<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
x Quarterly Report under Section 13 or 15(d) of the Securities
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Exchange Act of 1934 For the Quarterly Period ended September 30, 1996
------------------
Transition report under Section 13 or 15(d) of the Exchange Act
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For the transition period from to
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Commission file number 0-28360
IBW Financial Corporation
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(Name of Small Business Issuer in its Charter)
District of Columbia 52-1943477
- --------------------------------- -------------------------------------
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
4812 Georgia Avenue, NW, Washington, DC 20011
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(Address of Principal Executive Offices) (Zip Code)
(202) 722-2000
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(Issuer's Telephone Number, Including Area Code)
N/A
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(Former Name, Former Address, and Former Fiscal Year, If Changed Since Last
Report)
Check whether the issuer: (1) 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 registrant was required to file reports), and (2) has
been subject to such filing requirements for the past 90 days.
x Yes No
- ------ ------
State the number of shares outstanding of each of the issuer's classes of
common equity as of the latest practicable date: As of October 31, 1996, there
were 637,160 shares of the common stock $1.00 par value of IBW Financial
Corporation outstanding.
Transitional Small Business Disclosure Format (check one) Yes x No
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<PAGE>
IBW FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1996 AND DECEMBER 31, 1995
(dollars in thousands, except per share data)
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<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
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<S> <C> <C>
ASSETS
Cash and cash equivalents:
Cash and due from banks $ 12,511 $ 11,014
Interest bearing deposits in other banks 3,095 95
Federal funds sold 6,100 20,800
Commercial paper - 2,977
------------ ------------
Total cash and cash equivalents 21,706 34,886
Secutities available-for-sale, at fair value
(amortized cost, $97,681 and $86,419) 97,357 87,198
Loans receivable, net of allowance for loan losses
of $1,128 and $1,177 105,304 92,817
Other real estate owned, net 1,066 950
Bank premises and equipment, net 2,418 2,358
Other assets 4,243 4,352
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TOTAL $ 232,094 $ 222,561
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Demand deposits $ 50,438 $ 46,341
Time and savings deposits 157,738 157,358
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Total deposits 208,176 203,699
Securities sold under repurchase agreements 5,141 -
Other liabilities 1,124 1,307
Note payable 1,000 1,000
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Total liabilities 215,441 206,006
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SHAREHOLDERS' EQUITY
Preferres stock-$1 par value; 1,000,000 authorized;
none issued
Common stock-$1 par value;
1,000,000 shares authorized; 637,160
shares issued and outstanding 637 637
Capital surplus 4,329 4,329
Retained earnings 11,902 11,075
Unrealized (loss) gain on available-for-sale securities, net
of taxes of $110 and $265 (215) 514
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Total shareholders' equity 16,653 16,555
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TOTAL $ 232,094 $ 222,561
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</TABLE>
<PAGE>
IBW FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(dollars in thousands, except per share data)
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<TABLE>
<CAPTION>
September 30, September 30,
1996 1995
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<S> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 6,911 $ 6,714
U.S. treasury securities 1,172 1,582
Obligations of U.S. government agencies
and corporations 2,746 2,297
Obligations of states and political
subdivisions 488 100
Bank balances and other securities
purchased under agreements to resell 591 537
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Total interest income 11,908 11,230
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INTEREST EXPENSE
Time certificates over $100,000 502 275
Other savings and time deposits 3,431 3,510
Securities sold under repurchase agreements 47
Note payable 40 13
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Total interest expense 4,020 3,798
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NET INTEREST INCOME 7,888 7,432
PROVISION FOR LOAN LOSSES 300 25
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NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 7,588 7,407
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NONINTEREST INCOME
Service charges on deposit and checking
accounts 1,649 1,430
Gain (loss) on sale of securities 109 (23)
Other operating income 149 170
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Total noninterest income 1,907 1,577
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NONINTEREST EXPENSE
Salaries and employee benefits 4,505 3,988
Occupancy 510 491
Furniture and equipment 415 341
Data processing 372 359
FDIC assessment 192 240
Other 2,139 1,890
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Total noninterest expense 8,133 7,309
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INCOME BEFORE INCOME TAXES 1,362 1,675
PROVISION FOR INCOME TAXES 345 495
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NET INCOME $ 1,017 $ 1,180
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NET INCOME PER COMMON SHARE $ 1.60 $ 1.91
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WEIGHTED AVERAGE OF COMMON SHARES
OUTSTANDING 637,160 616,916
