anticipated. Impaired loans are carried at the
present value of expected cash flows discounted at the loan's effective
interest rate or at the fair value of the collateral if the loan is collateral
dependent. A portion of the allowance for loan losses is allocated to impaired
loans.
Smaller balance homogeneous loans are evaluated for impairment in total. Such
loans include residential first mortgage loans secured by one- to four-family
residences, residential construction loans, and automobile, home equity and
second mortgage loans. Mortgage loans secured by other properties are evaluated
individually for impairment. When analysis of borrower operating results and
financial condition indicates that underlying cash flows of the borrower's
business are not adequate to meet its debt service requirements, the loan is
evaluated for impairment. Loans are generally moved to nonaccrual status when
90 days or more past due. These loans are often also considered impaired.
Impaired loans, or portions thereof, are charged off when deemed uncollectible.
The nature of disclosures for impaired loans is considered generally comparable
to prior nonaccrual and renegotiated loans and nonperforming and past-due asset
disclosures.
Interest Income on Loans: Interest on loans is accrued over the term of the
loans based upon the principal outstanding. Management reviews loans delinquent
90 days or more to determine if the interest accrual should be discontinued.
The carrying value of impaired loans reflects cash payments, revised estimates
of future cash flows, and increases in the present value of expected cash flows
due to the passage of time. Cash payments representing interest income are
reported as such and other cash payments are reported as reductions in carrying
value. Increases or decreases in carrying value due to changes in estimates of
future payments or the passage of time are reported as reductions or increases
in bad debt expense.
- -------------------------------------------------------------------------------
(Continued)
25
27
INDUSTRIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
- -------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Loan Fees and Costs: The Company defers loan origination fees, net of direct
loan origination costs, and recognizes them over the life of the loan as a
yield adjustment. The net amount deferred is reported as a reduction of loans.
Employee Stock Ownership Plan: The Company has established an employee stock
ownership plan (ESOP) for the benefit of substantially all employees of the
Company and Industrial. The ESOP borrowed funds from the Company with which to
acquire common shares of the Company. The loan is secured by the shares
purchased with the loan proceeds and will be repaid by the ESOP with funds from
Industrial's discretionary contributions to the ESOP and earnings on ESOP
assets. All dividends on unallocated shares received by the ESOP are used to
pay debt service, or, at the Company's discretion, may be allocated to the ESOP
participants and recorded as compensation expense. The shares purchased with
the loan proceeds are held in a suspense account for allocation among
participants as the loan is repaid. As payments are made, the shares are
released from the suspense account and allocated to the participants. As shares
are released from collateral, the Company reports compensation expense equal to
the current market price of the shares, and the shares become outstanding for
earnings per share computations.
Stock Compensation: Expense for employee compensation under stock option plans
is based on APB Opinion No. 25, with expense reported only if options are
granted below market price at grant date. Pro forma disclosures of net income
and earnings per share are provided as if the fair value method of SFAS No. 123
were used for stock-based compensation.
Income Taxes: The Company records income tax expense based on the amount of
taxes due on its tax return plus deferred taxes computed based on the expected
future tax consequences of temporary differences between the carrying amounts
and tax bases of assets and liabilities, using currently enacted tax rates,
adjusted for allowances made for uncertainty regarding the realization of net
tax assets.
Commitments and Financial Instruments With Off-Balance-Sheet Risk: The Company,
in the normal course of business, makes commitments to extend credit which are
not reflected in the financial statements. A summary of these commitments is
disclosed in Note 13.
Earnings per Common Share: Earnings per common share have been computed based
on the weighted average number of shares of common stock and common stock
equivalents outstanding during the year. ESOP shares that have not been
allocated to participants are not considered outstanding for earnings per share
purposes. Total shares used to compute earnings per common share were 5,135,213
and 5,110,890 in 1996 and 1995, respectively. Earnings per share for 1995 are
based on the earnings for the period in which the stock was actually
outstanding, August 1, 1995 to December 31, 1995.
Reclassifications: Certain items in the 1995 and 1994 financial statements
have been reclassified to correspond with the 1996 presentation.
- -------------------------------------------------------------------------------
(Continued)
26
28
INDUSTRIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
- -------------------------------------------------------------------------------
NOTE 2 -CONVERSION TO STOCK FORM OF OWNERSHIP
On January 17, 1995, the Board of Directors of Industrial unanimously adopted a
Plan of Conversion to convert from a state-chartered mutual savings and loan
association to a state chartered stock savings and loan association with the
concurrent formation of a holding company, Industrial Bancorp, Inc. The
conversion was consummated on August 1, 1995 by amending Industrial's articles
of incorporation and issuing the Company's common stock in an amount equal to
the market value of Industrial after giving effect to the conversion. A total
of 5,554,500 shares of the Company's common stock were sold at $10 per share
and net proceeds from the sale were $54.1 million after deducting the costs of
the conversion.
The Company retained 50% of the net proceeds from the sale of common stock.
