UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the quarterly period ended March 31, 2000. Commission File Number 0-10658 BWC FINANCIAL CORP. (Exact name of registrant as specified in its charter) CALIFORNIA 94-262100 (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 1400 Civic Drive, Walnut Creek, California 94596 (Address of principal executive offices) (925) 932-5353 (Registrant's telephone number: (including area code) N/A (Former name, former address, and former fiscal year, if changed since last report.) 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 such 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 _____ APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS: Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1924 subsequent to the distribution of securities under a plan confirmed by court. Yes No _____ APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock as the latest practicable date. As of March 31, 2000, there were 2,594,537 shares of common stock, no par value outstanding. TABLE OF CONTENTS PART I - FINANCIAL INFORMATION PAGE Item 1 Consolidated Balance Sheets 3 Consolidated Statements of Income 4 Consolidated Statements of Cash Flows 5 		 Consolidated Statements of Changes in 			Shareholders' Equity 6 Notes to Consolidated Financial Statements 7-11 Item 2 Management's Discussion and Analysis of Results of Operations 12-16 		 Interest Rate Sensitivity 17 PART II - OTHER INFORMATION Item 1 Legal Proceedings 18 Item 2 Changes in Securities 18 Item 3 Defaults Upon Senior Securities 18 Item 4 Submission of Matters to a Vote of Security Holders 18 Item 5 Other Materially Important Events 18 Item 6 Exhibits and Reports on Form 8-K 18 Signatures 19 BWC FINANCIAL CORP. CONSOLIDATED BALANCE SHEETS March 31, December 31, ASSETS 2000 1999 (Unaudited) Cash and Due From Banks $ 18,869,000 $ 12,593,000 Federal Funds Sold 10,462,000 -- Other Short Term Investments 1,340,000 25,000 Total Cash and Cash Equivalents 30,671,000 12,618,000 Investment Securities: Available for Sale 51,444,000 53,717,000 Held to Maturity (approximate fair value of $11,029,000 in 2000 and $11,595,000 in 1999) 11,213,000 11,739,000 Loans, Net of Allowance for Credit Losses of $4,665,000 in 2000 and $4,466,000 in 1999 216,860,000 209,493,000 Real Estate Loans Held for Sale 301,000 480,000 Bank Premises and Equipment, Net 3,039,000 2,965,000 Interest Receivable and Other Assets 6,519,000 5,719,000 Total Assets $ 320,047,000 $ 296,731,000 LIABILITIES AND SHAREHOLDERS' EQUITY LIABILITIES Deposits: Noninterest-bearing $ 81,791,000 $ 76,958,000 Interest-bearing: Money Market Accounts 97,083,000 93,439,000 Savings and NOW Accounts 40,105,000 38,059,000 Time Deposits: Under $100,000 35,718,000 29,354,000 $100,000 or more 31,648,000 20,859,000 Total Interest-bearing 204,554,000 181,711,000 Total Deposits 286,345,000 258,669,000 Federal Funds Purchased -- 5,350,000 BWC Mortgage Services Line-of-Credit 301,000 473,000 BWC Mortgage Services Other Borrowed Funds 4,000 77,000 Interest Payable and Other Liabilities 3,117,000 2,733,000 Total Liabilities 289,767,000 267,302,000 COMMITMENTS AND CONTINGENT LIABILITIES SHAREHOLDERS' EQUITY Preferred Stock, no par value: 5,000,000 shares authorized, none outstanding. -- -- Common Stock, no par value: 25,000,000 shares authorized; issued and outstanding - 2,646,291 shares in 2000 and 2,612,786 in 1999. 19,816,000 20,154,000 Retained Earnings 11,132,000 9,802,000 Capital adjustment on available-for-sale securities (668,000) (527,000) Total Shareholders' Equity 30,280,000 29,429,000 Total Liabilities and Shareholders' Equity $ 320,047,000 $ 296,731,000 <FN> The accompanying notes are an integral part of these consolidated statements. </FN> BWC FINANCIAL CORP. For the Three Months CONSOLIDATED STATEMENTS OF INCOME Ended March 31, 2000 1999 Interest Income Loans, Including Fees $ 6,128,000 $ 4,852,000 Investment Securities: Taxable 795,000 651,000 Non-taxable 127,000 148,000 Federal Funds Sold 89,000 75,000 Other Short Term Investments 15,000 8,000 Total Interest Income 7,154,000 5,734,000 Interest Expense Deposits 1,948,000 1,542,000 Federal Funds Purchased 15,000 5,000 Other Borrowed Funds 40,000 Total Interest Expense 2,003,000 1,547,000 Net Interest Income 5,151,000 4,187,000 Provision For Credit Losses 225,000 150,000 Net Interest Income After Provision For Credit Losses 4,926,000 4,037,000 Noninterest