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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 December 31, 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)
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<CAPTION>
NEW JERSEY 22-3301933
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<S> <C>
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer
Identification
Number)
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<TABLE>
<CAPTION>
1909 EAST ROUTE 70
CHERRY HILL, NEW JERSEY 08003
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<S> <C>
(Address of principal executive office) (Zip Code)
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(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 January 31, 1998 there were
issued and outstanding 10,944,327 shares of the Registrant's Common Stock.
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IBS FINANCIAL CORP.
TABLE OF CONTENTS
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PART I. CONSOLIDATED FINANCIAL INFORMATION PAGE
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Item 1. Consolidated Financial Statements
Consolidated Statements of Financial Condition (As
of December 31, 1997 and September 30, 1997) 1
Consolidated Statements of Income (For the quarter
ended December 31, 1997 and 1996) 2
Consolidated Statements of Cash Flows (For the three
months ended December 31, 1997 and 1996) 3
Notes to Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
Part II. Other Information
Item 1. Legal Proceedings 15
Item 2. Changes in Securities 15
Item 3. Defaults Upon Senior Securities 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 16
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IBS FINANCIAL CORP.
Consolidated Statements of Financial Condition
December 31, 1997 and September 30, 1997
(In thousands)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1997 1997
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<S> <C> <C>
ASSETS
Cash and cash equivalents........................................................... $ 25,617 15,811
Securities available for sale....................................................... 125,278 136,430
Investments (market value $7,584 and $27,859
at December 31, 1997 and September 30, 1997)...................................... 7,584 27,859
Mortgage-backed securities (market value $341,595 and
$332,713 at December 31, 1997 and September 30, 1997)............................. 335,491 326,869
Loans receivable, net............................................................... 217,241 210,008
Accrued interest receivable:
Loans............................................................................. 1,674 1,699
Mortgage-backed securities........................................................ 1,964 2,015
Investments....................................................................... 29 103
Federal Home Loan Bank stock........................................................ 6,075 6,075
Office properties and equipment, net................................................ 6,689 6,782
Other assets........................................................................ 539 1,100
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Total assets........................................................................ $ 728,181 734,751
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LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits............................................................................ $ 560,057 567,375
FHLB advances....................................................................... 33,083 34,319
Advances from borrowers............................................................. 2,325 2,303
Other liabilities................................................................... 3,548 2,735
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Total liabilities................................................................... 599,013 606,732
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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........................................................ 113,456 113,203
Common stock acquired by ESOP and MRP............................................. (8,401) (8,941)
Treasury stock, at cost; 665,396 shares and 660,396 shares........................ (10,345) (10,238)
Net unrealized gain on securities available for
sale, net of taxes.............................................................. 1,522 1,631
Retained earnings................................................................. 32,820 32,248
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Total stockholders' equity.......................................................... 129,168 128,019
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Total liabilities and stockholders' equity.......................................... $ 728,181 734,751
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1
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IBS FINANCIAL CORP.
Consolidated Statements of Income
Quarter Ended December 31, 1997 and 1996
(in thousands, except per share data)
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<CAPTION>
QUARTER ENDED
DECEMBER 30,
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<S> <C> <C>
1997 1996
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Interest income:
Loans...................................................... $ 4,111 3,708
Mortgage-backed securities................................. 8,118 7,877
Investments................................................ 595 1,481
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Total interest income........................................ 12,824 13,066
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Interest expense:
Deposits................................................... 6,800 6,772
Borrowings................................................. 528 519
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Total interest expense....................................... 7,328 7,291
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Net interest income.......................................... 5,496 5,775
Provision for loan losses.................................... 10 10
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Net interest income after provision
for loan losses............................................ 5,486 5,765
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Other operating income:
Service fees and late charges.............................. 132 90
Other income............................................... 123 58
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Total other operating income................................. 255 148
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Operating expenses:
Compensation and employee benefits......................... 2,503 2,120
Occupancy and equipment.................................... 261 292
Data processing............................................ 115 111
Federal insurance premiums................................. 89 254
Advertising and promotion.................................. 71 152
Professional fees.......................................... 142 367
Other...................................................... 281 240
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Total operating expenses..................................... 3,462 3,536
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Income before taxes.......................................... 2,279 2,377
Income taxes................................................. 739 824
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Net income................................................... $ 1,540 1,553
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Basic earnings per share..................................... $ 0.16 0.15
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Diluted earnings per share................................... $ 0.14 0.14
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2
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IBS FINANCIAL CORP.