The remainder of the net proceeds was invested in the capital stock issued by
Industrial to the Company in connection with the conversion.
At the time of the conversion, Industrial established a liquidation account in
the amount of $29.7 million, which was equal to its regulatory capital as of
the latest practicable date prior to the conversion. The liquidation account
will be maintained for the benefit of eligible depositors who continue to
maintain their accounts at Industrial after the conversion. The liquidation
account will be reduced annually to the extent that eligible depositors have
reduced their qualifying deposits. Subsequent increases in deposit accounts
will not restore an eligible account holder's interest in the liquidation
account. In the event of a complete liquidation, each eligible depositor will
be entitled to receive a distribution from the liquidation account in an amount
proportionate to the current adjusted qualifying balances for accounts then
held. Industrial may not pay dividends that would reduce shareholders' equity
below the required liquidation account balance.
- -------------------------------------------------------------------------------
(Continued)
27
29
INDUSTRIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
- -------------------------------------------------------------------------------
NOTE 3 - INVESTMENT SECURITIES
At December 31, 1996, the amortized cost and estimated fair value of debt and
equity securities are as follows:
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- ---------
INVESTMENT SECURITIES AVAILABLE FOR SALE
U.S. Treasury securities $ 21,902 $ 43 $ (7) $ 21,938
Federal Home Loan Mortgage
Corporation preferred stock 46 1,252 1,298
----------- ----------- ----------- -----------
Total investment securities
available for sale $ 21,948 $ 1,295 $ (7) $ 23,236
=========== =========== =========== ===========
INVESTMENT SECURITIES HELD TO MATURITY
Mortgage-backed securities $ 561 $ 47 $ 608
=========== =========== ===========
At December 31, 1995, the amortized cost and estimated fair value of debt and
equity securities were as follows:
Gross Gross
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
--------- ---------- ---------- ----------
INVESTMENT SECURITIES AVAILABLE FOR SALE
U.S. Treasury securities $ 15,949 $ 195 $ 16,144
Federal Home Loan Mortgage
Corporation preferred stock 46 938 984
=========== =========== ===========
Total investment securities
available for sale $ 15,995 $ 1,133 $ 17,128
=========== =========== ===========
INVESTMENT SECURITIES HELD TO MATURITY
U.S. Treasury securities $ 9,987 $ 59 $ (1) $ 10,045
Mortgage-backed securities 767 59 826
----------- ----------- ----------- -----------
Total investment securities held to
maturity $ 10,754 $ 118 $ (1) $ 10,871
=========== =========== =========== ===========
- -------------------------------------------------------------------------------
(Continued)
28
30
INDUSTRIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
- -------------------------------------------------------------------------------
NOTE 3 - INVESTMENT SECURITIES (Continued)
The amortized cost and estimated fair value of debt securities at December 31,
1996, by contractual maturity, are shown below. Expected maturities will differ
from contractual maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties.
Amortized Estimated
Cost Fair Value
---------- ----------
INVESTMENT SECURITIES AVAILABLE FOR SALE
Due in one year or less $ 12,992 $ 12,030
Due after one year through five years 8,910 9,908
---------- -----------
21,902 21,938
Federal Home Loan Mortgage Corporation
preferred stock 46 1,298
---------- -----------
$ 21,948 $ 23,236
========== ===========
INVESTMENT SECURITIES HELD TO MATURITY
Mortgage-backed securities $ 561 $ 608
========== ===========
In December 1995, to provide additional flexibility to meet customer and
asset/liability needs, Industrial reclassified certain investment securities
with an amortized cost of approximately $15.9 million from held to maturity to
available for sale. The securities were transferred as allowed by the Financial
Accounting Standards Board guide to implementation of SFAS No. 115. The equity
impact of the transfer was an increase of approximately $129,000 in unrealized
gain.
No investment securities were sold during 1996, 1995 or 1994. The par values of
securities pledged to collateralize public funds and for other purposes were
approximately $15.0 million and $11.0 million at December 31, 1996 and 1995,
respectively.
- -------------------------------------------------------------------------------
(Continued)
29
31
INDUSTRIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
- -------------------------------------------------------------------------------
NOTE 4 - LOANS RECEIVABLE
At December 31, 1996 and 1995, loans receivable consisted of the following:
1996 1995
---- ----
Real estate loans
Secured by one- to four-family residences $ 248,694 $ 226,868
Home equity 11,651 8,546
Multi-family 9,028 8,213
Nonresidential 8,842 9,100
----------- ------------
278,215 252,727
----------- ------------
Real estate construction loans 15,885 13,394
Undisbursed portion of construction loans (7,120) (6,648)
----------- ------------
Total construction loans 8,765 6,746
----------- ------------
Total real estate loans 286,980 259,473
----------- ------------
Commercial loans 398 585
----------- ------------
Consumer loans
Education 1,268 1,456
Loans on deposit accounts 1,087 987
Automobile 773 826
Other consumer 831 771
----------- ------------
Total consumer loans 3,959 4,040
----------- ------------
Total loans 291,337 264,098
Net deferred loan origination fees (3,977) (3,598)
Allowance for loan losses (1,557) (1,376)
----------- ------------
$ 285,803 $ 259,124
=========== ============
- -------------------------------------------------------------------------------
(Continued)
30
32
INDUSTRIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
- -------------------------------------------------------------------------------
NOTE 4 - LOANS RECEIVABLE (Continued)
Loans serviced by the Company for other institutions totaled approximately $5.7
million, $7.1 million and $7.0 million at December 31, 1996, 1995 and 1994,
respectively.
