<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
----- Exchange Act of 1934
For the Quarterly Period ended September 30, 1997
------------------
Transition report under Section 13 or 15(d) of the Exchange Act
----
For the transition period from to
----- -----
Commission file number 0-28360
-------
IBW Financial Corporation
----------------------------------------------
(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
- ---------------------------------------- ----------
(Address of Principal Executive Offices) (Zip Code)
(202) 722-2000
------------------------------------------------
(Issuer's Telephone Number, Including Area Code)
N/A
-----------------------------------------------------
(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, 1997, there
were 668,360 shares of the common stock $1.00 par value of IBW Financial
Corporation outstanding.
Transitional Small Business Disclosure Format (check one) Yes x No
--- ---
<PAGE>
PART I FINANCIAL INFORMATION
---------------------
ITEM 1. FINANCIAL STATEMENTS
IBW FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1997 AND DECEMBER 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
September 30, 1997 December 31, 1996
------------------- ------------------
(dollars in thousands)
<S> <C> <C>
ASSETS
Cash and cash equivalents
Cash and due from banks $ 10,845 $ 13,692
Federal funds sold 6,900 8,300
-------- --------
Total cash and cash equivalents 17,745 21,992
Interest-bearing deposits in banks 3,000 3,000
Securities available-for-sale, at
fair value (amortized cost,
$105,508 and $94,298) 106,644 94,824
Loans receivable, net of allowance
for loan losses of $1,924 and $1,266 114,332 108,611
Other real estate owned, net 733 1,310
Bank premises and equipment, net 2,646 2,452
Other assets 3,663 3,599
-------- --------
TOTAL $248,763 $235,788
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Demand deposits $ 50,651 $ 50,840
Time and savings deposits 153,975 155,244
-------- --------
Total deposits 204,626 206,084
Securities sold under repurchase agreements 21,696 10,466
Other liabilities 1,598 920
Note payable 1,000 1,000
-------- --------
Total liabilities 228,920 218,470
COMMITMENTS AND CONTINGENCIES - -
-------- --------
SHAREHOLDERS' EQUITY
Preferred stock - $1 par value; 1,000,000 (500,000 voting
and 500,000 non-voting) authorized; 20,000 Series A
Non-Voting issued and outstanding,
stated at liquidation value 500 -
Common stock - $1 par value; 1,000,000 authorized;
668,360 and 637,160 shares issued and outstanding 668 637
Capital surplus 5,058 4,329
Retained earnings 12,867 12,005
Unrealized gain on available-for-sale securities,
net of taxes of $386 and $179 750 347
-------- --------
Total shareholders' equity 19,843 17,318
-------- --------
TOTAL $248,763 $235,788
======== ========
</TABLE>
-1-
<PAGE>
IBW FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND SEPTEMBER 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------------------
1997 1996
--------------------- ------------------
(dollars in thousands, except per share data)
<S> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 7,757 $ 6,911
U.S. treasury securities 948 1,172
Obligations of U.S. government agencies and corporations 3,222 2,746
Obligations of states and political subdivisions 668 488
Bank balances and other securities purchased
under agreements to resell 411 591
-------- --------
Total interest income 13,006 11,908
-------- --------
INTEREST EXPENSE
Time certificates over $100,000 560 502
Other savings and time deposits 3,247 3,431
Securities sold under repurchase agreements 535 47
Note payable 40 40
-------- --------
Total interest expense 4,382 4,020
-------- --------
NET INTEREST INCOME 8,624 7,888
PROVISION FOR LOAN LOSSES 915 300
-------- --------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 7,709 7,588
-------- --------
NONINTEREST INCOME
Service charges on deposit and checking accounts 2,139 1,649
Gain on sale of trading securities 61 -
Gain on sale of available-for-sale securities 49 109
Other operating income 105 149
-------- --------
Total noninterest income 2,354 1,907
-------- --------
NONINTEREST EXPENSE
Salaries and employee benefits 4,589 4,505
Occupancy 527 510
Furniture and equipment 457 415
Data processing 447 372
Other 2,615 2,331
-------- --------
Total noninterest expense 8,635 8,133
-------- --------
INCOME BEFORE INCOME TAXES 1,428 1,362
PROVISION FOR INCOME TAXES 375 345
-------- --------
NET INCOME $ 1,053 $ 1,017
======== ========
NET INCOME PER COMMON SHARE $1.65/1/ $1.60
======== ========
1 Based on weighted average common shares outstanding 637,389 637,160
</TABLE>
-2-
<PAGE>
