<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 December 31, 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)


<TABLE>
<S>                                                           <C>
                   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)
</TABLE>

                                 (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 January 31,
1997 there were issued and outstanding 9,830,905 shares of the Registrant's
Common Stock.
<PAGE>   2

                              IBS FINANCIAL CORP.

                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
PART I.          CONSOLIDATED FINANCIAL INFORMATION                                                   PAGE
-------          ------------------------------------                                               ------
<S>              <C>                                                                                  <C>
Item 1.          Consolidated Financial Statements

                 Consolidated Statements of Financial Condition (As of
                      December 31, 1996 and September 30, 1996)                                       1

                 Consolidated Statements of Income (For the quarter
                      ended December 31, 1996 and 1995)                                               2

                 Consolidated Statements of Cash Flows (For the three months
                      ended December 31, 1996 and 1995)                                               3

                 Notes to Consolidated Financial Statements                                           5

Item 2.          Management's Discussion and Analysis of Financial Condition
                      and Results of Operations                                                       9


PART II.         OTHER INFORMATION
--------         -----------------


Item 1.          Legal Proceedings                                                                    14
Item 2.          Changes in Securities                                                                15
Item 3.          Default 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
</TABLE>
<PAGE>   3
IBS FINANCIAL CORP.
Consolidated Statements of Financial Condition
December 31, 1996 and September 30, 1996
(In thousands)
<TABLE>
<CAPTION>
                                                                            December 31,  September 30,
                                                                                1996         1996
                                                                                ----         ----
<S>                                                                     <C>                  <C>
ASSETS
------

Cash and cash equivalents                                               $         30,221       12,466
Securities available for sale                                                    188,360      215,331
Investments ( market value $48,031 and $26,724
       at December 31, 1996 and September 30, 1996)                               47,974       26,712
Mortgage-backed securities (market value $282,774 and
        $285,831 at December 31, 1996 and September 30, 1996)                    277,737      285,267
Loans receivable, net                                                            190,922      185,031
Accrued interest receivable:
      Loans                                                                          865          872
      Mortgage-backed securities                                                   2,591        2,682
      Investments                                                                    587          965
Real estate owned, net
Federal Home Loan Bank stock                                                       4,590        4,590
Office properties and equipment, net                                               6,989        6,084
Other assets                                                                       1,962        2,051 
                                                                          ----------------------------
Total assets                                                            $        752,798      742,051 
                                                                          ============================

LIABILITIES AND STOCKHOLDERS'  EQUITY
-------------------------------------

Deposits                                                                $        575,509      571,366
FHLB advances                                                                     37,912       18,792
Advances from borrowers                                                            2,148        2,218
Other liabilities                                                                  5,782        5,391

                                                                          ----------------------------
Total liabilities                                                                621,351      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                                                 113,592      113,432
      Common stock acquired by ESOP and MRP                                      (10,560)     (11,097)
       Treasury stock, at cost; 1,673,818 shares and 855,256 shares              (25,280)     (12,104)
       Net unrealized gain on securities available for
               sale, net of taxes                                                  2,226        1,045
      Retained earnings                                                           51,353       52,892 
                                                                          ----------------------------
Total stockholders' equity                                                       131,447      144,284 
                                                                          ----------------------------
Total liabilities and stockholders' equity                              $        752,798      742,051 
                                                                          ============================
</TABLE>

                                       1

<PAGE>   4
IBS FINANCIAL CORP.
Consolidated Statements of Income
Quarter Ended December 31, 1996 and 1995
(in thousands, except per share data)

<TABLE>
<CAPTION>
                                                         Quarter Ended
                                                          December 30,     
                                              -----------------------------
                                                   1996            1995
                                                   ----            ----
<S>                                         <C>                     <C>
Interest income:
       Loans                                $        3,708           2,928
       Mortgage-backed securities                    7,877           6,288
       Investments                                   1,481           3,886 
                                              -----------------------------
Total interest income                               13,066          13,102 
                                              -----------------------------
Interest expense:
       Deposits                                      6,772           6,843
       Borrowings                                      519               0 
                                              -----------------------------
Total interest expense                               7,291           6,843 
                                              -----------------------------

