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: March 31, 1999
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
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(State of jurisdiction or incorporation)
211 North Sandusky Street, Bellevue, Ohio 44811
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(Address of principal executive office) (Zip Code)
(419) 483-3375
(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 May 10, 1999:
4,666,826 common shares, no par value
<PAGE> 1.
INDUSTRIAL BANCORP, INC.
Form 10-Q
For the Quarter ended March 31, 1999
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>
03/31/99 12/31/98
-------- --------
<S> <C> <C>
ASSETS
Cash and noninterest-bearing deposits $ 1,177 $ 1,067
Interest-bearing demand deposits 2,159 5,469
Overnight deposits 31,000 22,000
----------------------
Cash and cash equivalents 34,336 28,536
Investment securities available for sale,
at fair value 19,724 21,235
Investment securities held to maturity
(fair value: 1999 = $272, 1998 = $302) 256 283
Loans receivable, net 320,190 326,972
Federal Home Loan Bank stock 3,310 3,256
Office properties and equipment, net 5,721 5,387
Accrued interest receivable 2,135 2,051
Other assets 503 339
----------------------
Total assets $386,175 $388,059
======================
LIABILITIES
Deposits 292,216 288,584
Federal Home Loan Bank advances 31,000 35,000
Accrued interest payable and other liabilities 3,699 3,734
----------------------
Total liabilities 326,915 327,318
----------------------
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 2,567 2,472
Retained earnings 38,171 37,522
Accumulated other comprehensive income 1,778 2,101
Unearned employee stock ownership plan shares (2,997) (3,100)
Unearned compensation (1,096) (1,227)
Treasury stock, at cost
(1999: 833,614 shares, 1998: 723,464 shares) (13,832) (11,696)
----------------------
Total shareholders' equity 59,260 60,741
----------------------
Total liabilities and shareholders' equity $386,175 $388,059
======================
Book value per share $ 12.55 $ 12.57
</TABLE>
<PAGE> 3.
INDUSTRIAL BANCORP, INC.
Consolidated Statements of Net Income
(Unaudited, $ in thousands except per share data)
<TABLE>
<CAPTION>
Three months ended
03/31/99 03/31/98
--------------------
<S> <C> <C>
Interest income
Interest and fees on loans $6,841 $6,946
Interest and dividends on investment securities 336 343
Interest on deposits 297 118
------------------
Total interest income 7,474 7,407
Interest expense
Interest on deposits 3,347 3,291
Interest on FHLB advances 486 514
------------------
Total interest expense 3,833 3,805
------------------
Net interest income 3,641 3,602
Provision for loan losses 38 45
------------------
Net interest income after provision for loan losses 3,603 3,557
Noninterest income
Service fees and other charges 173 128
Other 62 12
------------------
Total noninterest income 235 140
Noninterest expense
Salaries and employee benefits 915 832
State franchise tax 101 120
Federal deposit insurance premiums 44 43
Occupancy and equipment 90 89
Depreciation 111 98
Data processing 111 110
Advertising 68 51
Other 298 295
------------------
Total noninterest expense 1,738 1,638
------------------
Income before income tax 2,100 2,059
Provision for income tax 729 701
------------------
Net income $1,371 $1,358
==================
Basic earnings per share $ 0.30 $ 0.29
Diluted earnings per share $ 0.30 $ 0.28
</TABLE>
<PAGE> 4.
INDUSTRIAL BANCORP, INC.
Consolidated Statements of Comprehensive Income
(Unaudited, $ in thousands)
<TABLE>
<CAPTION>
Three months ended
03/31/99 03/31/98
--------------------
<S> <C> <C>
Net income $1,371 $1,358
Other comprehensive income, net of tax:
Change in unrealized gain on securities (323) 186
------------------
Comprehensive Income $1,048 $1,544
==================
</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, 1998 $60,862
Net income 1,358
Cash dividends (664)
($.14 per share)
Purchase of treasury stock (454)
(25,000 shares)
Employee Stock Ownership Plan:
Shares released 212
Management Recognition Plan:
Compensation earned 131
Change in unrealized gain on securities available for sale 186
-------
Balance at March 31, 1998 $61,631
=======
Balance at January 1, 1999 $60,741
Net income 1,371
Cash dividends (722)
($.16 per share)
Purchase of treasury stock (2,136)
(110,120 shares)
Employee Stock Ownership Plan:
Shares released 198
Management Recognition Plan:
Compensation earned 131
Change in unrealized gain on securities available for sale (323)
-------
Balance at March 31, 1999 $59,260
=======
</TABLE>
<PAGE> 6.
