<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, 2000.
------------------
Transition report under Section 13 or 15(d) of the Securities
---
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 of (IRS Employer Identification No.)
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, 2000, 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 CORPORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2000 AND DECEMBER 31, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
September 30, 2000 December 31, 1999
-------------------------------------------------------
(dollars in thousands)
<S> <C> <C>
ASSETS
Cash and cash equivalents:
Cash and due from banks $ 12,837 $ 13,733
Federal funds sold - 1,700
-------------------------------------------------------
Total cash and cash equivalents 12,837 15,433
Interest-bearing deposits in banks 640 988
Investment securities available-for-sale, at fair value 132,034 137,970
Loans receivable, net of allowance
for loan losses of $4,140 and $4,272 122,216 102,998
Real estate owned, net - 265
Bank premises and equipment, net 2,150 2,389
Accrued interest receivable 2,153 1,665
Deferred income taxes 1,693 2,235
Other assets 1,488 1,251
-------------------------------------------------------
TOTAL ASSETS 275,211 265,194
=======================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Noninterest-bearing deposits $ 67,854 $ 60,739
Interest-bearing deposits 142,495 151,735
-------------------------------------------------------
Total deposits $ 210,349 $ 212,474
Short term borrowings 44,017 33,733
Accrued expenses and other liabilities 1,414 1,496
-------------------------------------------------------
Total liabilities 255,780 247,703
-------------------------------------------------------
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 13,923 13,034
Accumulated other comprehensive income (loss) (711) (1,762)
-------------------------------------------------------
Total shareholders' equity 19,431 17,491
-------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 275,211 $ 265,194
=======================================================
</TABLE>
See notes to consolidated financial statements.
-1-
<PAGE>
IBW FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Nine month periods ended September 30, 2000 and 1999
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------
Preferred Common
Stock Stock Surplus
<S> <C> <C> <C>
BALANCE, JANUARY 1, 2000 $ 500 $ 668 $ 5,051
Net income -
Other comprehensive income, net of tax:
unrealized gain on securities available for sale -
Total comprehensive income -
Cash dividends paid:
Preferred stock $0.94 per share
Common stock $0.60 per share - -
------------- ------------- -------------
BALANCES AT SEPTEMBER 30, 2000 $ 500 $ 668 $ 5,051
============= ============= =============
BALANCES AT JANUARY 1, 1999 $ 500 $ 668 $ 5,051
Net income
Other comprehensive income, net of tax:
unrealized loss on securities available for sale
Total comprehensive income (loss)
Cash dividends paid:
Preferred stock $.94 per share
------------- ------------- -------------
BALANCES AT SEPTEMBER 30, 1999 $ 500 $ 668 $ 5,051
============= ============= =============
<CAPTION>
--------------------------------------------------------------------------------------------------------------
Accumalated Total
Retained Other Comprehensive Shareholders'
Earnings Income (loss) Equity
<S> <C> <C> <C>
BALANCE, JANUARY 1, 2000 $ 13,034 $ (1,762) $ 17,491
-------------
Net income 1,309 - 1,309
Other comprehensive income, net of tax:
unrealized gain on securities available for sale - 1,051 1,051
-------------
Total comprehensive income - - 2,360
Cash dividends paid:
Preferred stock $0.94 per share (19) (19)
Common stock $0.60 per share (401) - (401)
------------- ------------- -------------
BALANCES AT SEPTEMBER 30, 2000 $ 13,923 $ (711) $ 19,431
============= ============= =============
BALANCES AT JANUARY 1, 1999 $ 11,463 $ 235 $ 17,917
Net income 862 862
Other comprehensive income, net of tax:
unrealized loss on securities available for sale (1,454) (1,454)
Total comprehensive income (loss) (592)
Cash dividends paid:
Preferred stock $.94 per share (19) (19)
------------- ------------- -------------
BALANCES AT SEPTEMBER 30, 1999 $ 12,306 $ (1,219) $ 17,306
============= ============= =============
</TABLE>
See notes to consolidated financial statements.