Consolidated Statements of Cash Flows
Quarter Ended December 31, 1997 and 1996
(In thousands)
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<CAPTION>
QUARTER ENDED
DECEMBER 31,
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<S> <C> <C>
1997 1996
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OPERATING ACTIVITIES:
Net income......................................................... $ 1,540 1,553
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization.................................. 98 99
Provision for loan losses...................................... 10 10
Market adjustment on ESOP...................................... 284 160
MRP earned..................................................... 303 301
Changes in assets and liabilities that
provided (used) cash:
Accrued interest receivable................................ 150 476
Other assets............................................... 561 89
Other liabilities.......................................... 872 (2,654)
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Net cash provided by operating activities.......................... 3,818 34
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INVESTING ACTIVITIES:
Principal repayments of:
Loans............................................................ 6,265 5,716
Mortgage-backed securities....................................... 27,357 14,286
Purchases of:
Investments...................................................... (67,300) (179,100)
Mortgage-backed securities....................................... (24,995) 0
Proceeds from maturity of investments.............................. 87,575 179,878
Loans originated or acquired....................................... (13,562) (11,617)
Loans sold......................................................... 54 0
Property and equipment acquired.................................... (5) (1,004)
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Net cash provided by (used) in investing activities................ 15,389 8,159
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FINANCING ACTIVITIES:
Net increase (decrease) in deposits................................ (7,318) 4,143
Increase (decrease) in advances from borrowers..................... 22 (70)
FHLB advances...................................................... 0 20,000
FHLB repayments.................................................... (1,236) (880)
Cash dividends paid................................................ (968) (691)
Payments on ESOP debt, net......................................... 237 236
Treasury stock acquired............................................ (216) (13,176)
Stock options exercised............................................ 78 0
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Net cash provided from (used in) financing activities.............. (9,401) 9,562
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INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS...................................................... $ 9,806 17,755
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3
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IBS FINANCIAL CORP.
Consolidated Statements of Cash Flows, Continued
(In thousands)
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<CAPTION>
QUARTER ENDED
DECEMBER 31,
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<S> <C> <C>
1997 1996
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CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD.............................................. $ 15,811 12,466
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CASH AND CASH EQUIVALENTS,
END OF PERIOD.................................................... $ 25,617 30,221
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SUPPLEMENTAL DISCLOSURES:
Cash paid out for:
Interest expense............................................... $ 7,350 7,128
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Income taxes................................................... $ 0 0
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NON-CASH TRANSFERS FROM LOANS TO REAL ESTATE OWNED................. $ -- --
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4
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IBS FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF FINANCIAL STATEMENT PRESENTATION
The accompanying unaudited 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 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,
1997. The results for the quarter ended December 31, 1997 are not necessarily
indicative of the results that may be expected for the fiscal year ended
September 30, 1998. Per share amounts for the prior period 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.
5
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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).
(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 1,174,902 shares of common
stock on behalf of the ESOP in the Conversion. At December 31, 1997, 117,194
shares of the total ESOP shares were committed to be released with 323,635
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. At December 31, 1997, the ESOP loan balance, net of related
receivable, amounted to $5,895,340 and is recorded as a charge against
stockholders' equity. The Company recorded compensation and employee benefit
expense related to the ESOP of $609,786 and $550,125 for the quarters ended
December 31, 1997 and 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 587,451
shares in the open market at an aggregate cost of $6,085,000. As of December
31, 1997, all shares available under the RRP had been
6
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awarded to the Company's Board of Directors and the Association's executive
officers and other key employees.
At December 31, 1997, the deferred cost of the unearned RRP shares amounted
to $2,506,480 and is recorded as a charge against stockholders' equity.
Compensation expense will be recognized over the five year vesting period for
shares awarded. The Company recorded compensation and employee benefit expense
related to the RRP of $303,192 and $300,909 for the quarters ended December 31,
1997 and 1996, 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. At December 31, 1997, an
aggregate of 1,290,850 stock options were outstanding and 90,285 stock options
were reserved for future issuance under the Plan. Stock options were 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.