Income BWC Mortgage Services - Commissions 515,000 903,000 BWC Mortgage Services - Fees & Other 144,000 233,000 Service Charges on Deposit Accounts 197,000 206,000 Other 256,000 220,000 Gains on Security Transactions -- 30,000 Total Noninterest Income 1,112,000 1,592,000 Noninterest Expense Salaries and Related Benefits 2,025,000 1,655,000 BWC Mortgage Services - Commissions 369,000 525,000 BWC Mortgage Services - Fees & Other 157,000 353,000 Occupancy 243,000 214,000 Furniture and Equipment 169,000 120,000 Other 1,006,000 809,000 Total Noninterest Expense 3,969,000 3,676,000 BWC Mortgage Services - Minority Interest 10,000 129,000 Income Before Income Taxes 2,059,000 1,824,000 Provision For Income Taxes 729,000 704,000 Net Income $ 1,330,000 $ 1,120,000 Basic Earnings Per Share $0.50 $0.45 Diluted Earnings Per Share $0.48 $0.38 Average Basic Shares 2,679,978 2,513,799 Average Diluted Share Equivalents Related to Options 103,776 441,472 Average Diluted Shares 2,783,754 2,955,271 <FN> The accompanying notes are an integral part of these consolidated statements. </FN> BWC FINANCIAL CORP. CONSOLIDATED STATEMENTS OF CASH FLOWS For the Three Months Ended March 31, OPERATING ACTIVITIES: 2000 1999 Net Income $ 1,330,000 $ 1,120,000 Adjustments to reconcile net income to net cash provided(used): Amortization of loan fees (464,000) (465,000) Provision for credit losses 225,000 150,000 Depreciation and amortization 122,000 90,000 Gain of sale of securities available-for-sale -- 30,000 Increase in accrued interest receivable and other assets (799,000) (214,000) Increase in accrued interest payable and other liabilities 635,000 842,000 Net Cash Provided by Operating Activities 1,049,000 1,553,000 INVESTING ACTIVITIES: Proceeds from maturities of investment securities 3,389,000 1,117,000 Proceeds from the sales of available-for-sale investment securities 1,000,000 5,991,000 Purchase of investment securities (1,983,000) (5,053,000) Loans originated, net of collections (6,949,000) (1,782,000) Purchase of bank premises and equipment (196,000) (101,000) Net CashProvided (Used) by Investing Activities (4,739,000) 172,000 FINANCING ACTIVITIES: Net increase(decrease) in deposits 27,676,000 5,658,000 Decrease in Fed Funds Purchased (5,350,000) -- Proceeds from issuance of common stock 626,000 -- Tax benefit from the exercise of stock options 250,000 -- Cash paid for the repurchase of common stock (1,214,000) -- Increase(decrease) in BWC Mortgage Services borrowings (245,000) 1,647,000 Net Cash Provided(Used) by Financing Activities 21,743,000 7,305,000 CASH AND CASH EQUIVALENTS: Increase in cash and cash equivalents 18,053,000 9,030,000 Cash and cash equivalents at beginning of year 12,618,000 16,680,000 Cash and Cash Equivalents at period end $ 30,671,000 $ 25,710,000 ADDITIONAL CASH FLOW INFORMATION: Interest Paid $ 1,782,000 $ 1,494,000 Income Taxes Paid $ - $ 20,000 <FN> The accompanying notes are an integral part of these consolidated statements. </FN> BWC FINANCIAL CORP. CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY For the periods ending December 31, 1999, and March 31, 2000 Accumulated other Number Common Retained Comprehensive Comprehensive of Shares Stock Earnings Income Total Income Balance, January 1, 1999 2,511,151 $19,002,000 $5,006,000 $335,000 $24,343,000 Net Income as of December 31, 1999 0 0 4,796,000 0 4,796,000 $4,796,000 Other Comprehensive Income(Loss), net of tax benefit of $323,000 0 0 0 (862,000) (862,000) (862,000) Comprehensive Income 0 0 0 0 0 3,934,000 Common stock issued and sold to the Defined Contribution Plan 22,186 466,000 0 0 466,000 Stock options exercised 79,449 261,000 0 0 261,000 Tax benefit from the exercise of stock optio 0 425,000 0 0 425,000 Balance, December 31, 1999 2,612,786 20,154,000 9,802,000 (527,000) 29,429,000 Net Income as of March 31, 2000 0 0 1,330,000 0 1,330,000 1,330,000 Other Comprehensive Income(Loss), net of tax benefit of $85,000 0 0 0 (141,000) (141,000) (141,000) Comprehensive Income 0 0 0 0 0 $1,189,000 Stock options exercised at $3.10 to $9.92 pe 83,208 378,000 0 0 378,000 Repurchase and retirement of shares by the Corporation at an average of $19.72 per s (61,562) (1,214,000) 0 0 (1,214,000) Common Stock Issued and sold to the Defined Contribution Plan at $20.88 per 11,859 248,000 0 0 248,000 Tax benefit from the exercise of stock optio 0 250,000 0 0 250,000 Balance, March 31, 