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</TABLE>
3
<PAGE>
IBW FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(dollars in thousands, except per share data)
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<TABLE>
<CAPTION>
September 30, September 30,
1996 1995
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<S> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 2,399 $ 2,228
U.S. treasury securities 390 511
Obligations of U.S. government agencies
and corporations 1,001 806
Obligations of states and political
subdivisions 179 45
Bank balances and other securities
purchased under agreements to resell 95 217
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Total interest income 4,064 3,807
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INTEREST EXPENSE
Time certificates over $100,000 174 116
Other savings and time deposits 1,099 1,202
Securities sold under repurchase agreements 42
Note payable 14 13
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Total interest expense 1,329 1,331
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NET INTEREST INCOME 2,735 2,476
PROVISION FOR LOAN LOSSES 150 (275)
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NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 2,585 2,751
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NONINTEREST INCOME
Service charges on deposit and checking
accounts 623 458
Gain (loss) on sale of securities 47 (7)
Other operating income 45 74
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Total noninterest income 715 525
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NONINTEREST EXPENSE
Salaries and employee benefits 1,378 1,335
Occupancy 163 178
Furniture and equipment 145 120
Data processing 114 123
FDIC assessment 174 4
Other 842 690
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Total noninterest expense 2,816 2,450
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INCOME BEFORE INCOME TAXES 484 826
PROVISION FOR INCOME TAXES 115 255
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NET INCOME $ 369 $ 571
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NET INCOME PER COMMON SHARE $ 0.58 $ 0.90
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WEIGHTED AVERAGE OF COMMON SHARES
OUTSTANDING 637,160 637,160
============= =============
</TABLE>
4
<PAGE>
IBW FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(dollars in thousands)
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<TABLE>
<CAPTION>
September 30, September 30,
1996 1995
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income 1,017 1,180
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 245 207
Amortization/accretion of premiums (discounts) 512 (116)
(Gain) loss on sale of REO (8) 8
(Gain) loss on sale of securities (109) 23
Provision for losses on REO 11 20
Provision for loan losses 300 25
Decrease in other assets 484 307
(Decrease) increase in other liabilities (183) 373
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Net cash provided by operating activities 2,269 2,027
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CASH FLOWS FROM INVESTING ACTIVITIES:
Net (increase) decrease in loans (13,009) 964
Additions to bank premises and equipment, net (305) (149)
Net proceeds on sale of other real estate owned 103 1,036
Proceeds from sale of securities available-for-sale 20,562 17,971
Proceeds from maturities of securities available-for-sale 20,857 14,765
Purchase of securities available-for-sale (58,150) (26,959)
Principal collected on securities available-for-sale 5,066 228
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Net cash (used in) provided by investing activities (24,876) 7,856
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CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid (191) (170)
Net increase (decrease) in deposits 4,477 (12,773)
Net increase in securities sold under repurchase agreements 5,141 -
Proceeds from note payable - 1,000
Sale of common stock, net - 433
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Net cash provided by (used in) financing activities 9,427 (11,510)
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DECREASE IN CASH AND CASH EQUIVALENTS (13,180) (1,627)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 34,886 27,134
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CASH AND CASH EQUIVALENTS, END OF YEAR 21,706 25,507
============ ============
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for:
Interest $ 3,934 $ 3,658
============ ============
Taxes $ 404 $ 360
============ ============
Non-cash transfers of loans to other real estate owned $ 222 $ 475
============ ============
</TABLE>
5
<PAGE>
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 1996 AND FOR THE THREE MONTHS
AND THE NINE MONTHS ENDED SEPTEMBER 30, 1996
NOTE A BASIS OF PRESENTATION
---------------------
The accompanying unaudited consolidated financial statements of IBW
Financial Corporation and Subsidiary (the Company) have been prepared
in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-
QSB. Accordingly, they do not include all the information and
footnotes required for complete financial statements. In the opinion
of management, all adjustments and reclassifications consistently, of
a normal and recurring nature, considered necessary for a fair
presentation have been included. Operating results for the three
month period ended September 30, 1996, are not necessarily indicative
of the results that may be expected for the year ending December 31,
1996. The unaudited consolidated financial statements should be read
in conjunction with the consolidated financial statements and
footnotes.
NOTE B ACCOUNTING CHANGES
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Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of," and
SFAS No. 122,"Accounting for Mortgage Servicing Rights - an Amendment
of SFAS 65." The adoption of these new accounting pronouncements did
not have a material impact on the financial statements of the Company.
