<PAGE> 1
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, 1997
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 or 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)
Indicate by check mark whether the registrant (1) has filed all
reports 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 31, 1997
there were issued and outstanding 11,014,327 shares of the Registrant's Common
Stock.
<PAGE> 2
IBS FINANCIAL CORP.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I. CONSOLIDATED FINANCIAL INFORMATION PAGE
- ------- ---------------------------------- ----
<C> <S> <C>
Item 1. Consolidated Financial Statements
Consolidated Statements of Financial Condition (As of
June 30, 1997 and September 30, 1996) 1
Consolidated Statements of Income (For the quarter
ended June 30, 1997 and 1996) 2
Consolidated Statements of Income (For the nine months
ended June 30, 1997 and 1996) 3
Consolidated Statements of Cash Flows (For the nine months
ended June 30, 1997 and 1996) 4
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 10
<CAPTION>
PART II. OTHER INFORMATION
<C> <S> <C>
Item 1. Legal Proceedings 16
Item 2. Changes in Securities 18
Item 3. Defaults Upon Senior Securities 18
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 5. Other Information 18
Item 6. Exhibits and Reports on Form 8-K 18
SIGNATURES 19
</TABLE>
<PAGE> 3
IBS FINANCIAL CORP.
Consolidated Statements of Financial Condition
June 30, 1997 and September 30, 1996
(In thousands)
<TABLE>
<CAPTION>
June 30, September 30,
1997 1996
---- ----
<S> <C> <C>
ASSETS
- ------
Cash and cash equivalents $ 8,652 12,466
Securities available for sale 160,936 215,331
Investments (market value $3,415 and $26,724
at June 30, 1997 and September 30, 1996) 3,415 26,712
Mortgage-backed securities (market value $343,284 and
$285,831 at June 30, 1997 and September 30, 1996) 339,931 285,267
Loans receivable, net 202,762 185,031
Accrued interest receivable:
Loans 1,685 872
Mortgage-backed securities 2,121 2,682
Investments 345 965
Real estate owned, net - -
Federal Home Loan Bank stock 6,075 4,590
Office properties and equipment, net 6,847 6,084
Other assets 575 2,051
------------------------------
Total assets $ 733,344 742,051
==============================
LIABILITIES AND STOCKHOLDERS' EQUITY
- -------------------------------------
Deposits $ 564,962 571,366
FHLB advances 35,535 18,792
Advances from borrowers 2,430 2,218
Other liabilities 2,799 5,391
------------------------------
Total liabilities 605,726 597,767
------------------------------
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 112,845 113,432
Common stock acquired by ESOP and RRP (9,409) (11,097)
Treasury stock, at cost; 597,826 shares and 855,256 shares (9,166) (12,104)
Net unrealized gain on securities available for
sale, net of taxes 1,394 1,045
Retained earnings 31,838 52,892
------------------------------
Total stockholders' equity 127,618 144,284
------------------------------
Total liabilities and stockholders' equity $ 733,344 742,051
==============================
</TABLE>
See accompanying notes to consolidated financial statements.
1
<PAGE> 4
IBS FINANCIAL CORP.
Consolidated Statements of Income
Quarter Ended June 30, 1997 and 1996
(in thousands, except per share data)
<TABLE>
<CAPTION>
Quarters Ended
June 30,
-------------------------
1997 1996
---- ----
<S> <C> <C>
Interest income:
Loans $ 3,934 3,229
Mortgage-backed securities 8,338 7,574
Investments 652 2,287
-------------------------
Total interest income 12,924 13,090
-------------------------
Interest expense:
Deposits 6,667 6,598
Borrowings 568 298
-------------------------
Total interest expense 7,235 6,896
-------------------------
Net interest income 5,689 6,194
Provision for loan losses 10 10
-------------------------
Net interest income after provision
for loan losses 5,679 6,184
-------------------------
Other operating income:
Service fees and late charges 130 120
Other income 76 127
-------------------------
Total other operating income 206 247
-------------------------
Operating expenses:
Compensation and employee benefits 2,378 2,278
Occupancy and equipment 267 252
Data processing 116 106
Federal insurance premiums 93 329
Advertising and promotion 102 109
Professional fees 44 152
Other 410 181
-------------------------
Total operating expenses 3,410 3,407
-------------------------
Income before taxes 2,475 3,024
Income taxes 859 1,174
-------------------------
Net income $ 1,616 1,850
=========================
Earnings per share $ 0.15 0.15
=========================
Average shares and equivalents outstanding 10,504 11,852
=========================
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE> 5
IBS FINANCIAL CORP.