Activity in the allowance for loan losses is as follows:
1996 1995 1994
---- ---- ----
Balance at beginning of year $ 1,376 $ 1,209 $ 1,001
Provision for losses 180 180 200
Charge-offs (17) (4)
Recoveries 1 4 12
----------- ---------- -----------
Balance at end of year $ 1,557 $ 1,376 $ 1,209
=========== ========== ===========
No loans were classified as impaired at December 31, 1996 and 1995 or during
the years then ended.
NOTE 5 - OFFICE PROPERTIES AND EQUIPMENT
Office properties and equipment at December 31, 1996 and 1995 consisted of the
following:
1996 1995
---- ----
Land $ 1,718 $1,646
Buildings and improvements 5,037 4,153
Furniture and equipment 1,026 921
Construction in progress 531
------- ------
Total cost 7,781 7,251
Accumulated depreciation 2,752 2,512
------- ------
$ 5,029 $4,739
======= ======
- -------------------------------------------------------------------------------
(Continued)
31
33
INDUSTRIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
- -------------------------------------------------------------------------------
NOTE 6 - DEPOSITS
A summary of deposits at December 31, 1996 and 1995 is as follows:
1996 1995
---- ----
Noninterest-bearing demand
deposits $ 3,173 $ 2,910
Passbook savings accounts 53,410 51,008
NOW accounts 14,321 12,692
Money market accounts 4,531 4,892
Certificates of deposit 183,639 166,780
------------- -------------
$ 259,074 $ 238,282
============= =============
Deposit accounts with balances of $100,000 or more at December 31, 1996 and
1995 totaled approximately $40.1 million and $40.5 million, respectively.
At December 31, 1996, scheduled maturities of certificates of deposit are as
follows:
Amount
------
1997 $ 122,312
1998 38,763
1999 13,915
2000 3,229
2001 4,099
Thereafter 1,321
-------------
$ 183,639
=============
NOTE 7 - FEDERAL HOME LOAN BANK ADVANCES
Industrial has an advance line of credit with the Federal Home Loan Bank of
Cincinnati. These advances are collateralized by residential mortgage loans
under a blanket collateral agreement and by Federal Home Loan Bank stock. At
December 31, 1996 Industrial had one $2.0 million advance outstanding which
carried a 6.15% fixed interest rate and matures in October, 1998. At December
31, 1995, Industrial had no advances outstanding.
- ------------------------------------------------------------------------------
(Continued)
32
34
INDUSTRIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
- -------------------------------------------------------------------------------
NOTE 8 - PENSION PLAN
Prior to January 1, 1996, the Company sponsored a defined benefit pension plan
for all eligible employees. Retirement benefits were based on years of service
and the employee's compensation. On February 20, 1996, the Board of Directors
approved a resolution to terminate the pension plan effective December 31,
1995. This eliminated the accrual of benefits for future services, except for
additional benefits that accrued for employees during the Plan year beginning
in 1995. The nonvested accumulated benefit obligation as of December 31, 1995
became vested. The vested benefit obligation was settled by a lump-sum payment
to each covered employee in December, 1996. The following table sets forth the
funded status and amounts recognized in the December 31, 1995 balance sheet for
the plan:
1995
----
Actuarial present value of accumulated benefit obligation,
including vested benefits of $595,000 $ 638
===========
Actuarial present value of projected benefit obligation for services
rendered to date $ 914
Plan assets at fair value, primarily deposits in financial institutions (579)
----------
Unfunded projected benefit obligation 335
Unrecognized prior service costs 34
Unrecognized net loss (325)
Unrecognized transition liability, net of amortization over 19 years (108)
Minimum additional pension liability 122
-----------
Accrued pension liability $ 58
===========
For financial reporting purposes at December 31, 1995, an additional liability
was recognized for the amount by which the accumulated benefit obligation
exceeded plan assets. An intangible asset was recorded up to the sum of the
unrecognized prior service costs and transition obligation, and shareholders'
equity was reduced for the excess.
