<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, 1998
------------------
____ 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
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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, 1998, 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, 1998 AND DECEMBER 31, 1997
(UNAUDITED)
September 30, December 31,
1998 1997
----------------------------
(dollars in thousands)
ASSETS
Cash and cash equivalents
Cash and due from banks $ 12,374 $ 11,842
Federal funds sold 19,200 11,500
----------------------------
Total cash and cash equivalents 31,574 23,342
Interest-bearing deposits in banks 448 3,000
Securities available-for-sale, at
fair value (amortized cost,
$119,919 and $99,933) 120,556 101,106
Loans receivable, net of allowance
for loan losses of $2,930 and $1,702 110,687 116,476
Other real estate owned, net 343 522
Bank premises and equipment, net 2,640 2,672
Other assets 3,911 3,584
----------------------------
TOTAL $270,159 $250,702
============================
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Demand deposits $ 54,753 $ 52,922
Time and savings deposits 165,103 155,274
----------------------------
Total deposits 219,856 208,196
Securities sold under repurchase agreements 28,616 19,496
Other liabilities 1,379 1,833
Note payable 1,000 1,000
----------------------------
Total liabilities 250,851 230,525
----------------------------
SHAREHOLDERS' EQUITY
Preferred stock - $1 par value; 1,000,000
(500,000 voting and 500,000 nonvoting)
authorized; 20,000 Series A 500 500
Nonvoting issued and outstanding,
stated at liquidation value
Common stock - $1 par value; 1,000,000
authorized; 668,360 and 668,360 shares
issued and outstanding 668 668
Capital surplus 5,051 5,051
Retained earnings 12,669 13,183
Accumulated other comprehensive income 420 775
----------------------------
Total shareholders' equity 19,308 20,177
----------------------------
TOTAL $270,159 $250,702
============================
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<PAGE>
IBW FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND SEPTEMBER 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
---------------------------------------------
1998 1997
---------------------------------------------
(dollars in thousands, except per share data)
<S> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 7,916 $ 7,757
U.S. treasury securities 395 948
Obligations of U.S. government agencies and corporations 3,805 3,222
Obligations of states and political subdivisions 448 668
Bank balances and other securities purchased
under agreements to resell 846 411
---------------------------------------------
Total interest income 13,410 13,006
---------------------------------------------
INTEREST EXPENSE
Time certificates over $100,000 722 560
Other savings and time deposits 3,328 3,247
Securities sold under repurchase agreements 774 535
Note payable 40 40
---------------------------------------------
Total interest expense 4,864 4,382
---------------------------------------------
NET INTEREST INCOME 8,546 8,624
PROVISION FOR LOAN LOSSES 2,419 915
---------------------------------------------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 6,127 7,709
---------------------------------------------
NONINTEREST INCOME
Service charges on deposit and checking accounts 2,476 2,139
Gain on sale of trading securities -- 61
Gain on sale of available-for-sale securities 201 49
Other operating income 20 105
---------------------------------------------
Total noninterest income 2,697 2,354
---------------------------------------------
NONINTEREST EXPENSE
Salaries and employee benefits 5,134 4,589
Occupancy 571 527
Furniture and equipment 572 457
Data processing 494 447
Other 2,551 2,615
---------------------------------------------
Total noninterest expense 9,322 8,635
---------------------------------------------
(LOSS) INCOME BEFORE INCOME TAXES (498) 1,428
INCOME TAX (BENEFIT) PROVISION (203) 375
---------------------------------------------
NET (LOSS) INCOME ($295) $ 1,053
OTHER COMPREHENSIVE (LOSS) INCOME, NET OF TAX
Unrealized securities gains (losses) (355) 403
Reclassification adjustment (133) (32)
Total Other Comprehensive Income (488) 371
COMPREHENSIVE (LOSS) INCOME (783) 1,424
==============================================
BASIC & DILUTED NET (LOSS) INCOME PER COMMON SHARE ($.44) $ 1.65
==============================================
</TABLE>
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<PAGE>
IBW FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED SEPTEMBER 30, 1998 AND SEPTEMBER 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended September 30,
-----------------------------------------
1998 1997
-----------------------------------------
(dollars in thousands, except per share
