10-K 1 indb-10k.txt FORM 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______________ to ______________ Commission File Number: 0-026248 INDUSTRIAL BANCORP, INC. ------------------------------------------------------ (Exact name of registrant as specified in its charter) Ohio 34-1800830 ------------------------------- ---------------------- (State or other jurisdiction of I.R.S. Employer incorporation or organization) Identification Number) 211 North Sandusky Street, Bellevue, Ohio 44811 --------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number: (419) 483-3375 -------------- Securities registered pursuant to Section 12(b) of the Act: None None ---------------- ------------------------------------------- (Title of Class) (Name of each exchange on which registered) Securities registered pursuant to Section 12(g) of the Act: Common shares, no par value per share ------------------------------------- (Title of Class) Indicate by check mark whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the issuer was required to file such reports), and (2) has been subject to such requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if there is no disclosure of delinquent filers pursuant to Item 405 of Regulation S-K contained in this form, and no disclosure will be contained, to the best of issuer's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value of the voting stock held by non-affiliates of the registrant, computed by reference to the average of the bid and asked prices of such stock on The Nasdaq National Market as of March 16, 2001, was $20.22. (The exclusion from such amount of the market value of the shares owned by any person shall not be deemed an admission by the registrant that such person is an affiliate of the registrant.) As of March 16, 2001, there were 4,333,833 of the Registrant's Common Shares issued and outstanding. DOCUMENTS INCORPORATED BY REFERENCE (None) PART I Item 1. Description of Business General Industrial Bancorp, Inc. (the "Holding Company" or the "Corporation") was incorporated in the State of Ohio in February 1995 for the purpose of owning all of the outstanding capital stock of The Industrial Savings and Loan Association ("Industrial" or the "Association") issued upon the conversion of the Association from a mutual savings association to a permanent capital stock savings association (the "Conversion"). On August 1, 1995, the effective date of the Conversion, the Holding Company acquired all 100 shares of the capital stock of the Association. The Association was organized as a mutual savings association under Ohio law in 1890. As an Ohio savings association, the Association is subject to supervision and regulation by the Office of Thrift Supervision (the "OTS"), the Ohio Department of Commerce, Division of Financial Institutions (the "Division") and the Federal Deposit Insurance Corporation (the "FDIC"). The Association is a member of the Federal Home Loan Bank (the "FHLB") of Cincinnati and the deposits of the Association are insured up to applicable limits by the FDIC in the Savings Association Insurance Fund (the "SAIF"). The Association conducts business from its main office at 211 N. Sandusky Street in Bellevue, Ohio, its eleven branch offices and its one loan production office in the northern Ohio communities of Ashland, Bellevue, Clyde, Findlay, Fremont, Lexington, Mansfield, Norwalk, Sandusky, Tiffin and Willard. The Association is principally engaged in the business of originating construction and permanent mortgage loans secured by first mortgages on one- to four-family residential real estate located in the Association's primary market area, which consists of the seven Ohio counties in which its offices are located: Ashland, Erie, Hancock, Huron, Richland, Sandusky and Seneca. The Association also originates construction and permanent mortgage loans secured by multifamily real estate (over four units) and nonresidential real estate in its primary market area. In addition to real estate loans, the Association originates a limited number of commercial loans and secured and unsecured consumer loans. For liquidity and interest rate risk management purposes, the Association invests in interest-bearing deposits in other financial institutions, U.S. Government and agency obligations, mortgage-backed securities and other investments permitted by applicable law. Funds for lending and other investment activities are obtained primarily from savings deposits and loan principal repayments. Advances from the FHLB of Cincinnati are also utilized as an additional source of funds. Interest on loans and investments is the Association's primary source of income. The Association's principal expense is interest paid on deposit accounts. Operating results are dependent to a significant degree on the "net interest income" of the Association, which is the difference between interest income earned on loans, mortgage-backed securities and other interest-earning assets and interest paid on deposits and borrowings. Like most thrift institutions, the Association's interest income and interest expense are significantly affected by general economic conditions and by the policies of various regulatory authorities. Market Area The Association conducts business from its main office in Bellevue, Ohio, and its eleven branch offices in the northern Ohio cities of Ashland, Clyde, Findlay, Fremont, Lexington, Norwalk, Sandusky, Tiffin and Willard. The Association's primary market area for deposit and lending activity consists of the seven counties in which the Association has its branch offices. The economy of the Association's primary market area is stable. Population growth and household growth have occurred at rates comparable to those in the State of Ohio as a whole. The principal segments of the local economy are manufacturing, wholesale/retail trade, tourism and other service industries. Erie and Sandusky Counties include popular tourist attractions along Lake Erie, such as Cedar Point, which provide a significant number of jobs during the summer season and draw large numbers of visitors to the area. Other major employers in the Association's primary market area include Whirlpool Corporation, Cooper Tire & Rubber Company, Consolidated Biscuit Co., General Motors, Ford Motor Company, Marathon Oil, Sprint, Therm-O-Disc and R.R. Donnelly Co. There are also several colleges and universities in the Association's primary market area. Lending Activities General. The Association's principal lending activity is the origination of conventional real estate loans, including construction loans, secured by one- to four-family homes located in the Association's primary market area. The Association also offers loans secured by multifamily properties containing more than four units and nonresidential properties, including construction loans. The Association does not originate first mortgage loans insured by the Federal Housing Authority or guaranteed by the Veterans Administration. In addition to real estate lending, the Association originates a limited number of commercial loans and consumer loans, including education loans, loans secured by deposit accounts, automobile loans and a limited number of unsecured loans. As an approved Federal Home Loan Mortgage Corporation ("FHLMC") seller/servicer, the Association sells certain residential real estate mortgage loans in the secondary market. Loan Portfolio Composition. The following table presents certain information regarding the composition of the Association's loan portfolio at the dates indicated:

Loan Maturity. The following table sets forth certain information as of December 31, 2000, regarding the dollar amount of loans maturing in the Association's portfolio based on their contractual terms to maturity. Demand loans, home equity loans and other loans having no stated schedule of repayments or no stated maturity are reported as due in one year or less.

The following table sets forth the dollar amount of all loans which will become due more than one year after December 31, 2000, and which have predetermined interest rates or adjustable interest rates:

Loans Secured by One- to Four-Family Real Estate. The principal lending activity of the Association is the origination of permanent conventional loans secured by one- to four-family residences, primarily single-family residences, located within the Association's primary market area. Each of such loans is secured by a first mortgage on the underlying real estate and improvements thereon, if any. At December 31, 2000, the Association's one- to four-family residential real estate loan portfolio was $308.3 million, or 80% of total loans. OTS regulations and Ohio law limit the amount that the Association may lend in relationship to the appraised value of the real estate and improvements at the time of loan origination. In accordance with such regulations and laws, the Association typically makes loans on one- to four- family residences for up to 80% of the value of the real estate and improvements (the "LTV") and occasionally makes loans with up to a 95% LTV. The principal amount of any loan which exceeds an 80% LTV at the time of origination is usually covered by private mortgage insurance at the expense of the borrower. Fixed-rate one- to four-family loans are offered by the Association, currently for terms of up to 30 years. Adjustable-rate one- to four-family real estate loans ("ARMs") are also offered by the Association for terms of up to 30 years. The interest rate adjustment periods on such ARMs are one year and the rates are tied to the one-year U.S. Treasury bill rate. The new interest rate at each change date is determined by adding a specified margin, typically between 2.75% and 3.75%, to the prevailing index. The maximum allowable adjustment at each adjustment date is 1% or 2% with a maximum adjustment of 6% over the term of the loan. The initial rate on an ARM with a 1% cap is typically higher than the initial rate on an ARM with a 2% cap to compensate for the reduced interest rate sensitivity. The initial rate on ARMs originated by the Association is sometimes less than the sum of the index at the time of origination plus the specified margin. Such loans may be subject to greater risk of default as the interest rate adjusts to the fully-indexed level. The Association attempts to reduce the risks by underwriting such loans on the basis of the payment amount the borrower will be required to pay during the second year of the loan, assuming the maximum possible rate increase. Adjustable-rate loans decrease the Association's interest rate risk but involve other risks, primarily credit risk, because as interest rates rise the payment by the borrower rises to the extent permitted by the terms of the loan, thereby increasing the potential for default. At the same time, the marketability of the underlying property may be adversely affected by higher interest rates. The Association believes that these risks have not had a material adverse effect on the Association to date. Home Equity Loans. In recent years, lines of credit secured by the equity in a borrower's principal residence have become increasingly popular. The Association offers home equity lines of credit in an amount which, when added to any prior indebtedness secured by the real estate, does not exceed 95% of the appraised value of the real estate. The Association's home equity loans have terms of up to 30 years. The borrower can draw on the line of credit during the first 15 years and must repay the loan during the second 15 years. Home equity loans are typically secured by a second mortgage on the real estate. The Association frequently holds the first mortgage, although the Association will make home equity loans in cases where another lender holds the first mortgage. The interest rates charged by the Association on home equity loans adjust quarterly and are tied to the composite prime rate of 75% of the thirty largest U.S. banks, as published in The Wall Street Journal. At December 31, 2000, the Association had $21.7 million, or 6% of total loans, in home equity loans. Loans Secured by Multifamily Real Estate. In addition to loans on one- to four-family properties, the Association originates loans secured by multifamily properties containing over four units. Multifamily loans are offered with adjustable rates for terms of up to 30 years and have a maximum LTV of 80%. Multifamily lending is generally considered to involve a higher degree of risk than one- to four-family residential lending because the borrower typically depends upon income generated by the project to cover operating expenses and debt service. The profitability of a project can be affected by economic conditions, government policies and other factors beyond the control of the borrower. The Association attempts to reduce the risk associated with multifamily lending by evaluating the creditworthiness of the borrower and the projected income from the project and by obtaining personal guarantees on loans made to corporations and partnerships. The Association requests that borrowers submit rent rolls and that all borrowers submit financial statements annually to enable the Association to monitor such loans. At December 31, 2000, loans secured by multifamily properties totaled $12.5 million, or 3% of total loans. Loans Secured by Nonresidential Real Estate. At December 31, 2000, $16.6 million, or 4%, of the Association's total loans were secured by permanent mortgages on nonresidential real estate. Such loans have adjustable rates, terms of up to 25 years and LTVs of up to 75%. Among the properties securing nonresidential real estate loans are office buildings and motel and retail properties located in the Association's primary market area. Although the loans secured by nonresidential real estate typically have higher interest rates than one- to four-family residential real estate loans, nonresidential real estate lending is generally considered to involve a higher degree of risk than residential lending due to the relatively larger loan amounts and the effects of general economic conditions on the successful operation of income-producing properties. The Association has endeavored to reduce such risk by evaluating the credit history and past performance of the borrower, the location of the real estate, the financial condition of the borrower, the quality and characteristics of the income stream generated by the property and appraisals supporting the property's valuation. The Association also makes loans for the construction of nonresidential real estate. Construction Loans. The Association makes loans for the construction of single-family houses, multifamily properties and nonresidential real estate projects. At December 31, 2000, the Association's loan portfolio included $13.8 million in construction loans, net of undisbursed proceeds, or 4% of total loans. The Association's construction loan portfolio at December 31, 2000, consisted primarily of loans to individuals and builders for the construction and permanent financing of single-family residences. Such loans are offered with fixed or adjustable rates for terms of up to 30 years. During the first year, while the residence is being constructed, the borrower is required to pay interest only. At December 31, 2000, loans for the construction of nonresidential real estate totaled $1.6 million. Construction loans, particularly loans involving nonresidential real estate, generally involve greater underwriting and default risks than do loans secured by mortgages on existing properties. Loan funds are advanced upon the security of the project under construction, which is more difficult to value before the completion of construction. Moreover, because of the uncertainties inherent in estimating construction costs, it is relatively difficult to evaluate accurately the LTV and the total loan funds required to complete a project. In the event default on a construction loan occurs and foreclosure follows, the Association would have to take control of the project and attempt either to arrange for completion of construction or dispose of the unfinished project. All of the Association's construction loans are secured by property in the Association's primary market area. Commercial Loans. The Association occasionally makes commercial loans to businesses in its primary market area. Such loans are typically secured by a security interest in inventory, accounts receivable or other assets of the borrower. At December 31, 2000, the Association's commercial loan portfolio was $1.2 million, or less than 1% of total loans. Consumer Loans. The Association makes various types of consumer loans, including education loans, loans made to depositors on the security of their deposit accounts, automobile loans, unsecured personal loans, and other secured loans. Consumer loans are made at fixed rates of interest and for varying terms based on the type of loan. At December 31, 2000, the Association had $9.8 million, or 3% of total loans, invested in consumer loans. Consumer loans, particularly consumer loans that are unsecured or are secured by rapidly depreciating assets such as automobiles, may entail greater risk than do residential real estate loans. Repossessed collateral for a defaulted consumer loan may not provide an adequate source of repayment of the outstanding loan balance. The risk of default on consumer loans increases during periods of recession, high unemployment and other adverse economic conditions. Loan Solicitation and Processing. Loan originations are developed from a number of sources, including continuing business with depositors, other borrowers and residential housing builders, solicitations by the Association's lending staff and, to a limited extent, through the use of local independent mortgage brokers, and walk-in customers. Loan applications for permanent real estate loans are taken by loan personnel in the office where the loan is originated. The Association typically obtains a credit report, verification of employment and other documentation concerning the creditworthiness of the borrower. An appraisal of the fair market value of the real estate, which will be given as security for the loan, is prepared by a staff appraiser or a fee appraiser approved by the Board of Directors. Upon the completion of the appraisal and the receipt of information on the credit history of the borrower, the application for a loan is submitted for review in accordance with the Association's underwriting guidelines to the Association's Executive Committee or Underwriting Committee. All loans are ratified by the full Board of Directors. Under the Association's current loan guidelines, if a real estate loan application is approved, title insurance is usually obtained on the real estate that will secure the mortgage loan. In the past, the Association used an attorney's opinion for single-family loans, whereas title insurance was typically used for nonresidential real estate loans. Borrowers are required to carry satisfactory fire and casualty insurance and flood insurance, if applicable, and to name the Association as an insured mortgagee. The procedure for approval of construction loans is the same as for permanent real estate loans, except that an appraiser evaluates the building plans, construction specifications and estimates of construction costs. The Association also evaluates the feasibility of the proposed construction project and the experience and record of the builder. Consumer loans are underwritten on the basis of the borrower's credit history and an analysis of the borrower's income and expenses, ability to repay the loan and the value of the collateral, if any. Loan Originations, Purchases and Sales. The Association originates both fixed-rate and ARM loans for its portfolio. A majority of the loans in the Association's portfolio conform to the secondary market standards of the FHLMC or the Federal National Mortgage Association (the "FNMA"). In an effort to reduce interest rate risk and due to the favorable market conditions to do so, the Association initiated a program in 1998 to sell a portion of the Association's fixed-rate loan originations in the secondary market. The Association intends to continue to charge a higher interest rate on loans that do not conform to FHLMC or FNMA standards to mitigate the increased interest rate risk associated with loans that cannot be readily sold. At December 31, 2000, the Association had $37.9 million of loans serviced for others. The following table presents the Association's loan origination, purchase and sale activity for the periods indicated:

