BWC FINANCIAL CORP
CONSOLIDATED BALANCE SHEETS
December 31
ASSETS 1994 1993
Cash and Due From Banks $8,552,000 $5,161,000
Federal Funds Sold 3,300,000 3,965,000
Other Short Term Investments 3,018,000 --
Total Cash and Cash Equivalents 14,870,000 9,126,000
Investment Securities:
Available for Sale 17,419,000 --
Held to Maturity (approximate market value
of $10,982,000 in 1994 and $23,142,000 in 1993) 11,335,000 22,974,000
Loans, Net of Allowance for Credit Losses of $1,498,000
in 1994 and $1,418,000 in 1993. 86,411,000 80,916,000
Bank Premises and Equipment, Net 993,000 935,000
Interest Receivable and Other Assets 2,116,000 1,466,000
Total Assets $133,144,000 $115,417,000
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Deposits:
Noninterest-bearing $27,340,000 $22,355,000
Interest-bearing:
Money Market Accounts 37,062,000 45,051,000
Savings and NOW Accounts 24,681,000 17,692,000
Time Deposits:
Under $100,000 16,862,000 10,909,000
$100,000 or more 14,027,000 7,159,000
Total Interest-bearing 92,632,000 80,811,000
Total Deposits 119,972,000 103,166,000
Interest Payable and Other Liabilities 529,000 437,000
Total Liabilities 120,501,000 103,603,000
COMMITMENTS AND CONTINGENT LIABILITIES (Note 9)
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 -
830,737 shares in 1994 and 831,634 in 1993. 9,026,000 9,061,000
Retained Earnings 3,927,000 2,753,000
Capital adjustment on available for sale securities (310,000) --
Total Shareholders' Equity 12,643,000 11,814,000
Total Liabilities and
Shareholders' Equity $133,144,000 $115,417,000
<FN>
The accompanying notes are an integral part of these consolidated statements.
</FN>
BWC FINANCIAL CORP
CONSOLIDATED STATEMENTS OF INCOME
For the Year Ended December 31,
1994 1993 1992
INTEREST INCOME
Loans, Including Fees $8,293,000 $7,338,000 $7,118,000
Investment Securities:
Taxable 744,000 684,000 841,000
Non-taxable 375,000 341,000 168,000
Federal Funds Sold 185,000 95,000 105,000
Other Short Term Investments 76,000 -- --
Total Interest Income 9,673,000 8,458,000 8,232,000
INTEREST EXPENSE
Deposits 2,545,000 2,331,000 2,791,000
Federal Funds Purchased 2,000 2,000 1,000
Total Interest Expense 2,547,000 2,333,000 2,792,000
NET INTEREST INCOME 7,126,000 6,125,000 5,440,000
PROVISION FOR CREDIT LOSSES 255,000 120,000 --
NET INTEREST INCOME AFTER PROVISION
FOR CREDIT LOSSES 6,871,000 6,005,000 5,440,000
NONINTEREST INCOME
Service Charges on Deposit Accounts 391,000 378,000 399,000
Investment Securities Gains, Net 5,000 19,000 169,000
Other 255,000 219,000 260,000
Total Noninterest Income 651,000 616,000 828,000
NONINTEREST EXPENSE
Salaries and Related Benefits 2,903,000 2,602,000 2,319,000
Occupancy 683,000 589,000 584,000
Furniture and Equipment 452,000 381,000 368,000
Other 1,829,000 1,825,000 1,671,000
Total Noninterest Expense 5,867,000 5,397,000 4,942,000
INCOME BEFORE INCOME TAXES 1,655,000 1,224,000 1,326,000
PROVISION FOR INCOME TAXES 481,000 377,000 516,000
NET INCOME $1,174,000 $847,000 $810,000
NET INCOME PER COMMON AND COMMON
EQUIVALENT SHARE $1.33 $1.00 $0.96
Average common and common equivalent shares 884,898 846,692 840,301
<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 years ended December 31, 1994, 1993 and 1992
Capital
Number Common Retained Adjustment
of Shares Stock Earnings on Securitie Total
Balance, January 1, 1992 752,865 $8,405,000 $1,764,000 -- $10,169,000
Net Income for 1992 -- -- 810,000 -- 810,000
Common Stock Purchased by the
Defined Contribution Plan at
$11.31 per share 4,960 56,000 -- -- 56,000
Balance, December 31, 1992 757,825 8,461,000 2,574,000 -- 11,035,000
Net Income for 1993 -- -- 847,000 -- 847,000
10% Stock Dividend, Including
Payment of fractional shares 75,931 $666,000 (668,000) -- (2,000)
Common Stock Purchased by the
Defined Contribution Plan at
$8.00 to $9.00 per share 6,036 52,000 -- -- 52,000
Stock Options Exercised at $5.08
to $5.64 per share 9,742 52,000 -- -- 52,000
Repurchase of shares by the Corporation
at $9.25 to $9.60 per share (17,900) (170,000) -- -- (170,000)
Balance, December 31, 1993 831,634 9,061,000 2,753,000 -- 11,814,000
Net Income for 1994 -- -- 1,174,000 -- 1,174,000
Common Stock Purchased by the
Defined Contribution Plan at $8.77 per share 10,103 88,000 -- -- 88,000
Repurchase of shares by the Corporation
at $10.38 to $12.25 per share (11,000) (123,000) -- -- (123,000)
Capital adjustment on available for sale securities -- -- (310,000) (310,000)
Balance, December 31, 1994 830,737 $9,026,000 $3,927,000 ($310,000) $12,643,000
<FN>
The accompanying notes are an integral part of these consolidated statements.