data)
<S> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 2,581 $2,700
U.S. treasury securities 28 416
Obligations of U.S. government agencies and corporations 1,314 1,015
Obligations of states and political subdivisions 140 221
Bank balances and other securities purchased
under agreements to resell 286 109
-----------------------------------------
Total interest income 4,349 4,461
-----------------------------------------
INTEREST EXPENSE
Time certificates over $100,000 259 197
Other savings and time deposits 1,133 1,079
Securities sold under repurchase agreements 302 223
Note payable 13 13
-----------------------------------------
Total interest expense 1,707 1,512
-----------------------------------------
NET INTEREST INCOME 2,642 2,949
PROVISION FOR LOAN LOSSES 575 180
-----------------------------------------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 2,067 2,769
-----------------------------------------
NONINTEREST INCOME
Service charges on deposit and checking accounts 828 730
Gain on sale of trading securities - 39
Gain on sale of available-for-sale securities 80 49
Other operating income 17 32
-----------------------------------------
Total noninterest income 925 850
-----------------------------------------
NONINTEREST EXPENSE
Salaries and employee benefits 1,863 1,575
Occupancy 188 186
Furniture and equipment 186 169
Data processing 164 149
Other 881 967
-----------------------------------------
Total noninterest expense 3,282 3,046
-----------------------------------------
(LOSS) INCOME BEFORE INCOME TAXES (290) 573
INCOME TAX (BENEFIT) PROVISION (47) 150
-----------------------------------------
NET (LOSS) INCOME ($243) $423
OTHER COMPREHENSIVE (LOSS) INCOME, NET OF TAX
Unrealized securities gains (losses) (94) 185
Reclassification adjustment (53) (32)
Other Comprehensive Income (147) 153
COMPREHENSIVE (LOSS) INCOME (390) 576
=========================================
BASIC & DILUTED NET (LOSS) INCOME PER COMMON SHARE ($0.36) $0.66
=========================================
</TABLE>
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<PAGE>
IBW FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended September 30
-------------------------------------------
1998 1997
-------------------------------------------
(dollars in thousands)
<S> <C> <C>
OPERATING ACTIVITIES
Net (loss) income ($ 295) $ 1,053
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 309 440
Amortization of premiums and accretion of discounts, net (511) (469)
Other (gains) and losses, net (29) (83)
Interest capitalized on securities (402) (665)
Gain on sale of securities available-for-sale (201) (47)
Proceeds from sale of trading securities - 3,164
Provision for losses on other real estate owned (50) 59
Provision for loan losses 2,419 915
Decrease (increase) in other assets 199 (408)
Increase in accrued expenses and other liabilities 924 678
-------------------------------------------
Net cash provided by operating activities 515 5,575
-------------------------------------------
INVESTING ACTIVITIES
Net increase in loans (516) (10,324)
Net increase (decrease) in short term investments 3,000 -
Proceeds from sale of loans 4,164 476
Additions to bank premises and equipment (281) (467)
Net proceeds on sale of other real estate owned 204 779
Proceeds from sale of securities available-for-sale 2,935 7,841
Proceeds from maturities of securities available-for-sale 24,312 5,462
Purchase of securities available-for-sale (69,877) (28,683)
Principal collected on securities available-for-sale 23,657 4,253
-------------------------------------------
Net cash used in investing activities (12,402) (20,663)
-------------------------------------------
FINANCING ACTIVITIES
Dividends paid (213) (191)
Net increase (decrease) in deposits 11,660 (1,458)
Issuance of stock - 1,260
Net increase in securities sold under
repurchase agreements 9,120 11,230
-------------------------------------------
Net cash provided by financing activities 20,567 10,841
-------------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 8,680 (4,247)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 23,342 21,992
-------------------------------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 32,022 $ 17,745
===========================================
Supplemental disclosures of cash flow information
Cash paid during the year for
Interest $4,861 $ 3,881
Taxes 200 110
Non-Cash Transactions:
Transfers of loans to Other real estate owned $ 62 $ 268
Securitization of mortgage loans - 3,102
</TABLE>
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<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, 1998,
are not necessarily indicative of the results that may be expected for the year
ended December 31, 1998. 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, 1997.