-2-
<PAGE>
IBW FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
NINE MONTHS ENDED SEPTEMBER 30, 2000 AND SEPTEMBER 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
---------------------------------------------------
2000 1999
---------------------------------------------------
(dollars in thousands, except per share data)
<S> <C> <C>
INTEREST INCOME:
Interest and fees on loans $ 7,505 $ $ 6,826
U.S. treasury securities 48 77
Obligations of U.S. government agencies and corporations 1,757 2,360
Collateralized mortgage obligations 3,652 2,990
Obligations of states and political subdivisions 757 465
Bank balances and other securities 103 75
Federal funds sold 157 508
---------------------------------------------------
Total interest income 13,979 13,301
---------------------------------------------------
INTEREST EXPENSE:
Interest-bearing deposits 2,442 2,818
Time certificates over $100,000 489 677
Short-term borrowings 1,556 993
---------------------------------------------------
Total interest expense 4,487 4,488
---------------------------------------------------
NET INTEREST INCOME 9,492 8,813
PROVISION FOR LOAN LOSSES - 775
---------------------------------------------------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 9,492 8,038
---------------------------------------------------
NONINTEREST INCOME
Service charges on deposit accounts 2,015 1,938
Other fee income 743 622
Loss on sales of investment securities (128) (35)
Other operating income 136 111
---------------------------------------------------
Total noninterest income 2,766 2,636
---------------------------------------------------
NONINTEREST EXPENSE
Salaries and employee benefits 6,024 5,033
Occupancy 551 573
Furniture and equipment 746 574
Data processing 568 508
Advertising 163 148
Other expenses 2,561 2,725
---------------------------------------------------
Total noninterest expense 10,613 9,561
---------------------------------------------------
INCOME BEFORE INCOME TAXES 1,645 1,113
PROVISION FOR INCOME TAXES 336 251
---------------------------------------------------
NET INCOME $ 1,309 $ 862
===================================================
EARNINGS PER COMMON SHARE - Basic and diluted $ 1.93 $ 1.26
===================================================
WEIGHTED AVERAGE OF COMMON SHARES OUTSTANDING 668,360 668,360
===================================================
</TABLE>
See notes to consolidated financial statements.
-3-
<PAGE>
OTHER EXPENSES
Other expenses in the Consolidated Statements of Income include the following:
Nine Months Ended September 30
-----------------------------------
2000 1999
-----------------------------------
(dollars in thousands)
Directors fees $ 197 $ 220
Office Supplies, telephone 317 287
Loan collection and repossession expenses 286 153
Bank security 255 245
Amortization of intangible assets 127 121
Other 1,379 1,699
-----------------------------------
TOTAL OTHER EXPENSES $ 2,561 $ 2,725
===================================
-4-
<PAGE>
IBW FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
QUARTERS ENDED SEPTEMBER 30, 2000 AND SEPTEMBER 30,1999
(UNAUDITED)
<TABLE>
<CAPTION>
--------------------------------------------------------
2000 1999
--------------------------------------------------------
(dollars in thousands, except per share data)
INTEREST INCOME:
<S> <C> <C>
Interest and fees on loans $ 2,722 $ 2,378
U.S. treasury securities 22 18
Obligations of U.S. government agencies and corporations 637 698
Collateralized mortgage obligations 1,212 1,216
Obligations of states and political subdivisions 281 220
Bank balances and other securities 31 15
Federal funds sold 43 102
----------------------------------------------------------
Total interest income 4,948 4,647
----------------------------------------------------------
INTEREST EXPENSE:
Interest-bearing deposits 826 905
Time certificates over $100,000 162 184
Short-term borrowings 678 389
----------------------------------------------------------
Total interest expense 1,666 1,478
----------------------------------------------------------
NET INTEREST INCOME 3,282 3,169
PROVISION FOR LOAN LOSSES - 175
----------------------------------------------------------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 3,282 2,994
----------------------------------------------------------
NONINTEREST INCOME
Service charges on deposit accounts 668 645
Other fee income 282 217
Loss on sale of securities (127) (35)
