SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to ________
0-26248 34-1800830
(Commission File No.) (IRS Employer I.D. No.)
INDUSTRIAL BANCORP, INC.
(Exact name of registrant as specified in its charter)
OHIO
(State of jurisdiction or incorporation)
211 North Sandusky Street, Bellevue, Ohio 44811
(Address of principal executive office) (Zip Code)
(419) 483-3375
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities and
Exchange Act of 1934 during the preceding twelve months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes [x] No [ ]
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Outstanding as of October 30, 1998:
4,894,036 common shares, no par value
<PAGE> 1.
INDUSTRIAL BANCORP, INC.
Form 10-Q
For the Quarter ended September 30, 1998
Part I - Financial Information
Item 1: Financial Statements
Interim financial information required by Rule 10-01 of Regulation S-X
is included in this Form 10-Q as referenced below:
Consolidated Balance Sheets 3
Consolidated Statements of Net Income 4
Consolidated Statements of Comprehensive Income 5
Consolidated Statements of Shareholders' Equity 6
Condensed Consolidated Statements of Cash Flows 7
Notes to Consolidated Financial Statements 8
Item 2: Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
Part II - Other Information 13
Signatures 14
<PAGE> 2.
INDUSTRIAL BANCORP, INC.
Consolidated Balance Sheets
(Unaudited, $ in thousands except per share data)
<TABLE>
<CAPTION>
09/30/98 12/31/97
--------------------
<S> <C> <C>
ASSETS
Cash and noninterest-bearing deposits $ 1,255 $ 1,273
Interest-bearing demand deposits 1,730 3,499
Overnight deposits 15,000 6,000
--------------------
Cash and cash equivalents 17,985 10,772
Investment securities available for sale, at fair value 20,602 21,030
Investment securities held to maturity
(fair value: 1998 -- $325; 1997 -- $474) 302 437
Federal Home Loan Bank stock 3,198 2,938
Loans receivable, net 338,639 321,669
Office properties and equipment, net 5,501 4,972
Accrued interest receivable and other assets 2,422 2,205
--------------------
Total assets $388,649 $364,023
====================
LIABILITIES
Deposits $286,309 $270,957
Federal Home Loan Bank advances 37,000 29,000
Accrued interest payable and other liabilities 3,166 3,204
--------------------
Total liabilities 326,475 303,161
--------------------
SHAREHOLDERS' EQUITY
Common stock, no par value, 10,000,000 shares
authorized; 5,554,500 shares issued 34,669 34,669
Additional paid-in capital 2,148 1,879
Retained earnings 36,724 34,569
Treasury stock, at cost: 555,064 shares at 9/30/98,
451,700 shares at 12/31/97 (8,486) (6,306)
Unearned employee stock ownership plan shares (3,207) (3,529)
Unearned compensation (1,359) (1,753)
Unrealized gain on securities available for sale 1,685 1,333
--------------------
Total shareholders' equity 62,174 60,862
--------------------
Total liabilities and shareholders' equity $388,649 $364,023
====================
Book value per share $ 12.44 $ 11.93
</TABLE>
<PAGE> 3.
INDUSTRIAL BANCORP, INC.
Consolidated Statements of Net Income
(Unaudited, $ in thousands except per share data)
<TABLE>
<CAPTION>
Three months ended Nine months ended
09/30/98 09/30/97 09/30/98 09/30/97
-----------------------------------------
<S> <C> <C> <C> <C>
Interest income
Interest and fees on loans $7,201 $6,544 $21,262 $18,992
Interest and dividends on investment securities 341 402 1,037 1,202
Interest on deposits 208 138 480 319
----------------------------------------
Total interest income 7,750 7,084 22,779 20,513
Interest expense
Interest on deposits 3,498 3,330 10,163 9,617
Interest on FHLB advances 571 327 1,650 650
----------------------------------------
Total interest expense 4,069 3,657 11,813 10,267
----------------------------------------
Net interest income 3,681 3,427 10,966 10,246
Provision for loan losses 55 45 155 141
----------------------------------------
Net interest income after provision for loan losses 3,626 3,382 10,811 10,105
Noninterest income
Service fees and other charges 161 112 443 315
Other 73 8 105 28
----------------------------------------
Total noninterest income 234 120 548 343
Noninterest expense
Salaries and employee benefits 846 814 2,540 2,314
State franchise tax 120 192 361 570
Federal deposit insurance premiums 42 41 127 93
Occupancy and equipment 106 95 275 262
Data processing 110 91 328 275
Depreciation 91 74 287 209
Other 322 323 1,042 1,004
----------------------------------------
Total noninterest expense 1,637 1,630 4,960 4,727
----------------------------------------
Income before income tax 2,223 1,872 6,399 5,721
Provision for income tax 757 642 2,181 1,988
----------------------------------------
Net income $1,466 $1,230 $ 4,218 $ 3,733
========================================
Basic earnings per share $ 0.31 $ 0.25 $ 0.90 $ 0.75
Diluted earnings per share $ 0.31 $ 0.25 $ 0.88 $ 0.75
</TABLE>
<PAGE> 4.
