<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 June 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
of incorporation) Identification Code)
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 July 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
JUNE 30, 1998 AND DECEMBER 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
June 30, 1998 December 31, 1997
----------------------------------------
(dollars in thousands)
<S> <C> <C>
ASSETS
Cash and cash equivalents
Cash and due from banks $ 12,033 $ 11,842
Federal funds sold 21,200 11,500
----------------------------------------
Total cash and cash equivalents 33,233 23,342
Interest-bearing deposits in banks 2,416 3,000
Securities available-for-sale, at
fair value (amortized cost,
$107,453 and $99,933) 108,231 101,106
Loans receivable, net of allowance
for loan losses of $2,602 and $1,702 115,957 116,476
Other real estate owned, net 322 522
Bank premises and equipment, net 2,722 2,672
Other assets 3,660 3,584
----------------------------------------
TOTAL $266,541 $250,702
========================================
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Demand deposits $ 55,600 $ 52,922
Time and savings deposits 164,188 155,274
----------------------------------------
Total deposits 219,788 208,196
Securities sold under repurchase agreements 24,799 19,496
Other liabilities 1,296 1,833
Note payable 1,000 1,000
----------------------------------------
Total liabilities 246,883 230,525
----------------------------------------
SHAREHOLDERS' EQUITY
Preferred stock - $1 par value; 1,000,000
authorized (500,000 voting and 500,000
nonvoting);
20,000 series A nonvoting issued and
outstanding, stated at liquidation value 500 500
Common stock - $1 par value; 1,000,000
authorized; 668,360 shares issued and
outstanding 668 668
Capital surplus 5,051 5,051
Retained earnings 12,925 13,183
Accumulated other comprehensive income 514 775
----------------------------------------
Total shareholders' equity 19,658 20,177
----------------------------------------
TOTAL $266,541 $250,702
========================================
</TABLE>
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<PAGE>
IBW FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
SIX MONTHS ENDED JUNE 30, 1998 AND JUNE 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended June 30,
---------------------------------------------
1998 1997
---------------------------------------------
(dollars in thousands, except per share data)
<S> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 5,335 $ 5,057
U.S. treasury securities 367 532
Obligations of U.S. government agencies and 2,491 2,207
corporations
Obligations of states and political subdivisions 308 447
Bank balances and other securities 560 302
---------------------------------------------
Total interest income 9,061 8,545
---------------------------------------------
INTEREST EXPENSE
Time certificates over $100,000 463 363
Other savings and time deposits 2,195 2,168
Securities sold under repurchase agreements 472 312
Note payable 27 27
---------------------------------------------
Total interest expense 3,157 2,870
---------------------------------------------
NET INTEREST INCOME 5,904 5,676
PROVISION FOR LOAN LOSSES 1,844 735
---------------------------------------------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 4,060 4,941
---------------------------------------------
NONINTEREST INCOME
Service charges on deposit and checking
accounts 1,648 1,409
Gain on sale of trading securities 0 22
Gain on sale of securities available for sale 121 --
Other operating income 3 73
---------------------------------------------
Total noninterest income 1,772 1,504
---------------------------------------------
NONINTEREST EXPENSE
Salaries and employee benefits 3,271 3,014
Occupancy 383 341
Furniture and equipment 386 288
Data processing 330 298
Other 1,670 1,648
---------------------------------------------
Total noninterest expense 6,040 5,589
---------------------------------------------
INCOME BEFORE INCOME TAXES (208) 855
(BENEFIT) PROVISION FOR INCOME TAXES (156) 225
---------------------------------------------
NET (LOSS) INCOME ($52) $630
=============================================
OTHER COMPREHENSIVE (LOSS) INCOME, NET OF TAX
Unrealized securities gains (losses) (261) 218
Reclassification adjustment (206) (189)
---------------------------------------------
Other Comprehensive Income (467) 31
---------------------------------------------
COMPREHENSIVE INCOME/(LOSS) (519) 659
=============================================
NET INCOME PER COMMON SHARE ($0.08) $0.99
=============================================
</TABLE>
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<PAGE>
IBW FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
QUARTER ENDED JUNE 30, 1998 AND JUNE 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
Quarter Ended June 30,
---------------------------------------------
1998 1997
---------------------------------------------
(dollars in thousands, except per share data)
<S> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 2,668 $ 2,605
U.S. treasury securities 108 215
Obligations of U.S. government agencies and
corporations 1,329 1,230
Obligations of states and political subdivisions 140 231
Bank balances and other securities 317 98
---------------------------------------------