IBW FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED SEPTEMBER 30, 1997 AND SEPTEMBER 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended September 30,
------------------------------------------------
1997 1996
------------------------------------------------
(dollars in thousands, except per share data)
<S> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 2,700 $ 2,399
U.S. treasury securities 416 390
Obligations of U.S. government agencies and corporations 1,015 1,001
Obligations of states and political subdivisions 221 179
Bank balances and other securities purchased
under agreements to resell 109 95
-------- --------
Total interest income 4,461 4,064
-------- --------
INTEREST EXPENSE
Time certificates over $100,000 197 174
Other savings and time deposits 1,079 1,099
Securities sold under repurchase agreements 223 42
Note payable 13 14
-------- --------
Total interest expense 1,512 1,329
-------- --------
NET INTEREST INCOME 2,949 2,735
PROVISION FOR LOAN LOSSES 180 150
-------- --------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 2,769 2,585
-------- --------
NONINTEREST INCOME
Service charges on deposit and checking accounts 730 623
Gain on sale of trading securities 39 -
Gain on sale of available-for-sale securities 49 47
Other operating income 32 45
-------- --------
Total noninterest income 850 715
-------- --------
NONINTEREST EXPENSE
Salaries and employee benefits 1,575 1,378
Occupancy 186 163
Furniture and equipment 169 145
Data processing 149 114
Other 967 1,016
-------- --------
Total noninterest expense 3,046 2,816
-------- --------
INCOME BEFORE INCOME TAXES 573 484
PROVISION FOR INCOME TAXES 150 115
-------- --------
NET INCOME $ 423 $ 369
======== ========
NET INCOME PER COMMON SHARE $ 0.66/1/ $ 0.58
======== ========
1 Based on weighted average common shares outstanding 637,839 637,160
</TABLE>
-3-
<PAGE>
IBW FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended September 30
---------------------------------
1997 1996
------------- ------------
(dollars in thousands)
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 1,053 $ 1,017
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 440 245
Amortization of premiums and accretion of discounts, net 469 512
Other gains and losses, net (83) -
Interest capitalized on securities (665) -
(Gain) on sale of securities available-for-sale (47) (109)
Proceeds from sale of trading securities 3,164 (8)
Provision for losses on other real estate owned 59 11
Provision for loan losses 915 300
Decrease (increase) in other assets (408) 484
Increase (decrease) in accrued expenses and other liabilities 678 (183)
------------- ------------
Net cash provided by operating activities 5,575 2,269
------------- ------------
INVESTING ACTIVITIES
Net increase in loans (10,324) (13,009)
Proceeds from sale of loans 476 -
Additions to bank premises and equipment (467) (305)
Net proceeds on sale of other real estate owned 779 103
Proceeds from sale of securities available-for-sale 7,841 20,562
Proceeds from maturities of securities available-for-sale 5,462 20,857
Purchase of securities available-for-sale (28,683) (58,150)
Principal collected on securities available-for-sale 4,253 5,066
------------- ------------
Net cash used in investing activities (20,663) (24,876)
------------- ------------
FINANCING ACTIVITIES
Dividends paid (191) (191)
Net (decrease) increase in deposits (1,458) 4,477
Issuance of stock 1,260 -
Net increase in securities sold under repurchase agreements 11,230 5,141
------------- ------------
Net cash provided by financing activities 10,841 9,427
------------- ------------
DECREASE IN CASH AND CASH EQUIVALENTS (4,247) (13,180)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 21,992 34,886
------------- ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 17,745 $ 21,706
============= ============
Supplemental disclosures of cash flow information
Cash paid during the year for
Interest $ 3,881 $ 3,934
Taxes 110 404
Non-Cash Transactions:
Transfers of loans to Other real estate owned $ 268 $ 222
Securitization of mortgage loans 3,102 -
</TABLE>
-4-
<PAGE>
IBW FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, of a normal and
recurring nature, considered necessary for a fair presentation have been
included. Operating results for the nine month period ended September 30,
1997, are not necessarily indicative of the results that may be expected for the
year ended December 31, 1997. These unaudited consolidated financial statements
should be read in conjunction with the consolidated financial statements and
footnotes included in the Company's Annual Report to Shareholders for the year
ended December 31, 1996.