Consolidated Statements of Income
Nine Months Ended June 30, 1997 and 1996
(in thousands, except per share data)
<TABLE>
<CAPTION>
Nine Months Ended
June 30,
-------------------------
1997 1996
---- ----
<S> <C> <C>
Interest income:
Loans $ 11,412 9,130
Mortgage-backed securities 23,952 20,251
Investments 3,456 9,658
-------------------------
Total interest income 38,820 39,039
-------------------------
Interest expense:
Deposits 20,081 20,110
Borrowings 1,669 379
-------------------------
Total interest expense 21,750 20,489
-------------------------
Net interest income 17,070 18,550
Provision for loan losses 30 20
-------------------------
Net interest income after provision
for loan losses 17,040 18,530
-------------------------
Other operating income:
Service fees and late charges 310 271
Other income 206 265
-------------------------
Total other operating income 516 536
-------------------------
Operating expenses:
Compensation and employee benefits 6,879 6,454
Occupancy and equipment 847 859
Data processing 351 329
Federal insurance premiums 439 971
Advertising and promotion 423 326
Professional fees 711 556
Other 972 835
-------------------------
Total operating expenses 10,622 10,330
-------------------------
Income before taxes 6,934 8,736
Income taxes 2,406 3,335
-------------------------
Net income $ 4,528 5,401
=========================
Earnings per share $ 0.42 0.44
=========================
Average shares and equivalents outstanding 10,710 12,193
=========================
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 6
IBS FINANCIAL CORP.
Consolidated Statements of Cash Flows
Nine Months Ended June 30, 1997 and 1996
(In thousands)
<TABLE>
<CAPTION>
Nine Months Ended
June 30,
-------------------------
1997 1996
---- ----
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 4,528 5,401
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 294 283
Provision for loan losses 30 20
Market adjustment on ESOP 604 263
RRP earned 907 893
Changes in assets and liabilities that
provided (used) cash:
Accrued interest receivable 368 2,163
Other assets 1,476 (166)
Other liabilities (2,734) 424
-------------------------
Net cash provided by operating activities 5,473 9,281
-------------------------
INVESTING ACTIVITIES:
Principal repayments of:
Loans 18,140 17,079
Mortgage-backed securities 47,113 62,679
Purchases of:
Investments 0 (218,808)
Mortgage-backed securities (80,077) (202,910)
Proceeds from maturity of investments 56,483 354,319
Loans originated or acquired (35,901) (55,168)
Loans sold 0 4,106
FHLB stock redeemed (purchased) (1,485) (918)
Proceeds from sale of REO - -
Proceeds from sale of investments - 9,998
Property and equipment acquired (1,057) (46)
-------------------------
Net cash provided by (used in) investing activities 3,216 (29,669)
-------------------------
FINANCING ACTIVITIES:
Net increase (decrease) in deposits (6,404) 9,777
Increase (decrease) in advances from borrowers 212 483
FHLB advances 21,000 19,521
FHLB repayments (4,257) -
Cash dividends paid (4,404) (1,747)
Payments on ESOP debt, net 781 796
Treasury stock acquired (20,001) (16,246)
Stock options exercised 570 9
-------------------------
Net cash provided by (used in) financing activities (12,503) 12,593
-------------------------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (3,814) (7,795)
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 7
IBS FINANCIAL CORP.
