<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to _____________
Commission File Number 0-24862
IBS FINANCIAL CORP.
--------------------------------
(Exact name of registrant as specified in its charter)
New Jersey 22-3301933
----------------------------- ----------------------
(State of other jurisdiction of incorporation or (I.R.S. Employer
organization) Identification Number)
1909 East Route 70
Cherry Hill, New Jersey 08003
----------------------------- ----------
(Address of principal executive office) (Zip Code)
(609) 424-1000
------------------------
(Registrant's telephone number, including area code)
Indicated by check mark whether the registrant (1) has filed all
reports to be required to be filed by Section 13 or 15(D) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for shorter period that
the registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the last practicable date. As of July 26, 1996
there were issued and outstanding 11,002,393 shares of the Registrant's Common
Stock.
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IBS FINANCIAL CORP.
TABLE OF CONTENTS
PART I. CONSOLIDATED FINANCIAL INFORMATION PAGE
Item 1. Consolidated Financial Statements
Consolidated Statements of Financial Condition (As of
June 30, 1996 and September 30, 1995) 1
Consolidated Statements of Income (For the quarter
ended June 30, 1996 and 1995) 2
Consolidated Statements of Income (For the nine months
ended June 30, 1996 and 1995 3
Consolidated Statements of Cash Flows (For the nine months
ended June 30, 1996 and 1995) 4
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 2. Changes in Securities 17
Item 3. Default Upon Senior Securities 17
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 17
SIGNATURES 18
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IBS FINANCIAL CORP.
Consolidated Statements of Financial Condition
June 30, 1996 and September 30, 1995
(In thousands)
June 30, September 30,
1996 1995
-------- --------
ASSETS
Cash and cash equivalents $ 4,747 12,542
Securities available for sale 245,931 -
Investments (market value $25,642 and $241,901 at
June 30, 1996 and September 30, 1995) 25,643 241,345
Mortgage-backed securities ( market value $279,297
and $323,630 at June 30, 1996 and
September 30, 1995) 278,881 311,753
Loans receivable, net 175,744 141,781
Accrued interest receivable:
Loans 719 601
Mortgage-backed securities 2,709 3,069
Investments 1,473 3,394
Real estate owned, net - -
Federal Home Loan Bank stock 4,590 3,672
Office properties and equipment, net 6,008 6,245
Other assets 2,300 2,134
-------- --------
Total assets $ 748,745 726,536
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $ 574,687 564,910
FHLB advances 19,521 -
Advances from borrowers 2,267 1,784
Other liabilities 3,185 1,793
-------- --------
Total liabilities 599,660 568,487
-------- --------
Commitments and contingencies
Stockholders' equity:
Common stock, $.01 par value, authorized
25,000,000 shares; 11,609,723 shares
issued and outstanding 116 116
Additional paid-in capital 113,337 113,259
Common stock acquired by ESOP and MRP (11,749) (13,438)
Treasury stock, at cost; 607,520 and 580,486
shares (8,613) (7,751)
Net unrealized gain on securities available
for sale, net of taxes 1,667 -
Retained earnings 54,327 65,863
-------- --------
Total stockholders' equity 149,085 158,049
-------- --------
Total liabilities and stockholders' equity $ 748,745 726,536
-------- --------
-------- --------
1
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IBS FINANCIAL CORP.
Consolidated Statements of Income
Quarter Ended June 30, 1996 and 1995
(in thousands, except per share data)
Quarter Ended
June 30,
-------------------------
1996 1995
---------- ----------
Interest income:
Loans $ 3,229 2,875
Mortgage-backed securities 7,574 6,866
Investments 2,287 3,614
---------- ----------
Total interest income 13,090 13,355
Interest expense: ---------- ----------
Deposits 6,598 6,426
Borrowings 298 -
---------- ----------
Total interest expense 6,896 6,426
---------- ----------
Net interest income 6,194 6,929
Provision for loan losses 10 10
Net interest income after provision
---------- ----------
for loan losses 6,184 6,919
---------- ----------
Other operating income:
Service fees and late charges 120 51
Other income 127 87
---------- ----------
Total other operating income 247 138
---------- ----------
Operating expenses:
Compensation and employee benefits 2,278 2,247
Occupancy and equipment 252 306
Data processing 106 103
Federal insurance premiums 329 335
Advertising and promotion 109 131
Professional fees 152 57
Other 181 181
---------- ----------
Total operating expenses 3,407 3,360
---------- ----------
Income before taxes 3,024 3,697
Income taxes 1,174 1,452
---------- ----------
Net income $ 1,850 2,245
---------- ----------
---------- ----------
Earnings per share $ 0.18 0.20
---------- ----------
---------- ----------
Average shares and equivalents outstanding 10,306 11,329
---------- ----------
---------- ----------
2
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IBS FINANCIAL CORP.