Note B New Accounting Pronouncement
As of January 1, 1998, the Company adopted, SFAS No. 130, Reporting
Comprehensive Income. SFAS No. 130 requires comprehensive income to be reported
in a financial statement that is displayed with the same prominence as other
financial statements, thereby permitting companies to display the components of
other comprehensive income below the total for net income in an income
statement, in a separate statement that begins with net income, or in a
statement of changes to equity. Such requirement would apply to all enterprises
that provide a full set of financial statements. This statement is effective for
fiscal years beginning after December 15, 1997. Reclassification of financial
statements for earlier periods for comparative purposes is required. (See
Consolidated Balance Sheets and Statement of Income).
The Company also adopted as of January 1, 1998, SFAS No. 131, Disclosure about
Segments of Enterprise and Related Information. SFAS No. 131 establishes
standards for the way that public enterprises report information about operating
segments in annual financial statements and requires that those enterprises
report selected information about operating segments in interim financial
reports issued to shareholders. It also establishes standards for related
disclosures about products and services, geographic areas, and major customers.
SFAS No. 131 is effective for financial statements beginning after December 15,
1997.
The implementation of SFAS 131 did not have a significant effect on the
company's financial statements and related footnote disclosures.
-5-
<PAGE>
Item 2. Management's Discussion and Analysis or Plan of Operation
As of and for the Nine Months Ended September 30, 1998 (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 loss for the nine months period ended
September 30, 1998 totaled $295, a decrease of $1,348, or 128.0% from net income
for the comparable period of 1997. This decrease is primarily attributed to an
increase of $1,504 in the provision for loan losses, noninterest expenses of
$687, and an decrease of $78 in the net interest income, offset by aN increase
of $343 in noninterest income and a decrease $578 in income taxes. Return on
average assets (ROAA), and return on average shareholder's equity (ROAE) for the
nine month period ended September 30, 1998 and 1997 were (.15%) and (20.3%),
.58% and 8.01%, respectively.
On August 25, 1998, Industrial Bank, National Association (the "Bank"),
the Company's wholly owned subsidiary, entered into a Formal Agreement with the
Office of the Comptroller of the Currency (the "Agreement"). The Agreement,
which is described in greater detail in the Company's Current Report on Form 8-K
dated August 25, 1998, does not contain any capital directives or other
requirement that the Bank or the Company maintain a capital level in excess of
those generally required.
Net Interest Income
During the nine month period ended September 30, 1998, net interest
income decreased $78, or .90% from the comparable period in 1997. Interest and
fees on loans increased by $159, or 2.05%, reflecting primarily higher levels of
loans but lower yields coupled with higher levels of nonaccrual loans. Interest
on securities decreased $190, or 3.9% attributable largely to the increased
writedown of premiums on collateralized mortgage obligations due to the rapidly
decreasing interest rate environment in the market place, which caused early
prepayment of underlying loans. Additionally, the composition of the investment
portfolio has changed since December 31, 1997 to reflect higher levels of
mortgage backed securities and U. S. Agency obligations and lower levels of
obligations of states and political subdivisions and U.S. Treasury securities.
Interest on federal funds sold and other interest earning assets increased $435,
or 105.8%, from the 1997 comparable period, reflecting higher levels of federal
funds sold. Interest expense increased $482, or 11.0%, attributed primarily to a
higher volume of repurchase agreements and time deposits, increasing an average
of $7,559 or 49.0% and $6,679 or 11.0% from a year ago. Interest expense related
to deposits increased $243, while interest expense related to repurchase
agreements increased $239. On a tax-equivalent basis, net interest income for
the nine month period ended September 30, 1998 decreased $191, or 2.13%, over
the comparable period in 1997. The decrease was primarily attributable to a
decrease in the yield on average interest-earning assets coupled with an
increase in the yield on average interest-bearing liabilities. The yield on
average interest-earning assets declined
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<PAGE>
45 basis points or 5.65%, while the yield on average interest bearing
liabilities increased 15 basis points or 4.44% from a year ago.
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 $1,504 or 164.4% for the nine month period ended September
30, 1998, compared to the comparable period of 1997. The increase in the
provision for loan losses is attributable primarily to the increase in
nonperforming assets and the increase in loans with possible credit problems.