Consolidated Statements of Cash Flows, Continued
(In thousands)
<TABLE>
<CAPTION>
Nine Months Ended
June 30,
-------------------------
1997 1996
---- ----
<S> <C> <C>
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 12,466 12,542
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 8,652 4,747
=========================
SUPPLEMENTAL DISCLOSURES:
Cash paid out for:
Interest expense $ 21,781 20,473
=========================
Income taxes $ (183) 2,729
=========================
NON-CASH TRANSFERS FROM LOANS TO
REAL ESTATE OWNED $ - -
=========================
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE> 8
IBS FINANCIAL CORP.
Notes to Consolidated Financial Statements
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF FINANCIAL STATEMENT PRESENTATION
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 adjustments (consisting only of recurring accruals)
which, in the opinion of management, are necessary for a fair presentation of
the financial statements have been included. These unaudited consolidated
financial statements should be read in conjunction with the audited consolidated
financial statements and the accompanying notes thereto included in the Annual
Report of IBS Financial Corp. (the "Company") for the fiscal year ended
September 30, 1996. The results for the quarter and nine months ended June 30,
1997 are not necessarily indicative of the results that may be expected for the
fiscal year ending September 30, 1997. Per share amounts for prior periods have
been adjusted to reflect the 15% stock dividend paid on May 6, 1997.
BUSINESS
The Company's principal subsidiary, Inter-Boro Savings and Loan Association (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 unaudited 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 unaudited consolidated
financial statements have been prepared using the accrual basis of accounting.
6
<PAGE> 9
(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).
(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. All share amounts herein include the effect of
the 15% stock dividend paid on May 6, 1997. At June 30, 1997, 55,896 shares of
the total ESOP shares were committed to be released with 320,001 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 will be charged or
credited to equity as additional paid-in capital. Management expects the
recorded amount of compensation expense, which will be recognized over a 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 $807,000 and $2,172,000 for the quarter and nine months
ended June 30, 1997, 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. The share amounts herein include the effects of the 15%
stock dividend paid on May 6, 1997. In order to fund the RRP, the RRP purchased
587,451 shares in the open market at an aggregate cost of $6,085,000. As of June
30, 1997, all available shares under the RRP had been awarded to the Company's
Board of Directors and the Association's executive officers and other key
employees.
7
<PAGE> 10
At June 30, 1997, the deferred cost of the unearned RRP shares amounted to
$3,113,000 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 $303,000 and $907,000 for the quarter and nine months
ended June 30, 1997, respectively. 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
The 1995 Stock Option Plan (the "Plan") was approved by the Company's
stockholders at the Annual Meeting on January 19, 1995. The share amounts herein
include the effects of the 15% stock dividend paid on May 6, 1997. At June 30,
1997, an aggregate of 1,284,280 stock options were outstanding and 106,285 stock
options were reserved for future issuance under the Plan. Stock options were
granted to directors, executive officers and other key employees. These options
are subject to vesting provisions as well as other provisions of the Plan.
(6) LOANS RECEIVABLE
Loans receivable at June 30, 1997 and September 30, 1996 consisted of the
following (in thousands):
<TABLE>
<CAPTION>
June 30, September 30,
1997 1996
---- ----
<S> <C> <C>
Real estate loans:
Mortgage loans ( 1-4 residential) $ 177,165 164,717
Construction loans 912 1,256
Loans on savings accounts 2,594 2,472
Commercial real estate loans 24,396 19,548
Consumer loans 988 813
----------------------------------
Total 206,055 188,806
Less:
Deferred loan fees (1,808) (1,572)
Allowance for loan losses (1,054) (1,024)
Loans in process (431) (1,179)
----------------------------------
Total $ 202,762 185,031
==================================
</TABLE>
8
<PAGE> 11
Changes in the allowance for loan losses were as follows (in thousands):
<TABLE>
<CAPTION>
Nine Months Year Ended
June 30, 1997 September 30, 1996
----------------------------------------
<S> <C> <C>
Balance, beginning of period $ 1,024 994
Provision for loan losses 30 30
Charge-offs 0 0
Recoveries 0 0
----------------------------------------
Balance, end of period $ 1,054 1,024
========================================
</TABLE>
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, 1997, 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, 1997 and 1996, the Company's impaired loans consisted of smaller balance
residential mortgage loans.