Federal Lending Limit. OTS regulations impose a lending limit on the aggregate amount that a savings association can lend to one borrower to an amount equal to 15% of the association's total capital for risk-based capital purposes plus any loan loss reserves not already included in total capital (the "Lending Limit Capital"). A savings association may loan to one borrower an additional amount not to exceed 10% of the association's Lending Limit Capital, if the additional amount is fully secured by certain forms of "readily marketable collateral." Real estate is not considered "readily marketable collateral." An exception to this limit permits loans of any type to one borrower of up to $500,000. In addition, the OTS, under certain circumstances, may permit exceptions to the lending limit on a case- by-case basis. In applying these limits, the regulations require that loans to certain related or affiliated borrowers be aggregated. Based on such limits, the Association was able to lend approximately $6.0 million to one borrower at December 31, 2000. The largest amount the Association had outstanding to one borrower and related persons or entities at December 31, 2000, was $5.4 million, consisting of a number of residential rental and commercial motel properties in the Association's primary market area. Loan Origination and Other Fees. The Association realizes loan origination fee and other fee income from its lending activities and also realizes income from late payment charges, application fees and fees for other miscellaneous services. Loan origination fees and other fees are a volatile source of income, varying with the volume of lending, loan repayments and general economic conditions. All nonrefundable loan origination fees and certain direct loan origination costs are deferred and recognized in accordance with Statement of Financial Accounting Standards No. 91 as an adjustment to yield over the life of the related loan. Delinquent Loans, Nonperforming Assets and Classified Assets. Delinquent loans are loans for which payment has not been received within 30 days of the payment due date. Loan payments are due on the first day of the month with the interest portion of the payment applicable to interest accrued during the prior month. When loan payments have not been made by the thirtieth of the month, late notices are sent to the borrower. If payment is not received by the sixtieth day, second notices are sent and telephone calls are made. Each loan bears a late payment penalty which is assessed as soon as such loan is more than 15 days delinquent. The late penalty is 5% of the payment due. When a loan secured by real estate becomes delinquent more than 90 days, the Board of Directors reviews the loan and foreclosure proceedings are instituted if the Board determines that the delinquency is not likely to be resolved in a reasonable period of time. An appraisal of the security is performed when foreclosure proceedings are initiated. If the appraisal indicates that the value of the collateral is less than the book value of the loan, a valuation allowance is established for such loan. When a consumer loan becomes more than 120 days past due, the loan is classified loss and a specific reserve is established for the book balance of the loan. The following table reflects the amount of loans in a delinquent status as of the dates indicated:

Nonperforming assets include nonaccruing loans, accruing loans that are delinquent 90 days or more, real estate acquired by foreclosure or by deed-in-lieu thereof, and repossessed assets. The Association ceases to accrue interest on real estate loans if the collateral value is not adequate, in the opinion of management, to cover the outstanding principal and interest. The following table sets forth information with respect to the accrual and nonaccrual status of the Association's loans and other nonperforming assets at the dates indicated:

For the year ended December 31, 2000, gross interest income which would have been recorded had nonaccruing loans been current in accordance with their original terms was $45,000. Interest collected on such loans and included in net income was $20,000. Real estate acquired by the Association as a result of foreclosure proceedings is classified as real estate owned ("REO") until it is sold. REO is recorded by the Association at the estimated fair value of the real estate at the date of acquisition, less estimated selling expenses, and any write-down resulting therefrom is charged to the allowance for loan losses. Interest accrual, if any, ceases no later than the date of acquisition of the real estate, and all costs incurred from such date in maintaining the property are expensed. Costs relating to the development and improvement of the property are capitalized to the extent of fair value. The Association classifies its own assets on a monthly basis in accordance with federal regulations. Problem assets are classified as "substandard," "doubtful" or "loss." "Substandard" assets have one or more defined weaknesses and are characterized by the distinct possibility that the Association will sustain some loss if the deficiencies are not corrected. "Doubtful" assets have the same weaknesses as "substandard" assets, with the additional characteristics that (i) the weaknesses make collection or liquidation in full on the basis of currently existing facts, conditions and values questionable and (ii) there is a high possibility of loss. An asset classified "loss" is considered uncollectible and of such little value that its continuance as an asset of the Association is not warranted. The aggregate amounts of the Association's classified assets at the dates indicated were as follows:

The Association establishes general allowances for loan losses for any loan classified as substandard or doubtful. If an asset, or portion thereof, is classified as loss, the Association establishes specific allowances for losses in the amount of 100% of the portion of the asset classified loss. Generally, the Association charges off the portion of any real estate loan deemed to be uncollectible. The Association analyzes each classified asset on a monthly basis to determine whether a change in its classification is appropriate under the circumstances. Such analysis focuses on a variety of factors, including the amount of any delinquency and the reasons for the delinquency, if any, the use of the real estate securing the loan, the status of the borrower and the appraised value of the real estate. As such factors change, the classification of the asset will change accordingly. Allowance for Loan Losses. Senior management, with oversight by the Board, reviews on a monthly basis the allowance for loan losses as it relates to a number of relevant factors, including but not limited to, trends in the level of delinquent and nonperforming assets and classified loans, current economic conditions in the primary lending area, past loss experience and probable losses arising from specific problem assets. To a lesser extent, management also considers loan concentrations to single borrowers and changes in the composition of the loan portfolio. While management believes that it uses the best information available to determine the allowance for loan losses, unforeseen market conditions could result in adjustments, and net income could be significantly affected if circumstances differ substantially from the assumptions used in making the final determination. The foregoing statement regarding the adequacy of the allowance for loan losses is a "forward-looking" statement within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Factors that could affect the adequacy of the loan loss allowance include, but are not limited to, the following: (1) changes in the national and local economy which may negatively impact the ability of borrowers to repay their loans and which may cause the value of real estate and other properties that secure outstanding loans to decline; (2) unforeseen adverse changes in circumstances with respect to certain large loans; (3) decreases in the value of collateral securing consumer loans to amounts less than the outstanding balances of the consumer loans; and (4) determinations by various regulatory agencies that the Association must recognize additions to its loan loss allowance based on such regulators' judgment of information available to them at the time of their examinations. The following table sets forth an analysis of the Association's allowance for loan losses for the periods indicated:

Because the loan loss allowance is based on estimates, it is monitored monthly and adjusted as necessary to provide an adequate allowance. Investment Activities Federal regulation and Ohio law permit the Association to invest in various types of securities, including interest- bearing deposits in other financial institutions, U.S. Treasury and agency obligations, mortgage- backed securities and certain other specified securities. The Board of Directors of the Association has adopted an investment policy which authorizes management to make investments in U.S. Government and agency securities, deposits in the FHLB, certificates of deposit in federally- insured financial institutions, banker's acceptances issued by major U.S. banks, corporate debt securities rated at least "AA," or equivalent, by a major statistical rating firm and municipal or other tax free obligations. The Association's security policy is designed primarily to provide and maintain liquidity within regulatory guidelines, to maintain a balance of high quality security to minimize risk and to maximize return without sacrificing liquidity and safety. The following table sets forth the composition of the Association's interest-bearing deposits, securities and mortgage-backed securities at the dates indicated:

The maturities of the Association's interest-bearing deposits, securities and mortgage-backed securities at December 31, 2000, are as follows:

Not included in this table is $3.0 million of FHLMC preferred stock which has no stated maturity. Deposits and Borrowings General. Deposits have traditionally been the primary source of the Association's funds for use in lending and other investment activities. In addition to deposits, the Association derives funds from interest payments and principal repayments on loans and income on interest-earning assets. Loan payments are a relatively stable source of funds, while deposit inflows and outflows fluctuate more in response to general interest rates and money market conditions. The Association also utilizes FHLB advances as an alternative source of funds. Deposits. Deposits are attracted principally from within the Association's primary market area through the offering of a broad selection of deposit instruments, including NOW accounts, demand deposit accounts, money market accounts, regular passbook savings accounts, term certificate accounts, IRAs and Keogh accounts. Interest rates paid, maturity terms, service fees and withdrawal penalties for the various types of accounts are established periodically by management based on the Association's liquidity requirements, growth goals and interest rates paid by competitors. The Association does not use brokers to attract deposits. The amount of deposits from outside the Association's primary market area is not significant. At December 31, 2000, the Association's certificates of deposit totaled $229.3 million, or 73% of total deposits. Of such amount, approximately $164.0 million in certificates of deposit mature within one year. Based on past experience and the Association's prevailing pricing strategies, management believes that a substantial percentage of such certificates will be renewed with the Association at maturity. If deviation from historical experience occurs, the Association can utilize borrowings from the FHLB of Cincinnati as an alternative source of funds, up to the Association's limit on such borrowings, which was $213.8 million at December 31, 2000. The following table sets forth the dollar amount of deposits in the various types of accounts offered by the Association at the dates indicated:

The Association bids on deposits of public funds from entities in its primary market area. The amount of such deposits was approximately $24.7 million at December 31, 2000. The following table shows rate and maturity information for the Association's certificates of deposit at December 31, 2000:

The following table presents the amount of the Association's certificates of deposit of $100,000 or more, by the time remaining until maturity, at December 31, 2000:

Borrowings. The FHLB system functions as a central reserve bank, providing credit for its member institutions and certain other financial institutions. As a member in good standing of the FHLB of Cincinnati, the Association is authorized to apply for advances from the FHLB of Cincinnati, provided certain standards of creditworthiness have been met. Under current regulations, an association must meet certain qualifications to be eligible for FHLB advances. Generally, if an association does not have positive tangible capital, it is not eligible for new advances. At December 31, 2000, the Association had positive tangible capital. The following table sets forth the maximum month-end balance and average balance of the Association's FHLB advances during the periods indicated:

At December 31, 2000, the Association had outstanding FHLB advances totaling $50.0 million, with a weighted average interest rate of 6.52%. Competition The Association competes for deposits with other savings associations, savings banks, commercial banks and credit unions and with the issuers of commercial paper and other securities, such as shares in money market mutual funds. The primary factors in competing for deposits are interest rates and convenience of office location. In making loans, the Association competes with other savings banks, savings associations, commercial banks, mortgage brokers, consumer finance companies, credit unions, leasing companies and other lenders. The Association competes for loan originations primarily through the interest rates and loan fees it charges and through the efficiency and quality of services it provides to borrowers. Competition is intense and is affected by, among other things, the general availability of lendable funds, general and local economic conditions, current interest rate levels and other factors that are not readily predictable. The Association does not offer all of the products and services offered by some of its competitors, particularly commercial banks. The Association monitors the product offerings of its competitors and adds new products when it can do so competitively and cost effectively. The size of financial institutions competing with the Association is likely to increase as a result of changes in statutes and regulations eliminating various restrictions on interstate and inter-industry branching and acquisitions. Such increased competition may have an adverse effect upon the Association. Employees As of December 31, 2000, the Association had 89 full-time employees and 10 part-time employees. The Association believes that relations with its employees are excellent. The Association offers health and disability benefits, life insurance and an employee stock ownership plan. None of the employees of the Association are represented by a collective bargaining unit. REGULATION General As a savings and loan association incorporated under the laws of Ohio, Industrial is subject to regulation, examination and oversight by the OTS and the Division. Because Industrial's deposits are insured by the FDIC, Industrial also is subject to general oversight by the FDIC. Industrial must file periodic reports with the OTS, the Ohio Superintendent and the FDIC concerning its activities and financial condition. Examinations are conducted periodically by federal and state regulators to determine whether Industrial is in compliance with various regulatory requirements and is operating in a safe and sound manner. Industrial is a member of the FHLB of Cincinnati. The Holding Company is a savings and loan holding company within the meaning of the Home Owners Loan Act, as amended (the "HOLA") and is, therefore, subject to regulation, examination, and oversight by the OTS and is required to submit periodic reports to the OTS. Because the Holding Company and Industrial are corporations organized under Ohio law, they are also subject to the provisions of the Ohio Revised Code applicable to corporations generally. On November 12, 1999, the Gramm-Leach-Bliley Act (the "GLB Act") was enacted into law. Prior to the GLB Act, unitary savings and loan holding companies which met certain requirements were the only financial institution holding companies that were permitted to engage in any type of business activity, whether or not the activity was a financial service. The GLB Act continues those broad powers for unitary thrift holding companies in existence on May 4, 1999, including the Holding Company. The GLB authorizes a new "financial holding company," which can own banks and thrifts and which is also permitted to engage in a variety of financial activities, including insurance and securities underwriting and agency activities, as long as the depository institutions it owns are well capitalized, well managed and meet certain other tests. The GLB Act is not expected to have a material effect on the activities in which the Holding Company and Industrial currently engage, except to the extent that competition from other types of financial institutions may increase as they engage in activities not permitted prior to enactment of the GLB Act. Ohio Savings and Loan Law The Division is responsible for the regulation and supervision of Ohio savings and loan associations in accordance with the laws of the State of Ohio. Ohio law prescribes the permissible investments and activities of Ohio savings and loan associations, including the types of lending that such associations may engage in and the investments in real estate, subsidiaries, and corporate or government securities that such associations may make. The ability of Ohio associations to engage in these state-authorized investments and activities is subject to oversight and approval by the FDIC, if such investments or activities are not permissible for a federally-chartered savings and loan association. The Division also has approval authority over any mergers involving, or acquisitions of control of, Ohio savings and loan associations. The Ohio Superintendent may initiate certain supervisory measures or formal enforcement actions against Ohio associations. Ultimately, if the grounds provided by law exist, the Division may place an Ohio association in conservatorship or receivership. The Division conducts regular examinations of Industrial approximately once every eighteen months. Such examinations are usually conducted jointly with one or both federal regulators. The Division imposes assessments on Ohio associations based on their asset size to cover the cost of supervision and examination. Office of Thrift Supervision General. The OTS is an office in the Department of the Treasury and is responsible for the regulation and supervision of all federally-chartered savings and loan associations and all other savings and loan associations, the deposits of which are insured by the FDIC. The OTS issues regulations governing the operation of savings and loan associations, regularly examines such associations and imposes assessments on savings associations based on their asset size to cover the costs of this supervision and examination. The OTS also may initiate enforcement actions against savings and loan associations and certain persons affiliated with them for violations of laws or regulations or for engaging in unsafe or unsound practices. If the grounds provided by law exist, the OTS may appoint a conservator or receiver for a savings and loan association. Savings associations are subject to regulatory oversight under various consumer protection and fair lending laws. These laws govern, among other things, truth-in-lending disclosures, equal credit opportunity, fair credit reporting and community reinvestment. Failure to abide by federal laws and regulations governing community reinvestment could limit the ability of an association to open a new branch or engage in a merger. Community reinvestment regulations evaluate how well and to what extent an institution lends and invests in its designated service area, with particular emphasis on low- to moderate-income communities and borrowers in that area. Industrial has received a "satisfactory" examination rating under those regulations. Regulatory Capital Requirements. Industrial is required by OTS regulations to meet certain minimum capital requirements. Current capital requirements call for tangible capital of 1.5% of adjusted total assets, core capital (which for Industrial consists solely of tangible capital) of 3.0% of adjusted total assets, except for institutions with the highest examination rating and acceptable levels of risk, and risk-based capital (which for Industrial consists of core capital and general valuation allowances) of 8.0% of risk-weighted assets (assets, including certain off- balance sheet items, are weighted at percentage levels ranging from 0% to 100% depending on the relative risk). The OTS has adopted an interest rate risk component to the risk-based capital requirement, though the implementation of that component has been delayed. Pursuant to that requirement a savings association must measure the effect of an immediate 200 basis point change in interest rates on the value of its portfolio as determined under the methodology of the OTS. If the measured interest rate risk is above the level deemed normal under the regulation, Industrial will be required to deduct one-half of such excess exposure from its total capital when determining its risk-based capital. In general, an association with less than $300 million in assets and a risk- based capital ratio in excess of 12% is not subject to the interest rate risk component. The OTS has adopted regulations governing prompt corrective action to resolve the problems of capital deficient and otherwise troubled savings and loan associations. At each successively lower defined capital category, an association is subject to more restrictive and numerous mandatory or discretionary regulatory actions or limits, and the OTS has less flexibility in determining how to resolve the problems of the institution. In addition, the OTS generally can downgrade an association's capital category, notwithstanding its capital level, if, after notice and opportunity for hearing, the association is deemed to be engaging in an unsafe or unsound practice because it has not corrected deficiencies that resulted in it receiving a less than satisfactory examination rating on matters other than capital or it is deemed to be in an unsafe or unsound condition. An undercapitalized association must submit a capital restoration plan to the OTS within 45 days after it becomes undercapitalized. Undercapitalized associations will be subject to increased monitoring and asset growth restrictions and will be required to obtain prior approval for acquisitions, branching and engaging in new lines of business. Critically undercapitalized institutions must be placed in conservatorship or receivership within 90 days of reaching that capitalization level, except under limited circumstances. Industrial's capital at December 31, 2000, met the standards for a well-capitalized institution. Federal law prohibits a savings and loan association from making a capital distribution to anyone or paying management fees to any person having control of the association if, after such distribution or payment, the association would be undercapitalized. In addition, each company controlling an undercapitalized association must guarantee that the association will comply with its capital plan until the association has been adequately capitalized on an average during each of four preceding calendar quarters and must provide adequate assurances of performance. The aggregate liability pursuant to such guarantee is limited to the lesser of (i) an amount equal to 5% of the association's total assets at the time the association became undercapitalized or (ii) the amount that is necessary to bring the association into compliance with all capital standards applicable to such association at the time the association fails to comply with its capital restoration plan. Liquidity. OTS regulations require that savings associations maintain an average daily balance of liquid assets (cash, certain time deposits, association's acceptances, and specified United States Government, state or federal agency obligations) equal to a monthly average of not less than 4% of its net withdrawable savings deposits plus borrowings payable in one year or less. Monetary penalties may be imposed upon member institutions failing to meet liquidity requirements. The eligible liquidity of Industrial at December 31, 2000, was approximately $25.7 million, or 6.42%, which exceeded the 4% liquidity requirement by approximately $6.1 million. Qualified Thrift Lender Test. Savings associations must meet one of two possible tests in order to be a qualified thrift lender ("QTL"). The first test requires a savings association to maintain a specified level of investments in assets that are designated as qualifying thrift investments ("QTI"), which are generally related to domestic residential real estate and manufactured housing and include credit card, student and small business loans and stock issued by any FHLB, the FHLMC or the FNMA. Under this test 65% of an institution's "portfolio assets" (total assets less goodwill and other intangibles, property used to conduct business, and 20% of liquid assets) must consist of QTI on a monthly average basis in nine out of every 12 months. The second test permits a savings association to qualify as a QTL by meeting the definition of "domestic building and loan association" under the Internal Revenue Code of 1986, as amended (the "Code"). In order for an institution to meet the definition of a "domestic building and loan association" under the Code, at least 60% of such institution's assets must consist of specified types of property, including cash loans secured by residential real estate or deposits, educational loans and certain governmental obligations. The OTS may grant exceptions to the QTL tests under certain circumstances. If a savings association fails to meet one of the QTL tests, the association and its holding company become subject to certain operating and regulatory restrictions. At December 31, 2000, Industrial qualified as a QTL. Transactions with Insiders and Affiliates. Loans to executive officers, directors, and principal shareholders and their related interests must conform to the lending limit on loans to one borrower, and the total of such loans to executive officers, directors, principal shareholders, and their related interests cannot exceed Industrial's Lending Limit Capital (or 200% of Lending Limit Capital for qualifying institutions with less than $100 million in deposits). Most loans to directors, executive officers, and principal shareholders must be approved in advance by a majority of the "disinterested" members of the board of directors of Industrial with any "interested" director not participating. All loans to directors, executive officers, and principal shareholders must be made on terms substantially the same as offered in comparable transactions with the general public or as offered to all employees in a company-wide benefit program, and loans to executive officers are subject to additional limitations. Industrial was in compliance with such restrictions at December 31, 2000. All transactions between a savings association and its affiliates must comply with Sections 23A and 23B of the Federal Reserve Act (the "FRA"). An affiliate of a savings association is any company or entity that controls, is controlled by or is under common control with, the savings association. The Holding Company will be an affiliate of Industrial. Generally, Sections 23A and 23B of the FRA (i) limit the extent to which a savings association or its subsidiaries may engage in "covered transactions" with any one affiliate to an amount equal to 10% of such institution's capital stock and surplus, (ii) limit the aggregate of all such transactions with all affiliates to an amount equal to 20% of such capital stock and surplus, and (iii) require that all such transactions be on terms substantially the same, or at least as favorable to the association, as those provided in transactions with a non-affiliate. The term "covered transaction" includes the making of loans, purchase of assets, issuance of a guarantee, and other similar types of transactions. In addition to the limits in Sections 23A and 23B, a savings association may not make any loan or other extension of credit to an affiliate unless the affiliate is engaged only in activities permissible for a bank holding company and may not purchase or invest in securities of any affiliate except shares of a subsidiary. Industrial was in compliance with these requirements and restrictions at December 31, 2000. Limitations on Capital Distributions. The OTS imposes various restrictions or requirements on the ability of associations to make capital distributions. Capital distributions include, without limitation, payments of cash dividends, repurchases, and certain other acquisitions by an association of its shares and payments to stockholders of another association in an acquisition of such other association. An application must be submitted and approval from the OTS must be obtained by a subsidiary of a savings and loan holding company (i) if the proposed distribution would cause total distributions for the calendar year to exceed net income for that year to date plus the retained net income for the preceding two years; (ii) if the savings association will not be at least adequately capitalized following the capital distribution; or (iii) if the proposed distribution would violate a prohibition contained in any applicable statute, regulation or agreement between the savings association and the OTS (or the FDIC), or violate a condition imposed on the savings association in an OTS-approved application or notice. If a savings association subsidiary of a holding company is not required to file an application, it must file a notice of the proposed capital distribution with the OTS. Industrial is also prohibited from declaring or paying any dividends or from repurchasing any of its stock if, as a result, the net worth of Industrial would be reduced below the amount required to be maintained for the liquidation account established in connection with the Conversion. In addition, as a subsidiary of the Holding Company, Industrial is also required to give the OTS 30 days' notice prior to declaring any dividend on its stock. The OTS may object to the dividend during that 30-day period based on safety and soundness