Overall, nonperforming assets increased to $6.6 million compared to $2.1 million
at year end 1997, due principally to increases in the commercial and commercial
real estate portfolio. Nonperforming assets to gross loans and foreclosed
properties and nonperforming assets to total assets increased to 5.80% and 2.45%
at September 30, 1998 compared to 1.78% and .85%, respectively at December 31,
1997.
Noninterest Income
Noninterest income increased $343, or 14.57%, to $2,697 for the nine
month period ended September 30, 1998 compared to $2,354 for the comparable
period in 1997. The increase is attributable primarily to service charges on
deposit and checking accounts, which increased $337.
Noninterest Expense
Noninterest expense for the nine month period ended September 30, 1998
increased $687, or 8.0%, over the comparable period of 1997. This increase is
attributable primarily to an increase of $545 or 11.9% in salaries and employee
benefits, $115 increase or 25.16% in furniture and equipment expenses, and an
increase of $47 in data processing cost. The increase in salary and benefits was
attributed largely to $113 in increased salary and benefits to the staff at the
Rhode Island Avenue Branch which opened in May of 1997, $82 in increased
salaries associated with the retail banking incentive plan for branch personnel
and $363 or 7.91% increase in related normal salary growth. The decrease in
other expenses of $64 or 2.5% were primarily attributed to a decrease in
business development expenses of $39, a decrease in donations and charitable
contributions of $50, partially offset by an increase in advertising of $36.
Provision for Income Taxes
The provision for income taxes for 1998 decreased $578, or 154.1%, from
the comparable period of 1997, due primarily to the increase in the loan loss
provision.
Financial Overview
Total assets increased $19,457 or 7.8%, from December 31, 1997 to
September 30, 1998, mainly due to an increase in securities of $19,450, an
increase in cash and cash equivalents of $8,232, partially offset by a decrease
in loans of $5,789, a decrease in interest bearing deposits in other banks of
$2,552, and a decrease in other real estate owned of $179. The increase in
assets was primarily funded by the growth of deposits of $11,660, and repurchase
agreements of $9,120. Total shareholders' equity decreased $869 due a decrease
of $355 in accumulated other comprehensive income and $514 in retained earnings
associated with the net loss of $295 through September 30, 1998 and dividends of
$219. The year to date loss before income taxes is attributable primarily to the
increase in the loan loss provision expense of $1,504.
The carrying value of the Company's securities portfolio, all of which
is classified as available-for-sale, increased 19.6% from $101,106 at December
31, 1997 to $120,556 at September 30, 1998. This growth was centered
specifically in mortgage-backed securities, which increased from $56,771 to
$66,239. The mortgage-backed securities portfolio had a weighted-average
remaining maturity of 1.8 years at September 30, 1998
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<PAGE>
compared to 2.29 years at December 31, 1997. 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 $2,930 at September 30, 1998 compared
to $1,702 at December 31, 1997. The ratio of allowance for possible loan losses
to total loans increased to 2.57% at September 30, 1998 from 1.43% at year-end
1997. 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, 1998, non-performing assets to total assets increased to 2.45% compared to
.85% at December 31, 1997.