Note B ACCOUNTING CHANGES
Effective January 1,1997, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 125, Accounting for Transfers and Servicing of Financial
Assets and Extinguishment of Liabilities, except for the provisions that were
delayed by SFAS No. 127, Deferral of the Effective Date of Certain Provisions of
Certain Provisions of FASB Statement No. 125, an Amendment of FASB Statement No.
125. The adoption of this new accounting standard did not have a material
impact on the financial statements of the Company.
Note C NEW ACCOUNTING PRONOUNCEMENT
In March 1997, the Financial Accounting standards Board issued SFAS No. 128,
Earnings Per Share ("EPS"), which simplifies the standards for computing EPS
previously found in Accounting Board Principals Opinion No. 15, Earnings Per
Share. SFAS No. 128 is effective for financial statements issued for periods
ending after December 15, 1997. If SFAS No. 128 had been effective for the nine
months ended September 30, 1997 and 1996, earnings per share would have been
presented as follows:
<TABLE>
<CAPTION>
Nine Months Ended September 30,
1997 1996
----------------- -------------
<S> <C> <C>
Net income per common share $1.65/1/ $1.60
</TABLE>
1 Based on average shares outstanding.
-5-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
AS OF AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 (DOLLARS IN THOUSANDS)
Forward looking statements. This discussion contains forward looking
statements within the meaning of the Securities Exchange Act of 1934, as
amended, including statements of goals, intentions, and expectations as to
future trends, plans, events or results of Company operations and policies and
regarding general economic conditions. These statements are based upon current
and anticipated economic conditions, nationally and in the Company's market,
interest rates and interest rate policy, competitive factors and other
conditions which, by their nature, are not susceptible to accurate forecast, and
are subject to significant uncertainty. Because of these uncertainties and the
assumptions on which this discussion and the forward looking statements are
based, actual future operations and results in the future may differ materially
from those indicated herein. Readers are cautioned against placing undue
reliance on any such forward looking statement. The Company does not undertake
to update any forward looking statement to reflect occurrences or events which
may not have been anticipated as of the date of such statements.
Overview
IBW Financial Corporation's net income for the nine months ended of 1997
totaled $1,053, an increase of $36, or 3.5% from the comparable period of 1996.
This increase is primarily attributed to an increase of $736 in net interest
income, an increase of $447 in noninterest income, offset by an increase in the
provision for loan losses of $615, an increase of $502 in noninterest expenses
and an increase of $30 in income taxes. Return on average assets (ROAA), and
return on average shareholder's equity (ROAE) for the nine months ended of 1997
and 1996 were .58% and 8.01%, .59% and 8.38%, respectively.
On September 29, 1997, the Company completed the sale of 31,200 shares of
its common stock and 20,000 shares of its Series A Non-Voting Preferred Stock,
in a private placement transaction, to the Federal National Mortgage Association
("Fannie Mae"), at a price of $25.00 per share of common stock and $25.00 per
share of Series A Non-Voting Preferred Stock, for a total purchase price of
$1,280,000. The shares of common stock issued to Fannie Mae represent
approximately 4.67% of the outstanding shares of the Company's common stock, and
the shares of Series A Non-Voting Preferred Stock represent all of the
authorized shares of that series.