INDUSTRIAL BANCORP, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited, $ in thousands)
<TABLE>
<CAPTION>
Three months ended
03/31/99 03/31/98
--------------------
<S> <C> <C>
Cash flows from operating activities
Net income $ 1,371 $ 1,358
Adjustments to reconcile net income to net cash
from operating activities 25 251
-------------------
Net cash from operating activities 1,396 1,609
Cash flows from investing activities
Purchases (4,000) (2,000)
Proceeds from maturities 5,000 3,000
Mortgage-backed securities principal repayments 27 69
Net decrease (increase) in loans 7,048 (8,129)
Properties and equipment expenditures, net (445) (156)
-------------------
Net cash from investing activities 7,630 (7,216)
Cash flows from financing activities
Net increase in deposits 3,632 1,052
Proceeds from FHLB advances - 10,000
Repayments of FHLB advances (4,000) (2,000)
Purchase of treasury stock (2,136) (454)
Cash dividends paid (722) (664)
-------------------
Net cash from financing activities (3,226) 7,934
-------------------
Net change in cash and cash equivalents 5,800 2,327
Cash and cash equivalents at beginning of period 28,536 10,772
-------------------
Cash and cash equivalents at end of period $34,336 $13,099
===================
</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 March 31, 1999 and the results of
operations and cash flows for the periods presented. All such adjustments
are normal and recurring in nature. All significant intercompany accounts
and transactions have been eliminated in consolidation. The accompanying
condensed financial statements do not purport to contain all the necessary
disclosures required by generally accepted accounting principles that might
otherwise be necessary in the circumstances and should be read in
conjunction with the financial statements included in the 1998 Annual Report
of Industrial Bancorp, Inc. The results of the three 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
3/31/99 3/31/98
-----------------------
<S> <C> <C>
Basic earnings per share 4,505,423 4,738,370
Diluted earnings per share 4,613,487 4,848,441
</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 March 31, 1999, commitments to originate loans and loans in
process to be funded totaled $11.6 million and commitments to sell loans
amounted to $315,000. All of the commitments to originate loans expire
within twelve months.
As of March 31, 1999, the Association had outstanding $7.9 million in
letters of credit from the Federal Home Loan Bank 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 decreased slightly to $386.2 million at March 31, 1999
from $388.1 million at December 31, 1998. The decrease in total assets is
primarily attributable to a decline in net loans receivable of $6.8 million
during the first quarter of 1999. The decline in net loans receivable was
principally due to the sale of $5.5 million of mortgage loans in the
secondary market during the same period. The Company continues to take
advantage of minor variations between long-term and short-term interest
rates to bolster its liquidity position, anticipating an increase in demand
for loans during the rest of 1999. Cash and cash equivalents increased to
$34.3 million at March 31, 1999 from $28.5 million at December 31, 1998.
Liquidity of the Association exceeded the regulatory requirement at March
31, 1999.
Similarly, total liabilities decreased slightly as FHLB advances
decreased $4.0 million to $31.0 million at March 31, 1999 compared to $35.0
million at December 31, 1998, due to scheduled maturities. Deposit growth
during the first quarter amounted to $3.6 million. Total deposits were
$292.2 million at March 31, 1999 compared to $288.6 million at year-end
1998.
Total shareholders' equity decreased to $59.3 million at March 31,
1999 from $60.7 million at December 31, 1998. Purchase of treasury shares
amounting to $2.1 million, dividends to common shareholders of $700,000 and
losses on unrealized gains on investment securities available for sale of
$323,000 combined to exceed reported net income of $1.4 million for the
first quarter of 1999. The Company repurchased 110,120 shares of its common
stock during the first three months of 1999.
The Association is required by the Office of Thrift Supervision to
maintain certain minimum levels of tangible, core, and risk-based capital.
The following table presents the Association's regulatory capital position
at March 31, 1999:
<TABLE>
<CAPTION>
Minimum Required
For Capital
Actual Adequacy Purposes
--------------------------------------
($ in thousands)
<S> <C> <C> <C> <C>
Total capital (to risk weighted assets) $37,784 18.15% $16,657 8.00%
Tier 1 (core) capital (to risk weighted assets) $35,835 17.21% $ 8,328 4.00%
Tier 1 (core) capital (to adjusted total assets) $35,835 9.34% $15,341 4.00%
Tangible capital (to adjusted total assets) $35,835 9.34% $ 5,753 1.50%
</TABLE>
<PAGE> 9.
Results of Operations
Net income for the quarter ended March 31, 1999 was $1.37 million,
slightly higher than the $1.36 million for the quarter ended March 31, 1998.
Net interest income was also slightly higher for the three months ended
March 31, 1999 than for the comparable period in 1998.
Total interest income was $67,000 more for the three months ended
March 31, 1999 than for the comparable period in 1998. The increase was
primarily the result of the significantly larger average balance in
interest-bearing deposits at an improved yield from a year ago (3.66% in
1999 compared to 3.30% in 1998), offset by a diminished yield (8.39% in 1999
compared to 8.47% in 1998) on a smaller average balance in net loans
receivable. Interest and fees on loans for the first quarter of 1999
amounted to $6.8 million compared to $6.9 million for the same period in
1998. The Company recognized $44,000 of income during the first quarter of
1999 as a result of the sale of mortgage loans on the secondary market.