2000 2,646,291 $19,816,000 $11,132,000 ($668,000) $30,280,000 <FN> The accompanying notes are an integral part of these consolidated statements. </FN> BWC FINANCIAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. CONSOLIDATED FINANCIAL STATEMENTS In the opinion of management, the unaudited interim consolidated financial statements contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the financial position at March 31, 2000 and the results of operations for the three months ended March 31, 2000 and 1999 and cash flows for the three months ended March 31, 2000 and 1999. Certain information and footnote disclosures presented in the Corporation's annual consolidated financial statements are not included in these interim financial statements. Accordingly, the accompanying unaudited interim consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Corporation's 1999 Annual Report to Shareholders, which is incorporated by reference in the Company's 1999 annual report on Form 10-K. The results of operations for the three months ended March 31, 2000 are not necessarily indicative of the operating results for the full year. Diluted earnings per share is computed using the weighted average number of shares outstanding during the period, adjusted for the dilutive effect of stock options, stock dividends and the stock splits. 2. INVESTMENT SECURITIES AND OTHER SHORT TERM INVESTMENTS The amortized cost and approximate market value of investment securities at March 31, 2000 are as follows: GROSS AMORTIZED UNREALIZED MARKET COST GAIN/(LOSS) VALUE Held-to-maturity Obligations of State and Political Subdivisions $11,213,000 $ (184,000) $11,029,000 Available-for-sale Taxable Obligations of State & Political Subdivisions $11,353,000 $ (217,000) $11,136,000 U.S. Treasury Securities	 6,029,000 (56,000) 5,973,000 U.S. Government Agencies	 27,921,000 (445,000) 27,476,000 U.S. Government Agencies Preferred Stock 1,650,000 (195,000) 1,455,000 Corporate Securities 5,567,000	 (163,000) 5,404,000 Total Available-for-sale $52,520,000	 $(1,076,000) $51,444,000 The following table shows the amortized cost and estimated market value of investment securities by contractual maturity at March 31, 2000. HELD-TO-MATURITY AVAILABLE-FOR-SALE Amortized Market Amortized Market Cost Value Cost Value Within one year	 $ 1,749,000 $1,859,000 $ 9,620,000	$ 9,577,000 After one but within five years 6,219,000 6,017,000 36,090,000	 35,383,000 Over five years 3,245,000 3,153,000 6,810,000	 6,484,000 Total $11,213,000 $11,029,000 $52,520,000	$51,444,000 3. ALLOWANCE FOR CREDIT LOSSES For the Three months Ended March 31, 2000 1999_ Allowance for credit losses at beginning of period $4,466,000 $3,919,000 Chargeoffs (47,000) (39,000) Recoveries 21,000 9,000 Net (chargeoffs)/recoveries (26,000)	 (30,000) Provisions 225,000 150,000 Allowance for credit losses at end of period $4,665,000 $4,039,000 Ratio of allowance for credit losses to loans 2.11% 2.15% 4. COMPREHENSIVE INCOME For the Bank, comprehensive income includes net income reported on the statements of income and changes in the fair value of its available-for- sale investments reported as a component of shareholders' equity. The Corporation's comprehensive income for the period is reflected in the following table: For the For the Three months Three months Ended March 31, Ended March 31, 	 2000	 1999 Net Income	 $1,330,000	$1,120,000 Other Comprehensive Income, net of tax: Adjustment for available- for-sale securities	 (141,000)	 (145,000) Total Comprehensive Income	 $1,189,000	$ 975,000 5. FASB 131 DISCLOSURE The Corporation is principally engaged in community banking activities through its seven Bank branches. In addition to its community banking activities, the Corporation provides mortgage brokerage services through its joint venture, BWC Mortgage Services. These activities are monitored and reported by Corporation management as a separate operating segment. The separate banking offices have been aggregated into a single reportable segment, Community Banking. The Corporation's community banking segment provides loans, leases, SBA loan products, asset based lending services and lines of credit to local businesses and individuals. This segment also derives revenue by investing funds, that are not loaned to others in the form of loans, leases or lines of credits, into investment securities. The business purpose of BWC Mortgage