The Company has contributed $980,000 of the proceeds of the sale to
Industrial Bank, National Association, Oxon Hill, Maryland, the wholly owned
subsidiary of the Company, for use in connection with its mortgage and housing
related lending operations, and the promotion of affordable housing in its
market area. The remaining proceeds will be retained at the Company for general
corporate purposes.
Under the stock purchase agreement, the Company is restricted from taking
any action, including the repurchase, redemption or other reduction in the
number of outstanding shares of capital stock, but not including the incurrence
of losses, which would result in the value of the Shares representing 10% or
more of the equity of the Company, or the shares of common stock sold to Fannie
Mae representing 5% or more of the outstanding common stock. The Company has
certain rights under the agreement to repurchase the Shares under certain
circumstances.
NET INTEREST INCOME
During the nine months ended September 30, 1997, net interest income
increased $736, or 9.3% over the comparable period in 1996. Interest and fees
on loans increased by $846, or 12.2%, reflecting higher levels of loans.
Interest on securities increased $432, or 9.8%, reflecting higher levels of
mortgage backed securities
-6-
<PAGE>
and obligations of states and political subdivisions, and lower levels of U.S.
Treasury securities. Interest on federal funds sold and other interest earning
assets declined $180, or 30.5%, from the 1996 comparable period, reflecting
lower levels of federal funds sold. Interest expense increased $362, or 9.0%,
attributed primarily to a higher volume of repurchase agreements which were
initiated late in the first quarter of 1996. Interest expense related to
deposits declined $126, while interest expense related to repurchase agreements
increased $488. On a tax-equivalent basis, net interest income for the nine
months ended September 30, 1997 increased $829, or 10.2%, over the comparable
period in 1996. The increase was primarily attributable to an increase in
average interest-earning assets, an increase in the net interest spread and
partially offset by an increase in average interest-bearing liabilities.
Average interest-earning assets increased by $14.2 million, or 6.7%, comprised
principally of growth in loans of $13.1 million and nontaxable securities of
$4.4 million, partially offset by a decrease in the level of federal funds sold
of $5.6 million.
The interest rate spread increased 15 basis points from 4.43% for the nine
months ended September 30, 1996 to 4.58% for The nine months ended September 30,
1997. This increase is primarily attributed to an increase in the average rate
earned on interest-earning assets, except for loans, partially offset by the 7
basis point increase in the average cost of interest-bearing liabilities.
Average interest-bearing liabilities increased $10.9 million, or 6.7%, due
to an increase in time deposits and borrowings, partially offset by a decrease
in average interest-bearing demand and savings deposits. Average borrowings
(comprised of repurchase agreements and the note payable) increased $14.0
million.
PROVISION FOR LOAN LOSSES
The Company maintains an allowance for loan losses to absorb losses on
existing loans and commitments that may become uncollectible. The provision for
loan losses increased $615 for the nine months of 1997, to $915, from $300 for
the nine months ended September 30, 1996. The increase in the provision for
loan losses is attributable primarily to the continued large level of
nonperforming assets and loans with possible credit problems. Overall,
nonperforming assets declined to $3.7 million compared to $4.6 million at year
end 1996, due principally to the disposal of a large OREO property with a net
carrying cost of $460. Nonperforming assets to gross loans and foreclosed
properties and nonperforming assets to total assets declined from 4.1% and 1.9%,
respectively at year-end 1996 to 3.2% and 1.5%, respectively at September 30,
1997.
NONINTEREST INCOME
Noninterest income increased $447, or 23.4%, to $2,354 for September 1997
compared to $1,907 for June 1996. The increase is attributable primarily to
service charges on deposit and checking accounts, which increased $490.
NONINTEREST EXPENSE
Noninterest expense for the nine months ended September 30, 1997 increased
$502, or 6.2%, over comparable period of 1996. This increase is attributed
primarily to an increase of $284 in other expenses, an increase of $84 in
salaries and benefits, and an increase of $75 in data processing cost. The
increase in other expenses were principally attributed to an increase of $142 in
professional service fees, an increase of $105 in advertising expenses, and an
increase of $123 in loan collection expenses including a $33 increase in
provision for OREO.