Consolidated Statements of Income
Nine Months Ended June 30, 1996 and 1995
(in thousands, except per share data)
Nine Months Ended
June 30,
------------------------
1996 1995
--------- ---------
Interest income:
Loans $ 9,130 8,489
Mortgage-backed securities 20,251 16,828
Investments 9,658 13,302
--------- ---------
Total interest income 39,039 38,619
--------- ---------
Interest expense:
Deposits 20,110 18,375
Borrowings 379 0
--------- ---------
Total interest expense 20,489 18,375
--------- ---------
Net interest income 18,550 20,244
Provision for loan losses 20 20
Net interest income after provision
--------- ---------
for loan losses 18,530 20,224
--------- ---------
Other operating income:
Service fees and late charges 271 180
Other income 265 342
--------- ---------
Total other operating income 536 522
--------- ---------
Operating expenses:
Compensation and employee benefits 6,454 5,374
Occupancy and equipment 859 860
Data processing 329 319
Federal insurance premiums 971 1,022
Advertising and promotion 326 354
Professional fees 556 356
Other 835 642
--------- ---------
Total operating expenses 10,330 8,927
--------- ---------
Income before income taxes 8,736 11,819
Income taxes 3,335 4,215
--------- ---------
Net income $ 5,401 7,604
--------- ---------
--------- ---------
Earnings per share $ 0.51 0.64
--------- ---------
--------- ---------
Average shares and equivalents outstanding 10,603 11,571
--------- ---------
--------- ---------
3
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IBS FINANCIAL CORP.
Consolidated Statements of Cash Flows
Nine Months Ended June 30, 1996 and 1995
(In thousands)
Nine Months Ended
June 30,
-----------------------
1996 1995
-----------------------
OPERATING ACTIVITIES:
Net income $ 5,401 7,604
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 283 296
Provision for loan losses 20 20
Gain on sale of real estate owned
Market adjustment on ESOP 263 -
MRP earned 893 -
Changes in assets and liabilities that pro-
provided (used) cash:
Accrued interest receivable 2,163 (1,000)
Other assets (166) 1,746
Other liabilities 424 13
-----------------------
Net cash provided by operating activities 9,281 8,679
-----------------------
INVESTING ACTIVITIES:
Principal repayments of:
Loans 17,079 10,725
Mortgage-backed securities 62,679 18,808
Purchases of:
Investments (218,808) (543,744)
Mortgage-backed securities (202,910) (164,485)
Proceeds from maturity of investments 354,319 623,333
Loans originated or acquired (55,168) (6,630)
Loans sold 4,106 -
FHLB stock redeemed (purchased) (918) (1,068)
Proceeds from sale of REO - 1,252
Proceeds from sale of investments 9,998 -
Property and equipment acquired (46) (505)
-----------------------
Net cash provided by (used) in investing activities (29,669) (62,314)
-----------------------
FINANCING ACTIVITIES:
Net increase (decrease) in deposits 9,777 (43,696)
Increase (decrease) in advances from borrowers 483 267
FHLB advances 19,521 -
Cash dividends paid (1,747) (1,123)
Proceeds from the sale of stock, net - 103,890
Payments on ESOP debt, net 796 859
Purchase of RRP shares - (4,815)
Treasury stock acquired (16,246) (5,504)
Incentive stock options exercised 9 -
-----------------------
Net cash provided by financing activities 12,593 49,878
-----------------------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS $ (7,795) (3,757)
4
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IBS FINANCIAL CORP.
Consolidated Statements of Cash Flows, Continued
(In thousands)
Nine Months Ended
June 30,
-----------------------
1996 1995
-------- --------
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD $ 12,542 32,586
-----------------------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 4,747 28,829
-----------------------
-----------------------
SUPPLEMENTAL DISCLOSURES:
Cash paid out for:
Interest expense $ 20,473 18,373
-----------------------
-----------------------
Income taxes $ 2,729 3,095
-----------------------
-----------------------
NON-CASH TRANSFERS FROM LOANS TO
REAL ESTATE OWNED $ - -
-----------------------
-----------------------
5
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IBS FINANCIAL CORP.
Notes to Consolidated Financial Statements
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF FINANCIAL STATEMENT PRESENTATION
The audited and unaudited consolidated financial statements contained herein for
the period prior to October 13, 1994 are those of Inter-Boro Savings and Loan
Association (the "Association"), as a predecessor entity to IBS Financial Corp.