Services is the origination and placement of long-term financing for real estate mortgages. Summarized financial information for the period ending March 31, 2000, and 1999 concerning the Corporation's reportable segments is shown in the following table. For the Three Months, Community Mortgage Ended 03/31/2000 Banking Services All Other Adjustments Total Total Interest Income $7,147,000 $9,000 ($2,000) $7,154,000 Commissions Received $515,000 $0 515,000 Total Interest Expense 1,992,000 13,000 ($2,000) 2,003,000 Salaries & Benefits 1,916,000 109,000 $0 2,025,000 Commissions Paid 369,000 $0 369,000 Segment Profit before Tax 2,063,000 20,000 ($14,000) ($10,000) 2,059,000 Total Assets $319,524,000 $664,000 $903,000 ($1,044,000) $320,047,000 For the Three Months, Community Mortgage Ended 03/31/1999 Banking Services Adjustments Total Total Interest Income $5,734,000 $0 $5,734,000 Commissions Received $903,000 $0 903,000 Total Interest Expense 1,547,000 $0 1,547,000 Salaries & Benefits 1,655,000 $0 1,655,000 Commissions Paid 525,000 $0 525,000 Segment Profit before Tax 1,711,000 254,000 ($141,000) 1,824,000 Total Assets $272,616,000 $2,021,000 $1,232,000 ($1,607,000) $274,262,000 6. SFAS No. 133 In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133 (SFAS 133), Accounting for Derivative Instruments and Hedging Activities. The Statement establishes accounting and reporting standards requiring that every derivative instrument (including certain derivative instruments embedded in other contracts) be recorded in the balance sheet as either an asset or liability measured at its fair value. The Statement requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. Special accounting for qualifying hedges allows a derivative's gains and losses to offset related results on the hedged item in the income statement and requires that a company must formally document, designate, and assess the effectiveness of transactions that receive hedge accounting. SFAS 133 is effective for fiscal years beginning after June 15, 2000. A company may also implement the Statement as of the beginning of any fiscal quarter. The Corporation has no derivative or hedged instruments and, therefore, the implementation of this statement is not expected to have a material impact on the Corporation's financial position or results of operations. MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS GENERAL The nation, and California, continues to show economic strength and growth although forecasters predict a slower growth during 2000 than we experienced in 1999. The economy, the business environment and real estate construction demand all continue to be strong in our market, with no signs of weakness as yet. California's economic outlook for 2000 remains bright, with aggregate growth rates exceeding the national average and nearly duplicating 1999. Construction is expected to remain strong, recording solid employment gains. The rebound in high-tech manufacturing and international trade should also create positive job growth this year. Total assets of the Corporation at March 31, 2000 of $320,047,000 increased $45,785,000, or 17%, as compared to March 31, 1999. Total loans of $221,826,000 at March 31, 2000 increased $32,631,000 during the same period. Total deposits of $286,345,000 increased $42,546,000 during the same period. The Corporation's loan-to-deposit ratio as of March 31, 2000 was 77%, as compared to 78% on March 31, 1999. Other Short-term investments are investments in a mutual fund operated by Federated Funds Investments and are comprised of short-term US Treasury Securities. Investments are done on a daily basis and are similar in liquidity to Fed Funds Investments, but often carry a slightly higher yield. NET INCOME Net income for the first three months in 2000 of $1,330,000 was $210,000 greater then the first three months in 1999. This represented a return on average assets during the quarter of 1.72% as compared to 1.69% in 1999, and a return on average equity of 17.76% as compared to 18.09% in 1999. The reduced return on average equity, as compared to average assets, is a result of the capital growth between the respective periods. Net interest income increased $964,000 during the first quarter of 2000, as compared to 1999, and noninterest income decreased $480,000, which was primarily related to the reduction of income in the Corporation's mortgage