PROVISION FOR INCOME TAXES
The provision for income taxes for 1997 increased $30 to $375, or 8.7%,
from the comparable period of 1996, due primarily to an increase in income
before income taxes.
-7-
<PAGE>
FINANCIAL OVERVIEW
Total assets increased $13.0 million, or 5.5%, from December 31, 1996 to
September 30, 1997, mainly due to an increase in securities of $11.8 million, an
increase in loans of $5.7 million, partially offset by a decrease in cash and
cash equivalents of $4.2 million, and other real estate owned of $577. The
increase in assets was primarily funded by the growth of repurchase agreements
of $11.2 million, partially offset by a decrease of $1.5 million in deposits.
Total shareholders' equity increased $2.5 million due primarily to: (a) an
increase of $31 in common stock, an increase of $729 in capital surplus, and an
increase of $500 in preferred stock as a result of the stock purchase by FNMA;
(b) an increase in retained earnings of $862; and (c) an increase in the
unrealized gain on available-for-sale securities of $403. Dividends of $191
were paid during the second quarter of 1997.
The carrying value of the Company's securities portfolio, all of which is
classified as available-for-sale, increased 12.5% from $94.8 million at December
31, 1996 to $107.0 million at September 30, 1997. This growth was centered
specifically in mortgage-backed securities, which increased from $50.4 million
to $59.9 million. The mortgage-backed securities portfolio had a weighted-
average remaining maturity of 2.33 years at September 30, 1997 compared to 2.73
years at December 31, 1996. The collateral underlying all the mortgage-backed
securities is guaranteed by one of the "Quasi-Governmental" agencies, and
therefore maintains a risk weight of 20% for risk-based capital purposes.
Management's analysis of mortgage-related securities includes, but is not
limited to, the average lives, seasonality, coupon and historic behavior
(including prepayment history) of each particular security over its life, as
affected by various interest rate environments. Stress tests are performed on
each security on a quarterly basis as part of management's ongoing analysis.
There are no issuers of securities held by the Company the securities of which
have a book value in excess of 10% of shareholders' equity.
The allowance for loan losses was $1.9 million at September 30, 1997
compared to $1.3 million at December 31, 1996. The ratio of allowance for
possible loan losses to total loans increased to 1.66% at September 30, 1997
from 1.15% at year-end 1996. The increase in the level of the allowance for
loan losses as a percentage of ending loans reflects the increase in potential
problem loans. At September 30, 1997, non-performing assets to total assets
decreased to 1.48% compared to 1.94% at December 31, 1996.
-8-
<PAGE>
AVERAGE BALANCES AND NET INTEREST INCOME ANALYSIS/(1)/
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------
Nine Months Ended Nine Months Ended Year Ended
September 30, 1997 September 30, 1996 December 31, 1996
------------------------------------------------------------------------------------------
Amount Amount Amount
Average Average Paid or Average Average Paid or Average Average Paid or
Balance Rate Earned Balance Rate Earned Balance Rate Earned
--------- ------- ------- -------- ------- ------- ------- ------- --------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Loans, net $109,984 9.43% $ 7,757 $ 96,912 9.53% $ 6,911 $ 99,879 9.41% $ 9,401
Taxable securities 88,158 6.33% 4,170 87,722 6.05% 3,969 86,305 6.06% 5,232
Non-taxable securities/(2)/ 16,556 8.17% 1,012 12,155 8.13% 739 12,747 8.31% 1,059
Federal funds sold 6,529 5.61% 275 12,170 5.37% 489 11,279 5.51% 622
Interest-bearing deposits held 3,076 5.91% 136 1,165 5.85% 51 1,661 6.44% 107
---------- ------- ------- -------- ------- -------- -------- ------- --------
Total interest-earning assets 224,303 7.96% 13,350 210,124 7.74% 12,159 211,871 7.75% 16,421
Cash and due from banks 11,067 10,700 10,841
Bank premises and
equipment, net 2,473 2,416 2,424
Other assets 4,610 5,309 5,423
---------- -------- --------
Total assets $242,453 $228,549 $230,559
========== ======== ========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Interest-bearing demand deposits $ 28,790 1.98% $ 426 $ 30,849 2.14% $ 494 $ 30,718 2.10% 644