(6) LOANS RECEIVABLE
Loans receivable at December 31, 1997 and September 30, 1997 consisted of
the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1997 1997
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<S> <C> <C>
Real estate loans:
Mortgage loans (1-4 residential).................................................. $ 192,488 184,498
Construction loans................................................................ 2,400 261
Loans on savings accounts......................................................... 2,378 2,486
Commercial real estate loans...................................................... 24,081 24,568
Consumer loans.................................................................... 1,300 1,234
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Total........................................................................... 222,647 213,047
Less:
Deferred loan fees................................................................ (2,004) (1,897)
Allowance for loan losses......................................................... (1,074) (1,064)
Loans in process.................................................................. (2,328) (78)
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Total........................................................................... $ 217,241 210,008
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Changes in the allowance for loan losses were as follows (in thousands):
<TABLE>
<CAPTION>
QUARTER ENDED YEAR ENDED
DECEMBER 31, 1997 SEPTEMBER 30, 1997
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<S> <C> <C>
Balance, beginning of period............................................... $ 1,064 1,024
Provision for loan losses.................................................. 10 40
Charge-offs................................................................ 0 0
Recoveries................................................................. 0 0
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Balance, end of period..................................................... $ 1,074 1,064
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</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 December 31, 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 homogeneous
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
December 31, 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 $825,000 at December 31, 1997, compared to $818,000 at September
30, 1997.
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(7) DEPOSITS
The major types of savings deposits by amounts and the percentages were as
follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1997 SEPTEMBER 30, 1997
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TYPE OF ACCOUNT AMOUNT % OF TOTAL AMOUNT % OF TOTAL
- ------------------------------------------------------------------ ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
NOW............................................................... $ 25,512 4.6% $ 23,570 4.2%
Money market deposit.............................................. 62,921 11.2% 63,248 11.1%
Passbook and club................................................. 55,785 10.0% 57,638 10.2%
---------- ----- ---------- -----
144,218 25.8% 144,456 25.5%
Certificates of deposit........................................... 415,441 74.1% 422,505 74.4%
Accrued interest on savings....................................... 398 0.1% 414 0.1%
---------- ----- ---------- -----
Total deposits.................................................... $ 560,057 100.0% $ 567,375 100.0%
---------- ----- ---------- -----
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</TABLE>
(8) EARNINGS PER SHARE
Basic earnings per share amounted to $.16 and $.15 for the quarters ended
December 31, 1997 and December 31, 1996, respectively. Diluted earnings per
share amounted to $.14 per share for both the quarters ended December 31, 1997
and December 31, 1996. The per share amounts for the prior period has been
restated to reflect the 15% stock dividend paid on May 6, 1997. A reconciliation
of the numerator and denominators in the computation of basic and diluted
earnings per share follows:
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE)
THREE MONTHS ENDED
----------------------------------------------------------------
DECEMBER 31, 1997 DECEMBER 31, 1996
------------------------------- -------------------------------
INCOME SHARES EPS INCOME SHARES EPS
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<S> <C> <C> <C> <C> <C> <C>
Basic EPS................................................. $ 1,540 9,935 $ 0.16 $ 1,553 10,567 $ 0.15
Dilutive securities:
Stock options............................................. 629 486
Unearned MRP shares....................................... 257 325
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Diluted EPS............................................... $ 1,540 10,821 $ 0.14 $ 1,553 11,378 $ 0.14
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</TABLE>
9
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company's net income for the quarter ended December 31, 1997 was
$1,540,000 compared with $1,553,000 for the same quarter last year. Basic
earnings per share amounted to $.16 and $.15 for the quarters ended December
31, 1997 and December 31, 1996, respectively. Diluted per share earnings
amounted to $.14 for both the quarters ended December 31, 1997 and December
31, 1996. The per share amount for the quarter ended December 31, 1996 has
been restated to reflect the 15% stock dividend paid on May 6, 1997.
The modest decrease in earnings for the quarter ended December 31, 1997
compared to the same quarter last year was due principally to a decline in net
interest income, that was partially offset by increased other operating income,
decreased operating expenses and reduced income taxes. The Company's net
interest margin averaged 3.08% in the recent quarter, declining from 3.16%
earned for the same quarter last year.