INDUSTRIAL BANCORP, INC.
Consolidated Statements of Comprehensive Income
(Unaudited, $ in thousands)
<TABLE>
<CAPTION>
Three months ended Nine months ended
09/30/98 09/30/97 09/30/98 09/30/97
--------------------------------------------
<S> <C> <C> <C> <C>
Net income $1,466 $1,230 $4,218 $3,733
Other comprehensive income, net of tax:
Change in unrealized gain on securities 177 76 352 279
------------------------------------------
Comprehensive Income $1,643 $1,306 $4,570 $4,012
==========================================
</TABLE>
<PAGE> 5.
INDUSTRIAL BANCORP, INC.
Consolidated Statements of Shareholders' Equity
(Unaudited, $ in thousands)
<TABLE>
<CAPTION>
Total
shareholders'
equity
-------------
<S> <C>
Balance at January 1, 1997 $62,104
Net income 3,733
Cash dividends (1,678)
($.34 per share)
Purchase of treasury stock (4,440)
(331,700 shares)
Employee Stock Ownership Plan:
Shares released 456
Management Recognition Plan:
Compensation earned 394
Change in unrealized gain on securities available for sale 279
-------
Balance at September 30, 1997 $60,848
=======
Balance at January 1, 1998 $60,862
Net income 4,218
Cash dividends (2,063)
($.44 per share)
Purchase of treasury stock (2,321)
(103,364 shares)
Exercise of stock options 92
Employee Stock Ownership Plan:
Shares released 640
Management Recognition Plan:
Compensation earned 394
Change in unrealized gain on securities available for sale 352
-------
Balance at September 30, 1998 $62,174
</TABLE>
<PAGE> 6.
INDUSTRIAL BANCORP, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited, $ in thousands)
<TABLE>
<CAPTION>
Nine months ended
09/30/98 09/30/97
--------------------
<S> <C> <C>
Cash flows from operating activities
Net income $ 4,218 $ 3,733
Adjustments to reconcile net income to net cash
from operating activities 124 (595)
--------------------
Net cash from operating activities 4,342 3,138
Cash flows from investing activities
Investment securities available for sale:
Purchases (5,020) (9,033)
Proceeds from maturities 6,000 9,000
Mortgage-backed securities principal repayments 135 90
Net increase in loans (16,393) (24,984)
FHLB stock purchases (95) (92)
Properties and equipment expenditures, net (816) (206)
--------------------
Net cash from investing activities (16,189) (25,225)
Cash flows from financing activities
Net increase in deposits 15,352 10,491
Proceeds from FHLB advances 10,000 25,000
Repayments of FHLB advances (2,000) (6,000)
Exercise of stock options 92 -
Purchase of treasury stock (2,321) (4,440)
Cash dividends paid (2,063) (1,678)
--------------------
Net cash from financing activities 19,060 23,373
--------------------
Net change in cash and cash equivalents 7,213 1,286
Cash and cash equivalents at beginning of period 10,772 7,413
--------------------
Cash and cash equivalents at end of period $17,985 $ 8,699
===================
</TABLE>
<PAGE> 7.
INDUSTRIAL BANCORP, INC.