</FN>
BWC FINANCIAL CORP
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Year Ended December 31,
1994 1993 1992
OPERATING ACTIVITIES:
Net Income $1,174,000 $847,000 $810,000
Adjustments to reconcile net income to
net cash provided (used):
Amortization of loan fees (830,000) (1,049,000) (835,000)
Provision for credit losses 255,000 120,000 --
Depreciation and amortization 302,000 283,000 258,000
Gain on sale of securities available for sale (5,000) (19,000) (169,000)
Deferred income taxes (125,000) (27,000) (90,000)
Decrease (increase) in accrued interest
receivable and other assets (650,000) (177,000) 272,000
Increase (decrease) in accrued interest
payable and other liabilities 364,000 (110,000) (386,000)
Net Cash Provided (Used) by Operating Activities 485,000 (132,000) (140,000)
INVESTING ACTIVITIES:
Proceeds from the maturities of investment securities 9,794,000 7,516,000 5,955,000
Proceeds from the sales of available-for-sale
investment securities 4,995,000 4,032,000 7,063,000
Purchase of investment securities (21,021,000) (12,226,000) (14,420,000)
Loans originated, net of collections (4,920,000) (8,254,000) (5,163,000)
Purchase of bank premises and equipment (360,000) (330,000) (129,000)
Net (increase)/decrease in investment in
real estate developments -- 1,297,000 (92,000)
Net Cash Provided(Used) by Investing Activities (11,512,000) (7,965,000) (6,786,000)
FINANCING ACTIVITIES:
Net increase in deposits 16,806,000 6,265,000 9,833,000
Proceeds from issuance of common stock 88,000 104,000 56,000
Cash paid for the repurchase of common stock (123,000) (170,000) --
Cash paid in lieu of fractional shares -- (2,000) --
Net Cash Provided(Used) by Financing Activities 16,771,000 6,197,000 9,889,000
CASH AND CASH EQUIVALENTS:
Increase (decrease) in cash and cash equivalents 5,744,000 (1,900,000) 2,963,000
Cash and cash equivalents at beginning of year 9,126,000 11,026,000 8,063,000
Cash and Cash Equivalents at end of year $14,870,000 $9,126,000 $11,026,000
ADDITIONAL CASH FLOW INFORMATION:
Interest Paid $2,345,000 $2,494,000 $3,052,000
Income Taxes Paid $630,000 $263,000 $553,000
<FN>
The accompanying notes are an integral part of these consolidated statements.
</FN>
BWC FINANCIAL CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of BWC Financial Corp. (the
"Corporation") and its subsidiaries, Bank of Walnut Creek (the "Bank"), and
BWC Real Estate (see Note 6), conform with generally accepted accounting
principles and general practice within the banking industry. The following is
a summary of the more significant accounting policies.
BASIS OF PRESENTATION The consolidated financial statements of the
Corporation include the accounts of the Corporation, the Bank and BWC Real
Estate. All significant intercompany balances and transactions have been
eliminated in consolidation.
CASH AND DUE FROM BANKS includes balances with the Federal Reserve. The Bank
is required by federal regulations to maintain certain minimum average
balances with the Federal Reserve, based primarily on the Bank's average daily
deposit balances. At December 31, 1994, the Bank had balances with the
Federal Reserve of $491,000 as compared to $271,000 at December 31, 1993.