subsidiary. Noninterest expense increased $293,000 between the respective periods, and the provision for credit losses increased $75,000. The provision for income taxes increased $25,000 between the respective periods. Earning assets averaged $288,258,000 during the first quarter of 2000, an increase of $38,323,000 from the comparable quarter of 1999. During this same period loans averaged $217,569,000, an increase of $31,761,000 over 1999, and deposits averaged $275,780,000, an increase of $36,753,000 over 1999. Diluted earnings per average common share for the first three months of 2000 were $0.48, as compared to $0.38 for the first three months of 1999. NET INTEREST INCOME Interest income represents the interest earned by the Corporation on its portfolio of loans, investment securities, and other short-term investments. Interest expense represents interest paid to the Corporation's depositors, as well as to others from whom the Corporation borrows funds on a temporary basis. Net interest income is the difference between interest income on earning assets and interest expense on deposits and other borrowed funds. The volume of loans, deposits, and interest rate fluctuations caused by economic conditions greatly affect net interest income. Net interest income during the first three months of 2000 was $5,151,000, or $964,000 greater than the comparable period in 1999. This increase is primarily the result of increases in volume of funds rather than in rates. Based on the volume increase alone, net interest income increased by $782,000 over the comparable quarter in 1999. An additional $182,000 was earned due to an increase in the net interest margin. PROVISION FOR CREDIT LOSSES An allowance for credit losses is maintained at a level considered adequate to provide for losses that can be reasonably anticipated and is in accordance with SFAS 114. The allowance is increased by provisions charged to expense, and reduced by net charge-offs. Management continually evaluates the economic climate, the performance of borrowers, and other conditions to determine the adequacy of the allowance. The ratio of the allowance for credit losses to total loans as of March 31, 2000, was 2.11% as compared to 2.15% for the period ending March 31, 1999. Industry standards for this ratio are generally averaging between 1.5% to 2.0%. The Corporation's ratios for both periods is considered adequate to provide for potential future losses. The Corporation performs a quarterly analysis of the adequacy of its allowance for credit losses. As of March 31, 2000 it had $2,791,000 in allocated reserves and $1,874,000 in unallocated reserves. The Corporation's management believes that the amount of unallocated reserves is reasonable, due to the growth of the Bank's loan portfolio and the new credit products that have been introduced. In the past few years, the Bank has opened an Asset-based Lending Department, a Leasing Department and a Small Business Association lending program. The Bank also has a high concentration of credit in Construction Real Estate lending. The uncertainties associated with these new products, coupled with the Bank's traditionally strong construction concentration, fully supports the justification for a strong reserve position. The Corporation had net charge-offs of $26,000 during the first quarter of 2000 as compared to net charge-offs of $30,000 during the comparable period in 1999. The following table provides information on past-due and nonaccrual loans: For the Three Months Ended March 31, 2000 1999 Loans Past Due 90 Days or More		$ 29,000 $ 0 Nonaccrual Loans					 25,000 192,000 Total $ 54,000 $ 192,000 As of March 31, 2000 and 1999, no loans were outstanding that had been restructured. No interest earned on nonaccrual loans that was recorded in income during 2000 remains uncollected. Interest foregone on nonaccrual loans was approximately $6,000 and $16,000 as of March 31, 2000 and 1999, respectively. NONINTEREST INCOME Noninterest income during the first quarter of 2000 was $480,000 less than during the comparable quarter of 1999. The decrease is attributed to the decrease in income from the Corporation's subsidiary, BWC Mortgage Services. Their income is down due to the drop in mortgage activity related to increased rates and lack of inventory in our market. NONINTEREST EXPENSE Noninterest expense during the first quarter of 2000 was $293,000 