Notes to Consolidated Financial Statements
Summary of Significant Accounting Policies
These interim financial statements are presented in accordance with
the SEC's rules for quarterly financial information without audit and
reflect all adjustments which, in the opinion of management, are necessary
to present fairly the financial position of Industrial Bancorp, Inc. (the
"Company") and its wholly owned subsidiary, The Industrial Savings and Loan
Association (the "Association"), at September 30, 1998 and the results of
operations and cash flows for the periods presented. All such adjustments
are normal and recurring in nature. All significant intercompany accounts
and transactions have been eliminated in consolidation. The accompanying
condensed financial statements do not purport to contain all the necessary
disclosures required by generally accepted accounting principles that might
otherwise be necessary in the circumstances and should be read in
conjunction with the financial statements included in the 1997 Annual Report
of Industrial Bancorp, Inc. The results of the nine months presented are
not necessarily representative of the results of operations and cash flows
which may be expected for the entire year.
Earnings Per Share
Earnings per common share have been computed based on the applicable
weighted average number of common shares outstanding during the period as
indicated below:
<TABLE>
<CAPTION>
For the quarter ended For the nine months ended
9/30/98 9/30/97 9/30/98 9/30/97
---------------------------------------------------
<S> <C> <C> <C> <C>
Basic earnings per share 4,684,200 4,858,449 4,705,818 4,942,932
Diluted earnings per share 4,785,754 4,925,044 4,817,733 4,989,785
</TABLE>
The calculation of diluted earnings per share considers the dilutive
effect of the assumed exercise of options outstanding during the period.
Employee Stock Ownership Plan shares that have not been allocated to
participants are not considered outstanding for purposes of computing
earnings per share.
Commitments and Contingencies
As of September 30, 1998, commitments to originate loans and loans in
process to be funded in nine months or less totaled $15.5 million and
commitments to sell loans amounted to $301,000.
As of September 30, 1998, the Association had outstanding $7.0 million
in letters of credit from the Federal Home Loan as security pledged against
public deposits.
<PAGE> 8.
INDUSTRIAL BANCORP, INC.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Financial Condition
Total assets increased $24.6 million to $388.6 million at September
30, 1998 from $364.0 million at December 31, 1997. The increase in total
assets is primarily attributable to $16.9 million growth in net loans
receivable during the first nine months of 1998, as Industrial Savings
continues its historical practice of originating predominantly single-family
one-to-four family residential mortgage loans in our local markets. Cash
and cash equivalents were $18.0 million at September 30, 1998 compared to
$10.8 million at December 31, 1997, due primarily to a $7.0 million short-term
public deposit secured by a letter of credit. Liquidity of the Association
exceeded the regulatory requirement at September 30, 1998.
Asset growth was funded primarily by deposit growth of $15.3 million,
and $8.0 million in advances from the Federal Home Loan Bank of Cincinnati
("FHLB"). Total deposits were $286.3 million at September 30, 1998,
compared to $271.0 million at December 31, 1997. During the first quarter,
the Association initiated a program to sell, upon origination, certain one-
to-four-family mortgage loans with fixed rates of interest to Freddie Mac.
The purpose of the program is to reduce the need to fund loan demand in excess
of deposit growth with long-term borrowings and to better manage the
Association's interest-rate risk. Industrial Savings intends to retain the
servicing of the loans sold under this program. Loan sales during the third
quarter of 1998 amounted to $5.2 million.
Total shareholders' equity increased to $62.2 million at September 30,
1998 from $60.9 million at December 31, 1997. Net income of $4.2 million
for the first nine months of 1998 was offset by $2.1 million of dividends to
common shareholders and $2.3 million in purchases of treasury shares. The
Company repurchased 103,364 shares of its common stock during the first nine
months of 1998.
The Association is required by the Office of Thrift Supervision to
maintain certain minimum levels of tangible, core, and risk-based capital.
The following table presents the Association's regulatory capital position
at September 30, 1998:
<TABLE>
<CAPTION>
Minimum Required
For Capital
Actual Adequacy Purposes
--------------------------------------
($ in thousands)
<S> <C> <C> <C> <C>
Total capital (to risk weighted assets) $42,856 20.17% $16,994 8.00%
Tier 1 (core) capital (to risk weighted assets) $41,001 19.30% $ 8,497 4.00%
Tier 1 (core) capital (to adjusted total assets) $41,001 10.62% $15,449 4.00%
Tangible capital (to adjusted total assets) $41,001 10.62% $ 5,793 1.50%
</TABLE>
<PAGE> 9.