concerns. Moreover, the OTS may prohibit any capital distribution otherwise permitted by regulation if the OTS determines that such distribution would constitute an unsafe or unsound practice. Holding Company Regulation. The Holding Company is a savings and loan holding company within the meaning of the HOLA. As such, the Holding Company has registered with the OTS and is subject to OTS regulations, examination, supervision, and reporting requirements. The HOLA generally prohibits a savings and loan holding company from controlling any other savings and loan association or savings and loan holding company, without prior approval of the OTS, or from acquiring or retaining more than 5% of the voting shares of a savings and loan association or holding company thereof which is not a subsidiary. Under certain circumstances, a savings and loan holding company is permitted to acquire, with the approval of the OTS, up to 15% of the previously unissued voting shares of an undercapitalized savings and loan association for cash without being deemed to control the association. Except with the prior approval of the OTS, no director or officer of a savings and loan holding company or person owning or controlling by proxy or otherwise more than 25% of such company's stock may also acquire control of any savings institution, other than a subsidiary institution, or any other savings and loan holding company. The Holding Company is a unitary savings and loan holding company. Under current law, there are generally no restrictions on the activities of unitary savings and loan holding companies in existence on May 4, 1999 and such companies are the only financial institution holding companies which may engage in commercial, securities, and insurance activities without limitation. The broad latitude under current law can be restricted if the OTS determines that there is reasonable cause to believe that the continuation by a savings and loan holding company of an activity constitutes a serious risk to the financial safety, soundness, or stability of its subsidiary savings and loan association. The OTS may impose such restrictions as deemed necessary to address such risk, including limiting (i) payment of dividends by the savings and loan association; (ii) transactions between the savings and loan association and its affiliates; and (iii) any activities of the savings and loan association that might create a serious risk that the liabilities of the holding company and its affiliates may be imposed on the savings and loan association. Notwithstanding the foregoing rules as to permissible business activities of a unitary savings and loan holding company, if the savings and loan association subsidiary of a holding company fails to meet the QTL, then such unitary holding company would become subject to the activities restrictions applicable to multiple holding companies. At December 31, 2000, Industrial met the QTL. If the Holding Company were to acquire control of another savings institution, other than through a merger or other business combination with Industrial, the Holding Company would become a multiple savings and loan holding company and the activities of the Holding Company and any of its subsidiaries (other than Industrial or other subsidiary savings and loan associations) would thereafter be subject to activity restrictions. The OTS may approve an acquisition resulting in the formation of a multiple savings and loan holding company that controls savings and loan associations in more than one state only if the multiple savings and loan holding company involved controls a savings and loan association that operated a home or branch office in the state of Industrial to be acquired as of March 5, 1987, or if the laws of the state in which the institution to be acquired is located specifically permit institutions to be acquired by state-chartered institutions or savings and loan holding companies located in the state where the acquiring entity is located (or by a holding company that controls such state-chartered savings institutions). As under prior law, the OTS may approve an acquisition resulting in a multiple savings and loan holding company controlling savings and loan associations in more than one state in the case of certain emergency thrift acquisitions. Bank holding companies have had more expansive authority to make interstate acquisitions than savings and loan holding companies since August 1995. FDIC Regulations Deposit Insurance. The FDIC is an independent federal agency that insures the deposits, up to prescribed statutory limits, of federally- insured banks and thrifts and safeguards the safety and soundness of the banking and thrift industries. The FDIC administers two separate insurance funds, Bank Insurance Fund (the "BIF") for commercial banks and state savings banks and the SAIF for savings associations. The FDIC is required to maintain designated levels of reserves in each fund. Industrial's deposit accounts are insured by the FDIC in the SAIF up to the prescribed limits. The FDIC has examination authority over all insured depository institutions, including Industrial, and has authority to initiate enforcement actions against federally-insured savings associations if the FDIC does not believe the OTS has taken appropriate action to safeguard safety and soundness and the deposit insurance fund. The FDIC is required to maintain designated levels of reserves in each fund. The FDIC may increase assessment rates for either fund if necessary to restore the fund's ratio of reserves to insured deposits to its target level within a reasonable time and may decrease such rates if such target level has been met. The FDIC has established a risk-based assessment system for both SAIF and BIF members. Under this system, assessments vary based on the risk the institution poses to its deposit insurance fund. The risk level is determined based on the institution's capital level and the FDIC's level of supervisory concern about the institution. FRB Regulations FRB regulations currently require savings associations to maintain reserves of 3% of net transaction accounts (primarily NOW accounts) up to $42.8 million (subject to an exemption of up to $5.5 million), and of 10% of net transaction accounts over $42.8 million. At December 31, 2000, Industrial was in compliance with this reserve requirement. Federal Home Loan Banks The FHLBs provide credit to their members in the form of advances. Industrial is a member of the FHLB of Cincinnati and must maintain an investment in the capital stock of the FHLB of Cincinnati in an amount equal to the greater of 1% of the aggregate outstanding principal amount of Industrial's residential mortgage loans, home purchase contracts, and similar obligations at the beginning of each year, and 5% of its advances from the FHLB. Industrial was in compliance with this requirement with an investment in stock of the FHLB of Cincinnati of $3.8 million at December 31, 2000. Generally, the FHLB is not permitted to make new advances to a member without positive tangible capital. Upon the origination or renewal of a loan or advance, the FHLB of Cincinnati is required by law to obtain and maintain a security interest in collateral in one or more of the following categories: fully disbursed, whole first mortgage loans on improved residential property or securities representing a whole interest in such loans; securities issued, insured or guaranteed by the U.S. Government or an agency thereof; deposits in any FHLB; or other real estate related collateral (up to 30% of the member association's capital) acceptable to the applicable FHLB, if such collateral has a readily ascertainable value and the FHLB can perfect its security interest in the collateral. Each FHLB is required to establish standards of community investment or service that its members must maintain for continued access to long-term advances from the FHLBs. The standards take into account a member's performance under the Community Reinvestment Act and its record of lending to first-time home buyers. All long-term advances by each FHLB must be made only to provide funds for residential housing finance. TAXATION Federal Taxation The Holding Company and Industrial are each subject to the federal tax laws and regulations that apply to corporations generally. In addition to the regular income tax, the Holding Company and Industrial may be subject to an alternative minimum tax. An alternative minimum tax is imposed at a minimum tax rate of 20% on "alternative minimum taxable income" (which is the sum of a corporation's regular taxable income, with certain adjustments, and tax preference items), less any available exemption. Such tax preference items include interest on certain tax-exempt bonds issued after August 7, 1986. In addition, 75% of the amount by which a corporation's "adjusted current earnings" exceeds its alternative minimum taxable income computed without regard to this preference item and prior to reduction by net operating losses, is included in alternative minimum taxable income. Net operating losses can offset no more than 90% of alternative minimum taxable income. The alternative minimum tax is imposed to the extent it exceeds the corporation's regular income tax. Payments of alternative minimum tax may be used as credits against regular tax liabilities in future years. The Taxpayer Relief Act of 1997 repealed the alternative minimum tax for certain "small corporations" for tax years beginning after December 31, 1997. A corporation initially qualifies as a small corporation if it had average gross receipts of $5,000,000 or less for the three tax years ending with its first tax year beginning after December 31, 1997. Once a corporation is recognized as a small corporation, it will continue to be exempt from the alternative minimum tax for as long as its average gross receipts for the prior three-year period do not exceed $7,500,000. In determining if a corporation meets this requirement, the first year that it achieved small corporation status is not taken into consideration. Based on Industrial's average gross receipts of $30.0 million for the three tax years ending on December 31, 2000, Industrial would not qualify as a small corporation exempt from the alternative minimum tax. Prior to the enactment of the Small Business Jobs Protection Act (the "Small Business Act"), which was signed into law on August 21, 1996, certain thrift institutions, were allowed deductions for bad debts under methods more favorable than those granted to other taxpayers. Qualified thrift institutions could compute deductions for bad debts using either the specific charge off method of Section 166 of the Code, or one of the two reserve methods of Section 593 of the Code. The reserve methods under Section 593 of the Code permitted a thrift institution annually to elect to deduct bad debts under either (i) the "percentage of taxable income" method applicable only to thrift institutions, or (ii) the "experience" method that also was available to small banks. Under the "percentage of taxable income" method, a thrift institution generally was allowed a deduction for an addition to its bad debt reserve equal to 8% of its taxable income (determined without regard to this deduction and with additional adjustments). Under the experience method, a thrift institution was generally allowed a deduction for an addition to its bad debt reserve equal to the greater of (i) an amount based on its actual average experience for losses in the current and five preceding taxable years, or (ii) an amount necessary to restore the reserve to its balance as of the close of the base year. A thrift institution could elect annually to compute its allowable addition to bad debt reserves for qualifying loans under either the experience method or the percentage of taxable income method. The Small Business Act eliminated the percentage of taxable-income reserve method of accounting for bad debts by thrift institutions, effective for taxable years beginning after 1995. Thrift institutions that would be treated as small banks are allowed to use the experience method applicable to such institutions, while thrift institutions that are treated as large banks are required to use only the specific charge off method. A thrift institution required to change its method of computing reserves for bad debts will treat such change as a change in the method of accounting, initiated by the taxpayer, and having been made with the consent of the Secretary of the Treasury. Section 481(a) of the Code requires certain amounts to be recaptured with respect to such change. Generally, the amounts to be recaptured will be determined solely with respect to the "applicable excess reserves" of the taxpayer. The amount of the applicable excess reserves will be taken into account ratably over a six-taxable year period, beginning with the first taxable year beginning after 1995, subject to the residential loan requirement described below. In the case of a thrift institution that becomes a large bank, the amount of the institution's applicable excess reserves generally is the excess of (i) the balances of its reserve for losses on qualifying real property loans (generally loans secured by improved real estate) and its reserve for losses on nonqualifying loans (all other types of loans) as of the close of its last taxable year beginning before January 1, 1996, over (ii) the balances of such reserves as of the close of its last taxable year beginning before January 1, 1988 (i.e., the "pre-1988 reserves"). In the case of a thrift institution that becomes a small bank, the amount of the institution's applicable excess reserves generally is the excess of (i) the balances of its reserve for losses on qualifying real property loans and its reserve for losses on nonqualifying loans as of the close of its last taxable year beginning before January 1, 1996, over (ii) the greater of the balance of (a) its pre-1988 reserves or (b) what the thrift's reserves would have been at the close of its last year beginning before January 1, 1996, had the thrift always used the experience method. For taxable years that begin on or after January 1, 1996, and before January 1, 1998, if a thrift meets the residential loan requirement for a tax year, the recapture of the applicable excess reserves otherwise required to be taken into account as a Code Section 481(a) adjustment for the year will be suspended. A thrift meets the residential loan requirement if, for the tax year, the principal amount of residential loans made by the thrift during the year is not less then its base amount. The "base amount" generally is the average of the principal amounts of the residential loans made by the thrift during the six most recent tax years beginning before January 1, 1996. A residential loan is a loan as described in Section 7701(a)(19)(C)(v) (generally a loan secured by residential real and church property and certain mobile homes), but only to the extent that the loan is made to the owner of the property. The balance of the pre-1988 reserves is subject to the provisions of Section 593(e) as modified by the Small Business Act which require recapture in the case of certain excessive distributions to shareholders. The pre- 1988 reserves may not be utilized for payment of cash dividends or other distributions to a shareholder (including distributions in dissolution or liquidation) or for any other purpose (except to absorb bad debt losses). Distribution of a cash dividend by a thrift institution to a shareholder is treated as made: first, out of the institution's post-1951 accumulated earnings and profits; second, out of the pre-1988 reserves; and third, out of such other accounts as may be proper. To the extent a distribution by Industrial to the Holding Company is deemed paid out of its pre-1988 reserves under these rules, the pre-1988 reserves would be reduced and Industrial's gross income for tax purposes would be increased by the amount which, when reduced by the income tax, if any, attributable to the inclusion of such amount in its gross income, equals the amount deemed paid out of then pre-1988 reserves. As of December 31, 2000, Industrial's pre-1988 reserves for tax purposes totaled approximately $4.1 million. Industrial believes it had approximately $1.9 million of accumulated earnings and profits for tax purposes as of December 31, 2000, which would be available for dividend distributions, provided regulatory restrictions applicable to the payment of dividends are met. No representation can be made as to whether Industrial will have current or accumulated earnings and profits in subsequent years. The tax returns of Industrial have been audited or closed without audit through fiscal year 1996. In the opinion of management, any examination of open returns would not result in a deficiency which could have a material adverse effect on the financial condition of Industrial. Ohio Taxation The Holding Company is subject to the Ohio corporation franchise tax, which, as applied to the Holding Company, is a tax measured by both net earnings and net worth. The rate of tax is the greater of (i) 5.1% on the first $50,000 of computed Ohio taxable income and 8.5% of computed Ohio taxable income in excess of $50,000 and (ii) 0.4% times taxable net worth. Under these alternative measures of computing tax liability, the states to which a taxpayer's adjusted total net income and adjusted total net worth are apportioned or allocated are determined by complex formulas. The minimum tax is $50 per year. A special litter tax is also applicable to all corporations, including the Holding Company, subject to the Ohio corporation franchise tax other than "financial institutions." If the franchise tax is paid on the net income basis, the litter tax is equal to .11% of the first $50,000 of computed Ohio taxable income and .22% of computed Ohio taxable income in excess of $50,000. If the franchise tax is paid on the net worth basis, the litter tax is equal to .014% times taxable net worth Certain holding companies, such as the Holding Company, will qualify for complete exemption from the net worth tax if certain conditions are met. The Holding Company will most likely meet these conditions, and thus, calculate its Ohio franchise tax on the net income basis. While there is no annual limit on the tax calculated on income, the tax calculated on net worth is limited to $150,000 per year Industrial is a "financial institution" for State of Ohio tax purposes. As such, it is subject to the Ohio corporate franchise tax on "financial institutions," which is imposed annually at a rate of 1.3% of the Bank's apportioned book net worth, determined in accordance with generally accepted accounting principles, less any statutory deduction. As a "financial institution," Industrial is not subject to any tax based upon net income or net profits imposed by the State of Ohio. Item 2. Properties The following table sets forth certain information at December 31, 2000, regarding the office facilities of the Association:

Item 3. Legal Proceedings The Association is not presently involved in any material legal proceedings. From time to time, the Association is a party to legal proceedings incidental to its business to enforce its security interest in collateral pledged to secure loans made by the Association. Item 4. Submission of Matters to a Vote of Security Holders Not applicable. PART II Item 5. Market for Registrant's Common Equity and Related Shareholder Matters Common Stock Information The common shares of Industrial Bancorp are listed on the Nasdaq National Market under the symbol "INBI". There were 4,333,883 common shares outstanding at year-end 2000, held of record by approximately 1,310 shareholders. The following dividend and market price information includes daily high, low and closing sales prices of the common shares of Industrial Bancorp for each period indicated.

Item 6. Selected Financial Data

The dividend pay-out ratio (dividends declared per share as a percentage of basic earnings per share) of the Corporation was 53.7% for 2000, 53.7% for 1999 and 48.4% for 1998. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations In August 1995, the Corporation acquired all of the common shares issued by The Industrial Savings and Loan Association ("Industrial Savings") upon its conversion from a mutual savings and loan association to a stock savings and loan association (the "Conversion"). Since the ownership of such shares constitutes the principal business of Industrial Bancorp, the discussion below focuses principally on the financial condition and results of operations of Industrial Savings. On December 9, 2000, the Corporation and the Association entered into an Agreement and Plan of Merger, which was amended on January 30, 2001 (the "Agreement"), with United Community Financial Corp. ("UCFC") and The Home Savings and Loan Company of Youngstown, Ohio ("Home Savings"). The Agreement provides for the acquisition of the Corporation and the Association by UCFC and Home Savings. The acquisition will not be completed unless a majority of the shareholders of the Corporation approve the Agreement at the Special Meeting of Shareholders to be held on April 17, 2001. The following discussion and analysis of the Corporation, and its wholly-owned subsidiary, the Association, (together referred to as the "Company") should be read in conjunction with and with reference to the consolidated financial statements and accompanying notes. Changes In Financial Condition Total consolidated assets of the Company were $427.3 million at year- end 2000 compared to $389.0 million at year-end 1999. Loans receivable increased $36.3 million to $378.6 million at year-end 2000 from $342.3 million at year-end 1999. Loan originations exceeded $100 million for the fourth year in a row, with 79.2% of the originations being in the residential mortgage and real estate construction loan categories. Sales of fixed-rate mortgage loans in the secondary market totaled $13.3 million in 2000. Securities were $14.2 million at year-end 2000 compared to $14.3 million at year-end 1999. Maturities of U.S. Treasury and agency securities totaled $11.0 million and were replenished by purchases totaling $9.9 million. Unrealized gains on securities increased by $956,000 during the year. Cash and cash equivalents were $22.4 million at year-end 2000 compared to $10.0 million at year-end 1999. Office properties and equipment, net of accumulated depreciation, decreased to $5.3 million at year-end 2000 from $5.7 million at year-end 1999. The decrease is principally due to the depreciation of Company office properties and equipment. Total deposits increased $20.3 million, or 6.9%, to $314.5 at year-end 2000 from $294.2 million at year-end 1999. Transaction accounts, including passbook savings deposits, decreased $5.8 million while certificates of deposit increased $26.0 million. The Company has used advances from the FHLB to fund loan growth in excess of deposit growth. FHLB advances were $50.0 million at year-end 2000 compared to $37.0 million at year-end 1999. Shareholders' equity was $58.7 million at year-end 2000, compared to $54.6 million at year-end 1999. Net income of $5.7 million was offset by dividends to shareholders of $3.0 million and purchases of treasury shares at a cost of $300,000 during 2000. Unrealized gains on securities and other miscellaneous additions to shareholder equity amounted to $1.7 million in 2000. The table on the following page presents certain average-balance information, average yields and average costs for interest-earning assets and interest-bearing liabilities for the years indicated. Such yields and costs are derived by dividing income or expense by the average monthly balance of interest-earning assets or interest-bearing liabilities, respectively, for the years presented. Average balances are derived from monthly ending balances, which do not vary significantly from daily average balances.

The table below describes the extent to which changes in interest rates and changes in volume of interest-earning assets and interest-bearing liabilities have affected the interest income and interest expense of the Company during the years indicated. For each category of interest-earning assets and interest-bearing liabilities, information is provided for changes attributable to (i) increases and decreases in volume (change in volume multiplied by prior year rate), (ii) increases and decreases in rate (change in rate multiplied by prior year volume) and (iii) total increases and decreases in rate and volume. The combined effects of changes in both volume and rate, which cannot be separately identified, have been allocated proportionately to the change due to volume and the change due to rate.