Nonaccrual loans for which interest has been fully reserved totaled
approximately $616,000 at June 30, 1997.
9
<PAGE> 12
(7) DEPOSITS
The major types of savings deposits by amounts and the percentages were as
follows (in thousands):
<TABLE>
<CAPTION>
June 30, 1997 September 30, 1996
------------- ------------------
Type of Account Amount % of Total Amount % of Total
- --------------- ---------------------------- ----------------------
<S> <C> <C> <C> <C>
Now $ 24,958 4.42% $ 23,886 4.18%
Money market deposit 65,636 11.62% 70,023 12.26%
Passbook and club 57,808 10.23% 59,323 10.38%
---------------------------- ----------------------
148,402 26.27% 153,232 26.82%
Certificates of deposit 416,194 73.67% 417,773 73.12%
Accrued interest on savings 366 0.06% 361 0.06%
---------------------------- ---------------------
Total deposits $ 564,962 100.00% $ 571,366 100.00%
============================ =====================
</TABLE>
(8) EARNINGS PER SHARE
Earnings per share amounted to $.15 for the quarter ended June 30, 1997 compared
to $.15 per share for the same quarter last year. For the nine months ended June
30, 1997, earnings per share amounted to $.42 compared with $.44 per share for
the same nine months last year. Per share amounts for prior periods have been
restated to reflect the 15% stock dividend declared on March 21, 1997 and paid
on May 6, 1997 to stockholders of record at the close of business on April 21,
1997.
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, 1997 was $1.6 million or
$.15 per share compared with $1.9 million or $.15 per share for the same quarter
last year. For the nine months ended June 30, 1997, net income amounted to $4.5
million or $.42 per share compared with $5.4 million or $.44 per share for the
same nine months last year. Per share amounts for prior periods have been
restated to reflect the 15% stock dividend declared on March 21, 1997 and paid
on May 6, 1997 to stockholders of record on April 21, 1997.
10
<PAGE> 13
The decrease in earnings for the quarter and nine months ended June 30, 1997
compared to the same periods last year was due principally to a decline in net
interest income. These declines were partially offset by reduced income tax
provisions. The Company's net interest margin averaged 3.19% and 3.15% in the
recent quarter and nine months ended June 30, 1997, declining from 3.39% and
3.44% earned for the same periods in the last fiscal year, respectively.
FINANCIAL CONDITION
Total assets decreased by $8.8 million or 1.2% during the first nine months of
fiscal 1997 from $742.1 million at September 30, 1996 to $733.3 million at June
30, 1997. Loan and mortgage-backed securities repayments, together with maturing
investments and additional FHLB advances, were used to invest in mortgage-backed
securities as well as to originate additional mortgage loans and to repurchase
shares of the Company's common stock. Cash and cash equivalents decreased by
$3.8 million or 30.6% from $12.5 million at September 30, 1996 to $8.7 million
at June 30, 1997. Mortgage-backed securities held to maturity increased by $54.6
million or 19.2% from $285.3 million at September 30, 1996 to $339.9 million at
June 30, 1997, reflecting additional purchases in excess of payments received
during the period. Securities available for sale decreased by $54.4 million or
25.3% from $215.3 million (including investments of $48.3 million and
mortgage-backed securities of $167.0 million) at September 30, 1996 to $160.9
million (including investments of $15.0 million and mortgage-backed securities
of $145.9 million) at June 30, 1997. This decrease reflected both maturities of
investment securities and payments received on the mortgage-backed security
portfolio. Loans receivable increased by $17.8 million or 9.6% from $185.0
million at September 30, 1996 to $202.8 million at June 30, 1997, as loan
originations exceeded loan repayments during the nine month period ended June
30, 1997.