Total interest income 4,562 4,379
---------------------------------------------
INTEREST EXPENSE
Time certificates over $100,000 248 188
Other savings and time deposits 1,120 1,092
Securities sold under repurchase agreements 248 171
Note payable 14 14
---------------------------------------------
Total interest expense 1,630 1,465
---------------------------------------------
NET INTEREST INCOME 2,932 2,914
PROVISION FOR LOAN LOSSES 635 310
---------------------------------------------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 2,297 2,604
---------------------------------------------
NONINTEREST INCOME
Service charges on deposit and checking accounts 868 748
Gain on sale of trading securities 0 22
Other operating income 2 69
---------------------------------------------
Total noninterest income 870 839
---------------------------------------------
NONINTEREST EXPENSE
Salaries and employee benefits 1,571 1,600
Occupancy 190 169
Furniture and equipment 205 121
Data processing 169 149
Other 916 877
---------------------------------------------
Total noninterest expense 3,051 2,916
---------------------------------------------
INCOME BEFORE INCOME TAXES 116 527
PROVISION FOR INCOME TAXES 1 137
---------------------------------------------
NET INCOME $115 $390
=============================================
OTHER COMPREHENSIVE INCOME, NET OF TAX
Unrealized securities gains (losses) (3) 557
Reclassification adjustment 3 17
---------------------------------------------
Other Comprehensive Income 0 574
---------------------------------------------
COMPREHENSIVE INCOME 115 964
=============================================
NET INCOME PER COMMON SHARE $0.17 $0.61
=============================================
</TABLE>
-3-
<PAGE>
IBW FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended June 30
-------------------------------------------
1998 1997
-------------------------------------------
(dollars in thousands)
<S> <C> <C>
OPERATING ACTIVITIES
Net (loss) income $ (52) $ 630
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 294 277
Amortization of premiums (472) 441
Gain on sale of loans (45) (48)
(Gain) loss on sale of other real estate owned 25 (462)
Proceeds from sale of trading securities (121) 1,018
Provision for losses on other real estate owned 0 33
Interest on capitalized securities (258) --
Provision for loan losses 1,844 735
Increase in other assets (26) (316)
(Decrease) increase in accrued expenses and other
liabilities (537) 632
-------------------------------------------
Net cash provided by operating activities 652 2,940
-------------------------------------------
INVESTING ACTIVITIES
Net increase in loans (1,147) (4,913)
Net increase in short-term investments 584 0
Proceeds from sale of loans 0 476
Additions to bank premises and equipment (259) (182)
Net proceeds on sale of other real estate owned 175 717
Proceeds from sale of securities available-for-sale 2,059 --
Proceeds from maturities of securities available-for-sale 18,866 3,500
Purchase of securities available-for-sale (42,705) (21,201)
Principal collected on securities available-for-sale 14,977 4,953
-------------------------------------------
Net cash used in investing activities (7,450) (16,650)
-------------------------------------------
FINANCING ACTIVITIES
Cash Dividends (206) (191)
Net increase in deposits 11,592 1,017
Net increase in securities sold under repurchase
agreements 5,303 6,243
-------------------------------------------
Net cash provided by financing activities 16,689 7,069
-------------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 9,891 (6,641)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 23,342 21,992
-------------------------------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 33,233 $ 15,351
===========================================
Supplemental disclosures of cash flow information
Cash paid during the year for
Interest $ 3,079 $ 2,259
Taxes $ 0 $ 110
</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 consistently, of a
normal and recurring nature, considered necessary for a fair presentation have
been included. Operating results for the six month period ended June 30, 1998,
are not necessarily indicative of the results that may be expected for the year
ended December 31, 1998. The unaudited consolidated financial statements should
be read in conjunction with the consolidated financial statements and footnotes
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
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, Disclosures about
Segments of an 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 for Financial Condition and Result
of Operation
As of and for the Six Months Ended June 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.
Results of Operation
IBW Financial Corporation's net income(loss) for the first half of 1998
totaled ($52), a decrease of $680, or 108% from the comparable period of 1997.
This decrease is primarily attributed to an increase in the provision for loan
losses of $1,109, an increase in noninterest expenses of $451, offset by an
increase of net interest income of $228, an increase in noninterest income of
$271 and a decrease in taxes of $381. Return on average assets (ROAA), and
return on average shareholder's equity (ROAE) through the first half of 1998 and
1997 were (.04%) and (.52%), .52% and 7.26%, respectively.