Net interest income                                  5,775           6,259
Provision for loan losses                               10               0
Net interest income after provision                                        
                                              -----------------------------
         for loan losses                             5,765           6,259 
                                              -----------------------------
Other operating income:
         Service fees and late charges                  90              72
         Other income                                   58              63 
                                              -----------------------------
Total other operating income                           148             135 
                                              -----------------------------
Operating expenses:
        Compensation and employee benefits           2,120           2,056
        Occupancy and equipment                        292             291
        Data processing                                111             105
        Federal insurance premiums                     254             320
        Advertising and promotion                      152             104
        Professional fees                              367             324
        Other                                          240             424 
                                              -----------------------------
Total operating expenses                             3,536           3,624 
                                              -----------------------------

Income before taxes                                  2,377           2,770
Income taxes                                           824           1,028 
                                              -----------------------------

Net income                                  $        1,553           1,742 
                                              =============================

Earnings per share                          $         0.16            0.16 
                                              =============================

Average shares and equivalents outstanding           9,612          10,869 
                                              =============================
</TABLE>





                                       2
<PAGE>   5
IBS FINANCIAL CORP.
Consolidated Statements of Cash Flows
Quarter Ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
(In thousands)                                                    Quarter Ended
                                                                   December 31,      
                                                            -------------------------
                                                              1996          1995
                                                              ----          ----
<S>                                                       <C>               <C>
OPERATING ACTIVITIES:
Net income                                                $      1,553         1,742
Adjustments to reconcile net income to net cash
     provided by operating activities:
          Depreciation and amortization                             99           101
          Provision for loan losses                                 10             0
           Market adjustment on ESOP                               160            15
           MRP earned                                              301           291
          Changes in assets and liabilities that pro-
                provided (used) cash:
                     Accrued interest receivable                   476           564
                     Other assets                                   89          (262)
                     Other liabilities                          (2,654)        1,165 
                                                            -------------------------
Net cash provided by operating activities                           34         3,616 
                                                            -------------------------
INVESTING ACTIVITIES:
Principal repayments of:
    Loans                                                        5,716         5,405
    Mortgage-backed securities                                  14,286        18,239
Purchases of:
    Investments                                               (179,100)     (125,500)
    Mortgage-backed securities                                       0       (25,987)
Proceeds from maturity of investments                          179,878       127,603
Loans originated or acquired                                   (11,617)       (7,750)
Loans sold                                                           0           282
Proceeds from sale of REO                                            0           (23)
Property and equipment acquired                                 (1,004)          (36)
                                                            -------------------------
Net cash provided by (used) in investing activities              8,159        (7,767)
                                                            -------------------------
FINANCING ACTIVITIES:
Net increase (decrease) in deposits                              4,143        11,343
Increase (decrease) in advances from borrowers                     (70)           24
FHLB advances                                                   20,000             0
FHLB repayments                                                   (880)            0
Cash dividends paid                                               (691)         (547)
Payments on ESOP debt, net                                         236           208
Treasury stock acquired                                        (13,176)       (8,857)
                                                            -------------------------
Net cash provided by financing activities                        9,562         2,171 
                                                            -------------------------
INCREASE (DECREASE) IN CASH AND CASH
      EQUIVALENTS                                         $     17,755        (1,980)
</TABLE>




                                       3


<PAGE>   6
IBS FINANCIAL CORP.
Consolidated Statements of Cash Flows, Continued
(In thousands)


<TABLE>
<CAPTION>
                                                                  Quarter Ended
                                                                   December 31,      
                                                            -------------------------
                                                              1996            1995
                                                              ----            ----
<S>                                                       <C>                 <C>
CASH AND CASH EQUIVALENTS,
       BEGINNING OF PERIOD                                $     12,466        12,542 
                                                            -------------------------