(the "Company"). The accompanying consolidated financial statements were
prepared in accordance with instructions to Form 10-Q, and therefore, do not
include information or footnotes necessary for a complete presentation of
financial position, results of operations and cash flows in conformity with
generally accepted accounting principles. However, all normal recurring
adjustments which, in the opinion of management, are necessary for a fair
presentation of the financial statements, have been included. These financial
statements should be read in conjunction with the audited financial statements
and the accompanying notes thereto included in the Association's Annual Report
for the period ended September 30, 1995. The results for the nine months and
the quarter ended June 30, 1996 are not necessarily indicative of the results
that may be expected for the fiscal year ended September 30, 1996.
BUSINESS
The Company's principal subsidiary, the Association, is a New Jersey state
chartered stock savings and loan association conducting business from its branch
system located in Camden, Burlington and Gloucester counties, New Jersey. The
Association is subject to competition from other financial institutions and
other companies which provide financial services. The Company and the
Association are subject to the regulations of certain federal and state agencies
and undergo periodic examinations by those regulatory authorities.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries, including the Association. All significant
intercompany transactions have been eliminated in consolidation. Additionally,
certain reclassifications have been made in order to conform with the current
year's presentation. The accompanying consolidated financial statements have
been prepared using the accrual basis of accounting. All per share data for
prior periods have been restated to reflect the 10% stock dividend paid on March
15, 1996 to stockholders of record on February 22, 1996.
6
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(2) CONVERSION TO CAPITAL STOCK FORM OF OWNERSHIP
On May 20, 1994, the Board of Directors of the Association adopted a plan of
conversion to convert from a New Jersey chartered mutual savings and loan
Association to a New Jersey chartered capital stock savings and loan association
with the concurrent formation of a holding company ("the Conversion").
The Conversion was completed on October 13, 1994 with the issuance by the
Company of 11,609,723 shares of its common stock in a public offering to the
Association's eligible depositors and borrowers, members of the general public
and the Company's employee stock ownership plan (the "ESOP").
In exchange for 50% of the net Conversion proceeds ($56.6 million), the Company
acquired 100% of the stock of the Association and retained 50% of the net
Conversion proceeds ($56.6 million) at the holding company level.
(3) COMMON STOCK ACQUIRED BY THE EMPLOYEE STOCK OWNERSHIP PLAN
In connection with the Conversion, the Company established an ESOP for the
benefit of eligible employees. The Company purchased 1,021,655 shares of common
stock on behalf of the ESOP in the Conversion. At June 30, 1996, 51,996 shares
of the total ESOP shares were committed to be released with 142,408 shares
allocated to participants. The Company accounts for its ESOP in accordance with
Statement of Position 93-6, "Employers' Accounting for Employee Stock Ownership
Plans" which requires the Company to recognize compensation expense equal to the
fair value of the ESOP shares during the periods in which they become committed
to be released. To the extent that the fair value of the ESOP shares differs
from the cost of such shares, this differential is being charged or credited to
equity as additional paid-in capital. Management expects the recorded amount of
compensation expense, which is being recognized over an approximate ten year
vesting period, to fluctuate as continuing adjustments are made to reflect
changes in the fair value of the ESOP shares. Employers with internally
leveraged ESOP's, such as the Company, do not report the loan receivable from
the ESOP as an asset and do not report the ESOP debt from the employer as a
liability. The Company recorded compensation and employee benefit expense
related to the ESOP of $523,000 and $1,173,000 for the quarter and nine months
ended June 30, 1996, respectively.
(4) RECOGNITION AND RETENTION PLAN TRUST
At the Company's Annual Meeting of Stockholders held on January 19, 1995, the
Recognition and Retention Plan and Trust (the "RRP") was approved by the
Company's stockholders. In order to fund the RRP, the RRP purchased 510,827
shares of common stock in the open market at an aggregate cost of $6,085,000.
As of June 30, 1996, 499,330 shares available under the RRP had been awarded to
the Company's Board of Directors and the Association's executive officers and
other key employees.
7
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At June 30, 1996 the deferred cost of the unearned RRP shares amounted to
$4,321,000 and is recorded as a charge against stockholders' equity.
Compensation expense is being recognized over the five year vesting period for
shares awarded. The Company recorded compensation and employee benefit expense
related to the RRP of $301,000 and $893,000 for the quarter and nine months
ended June 30, 1996. RRP charges began to be recorded in the quarter ended June
30, 1995 when the RRP shares were purchased after receiving required stockholder
and regulatory approval.