Comparison of Operating Results Earnings Summary. The Company had consolidated net income of $5.7 million for 2000, compared to $5.3 million for 1999 and $5.7 million for 1998. The primary reason for the change in total net income between years was the change in net interest income and the gain on security sales in 2000. Net Interest Income. Net interest income of the Company is a function of the difference, or spread, between the average yield earned on loans and other interest-earning assets and the average rate paid on deposits and borrowings as well as the relative amounts of such assets and liabilities. The interest rate spread is affected by the economic and competitive factors that influence interest rates, loan demand and deposit flows. Net interest income was $14.5 million in 2000, an increase of $143,000 from $14.4 million in 1999, which was a decrease of $343,000 over $14.7 million in 1998. The higher net interest income in 2000 was primarily a result of increased levels of interest-earning assets, particularly loans receivable. The effect of the higher volume of loans receivable was somewhat offset by a narrower interest rate spread in 2000. An increase of 23 basis points in the average yield on interest-earning assets was more than offset by a 42 basis point in the average rate paid on interest-bearing liabilities. The decrease in net interest income in 1999 was primarily the result of reduced levels of average interest-bearing assets, particularly loan and securities, coupled with the lower interest rate environment during 1999. Total interest income was $32.1 million in 2000 up from $29.4 million in 1999, which was down from $30.6 million in 1998. New mortgage loan originations increased in 2000, while refinances declined. As a result, the average balance of loans receivable increased $33.0 million in 2000. The yield on loans increased to 8.33% in 2000 from 8.27% in 1999. The large number of refinances in 1999 resulted in a reduction of the average balance of loans receivable from 1998. The yield on loans decreased from 8.53% in 1998 to 8.27% in 1999. Interest earned on securities in both 2000 and 1999 was $1.1 million, a decline from $1.4 million in 1998. Income from interest-bearing deposits declined to $900,000 in 2000 from $1.1 million in 1999 and increased from $0.7 million in 1998. The Company allowed average balances of its securities portfolio to decline from the 1998 level of $20.4 million during 2000 and 1999. Additional growth in securities has been limited during the past three years due to the excess growth of loans over deposits and the increased use of FHLB advances to fund the excess. Total interest expense was $17.5 million in 2000, an increase of $2.5 from $15.0 million recorded in 1999, which in turn was a decrease of $800,000 from $15.8 million recorded in 1998. The increase in 2000 was a result of higher interest rates paid on larger average balances of deposits and a $1.0 million increase in interest expense on FHLB advances. Average FHLB advances increased $13.6 million in 2000. The average rate paid for deposits increased to 5.00% in 2000 from 4.64% paid in 1999 which was a decrease from the 5.08% paid in 1998. Yields Earned and Rates Paid. The spread between the average yield on interest-earning assets and the average cost of interest-bearing liabilities declined to 2.92% in 2000 from 3.11% in both 1999 and 1998. The decline was due to a rising interest rate environment late in 1999 and for most of 2000, during which the Company's interest-bearing liabilities repriced more rapidly than its interest-earning assets. The ratio of average interest-earning assets to average interest- bearing liabilities was 117.12% for 2000, compared to 118.34% for 1999 and 119.82% for 1998. The decline in the ratio is due to the Company's purchase of treasury stock. Management has used FHLB advances and the deposit growth to fund the increased loan demand over the last three years. Provision for Loan Losses. The Company maintains an allowance for loan losses in an amount which, in management's judgment, is adequate to absorb probable losses inherent in its loan portfolio. The amount of the provision which is charged against earnings each year and added to the allowance is based upon management's ongoing review of such factors as historical loss performance, general prevailing economic conditions, changes in the size and composition of the loan portfolio and considerations relating to specific loans, including the ability of the borrower to repay the loan and the estimated value of the underlying collateral. The foregoing statement regarding the adequacy of the allowance for loan losses is a "forward-looking " statement within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Factors that could affect the adequacy of the allowance for loan losses include, but are not limited to, the following: (1) changes in the national and local economy which may negatively impact the ability of borrowers to repay their loans and which may cause the value of real estate and other properties that secure outstanding loans to decline; (2) unforeseen adverse changes in circumstances with respect to certain large loans; (3) decreases in the value of collateral securing consumer loans to amounts equal to less than the outstanding balances of the consumer loans; and (4) determinations by various regulatory agencies that Industrial Savings must recognize additions to its loan loss allowance based on such regulators' judgment of information available to them at the time of their examinations. The provision for loan losses was $113,000 in 2000, compared to $103,000 in 1999 and $200,000 in 1998. The Company had $30,000 in charge- offs during 2000, compared to $19,000 in 1999 and $14,000 in 1998. Recoveries totaled $3,000 in 1999 and $2,000 in 1998. Nonperforming loans were $2.4 million at year-end 2000, compared to $1.6 million at year-end 1999. At year-end 2000, the allowance for loan losses was 88.8% of nonperforming loans and 0.55% of total loans compared to 129.55% and 0.58% at year-end 1999. Management determined that a provision for loan losses was warranted in 2000 based on the increased level of nonperforming loans and the increase in loans receivable during 2000. Noninterest Income. Noninterest income increased to $1.3 million in 2000, compared to $949,000 in 1999 and $858,000 in 1998. Service fees related to the steadily growing deposit base and expanding ATM and debit card usage contributed largely to these increases during each of the three years. In 2000 and 1999, income of $133,000 and $82,000 was recognized as a result of the capitalization of mortgage servicing rights. A gain on sale of FHLMC stock of $182,000 was recorded in 2000. Noninterest Expense. Noninterest expense amounted to $6.9 million in 2000, compared to $7.0 million in 1999 and $6.7 million in 1998. The largest single item of noninterest expense, salaries and employee benefits, decreased during 2000 to $3.2 million. The change was due to the decrease in the expense related to the employee stock ownership plan. State franchise tax has decreased from $442,000 in 1998 to $329,000 in 1999 and then increased to $399,000 in 2000. The fluctuation in franchise tax is a result of changing tax rates and varying capital levels. Federal deposit insurance premiums decreased to $61,000 in 2000 compared to $172,000 in 1999 and $168,000 in 1998. The reduction in 2000 is a result of a reduction of the premium rate for federal deposit insurance. Data processing and related fees decreased to $486,000 in 2000 from $503,000 in 1999, which increased from $437,000 in 1998. Advertising expense decreased in 2000 due to the marketing expenses associated with the opening of two new branch offices in 1999. Other expenses increased to $1.7 million in 2000, compared to $1.4 million in 1999 and $1.2 million in 1998. Provision for Income Tax. Fluctuations in income tax expense are primarily attributable to the change in income before taxes. Income before taxes amounted to $8.8 million in 2000, compared to $8.2 million in 1999 and $8.7 million in 1998. The Company's effective tax rates were 35.1% in 2000, compared to 35.6% in 1999 and 34.7% in 1998. Asset Quality The Company has consistently maintained a high quality loan portfolio, as evidenced by its level of nonperforming assets which consists of loans accounted for on a nonaccrual basis, accruing loans past due 90 days or more, and real estate acquired through or in lieu of foreclosure. Nonperforming assets were $2.5 million at year-end 2000, compared to $1.6 million at year-end 1999. As a percentage of year-end total assets, nonperforming assets were 0.57% in 2000 and 0.42% in 1999. The Company's allowance for loan losses has increased, consistent with growth in the loan portfolio, over the past two years and stood at $2.1 million at year-end 2000 compared to $2.0 million at year-end 1999. As a percentage of nonperforming loans, the allowance for loan losses has decreased from 129.55% at year-end 1999 to 88.83% at year-end 2000. Liquidity and Capital Resources The Company's liquidity, primarily represented by cash and cash equivalents, is a result of its operating, investing and financing activities, which are summarized as follows:

The principal sources of funds for the Company are deposits, FHLB borrowings, loan repayments, the sale of mortgage loans in the secondary market, maturity of investment securities and funds generated through operations. While scheduled loan repayments and maturing investments are relatively predictable, deposit flows and loan prepayments are more influenced by interest rates, general economic conditions and competition. The Company maintains a level of investment in liquid assets which is based upon management's assessment of (i) the need for funds, (ii) expected deposit flows, (iii) the yields available on short-term liquid assets and (iv) the objectives of the asset and liability management program of the Company. The OTS removed its regulations relating to minimum liquidity requirements in March 2001. Prior to their elimination, the liquidity regulations required the Company to maintain an average daily balance of liquid assets, which may include, but were not limited to, investments in U.S. Treasury and federal agency obligations and other investments generally having maturities of five years or less, in an amount equal to 4% of the sum of the Company's average daily balance of net withdrawable deposit accounts and borrowings payable in one year or less. At year-end 2000, the regulatory liquidity ratio of the Company was 6.42%. At such date, the Company had commitments to originate loans and loans in process totaling $13.9 million and no commitments to sell loans. The Company considers its liquidity and capital reserves sufficient to meet its foreseeable short-term and long-term needs. The Association is required by OTS regulations to maintain specified minimum amounts of capital. At year-end 2000, the association exceeded all applicable minimum capital requirements. The association's actual capital and regulatory capital requirements at year-end 2000 were as follows:

Effect of New Accounting Pronouncements The Financial Accounting Standards Board has issued new accounting standards that are effective for the Company's consolidated financial statements for the years ending after December 31, 2000. In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities," subsequently amended by SFAS No. 137 and 138, which the Company was required to adopt effective January 1, 2001. SFAS 133, addresses the accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and hedging activities. The statement standardizes the accounting for derivative instruments by requiring that an entity recognize those items as assets or liabilities in the statement of financial position and measure them at fair value. This statement did not have a material effect on the Company's consolidated financial position or results of operations since the Company has not historically engaged in these activities. Item 7A. Quantitative and Qualitative Disclosures About Market Risk The Company is subject to interest rate risk to the extent that its interest-earning assets reprice differently than its interest-bearing liabilities. Exposure to interest rate risk is measured with the use of interest rate sensitivity analysis to estimate the change in the Company's "net portfolio value" ("NPV") in the event of hypothetical changes in interest rates. As part of its efforts to monitor and manage interest rate risk, the Company's asset and liability committee reviews with the Board of Directors, on a quarterly basis, reports provided by the Office of Thrift Supervision ("OTS") and considers methods of maintaining acceptable levels of changes in NPV. The Company's assets and liability management is designed to minimize the impact of sudden and sustained changes in interest rates on NPV. If estimated changes to NPV are not within the limits established by the Board, the Board may direct management to adjust the asset and liability mix to bring interest rate risk within board-approved limits. Generally, NPV is the discounted present value of the difference between incoming cash flows on interest-earning assets and other assets and outgoing cash flows on interest-bearing liabilities and other liabilities. The application of the NPV methodology attempts to quantify interest rate risk in the event of a sudden and sustained 1 to 3 percent increase or decrease in market rates. It is the intent of the Board not to exceed a moderate risk level, as defined by the Office of Thrift Supervision in Thrift Bulletin 13A with a 200 basis point permanent change in interest rates. As of December 31, 2000, the Company's interest rate risk level was in the minimum range for a 100 basis point permanent change in interest rates, moderate range for a 200 basis point permanent change in interest rates and moderate range for a 300 basis point permanent change in interest rates. In comparison, at December 31, 1999, the interest rate level was in the minimum range for a 100 basis point permanent change in interest rates, moderate range for a 200 basis point permanent change in interest rates and significant level for a 300 basis point permanent change in interest rates. In terms of relative impact on the Company's NPV, a 200 basis point permanent change in interest rates would have the effect of reducing NPV by $18.0 million at December 31, 2000 compared to a reduction of $17.0 million at December 31, 1999. The Company's increased sensitivity to rising interest rates is a result of an increase in the level of fixed-rate loans and a general shortening of the maturity structure of deposits and borrowings. Although the Company attempts to mitigate interest rate risk by originating adjustable-rate loans and by selling fixed-rate mortgage loans in the secondary market to Freddie Mac, however customer preferences for loan products may limit the Company's ability to achieve this objective. NPV is calculated by the OTS using information provided by the Company. Computation of prospective effects of hypothetical interest rate changes are based on numerous assumptions, including relative levels of market interest rates, loan prepayments and deposit run-off, and should not be relied upon as indicative of actual results. Further, the computations do not include capital at the holding company level nor does it contemplate any actions the Company may undertake in response to changes in interest rates. Item 8. Financial Statements and Supplemental Data REPORT OF INDEPENDENT AUDITORS Board of Directors and Shareholders Industrial Bancorp, Inc. Bellevue, Ohio We have audited the accompanying consolidated balance sheets of Industrial Bancorp, Inc. as of December 31, 2000 and 1999, and the related consolidated statements of income, comprehensive income, changes in shareholders' equity and cash flows for each of the three years in the period ended December 31, 2000. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Industrial Bancorp, Inc. as of December 31, 2000 and 1999, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2000, in conformity with generally accepted accounting principles. Crowe, Chizek and Company LLP Cleveland, Ohio January 11, 2001 INDUSTRIAL BANCORP, INC. CONSOLIDATED BALANCE SHEETS (Dollars in thousands)

See accompanying notes to consolidated financial statements. INDUSTRIAL BANCORP, INC. CONSOLIDATED STATEMENTS OF INCOME (Dollars in thousands, except per share amounts)

See accompanying notes to consolidated financial statements. INDUSTRIAL BANCORP, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Dollars in thousands)

See accompanying notes to consolidated financial statements. INDUSTRIAL BANCORP, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Dollars in thousands, except per share amounts)

See accompanying notes to consolidated financial statements. INDUSTRIAL BANCORP, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands)