Total interest expense was $28,000 more for the three months ended
March 31, 1999 than for the comparable period in 1998. The cost of FHLB
advances during the first quarter of 1999 amounted to $486,000 compared to
$514,000 during the first quarter of 1998. The average balance of FHLB
advances, as well as the rate paid, was lower in 1999 than in 1998. Interest
paid on deposits increased by $56,000 for the quarter ended March 31, 1999
compared to the same period in 1998, as a result of increases in average
interest-bearing deposit balances despite lower average rates of interest
paid (4.69% in 1999 compared to 4.93% in 1998).
The provision for loan losses was $38,000 for the quarter ended March
31, 1999 and $45,000 for the same quarter in 1998, based upon management's
assessment of probable losses inherent in the loan portfolio for each period
and, among other factors, the size of the loan portfolio and activity in
sales of mortgage loans relative to each period.
Noninterest income for the quarter ended March 31, 1999 was $235,000
compared to $140,000 for the same period in 1998. The increase is 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 quarter ended March 31, 1999 was $1.7
million compared to $1.6 million for the same quarter in 1998. Salaries and
employee benefits expense for the first quarter of 1999 amounted to $915,000
compared to $832,000 for the first quarter of 1998, due to a higher number
of full-time equivalent employees and normal pay increases. State franchise
tax has been reduced to $101,000 for the first quarter of 1999 from $120,000
for the first quarter in 1998, based on a reduction of the basis on which
the tax is calculated and a reduction in the tax rate. Depreciation expense
increased to $111,000 during the three months ended March 31, 1999 compared
to $98,000 during the same period in 1998, as a result of a substantial
upgrade in technology completed during the first half of 1998. Advertising
expense was $68,000 during the first three months of 1999 compared to
$51,000 during the same period in 1998, primarily due to costs associated
with marketing the opening of a new banking facility in 1999.
Year 2000 Issues
The Company's lending and deposit activities are almost entirely
dependent upon computer systems which process and record transactions,
although the Company can effectively operate with manual systems for brief
periods when its electronic systems malfunction or cannot be accessed. The
Company 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 Company's
facilities and communications equipment are dependent to varying degrees
upon computer systems.
In 1997, the Company 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 $600,000 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.
The Company has identified and assessed the potential impact of third-
party vendors that supply or service its computer-dependent systems. The
highest priority and effort has been devoted to monitoring the progress of
testing associated with Fiserv, the data processing service bureau under
contract with the Company to perform transaction processing. The Company
has continually assessed the validation of the Year 2000 compliance of this
application, which has been identified as mission critical to the ongoing
operations of the Company. Fiserv's validation efforts have included a date
handling strategy of the host software, client task force proxy testing,
third party vendor interface testing, and application review, testing, and
programming changes to both the base system and individualized client
packages of the OnLine Financial teller/platform system supported and
maintained by Fiserv. As of March 31, 1999, the Company's Year 2000
validation efforts, including all in-house equipment, had been completed.
<PAGE> 11.
In addition to the risk 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.
The Company has established a contingency plan which, in the event
that its service bureau or any of its service providers were to have their
systems fail, the Company would implement manual systems until such systems
could be re-established. The Company 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 $50,000 of expense in connection with research, planning, and
testing of Year 2000 issues.
<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
-----------------
Not applicable.
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: 5/10/98 By: /s/ Lawrence R. Rhoades
------------ -------------------------------
Lawrence R. Rhoades
Chairman of the Board and
Chief Financial Officer
Date: 5/10/98 By: /s/ David M. Windau
------------ -------------------------------
David M. Windau
President and
Chief Executive Officer
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<EXCHANGE-RATE> 1
<CASH> 1,177
<INT-BEARING-DEPOSITS> 33,159
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 19,724
<INVESTMENTS-CARRYING> 256
<INVESTMENTS-MARKET> 272
<LOANS> 322,157
<ALLOWANCE> 1,967
<TOTAL-ASSETS> 386,175
<DEPOSITS> 292,216
<SHORT-TERM> 0
<LIABILITIES-OTHER> 3,699
<LONG-TERM> 31,000
0
0
<COMMON> 34,669
<OTHER-SE> 24,591
<TOTAL-LIABILITIES-AND-EQUITY> 386,175
<INTEREST-LOAN> 6,841
<INTEREST-INVEST> 336
<INTEREST-OTHER> 297
<INTEREST-TOTAL> 7,474
<INTEREST-DEPOSIT> 3,347
<INTEREST-EXPENSE> 3,833
<INTEREST-INCOME-NET> 3,641
<LOAN-LOSSES> 38
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,738
<INCOME-PRETAX> 2,100
<INCOME-PRE-EXTRAORDINARY> 1,371
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,371
<EPS-PRIMARY> 0.30
<EPS-DILUTED> 0.30
<YIELD-ACTUAL> 3.84
<LOANS-NON> 1,043
<LOANS-PAST> 315
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,930
<CHARGE-OFFS> 3
<RECOVERIES> 3
<ALLOWANCE-CLOSE> 1,967
<ALLOWANCE-DOMESTIC> 1,967
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