Results of Operations
Net income for the three and nine months ended September 30, 1998 was
$1.5 million and $4.2 million, respectively, compared to $1.2 million and
$3.7 million, respectively, for the three and nine months ended September
30, 1997. Net interest income was $254,000 and $720,000 more for the three
and nine months ended September 30, 1998, respectively, than for the
comparable periods in 1997.
Total interest income was $666,000 and $2.3 million more for the three
and nine months ended September 30, 1998, respectively, than for the
comparable periods in 1997. The increases were primarily the result of an
increased average balance in net loans receivable, which resulted in an
increase of $657,000 and $2.3 million in interest and fees on loans for the
third quarter and first nine months of 1998, respectively.
Total interest expense was $412,000 and $1.5 million more for the
three and nine months ended September 30, 1998, respectively, than for the
comparable periods in 1997. The cost of FHLB advances during the third
quarter and first nine months of 1998 amounted to $571,000 and $1.7 million,
respectively, compared to $327,000 and $650,000 during the third quarter and
first nine months of 1997, respectively. The average balance of FHLB
advances was significantly greater in 1998 than in 1997. Interest paid on
deposits increased by $168,000 and $546,000 for the three and nine months
ended September 30, 1998, respectively, compared to the same periods in 1997,
primarily as a result of increases in average interest-bearing deposit
balances.
The provision for loan losses was $55,000 and $155,000 for the three
and nine months ended September 30, 1998 and 1997, respectively, based upon
management's assessment of reasonably foreseeable losses inherent in the
loan portfolio for each period.
Noninterest income for the three and nine months ended September 30,
1998 was $234,000 and $548,000, respectively, compared to $120,000 and
$343,000, respectively, for the same periods in 1997. The increases are due
primarily to higher service fee income on an increased average balance of
deposits, and income from servicing rights and gains on the sale of loans to
Freddie Mac.
<PAGE> 10.
Noninterest expense for the three and nine months ended September 30,
1998 was $1.6 million and $5.0 million, respectively, compared to $1.6
million and $4.7 million for the three and nine months ended September 30,
1997, respectively. Salaries and employee benefits expense for the third
quarter and first nine months of 1998 amounted to $846,000 and $2.5 million,
respectively, compared to $814,000 and $2.3 million for the third quarter
and first nine months of 1997, respectively, due to a higher number of full-
time equivalent employees and normal pay increases. State franchise tax has
been reduced from $192,000 and $570,000 for the third quarter and first nine
months of 1997, respectively, to $120,000 and $361,000 for the third quarter
and first nine months in 1998, respectively, due to an intercompany dividend
from Industrial Savings to Industrial Bancorp late in 1997. Depreciation
expense increased to $91,000 and $287,000 during the three and nine months
ended September 30, 1998, respectively, compared to $74,000 and $209,000
during the same periods in 1997, respectively, as a result of a substantial
upgrade in technology completed during the first quarter of 1998.
Year 2000 Issues
The Association's lending and deposit activities are almost entirely
dependent upon computer systems which process and record transactions,
although the Association can effectively operate with manual systems for
brief periods when its electronic systems malfunction or cannot be accessed.
The Association has contracted with and uses a nationally- recognized data
processing service bureau which specializes in data processing of financial
institutions. In addition to its basic operating activities, the
Association's facilities and communications equipment are dependent to
varying degrees upon computer systems.
The Company is aware of the potential Year 2000 related problems that
may affect the computers that control or operate the Association's operating
systems and infrastructure. In 1997, the Bank formed a Year 2000 committee
and assigned them the task of identifying any Year 2000 related problems
that may be experienced by the Association's computer-dependent systems.
The Association determined that the front-line teller operating system then
in place was not Year 2000 compliant and that the provider had no plans to
bring the system into compliance. As a result, the Association invested
$660,000 in a new teller transaction system, which consists of Year 2000
compliant hardware and software. The conversion to the new operating system
was completed in April 1998.
<PAGE> 11.