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<PAGE>
AVERAGE BALANCES AND NET INTEREST INCOME ANALYSIS/(1)/
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
Nine Months Ended Nine Months Ended Year Ended
September 30, 1998 September 30, 1997 December 31, 1997
-------------------------------------------------------------------------------------------------
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 $114,951 9.21% $ 7,916 $109,984 9.43% $ 6,911 111,856 9.33% $ 10,434
Taxable securities 98,093 5.80% 4,257 88,158 6.33% 3,969 88,897 6.31% 5,605
Non-taxable securities/(2)/ 10,649 8.52% 679 16,556 8.17% 739 15,919 8.22% 1,309
Federal funds sold 16,442 5.53% 680 6,529 5.61% 489 6,575 5.66% 372
Interest-bearing deposits held 2,580 5.65% 109 3,076 5.91% 51 3,000 6.10% 183
-------------------------------------------------------------------------------------------------
Total interest-earning assets 242,715 7.51% 13,641 224,303 7.96% 12,159 226,247 7.91% 17,903
Cash and due from banks 11,490 11,067 11,108
Bank premises and
equipment, net 2,724 2,473 2,515
Other assets 3,967 4,610 4,669
---------- ---------- ---------
Total assets $260,896 $242,453 $244,539
========== ========== =========
Liabilities and
Shareholders' Equity
Interest-bearing demand deposits $ 27,346 2.01% $ 412 $ 28,790 1.98% $ 426 $ 28,326 2.10% 644
Savings deposits 65,713 2.74% 1,349 67,363 2.75% 1,387 66,724 2.87% 2,087
Time deposits 67,355 4.54% 2,289 60,676 4.39% 1,994 61,041 4.44% 2,468
---------- ---------- ----------- ---------- ---------- ---------- --------- ---------- ---------
Total interest-bearing deposits 160,413 3.38% 4,050 156,829 3.25% 3,807 156,091 3.27% 5,199
Borrowed funds 1,000 5.35% 40 1,000 5.35% 40 1,000 5.30% 53
Repurchase agreements 22,999 4.50% 774 15,440 4.63% 535 16,820 4.53% 153
---------- ---------- ----------- ---------- ---------- ---------- --------- ---------- ---------
Total interest-bearing liabilities 184,412 3.53% 4,864 173,269 3.38% 4,382 173,911 3.31% 5,405
Noninterest-bearing liabilities 54,740 50,119 50,362
Other liabilities 2,333 1,542 2,235
Shareholders' equity 19,411 17,523 18,031
---------- ---------- ---------
Total liabilities and
shareholders' equity $260,896 $242,453 $244,539
========== ========== =========
Net interest income and net
yield on interest-earning assets
Net interest income $ 8,777 $ 8,968 $ 11,987
=========== ========== =========
Interest rate spread 3.99% 4.43% 4.51%
Net yield on average interest- 5.30%
earning assets 4.83% 5.35%
Average interest-earning assets
to average interest-bearing
liabilities 131.62% 129.45% 130.09%
</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
$13,410 and $8,546 for September 30, 1998, $13,006 and $8,624 for
September 30, 1997 and $17,458 and $11,542 for December 31, 1997.
-9-
<PAGE>
LOAN LOSS AND RECOVERY EXPERIENCE
<TABLE>
<CAPTION>
---------------------------------------------
Nine Months Ended Year Ended
September 30, 1998 December 31,1997
---------------------------------------------
(dollars in thousands)
<S> <C> <C>
Total outstanding loans at period end $114,114 $118,646
Average amount of loans outstanding 117,295 113,511
Allowance for loan losses
at beginning of year 1,702 1,266
Loans charged off:
Commercial 1,135 451
Real estate mortgage - 256
Installment loans to individuals 165 182
---------------------------------------------
Total charge-offs 1,300 889
---------------------------------------------
Recoveries of loans previously charged-off:
Commercial 79 81
Real estate mortgage - -
Installment loans to individuals 30 49
---------------------------------------------
Total recoveries 109 130
---------------------------------------------
Net charge-offs 1,191 759
Additions to allowance charged
to operations 2,419 1,195
---------------------------------------------
Allowance for loan losses at end of year $ 2,930 $ 1,702
=============================================
Ratio of net charge-offs (annualized)
during year to average outstanding
loans during year 0.76% 0.67%
Ratio of allowance for possible loan
losses at period end to total loans 2.57% 1.43%
</TABLE>
ALLOCATION OF ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
-------------------------------------------------------------------
September 30, 1998 Percent December 31, 1997 Percent
-------------------------------------------------------------------
(dollars in thousands)
<S> <C> <C> <C> <C>
Commercial $ 2,207 75.33% $1,378 80.96%
Real estate mortgage 515 17.57% 117 6.88%
Consumer 205 7.00% 182 10.69%
Unallocated 3 .10% 25 1.47%
-------------------------------------------------------------------
Total $ 2,930 100.00% $1,702 100.00%
===================================================================
</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, as amended by 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.