Savings deposits 67,363 2.75% 1,387 73,989 2.90% 1,604 72,856 2.87% 2,087
Time deposits 60,676 4.39% 1,994 55,185 4.45% 1,835 55,548 4.44% 2,468
---------- ------- ------- -------- ------- -------- -------- ------- --------
Total interest-bearing deposits 156,829 3.25% 3,807 160,023 3.29% 3,933 159,122 3.27% 5,199
Borrowed funds 1,000 5.35% 40 1,000 5.35% 40 1,000 5.30% 53
Repurchase agreements 15,440 4.63% 535 1,394 4.51% 47 3,376 4.53% 153
---------- ------- ------- -------- ------- -------- -------- ------- --------
Total interest-bearing liabilities 173,269 3.38% 4,382 162,417 3.31% 4,020 163,498 3.31% 5,405
Noninterest-bearing liabilities 50,119 48,463 48,930
Other liabilities 1,542 1,478 1,841
Shareholders' equity 17,523 16,191 16,290
---------- -------- --------
Total liabilities and
shareholders' equity $242,453 $228,549 $230,559
========== ======== ========
NET INTEREST INCOME AND NET
YIELD ON INTEREST-EARNING ASSETS
Net interest income $ 8,968 $ 8,139 $11,016
======= ======== ========
Interest rate spread 4.58% 4.43% 4.44%
Net yield on average interest-
earning assets 5.35% 5.18% 5.20%
Average interest-earning assets
to average interest-bearing
liabilities 129.45% 129.37% 129.58%
</TABLE>
(1) Yields on securities have been computed based upon the historical cost of
such securities. Nonaccruing loans are included in average balances.
(2) Yields on non-taxable securities are presented on a tax-equivalent basis
using a 34% tax rate. Interest income and net interest income reported in
the Company's consolidated statements of income were $13,006 and $8,624 for
September 30, 1997, $11,908 and $7,888 for September 30, 1996 and $16,061
and $10,656 for December 31, 1996.
-9-
<PAGE>
LOAN LOSS AND RECOVERY EXPERIENCE
<TABLE>
<CAPTION>
----------------------------------------
Nine Months Ended Year Ended
September 30, 1997 December 31,1996
-------------------- -----------------
(dollars in thousands)
<S> <C> <C>
Total outstanding loans at period end $116,256 $110,242
Average amount of loans outstanding 109,984 100,950
Allowance for loan losses
at beginning of year 1,266 1,177
Loans charged off:
Commercial 170 637
Real estate mortgage 43 52
Installment loans to individuals 140 69
-------------------- -----------------
Total charge-offs 353 758
-------------------- -----------------
Recoveries of loans previously charged-off:
Commercial 70 286
Real estate mortgage - 25
Installment loans to individuals 26 26
-------------------- -----------------
Total recoveries 96 337
-------------------- -----------------
Net charge-offs 257 421
Additions to allowance charged to
operations 915 510
-------------------- -----------------
Allowance for loan losses at end of year $ 1,924 $ 1,266
==================== =================
Ratio of net charge-offs (annualized) during
year to average outstanding loans during
year 0.31% 0.42%
Ratio of allowance for possible loan
losses at period end to total loans 1.66% 1.15%
</TABLE>
ALLOCATION OF ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
----------------------------------------------------------
September 30, 1997 Percent December 31, 1996 Percent
-------------------- ------- ----------------- -------
(dollars in thousands)
<S> <C> <C> <C> <C>
Commercial $1,646 85.55% $1,075 84.91%
Real estate mortgage 115 5.98% 89 7.03%
Consumer 113 5.87% 92 7.27%
Unallocated 50 2.60% 10 0.79%
-------------------- ------- ----------------- -------
Total $1,924 100.00% $1,266 100.00%
==================== ======= ================= =======
</TABLE>
The level of the allowance for loan losses is determined by management on
the basis of various assumptions and judgments. These include levels and trends
of past due and non-accrual loans, trends in volume and changes in terms,
effects of policy changes, experience and depth of management, anticipated
economic conditions in the Washington, DC metropolitan area, concentrations of
credit, the composition of the loan portfolio, prior loan loss experience, and
the ongoing and periodic reviews of the loan portfolio by the Company's internal
and external loan review function. For impaired loans, the Company establishes
reserves in accordance with SFAS 114 and SFAS 118, and for non-impaired loans
uses an allocation approach which relies on historical loan loss experience,
adjusted to reflect current conditions and trends.