(5) STOCK OPTION PLAN
At the Company's Annual Meeting of Stockholders held on January 19, 1995, the
1995 Stock Option Plan (the "Plan") was approved by the Company's stockholders.
A total of 1,277,069 shares of common stock have been reserved for issuance by
the Plan. Through June 30, 1996, an aggregate of 1,175,147 stock options have
been granted to the Company's directors, and the Association's executive
officers and other key employees. These options are subject to vesting
provisions as well as other provisions of the Plan. During the quarter ended
June 30, 1996, options to purchase 883 shares were exercised.
(6) LOANS RECEIVABLE
Loans receivable at June 30, 1996 and September 30, 1995 consisted of the
following (in thousands):
June 30, September 30,
1996 1995
--------- ---------
Real estate loans:
Mortgage loans ( 1-4 residential) $ 156,551 132,251
Construction loans 1,289 1,889
Loans on savings accounts 2,565 2,616
Commercial real estate loans 18,539 8,548
Consumer loans 426 125
--------- ---------
Total 179,370 145,429
Less:
Deferred loan fees (1,464) (982)
Allowance for loan losses (1,014) (994)
Loans in process (1,148) (1,672)
--------- ---------
Total $ 175,744 141,781
--------- ---------
--------- ---------
8
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Changes in the allowance for loan losses were as follows (in thousands):
Nine Months Ended Year Ended
June 30, 1996 September 30, 1995
----------------- ------------------
Balance, beginning of period $ 994 530
Provision for loan losses 20 30
Charge-offs 0 0
Recoveries 0 434
----------------- ------------------
Balance, end of period $ 1,014 994
----------------- ------------------
----------------- ------------------
The provision for loan losses charged to expense is based upon loan and loss
experience and an evaluation of potential losses in the current loan portfolio,
including the evaluation of impaired loans under SFAS Nos. 114 and 118. A loan
is considered to be impaired when, based upon current information and events, it
is probable that the Company will be unable to collect all amounts due according
to the contractual terms of the loan. An insignificant delay or insignificant
shortfall in the amount of payments does not necessarily result in the loan
being identified as impaired. For this purpose, delays less than 90 days are
considered to be insignificant. As of June 30, 1996, 100% of the impaired loan
balance was measured for impairment based upon the fair value of the loan's
collateral. Impairment losses are included in the provision for loan losses.
SFAS 114 and 118 do not apply to large groups of smaller balance homogenous
loans that are collectively evaluated for impairment, except for those loans
restructured under a troubled debt restructuring. Loans collectively evaluated
for impairment include consumer loans and residential real estate loans. At
June 30, 1996, the Company's impaired loans consisted of smaller balance
residential mortgage loans.
Nonaccrual loans for which interest has been fully reserved totaled
approximately $521,000 at June 30, 1996.
9
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(7) DEPOSITS
The major types of savings deposits by amounts and the percentages were as
follows (in thousands):
June 30, 1996 September 30, 1995
----------------- ------------------
Type of Account Amount % of Amount % of
Total Total
----------------- ------------------
Now $ 24,443 4.3% $ 22,909 4.1%
Money market deposit 72,110 12.5% 74,933 13.3%
Passbook and club 60,386 10.5% 62,950 11.1%
----------------- ------------------
156,939 27.3% 160,792 28.5%
Certificates of deposit 417,398 72.6% 403,736 71.4%
Accrued interest on savings 350 0.1% 382 0.1%
----------------- ------------------
Total deposits $ 574,687 100.0% $ 564,910 100.0%
----------------- ------------------
----------------- ------------------
(8) EARNINGS PER SHARE
Earnings per share amounted to $.18 for the quarter ended June 30, 1996 compared
to $.20 for the same quarter last year. For the nine months ended June 30,
1996 earnings per share amounted to $.51 per share compared with $.64 per share
for the same nine months last year. Per share amounts for prior periods have
been restated to reflect the 10% stock dividend paid on March 15, 1996 to
shareholders of record on February 22, 1996. In addition, the per share amount
for the nine months ended June 30, 1995 includes earnings from the completion
date of the initial public offering and conversion on October 13, 1994.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
The Company's net income for the quarter ended June 30, 1996 was $1.9 million or
$.18 per share compared with $2.2 million or $.20 per share for the same
quarter last year. Net income for the nine months ended June 30, 1996 amounted
to $5.4 million or $.51 per share compared with $7.6 million or $.64 per share
for the same nine months last fiscal year. Per share amounts for prior periods
have been restated to reflect the 10% stock dividend paid on March 15, 1996 to
shareholders of record on February 22, 1996. In addition, the per share amount
for the nine
10
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month period ended June 30, 1995 includes earnings from the completion date of
the initial public offering and conversion on October 13, 1994.