Net Interest Income
Net interest income increased $228, or 4% over the comparable period in
1997. Interest on loans increased by $278, or 5%, reflecting higher levels of
loans. Interest on securities increased $20, or 1%, reflecting higher levels of
mortgage backed securities, and lower levels of obligations of states and
political subdivisions and of U.S. Treasury securities. Interest on federal
funds sold and other increased $258, or 85%, from the 1997 comparable period due
primarily to higher volume of federal folds sold. Interest expense increased
$288, or 10%, attributed primarily to a higher volume of repurchase agreements
and time deposits offset by lower levels of savings and interest bearing demand
deposits. Repurchase agreements and time deposits averages increased $7,808 or
58% and $6,190 or 10% respectively, while interest bearing deposits and saving
deposits averages decreased $1,960 or 7% and $2,315 or 3% respectively, over the
comparable period of 1997. Interest expense related to deposits increased $127,
while interest expense related to repurchase agreements increased $160. On a
tax-equivalent basis, net interest income for the six months ended June 30, 1998
increased $158, or 3%, over the comparable period in 1997. The increase was
primarily attributable to an increase in average interest-earning assets but
offset by a decrease in the net interest spread and by an increase in average
interest-bearing liabilities. Average interest-earning assets increased by $15
million, or 6%, comprised principally of growth in federal funds sold of $8
million, loans of $7 million, taxable securities of $6 million, partially offset
by a decline of $5 million in nontaxable securities.
The interest rate spread was 4.27% for the six months ended June 30, 1998,
down from 4.54% at June 30, 1997. The decreased is attributed primarily to lower
yields on the average interest earning assets, decreasing to 7.79% compared to
7.92% from a year ago and higher yields on interest bearing liabilities
increasing to 3.52% from 3.38% 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 $1,109 in the first half of 1998, to $1,844, from $735 for
the first half 1997. The increase in the provision for loan losses is
attributable to an increase in nonperforming assets and an increase in loans
with potential credit problems. Nonperforming assets increased to $4,277 at June
30, 1998 from $2,127 at year end 1997, and representing an increase of $2,150 or
101%. Loans with potential credit problems increased to $9,949 at June 30, 1998
from $7,931 at year-end 1997, representing an increase of $2,018 or 25%. See the
Non-Performing Assets section for additional information related to the
Company's allowance for loan losses.
-6-
<PAGE>
Noninterest Income
Noninterest income increased $271, or 18%, to $1,772 for June 1998 compared
to $1,501 for June 1997. The increase is attributed primarily to $192 of ATM
surcharges on nondepositors and $121 in gain on sale of securities. There were
no ATM surcharges during the first six months of 1997, however there was $22
realized on the gain of sale on trading securities and $69 in unrealized gains
resulting from the securitization of three pools of mortgage loans totaling $3.1
million.
Noninterest Expense
Noninterest expense for the first half of 1998 increased $451, or 8%, over
the comparable period of 1997. This increase is attributed primarily to an
increase of $257 in salaries and employee benefits, an increase of $42 in
occupancy expenses, an increase of $98 in furniture and equipment expenses, an
increase of $32 in data processing costs and a $22 increase in other expenses.
The increase in salaries and benefits was attributed largely to $257 in salary
increases with $91 attributed to the staff at the Rhode Island Avenue Branch
which opened late in the second quarter of 1997. Additionally, the Rhode Island
Avenue Branch increased other related noninterest expenses by approximately $35.
Depreciation on furniture and fixtures, and expenses associated with repairs and
maintenance on furniture and fixtures increased $39 and $46, respectively over
comparable period of 1997. The increase in depreciation was due primarily to
management changing the write-off of computer equipment depreciation in 1998,
going from a 5 year write-off to a three year write-off .
Provision for Income Taxes
The provision for income taxes for the first half of 1998 decreased $381 to
($156), or 169%, from the comparable period of 1997, and was attributable to
lower income before taxes primarily due to larger provision for loan losses and
tax-exempt income of approximately $246.
Liquidity and Capital Resources
Total assets increased $16 million, or 6%, from December 31, 1997 to June
30, 1998, mainly due to an increase in cash and cash equivalents of $10 million,
securities of $7 million, offset primarily by a decrease in loans of $1 million.
The increase in assets was primarily funded by deposit growth of $12 million and
repurchase agreements growth of $5 million. Total shareholders' equity decreased
$519 due to the decrease in retained earnings of $258 and the decrease in the
unrealized gain on available-for-sale securities of $261. $208 in dividends were
paid during the first half of 1998.