- -------------------------------------------------------------------------------
(Continued)
33
35
INDUSTRIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
- -------------------------------------------------------------------------------
NOTE 8 - PENSION PLAN (Continued)
Net pension expense for 1995 and 1994 included the following:
1995 1994
---- ----
Service cost - benefits earned $ 92 $ 114
Interest cost on projected
benefit obligation 66 81
Actual return on plan assets (76) (27)
Net amortization and deferral 45 (2)
---------- -----------
Net pension expense $ 127 $ 166
========== ===========
Significant assumptions used in determining the net period pension expense
were:
1995 1994
---- ----
Discount rate 6.50% 6.50%
Rate of increase in compensation levels 3.00 3.00
Long-term rate of return on assets 5.75 5.75
Total contributions made during 1995 and 1994 for the defined benefit pension
plan were $151,000 and $141,000, respectively.
NOTE 9 - EMPLOYEE STOCK OWNERSHIP PLAN
The Company has established an ESOP for the benefit of substantially all
employees of the Company and Industrial. The ESOP borrowed funds from the
Company with which to acquire common shares of the Company. The loan is secured
by the shares purchased with the loan proceeds and will be repaid by the ESOP
with funds from Industrial's discretionary contributions to the ESOP and
earnings on ESOP assets. The shares purchased with the loan proceeds are held
in a suspense account for allocation among participants as the loan is repaid.
- -------------------------------------------------------------------------------
(Continued)
34
36
INDUSTRIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
- -------------------------------------------------------------------------------
NOTE 9 - EMPLOYEE STOCK OWNERSHIP PLAN (Continued)
The Company accounts for its ESOP in accordance with Statement of Position 93-6
of the American Institute of Certified Public Accountants. Accordingly, the
shares pledged as collateral are reported as unearned ESOP shares in the
balance sheet. As shares are released from collateral, the Company reports
compensation expense equal to the current market price of the shares, and the
shares become outstanding for earnings per share computations. Dividends on
allocated ESOP shares are reported as a reduction of retained earnings.
Dividends on unallocated ESOP shares are recorded as a reduction of debt, or,
at the Company's discretion, may be allocated to the ESOP participants and
recorded as compensation expense. Compensation expense for the year ended
December 31, 1996 for the ESOP was approximately $1.8 million. Approximately
$1.2 million of the 1996 ESOP expense was related to the $3.50 per share return
of capital. Of the return of capital corresponding to ESOP shares,
approximately 25% was recorded as a reduction of debt while the remainder was
allocated to the participants and, therefore, recorded as compensation expense.
ESOP shares as of December 31, 1996 and 1995 were as follows:
1996 1995
---- ----
Shares released for allocation 46,218
Unreleased shares 397,392 443,610
-------------- -------------
Total ESOP shares 443,610 443,610
============== =============
Fair value of unreleased shares (in thousands) $ 5,067 $ 6,100
============== =============
NOTE 10 - STOCK OPTION AND INCENTIVE PLAN
At December 31, 1996, shares reserved, options granted and shares available for
grants are as follows:
Shares reserved 555,450
Options granted, $11.00 per share 388,815
-----------
Shares available for grant 166,635
===========
- -------------------------------------------------------------------------------
(Continued)
35
37
INDUSTRIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
- -------------------------------------------------------------------------------
NOTE 10 - STOCK OPTION AND INCENTIVE PLAN (Continued)
The Company sponsors a stock option plan which authorizes the Stock Option and
Incentive Plan Committee of the Board of Directors to grant options to certain
officers and directors of Industrial and the Company. A total of 555,450 common
shares were reserved for issuance under the Plan. Options may be granted at a
price not less than fair market value at the date of grant. Options to purchase
388,815 shares were granted during 1996 at an exercise price of $11.00 per
share. One-fifth of the options awarded become exercisable on each of the first
five anniversaries of the date of grant. The option period expires 10 years
from the date of grant. No options were exercisable during the year ended
December 31, 1996.
The Company applies Accounting Principles Board Opinion No. 25 in accounting
for its plans. Accordingly, no compensation cost has been recognized for its
stock option plans as the market value of the Company's common stock was less
than the exercise price of the options at the date of grant.
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation." SFAS No. 123 encourages, but does not require, entities to use a
"fair value based method" to account for stock-based compensation plans. If the
fair value accounting encouraged by SFAS No. 123 is not adopted, entities must
disclose the pro forma effect on net income and on earnings per share had the
fair value accounting been adopted. The fair value of a stock option is
estimated using an option pricing model which considers the current price of
the stock, expected price volatility, expected dividends on the stock and the
risk-free interest rate. Once estimated, the fair value of an option is not
later changed. Had compensation cost been determined based on the fair value
guidelines of SFAS No. 123, the Company's net income and earnings per share for
1996 would have been:
Net income As reported $ 2,399
Pro forma $ 2,323
Primary earnings per share As reported $ .47
Pro forma $ .44
Fully diluted earnings per share As reported $ .47
Pro forma $ .44
Using the Black-Scholes option pricing model for purposes of the pro forma
disclosures above, the following assumptions for December 31, 1996 were
risk-free interest rates of 6.34%; dividend yields 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.