CASH AND CASH EQUIVALENTS,
        END OF PERIOD                                     $     30,221        10,562 
                                                            -------------------------

SUPPLEMENTAL DISCLOSURES:
         Cash paid out for:
               Interest expense                           $      7,128         6,834 
                                                            =========================
               Income taxes                               $          0             0 
                                                            =========================

NON-CASH TRANSFERS FROM LOANS TO
         REAL ESTATE OWNED                                $      -                23 
                                                            =========================
</TABLE>


                                       4

<PAGE>   7
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 Association's Annual Report for the period ended September 30, 1996.
The results for the quarter ended December 31, 1996 are not necessarily
indicative of the results that may be expected for the fiscal year ended
September 30, 1997.

BUSINESS

IBS Financial Corp.'s (the "Company") 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
<PAGE>   8
(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 1,021,654 shares of
common stock on behalf of the ESOP in the Conversion.  At December 31, 1996,
103,992 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 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 $550,125 and $232,190 for the quarters
ended December 31, 1996 and 1995, 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 in the open market at an aggregate cost of $6,085,000.  As of December
31, 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.





                                       6
<PAGE>   9
At December 31, 1996, the deferred cost of the unearned RRP shares amounted to
$3,719,000 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  $300,909 and $290,565 for the quarters ended December
31, 1996 and 1995, 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.  A total of 1,277,069
shares have been reserved for issuance by the Plan.  Through December 31, 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.

(6)      LOANS RECEIVABLE

Loans receivable at December 31, 1996 and September 30, 1996 consisted of the
following (in thousands):


<TABLE>
<CAPTION>
                                                   December 31,          September 30,
                                                       1996                  1996
                                                       ----                  ----
 <S>                                           <C>                         <C>
 Real estate loans:

    Mortgage loans ( 1-4 residential)          $      166,983              164,717
    Construction loans                                  1,096                1,256
                                                    
    Loans on savings accounts                           2,473                2,472
                                                    
    Commercial real estate loans                       23,173               19,548
    Consumer loans                                        900                  813
                                                 ----------------------------------
       Total                                          194,625              188,806
                                                    
 Less:                                              
    Deferred loan fees                                (1,666)              (1,572)
                                                    
    Allowance for loan losses                         (1,034)              (1,024)
    Loans in process                                  (1,003)              (1,179)
                                                 ----------------------------------
       Total                                   $      190,922              185,031
                                                 ==================================
</TABLE>





                                       7
<PAGE>   10

Changes in the allowance for loan losses were as follows (in thousands):

<TABLE>
<CAPTION>
                                              Quarter Ended             Year Ended
                                             December 31, 1996       September 30, 1996
                                            ---------------------------------------------
 <S>                                    <C>                                          <C>
 Balance, beginning of period           $                   1,024                      994
 Provision for loan losses                                     10                       30
 Charge-offs                                                    0                        0
 Recoveries                                                     0                        0
                                         --------------------------------------------------
 Balance, end of period                 $                   1,034                    1,024
                                         ==================================================
</TABLE>



(7)      DEPOSITS

The major types of savings deposits by amounts and the percentages were as
follows (in thousands):

<TABLE>
<CAPTION>
                                                December 31, 1996               September 30, 1996
                                                -----------------               ------------------
 Type of Account                              Amount       % of Total          Amount      % of Total
                                        -----------------------------     ----------------------------
 <S>                                  <C>                      <C>       <C>                    <C>
 Now                                  $          25,280          4.4%    $        23,886          4.2%
 Money market deposit                            70,932         12.3%             70,023         12.2%
 Passbook and club                               57,826         10.0%             59,323         10.4%
                                        -----------------------------     ----------------------------
                                                154,038         26.7%            153,232         26.8%
 Certificates of deposit                        421,052         73.2%            417,773         73.1%
 Accrued interest on savings                        419          0.1%                361          0.1%
                                        -----------------------------     ----------------------------
 Total deposits                       $         575,509        100.0%    $       571,366        100.0%
                                        =============================     ============================
</TABLE>



(8)      EARNINGS PER SHARE

Earnings per share amounted to $.16 for both the quarters ended December 31,
1996 and December 31, 1995, based on 9,612 and 10,869 average shares and
equivalents outstanding during the respective periods.  The per share amount
for the prior period has been restated to reflect the 10% stock dividend paid
on March 15, 1996.