NOTE C TERMINATION OF THE RETIREMENT PLAN
----------------------------------
On April 17, 1996, the Board of Directors of the Company resolved to
curtail the accrual of benefits under the Industrial Bank of
Washington Retirement Plan (the "Plan") as of May 2, 1996.
Additionally, the Board resolved to discontinue the Plan's
participation in the Benefit Source Retirement Trust Fund, to withdraw
the assets of the Plan from the Trust Fund, and to terminate the Plan
by 1997. The effect of the curtailment was estimated to be a $314,000
loss. The effect of the settlement was estimated to be a $114,000
gain. As of September 30, 1996, the Company has paid the entire
$520,000 benefit obligation in excess of plan assets.
6
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NOTE D REGULATORY ISSUES
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The Federal Deposit Insurance Corporation administers two separate
deposit insurance funds, the Bank Insurance Fund (BIF) and the Savings
Association Insurance Fund (SAIF). Congress passed legislation on
September 30, 1996 to recapitalize the SAIF fund through a special
assessment on FDIC-insured institutions with SAIF deposits. The
impact of this deposit assessment resulted in an expense to the
Company of $158,000, which was recorded within the financial
statements as of September 30, 1996.
7
<PAGE>
IBW FINANCIAL CORPORATION & SUBSIDIARY
PART I FINANCIAL INFORMATION:
---------------------
ITEM 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations.
AS OF AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
------------------------------------------------------
OPERATIONS
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IBW Financial Corporation & Subsidiary earnings through nine months of
1996 totaled $1,017 thousand, a decrease of $163 thousand or 13.8
percent less than the comparable period of 1995. This decrease is
primarily attributed to the increase in noninterest expenses of $824
thousand, an increase of $275 thousand in the provision for loan
losses, offset by an increase in net interest income of $456 thousand
and an increase in noninterest income of $330 thousand. Return on
average assets (ROAA), and return on average shareholder's equity
(ROAE) through the three quarters of 1996 and 1995 were .59 percent
and 8.26 percent, .72 percent and 10.64 percent, respectively.
Net interest income increased by $456 thousand or 6.1 percent over
last year's nine month period. Interest on securities increased by
$427 thousand or 10.7 percent reflecting the higher levels of mortgage
backed securities and obligations of states and political
subdivisions. Interest expense increased by $222 thousand or 5.8
percent reflecting higher interest rates and deposit growth.
The provision for possible loan losses was $300 thousand for the nine
months of 1996 compared to $25 thousand for the same period of 1995.
A $275 thousand provision for loan loss expense was reversed during
the third quarter of 1995 as a result of declining classified assets.
The allowance for loan losses stood at $1,128 thousand at September
30, 1996, a decrease of $49 thousand since December 31, 1995. This
decrease is attributable to a decrease in the unallocated portion of
the allowance, which declined from $231 thousand at December 31, 1995
to $52 thousand at September 30, 1996. Nonperforming assets at
September 30, 1996 increased $917 thousand from year end 1995,
attributable largely to one residential real estate loan in the amount
of $540 thousand which is presently on nonaccrual status. Total
nonperforming assets stood at $3,522 thousand at September 30, 1996,
comprised of $1,202 thousand of nonaccrual loans, $1,150 thousand of
loans past due 90 or more days, and $1,170 thousand of foreclosed
properties.
Noninterest income increased by $330 thousand or 20.9 percent. This
increase included $109 thousand in security gains through nine month's
of 1996 compared to $23 thousand in security losses for the same
period of 1995. Noninterest expense increased by $824 thousand or
11.3 percent to $8.1 million from $7.3
8
<PAGE>
PART I FINANCIAL INFORMATION: (CONTINUED)
---------------------
ITEM 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations (CONTINUED)
million in 1995. Salaries and employee expenses increased by $517
thousand or 13.0 percent due primarily to the second quarter charge of
$271 thousand to terminate the defined benefit pension plan necessary
to fund the estimated unfunded portion of the pension plan and
additional personnel costs. Pension cost totaled $335 thousand at
September 30, 1996 compared to $116 thousand at September 30, 1995.
Final termination of the plan is not anticipated until the first
quarter of 1997 after IRS ratification. 1996 noninterest expense
includes a third quarter charge of $158 thousand for costs associated
with a one-time assessment on SAIF deposits. The Corporation assumed
certain deposits of a failed savings and loan institution in 1994.
BALANCE SHEET
-------------
Total cash and cash equivalents decreased $13.2 million from year-end
1995 and were primarily attributed to lower federal funds sold,
decreasing to $6.1 million from $20.8 million. Total securities
increased $10.1 million reflecting increases of $31.2 and $5.0 million
in mortgage backed securities and municipal securities respectively
and decreases in U.S. Treasuries and U.S. Agencies securities declined
$1.4 million and $22.3 million, respectively from December 31, 1995.