- -------------------------------------------------------------------------------
(Continued)
36
38
INDUSTRIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
- -------------------------------------------------------------------------------
NOTE 10 - STOCK OPTION AND INCENTIVE PLAN (Continued)
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
In future years, the pro forma effect of not applying SFAS No. 123 is expected
to increase as additional options are granted and as outstanding options
continue to vest.
NOTE 11 - MANAGEMENT RECOGNITION PLAN
A management recognition plan (MRP) was adopted by the Board of Directors on
February 20, 1996 and approved by the shareholders of the Company on April 16,
1996. The MRP will be used as a means of providing directors and certain key
employees of Industrial with an ownership interest in the Company in a manner
designed to compensate such directors and key employees for services to
Industrial. Industrial contributed sufficient funds to enable the MRP to
purchase a number of common shares in the open market which is equal to 4% of
the common shares sold in connection with the conversion.
On May 1, 1996, the Management Recognition Plan Committee of the Board of
Directors awarded 222,180 shares to certain directors and officers of
Industrial and the Company. No shares had been previously awarded. One-fifth of
such shares will be earned and nonforfeitable on each of the first five
anniversaries of the date of the awards. In the event of the death or
disability of a participant, however, the participant's shares will be deemed
to be earned and nonforfeitable upon such date. There were 500 shares at
December 31, 1996 which had not been awarded. Compensation expense, which is
based upon the cost of the shares, was $351,000 for the year ended December 31,
1996.
- -------------------------------------------------------------------------------
(Continued)
37
39
INDUSTRIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
- -------------------------------------------------------------------------------
NOTE 12 - INCOME TAXES
The provision for income tax consists of the following:
1996 1995 1994
---- ---- ----
Current expense $ 1,991 $ 1,837 $ 1,897
Deferred expense/(benefit) 29 312 (145)
----------- ---------- -----------
$ 2,020 $ 2,149 $ 1,752
=========== ========== ===========
The differences between the financial statement provision and amounts
computed by applying the statutory federal income tax rate of 34% to income
before taxes are as follows:
1996 1995 1994
---- ---- ----
Income tax computed at the
statutory federal rate $ 1,502 $ 2,149 $ 1,826
Add tax effect of ESOP deduction 579
Other (61) (74)
----------- ---------- -----------
$ 2,020 $ 2,149 $ 1,752
=========== ========== ===========
- -------------------------------------------------------------------------------
(Continued)
38
40
INDUSTRIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
- -------------------------------------------------------------------------------
NOTE 12 - INCOME TAXES (Continued)
Deferred income taxes are provided for temporary differences. The components
of the Company's net deferred tax asset at December 31 consist of the
following:
1996 1995
---- ----
Deferred tax assets
Deferred loan fees $ 1,337 $ 1,521
Accrued MRP award 119
Construction period interest 18 12
Accrued vacation 37 9
ESOP shares allocated 31
---------- -----------
1,542 1,542
---------- -----------
Deferred tax liabilities
Bad debt deduction (410) (435)
FHLB stock dividends (447) (387)
Unrealized gain on investment
securities available for sale (438) (385)
Depreciation expense (120) (125)
Pension expense (14)
Accumulated accretion (33) (20)
---------- -----------
(1,448) (1,366)
---------- -----------
Net deferred tax asset $ 94 $ 176
========== ===========
The Company has paid more federal income tax in the last three years than the
recorded deferred tax asset at December 31, 1996. Therefore, management has
determined that the recorded deferred tax asset is totaly recoverable.
In years prior to 1996, Industrial was permitted to determine taxable income
after deducting a provision for bad debts in excess of such provision recorded
in the financial statements. Accordingly, retained earnings at December 31,
1996 includes approximately $3.4 million for which no provision for federal
income taxes has been made. If this portion of retained earnings is used in the
future for any purpose other than to absorb bad debts, it will be added to
future taxable income. The related amount of unrecognized deferred tax
liability was approximately $1.1 million at December 31, 1996.
- -------------------------------------------------------------------------------
(Continued)
39
41
INDUSTRIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
- -------------------------------------------------------------------------------
NOTE 13 - FDIC INSURANCE
The deposits of savings associations such as Industrial are presently insured
by the Savings Association Insurance Fund (the SAIF), which, along with the
Bank Insurance Fund (the BIF), is one of the two insurance funds administered
by the FDIC. Financial institutions which are members of the BIF had
historically experienced substantially lower deposit insurance premiums because
the BIF had achieved its required level of reserves, while the SAIF had not. On
September 30, 1996, President Clinton signed into law the Omnibus Bill which
included provisions designed to recapitalize the SAIF and to mitigate the
BIF/SAIF premium disparity. As a result, the FDIC levied a special assessment
of 65.7 cents per $100 of SAIF insured deposits at March 31, 1995. The
assessment was paid on November 27, 1996, from working capital of Industrial.
When the SAIF reaches its required reserve ratio following the assessment, the
FDIC is expected to reduce the annual assessment rates for SAIF-insured
institutions to bring them in line with BIF assessment rates. The Company's
special assessment totaled $1.0 million after taxes.