                                       8
<PAGE>   11

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, 1996 was $1.6
million or $.16 per share compared with $1.7 million or $.16 per share for the
same quarter last year.  The per share amounts are based on 9,612 and 10,869
average shares and equivalents outstanding, respectively.  The per share amount
for the quarter ended December 31, 1995 has been restated to reflect the 10%
stock dividend paid on March 16, 1996.

The  decrease in earnings for the quarter ended December 31, 1995 compared to
the same quarter last year was due principally to a decline in net interest
income, reflecting increased interest expense and, to a lesser extent,
decreased interest income.  The Company's net interest margin averaged 3.16% in
the recent quarter, declining from 3.53% earned for the same quarter last year.

FINANCIAL CONDITION

Total assets increased by $10.7 million or 1.5% during the first three months
of fiscal 1997 from $742.1 million at September 30, 1996 to $752.8 million at
December 31, 1996.  Loan and mortgage-backed securities repayments, together
with additional FHLB advances and deposits, were temporarily utilized to invest
in cash equivalents and short-term investment securities as well as to
originate additional mortgage loans and to repurchase shares of its common
stock.  Cash and cash equivalents and investments increased by $39.0 million or
99.6% from $39.2 million at September 30, 1996 to $78.2 million at December 31,
1996.  Mortgage-backed securities held to maturity decreased by $7.5 million or
2.6% from $285.2 million at September 30, 1996 to $277.7 million at December
31, 1996, reflecting payments received during the period.  Securities available
for sale decreased by $26.9 million or 12.5% from $215.3 million (including
investments of $48.3 million and mortgage-backed securities of $167.0 million)
at September 30, 1996 to $188.4 million( including investments of $26.3 million
and mortgage-backed securities of $162.1 million) at December 31, 1996. This
decrease reflected both maturities of investment securities and payments
received on the mortgage-backed security portfolio. Loans receivable increased
by $5.9 million or 3.2% from $185.0 million at September 30, 1996 to $190.9
million at December 31, 1996, as loan originations exceeded loan repayments
during the quarter ended December 31, 1996.

During the three months ended December 31, 1996, deposits increased by $4.1
million or .7% from $571.4 million at September 30,1996 to $575.5 million at
December 31, 1996.  Two new recently opened branches have been moderately
helpful in attracting deposits.  FHLB advances increased by $19.1 million  or
101.8% from $18.8 million at September 30, 1996 to $37.9 million at December
31, 1996.  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 temporarily invested in cash equivalents
and will be used to fund loan originations and mortgage-backed securities.
Treasury stock increased by $13.2 million or





                                       9
<PAGE>   12
108.9% from $12.1 million at September 30, 1996 to $25.3 million at December
31, 1996.  Part of the Company's capital management plan consists of its
ongoing stock buyback program.  During the quarter ended December 31, 1996, the
Company completed the repurchase of 818,562 shares of its common stock in the
open market.  At December 31, 1996, the Company had accumulated 1,673,818
shares of treasury stock.   Retained earnings decreased by $1.5 million or 2.9%
from $52.9 million at September 30, 1996 to $51.4 million at December 31, 1996.
This change resulted from the net income and the dividends declared during the
quarter ended December 31, 1996. Total dividends declared  included the regular
quarterly cash dividend of $.08 per share and a special cash dividend of $.25
per share.