During the nine months ended June 30, 1997, deposits decreased by $6.4 million
or 1.1% from $571.4 million at September 30,1996 to $565.0 million at June 30,
1997, principally reflecting payment of the terminated defined benefit pension
plan to participants. Two new recently opened branches have been modestly
helpful in attracting deposits. FHLB advances increased by $16.7 million or
89.1% from $18.8 million at September 30, 1996 to $35.5 million at June 30,
1997. Additional borrowings of $20 million were taken down during the quarter
ended December 31, 1996. These three and five year advances with an average
interest rate of 6.50% were used generally to fund loan originations and
mortgage-backed securities. Treasury stock decreased by $2.9 million or 24.3%
from $12.1 million at September 30, 1996 to $9.2 million at June 30, 1997. Part
of the Company's capital management plan consists of its ongoing stock buyback
program. During the nine months ended June 30, 1997, the Company completed the
repurchase of 1,238,766 shares of its common stock in the open market and
reissued 1,435,767 shares in connection with the 15% stock dividend paid on May
6, 1997 and 60,429 shares in connection with the exercise of stock options. At
June 30, 1997, the Company still had remaining 597,826 shares of treasury stock.
Retained earnings decreased by $21.1 million or 39.8% from $52.9 million at
September 30, 1996 to $31.8 million at June 30, 1997. This change resulted from
fair market value of the 15% stock dividend paid as well as the cash dividends
declared during the nine months ended June 30, 1997, partially offset by the net
income earned during the same nine month period. Total cash dividends declared
included the two regular
11
<PAGE> 14
quarterly cash dividends of $.07 per share each and a special cash dividend of
$.22 per share, both of which were adjusted to reflect the 15% stock dividend
paid on May 6, 1997, together with the recent June 1997 quarterly cash dividend
of $.08 per share, or a total of $.44 per share.
RESULTS OF OPERATIONS
NET INTEREST INCOME
Net income decreased by $.23 million or 12.7% to $1.62 million for the quarter
ended June 30, 1997, compared with net income of $1.85 million for the same
quarter in the last fiscal year. For the nine months ended June 30, 1997, net
income decreased by $.87 million or 16.2 % to $4.53 million, compared with net
income of $5.40 million for the nine months ended June 30, 1996. The decrease in
both the quarter and nine months results of operations was primarily
attributable to reductions in net interest income. These declines were partially
offset by reduced income tax provisions.
Net interest income amounted to $5.7 million for the quarter ended June 30,1997,
which represents a decrease of $.5 million or 8.2% from the $6.2 million
reported for the comparable prior quarter. For the nine months ended June 30,
1997, net interest income decreased by $1.5 million or 8.0% to $17.1 million
from $18.6 million for the nine months last fiscal year. The decrease in net
interest income for the quarter ended June 30, 1997 resulted from a decrease in
the net interest rate spread of 9 basis points for the period as well as a
decrease in the balance of average net interest-earning assets of $24.8 million
or 18.3%, principally reflecting significant repurchases of common stock. The
decrease in net interest income for the nine months ended June 30, 1997 resulted
from a decrease in the net interest rate spread of 17 basis points and a
decrease in the balance of average net interest-earning assets of $20.5 million
or 14.9%, again reflecting the significant repurchases of common stock.
Total interest income amounted to $12.9 million for the quarter ended June 30,
1997, decreasing by $.2 million or 1.3% from $13.1 million for the comparable
quarter last year. For the nine months ended June 30, 1997, total interest
income amounted to $38.8 million compared to $39.0 million for the same nine
months last year, a decrease of $.2 million or .6%. Average interest-earning
assets decreased by $16.5 million or 2.3% to $713.9 million for the quarter
ended June 30, 1997, compared to $730.4 for the same quarter last year and
increased by $5.2 million or .7% to $723.3 million for the nine months ended
June 30, 1997 compared to the same nine month period last year. The yield earned
on average interest-earning assets increased by 7 basis points to 7.24% for the
quarter ended June 30, 1997 and decreased by 9 basis points to 7.16% for the
nine months ended June 30, 1997.