INVESTMENT SECURITIES As of January 1, 1994, the Corporation adopted
Statement of Financial Accounting Standards No. 115 (FASB 115), "Accounting
for Certain Investments in Debt and Equity Securities". This statement
requires that investments in debt and equity securities be classified as
"held-to-maturity," "trading" or "available-for-sale." It requires that
investments classified as held-to-maturity be reported at amortized cost, that
investments classified as trading be reported at fair value with unrealized
gains and losses included in earnings and that investments classified as
available-for-sale be reported at fair value with unrealized gains and losses,
net of related tax, if any, reported as a separate component of shareholders'
equity.
Amortization and accretion are included in interest income while gains and
losses on disposition are included in noninterest income and are determined
using the specific identification method.
The Corporation's policy of carrying investment securities as held-to-maturity
is based upon its ability to hold such securities to maturity and management's
current intent to hold such securities for the foreseeable future.
As of January 1, 1994, securities with an amortized cost of $10,364,000 and a
market value of $10,487,000 were classified as held-to-maturity. Securities
with an amortized cost of $12,609,000 and a market value of $12,654,000 were
classified as available-for-sale. The effect of adopting FASB 115 was to
recognize an unrealized gain of $31,000 as an increase (net of tax) in
shareholders' equity. As of December 31, 1994, the Corporation's assets
reflect a decrease of $457,000 and its equity capital reflected an unrealized
loss (net of tax) of $310,000.
LOANS are stated at the principal amount outstanding. Interest income is
recognized using methods which approximate a level yield on principal amounts
outstanding. The accrual of interest on loans is discontinued when the
payment of principal or interest is considered to be in doubt, or when a loan
becomes contractually past-due by 90 days or more with respect to principal or
interest, except for loans that are well secured and in the process of
collection. When a loan is placed on nonaccrual status, any accrued but
uncollected interest is reversed from current income. Loan origination fees
are deferred and amortized as yield adjustments over the contractual lives of
the underlying loans.
ALLOWANCE FOR CREDIT LOSSES is based upon estimates of potential credit losses
and is maintained at a level considered adequate to provide for losses that
can be reasonably anticipated. The allowance is increased by provisions
charged to expense and reduced by net charge-offs. Management continually
evaluates the economic climate and other conditions to determine the adequacy
of the allowance. The allowance is based on estimates, and ultimate losses
may vary from current estimates. As adjustments become necessary, they are
reported in the periods in which they become known.
PREMISES AND EQUIPMENT consists of leasehold improvements, furniture and
equipment and are stated at cost, less accumulated depreciation and
amortization. Depreciation is computed on a straight-line basis over the
estimated useful lives of furniture and equipment, primarily from five to
fifteen years. Leasehold improvements are amortized over the terms of the
leases or their estimated useful lives, whichever is shorter.
INCOME TAXES The Corporation files consolidated income tax returns which
include both the parent company and its subsidiaries. The parent company
reimburses the Bank for allocations of tax liabilities or benefits as
determined by the parent company. Deferred income taxes are recorded for all
significant income and expense items recognized in different periods for
financial reporting and income tax purposes.
NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE is calculated by dividing
net income by the weighted average shares outstanding during the period
including the dilutive effect of stock options. Weighted average shares and
per share amounts reflect the 10% stock dividend paid on April 15, 1993.
LETTERS OF CREDIT AND COMMITMENTS TO EXTEND CREDIT are extended based upon
evaluations of customer credit worthiness. The amount of collateral obtained
is based upon these evaluations. Collateral held varies but may include
accounts receivable, inventory, property, plant, and equipment, and income-
producing commercial properties. Standby letters of credit and commitments to
extend credit generally have fixed expiration dates or other termination
clauses. Because many of the standby letters of credit and commitments to
extend credit are expected to expire without being drawn upon, total guarantee
and commitment amounts do not necessarily represent future cash requirements.
SIGNIFICANT GROUP CONCENTRATIONS OF CREDIT RISK The Bank accepts deposits and
grants credit primarily within its local service area, the counties of Contra
Costa and Alameda, California. The Bank has a diversified loan portfolio
which is not dependent on any industry or group of customers.
STATEMENT OF CASH FLOWS For purposes of reporting cash flows, cash and cash
equivalents include cash and due from banks and federal funds sold.