RESULTS OF OPERATIONS

NET INTEREST INCOME
Net income decreased by $.2 million or 10.9%  to $1.6 million for the quarter
ended December 31, 1996, compared with net income of $1.7 million for the same
quarter in the last fiscal year.  The  decrease in the quarter's results of
operations was primarily attributable to a decline in net interest income,
reflecting increased interest expense and, to a lesser extent, decreased
interest income.  The Company's net interest margin averaged 3.16% in the
recent quarter, declining from the 3.53% earned for the same quarter last year.

Net interest income amounted to $5.8 million for the quarter ended December
31,1996, which represents an decrease of $.5 million or 7.7% from the $6.3
million reported for the comparable prior quarter.  The decrease in net
interest income for the quarter ended December 31, 1996 resulted from a
decrease in the net interest rate spread of 26 basis points for the period as
well as a decrease in the balances of average net interest-earning assets of
$13.9 million or 10.1%.

Total interest income decreased by $36,000 or .3% for the quarter ended
December 31, 1996 from $13.1 million for the comparable prior quarter to $13.1
million.  This decrease resulted from both a decrease in average
interest-earning assets of  $23.3 million or 3.3%, principally resulting from
the proceeds of maturing investments being used to purchase treasury stock,
and a decrease in the yield earned on average interest-earning assets of 26
basis points from 7.40% for the quarter ended December 31, 1996 to 7.14% for
the quarter ended December 31, 1995.

Total interest expense increased by $.5 million or 6.6% to $7.3 million for the
quarter ended December 31, 1996 from $ 6.8 million for the comparable quarter
last year..  Average interest-bearing liabilities increased by $37.2 million or
6.5% from $570.2 million at December 31, 1995 to $607.4 million at December 31,
1996.  The average rate paid on interest-bearing liabilities was 4.80% for both
the quarters ended December 31, 1996 and 1995, respectively.





                                       10
<PAGE>   13
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 ended December 31, 1996, a
$10,000 provision for loan losses was determined to be required based upon the
Company's risk assessment of the loan portfolio.  For the quarter ended
December 31, 1995, no provision was determined to be required.  The balance in
the allowance for loan losses amounted to $1.0 million  at September 30, 1996
and $1.0  million at December 31, 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 increased by $13,000 or 9.6% from $135,000 for the
quarter ended December 31, 1995 to $148,000 for the quarter ended December 31,
1996.  The increase for the quarter ended December 31, 1996 was due to the
additional loan fees earned during the quarter.

OPERATING EXPENSES
Operating expenses amounted to $3.5 million for the quarter ended December 31,
1996, which reflects an decrease of $88,000 or 2.4% from the comparable prior
period.  Decreases in other miscellaneous expenses of $184,000 and Federal
insurance premium expense of $66,000 were partially offset by  increases in
compensation and benefits of $64,000, advertising and promotion in connection
with the two new branch locations of $48,000 and $43,000 of professional fees.
The decrease in other expense principally resulted from the delay in not having
the Company's Annual Meeting in the first quarter of fiscal 1997 as was the
case last fiscal year.  The decrease in Federal deposit insurance expense
represented lower interim deposit insurance premium rates during the fourth
calendar quarter of 1996 compared with the same quarter last year.

INCOME TAXES
Income tax expense amounted to $824,000 for the quarter ended December 31,
1996, a decrease of $393,000 or 19.8% compared to $1,028,000 for the same
quarter last fiscal year.  The decrease in income tax expense for the quarter
ended December 31, 1996 primarily reflects the decrease in income before income
taxes as well as the recording in the December 31, 1995 quarter of an extra
state tax provision at a higher tax rate reflecting additional holding company
income.





                                       11
<PAGE>   14
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 December 31, 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 December 31, 1996, the total approved loan
commitments outstanding amounted to $2.9 million.  Certificates of deposit
scheduled to mature in one year or less at December 31, 1995 totaled $244.0
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
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 December 31, 1996 was 16.3% and 16.4%,
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





                                       12
<PAGE>   15
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, 1996 the
Association exceeded all regulatory capital requirements.  At such date, the
Association had tangible capital equal to 16.8% of adjusted total assets, core
capital equal to 16.8% of adjusted total assets and total capital equal to
62.5% 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.