Total interest expense increased by $.3 million or 4.9% to $7.2 million for the
quarter ended June 30, 1997 from $ 6.9 million for the comparable quarter last
year. For the nine months ended June 30, 1997, total interest expense increased
by $1.3 million or 6.2% to $21.8 million from $20.5 million for the same nine
month period last year. Average interest-bearing liabilities increased by $8.4
million or 1.4% to $603.6 million for the quarter ended June 30, 1997 from
$595.2 million for the comparable quarter last fiscal year, principally
reflecting additional FHLB advances. For the nine months ended June 30, 1997,
average interest-bearing liabilities
12
<PAGE> 15
increased by $25.7 million or 4.4% to $606.6 million from $581.0 million for the
same nine month period last year, principally reflecting additional FHLB
advances. In addition, the average rate paid on interest-bearing liabilities
increased by 16 basis points to 4.79% for the quarter ended June 30, 1997, while
the average rate paid on interest-bearing liabilities increased by 8 basis
points to 4.78% for the nine months ended June 30, 1997.
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 quarters ended June 30, 1997 and 1996,
the same $10,000 provisions for loan losses were determined to be required based
upon the Company's risk assessment of the loan portfolio. For the nine months
ended June 30, 1997, $30,000 was determined to be required, compared to $20,000
for the comparable nine months last year. The allowance for loan losses amounted
to $1,054,000 at June 30, 1997.
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 $206,000 for the quarter ended June 30, 1997,
a decrease of $41,000 or 16.6% from the comparable quarter last year. For the
nine months ended June 30, 1997, other operating income decreased by $20,000 or
3.7% to $516,000 from $536,000 for the nine months ended June 30, 1996. The
decreases for both the quarter and nine months ended June 30, 1997 were chiefly
due to the absence of a $70,000 gain on the sale of investments in June 1996
which was only partially offset by additional loan fees and MAC service fees
earned.
OPERATING EXPENSES
Operating expenses amounted to $3.4 million and $10.6 million for the quarter
and nine months ended June 30, 1997, which reflect increases of $3,000 or .1%
and $292,000 or 2.8% from the comparable prior periods, respectively. The
increases for both the quarter and nine months ended June 30, 1997 principally
reflected increased legal fees arising from litigation involving dissident
stockholders, increased compensation and benefits, particularly the cost of the
Company's recognition and retention plan and ESOP plan, and increased
advertising expense chiefly to promote the two new branch offices, which items
were only partially offset by reduced deposit insurance premium expense.
13
<PAGE> 16
INCOME TAXES
Income tax expense amounted to $.9 million for the quarter ended June 30, 1997,
a decrease of $.3 million or 26.8% compared to $1.2 million for the same quarter
last fiscal year. For the nine months ended June 30, 1997, income tax amounted
to $2.4 million, a decrease of $.9 million or 27.8% compared to $3.3 million for
the same nine months last year. The decrease in income tax expense for both the
quarter and nine months ended June 30, 1997 primarily reflects 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 quarter and nine months ended June 30, 1996.
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. The Association also uses advances from
the Federal Home Loan Bank of New York as a funding source as well as having
available 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 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 $100 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, 1997, 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, 1997, the total approved loan commitments outstanding amounted to
$5.6 million. Certificates of deposit scheduled to mature in one year or less at
June 30, 1997 totaled $263.0 million. Management of the Association believes
that the Association has adequate resources, including principal prepayments and
repayments of loans and mortgage-backed securities and maturing investments, to
fund all of its commitments to the extent required. Based upon its historical
run-off
14
<PAGE> 17
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
liquid 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, 1997 was 41.5% and 4.6%, 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,
1997, the Association exceeded all regulatory capital requirements. At such
date, the Association had tangible capital equal to 17.0% of adjusted total
assets, core capital equal to 17.0% of adjusted total assets and total capital
equal to 62.2% 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 a 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.