PENDING FINANCIAL ACCOUNTING PRONOUNCEMENTS. Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No. 114 as amended by
No. 118, Accounting by Creditors for Impairment of a Loan. The Corporation
plans on adopting this statement effective January 1, 1995. The Corporation
does not expect that the adopting of the accounting prescribed by this
statement will have a material impact on its financial position or results of
operations.
NOTE 2: INVESTMENT SECURITIES
An analysis of the investment security portfolio at December 31 follows:
1994
Gross
Amortized Unrealized Market
Cost Losses value
Available-for-sale
U.S. Treasury Securities $13,636,000 ($284,000) $13,352,000
Secutities of U.S. Government Agencies 4,239,000 (172,000) 4,067,000
Total 17,875,000 (456,000) 17,419,000
Held-to-maturity
Obligations of State and Political
Subdivisions 11,335,000 (353,000) $10,982,000
Total Investment Securities $29,210,000 ($809,000) $28,401,000
1993
Gross
Amortized Unrealized Market
Cost Gains value
Held-to-maturity
U.S. Treasury Securities $12,610,000 $45,000 $12,655,000
Obligations of State and Political
Subdivisions 10,364,000 123,000 10,487,000
Total $22,974,000 $168,000 $23,142,000
<FN>
In 1994 and 1993, the Bank received proceeds from sale of investment securities of
$4,995,000 and $4,103,000, respectively, and gains included in other noninterest income
totaled $5,000 and $19,000 respectively. There were no sales of held-to-maturity securities
in 1994.
</FN>
<FN>
The maturities of the investment security portfolio at December 31, 1994 follows:
</FN>
Held-to-maturity
Amortized Market
Cost Value
Within one year $6,310,000 $6,062,000
After one but within five years 5,025,000 4,920,000
Total $11,335,000 $10,982,000
Available-for-sale
Amortized Market
Cost Value
Within one year $4,488,000 $4,356,000
After one but within five years 13,387,000 13,063,000
Total $17,875,000 $17,419,000
<FN>
At December 31, 1994 and 1993, securities with an approximate book value of $6,985,000 and
$7,462,000 respectively, were pledged to secure public deposits.
</FN>
<FN>
NOTE 3: LOANS
The majority of the Bank's loans are to customers in Contra Costa County and surrounding areas.
Depending upon the type of loan, the Bank generally obtains a secured interest in the general
assets of the borrower and/or in any assets being financed.
</FN>
Outstanding loans by type were:
December 31
1994 1993
Real Estate Construction $17,904,000 $22,461,000
Real Estate Mortgages 14,150,000 11,445,000
Commercial 28,538,000 22,810,000
Installment 27,317,000 25,618,000
TOTAL 87,909,000 82,334,000
Less: Allowance for Credit Losses (1,498,000) (1,418,000)
NET LOANS $86,411,000 $80,916,000
<FN>
The following table provides further information on past due and nonaccrual loans.
</FN>
December 31
1994 1993
Loans Past Due 90 Days or More, still accruing interest $14,000 --
Nonaccrual Loans 533,000 $755,000
TOTAL $547,000 $755,000
<FN>
As of December 31, 1994 and 1993, no loans were outstanding that had been restructured. No interest
earned on nonaccrual loans that was recorded in income during 1994 remains uncollected. Interest
foregone on nonaccrual loans was approximately $73,000 in 1994, $52,000 in 1993, and $26,000 in 1992.
</FN>
NOTE 4: ALLOWANCES FOR CREDIT LOSSES
For the Year Ended December 31
1994 1993 1992
Total loans outstanding at end of period, before
deducting allowance for credit losses $87,909,000 $82,334,000 $73,235,000
Average total loans outstanding during period $85,893,000 $79,270,000 $71,905,000
Analysis of the allowance for credit losses:
Beginning Balance $1,418,000 $1,502,000 $1,602,000
Charge-offs:
Real Estate Construction -- -- 90,000
Real Estate Mortgages 140,000 -- --
Commercial 6,000 109,000 30,000
Installment 84,000 162,000 108,000
TOTAL CHARGE-OFFS 230,000 271,000 228,000
Recoveries:
Real Estate Construction -- -- 65,000
Commercial 17,000 59,000 46,000
Installment 38,000 8,000 17,000
TOTAL RECOVERIES 55,000 67,000 128,000
NET CHARGE-OFFS 175,000 204,000 100,000
Provisions charged to operating expense 255,000 120,000 --
Ending Balance $1,498,000 $1,418,000 $1,502,000
Ratio of net charge-offs to average
total loans 0.20% 0.26% 0.14%
Ratio of allowance for credit losses
to total loans at end of period 1.70% 1.72% 2.05%
NOTE 5: PREMISES AND EQUIPMENT
A summary of premises and equipment follows:
December 31
1994 1993
Leasehold Improvements $562,000 $567,000
Furniture and Equipment 2,184,000 2,208,000
2,746,000 2,775,000
Accumulated Depreciation and Amortization (1,753,000) (1,840,000)
Premises and Equipment, Net $993,000 $935,000
<FN>
The amount of depreciation and amortization included in occupancy and furniture and
equipment expense was $302,000 in 1994, $283,000 in 1993, and $258,000 in 1992.