The decrease in earnings for both the quarter and the nine months ended June 30,
1996 compared to the same periods last year was principally attributable to
reductions in net interest income, reflecting increased deposit costs.
Increased interest income on loans and mortgage-backed securities during the
1996 periods were offset by decreases in interest income on investments.
Investment income declined, in part, because approximately $5.8 million and
$16.2 million of proceeds from maturing investments were used to repurchase
shares of the Company's outstanding common stock during the quarter and nine
months ended June 30, 1996, respectively, as part of the Company's continuing
stock repurchase program. In addition, increased operating expenses over the
comparable prior period were also a contributing factor to the earnings' decline
for the nine months ended June 30, 1996.
FINANCIAL CONDITION
Total assets increased by $22.2 million or 3.1% during the first nine months of
fiscal 1996 from $726.5 million at September 30, 1995 to $748.7 million at June
30, 1996. Implementing an accounting pronouncement in the latter part of 1995,
the Company reclassified a portion of its securities from the held to maturity
category into the available for sale category. At June 30, 1996 the Company
had $245.9 million of securities available for sale which resulted in a $1.7
million unrealized net gain after related income taxes that was included as part
of stockholders' equity. This $245.9 million of securities available for sale
was composed of $175.5 million in mortgage-backed securities (including gross
unrealized gains of $2.4 million) and $70.4 million in investments (including
gross unrealized gains of $.2 million). Mortgage-backed securities decreased by
$32.8 million or 10.5% from $311.8 million at September 30, 1995 to $278.9
million at June 30, 1996. However, after considering the $173.1 million cost of
mortgage-backed securities that were transferred into the available for sale
category, mortgage-backed securities actually increased by $140.3 million as a
result of additional purchases in excess of repayments. Most of the purchase
activity involved securities with balloon payments due in either five or seven
years. Investments decreased by $215.7 million or 89.4% from $241.3 million at
September 30, 1995 to $25.6 million at June 30, 1996. In addition to the $70.2
million cost of investments transferred into the securities available for sale
category, maturities and $10 million of investment sales exceeded purchases by
$145.5 million. These funds, together with deposit increases and additional
borrowings, were used to fund mortgage-backed securities purchases, additional
loan originations, as well as fund the repurchase of shares of the Company's
outstanding common stock. Loans receivable increased by $34.0 million or 23.9%
from $141.8 million at September 30, 1995 to $175.7 million at June 30, 1996.
Loan production of $55.2 million during the nine months ended June 30, 1996
exceeded loan repayments and sales. Included in loan production during this
period were $13.7 million of commercial real estate loans represented primarily
by loans secured by local medical and professional office facilities.
During the nine months ended June 30, 1996, deposits increased by $9.8 million
or 1.7% from $564.9 million at September 30,1995 to $574.7 million at June 30,
1996. A new savings
11
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program for balances in excess of $25,000 that has been priced competitively and
supported with an advertising campaign has been successful in attracting
deposits in the marketplace. FHLB advances with terms of five and seven years
and at an average rate of 6.04% that amounted to $20 million were utilized
during the quarter ended March 31, 1996. These borrowings were used, in part,
to fund commercial loans. Other liabilities increased by $1.4 million or 77.6%,
reflecting the deferred income taxes associated with the unrealized gain on
securities available for sale. Stockholders' equity decreased by $9.0 million
or 5.7% for the nine months ended June 30, 1996 from $158.0 million at September
30, 1995 to $149.1 million at June 30, 1996, principally due to the repurchase
of the Company's common stock in the open market at an aggregate cost of $16.2
million and cash dividends paid of $1.8 million that was only partially offset
by net income of $5.4 million, $1.9 million of ESOP and MRP amortization and the
$1.7 million net unrealized gain on securities available for sale.
RESULTS OF OPERATIONS
NET INTEREST INCOME
Net income decreased by $.4 million or 17.6% to $1.8 million for the quarter
ended June 30, 1996, compared with net income of $2.2 million for the same
quarter last fiscal year. For the nine months ended June 30, 1996, net income
decreased by $2.2 million or 29.0% to $5.4 million, compared with net income of
$7.6 million for the nine months ended June 30, 1995. The decrease in both the
quarter and nine months results of operations was primarily attributable to
reductions in net interest income, reflecting increased deposit costs.