                                       13
<PAGE>   16
                          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 that a letter dated November 17, 1995, sent by the
Company to its shareholders in connection with the Company's solicitation of
proxies for the election of directors at the Annual Meeting held December 15,
1995, contained defamatory statements about Mr. Seidman.  The complaint
requested an unspecified amount of damages (including punitive damages from the
director defendants), interest, costs and fees, as well as an injunction
prohibiting the Company from indemnifying the directors.  An amended complaint
was filed in January 1996, when the Court, instead of dismissing the original
complaint, permitted Mr. Seidman to amend his complaint.  In November 1996, the
Court again allowed Mr. Seidman to amend his complaint, this time to add
allegations that two other letters sent by the Company to its shareholders
during the proxy contest also contained defamatory statements.  On February 5,
1997, the Judge hearing the libel lawsuit filed by Lawrence B. Seidman against
the Company and its directors in the Superior Court of New Jersey, Passaic
County, announced that the Company's Motion for Summary Judgment has been
granted.  The Court held that the statements which Mr. Seidman complained about
were not actionable as a matter of law.  As a result, the court will enter a
written order dismissing Mr. Seidman's lawsuit with prejudice.  The Company has
taken the position since the lawsuit was first filed by Mr. Seidman that Mr.
Seidman's complaint was completely frivolous and without merit.

                 On November 12, 1996, the Company filed suit in the United
States District Court for the District of New Jersey against Mr. 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
it 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 properly rejected the nomination of Mr.
Beier, and that the Company need not, at this 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, including further violations of the Securities Exchange
Act of 1934 ("Exchange Act").  The Committee counterclaimed, challenging the
action of the Company's Board, in July 1996, reducing the number of directors
from seven to six.  Subsequent to the filing of the Company's complaint, the
Committee amended its Schedule 13D twice to provide certain of the information
which the Company's complaint alleged was required to be previously disclosed





                                       14
<PAGE>   17
                 On January 23, 1997, the United States District Court rendered
a decision and entered a judgment that the current filings and disclosures of
Mr. Seidman's group are adequate.  The court's opinion stated 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 held that the
additional 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 the court declined
to enforce the time deadlines in the Company's Certificate of Incorporation.
In addition, the court set aside the reduction in the size of the Board.

                 On January 31, 1997, IBS Financial Corp. filed a notice of
appeal of the district court judge's decision rendered on January 23, 1997.
The appeal will be considered by the United States Court of Appeals for the
Third Circuit, and the Company has requested that the Third Circuit Court of
Appeals review the appeal on an expedited basis.  On February 5, 1997, Mr.
Seidman filed a complaint in the Superior Court of New Jersey Chancery
Division: Passaic County asking the court to direct the Company to set a date
for its annual meeting.  The Company's Board of Directors intends to hold the
annual meeting as soon as practicable, but believes that it is appropriate to
wait a reasonable period of time for the Court of Appeals decision.  The
Company requested Mr. Seidman to join in the motion that the appeal be
expedited, but on February 7, 1997 Mr. Seidman's counsel filed an affidavit and
a brief opposing the motion to expedite the appeal.


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.





                                       15
<PAGE>   18
                                   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 12, 1997                         By: /s/ Joseph M. Ochman, Sr.
                                                    ------------------------ 
                                            Joseph M. Ochman, Sr.
                                            Chairman, President and
                                            Chief Executive Officer
                                            
                                            
                                            
                                            
Date: February 12, 1997                         By: /s/ Richard G. Sharp
                                                    --------------------
                                             Richard G. Sharp
                                             Executive Vice President and
                                             Chief Financial Officer
                                            
                                            
                                            
Date: February 12, 1997                         By:/s/ Matthew J. Kennedy
                                                   ----------------------
                                             Matthew J. Kennedy
                                             Executive Vice President and
                                             Treasurer





                                       16