Other operating income 24 16
----------------------------------------------------------
Total noninterest income 847 843
----------------------------------------------------------
NONINTEREST EXPENSE
Salaries and employee benefits 2,038 1,755
Occupancy 181 166
Furniture and equipment 269 190
Data processing 202 184
Advertising 115 60
Other expenses 899 834
----------------------------------------------------------
Total noninterest expense 3,704 3,189
----------------------------------------------------------
INCOME BEFORE INCOME TAXES 425 648
PROVISION FOR INCOME TAXES 75 159
----------------------------------------------------------
NET INCOME $ 350 $ 489
==========================================================
EARNINGS PER COMMON SHARE - Basic and diluted $ 0.51 $ 0.72
==========================================================
WEIGHTED AVERAGE OF COMMON SHARES OUTSTANDING 668,360 668,360
==========================================================
</TABLE>
-5-
<PAGE>
OTHER EXPENSES
Other expenses in the Consolidated Statements of Income include the following:
<TABLE>
<CAPTION>
Quarter Ended September 30
--------------------------------------
2000 1999
--------------------------------------
(dollars in thousands)
<S> <C> <C>
Directors fees $ 81 $ 67
Office Supplies, telephone 92 87
Loan collection and repossession expenses 84 74
Bank security 81 81
Amortization of intangible assets 42 42
Other 519 483
--------------------------------------
TOTAL OTHER EXPENSES $ 899 $ 834
======================================
</TABLE>
-6-
<PAGE>
IBW FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2000 AND SEPTEMBER 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
----------------------------------------------------
2000 1999
----------------------------------------------------
(dollars in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net income $ 1,309 $ 862
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 322 185
Amortization of goodwill and intangibles 127 121
Provision for loan losses - 775
Provision for losses on other real estate owned - 8
Accretion/amortization of premiums 209 949
Gain on sale of loans - (40)
Loss on sale of investment securities 128 35
(Gain) Loss on sale of other real estate owned (1) 6
(Increase) Decrease in accrued interest receivable (487) 108
Increase in other assets (364) (370)
(Decrease) increase in accrued expenses and other liabilities (82) 26
----------------------------------------------------
Net cash (used) provided by operating activities 1,161 2,665
----------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from principal payments on securities
available-for-sale 6,715 22,417
Proceeds from maturities of investment securities
available-for-sale 20,619 39,507
Proceeds from sale of loans - 4,308
Purchase of investment securities available-for-sale (20,274) (79,062)
Net decrease (increase) in interest-bearing deposits in banks 348 (64)
(Increase) decrease in loans (19,086) 1,384
Additions to bank premises and equipment, net (84) (142)
Proceeds from sale of real estate owned 266 154
----------------------------------------------------
Net cash used by investing activities (11,496) (11,498)
----------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net decrease in deposits (2,125) (7,471)
Net increase in short-term borrowings 10,284 13,206
Dividends paid (420) (19)
----------------------------------------------------
Net cash provided by financing activities 7,739 5,716
----------------------------------------------------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (2,596) (3,117)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 15,433 25,715
----------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 12,837 $ $ 22,598
====================================================
</TABLE>
See notes to consolidated financial statements.
-7-
<PAGE>
IBW FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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 months period ended September 30,
2000, are not necessarily indicative of the results that may be expected for the
year ended December 31, 2000. The unaudited consolidated financial statements
should be read in conjunction with the consolidated financial statements and
footnotes for the year-ended December 31, 1999.
Reclassifications - Certain reclassifications have been made to the prior year's
reported balances to conform to the current year presentation.