FINANCIAL CONDITION
Total assets decreased by $6.6 million or .9% during the first three
months of fiscal 1998 from $734.8 million at September 30, 1997 to $728.2
million at December 31, 1997. Loan and mortgage-backed securities repayments,
together with maturing investments, were used to originate additional
mortgage loans, purchase additional mortgage-backed securities and increase
cash equivalents temporarily. Cash and cash equivalents and investments
combined decreased by $10.5 million or 24.0% from $43.7 million at September
30, 1997 to $33.2 million at December 31, 1997. Mortgage-backed securities
held to maturity increased by $8.6 million or 2.6% from $326.9 million at
September 30, 1997 to $335.5 million at December 31, 1997, reflecting
purchases in excess of relatively higher payments received during the period.
Securities available for sale decreased by $11.1 million or 8.2% from $136.4
million (all mortgage-backed securities) at September 30, 1997 to $125.3
million (all mortgage-backed securities) at December 31, 1997. This decrease
reflected both maturities of investment securities and payments received on
the mortgage-backed security portfolio. Loans receivable increased by $7.2
million or 3.4% from $210.0 million at September 30, 1997 to $217.2 million
at December 31, 1997, as loan originations exceeded loan repayments during
the quarter ended December 31, 1997.
During the three months ended December 31, 1997, deposits decreased by $7.3
million or 1.3% from $567.4 million at September 30,1997 to $560.1 million at
December 31, 1997. The decrease reflects jumbo certificates that were not
renewed during the recent quarter together with the formidable competitive
environment for attracting deposit funds existing currently in the marketplace.
FHLB advances decreased by $1.2 million or 3.6% from $34.3 million at September
30, 1997 to $33.1 million at December 31, 1997. Additional payments were made
during the quarter ended December 31, 1997. Retained earnings increased by $.6
million or
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1.8% from $32.2 million at September 30, 1997 to $32.8 million at December
31, 1997. This change resulted from the net income generated less the
dividends declared during the quarter ended December 31, 1997. Total
dividends declared and paid included the regular quarterly cash dividend of
$.10 per share.
RESULTS OF OPERATIONS
NET INTEREST INCOME
Net income decreased by $13,000 or .8% to $1,540,000 for the quarter ended
December 31, 1997, compared with net income of $1,553,000 for the same quarter
in the last fiscal year. The modest decrease in the quarter's results of
operations was primarily attributable to a decline in net interest income,
partially offset by increased other operating income, decreased operating
expenses and reduced income taxes. The Company's net interest margin averaged
3.08% in the recent quarter, declining from the 3.16% earned for the same
quarter last year.
Net interest income amounted to $5.5 million for the quarter ended
December 31,1997, which represents a decrease of $.3 million or 4.8% from the
$5.8 million reported for the comparable prior quarter. The decrease in net
interest income for the quarter ended December 31, 1997 resulted from a
decrease in the net interest rate spread of 5 basis points for the period as
well as a decrease in the balances of average net interest-earning assets of
$8.8 million or 7.1%.
Total interest income decreased by $.3 million or 1.9% to $12.8 million for
the quarter ended December 31, 1997 from $13.1 million for the comparable prior
quarter. This decrease resulted from a decrease in average interest-earning
assets of $18.5 million or 2.5%, principally resulting from the proceeds of
maturing investments being used to purchase treasury stock, that was partially
offset by an increase in the yield earned on average interest-earning assets of
5 basis points from 7.14% for the quarter ended December 31, 1996 to 7.19% for
the quarter ended December 31, 1997.
Total interest expense increased by $37,000 or .5% to $7,328,000 for the
quarter ended December 31, 1997 from $7,291,000 for the comparable quarter
last year. Average interest-bearing liabilities decreased by $9.7 million or
1.6% from $607.4 million at December 31, 1996 to $597.7 million at December
31, 1997, while the average rate paid on interest-bearing liabilities
increased 10 basis points from 4.80% for the quarter ended December 31, 1996
to 4.90% for the quarter ended December 31, 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
December 31, 1997 and 1996, the same $10,000
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provision for loan losses was determined to be required based upon the
Company's risk assessment of the loan portfolio. The balance in the allowance
for loan losses amounted to $1,074,000 million at December 31, 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 increased by $107,000 or 72.3% from $148,000 for the
quarter ended December 31, 1996 to $255,000 for the quarter ended December 31,
1997. The increase for the quarter ended December 31, 1997 was due to an
insurance recovery of $57,000 and to additional loan fees earned during the
quarter.