</FN>
NOTE 6: INVESTMENT IN BWC REAL ESTATE
In September 1994, the Corporation created a subsidiary called BWC Real
Estate, which was formed to enter into a joint venture arrangement with a real
estate brokerage firm, creating a company called BWC Mortgage Services. BWC
Real Estate owns 51% of this joint venture. The business purpose of BWC
Mortgage Services is the origination and placement of long term financing for
real estate mortgages.
<FN>
NOTE 7: INCOME TAXES
The provisions for income taxes in 1994, 1993, and 1992 consist of the following:
</FN>
1994 1993 1992
CURRENT
Federal $392,000 $264,000 $439,000
State 214,000 140,000 167,000
TOTAL CURRENT 606,000 404,000 606,000
DEFERRED
Federal (93,000) (15,000) (75,000)
State (32,000) (12,000) (15,000)
TOTAL DEFERRED (125,000) (27,000) (90,000)
TOTAL $481,000 $377,000 $516,000
<FN>
The tax effects of timing differences are as follows:
</FN>
1994 1993 1992
Depreciation and amortization ($14,000) $13,000 $27,000
Loss provision for credit losses (46,000) 26,000 -
Equipment lease financing income (45,000) (57,000) (67,000)
State franchise taxes (19,000) 8,000 (17,000)
Other, net (1,000) (17,000) (33,000)
TOTAL ($125,000) ($27,000) ($90,000)
<FN>
The components of the net deferred tax assets of the Bank as of December 31, 1994
and 1993 were as follows:
</FN>
Deferred Tax Assets:
1994 1993
Allowance for credit losses $559,000 550,000
Employee benefits and other 100,000 71,000
FASB 115 deferred tax asset 146,000 --
State taxes 66,000 51,000
Total deferred tax assets 871,000 672,000
Deferred Tax Liabilities:
Depreciation and other (76,000) (86,000)
Accretion and other (224,000) (286,000)
Total deferred tax liabilities (300,000) (372,000)
Net deferred tax asset $571,000 $300,000
<FN>
NOTE 7: INCOME TAXES (Continued)
The provisions for income taxes differ from the amounts computed by applying the
statutory Federal income tax rate to income before taxes. The reasons for these
differences are as follows:
</FN>
1994 1993 1992
Provision based on the statutory
Federal rate of 34% $563,000 $416,000 $451,000
Increases (reduction) in income taxes resulting from:
State franchise taxes, net of
Federal income tax benefit 125,000 91,000 98,000
Non-taxable interest income (135,000) (115,000) (57,000)
Other (72,000) (15,000) 24,000
TOTAL $481,000 $377,000 $516,000
<FN>
NOTE 8: STOCK OPTION PLAN
The Corporation's stock option plan provides for the granting of options to key
employees for the purchase of the Corporation's shares at a price not less than
the fair market value on the date of grant. Options expire ten years from the
grant date, and vest over a five year period. A summary of option activity follows:
</FN>
Number
of Shares Option Price Per Share
(Low) (High)
Outstanding at January 1, 1992 41,812 $5.08 $16.53
Granted 152,350 $9.00 $10.00
Outstanding at December 31, 1992 194,162 $5.08 $16.53
Exercised 9,742 $5.08 $5.64
Outstanding at December 31, 1993 184,420 $5.64 $16.53
Outstanding at December 31, 1994 184,420 $5.64 $16.53
<FN>
At December 31, 1994, options for 116,716 shares were exercisable, and 81,400 shares
were available for additional option grants under the Corporation's 1990 Stock Option
Plan (provides for the grant of both incentive and non- qualified stock options).
The share and per-share amounts as of each December 31 above have been adjusted for
stock dividends.