Note B: Prospective Accounting Pronouncement
Statement of Financial Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities, as amended by SFAS No. 137, Accounting for
Derivative Instruments and Hedging Activities - Deferral of the Effective Date
of FASB Statement No. 133, requires derivative instruments be carried at fair
value on the balance sheet. The statement continues to allow derivative
instruments to be used to hedge various risks and sets forth specific criteria
to be used to determine when hedge accounting can be used. The statement also
provides for offsetting changes in fair value of cash flows of both the
derivative and hedged asset or liability to be recognized in earnings in the
same period; however, any changes in fair value or cash flow that represent the
ineffective portion of a hedge are required to be recognized in earnings and
cannot be deferred. For derivative instruments not accounted for as hedges,
changes in fair value are required to be recognized in earnings and cannot be
deferred. For derivative instruments not accounted for as hedges, changes in
fair value are required to be recognized in earnings. The Company plans to adopt
the provisions of this statement, as amended, for its quarterly and annual
reporting beginning January 1, 2001, the statement's effective date. The impact
of adopting the provisions of this statement on the Company's financial
position, results of operations and cash flows subsequent to the effective date
is not currently estimable and will depend on the financial position of the
Company and the nature and purpose of any derivative instrument in use at the
time.
Note C: Formal Agreement with the Office of the Comptroller of the Currency
(OCC).
On August 25, 1998, the Company's wholly owned subsidiary Industrial Bank, N.A.,
(the "Bank") entered into a Formal Agreement with the OCC. The Agreement
requires the Bank to undertake certain actions within designated time frames
from the date the agreement was entered into, and to operate in compliance with
the provisions thereof during its term. The Agreement does not contain any
capital directive or other requirement that the Bank increase its capital, or
maintain a minimum level of capital in excess of generally applicable capital
requirements. See also the section referred to as "Formal Agreement with the
OCC" in the latter part of Management's Discussion and Analysis.
-8-
<PAGE>
Item 2. Management's Discussion and Analysis
As of and for the Nine months ended September 30, 2000 (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 factor statements by government agencies and
other third parties, 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
Formal Agreement with the Office of the Comptroller of the Currency (OCC).
On August 25, 1998, the Bank, Industrial Bank, N.A., entered into a Formal
Agreement with OCC. The Agreement requires the Bank to undertake certain actions
within designated time frames from the date the agreement was entered into, and
to operate in compliance with the provisions thereof during its term. The
Agreement does not contain any capital directive or other requirement that the
Bank increase its capital, or maintain a minimum level of capital in excess of
generally applicable capital requirements. See also the section referred to as
"Formal Agreement with the OCC" in the latter part of Management's Discussion
and Analysis.
Financial
IBW Financial Corporation's net income for the nine months ended September 30,
2000 totaled $1,309, an increase of $447, or 52% from $862 for the nine months
ended September 30, 1999. This was the result of an increase in net interest
income of $679 an increase of $130 in non-interest income, and a decrease in the
provision for loan losses of $775, offset by an increase of $1,052 in
non-interest expense and an increase of $85 in income taxes. Return on average
assets (ROAA), and return on average shareholder's equity (ROAE) for the first
nine-month period of 2000 were .65% and 9.48% compared to .41% and 6.58% for the
first nine-month period of 1999.
Net Interest Income
Net interest income for the nine months ended September 30, 2000 increased $679,
or 8% compared to the same period last year. This increase is attributed
primarily to an increase in volume and income in loans and non-taxable
securities, a decrease in volume in taxable securities and a decrease in volume
and income in federal funds sold. The average balance of interest-earning assets
for the nine month period ended September 30, 2000 decreased $9 million or 4% to
$249 million compared to $259 million for the nine month period ended September
30, 1999. However, the average yield on average interest-earning assets
increased by 70 basis points to 7.70% for the nine month period ended September
30, 2000 compared to 7.00% for the same period last year. The increase in the
average yield on average interest-earning assets reflects the increase in market
rates and the higher level of loans.
Net loans averaged $112 million during the nine months ended September 30, 2000
compared to $100 million for the comparable period in 1999, reflecting an
increase of $12 million. Interest and fees on loans increased $679 or 10% to
$7.5 million for the nine months ended September 30, 2000 compared to $6.8
million for the same period last year. The increase in loans primarily reflects
growth in the commercial real estate sector.
Taxable securities averaged $114 million during the nine months ended September
30, 2000 compared to $132 million for the comparable period in 1999, reflecting
a decrease of $18 million. Interest income from taxable securities increased $87
or 2% to $5.6 million for the nine months ended September 30, 2000 compared to
$5.5 million for the same period last
-9-
<PAGE>
year. While the average balance decreased, the average yield on taxable
securities increased 98 basis points to 6.51% for the nine months ended
September 30, 2000 compared to 5.53% for the same period last year.