Increased interest income on loans and mortgage-backed securities during both
the quarter and nine months ended June 30, 1996 were offset by decreases in
interest income on investments. Investment income declined, in part, because
approximately $5.8 million and $16.2 million of proceeds from maturing
investments were used to repurchases shares of the Company's outstanding stock
during the quarter and nine months ended June 30, 1996, respectively. In
addition, increased operating expenses over the prior comparable period were
also a contributing factor to the earnings decline for the nine months ended
June 30, 1996. Both of these declines in earnings were partially offset by
reduced income tax provisions.
Net interest income amounted to $6.2 million for the quarter ended June 30,
1996, which represents a decrease of $.7 million or 10.6% from the $6.9 million
reported for the comparable prior quarter. For the nine months ended June 30,
1996 net interest income decreased by $1.7 million or 8.4% to $18.6 million from
$20.2 million for the nine months last fiscal year. The decrease in net
interest income for the quarter ended June 30, 1996 resulted from a decrease in
the net interest rate spread of 44 basis points to 2.53% and a decrease in the
balances of average net interest-earning assets of $11.2 million or 8.3%. The
decrease in net interest income for the nine months ended June 30, 1996 resulted
from a decrease in the net interest rate spread of 43 basis points to 2.55% and
a decrease in the balance of net interest-earning assets of $.1 million or .1%.
Total interest income decreased by $.3 million or 2.0% for the quarter ended
June 30, 1996 from $13.4 for the comparable prior quarter to $13.1 million. For
the nine months ended June 30,
12
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1996, total interest income increased by $.4 million or 1.1% to $39.0 million
from $38.6 million for the nine month period ended June 30, 1995. Average
interest-earning assets increased by $21.6 million or 3.0% for the quarter
ended June 30, 1996 and increased by $9.5 million or 1.3% for the nine months
ended June 30, 1996. In addition, the yield earned on average interest-earning
assets decreased 37 basis points to 7.17% for the quarter ended June 30, 1996 as
the yield on repayments of loans and mortgage-backed securities exceeded those
of the new loans originated and mortgage-backed securities purchased. For the
nine months ended June 30, 1996, the yield earned on average interest-earning
assets decreased by 2 basis points to 7.25%.
Total interest expense increased by $.4 million or 7.3% for the quarter ended
June 30, 1996 to $6.8 million from $6.4 million for the quarter ended June 30,
1995. For the nine month period ended June 30, 1996, total interest expense
increased by $2.1 million or 11.5% to $20.5 million from $18.4 million for the
same nine month period last year. These increases were chiefly due to increases
in average balances of interest-bearing liabilities of $32.8 million or 5.8% for
the quarter ended June 30, 1996 and an increase of $9.5 million in interest-
bearing liabilities for the nine months ended June 30, 1996 as well as increases
in the rate paid on average interest-bearing liabilities of 6 basis points to
4.63% for the quarter ended June 30, 1996 and 41 basis points to 4.70% for the
nine months ended June 30, 1996 compared to the like periods last year.
PROVISION FOR LOAN LOSSES
The Company establishes a provision for loan losses, which is charged to
operations, in order to maintain the allowance for loan losses at a level which
is considered to be appropriate based upon an assessment of prior loss
experience, the volume and type of lending currently being engaged in by the
Company, industry standards, past due loans, economic conditions in the
Company's market area generally and other factors related to the collectibility
of the Company's loan portfolio. For the quarter and nine months ended June 30,
1996 the same provisions for loan losses compared to the prior periods were
determined to be required based upon the risk the Company's risk assessment of
the loan portfolio. The balance in the allowance for loan losses amounted to
$1,014,000 at June 30, 1996.
Although management utilizes its best judgment in providing for loan losses,
there can be no assurance that the Company will not have to increase its
provisions for loan losses in the future as a result of future increases in
nonperforming loans or for other reasons which could adversely affect the
Company's results of operations. In addition, various regulatory agencies
periodically review the allowance for loan losses. Such agencies may require
the Company to recognize additions to the allowance for loan losses based on
their judgments of information that is available to them at the time of their
examination.
OTHER OPERATING INCOME
Other operating income amounted to $247,000 for the quarter ended June 30, 1996,
an increase of $109,000 or 78.9% over the comparable quarter last fiscal year.
For the nine months ended June 30, 1996 other operating income increased by
$14,000 or 2.7% to $536,000 from $522,000 for the nine months ended June 30,
1995. The increase for the quarter ended June 30, 1996 reflected a $70,000 gain
on the sale of an investment as well as increased service charges on automated
teller machine transactions.
13
<PAGE>
OPERATING EXPENSES
Operating expenses amounted to $3.4 million and $10.3 million for the quarter
and nine months ended June 30, 1996, which reflect increases of $.1 million or
1.4% and $1.4 million or 15.7% from the comparable prior periods, respectively.