RECENT ACCOUNTING PRONOUNCEMENTS
In March 1997, the Financial Accounting Standards Board issued SFAS No. 128,
"Earnings Per Share" which establishes standards for computing and presenting
earnings per share. SFAS No. 128 is effective for financial statements issued
for periods ending after December 15, 1997, including interim periods.
Restatement of all prior-period earnings per share data presented is required.
Management of the Company has not completed an analysis of the effects this
pronouncement will have on its results of operations or financial position.
15
<PAGE> 18
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
During the quarter ended June 30, 1997, there were no material
legal proceedings to which the Company or its subsidiary was a party or to which
any of their property was subject, except as described below.
On November 12, 1996, the Company filed suit in the United States
District Court for the District of New Jersey against Mr. Lawrence B. Seidman,
Richard Whitman and other members of the "IBS Financial Corp. Committee to
Maximize Shareholder Value." The Company's complaint alleged that the Committee
had failed to disclose all the information required by the federal securities
laws and the Company's Certificate of Incorporation in the materials the
Committee had submitted in connection with the nomination of Ernest Beier, Jr.
for election as a director of the Company, and in the Committee's Schedule 13D
filings with the Securities and Exchange Commission. The Company sought a
declaratory judgment that the Committee's filings were incomplete and
inadequate, that the Company's Board could reject the nomination of Mr. Beier,
and that the Company need not, at that time, provide a shareholder list to the
Committee. The complaint also asked for an injunction against further violations
of the securities laws by Messrs. Seidman and Whitman and the other members of
their group. Some members of the Committee counterclaimed, challenging the
action of the Company's Board, in July 1996, reducing the number of directors
from seven to six.
A mere six days after the Company's lawsuit was filed, Mr. Seidman's
group amended its Schedule 13D to disclose for the first time an 18 month old
agreement involving 96,025 shares of the Company's Common Stock. The amended
Schedule 13D also corrected some, but not all, of the deficiencies noted in the
Company's lawsuit. For example, certain members of the Committee are limited
liability companies or limited partnerships; the Committee did not disclose, in
its amended Schedule 13D, the names of the investors in those limited liability
entities, nor did it attach the limited partnership and operating agreements.
After a preliminary litigation conference, Mr. Seidman's group further
amended its Schedule 13D to disclose publicly for the first time various limited
partnership and operating agreements, to disclose for the first time the
identities of the persons or entities who had invested in the four members of
the group formed directly or indirectly by Mr. Seidman, and to disclose for the
first time the identities of five individuals who had entered into agreements
with Mr. Seidman regarding the voting of their shares.
As a result of the expedited discovery conducted by the Company and the
amended Schedule 13Ds filed by the Seidman group, the Company discovered that
Seidcal Associates, L.L.C. ("Seidcal") owns 71.4% of Seidman and Associates,
L.L.C. ("SAL") and 75.0% of Seidman and Associates II, L.L.C. ("SAL II"). The
Company also discovered that Charisma Partners, L.P. ("Partners") owns 54.5% of
Federal Holdings L.L.C. ("Holdings"), that 8th Floor
16
<PAGE> 19
Realty Corp. ("Realty Corp.") is the sole general partner of Partners, and that
Kevin Moore is a Vice President of Realty Corp., the organizer of Holdings and
the Administrative Manager of Holdings. To date, no information regarding the
members of Seidcal, the directors and other executive officers of Realty Corp.,
or the business, source of funds or controlling persons of Seidcal, Partners or
Realty Corp. has been publicly disclosed by the Seidman group.