greater than during the comparable quarter of 1999. The increase in 2000 was reflected in increases in the Bank subsidiary, with reductions in the Corporation's brokerage subsidiary, BWC Mortgage Services. Salaries and related benefits are $370,000 greater during the first quarter of 2000 as compared to 1999. This increase is related to general merit increases, performance bonuses and growth of operations. Staff averaged 111.0 FTE (full time equivalent) persons during the first quarter of 2000 as compared to 96.3 FTE in 1999. Occupancy expense increased $29,000 over the comparable period in 1999 due to CPI and operating increases. Total equipment expense increased $49,000 as compared to the 1999 period. Other expense reflects an increase of $197,000 between the respective periods and is related to the Corporation's growth and expanded activities. OTHER REAL ESTATE OWNED As of March 31, 2000, the Corporation had no Other Real Estate Owned assets (assets acquired as the result of foreclosure on real estate collateral) on its books. INTEREST RATE RISK MANAGEMENT Movement in interest rates can create fluctuations in the Corporation's income and economic value due to an imbalance in the re-pricing or maturity of assets or liabilities. The components of interest rate risk which are actively measured and managed include: re-pricing risk, and the risk of non-parallel shifts in the yield curve. Interest rate risk exposure is actively managed with the goal of minimizing the impact of interest rate volatility on current earnings and on the market value of equity. In general, the assets and liabilities generated through ordinary business activities do not naturally create offsetting positions with respect to re- pricing or maturity characteristics. Therefore, the Corporation uses a variety of measurement tools to monitor and control the overall interest rate risk exposure of the on-balance-sheet positions. For each measurement tool, the level of interest rate risk created by the assets and liabilities is a function primarily of their contractual interest rate re-pricing dates and contractual maturity (including principal amortization) dates. The Corporation's interest rate risk as of March 31, 2000 was well within the Corporation's risk policy range and comparable to the interest rate exposure presented in the Corporation's 1999 annual report, which was also within the Corporation's risk policy range. CAPITAL ADEQUACY In 1989, the Federal Deposit Insurance Corporation (FDIC) established risk- based capital guidelines requiring banks to maintain certain ratios of "qualifying capital" to "risk-weighted assets". Under the guidelines, qualifying capital is classified into two tiers, referred to as Tier 1 (core) and Tier 2 (supplementary) capital. Currently, the bank's Tier 1 capital consists of shareholders' equity, while Tier 2 capital also includes the eligible allowance for loan losses. The Bank has no subordinated notes or debentures included in its capital. Risk-weighted assets are calculated by applying risk percentages specified by the FDIC to categories of both balance-sheet assets and off-balance-sheet assets. The Bank's Tier 1 and Total (which included Tier 1 and Tier 2) risk-based capital ratios surpassed the regulatory minimum of 4% and 8% at March 31 for both 2000 and 1999. The FDIC also adopted a leverage ratio requirement. This ratio supplements the risk-based capital ratios and is defined as Tier 1 capital divided by the quarterly average assets during the reporting period. The requirement established a minimum leverage ratio of 3% for the highest rated banks. The following table shows the Corporation's risk-based capital ratios and leverage ratio as of March 31, 2000, December 31, 1999, and March 31, 1999. Risk-based capital ratios: Capital Ratios Minimum Current guidelines March 31, December 31, March 31, regulatory 2000 1999 1999 Requirements Tier 1 capital 12.13% 12.21% 11.13% 4.00% Total capital 13.39% 13.58% 13.13% 8.00% Leverage ratio 10.00% 10.66% 9.56% 3.00% LIQUIDITY Liquidity is a key aspect in the overall fiscal health of a financial corporation. The primary source of liquidity for BWC Financial Corp. is its investment securities and Federal Funds Sold. Cash, investment securities, and other temporary investments represented 29% of total assets at March 31, 2000 and 30% at March 31, 1999. The Corporation's management has an