For the nine months ended June 30, 1996 compared to the earlier period, the
increase reflects the costs associated with the Company's stock based and other
benefit plans as well as the additional professional fees and other expenses
incurred that were associated with the proxy contest in connection with the
Company's Annual Meeting.
INCOME TAXES
Income tax expense amounted to $1.2 for the quarter ended June 30, 1996, an
decrease of $.3 million or 19.1% compared to $1.5 million for the same quarter
last fiscal year. For the nine months ended June 30, 1996 income tax expense
amounted to $3.3 million, an decrease of $.9 million or 20.9% compared to $4.2
million for the same nine months last fiscal year. The decrease in income tax
expense for both the quarter and nine months ended June 30, 1996 generally
follows the decrease in income before income taxes for the related periods. In
addition, an increased state tax provision at a higher rate reflecting
additional holding company income was recorded during the nine months ended June
30, 1996.
PROPOSED DEPOSIT INSURANCE PREMIUMS
Deposits of the Association are currently insured by the Savings Association
Insurance Fund ("SAIF"). Both the SAIF and the Bank Insurance Fund ("'BIF"),
the deposit insurance fund that covers most commercial bank deposits, are
statutorily required to be recapitalized to a ratio of 1.25% of insured reserve
deposits. The BIF has achieved a fully funded status in contrast to the SAIF
and, therefore, the FDIC recently reduced substantially the average deposit
insurance premium paid by commercial banks to a level approximately 75% below
the average premium paid by savings institutions.
In late 1995, the FDIC approved a final rule regarding deposit insurance
premiums which, effective with the semiannual premium assessment beginning
January 1, 1996, reduced deposit insurance premiums for BIF member institutions
to zero basis points (subject to an annual minimum of $2,000) for institutions
in the lowest-risk category. Deposit insurance premiums for SAIF members were
maintained at their existing levels (23 basis points for institutions in the
lowest-risk category). Accordingly, in the absence of further legislative
action, SAIF members such as the Association will be competitively disadvantaged
as compared to commercial banks by the resulting premium differential. It is
anticipated that, under present conditions, it will be at least several years
before the SAIF reaches a reserve ratio of 1.25% of insured deposits.
The U.S. House of Representatives and Senate have actively considered
legislation which would have eliminated the premium differential between
SAIF-insured institutions and BIF-insured institutions by recapitalizing the
SAIF's reserves to the required ratio. The proposed legislation would have
provided that all SAIF member institutions pay a special one-time assessment to
recapitalize the SAIF which in the aggregate would have been sufficient to
bring the reserve ratio in the SAIF to 1.25% of insured deposits. Based on the
current level of reserves maintained by the
14
<PAGE>
SAIF, it was anticipated that the amount of the special assessment required to
recapitalize the SAIF would have been approximately 80 to 85 basis points of the
SAIF-assessable deposits. It was anticipated that after recapitalization of
the SAIF, premiums paid by SAIF-insured institutions would be reduced to match
those currently being assessed BIF-insured commercial banks. The legislation
also provided for the merger of the BIF and the SAIF, with such merger being
conditioned upon the prior elimination of the thrift charter.
The legislation discussed above had been, for some time, included as part of a
fiscal 1996 federal budget bill, but was eliminated prior to the bill being
enacted on April 26, 1996. In light of the legislation's elimination and the
uncertainty of the legislative process generally, management cannot predict
whether legislation reducing SAIF premiums and/or imposing a special one-time
assessment will be adopted, or, if adopted, the amount of the assessment, if
any, that would be imposed on the Association.
LIQUIDITY AND CAPITAL RESOURCES
The Association's primary sources of funds are deposits, repayments and
maturities of outstanding loans and mortgage-backed securities, maturities of
investment securities and other short-term investments, as well as funds
provided from operations. While scheduled loan and mortgage-backed securities
repayments and maturing investment securities and short-term investments are
relatively predictable sources of funds, deposit flows and loan prepayments are
greatly influenced by the movement of interest rates in general, economic
conditions and competition. The Association manages the pricing of its deposits
to maintain a deposit balance deemed appropriate and desirable. In addition,
the Association invests in short-term interest earning assets which provide
liquidity to meet lending requirements. Although the Association's deposits
have represented the substantial portion of its total liabilities, the
Association also utilizes other borrowing sources. In the event of the need for
an additional source of funds, the Board of Directors of the Association has
provided management with the authority to borrow up to $10.0 million from the
Federal Reserve Bank of Philadelphia, without the need for additional Board
approval. In addition, the Company's Board of Directors also provided
management with the authority to borrow up to $50 million from the Federal Home
Loan Bank of New York.