-10-
<PAGE>
Although management believes that it uses the best information available to
make such determinations that the allowance for loan losses is adequate as of
the dates shown, future adjustments to the allowance may be necessary, and net
income could be significantly affected, if circumstances and/or economic
conditions differ substantially from the assumptions used in making the initial
determinations. Any downturn in the real estate market or general economic
conditions in the Washington, DC metropolitan area could result in the Company
experiencing increased levels of non-performing assets and charge-offs,
significant provisions for loan losses, and significant reductions in net
income. Additionally, various regulatory agencies periodically review the
Company's allowance for loan losses. Such agencies may require the recognition
of additions to the allowance based on their judgments of information available
to them at the time of their examination. In light of the foregoing, there can
be no assurance that management's determinations as to the future adequacy of
the allowance for loan losses will prove accurate, or that additional provisions
or charge-offs will not be required.
The following table sets forth information concerning non-performing
assets.
NON-PERFORMING ASSETS
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------- ------------
(dollars in thousands)
<S> <C> <C>
Non-accrual loans/(1)/ $2,066 $2,006
Loans past due 90 days or more
and still accruing 884 1,267
Foreclosed properties 733 1,310
------ ------
Total $3,683 $4,583
============= ============
Non-performing assets to gross loans 3.15% 4.11%
and foreclosed properties at period
end
Non-performing assets to total 1.48% 1.94%
assets at period end
</TABLE>
1. Loans are placed on non-accrual status when in the opinion of management
the collection of additional interest is unlikely or a specific loan meets
the criteria for non-accrual status established by regulatory authorities.
No interest is taken into income on non-accrual loans unless received in
cash. A loan remains on non-accrual status until the loan is current to
both principal and interest and the borrower demonstrates the ability to
pay and remain current, or the loan becomes well secured and is in the
process of collection. The gross interest income that would have been
recorded in the nine months ended September 30, 1997 and the year ended
December 31, 1996 for non-accrual loans at September 30, 1997 and December
31, 1996 had the loans been current in accordance with their original terms
was $166 and $101, respectively.
2. The Bank charges loans against the allowance for loan losses when it
determines that principal and interest or portions thereof become
uncollectible. This is determined through an analysis of each individual
credit, including the financial condition and repayment capacity of the
borrower, and of the sufficiency of the collateral, if any.
At September 30, 1997, there were $9,146 of loans not reflected in the
table above, where known information about possible credit problems of borrowers
caused management to have doubts as to the ability of the borrower to comply
with present loan repayment terms and that may result in disclosure of such
loans in the future. Included in the total are twenty loans totalling $4,719
fully collateralized by real estate, three of which represent $2,565 of the
total. The remaining $4,427 consists of sixteen commercial loans, three of which
represent $2,383, secured primarily by accounts receivable and various business
equipment.
-11-
<PAGE>
PART II OTHER INFORMATION
-----------------
ITEM 1 LEGAL PROCEEDINGS
None.
ITEM 2 CHANGES IN SECURITIES
On September 29, 1997, the Company completed the sale of 31,200 shares
of its common stock and 20,000 shares of its Series A Non-Voting Preferred
Stock, in a private placement transaction, to the Federal National Mortgage
Association ("Fannie Mae"), at a price of $25.00 per share of common stock
and $25.00 per share of Series A Non-Voting Preferred Stock, for a total
purchase price of $1,280,000. The shares of common stock issued to Fannie
Mae represent approximately 4.67% of the outstanding shares of the
Company's common stock, and the shares of Series A Non-Voting Preferred
Stock represent all of the authorized shares of that series.