Industrial, however, will continue to be subject to an assessment to fund the
repayment of the FICO obligations. It is anticipated that the FICO assessment
for SAIF-insured institutions will be approximately 6.5 cents per $100 of
deposits while BIF-insured institutions will pay approximately 1.5 cents per
$100 of deposits until the year 2000 when the assessment will be imposed at the
same rate on all FDIC-insured institutions.
NOTE 14 - COMMITMENTS AND FINANCIAL INSTRUMENTS WITH OFF-BALANCE-
SHEET RISK
Industrial is a party to financial instruments with off-balance-sheet risk in
the normal course of business to meet financing needs of its customers. These
financial instruments include commitments to make loans. Industrial's exposure
to credit loss in the event of nonperformance by the other party to the
financial instrument for commitments to make loans is represented by the
contractual amount of those instruments. Industrial follows the same credit
policy to make such commitments as is followed for those loans recorded in the
financial statements.
- -------------------------------------------------------------------------------
(Continued)
40
42
INDUSTRIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
- -------------------------------------------------------------------------------
NOTE 14 - COMMITMENTS AND FINANCIAL INSTRUMENTS WITH OFF-BALANCE-
SHEET RISK (Continued)
As of December 31, 1996 and 1995, Industrial had commitments to make loans at
market rates and loans in process to be funded in six months or less
approximating $20.8 million and $16.2 million, respectively. Approximately $9.5
million and $8.3 million of these commitments had fixed rates at December 31,
1996 and 1995, respectively. The interest rates on mortgage loans ranged from
6.250% to 10.250% for variable rate loans and from 6.750% to 8.875% for fixed
rate loans at December 31, 1996. Loan commitments are generally for 30 days
from the time management approves the loan. Since loan commitments may expire
without being used, the amount does not necessarily represent future cash
commitments.
At December 31, 1996 and 1995, Industrial was required by the Federal
Reserve Bank of Cleveland to maintain cash reserves of $417,000 and $306,000,
respectively. These reserves do not earn interest.
NOTE 15 - RESTRICTIONS ON RETAINED EARNINGS AND CAPITAL
REQUIREMENTS
Industrial is subject to various regulatory capital requirements administered
by the federal banking agencies. Failure to meet minimum capital requirements
can initiate certain mandatory actions that, if undertaken, could have a direct
material effect on the Company's financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action,
Industrial must meet specific capital guidelines that involve quantitative
measures of Industrial's assets, liabilities and certain off-balance-sheet
items as calculated under regulatory accounting practices. Industrial's capital
amounts and classifications are also subject to qualitative judgments by the
regulators about Industrial's components, risk weightings and other factors. At
December 31, 1996, management believes the Company and Industrial are in
compliance with all regulatory capital requirements. Based on Industrial's
computed regulatory capital ratios, Industrial is considered well capitalized
under Section 38 of the Federal Deposit Insurance Act at December 31, 1996.
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.
The Company paid a capital distribution of $3.50 per share on May 15, 1996.
The capital distribution resulted in a $19.4 million reduction in shareholders'
equity.
- -------------------------------------------------------------------------------
(Continued)
41
43
INDUSTRIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
- -------------------------------------------------------------------------------
NOTE 15 - RESTRICTIONS ON RETAINED EARNINGS AND CAPITAL
REQUIREMENTS (Continued)
At December 31, 1996 and 1995, Industrial's actual capital levels (in
thousands) and minimum required levels were:
Minimum Required
Minimum Required To Be Well Capitalized
For Capital Under Prompt Corrective
Actual Adequacy Purposes Action Regulations
------ ----------------- ------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
1996
- ----
Total capital (to risk weighted assets) $ 57,291 32.78% $ 13,984 8.0% $ 17,480 10.0%
Tier 1 (core) capital (to risk weighted assets) $ 55,777 31.91% $ 6,992 4.0% $ 10,488 6.0%
Tier 1 (core) capital (to adjusted total assets) $ 55,777 17.14% $ 9,763 3.0% $ 16,271 5.0%
Tangible capital (to adjusted total assets) $ 55,777 17.14% $ 4,881 1.5% N/A
1995
- ----
Total capital (to risk weighted assets) $ 55,079 33.81% $ 13,034 8.0% $ 16,293 10.0%
Tier 1 (core) capital (to risk weighted assets) $ 53,738 32.98% $ 6,517 4.0% $ 9,776 6.0%
Tier 1 (core) capital (to adjusted total assets) $ 53,738 16.62% $ 9,701 3.0% $ 16,168 5.0%
Tangible capital (to adjusted total assets) $ 53,738 16.62% $ 4,851 1.5% N/A
NOTE 16 - DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table shows carrying values and the related estimated fair
values of financial instruments at December 31, 1996 and 1995. Items which
are not financial instruments are not included.