On January 23, 1997, the District Court ruled that the Schedule 13D
amendments filed by Mr. Seidman's group after the litigation was commenced
mooted the Company's claims regarding the deficient disclosures initially
provided by Mr. Seidman's group and that the amended Schedule 13Ds were
adequate. Because the judge noted that "(a)n amendment which cures a violation
of the Exchange Act moots a claim that arises from the failure to file a proper
Schedule 13D," the Court did not find it necessary to rule expressly that the
prior Schedule 13Ds violated the securities laws. The District Court also held
that the Company did not meet its burden of proof in demonstrating (1) Seidcal's
control over SAL and SAL II, (2) the control of Partners, Realty Corp. and Kevin
Moore over Holdings, (3) that Seidcal, Partners and Realty Corp. had arranged
for financing, or (4) that Seidcal, Partners and Realty Corp. were
"participants" in the Seidman's group's proxy solicitation. In addition, because
the nominating materials were similar to those received by the Company the prior
year and because the Court believed the Company was not prejudiced by the
failure of the Seidman group to provide proper disclosures in a timely manner,
the Court declined to enforce the disclosure requirements in the Company's
Certificate of Incorporation and held that the Company could not reject the
defendants' nominations as deficient or untimely and that the defendants could
receive a stockholder list. Furthermore, the court set aside the July 1996
reduction in Board size, even though the decision to reduce the size of the
Board was made several months prior to the submission of nominees by the Seidman
group (the reduction in Board size was first disclosed to the Seidman group in
October 1996).
The Company believes that the Seidman group's disclosures are still
inadequate, particularly since the group's Schedule 13Ds fail to provide any
disclosures regarding Seidcal and Partners. Although Seidcal and Partners each
owns more than 50% of one or more of the limited liability companies formed by
Mr. Seidman, and although Seidcal and Partners each has the contractual right to
make certain decisions for those companies, the Seidman group has argued that
they are not control persons, and has refused to make complete disclosures about
them. The Company also believes that the Company's Board properly rejected the
nomination of Mr. Beier, and reasonably and properly decided to reduce the
Board's size. For these reasons, on January 31, 1997, the Company appealed the
District Court's decision to the United States Court of Appeals for the Third
Circuit, and the Company requested that the Third Circuit hear the appeal on an
expedited basis. On February 7, 1997, Mr. Seidman's group opposed the request
for an expedited appeal.
17
<PAGE> 20
On February 28, 1997, the United States Court of Appeals for the Third
Circuit granted the Company's motion for an expedited appeal, over the objection
of the Seidman group. The appeal was argued on May 23, 1997. To date, the Third
Circuit has not issued a decision on the appeal.
The Company regrets the need for the lawsuit, but believes that it had
no other choice in order to ensure compliance with the federal securities laws
by Mr. Seidman and his group and to inform the Company's stockholders of the
identities of Mr. Seidman's secret backers.
Rather than trying to get the appeal decided expeditiously, Mr. Seidman
asked the Superior Court of New Jersey, Chancery Division, Passaic County, to
set the annual meeting date. On February 24, 1997, the Passaic County Court
orally directed that the Annual Meeting be held on April 18, 1997. The Court
stayed that order after the Court of Appeals granted the Company's motion for an
expedited appeal, as set forth above.
On May 30, 1997, the Passaic County judge ordered that the Company's
annual meeting of stockholders be held on August 4, 1997, on the assumption that
the Third Circuit decision would be received in June. On June 27, 1997 the
Passaic County judge re-affirmed his order.
Item 2. Changes 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.
18
<PAGE> 21
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 6, 1997 By: /s/ Joseph M. Ochman, Sr.
--------------------------
Joseph M. Ochman, Sr.
Chairman, President and
Chief Executive Officer
Date: August 6, 1997 By: /s/ Richard G. Sharp
---------------------
Richard G. Sharp
Executive Vice President and
Chief Financial Officer
Date: August 6, 1997 By: /s/ Matthew J. Kennedy
-----------------------
Matthew J. Kennedy
Executive Vice President and
Treasurer
19
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