See accompanying notes to consolidated financial statements. INDUSTRIAL BANCORP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2000, 1999 and 1998 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation: The consolidated financial statements include Industrial Bancorp, Inc. and its wholly-owned subsidiary, Industrial Savings and Loan Association, together referred to as "the Company". Intercompany transactions and balances are eliminated. Footnote tables are presented in thousands, except per share data. Nature of Operations: The Corporation provides financial services through its offices in North Central Ohio. Its primary deposit products are checking, savings, and term certificate accounts, and its primary lending products are residential mortgage, commercial, and installment loans. Substantially all loans are secured by specific items of collateral including business assets, consumer assets and real estate. Commercial loans are expected to be repaid from cash flow from operations of businesses. Real estate loans are secured by both residential and commercial real estate. Other financial instruments which potentially represent concentrations of credit risk include deposit accounts in other financial institutions. Use of Estimates: To prepare financial statements in conformity with generally accepted accounting principles, management makes estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in the financial statements and disclosures provided, and future results could differ. The allowance for loan losses and fair values of financial instruments are particularly subject to change. Cash Flows: Cash and cash equivalents include cash, demand deposits with other financial institutions and overnight deposits. Net cash flows are reported for loan and deposit transactions. Securities: Securities are classified as held to maturity and carried at amortized cost when management has the positive intent and ability to hold to maturity. Securities are classified as available for sale when they might be sold before maturity. Securities available for sale are carried at fair value, with unrealized gains and losses reported in other comprehensive income. Other securities such as Federal Home Loan Bank stock are carried at cost. Interest income includes amortization of purchase premium or discount. Gains and losses on sales are based on the amortized cost of the security sold. Securities are written down to fair value when a decline in fair value is not temporary. Loans Receivable: Loans are reported at the principal balance outstanding, net of unearned interest, deferred loan fees and costs, and an allowance for loan losses. Loans held for sale are reported at the lower of cost or market, on an aggregate basis. Interest income is reported on the interest method and includes amortization of net deferred loan fees and costs over the loan term. Interest income is not reported when full loan repayment is in doubt, typically when the loan is impaired or payments are past due over 90 days. Allowance for Loan Losses: The allowance for loan losses is a valuation allowance for probable credit losses, increased by the provision for loan losses and decreased by charge-offs less recoveries. Management estimates the allowance balance required using past loan loss experience, known and inherent risks in the nature and volume of the portfolio, information about specific borrower situations and estimated collateral values, economic conditions, and other factors. Allocations of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in management's judgment, should be charged-off. A loan is impaired if full payment under the loan terms is not expected. Impairment is evaluated in total for smaller-balance loans of similar nature such as residential mortgage or consumer loans, and on an individual loan basis for other loans. If a loan is impaired, a portion of the allowance is allocated so that the loan is reported net, at the present value of estimated future cash flows using the loan's existing rate or at the fair value of collateral if repayment is expected solely from the collateral. Servicing Rights: Servicing rights are recognized as assets for purchased rights and for the allocated value of retained servicing rights on loans sold. Servicing rights are expensed in proportion to, and over the period of, estimated net servicing revenues. Impairment is evaluated based on the fair value of the rights, using groupings of the underlying loans as to interest rates and then, secondarily, as to geographic and prepayment characteristics. Any impairment of a grouping is reported as a valuation allowance. Real Estate Owned: Real estate acquired through or instead of foreclosure is initially recorded at the fair value when acquired, establishing a new cost basis. If fair value declines, a valuation allowance is recorded through expense. Costs after acquisition are expensed. Office Properties and Equipment: Office properties and equipment are stated at cost less accumulated depreciation. Depreciation is computed over the estimated useful lives on an accelerated basis, except for buildings for which the straight line basis is principally used. Stock Compensation: Employee compensation expense under stock option plans is reported if options are granted below market price at grant date. Pro forma disclosures of net income and earnings per share are shown using the fair value method of Statement of Financial Accounting Standards (SFAS) No.123 to measure expense for options granted after 1994, using an option pricing model to estimate fair value. Income Taxes: The provision for income tax is the total of the current year income tax due or refundable and the change in deferred tax assets and liabilities. Deferred tax assets and liabilities are the expected future tax amounts for the temporary differences between carrying amounts and tax bases of assets and liabilities, computed using enacted tax rates. Employee Stock Ownership Plan: The cost of shares issued to the ESOP, but not yet allocated to participants, is shown as a reduction of shareholders' equity. Compensation expense is based on the market price of shares as they are committed to be released to participant accounts. Dividends on allocated ESOP shares reduce retained earnings; dividends on unearned ESOP shares reduce debt and accrued interest. Financial Instruments: Fair values of financial instruments are estimated using relevant market information and other assumptions, as more fully disclosed separately. Fair value estimates involve uncertainties and matters of significant judgment regarding interest rates, credit risk, prepayments, and other factors, especially in the absence of broad markets for particular items. Changes in assumptions or in market conditions could significantly affect the estimates. Comprehensive Income: Comprehensive income consists of net income and other comprehensive income. Other comprehensive income consists of unrealized gains and losses on investment securities, which are also recognized as separate components of equity. Earnings Per Share: Basic earnings per share is net income divided by the weighted average number of common shares outstanding during the period. ESOP shares are considered outstanding for this calculation unless unearned. Diluted earnings per share includes the dilutive effect of additional potential common shares issuable under stock options. Loss Contingencies: Loss contingencies, including claims and legal actions arising in the ordinary course of business, are recorded as liabilities when the likelihood of loss is probable and an amount or range of loss can be reasonably estimated. Management does not believe that there are now any such matters that would have a material effect on the financial statements. Reclassifications: Certain items in the 1999 and 1998 financial statements have been reclassified to correspond with the 2000 presentation. NOTE 2 - ACQUISITION On December 9, 2000, a merger agreement was signed between United Community Financial Corp. (and its wholly-owned subsidiary The Home Savings and Loan Company of Youngstown, Ohio) and Industrial Bancorp, Inc. (and its wholly-owned subsidiary The Industrial Savings and Loan Association.) The agreement was amended on January 30, 2001. At the effective time of the merger, each share of Industrial Bancorp, Inc. will be exchanged for $20.375 per share, all in cash. The agreement provides for Industrial Bancorp, Inc. to be merged into an acquiring subsidiary and then merged into The Home Savings and Loan Company of Youngstown, Ohio. The shareholders of Industrial Bancorp, Inc. will be asked to ratify the agreement at a shareholders' meeting to be held on April 17, 2001. The acquisition is expected to be consummated in the second quarter of 2001 and is subject to approvals by various regulatory authorities and shareholders. NOTE 3 - SECURITIES Securities as of the end of the year were as follows:

Contractual maturities of securities at year-end 2000 were as follows:

Proceeds from the sale of FHLMC preferred stock were $184 in 2000. Gross gains realized on the sale were $182. No securities were sold during 1999 or 1998. Securities pledged to secure public deposits at year-end 2000 and 1999 had carrying values of $7.7 million and $9.3 million. NOTE 4 - LOANS RECEIVABLE Loans receivable as of the end of the year were as follows:

Activity in the allowance for loan losses for the year was as follows:

No loans were classified as impaired at year-end 2000, 1999 and 1998 or during the years then ended. Non-performing loans as of the end of the year were as follows:

Loans serviced for others, which are not reported as assets, total $37.9 million and $27.3 million at year-end 2000 and 1999. Activity for capitalized mortgage servicing rights was as follows:

Loans to principal officers, directors and their related businesses, aggregating $60 thousand or more to any one related party, were as follows:

NOTE 5 - OFFICE PROPERTIES AND EQUIPMENT Office properties and equipment as of the end of the year were as follows:

NOTE 6 - DEPOSITS Deposits as of the end of the year were as follows:

Certificates of deposit with balances of $100 thousand or more were $53.3 million and $49.0 million at year-end 2000 and 1999. Scheduled maturities of certificates of deposit at year-end 2000 were as follows:

NOTE 7 - FEDERAL HOME LOAN BANK ADVANCES Advances from the Federal Home Loan Bank at year-end were as follows:

These advances were collateralized by $62.5 million and $55.5 million of residential mortgage loans under a blanket lien agreement and by Federal Home Loan Bank stock at year-end 2000 and 1999. As of December 31, 2000, the Company had $17.3 million in letters of credit with the Federal Home Loan Bank. These letters of credit were used to pledge against public deposits. These instruments were collateralized by $21.6 million of residential mortgage loans under a blanket lien agreement and by Federal Home Loan Bank stock at year-end 2000. NOTE 8 - EMPLOYEE STOCK OWNERSHIP PLAN Employees of the Company participate in an employee stock ownership plan (ESOP). The ESOP borrowed from the Company to acquire 443,610 shares of stock at $10 per share. The Company makes discretionary contributions to the ESOP, as well as paying dividends on unallocated shares to the ESOP, and the ESOP uses funds it receives to repay the loan. As loan payments are made, ESOP shares are allocated to participants based on relative compensation, and expense is recorded. Dividends on allocated shares increase participant accounts. Participants receive the shares at the end of employment. In the event of a change in control, all shares would be allocated to participants. Contributions to the ESOP during 2000, 1999 and 1998 were $394,000, $374,000 and $398,000. ESOP expense for 2000, 1999 and 1998 was $527,000, $769,000 and $844,000. Shares held by the ESOP as of the end of the year were as follows:

NOTE 9 - STOCK OPTION AND INCENTIVE PLAN Options to buy stock of the Company are granted to directors and certain key employees under the Stock Option and Incentive Plan, which provides for the award of up to 555,450 options. Exercise price is the market price at date of grant. The maximum option term is ten years, and options vest over five years. A summary of activity in the plan is as follows:

No options were granted in 2000 or 1999. All options outstanding or exercisable at year-end, have an exercise price of $11.00 per share. Had compensation cost for stock options been measured using FASB Statement No. 123, net income and earnings per share would have been the pro forma amounts indicated below. The pro forma effect may increase in the future if more options are granted.

The pro forma effects are computed using option pricing models which used the following weighted-average assumptions as of grant date: a risk-free interest rate of 6.34%, a dividend yield of 3.86%, volatility factors of the expected market price of the Company's common stock of 40.8%, and an expected life of the option of 7.5 years. Based on these assumptions the estimated fair value of the options granted during 1996 was $3.57 per share. All options were granted in 1996. NOTE 10 - MANAGEMENT RECOGNITION PLAN The management recognition plan (MRP) provides to directors and certain key employees an ownership interest in the Company designed to compensate such directors and key employees for services to the Company. The Company contributed sufficient funds to enable the MRP to purchase and issue awards for 222,180 common shares of the Company. The shares awarded vest over a five-year period beginning in 1996. Compensation expense, which is based upon the cost of the shares, was $526,000 in each of 2000, 1999 and 1998. NOTE 11 - INCOME TAXES The provision for income tax was as follows:

Effective tax rates differ from federal statutory rates applied to financial statement income due to the following:

Deferred tax assets and liabilities as of the end of the year were as follows:

The Company has not established a valuation allowance, as it is management's belief that it has adequate taxable income and carrybacks to realize recorded deferred tax assets. Federal income tax laws provided additional bad debt deductions through 1987, totaling $4.2 million. Accounting standards do not require a deferred tax liability to be recorded on this amount, which liability otherwise would total $1.4 million at December 31, 2000. If Industrial Savings were liquidated or otherwise ceases to be a thrift or if tax laws were to change, this amount would be expensed. Under 1996 tax law changes, bad debts are based on actual loss experience and tax bad debt reserves accumulated since 1987 are to be reduced. This requires payment of approximately $168,000 annually over six years, which began in 1998. NOTE 12 - RESTRICTIONS ON RETAINED EARNINGS AND CAPITAL REQUIREMENTS Industrial Savings is subject to regulatory capital requirements administered by federal banking agencies. Capital adequacy guidelines and prompt correction action regulations involve quantitative measures of assets, liabilities, and certain off-balance-sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators. Failure to meet capital requirements can initiate regulatory action. As of December 31, 2000, Industrial Savings is considered well capitalized based on computed regulatory capital ratios. Management is not aware of any event or circumstances after December 31, 2000 that would change the capital category. Federal regulations limit all capital distributions, including cash dividends, by savings associations. The regulation establishes a three- tiered system of restrictions, with the greatest flexibility afforded to thrifts which are both well-capitalized and given favorable qualitative examination ratings. Actual and required capital amounts (in thousands) and ratios as of the end of the year were as follows:

NOTE 13 - OFF-BALANCE-SHEET ACTIVITIES Some financial instruments, such as loan commitments, credit lines, letters of credit and overdraft protection, are issued to meet customer financing demands. These are agreements to provide credit or to support the credit of others, as long as conditions established in the contract are met, and usually have expiration dates. Commitments may expire without being used. Off-balance-sheet risk to credit loss exists up to the face amount of these instruments, although material losses are not anticipated. The same credit policies are used to make such commitments as are used for loans, including obtaining collateral at exercise of the commitment. Financial instruments with off-balance-sheet risk as of the end of the year were as follows:

Commitments to make loans are generally made for 30 days or less. The fixed rate loan commitments on mortgage loans have interest rates ranging from 7.13% to 9.25% and maturities ranging from 10 years to 30 years as of December 31, 2000. The Company was required by the Federal Reserve Bank to maintain cash reserves of $636,000 and $640,000 as of year-end 2000 and 1999. These reserves do not earn interest. NOTE 14 - FAIR VALUE OF FINANCIAL INSTRUMENTS Carrying amounts and estimated fair values of financial instruments as of the end of the year were as follows:

The methods and assumptions used to estimate fair value are described as follows. Carrying amount is the estimated fair value for cash and cash equivalents, Federal Home Loan Bank stock, accrued interest receivable and payable, demand deposits and variable rate loans or deposits that reprice frequently and fully. Investment securities fair values are based on market prices. For fixed rate loans or deposits and for variable rate loans or deposits with infrequent repricing or repricing limits, fair value is based on discounted cash flows using current market rates applied to the estimated life and credit risk. Fair value of loans held for sale is based on market quotes. Fair value of FHLB advances is based on current rates for similar financing. Fair value of Commitments is not materially different from the nominal value. NOTE 15 - EARNINGS PER SHARE The factors used in the earnings per share computation were as follows:

NOTE 16 - PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION

CONDENSED STATEMENTS OF INCOME

NOTE 16 - PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION CONDENSED STATEMENTS OF CASH FLOWS

NOTE 17 - QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Not applicable. PART III Item 10. Directors and Executive Officers of the Registrant Directors The Corporation has seven directors. Each of the directors of the Corporation is also a director of the Association. Each director of the Corporation became a director of the Corporation in connection with the Conversion and the formation of the Corporation as the holding company for the Association. The current directors of the Corporation are listed below:

Mr. Hayward has been the President and owner of Hayward Rigging and Construction, Inc. Bellevue, Ohio, a firm which specializes in setting and relocating large machinery in industrial plants, since 1981. Mr. Maginnis is a Certified Public Accountant and Certified Fraud Examiner and has been the Vice President-Finance of Hirt Publishing Corporation, Inc. since 1993. Previously, Mr. Maginnis was the owner of Maginnis and Associates, a public accounting firm in Bellevue, Ohio. Mr. Moore is retired. He previously served as the President of Willard Foods, Inc. in Willard, Ohio. Mr. Windau has served as the President and Treasurer of the Association since October 1994 and as the CEO since August 1996. Mr. Windau has been employed by the Association for 23 years and was a Senior Vice President in charge of branch operations and deposit acquisitions prior to becoming the President. Mr. Windau is also the President and CEO of the Corporation. Mr. Rhoades served as the President of the Association from 1965 to 1994, as Chief Executive Officer ("CEO") of the Association from November 1965 to August 1996, and as CEO of the Corporation from its formation in February 1995 to August 1996. Mr. Rhoades currently serves as the Chairman of the Board and Chief Financial Officer of the Association and the Corporation. Mr. Spurck is a Certified Public Accountant and has been the President and CEO of Webster Industries, Inc., Tiffin, Ohio since 1978. Webster Industries operates facilities in four states, producing chains and other component parts used in conveyor systems. Mr. Wilkinson has been the Finance Director, and previously the Deputy Director, of the Huron County Alcohol, Drug Addiction and Mental Health Services Board, based in Norwalk, Ohio, since 1995. For the prior fourteen years, he was the manager of Norwalk Clinic, Inc., Norwalk, Ohio. Executive Officers In addition to Mr. Rhoades, who is the Chairman of the Board and Chief Financial Officer of the Corporation, and Mr. Windau, who is the President and Chief Executive Officer of the Corporation, the following persons are executive officers of the Corporation and hold the designated positions. Each executive officer of the Corporation serves at the pleasure of the Board of Directors.

Mr. Ball is the Secretary of the Corporation and a Senior Vice President and the Secretary of the Association. He is responsible for lending operations and has been an employee of the Association for the past 32 years. Mr. Beal is the Treasurer of the Corporation and a Senior Vice President of the Association. He has been responsible for branch operations and deposit acquisition since October 1994 and has been an employee of the Association for the past 15 years. SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Section 16(a) of the Securities Exchange Act of 1934 requires the Corporation's officers and directors, and persons who own more than ten percent of a registered class of the Corporation's equity securities, to file reports of ownership and changes in ownership on Forms 3, 4 and 5 with the SEC. Officers, directors and greater than ten percent shareholders are required by SEC regulations to furnish the Corporation with copies of all Forms 3, 4 and 5 they file. Based on the Corporation's review of the copies of such forms it has received, the Corporation believes that all of its officers and directors complied with all filing requirements applicable to them with respect to transactions during fiscal 2000. Item 11. Executive Compensation Summary Compensation Table The following table sets forth the compensation paid to David M. Windau, the CEO of the Corporation and the Association, for the years ended December 31, 2000, 1999 and 1998. No other executive officer of the Corporation or the Association received compensation in excess of $100,000 during 2000.

Stock Option Plan The shareholders of the Corporation adopted the Industrial Bancorp, Inc. 1996 Stock Option and Incentive Plan at the 1996 Annual Meeting of Shareholders. Options are granted by the Stock Option Committee to directors, officers and employees of the Association and the Corporation on the basis of an individual's responsibility, tenure and future potential. The total number of shares with respect to which awards may be made is 555,450. As of December 31, 2000, options to purchase 388,815 shares had been granted, of which 369,485 options remained outstanding at December 31, 2000. The following table sets forth information regarding the number and value of unexercised options held by Mr. Windau at December 31, 2000:

Management Recognition Plan The shareholders of the Corporation adopted the Industrial Savings and Loan Association Management Recognition Plan and Trust Agreement ("MRP") at the 1996 Annual Meeting of Shareholders. The MRP Committee awards shares to directors, officers and employees of the Association and the Corporation based on an individual's responsibility, tenure and future potential. In 1996, the MRP purchased 222,180 common shares of the Corporation, all of which were awarded to directors and executive officers of the Association during fiscal 1996. No shares were purchased or awarded in fiscal years 2000, 1999 or 1998. Employee Stock Ownership Plan The Corporation has established the ESOP for the benefit of employees of the Corporation and its subsidiaries, including the Association, who are age 21 or older and who have completed at least one year of service with the Corporation and its subsidiaries. The ESOP provides an ownership interest in the Corporation to all eligible full-time employees of the Corporation. The common shares and other ESOP funds are held in the ESOP Trust and invested by the trustee of the ESOP Trust. As of March 1, 2001, 293,983 of the 523,340 common shares of the Corporation held in the ESOP Trust had been allocated to the accounts of participants. Bonus Plan The Association provides a bonus plan (the "Bonus Plan") to encourage its employees to contribute to the financial success of the Association and thus share in its profits. Both full- and part-time employees are eligible to participate in the Bonus Plan if they have been employed by the Association for more than one year of continuous service. The amount received by individual employees pursuant to the Bonus Plan is determined by the Personnel and Salary Committee based on various factors, including performance and tenure. For the year ended December 31, 2000, the Association contributed $160,140 to the Bonus Plan. The Bonus Plan is subject to annual review by the Association's Board of Directors. Employment Agreements The Association has entered into employment agreements with Messrs. Windau, Ball and Beal (the "Employment Agreements"). The Employment Agreements, which became effective on January 1, 1996, provided for initial terms of three years and have been extended through December 31, 2001. The Employment Agreements provide for salary and performance reviews by the Board of Directors not less often than annually. Each of the Employment Agreements provides for inclusion of the employee in any formally established employee benefit, bonus, pension and profit-sharing plans for which senior management personnel are eligible and for vacation and sick leave in accordance with the Association's prevailing policies. The Employment Agreements are terminable by the Association at any time. In the event of termination by the Association for "just cause," as defined in the Employment Agreements, the employee will have no right to receive any compensation or other benefits for any period following such termination. In the event of a termination other than for "just cause" and not in connection with a "change of control", as defined in the Employment Agreements, the employee will be entitled to payment of an amount equal to the employee's annual salary. The Employment Agreements further provide that in the event of a termination in connection with or within one year of a "change of control," the employee will be entitled to payment of an amount equal to three times the employee's annual salary. The amount which would be payable to Mr. Windau in the event of a "change of control," based upon his salary as of December 31, 2000, is $479,850. Director Compensation Each director of the Association, other than the Chairman of the Board, currently receives a fee of $675 per meeting, with one excused absence per year. The Chairman of the Board receives $700 per meeting. In addition, each member of a committee who is not a full-time employee of the Association receives $250 per committee meeting attended. No fees are paid for service as a director of the Corporation. Item 12. Security Ownership of Certain Beneficial Owners and Management The following table sets forth information regarding the only persons known by the Corporation to be the beneficial owners of more than five percent of the shares of the Corporation, as of March 1, 2001:

The following table sets forth certain information regarding the number of shares of the Corporation beneficially owned by each director and each executive officer of the Corporation and by all directors and executive officers of the Corporation as a group, as of March 1, 2001:

The Corporation entered into an Agreement and Plan of Merger (the "Agreement"), by and among United Community Financial Corp. ("UCFC"), The Home Savings and Loan Company of Youngstown, Ohio (the "HSLC"), the Corporation and the Association, dated December 9, 2000 and Amended and Restated as of January 30, 2001, which provides for the acquisition of the Corporation and the Association by UCFC and HSLC. The acquisition must be approved by a majority of the Corporation's shareholders. They will vote upon the adoption of the Agreement at a Special Meeting of Shareholders to be held on April 17, 2001. Item 13. Certain Relationships and Related Transactions The Association has followed a policy of granting consumer loans and loans secured by the borrower's personal residence to officers, directors and employees. Loans to executive officers and directors are made in the ordinary course of business and on the same terms and conditions as those of comparable transactions prevailing at the time and in accordance with the Association's underwriting guidelines and do not involve more than the normal risk of collectibility or present other unfavorable features. Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K (a) 3(a) Articles of Incorporation 3(b) Certificate of Amendment to Articles of Incorporation 3(c) Certificate of Amendment to Articles of Incorporation 11 Statement Regarding Computation of Per Share Earnings 21 Subsidiaries of the Registrant (b) The Corporation filed a current report on Form 8-K dated December 9, 2000, disclosing the execution of an Agreement and Plan of Merger by an among United Community Financial Corp. ("UCFC"), The Home Savings and Loan Company of Youngstown, Ohio ("Home Savings"), the Corporation and the Association. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. INDUSTRIAL BANCORP, INC. By: /s/ David M. Windau ---------------------------------- David M. Windau, Chief Executive Officer (Duly Authorized Representative) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons in the capacities and on the dates indicated. /s/ David M. Windau /s/ Lawrence R. Rhoades --------------------------------- --------------------------------------- David M. Windau, President, Lawrence R. Rhoades, Chairman of Chief Executive Officer and the Board,Chief Financial Director Officer and Director Date: March 30, 2001 Date: March 30, 2001 /s/ Graydon H. Hayward /s/ Leon W. Maginnis --------------------------------- --------------------------------------- Graydon H. Hayward, Director Leon W. Maginnis, Director Date: March 30, 2001 Date: March 30, 2001 /s/ Bob Moore /s/ Fredric C. Spurck --------------------------------- --------------------------------------- Bob Moore, Director Fredric C. Spurck, Director Date: March 30, 2001 Date: March 30, 2001 /s/ Roger O. Wilkinson --------------------------------- Roger O. Wilkinson, Director Date: March 30, 2001 INDEX TO EXHIBITS Exhibit Number 3(a) Articles of Incorporation Incorporated by reference to the Registration Statement on Form S-1 filed by the Holding Company on March 23, 1995 (the "S-1") with the Securities and Exchange Commission, Exhibit 3.1 3(b) Certificate of Amendment to Incorporated by reference to the S-1, Articles of Incorporation Exhibit 3.2 3(c) Code of Regulations Incorporated by reference to the S-1, Exhibit 3.3 11 Statement Regarding Incorporated by reference to Note 1 Computation of Per to the Financial Statements Share Earnings included herewith. 21 Subsidiaries of the Registrant 23 Consent of Independent Auditors

INDUSTRIAL BANCORP INC 10-K