Net loans increased $12.5 million or 13.5% since year-end 1995.
Commercial loans increased $7.0 million or 36.0 percent, real estate
mortgages increased $5.0 million or 7.0 percent and installment loans
to individuals increased $.5 million or 12.5 percent since year end
1995. The increase in loans is attributed to increased personnel and
positive loan demand. The composition in the loan portfolio at
September 30, 1996 has changed slightly to 71.6 percent real estate
mortgages, 24.5 percent commercial and 3.9 percent installments from
75.8 percent, 20.3 percent, and 3.9 percent respectively at year-end
1995.
As of September 30, 1996 total deposits were $208.2 million
reflecting an increase of $4.6 million or 2.2 percent over December
31, 1995. Savings, NOW and money market deposits decreased by $4.7
million or 4.0 percent. Time deposits increased $5.1 million or 12.7
percent, and demand deposits increased $4.1 million or 8.8 percent
since year-end 1995.
Securities sold under repurchase agreements totaled $5.1 million,
compared to no repurchase agreements during the same period of 1995.
Shareholders' equity at September 30, 1996 increased by $98 thousand
or .59 percent to $16.7 million from December 31, 1995. This
increase was attributed
9
<PAGE>
PART I FINANCIAL INFORMATION: (CONTINUED)
---------------------
ITEM 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations (CONTINUED)
primarily to an $827 thousand increase in retained earnings, offset by
a change in net unrealized holdings on available-for-sale securities
of $729 thousand, changing from a gain of $514 thousand at December
31, 1995 to a loss of $215 thousand at September 30, 1996. $191
thousand and $170 thousand in dividends were paid during through nine
months of 1996 and 1995, respectively.
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996
---------------------------------------------
Operations
----------
Net income for the third quarter of 1996 was $369 thousand compared to
$571 thousand for 1995, reflecting a decrease of $202 thousand or
35.4 percent. Net interest income increased $257 thousand, due
primarily to higher income on both loans and securities and lower
income from bank balances (federal funds) and interest expense. The
provision for loan loss expenses reflected a reversal of $275 thousand
during the third quarter of 1995 as a result of declining classified
assets. Noninterest income increased $190 thousand due primarily to
increases in service charges on deposit accounts. Noninterest
expenses increased $366 thousand due primarily to the $158 thousand
cost associated with the one-time assessment on SAIF deposits noted
above and increases in other noninterest expenses.
PART II OTHER INFORMATION
-----------------
ITEM 1 LEGAL PROCEEDINGS
None.
ITEM 2 CHANGES IN SECURITIES
None.
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
10
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ITEM 5. OTHER INFORMATION
None.
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
(27) Financial Data Schedule
(b) Reports on Form 8-K
None.
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the
Form 10-QSB and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 12,611
<INT-BEARING-DEPOSITS> 3,095
<FED-FUNDS-SOLD> 6,100
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 97,357
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 105,304
<ALLOWANCE> 1,128
<TOTAL-ASSETS> 232,094
<DEPOSITS> 208,176
<SHORT-TERM> 5,141
<LIABILITIES-OTHER> 1,124
<LONG-TERM> 1,000
0
0
<COMMON> 637
<OTHER-SE> 16,016
<TOTAL-LIABILITIES-AND-EQUITY> 232,094
<INTEREST-LOAN> 6,911
<INTEREST-INVEST> 4,406
<INTEREST-OTHER> 591
<INTEREST-TOTAL> 11,908
<INTEREST-DEPOSIT> 3,933
<INTEREST-EXPENSE> 4,020
<INTEREST-INCOME-NET> 7,888
<LOAN-LOSSES> 300
<SECURITIES-GAINS> 109
<EXPENSE-OTHER> 8,133
<INCOME-PRETAX> 1,362
<INCOME-PRE-EXTRAORDINARY> 1,362
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,017
<EPS-PRIMARY> 1.60
<EPS-DILUTED> 1.02
<YIELD-ACTUAL> 7.57
<LOANS-NON> 1,202
<LOANS-PAST> 1,150
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 7,794
<ALLOWANCE-OPEN> 904
<CHARGE-OFFS> 755
<RECOVERIES> 406
<ALLOWANCE-CLOSE> 1,128
<ALLOWANCE-DOMESTIC> 1,128
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 52
</TABLE>