</FN>
<FN>
NOTE 9: COMMITMENTS AND CONTINGENCIES
As of December 31, 1994, the approximate future minimum net rental payments
under non-cancellable operating leases for premises were as follows:
</FN>
Year Amount
1995 $591,000
1996 202,000
1997 202,000
1998 202,000
1999 202,000
Thereafter 1,456,000
Total $2,855,000
<FN>
Rental expense for premises under operating leases included in occupancy
expense was $419,000, $366,000, and $358,000, in 1994, 1993, and 1992,
respectively. Minimum rentals may be adjusted for increases in the lessors'
operating costs and/or increases in the Consumer Price Index.
At December 31, 1994, the Bank had outstanding approximately $51,489,000 in
undisbursed loan commitments and $367,000 in standby letters of credit, which
are not reflected in the accompanying consolidated balance sheets. Management
does not anticipate any material losses to result from these transactions.
</FN>
NOTE 10: DEFINED CONTRIBUTION PLAN
Substantially all eligible, salaried employees of the Corporation are covered
by a defined contribution plan. Employees may, up to prescribed limits,
contribute to the plan. Portions of such contributions are matched by the
Corporation. The Corporation also may elect to make a discretionary
contribution to the plan based on the Corporation's earnings. The expense for
this plan, for both matching and discretionary contributions, was $84,000,
$63,000, and $34,000 in 1994, 1993, and 1992. Amounts vary from year to year
based on such factors as employees entering and leaving the plan, profits
earned by the Corporation, and variances of estimates from the final results.
<FN>
NOTE 11: OTHER NONINTEREST INCOME AND EXPENSE
Other noninterest income is comprised of the following:
</FN>
1994 1993 1992
Merchant Credit Card Servicing Fees $39,000 $28,000 $46,000
Documentation Fees 20,000 38,000 35,000
Equity Credit Annual Fees 36,000 26,000 11,000
Other 160,000 127,000 168,000
TOTAL $255,000 $219,000 $260,000
<FN>
Other noninterest expense is comprised of the following:
</FN>
1994 1993 1992
Data Processing $208,000 $233,000 $325,000
Regulatory Fees 255,000 231,000 212,000
Professional Fees 247,000 265,000 208,000
Memberships/Conferences/
Education/Business Development 175,000 142,000 124,000
Telephone and Postage 168,000 157,000 136,000
Advertising and Promotion 160,000 73,000 76,000
Other 616,000 724,000 590,000
TOTAL $1,829,000 $1,825,000 $1,671,000
NOTE 12: RESTRICTIONS ON SUBSIDIARY TRANSACTIONS
The Bank is subject to legal limitations on the amount of dividends that can
be paid to the Corporation without prior approval from regulatory authorities.
The limitations for a given year equal the lesser of the Bank's net profits
(as defined in the regulations) for the current year, combined with the
retained net profits for the preceding two years or the Bank's retained
earnings. Under these restrictions, $2,861,000 of the Bank's retained
earnings were available for dividends at December 31, 1994.
The Bank is subject to certain restrictions under the Federal Reserve Act,
including restrictions on the extension of credit to affiliates. In
particular, the Corporation is prohibited from borrowing from the Bank, unless
the loans are secured by specified types of collateral. Such secured loans
and other advances from the Bank are limited to 10% of the Bank's
shareholder's equity. Under these provisions, secured loans and advances to
the Corporation were limited to $1,185,000 as of December 31, 1994. There
were no such extensions of credit by the Bank in 1994 or 1993.