Liquidity management is both a daily and long-term function. Excess liquidity
is generally invested in short-term investments such as cash and cash
equivalents, U.S. Treasury, U.S. Government agencies and other qualified
investments. On a longer-term basis, the Association maintains a strategy of
investing in various mortgage-backed securities and other investment securities
and lending products. During the quarter ended June 30, 1996, the Association
used its sources of funds primarily to meet its ongoing commitments to pay
maturing savings certificates and savings withdrawals, fund loan and
mortgage-backed securities commitments and maintain an increasing portfolio of
mortgage-backed securities. At June 30, 1996, the total approved loan and
mortgage-backed securities commitments outstanding amounted to $21.1 million.
Certificates of deposit scheduled to mature in one year or less at June 30, 1996
totaled $228.7 million. Management of the Association believes that the
Association has adequate resources, including principal prepayments and
repayments of loans and mortgage-backed
15
<PAGE>
securities and maturing investments, to fund all of its commitments to the
extent required. Based upon its historical run-off experience, management
believes that a significant portion of maturing deposits will remain with the
Association.
The Association is required by the OTS to maintain average daily balances of
liquids assets and short-term liquid assets as defined in amounts equal to 5%
and 1% respectively, of net withdrawable deposits and borrowings payable in one
year or less to assure its ability to meet demand for withdrawals and repayments
of short-term borrowings. The liquidity requirements may vary from time to time
at the direction of the OTS depending upon economic conditions and deposit
flows. The Association's average monthly liquidity ratio and short-term liquid
assets for June 30, 1996 was 19.5% and 12.6%, respectively.
The Office of Thrift Supervision requires that the Association meet minimum
regulatory tangible, core and risk-based capital requirements. The Association
is required to maintain tangible capital equal to at least 1.5% of its adjusted
total assets, core capital equal to at least 3% of its adjusted total assets and
total capital equal to at least 8% of its risk-weighted assets. At June 30, 1996
the Association exceeded all regulatory capital requirements. At such date, the
Association had tangible capital equal to 18.0% of adjusted total assets, core
capital equal to 18.0% of adjusted total assets and total capital equal to 70.6%
of risk-weighted assets.
IMPACT OF INFLATION AND CHANGING PRICES
The consolidated financial statements of the Company and related notes presented
herein have been prepared in accordance with generally accepted accounting
principles which require the measurement of financial position and operating
results in terms of historical dollars, without considering changes in the
relative purchasing power of money over time due to inflation.
Unlike most industrial companies, substantially all of the assets and
liabilities of a financial institution are monetary in nature. As a result,
interest rates have a more significant impact on financial institution's
performance than the effects of general levels of inflation. Interest rates do
not necessarily move in the same direction or in the same magnitude as the
prices of goods and services, since such prices are affected by inflation to a
larger extent than interest rates. In the current interest rate environment,
liquidity and the maturity structure of the Association's assets and liabilities
are critical to the maintenance of acceptable performance levels.
16
<PAGE>
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
There are no material legal proceedings to which the Company or its
subsidiary is a party or to which any of their property is subject.
In November 1995, Lawrence B. Seidman filed a complaint in the
Superior Court of New Jersey, Passaic County, against the Company and
its directors alleging, among other things, libel and slander in
connection with the Company's solicitation in the proxy contest for
the election of directors at the Company's Annual Meeting of
Stockholders held on December 15, 1995. The complaint requests an
unspecified amount of compensatory and punitive damages, interest,
costs and fees. An amended complaint was filed in January 1996, when
the Court permitted Mr. Seidman to file an amended complaint rather
than dismissing the original complaint. The Company believes the
suit is frivolous and without merit and intends to defend the action
vigorously.
Item 2. CHANGE IN SECURITIES
Not applicable
Item 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable
Item 5. OTHER INFORMATION
Not applicable
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Not applicable
b) No Form 8-K reports were filed during the quarter.
17
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
IBS FINANCIAL CORP.
Date: August 1, 1996 By: /s/ Joseph M. Ochman, Sr.
-------------------------------
Joseph M. Ochman, Sr.
Chairman, President and
Chief Executive Officer
Date: August 1, 1996 By: /s/ Richard G. Sharp
-------------------------------
Richard G. Sharp
Executive Vice President and
Chief Financial Officer
Date: August 1, 1996 By: /s/ Matthew J. Kennedy
-------------------------------
Matthew J. Kennedy
Executive Vice President and
Treasurer
18
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<PERIOD-START> OCT-01-1995
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