Non-taxable securities averaged $18 million during the nine months ended
September 30, 2000 compared to $12 million for the comparable period in 1999,
reflecting an increase of $6 million. Interest income from non-taxable
securities increased $382 or 54% to $1,087 for the nine months ended September
30, 2000 compared to $705 for the same period last year. The tax equivalent
yield on non-taxable securities decreased 30 basis points to 7.86% for the nine
months ended September 30, 2000 compared to 8.16% for the same period last year.
Federal funds sold averaged $3 million during the nine months ended September
30, 2000 compared to $14 million for the comparable period in 1999, reflecting a
decrease of $11 million. Interest income from federal funds sold decreased $351
to $157 for the nine months ended September 30, 2000 compared to $508 for the
same period last year. The yield on federal funds sold increased 129 basis
points to 6.02% for the nine months ended September 30, 2000 compared to 4.73%
for the same period last year. The increase in the yield on federal funds sold
reflects the increase in market rates. The decline in volume of federal funds
reflects the redeployment of federal funds into higher yielding loans.
Average interest-bearing liabilities decreased $13 million or 6% to $188 million
for the nine months ended September 30, 2000 compared to $201 million for the
same period last year. The average cost on interest-bearing liabilities
increased 20 basis points to 3.19% for the nine months ended September 30, 2000
compared to 2.99% for the same period last year. The decrease in average
interest-bearing liabilities are centered primarily in time deposits which
decreased $11 million for the nine months ended 2000, as the cost of these
deposits decreased $341 over the same period. The average cost on short-term
borrowing increased 147 basis points to 5.26% for the nine months ended
September 30, 2000 compared to 3.79%.
The interest rate spread increased 50 basis points to 4.51% at September 2000
from 4.01% at September 1999, and is primarily attributable to lower market
rates for deposits, higher levels of rates for taxable securities, and higher
volume of loans, offset by higher rates in short-term borrowings. Overall, the
net margin increased to 5.29% from 4.68% for the comparable period.
Provision for Loan Losses
The Company maintains an allowance for loan losses to absorb losses on existing
loans and commitments that may become uncollectible. No provision for loan
losses was made during the nine months ended September 30, 2000 compared to $775
for the nine months ended September 30, 1999. The ratio of allowance for
possible loan losses to total loans is 3.28% at September 30, 2000 compared to
3.96% at December 31, 1999. Management believes the allowance is adequate at
September 30, 2000. See the "Non-Performing Assets" section for additional
information related to the Company's allowance for loan losses.
Non-interest Income
Non-interest income increased $130, or 5%, to $2,766 for the nine months ended
September 30, 2000 compared to $2,636 for September 30, 1999. Service charges on
deposit accounts increased $77 or 4% to $2,015 for the nine months ended
September 30, 2000 compared to $1,938 for the same period last year. Other fee
income increased $121 to $743 from $622 for the comparable period. Non-interest
income was also impacted by the increase in the loss on the sale of securities,
as security losses increased $93 to $128 for the nine month period ended
September 30, 2000 compared to security losses of only $35 at September 30,
1999.
Non-interest Expense
Non-interest expenses increased $1,052 to $10.6 million for the nine months
ended September 30, 2000 compared to $9.6 million for the same period last year.
The composition of the increase consist of an increase of $991 in salary and
employee benefits, an increase of $172 in furniture and equipment and an
increase in data processing of $60, an increase of $15 in advertising, offset by
a decrease of $164 in other expenses and a decrease of $22 in occupancy
expenses.
-10-
<PAGE>
The increase in salary and benefits for the nine months ended September 30, 2000
compared to the same period a year ago was due primarily to a full staff this
year compared to several key employee vacancies throughout the company in the
first nine months of 1999, and increases in officer salaries in 2000 compared to
officers salaries being frozen during 1999.