-------------1996------------ -------------1995------------
---- ----
Estimated Estimated
Carrying Fair Carrying Fair
Value Value Value Value
----- ----- ----- -----
FINANCIAL ASSETS
Cash and cash equivalents $ 7,413 $ 7,413 $ 26,711 $ 26,711
Investment securities 23,797 23,844 27,882 27,999
Loans receivable, net 285,803 287,168 259,124 260,076
Accrued interest receivable 1,784 1,784 1,765 1,765
FINANCIAL LIABILITIES
Deposits $ (259,074) $ (259,603) $ (238,282) $ (238,893)
FHLB advances (2,000) (2,016)
Accrued interest payable (582) (582) (372) (372)
- -------------------------------------------------------------------------------
(Continued)
42
44
INDUSTRIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
- -------------------------------------------------------------------------------
NOTE 16 - DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
(Continued)
For purposes of the above disclosures of estimated fair value, the following
assumptions were used. The estimated fair value for cash and cash equivalents
is considered to approximate cost. The estimated fair value for securities is
based on quoted market values for the individual securities or for equivalent
securities. The estimated fair value for commercial loans is based on estimates
of the difference in the interest rate Industrial would charge borrowers for
similar loans with similar maturities made at December 31, applied for an
estimated time period until the loan is assumed to reprice or be repaid. The
estimated fair value for other loans is based on estimates of the rate
Industrial would charge for similar loans at December 31, applied over
estimated payment periods. The estimated fair value for demand and savings
deposits is based on their carrying value. The estimated fair value for
certificates of deposit is based on estimates of the rate Industrial would pay
on such deposits at December 31, applied for the time period until maturity.
The estimated fair value of commitments is not material.
While these estimates of fair values are based on management's judgment of
appropriate factors, there is no assurance that were Industrial to have
disposed of such items at December 31, 1995, the estimated fair values would
necessarily have been achieved at that date, since market values may differ
depending on various circumstances. The estimated fair values at December 31,
1995 should not necessarily be considered to apply at subsequent dates.
In addition, other assets and liabilities of Industrial that are not defined as
financial instruments are not included in the above disclosures, such as
property and equipment. Also, nonfinancial instruments typically not recognized
in financial statements may nevertheless have value, but are not included in
the above disclosures. These include, among other items, the estimated earning
power of core deposit accounts, the earning potential of loan servicing rights,
the value of a trained work force, customer goodwill and similar items.
- -------------------------------------------------------------------------------
(Continued)
43
45
INDUSTRIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
- -------------------------------------------------------------------------------
NOTE 17 - PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION
The following are condensed parent company only financial statements for the
Company at December 31:
CONDENSED BALANCE SHEET
1996 1995
---- ----
ASSETS
Cash and cash equivalents $ 662 $ 288
Investment in subsidiary 56,627 54,486
Loan receivable from ESOP 4,066 4,436
Loan receivable from subsidiary 700 22,250
Other assets 49 11
----------- -----------
$ 62,104 $ 81,471
=========== ===========
LIABILITIES
Dividend payable $ 416
-----------
SHAREHOLDERS' EQUITY
Common stock $ 34,669 54,110
Additional paid-in capital 1,669
Retained earnings 31,803 30,682
Treasury stock (634)
Unearned employee stock ownership plan shares (3,974) (4,436)
Unearned compensation (2,279)
Minimum additional pension liability (49)
Unrealized gain on securities available for sale 850 748
----------- -----------
62,104 81,055
----------- -----------
$ 62,104 $ 81,471
=========== ===========
- -------------------------------------------------------------------------------
(Continued)
44
46
INDUSTRIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
- -------------------------------------------------------------------------------
NOTE 17 - PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION
(Continued)
CONDENSED INCOME STATEMENT
For the year ended December 31, 1996
and the five months ended December 31, 1995
1996 1995
---- ----
INCOME
Interest $ 791 $ 565
EXPENSES
Management fees 60 25
Other operating expense 167 14
----------- -----------
227 39
----------- -----------
INCOME BEFORE INCOME TAXES AND EQUITY IN
UNDISTRIBUTED EARNINGS OF SUBSIDIARY 564 526
Provision for income taxes 192 179
----------- -----------
INCOME BEFORE EQUITY IN UNDISTRIBUTED
EARNINGS OF SUBSIDIARY 372 347
Equity in undistributed earnings of subsidiary 2,027 1,786
----------- -----------
NET INCOME $ 2,399 $ 2,133
=========== ===========
- -------------------------------------------------------------------------------
(Continued)
45
47
INDUSTRIAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
- -------------------------------------------------------------------------------
NOTE 17 - PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION
(Continued)
CONDENSED STATEMENT OF CASH FLOWS
For the year ended December 31, 1996
and for the five months ended December 31, 1995
1996 1995
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 2,399 $ 2,133
Adjustments to reconcile net income to net cash from
operating activities
Equity in undistributed net income of subsidiary (2,027) (1,786)
Dividends on unallocated ESOP shares (144) 32
Changes in other assets (38) (11)
----------- -----------
Net cash from operating activities 190 368
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in subsidiary (27,121)
Loans to subsidiary (22,600)
Principal repayment on loan to subsidiary 21,550 350
Loan to ESOP (4,436)
Principal repayment on loan to ESOP 370
----------- -----------
Net cash used by investing activities 21,920 (53,807)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from sale of stock, net of offering costs 54,110
Capital distribution to shareholders (19,441)
Cash dividends paid (1,661) (383)
Purchase of treasury stock (634)
----------- -----------
Net cash from financing activities (21,736) 53,727
----------- -----------
Net change in cash and cash equivalents 374 288
Cash and cash equivalents at beginning of period 288
----------- -----------
Cash and cash equivalents at end of period $ 662 $ 288
=========== ===========
- -------------------------------------------------------------------------------
(Continued)
46
48
INDUSTRIAL BANCORP, INC.