The carrying value of the Company's securities portfolio was $108 million
at June 30, 1998 compared to $101 million at December 31, 1997. This composition
reflected a change as mortgage-backed securities increased $5 million to $62
million, while tax-exempt securities decreased $2 million to $10 million from
December 31, 1997 to June 30, 1998. The mortgage-backed securities portfolio had
a weighted-average remaining maturity of 2.1 years at June 30, 1998 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 $2.6 million at June 30, 1998 compared to
$1.7 million at December 31, 1997. The increase in the level of the allowance
for loan losses as a percentage of ending loans reflects the increase in
nonperforming assets and the level of potential credit problems . Nonperforming
assets increased $2,150 or 101% to $4,277 from $2,127 from year end 1997. Loan
with potential credit problems (excluding nonperforming assets) increased to
$9,949 at June 30, 1998 from $7,931 at year-end 1997, representing an increase
of $2,018 or 25% The ratio of allowance for possible loan losses to total loans
increased to 2.19% at June 30, 1998 from 1.43% at year-end 1997. At June 30,
1998 and year-end 1997, non-performing assets represented 1.60 % and .85%
respectively of total assets.
-7-
<PAGE>
AVERAGE BALANCES AND NET INTEREST INCOME ANALYSIS/(1)/
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------
Six Months Ended Six Months Ended Year Ended
June 30, 1998 June 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)
Assets
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loans, net $115,396 9.32% $ 5,335 $ 108,842 9.37% $ 5,057 $111,856 9.33% $ 10,434
Taxable securities 93,867 6.22% 2,894 87,538 6.32% 2,744 88,897 6.31% 5,605
Non-taxable securities/(2)/ 11,047 8.52% 467 16,585 8.23% 677 15,919 8.22% 1,309
Federal funds sold 15,606 5.62% 435 7,522 5.58% 208 6,575 5.66% 372
Interest-bearing deposits held 2,798 6.41% 89 3,000 5.98% 89 3,000 6.10% 183
--------------------------------------------------------------------------------------------------
Total interest-earning assets 238,714 7.79% 9,220 223,487 7.92% 8,775 226,247 7.91% 17,903
Cash and due from banks 11,173 11,360 11,108
Bank premises and
equipment, net 2,741 2,462 2,515
Other assets 4,150 4,990 4,669
---------- ---------- ---------
Total assets $256,778 $242,299 $244,539
========== ========== =========
Liabilities and
Shareholders' Equity
Interest-bearing demand deposits $ 27,244 1.72% $ 233 $ 29,204 1.99% $ 288 $ 28,326 1.99% 563
Savings deposits 65,732 2.74% 894 68,047 2.76% 930 66,724 2.75% 1,836
Time deposits 65,570 4.71% 1,531 59,381 4.46% 1,313 61,041 4.42% 2,697
--------------------------------------------------------------------------------------------------
Total interest-bearing deposits 158,546 3.38% 2,658 156,632 3.26% 2,531 156,091 3.26% 5,096
Borrowed funds 1,000 5.44% 27 1,000 5.44% 27 1,000 5.30% 53
Repurchase agreements 21,363 4.46% 472 13,555 4.64% 312 16,820 4.46% 767
--------------------------------------------------------------------------------------------------
Total interest-bearing
liabilities 180,909 3.52% 3,157 171,187 3.38% 2,870 173,911 3.40% 5,916
Noninterest-bearing liabilities 53,336 51,680 50,362
Other liabilities 2,416 2,128 2,235
Shareholders' equity 20,117 17,304 18,031
---------- ---------- ---------
Total liabilities and
shareholders' equity $256,778 $242,299 $244,539
========== ========== =========
Net interest income and net
yield on interest-earning assets
Net interest income $ 6,063 $ 5,905 $ 11,987
=========== ========== ==========
Interest rate spread 4.27% 4.54% 4.51%
Net yield on average interest- 5.30%
earning assets 5.12% 5.33%
Average interest-earning assets 130.09%
to average interest-bearing
liabilities 131.95% 130.65%
</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 $9,061, and $5,904
for June 30, 1998, $8,545 and $5,676 for June 30, 1997 and $17,458 and
$11,542 for 1997.