Provision for Income Taxes
The provision for income taxes for the first nine months of 2000 was $336,
compared to $251 a year ago due to higher income before taxes.
Financial Overview
Total assets, at $275 million, increased $10 million since December 31, 1999.
The change in the composition of the balance sheet primarily reflected an
increase of $19 million in loans and a decrease of $6 million in investment
securities, and a decrease of $2 million in federal funds sold. Liabilities
reflect a $2 million decrease in deposits, a $10 million increase in short-term
borrowings and an increase in shareholder's preferred stock dividends of $19 and
$401 in common stock dividends were declared during the nine months of 2000.
The carrying value of the Company's securities portfolio decreased $6 million to
$132 million at September 30, 2000 from $138 million at December 31, 1999. This
composition reflected a change as U. S. Government Agency securities decreased
approximately $3 million to $37 million while mortgage-backed securities
decreased $3 million to $75 million, from December 31, 1999 to September 30,
2000. The mortgage-backed securities portfolio had a weighted-average remaining
maturity of 3.05 years at September 30, 2000, down from 3.55 years at December
31, 1999. 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
other than governmental securities, whose securities held by the Company, have a
book value in excess of 10% of shareholders' equity.
The allowance for loan losses was $4.1 million or 3.28% of total loans at
September 30, 2000 compared to $4.3 million or 3.96% at December 31, 1999. The
decrease in the level of the allowance for loan losses as a percentage of ending
loans is a result of increased loan growth. Non-performing assets increased
$1,017 or 30% to $4,376 from $3,359 at year-end 1999. This increase is
attributed primarily by the addition of one commercial construction real estate
loan of $1.8 million that was placed on non-accrual during the second quarter of
2000. Loans with potential credit problems (excluding non-performing assets)
increased to $7,098 at September 30, 2000 from $6,587 at year-end 1999. At
September 30, 2000 and year-end 1999, non-performing assets represented 1.6% and
1.3% respectively of total assets.
-11-
<PAGE>
AVERAGE BALANCES AND NET INTEREST INCOME ANALYSIS (1)
<TABLE>
<CAPTION>
Nine Months Ended Nine Months Ended
September 30, 2000 September 30, 1999
---------------------------------------------------------------------------
Amount
Average Average Amount Paid Average Average Paid or
Balance Rate or Earned Balance Rate Earned
---------------------------------------------------------------------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Assets
Loans, net $ 112,001 8.96% $ 7,505 $ 99,691 9.15% $ 6,826
Taxable securities 114,158 6.51% 5,555 132,193 5.53% 5,468
Non-taxable securities(2) 18,489 7.86% 1,087 11,555 8.16% 705
Federal funds sold 3,486 6.02% 157 14,366 4.73% 508
Interest-bearing deposits held 1,131 5.32% 45 937 4.85% 34
---------------------------------------------------------------------------
Total interest-earning assets 249,265 7.70% 14,349 258,742 7.00% 13,541
Cash and due from banks 12,787 12,462
Bank premises and
equipment, net 2,294 2,459
Other assets 5,404 5,410
---------------- --------------
Total assets $ 269,750 $ 279,073
================ ==============
Liabilities and
Shareholders' equity
Interest-bearing demand deposits $ 27,850 0.56% $ 116 $ 30,459 0.79% $ 181
Savings deposits 61,008 2.27% 1,035 63,853 2.50% 1,193
Time deposits 59,951 3.97% 1,780 71,437 3.97% 2,121
---------------------------------------------------------------------------
Total interest-bearing deposits 148,809 2.63% 2,931 165,749 2.82% 3,495
Short-term borrowings 39,518 5.26% 1,556 35,020 3.79% 993
---------------------------------------------------------------------------
Total interest-bearing liabilities 188,327 3.19% 4,487 200,769 2.99% 4,488
Noninterest-bearing liabilities 61,597 58,789
Other liabilities 1,412 2,045
Shareholders' equity 18,414 17,470
---------------- --------------
Total liabilities and
shareholders' equity $ 269,750 $ 279,073
================ ==============
Net interest income and net
yield on interest-earning assets
Net interest income $ 9,862 $ 9,053
============= ==========
Interest rate spread 4.51% 4.01%
Net yield on average interest-
earning assets 5.29% 4.68%
Average interest-earning assets