NOTE 18 - QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a consolidated summary of quarterly financial information:
March 31 June 30 September 30 December 31
-------- ------- ------------ -----------
1996
Interest income $ 6,344 $ 6,377 $ 6,332 $ 6,415
Interest expense 2,832 2,887 3,011 3,133
---------- ---------- ---------- ----------
Net interest income 3,512 3,490 3,321 3,282
Provision for loan losses 45 45 45 45
Other income 96 99 104 148
Other expense 1,664 1,658 4,786 1,345
---------- ---------- ---------- ----------
Income before taxes 1,899 1,886 (1,406) 2,040
Provision for incomes taxes 645 637 55 683
---------- ---------- ---------- ----------
Net income $ 1,254 $ 1,249 $ (1,461) $ 1,357
========== ========== ========== ==========
1995
Interest income $ 5,250 $ 5,459 $ 6,033 $ 6,116
Interest expense 2,681 2,931 2,854 2,770
---------- ---------- ---------- ----------
Net interest income 2,569 2,528 3,179 3,346
Provision for loan losses 45 45 45 45
Other income 80 87 95 136
Other expense 1,263 1,318 1,433 1,504
---------- ---------- ---------- ----------
Income before taxes 1,341 1,252 1,796 1,933
Provision for incomes taxes 457 438 603 651
---------- ---------- ---------- ----------
Net income $ 884 $ 814 $ 1,193 $ 1,282
========== ========== ========== ==========
47
49
INDUSTRIAL BANCORP, INC.
DIRECTORS AND EXECUTIVE OFFICERS
================================================================================
Lawrence R. Rhoades Director and Chairman of the Board
Chairman of the Board and Chief Financial Officer
The Industrial Savings and Loan Association
David M. Windau Director and President
President, Chief Executive Officer and Treasurer
The Industrial Savings and Loan Association
Fredric C. Spurck Director
President and Chief Executive Officer
Webster Industries, Inc.
Roger O. Wilkinson Director
Deputy Director
Huron County Alcohol, Drug Addiction
and Mental Health Services Board
Graydon H. Hayward Director
President
Hayward Rigging & Construction, Inc.
Leon W. Maginnis Director
Vice President
Hirt Publishing Company, Inc.
Bob Moore Director
President
Willard Foods
David W. Ball Secretary
Senior Vice President and Secretary
The Industrial Savings and Loan Association
Stephan S. Beal Treasurer
Senior Vice President
The Industrial Savings and Loan Association
THE INDUSTRIAL SAVINGS AND LOAN ASSOCIATION
DIRECTORS AND EXECUTIVE OFFICERS
================================================================================
Lawrence R. Rhoades Director, Chairman of the Board and
Chief Financial Officer
David M. Windau Director, President, Chief Executive
Officer and Treasurer
Fredric C. Spurck Director
Roger O. Wilkinson Director
Graydon H. Hayward Director
Leon W. Maginnis Director
Bob Moore Director
David W. Ball Senior Vice President and Secretary
Stephan S. Beal Senior Vice President
48
50
ANNUAL MEETING
================================================================================
The 1997 Annual Meeting of Shareholders of Industrial Bancorp, Inc. will be
held on April 15, 1997, at 2:30 p.m., local time, at The Bellevue Elks Lodge
#1013, located at 214 W. Main Street, Bellevue, Ohio 44811. Shareholders are
cordially invited to attend.
FORM 10-K
================================================================================
A copy of Industrial Bancorp's Annual Report on Form 10-K, as filed with the
Securities and Exchange Commission, will be available at no charge to
shareholders upon request to:
Industrial Bancorp, Inc.
211 N. Sandusky Street
Bellevue, Ohio 44811
Attention: Patrick S. Smith, Investor Relations
SHAREHOLDER SERVICES
================================================================================
Registrar and Transfer Company serves as transfer agent and dividend
distributing agent for Industrial Bancorp's shares. Communications regarding
change of address, transfer of shares, lost certificates and dividends should
be sent to:
Registrar and Transfer Company
10 Commerce Drive
Cranford, N.J. 07016-3572
(908) 272-8511