<FN>
NOTE 13: PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION
A summary of the financial statements of BWC Financial Corp. (parent company only) follows:
</FN> December 31
1994 1993
SUMMARY BALANCE SHEETS
ASSETS
Cash on Deposit with the Bank $766,000 $840,000
Investment in the Bank 11,851,000 10,974,000
Investment in BWC Real Estate 26,000 --
TOTAL ASSETS $12,643,000 $11,814,000
SHAREHOLDERS' EQUITY
Common Stock $9,026,000 $9,061,000
Retained Earnings 3,617,000 2,753,000
TOTAL SHAREHOLDERS' EQUITY $12,643,000 $11,814,000
<CAPTON>
FOR THE YEAR ENDED DECEMBER 31,
1994 1993 1992
SUMMARY STATEMENTS OF INCOME
Expenses - General and Administrative $14,000 $16,000 $12,000
Loss before income taxes and
equity in undistributed net income
of the Bank (14,000) (16,000) (12,000)
Income tax benefit 6,000 5,000 5,000
Equity in undistributed net loss of BWC Real Estate (5,000) -- --
Equity in undistributed net income of the Bank 1,187,000 858,000 817,000
NET INCOME $1,174,000 $847,000 $810,000
NOTE 13 (Continued)
SUMMARY STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31,
OPERATING ACTIVITIES: 1994 1993 1992
Net Income $1,174,000 $847,000 $810,000
Adjustments to reconcile net income
to net cash used by operating activities:
Equity in undistributed net income of the Bank (1,187,000) (858,000) (817,000)
NET CASH USED BY
OPERATING ACTIVITIES (13,000) (11,000) (7,000)
FINANCING ACTIVITIES:
Proceeds from issuance of common stock 88,000 104,000 56,000
Cash paid in lieu of fractional shares -- (1,000) --
Shares repurchased by the Corporation (123,000) (170,000) --
Investment in BWC Real Estate (26,000)
NET CASH PROVIDED (USED) BY
FINANCING ACTIVITIES (61,000) (67,000) 56,000
Increase (Decrease) in Cash (74,000) (78,000) 49,000
CASH ON DEPOSIT WITH THE BANK:
Beginning of year 840,000 918,000 869,000
End of year $766,000 $840,000 $918,000
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors of BWC Financial Corp.:
We have audited the accompanying consolidated balance sheets of BWC Financial
Corp. (a California banking corporation) and Subsidiaries as of December 31,
1994 and 1993, and the related consolidated statements of income, changes in
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 1994. These consolidated financial statements are the
responsibility of the Corporation's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of BWC
Financial Corp. and Subsidiaries as of December 31, 1994 and 1993, and the
results of their operations and their cash flows each of the three years in
the period ended December 31, 1994 in conformity with generally accepted
accounting principles.
As explained in Note 1 to the financial statements, effective January 1, 1994,
the Corporation changed its method of accounting for investment securities.
San Francisco, California,
March 15, 1995
<FN>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS
The following is a summary of selected consolidated financial data for the five years ended December 31, 1994. The summary
is followed by management's discussion and analysis of the significant changes in income and expense presented therein.
This information should be read in conjunction with the consolidated financial statements and notes related thereto
appearing elsewhere in this annual report.
</FN>
1994 1993 1992 1991 1990
SUMMARY OF EARNINGS
Interest Income $9,673,000 $8,458,000 $8,232,000 $9,934,000 $13,273,000
Interest Expense 2,547,000 2,333,000 2,792,000 4,541,000 6,297,000
Net Interest Income 7,126,000 6,125,000 5,440,000 5,393,000 6,976,000
Provision for Possible Credit Losses 255,000 120,000 -- 135,000 605,000
Net Interest Income after Provision
for Possible Credit Losses 6,871,000 6,005,000 5,440,000 5,258,000 6,371,000
Noninterest Income 651,000 616,000 828,000 506,000 427,000
Noninterest Expense 5,867,000 5,397,000 4,942,000 4,963,000 4,966,000
Income Before Income Taxes 1,655,000 1,224,000 1,326,000 801,000 1,832,000
Provision for Income Taxes 481,000 377,000 516,000 317,000 714,000
NET INCOME 1,174,000 847,000 810,000 484,000 1,118,000
PER SHARE:
Net Income (1) $1.33 $1.00 $0.96 $0.58 $1.35
Average Common and Common
Equivalent Shares (1) 884,898 846,692 840,301 835,122 825,622
Book Value Per Common Share (1) $14.29 $13.95 $13.13 $12.18 $11.61
SUMMARY BALANCE SHEETS AT DECEMBER 31
Cash and Due from Banks $8,552,000 $5,161,000 $6,326,000 $6,288,000 $6,169,000
Federal Funds Sold 3,300,000 3,965,000 4,700,000 1,775,000 5,200,000
Other short Term Investments 3,018,000 -- -- -- --
Interest-earning Deposits -- -- -- -- 200,000
Investment Securities 28,754,000 22,974,000 22,277,000 20,705,000 18,891,000
Loans, Net 86,411,000 80,916,000 71,733,000 65,735,000 73,545,000
Other Assets 3,109,000 2,401,000 3,474,000 3,693,000 4,117,000
TOTAL ASSETS $133,144,000 $115,417,000 $108,510,000 $98,196,000 $108,122,000
Noninterest-bearing Deposits $27,340,000 $22,355,000 $16,706,000 $15,959,000 $15,233,000
Interest-bearing Deposits 92,632,000 80,811,000 80,195,000 71,109,000 81,917,000
Other Liabilities 529,000 437,000 574,000 959,000 1,386,000
Shareholders' Equity 12,643,000 11,814,000 11,035,000 10,169,000 9,586,000
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $133,144,000 $115,417,000 $108,510,000 $98,196,000 $108,122,000
<FN>
(1) All share and per-share amounts give effect to 10% stock dividends in April 1993 and March 1991.