The Association has contacted the companies that supply or service the
Association's computer-dependent systems to obtain confirmation that each
are either currently or expected to be Year 2000 compliant. In particular,
the Association is participating in, monitoring the progress of, and reviewing
the results of the testing conducted by its service bureau, whose data
processing services are deemed critical to the ongoing operations of the
Association. Written results of this testing are expected by yearend,
however, verbal assurances have already been given that testing completed to
date indicates that their data processing services will be Year 2000
compliant by the end of 1998.
As a contingency plan, however, the Association has determined that if
its service bureau, or any of its service providers, were to have their
systems fail, the Association would implement manual systems until such
systems could be re-established. The Association does not anticipate that
such short-term manual systems would have a material adverse impact upon the
operations of the Association. Excluding the costs associated with the
conversion to the new teller transaction operating system, the Association
has incurred approximately $5,000 of expense in connection with research,
planning, and testing of Year 2000 issues.
In addition to the expense related to its own systems, the Association
could incur losses if Year 2000 problems caused a delay in the loan payments
of any of the Association's significant borrowers or impaired the payroll
systems of large employers in the Association's primary market area.
Because the loan portfolio of the Association is highly diversified with
regard to individual borrowers and types of businesses and because the
Association's primary market area is not significantly dependent upon one
employer or industry, the Association does not anticipate any significant or
prolonged Year 2000 related difficulties that would affect net income or
cash flow.
<PAGE> 12.
INDUSTRIAL BANCORP, INC.
Form 10-Q
Other Information
Part II
Item 1. Legal Proceedings
-----------------
Not applicable.
Item 2. Changes in Securities
---------------------
Not applicable.
Item 3. Defaults upon Senior Securities
-------------------------------
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
Not applicable.
Item 5. Other Information
-----------------
Any proposals of shareholders intended to be included in the
Company's proxy statement and proxy card for the 1999 Annual
Meeting of Shareholders should be sent to the Company by
certified mail and must be received by the Company not later than
December 18, 1998. If a shareholder intends to present a
proposal at the 1999 Annual Meeting without including the
proposal in the proxy materials related to that meeting, and if
the proposal is not received by the Company by February 1, 1999,
then the proxies designated by the Board of Directors of the
Company for the 1999 Annual Meeting of Shareholders of the
Company may vote in their discretion on any such proposal any
shares for which they have been appointed proxies without mention
of such matter in the proxy statement or on the proxy card for
such meeting.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
Not applicable.
<PAGE> 13.
INDUSTRIAL BANCORP, INC.
Form 10-Q
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: 10/30/98 By: /s/ Lawrence R. Rhoades
------------- ----------------------------
Lawrence R. Rhoades
Chairman of the Board and
Chief Financial Officer
Date: 10/30/98 By: /s/ David M. Windau
------------- ----------------------------
David M. Windau
President and
Chief Executive Officer
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JUL-01-1998
<PERIOD-END> SEP-30-1998
<EXCHANGE-RATE> 1
<CASH> 1,255
<INT-BEARING-DEPOSITS> 16,730
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 20,602
<INVESTMENTS-CARRYING> 302
<INVESTMENTS-MARKET> 325
<LOANS> 340,524
<ALLOWANCE> 1,885
<TOTAL-ASSETS> 388,649
<DEPOSITS> 286,309
<SHORT-TERM> 0
<LIABILITIES-OTHER> 3,166
<LONG-TERM> 37,000
0
0
<COMMON> 34,669
<OTHER-SE> 27,505
<TOTAL-LIABILITIES-AND-EQUITY> 388,649
<INTEREST-LOAN> 7,201
<INTEREST-INVEST> 341
<INTEREST-OTHER> 208
<INTEREST-TOTAL> 7,750
<INTEREST-DEPOSIT> 3,498
<INTEREST-EXPENSE> 4,069
<INTEREST-INCOME-NET> 3,681
<LOAN-LOSSES> 55
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,637
<INCOME-PRETAX> 2,223
<INCOME-PRE-EXTRAORDINARY> 1,466
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,466
<EPS-PRIMARY> 0.31
<EPS-DILUTED> 0.31
<YIELD-ACTUAL> 3.88
<LOANS-NON> 526
<LOANS-PAST> 830
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,831
<CHARGE-OFFS> 2
<RECOVERIES> 1
<ALLOWANCE-CLOSE> 1,885
<ALLOWANCE-DOMESTIC> 1,885
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