OPERATING EXPENSES
Operating expenses amounted to $3,462,000 for the quarter ended December
31, 1997, which reflects a decrease of $74,000 or 2.1% from the comparable
prior period last year. A combination of factors were involved, including
decreases in professional fees of $225,000 and Federal insurance premium
expense of $165,000, which decreases were partially offset by an increase in
compensation and benefits of $383,000, principally reflecting the stock based
benefit programs.
INCOME TAXES
Income tax expense amounted to $739,000 for the quarter ended December 31,
1997, representing a decrease of $85,000 or 10.3% compared to $824,000 for the
same quarter last fiscal year. The decrease in income tax expense for the
quarter ended December 31, 1997 primarily reflects the decrease in income before
income taxes as well as a reduction in the deferred tax expense no longer
determined to be required.
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
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utilizes other borrowing sources, principally advances from the Federal Home
Loan Bank of New York. As of December 31, 1997, the Association's Board of
Directors has provided management with the authority to borrow up to $150
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 December 31, 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 December 31, 1997, the
total approved loan commitments outstanding amounted to $7.2 million.
Certificates of deposit scheduled to mature in one year or less at December
31, 1997 totaled $269.4 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 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 as defined in an amount equal to 4% 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 for December 31, 1997 was 39.5%.
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 December 31, 1997, the Association exceeded all
regulatory capital requirements. At such date, the Association had tangible
capital equal to 17.5% of adjusted total assets, core capital equal to 17.5%
of adjusted total assets and total capital equal to 61.4% 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.
13
<PAGE>
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.
YEAR 2000 COMPUTER PROBLEM
The Company has appointed a committee that has assessed and developed a
plan to prepare for the Year 2000 impact on electronic systems, programs and
processes. In addition, it has identified the level of risk that each of the
systems pose to the Company. Testing of revisions to the programs, processes
and systems is scheduled to be completed by January 1, 1999. Most of the
Company's data processing work is provided by third-party data processing
service bureaus. The Company is monitoring the progress of each of these
vendors on a continuing basis. It is currently estimated that the cost of
replacing equipment, software and other incidental costs will approximate
$600,000.
14
<PAGE>
PART II--OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Other than as set forth in the Company's Annual Report on Form 10-K
for the fiscal year ended September 30, 1997, 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. There were no material
developments in such proceedings during the quarter ended December
31, 1997.
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) The filing exhibits are filed herewith:
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- --------------------
<C> <S>
3.2 Amendments to Bylaws
of IBS Financial Corp.
27.1 Financial Data Schedule
</TABLE>
b) No Form 8-K reports were filed during the quarter.
15
<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: February 6, 1998 By: /s/ Joseph M. Ochman, Sr.
-----------------------------
Joseph M. Ochman, Sr.
Chairman, President and
Chief Executive Officer
Date: February 6, 1998 By: /s/ Richard G. Sharp
-----------------------------
Richard G. Sharp
Executive Vice President and
Chief Financial Officer
Date: February 6, 1998 By: /s/ Matthew J. Kennedy
-----------------------------
Matthew J. Kennedy
Executive Vice President and
Treasurer
16
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 25,617
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 125,278
<INVESTMENTS-CARRYING> 343,075
<INVESTMENTS-MARKET> 349,179
<LOANS> 218,315
<ALLOWANCE> 1,074
<TOTAL-ASSETS> 728,181
<DEPOSITS> 560,057
<SHORT-TERM> 0
<LIABILITIES-OTHER> 5,873
<LONG-TERM> 33,083
0
0
<COMMON> 116
<OTHER-SE> 129,052
<TOTAL-LIABILITIES-AND-EQUITY> 728,181
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<INTEREST-INVEST> 8,713
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<INTEREST-TOTAL> 12,824
<INTEREST-DEPOSIT> 6,800
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<INTEREST-INCOME-NET> 5,496
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<EXPENSE-OTHER> 3,462
<INCOME-PRETAX> 2,279
<INCOME-PRE-EXTRAORDINARY> 1,540
<EXTRAORDINARY> 0
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<NET-INCOME> 1,540
<EPS-PRIMARY> .16
<EPS-DILUTED> .14
<YIELD-ACTUAL> 3.08
<LOANS-NON> 825
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<ALLOWANCE-OPEN> 1,064
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