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<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,
1998 1997
------------------------------------
(dollars in thousands)
<S> <C> <C>
Non-accrual loans(1) $ 5,390 $ 852
Loans past due 90 days or more
and still accruing 874 753
Foreclosed properties 343 522
----- -----
Total $ 6,607 $ 2,127
================= ===================
Non-performing assets to gross loans 5.80% 1.78%
and foreclosed properties at
period end
Non-performing assets to total 2.45% .85%
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, 1998 and the year ended
December 31, 1997 for non-accrual loans at September 30, 1998 and December
31, 1997 had the loans been current in accordance with their original terms
was $164 and $223, 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, 1998, there were $8,108 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 ten loans totalling $2,193 fully
collateralized by residential real estate, one of which represent $1,403 of the
total, five commercial real estate totaling $2,713, including one at $1,080 and
one at $500. The remaining $3,202 consists of twenty three commercial loans, of
which only one exceeds $500, secured primarily by accounts receivable and
various business equipment.
Matters related to the Year 2000
- --------------------------------
The year 2000 issue exists because many computers systems and applications
currently use two-digit date fields to designate a year. This inability to
recognize or properly treat the year 2000 may cause systems to
-11-
<PAGE>
process critical financial and operational information incorrectly. The Company
has received assurances from the vendors that supply the Company's accounting
software and most other information systems that such systems and software will
be year 2000 compliant on a timely basis; however, in-house testing has not yet
been completed on all applications. Testing is considered an important phase of
the Company's detailed year 2000 awareness plan currently being administered by
management and reviewed by the Board of Directors. It is anticipated that
testing will be completed by June 30, 1999. The Company also utilizes certain
software and related technologies of its service bureau organization. The
Company expects that it will be indirectly affected by the date change in the
year 2000 as it relates to the systems of its service bureau organization. The
Company's service bureau has a defined plan to address and correct its year 2000
deficiencies. The Company does expect to incur expenditures related to year 2000
problems with its primary information systems. At this time, the Company
management estimates that approximately $150,000 to $200,000 will be spent on
year 2000 readiness activities, including staff time dedicated to this project.
The failure of the Company, its principal data processing provider, its
customers, or of other service providers, including utilities and government
agencies, to be year 2000 compliant in a timely manner could have a negative
impact on the Company's business, including but not limited to an inability to
provide accurate and timely processing of customer transactions, and delays in
loan collection practices. The Company's belief that it, and its primary
suppliers of data processing services, will achieve year 2000 compliance, are
based on a number of assumptions and on statements made by third parties,
involve events and actions which may be beyond the control of the Company, and
are subject to uncertainty. The Company also is not able to predict the effects,
if any, on the Company, financial markets or society in general of the public's
reaction to year 2000. In the event that the Company or its principal data
processing providers are unsuccessful in achieving year 2000 compliance, the
Company plans to manually process and post transactions.
Part II Other Information
-----------------
Item 1 Legal Proceedings
None.
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
(b) Reports on Form 8-K
During the quarter ended September 30, 1998, the Company filed one Current
Report on Form 8-K, dated August 25, 1995. The report contained, under Item 5,
information relating to the Agreement between the Bank and the Office of the
Comptroller of the Currency.
-12-
<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 12, 1998 /s/ B. Doyle Mitchell, Jr.
--------------------------------------
B. Doyle Mitchell, Jr., President
November 12, 1998 /s/ Thomas A Wilson, Jr.
--------------------------------------
Thomas A. Wilson, Jr. Senior Vice
President and Chief Financial and
Accounting Officer
-13-
<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
Nine Months Ended September 30,
------------------------------------
1998 1997
------------------------------------
Earnings per common share
Basic and diluted ($.44) $1.65
Average shares outstanding
Basic and diluted 668,360 637,389
<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-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 12,374
<INT-BEARING-DEPOSITS> 448
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<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 120,556
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<LOANS> 110,687
<ALLOWANCE> 2,930
<TOTAL-ASSETS> 270,159
<DEPOSITS> 219,856
<SHORT-TERM> 28,616
<LIABILITIES-OTHER> 1,379
<LONG-TERM> 1,000
0
500
<COMMON> 668
<OTHER-SE> 18,140
<TOTAL-LIABILITIES-AND-EQUITY> 270,159
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<INCOME-PRETAX> (498)
<INCOME-PRE-EXTRAORDINARY> (295)
<EXTRAORDINARY> 0
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<NET-INCOME> (295)
<EPS-PRIMARY> (.44)
<EPS-DILUTED> (.44)
<YIELD-ACTUAL> 4.82
<LOANS-NON> 5,390
<LOANS-PAST> 874
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 8,108
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