Under the stock purchase agreement, the Company is restricted from
taking any action, including the repurchase, redemption or other reduction
in the number of outstanding shares of capital stock, but not including the
incurrence of losses, which would result in the value of the Shares
representing 10% or more of the equity of the Company, or the shares of
common stock sold to Fannie Mae representing 5% or more of the outstanding
common stock. The Company has certain rights under the agreement to
repurchase the Shares under certain circumstances.
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
A special meeting of shareholders of the Company was held on September
25, 1997, at which an amendment to the Articles of Incorporation of the
Company to change the capital stock of the Company to eliminate the
existing class of 1,000,000 undesignated preferred stock, of which no
shares were outstanding, and to authorize the issuance of 500,000 shares of
undesignated voting preferred stock and 500,000 shares of undesignated non-
voting preferred stock, was considered and approved. No other matters were
presented at the special meeting. The votes cast on the amendment were as
follows:
<TABLE>
<CAPTION>
<S> <C>
FOR 472,932
AGAINST 16,690
ABSTAIN 7,500
BROKER NON-VOTES 0
</TABLE>
ITEM 5. OTHER INFORMATION
None.
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
(11) Statement Regarding Computation of Per Share Earnings
(27) Financial Data Schedule
-12-
<PAGE>
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended September
30, 1997.
-13-
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
IBW FINANCIAL CORPORATION
November 10, 1997 /s/ B. Doyle Mitchell, Jr.
-------------------------------------------
B. Doyle Mitchell, Jr., President
November 10, 1997 /s/ Thomas A Wilson, Jr.
-------------------------------------------
Thomas A. Wilson, Jr. Senior Vice President
and Chief Financial and Accounting Officer
-14-
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
11 Statement regarding Computation of Per Share Earnings
27 Financial Data Schedule
<PAGE>
Exhibit 11
STATEMENT OF COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
----------------------
1997 1996
-------- --------
<S> <C> <C>
Earnings per common share
Primary $ 1.65 $ 1.60
Average shares outstanding 637,389 637,160
Fully diluted $ 1.65 $ 1.60
Average shares outstanding 637,389 637,160
</TABLE>
<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>
<CIK> 0001013274
<NAME> IBW FINANCIAL CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 10,845
<INT-BEARING-DEPOSITS> 3,000
<FED-FUNDS-SOLD> 6,900
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 106,644
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 114,332
<ALLOWANCE> 1,924
<TOTAL-ASSETS> 248,763
<DEPOSITS> 204,626
<SHORT-TERM> 21,696
<LIABILITIES-OTHER> 1,598
<LONG-TERM> 1,000
0
500
<COMMON> 668
<OTHER-SE> 18,675
<TOTAL-LIABILITIES-AND-EQUITY> 248,763
<INTEREST-LOAN> 7,757
<INTEREST-INVEST> 4,838
<INTEREST-OTHER> 411
<INTEREST-TOTAL> 13,006
<INTEREST-DEPOSIT> 3,807
<INTEREST-EXPENSE> 4,382
<INTEREST-INCOME-NET> 8,624
<LOAN-LOSSES> 915
<SECURITIES-GAINS> 110
<EXPENSE-OTHER> 8,635
<INCOME-PRETAX> 1,428
<INCOME-PRE-EXTRAORDINARY> 1,053
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,053
<EPS-PRIMARY> 1.65
<EPS-DILUTED> 1.65
<YIELD-ACTUAL> 5.35
<LOANS-NON> 2,066
<LOANS-PAST> 884
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 9,146
<ALLOWANCE-OPEN> 1,266
<CHARGE-OFFS> 353
<RECOVERIES> 96
<ALLOWANCE-CLOSE> 1,924
<ALLOWANCE-DOMESTIC> 1,924
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 50
</TABLE>