to average interest-bearing
liabilities 132.36% 128.88%
<CAPTION>
Year Ended
December 31, 1999
------------------------------------
Average Average Amount Paid
Balance Rate or Earned
------------------------------------
<S> <C> <C> <C>
Assets
Loans, net $ 99,863 9.13% $ 9,115
Taxable securities 130,684 5.61% 7,336
Non-taxable securities(2) 13,016 8.08% 1,052
Federal funds sold 12,657 4.70% 595
Interest-bearing deposits held 914 4.38% 40
----------------------------------
Total interest-earning assets 257,134 7.05% 18,138
Cash and due from banks 12,169
Bank premises and
equipment, net 2,441
Other assets 5,427
-----------
Total assets $ 277,171
===========
Liabilities and
Shareholders' equity
Interest-bearing demand deposits $ 29,853 1.60% 479
Savings deposits 63,417 2.47% 1,566
Time deposits 69,477 3.53% 2,455
----------------------------------
Total interest-bearing deposits 162,747 2.77% 4,500
Short-term borrowings 35,787 3.94% 1,409
----------------------------------
Total interest-bearing liabilities 198,534 2.98% 5,909
Noninterest-bearing liabilities 59,178
Other liabilities 1,564
Shareholders' equity 17,895
-----------
Total liabilities and
shareholders' equity $ 277,171
===========
Net interest income and net
yield on interest-earning assets
Net interest income $ 12,229
===========
Interest rate spread 4.08%
Net yield on average interest-
earning assets 4.76%
Average interest-earning assets
to average interest-bearing
liabilities 129.52%
</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 $13,979, and $9,482 for
September 30, 2000 $13,301 and $8,813 for September 30, 1999 and $17,780 and
$11,871 for year ending 1999.
-12-
<PAGE>
LOAN LOSS AND RECOVERY EXPERIENCE
<TABLE>
<CAPTION>
-------------------------------------------------
Nine Months ended Year Ended
September 30, 2000 December 31, 1999
-------------------------------------------------
(dollars in thousands)
<S> <C> <C>
Total outstanding loans at end of period $ 126,356 $ 107,800
Average amount of loans outstanding 112,001 99,863
Allowance for loan losses
at beginning of period 4,272 4,700
Loans charged off:
Commercial 298 466
Real estate mortgage 82 198
Installment loans to individuals 43 150
-------------------------------------------------
Total charge-offs 423 814
-------------------------------------------------
Recoveries of loans previously charged-off:
Commercial 246 332
Real estate mortgage 2 20
Installment loans to individuals 43 34
-------------------------------------------------
Total recoveries 291 386
-------------------------------------------------
Net charge-offs 131 428
Additions to allowance charged to
operations - -
Allowance for loan losses at end of period 4,140 4,272
Ratio of net charge-offs during period
to average outstanding loans during period 0.12% 0.43%
Ratio of allowance for possible loan
losses at period to total loans 3.28% 3.96%
</TABLE>
ALLOCATION OF ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
September 30, 2000 Percent December 31, 1999 Percent
(dollars in thousands)
<S> <C> <C> <C> <C>
Commercial $ 2,205 53.26% $ 1,927 45.11%
Real estate mortgage 557 13.45% 543 12.71%
Consumer 151 3.65% 173 4.05%
Unallocated 1,227 29.64% 1,629 38.13%
-------------------------------------------------------------------------------------
Total $ 4,140 100.00% $ 4,272 100.00%
=====================================================================================
</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.
-13-
<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 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
<TABLE>
<CAPTION>
-------------------------------------------------
September 30, 2000 December 31, 1999
-------------------------------------------------
(dollars in thousands)
<S> <C>
Non-accrual loans(1) $ 3,844 $ 2,819
Loans past due 90 days or more
and still accruing 532 275
Foreclosed properties - 265
-------------------------------------------------
Total $ 4,376 $ 3,359
=================================================
Non-performing assets to gross loans
and foreclosed properties at period
end 3.45% 3.11%
Non-performing loans to total loans 3.45% 2.87%
Non-performing assets to total
assets at period end 1.59% 1.27%
</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, 2000 and the year ended December 31, 1999 for
non-accrual loans had the loans been current in accordance with their
original terms was $254 and $274, respectively.