-8-
<PAGE>
LOAN LOSS AND RECOVERY EXPERIENCE
<TABLE>
<CAPTION>
------------------------------------------
Six Months Ended Year Ended
June 30, 1998 December 31, 1997
------------------------------------------
(dollars in thousands)
<S> <C> <C>
Total outstanding loans at period end $119,066 $118,646
Average amount of loans outstanding 115,396 113,511
Allowance for loan losses
at beginning of year 1,702 1,266
Loans charged off:
Commercial 898 451
Real estate mortgage - 256
Installment loans to individuals 105 182
------------------------------------------
Total charge-offs 1,003 889
------------------------------------------
Recoveries of loans previously charged-off:
Commercial 31 81
Real estate mortgage - -
Installment loans to individuals 28 49
------------------------------------------
Total recoveries 59 130
------------------------------------------
Net charge-offs 944 759
Additions to allowance charged
to operations 1,844 1,195
------------------------------------------
Allowance for loan losses at end of
period $ 2,602 $ 1,702
==========================================
Ratio of net charge-offs during
period to average outstanding loans
during period 1.64%/(1)/ 0.67%
Ratio of allowance for possible loan
losses at period-end to total loans 2.19% 1.43%
(1) Annualized
</TABLE>
ALLOCATION OF ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
--------------------------------------------------------------
June 30, 1998 Percent December 31, 1997 Percent
--------------------------------------------------------------
(dollars in thousands)
<S> <C> <C> <C> <C>
Commercial $ 2,041 78.44% $ 1,378 80.96%
Real estate mortgage 322 12.37% 117 6.88%
Consumer 187 7.19% 182 10.69%
Unallocated 52 2.00% 25 1.47%
--------------------------------------------------------------
Total $ 2,602 100.00% $ 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 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.
Although management believes that it uses the best information
available to make such determinations that
-9-
<PAGE>
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 or 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
-------------------------------------
June 30, 1998 December 31, 1997
-------------------------------------
(dollars in thousands)
Non-accrual loans/(1)/ $ 1,753 $ 852
Loans past due 90 days or more
and still accruing 2,202 753
Foreclosed properties 322 522
------ -----
Total $ 4,277 $ 2,127
=====================================
Non-performing assets to gross 3.60% 1.78%
loans and foreclosed properties at
period end
Non-performing assets to total 1.60% .85%
assets at period end
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 six months ended June 30, 1998 and the year ended December
31, 1997 for non-accrual loans had the loans been current in accordance
with their original terms was $98 and $223, respectively.
At June 30, 1998, there were $9,949 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. This represents an increase of $2,018 or 25% from year-end
1997. Included in the total are nineteen loans, totaling $7,466 fully
collateralized by real estate, three of which represent $3,372 or 45% of the
total. The remaining $2,483 consists of sixteen commercial loans, three in
excess of $400 and totaling $1,516 or 61% of the remaining amount, secured
primarily by accounts receivable and various business equipment.
-10-
<PAGE>
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.
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
None.
-11-
<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
August 12, 1998 /s/ B. Doyle Mitchell, Jr.
---------------------------
B. Doyle Mitchell, Jr., President
August 12, 1998 /s/ Thomas A Wilson
--------------------------------
Thomas A. Wilson, Senior Vice President
and Chief Financial and Accounting Officer
-12-
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
11 Statement regarding Computation of Per Share Earnings
27 Financial Data Schedule
-13-
<PAGE>
Exhibit 11
STATEMENT OF COMPUTATION OF PER SHARE EARNINGS
Six Months Ended June 30,
-------------------------------------
1998 1997
-------------------------------------
Earnings per common share
Basic and diluted ($0.08) $0.99
Average shares outstanding
Basic and diluted 668,360 637,160
-14-
<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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 12,033
<INT-BEARING-DEPOSITS> 2,416
<FED-FUNDS-SOLD> 21,200
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 108,231
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 118,559
<ALLOWANCE> 2,602
<TOTAL-ASSETS> 266,541
<DEPOSITS> 219,788
<SHORT-TERM> 24,799
<LIABILITIES-OTHER> 1,296
<LONG-TERM> 1,000
0
500
<COMMON> 668
<OTHER-SE> 18,490
<TOTAL-LIABILITIES-AND-EQUITY> 266,541
<INTEREST-LOAN> 5,335
<INTEREST-INVEST> 3,166
<INTEREST-OTHER> 560
<INTEREST-TOTAL> 9,061
<INTEREST-DEPOSIT> 2,658
<INTEREST-EXPENSE> 3,157
<INTEREST-INCOME-NET> 5,904
<LOAN-LOSSES> 1,844
<SECURITIES-GAINS> 121
<EXPENSE-OTHER> 6,040
<INCOME-PRETAX> (208)
<INCOME-PRE-EXTRAORDINARY> (208)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (52)
<EPS-PRIMARY> (0.08)
<EPS-DILUTED> (0.08)
<YIELD-ACTUAL> 5.12
<LOANS-NON> 1,753
<LOANS-PAST> 2,202
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 9,949
<ALLOWANCE-OPEN> 1,702
<CHARGE-OFFS> 1,003
<RECOVERIES> 59
<ALLOWANCE-CLOSE> 2,602
<ALLOWANCE-DOMESTIC> 2,602
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 52
</TABLE>