effective asset and liability management program and carefully monitors its liquidity on a continuing basis. Additionally, the Corporation has available from correspondent banks Federal Fund lines of credit totaling $15,000,000. YEAR 2000 ISSUES & STATUS REPORT The Corporation is pleased to report that it experienced no system hardware or software failures or interruptions due to year 2000 (Y2K) issues. The year 2000 created challenges with respect to the automated systems used by financial institutions and other companies. Many software programs were not able to recognize the year 2000, since many programs and systems were designed to store calendar years in the 1900's by assuming the "19" and storing only the last two digits of the year. For example, these automated systems would recognize a year stored as "00" as the year "1900," rather than as the year 2000. If these automated systems were not appropriately re-coded, updated, or replaced before the year 2000, they could likely confuse data, crash, or fail in some manner. The Corporation was committed to addressing these year 2000 challenges in a prompt and responsible manner and dedicated resources to do so. Management completed an assessment of its automated systems and implemented a plan to resolve these issues, including purchasing appropriate computer technology. The total costs associated with Y2K preparedness were approximately $800,000. Most of this investment represents expenditures for systems and equipment that will be used by the Corporation for years to come. It also reflects replacement of systems or equipment that would have required upgrading within a few years, in any event. Based on previous tests of our systems, and their successful performance over the century-date-change, the Corporation does not anticipate any disruptions related to future-date change events. The contingency plans that the Corporation developed for the Y2K event will serve as an operating guide for our Corporation to use in most disaster situations. INTEREST RATE SENSITIVITY (in thousands except share and per share data) Proper management of the rate sensitivity and maturities of assets and liabilities is required to provide an optimum and stable net interest margin. Interest rate sensitivity spread management is an important tool for achieving this objective and for developing strategies and means to improve profitability. The schedules shown below reflect the interest rate sensitivity position of the Corporation as of March 31, 2000. Management believes that the sensitivity ratios reflected in these schedules fall within acceptable ranges, and represent no undue interest rate risk to the future earnings prospects of the Corporation. 3 3-6 12 1-5 Over 5 Repricing within: months months months years years Totals ASSETS: Federal funds sold & Short Term Inv. $ 11,802 $ - $ - $ - $ - $ 11,802 Investment securities 1,106 1,370 8,850 41,602 9,729 62,657 Construction & real estate loans 86,969 7,438 9,242 765 0 104,414 Commercial loans 46,322 3,329 21,880 1,842 -- 73,373 Consumer Loans 33,842 177 566 1,098 0 35,683 Leases 308 670 7,077 0 -- 8,055 Interest-bearing assets $180,349 $ 12,984 $47,615 $45,307 $ 9,729 $295,984 Savings and Now accounts $ 40,105 $ - $ - $ - $ - $ 40,105 Money market accounts 97,083 -- -- -- -- 97,083 Time deposits <$100,000 12,416 14,709 7,057 1,536 -- 35,718 Time deposits >$100,000 9,204 16,120 5,519 805 -- 31,648 Interest-bearing liabilities $158,808 $ 30,829 $12,576 $ 2,341 $ - $204,554 Rate sensitive gap $ 21,541 $(17,845) $35,039 $42,966 $ 9,729 $ 91,430 Cumulative rate sensitive gap $ 21,541 $ 3,696 $38,735 $81,701 $91,430 Cumulative rate sensitive ratio 1.14% 1.02% 1.19% 1.40% 1.45% PART II - OTHER INFORMATION Item 1 - Legal Proceedings None Item 2 - Changes in Securities None Item 3 - Defaults Upon Senior Securities None Item 4 - Submission of Matters to a Vote of Security Holders The BWC Financial Corp. 2000 Stock Option Plan has been submitted to shareholders for approval. Item 5 - Other Materially Important Events None Item 6 - Exhibits and Reports on Form 8-K None 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. BWC FINANCIAL CORP. (Registrant) ___________________________ _________________________________ Date James L. Ryan Chairman and Chief Executive Officer ______________________ ________________________________ Date Leland E. Wines CFO and Corp. Secretary