At September 30, 2000, there were $7,098 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, totaling $6,593
fully collateralized by real estate of which eleven loans totaling $4,291 are
concentrated in the commercial real estate and nine loans totaling $2,302 are in
residential mortgages. The remaining $505 consist of three commercial loans,
secured primarily by accounts receivable and various business equipment.
Formal Agreement with the OCC. On August 25, 1998, the Bank entered into a
Formal Agreement (the "Agreement") with the Office of the Comptroller of the
Currency (the "OCC"). The Agreement requires the Bank to undertake certain
actions within designated timeframes from the date the agreement was entered
into, and to operate in compliance with the provisions thereof during its term.
-14-
<PAGE>
Among the actions required by the Agreement are the following: (i) Within thirty
days, the Bank shall employ an independent management consultant to perform a
study of the Bank's management structure and staffing requirements, including a
report identifying staffing requirements, job descriptions and evaluations for
senior officers, and evaluating organizational structure. The Board of Directors
(the "Board") is required to adopt within thirty days of the receipt of the
report, a plan to eliminate any deficiencies in management, staffing, or
supervision of management; (ii) The Board is required to take steps to obtain
current and satisfactory credit information on loans without such information,
and to insure that proper collateral documentation is maintained. Management may
not grant, renew, alter, restructure or extend a loan without proper
documentation and analysis of credit, purpose and anticipated source of
repayment. In absence of such information, such loans my be made only upon
certification of a majority of the Board why obtaining such information would be
detrimental to the best interest of the Bank; (iii) Within thirty days the Board
shall adopt a written program to eliminate the basis of criticism for assets
rated "doubtful", "substandard" or "other assets especially mentioned;" (iv)
Within thirty days the Board shall establish a loan review system to assure
timely identification and categorization of problem credits and implement a
process to insure the loan review function is independent; (v) Within sixty days
the Board shall review and revise the Bank's loan policy based upon the guidance
on Loan Portfolio Management in the Comptroller's Manual for National Bank
Examiners. Within thirty days thereafter, the Board shall develop a process to
ensure accountability for lending personnel; (vi) The Board shall notify the
Assistant Deputy Comptroller before all loan sales; (vii) Within sixty days, the
Board shall develop a written program to improve and strengthen collection
efforts; (viii) Within ninety days the Board shall develop a profit plan to
improve and sustain the Bank's earnings; (ix) Within 120 days, the Board shall
adopt and implement a strategic plan for the Bank covering at least three years,
including objectives for earnings performance, balance sheet mix, off-balance
sheet activities, liability structure, capital adequacy, reduction in the volume
of non-performing assets, product line development and market segments intended
to be developed, together with strategies to achieve those objectives; (x) The
Board shall take all steps necessary to correct any violation of law, rule or
regulation cited in any report of examination.
Compliance with the Agreement is to be monitored by a committee (the
"Committee") of at least three directors, none of whom is an employee of the
Bank or a family member of an employee. The Committee, presently composed of
four directors, is required to submit written progress reports on a monthly
basis. The Agreement requires the Bank to make periodic reports and filings with
the OCC.
The Agreement does not contain any capital directive or other requirement that
the Bank increase its capital, or maintain a minimum level of capital in excess
of generally applicable capital requirements.
-15-
<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.
-16-
<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, 2000 /s/ B. Doyle Mitchell, Jr.
B. Doyle Mitchell, Jr.
November 10, 2000 /s/ Thomas A. Wilson, Jr.
Thomas A. Wilson, Jr., Senior Vice President
and Chief Financial and Accounting Officer
-17-
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
----------- -----------
11 Statement regarding Computation of Per Share Earnings
27 Financial Data Schedule