</FN>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS
NET INCOME
Net income was $1,174,000 in 1994 which represented a .94% return on
average assets and a return on average equity of 9.54% as compared to 1993
which saw a return on average assets of .75% and a return on average equity of
7.32%. This represents an increase of $327,000 over the 1993 figure. Net
interest margins increased .21% between the respective periods, in addition
the Corporation's average earning assets increased by $11,481,000 during 1994
as compared to 1993.
Net income for 1993 of $847,000 was up slightly from 1992, the result of an
increase in net interest income during 1993. Net interest margins were
relatively the same between 1993 and 1992. The increase resulted from the
increase in average net earning assets of $12,082,000 in 1993 over 1992.
NET INTEREST INCOME
Interest income represents interest earned by the Corporation on its portfolio
of loans and investment securities. Interest expense represents interest paid
to the Corporation's depositors, as well as the temporary borrowing of Fed
Funds on an occasional overnight 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 and deposits and interest rate
fluctuations resulting from various economic conditions may significantly
affect net interest income.
Total interest income in 1994 increased $1,215,000 over 1993. Of this
increase 53% was due to the increase in average earning assets and 47% was
the result of higher interest rates.
Total interest expense in 1994 increased $214,000 over 1993. Of this
increase 92% was due to an increase in deposits over 1993 and 8% was due
to higher interest rates.
Based on a combination of the above factors affecting interest income and
interest expense, net interest income increased $1,001,000 during 1994 as
compared to 1993.
Total interest income in 1993 was up a modest $226,000 over 1992 although
average earning assets in 1992 were $12,082,000 greater. This was a
reflection of the low interest rates that prevailed throughout 1993.
However, on the other side of the balance sheet, interest expense on deposits
continued to decrease as the lower market rates worked their way through the
Corporation's time deposits and other interest bearing deposits. The result
was that interest expense during 1993 was $459,000 less that during 1992 on
a volume of deposits averaging $14,686,000 more.
NET INTEREST MARGIN
Net interest margin is the ratio of net interest income divided by average
earning assets.
The Corporation's net interest margin for 1994 was 6.34% or .21% higher than
during 1993. During 1994 there were a total of five increases in the prime
rate, increasing from 6.00% in March 1994 (where it had been since July of
1992) to 8.50% in November 1994. Since the Corporation is slightly asset
sensitive (assets are repriced faster than liabilities) the increases in prime
worked in favor of its net interest margin.
During 1993 the Corporation's net interest margin averaged 6.13%, almost
unchanged from the prior year of 6.11%. During 1993 the interest rate picture
remained very stable, with the national prime rate remaining unchanged at 6%
the entire year.
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 on loans, letters of
credit, and commitments to extend credit. 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 December 31,
1994 was 1.70%. This reflects a conservative attitude on the part of
management and is considered adequate to provide for potential future losses.
Additional provisions of $255,000 were made during 1994 against net charge-
offs of $175,000.
The ratio of the allowance for credit losses to total loans as of December 31,
1993 was 1.72%. Additional provisions of $120,000 were made during 1993
against net charge-offs of $204,000.
NONINTEREST INCOME
Total noninterest income in 1994 of $651,000 was $35,000 greater than earned
in 1993. As a result of deposit growth, income from service charges increased
$13,000 over 1993.
Occasionally, investment securities are sold for liquidity purposes and one
such sale took place in 1994 resulting in gains on security sales of $5,000.
This was $14,000 less than during the prior year.
Other noninterest income resulting from growth and expanded services increased
$36,000 over the prior year.
Total noninterest income in 1993 was $212,000 less than in the comparable 1992
period. Of this, over $150,000 relates to the fact that during 1992 the
Corporation made $169,000 in gains on the sale of securities whereas during
the 1993 period there were only $19,000 in gains on security sales. Fees and
Other Income were also down primarily due to a reduction in net earnings on
the processing of credit card deposit activity for merchants. Also, there
were no gains on other real estate sales during 1993 as compared to a $60,000
gain achieved during 1992.
NONINTEREST EXPENSE
1994 vs. 1993
Total noninterest expense in 1994 increased $470,000 over that of 1993.
Officer and staff salaries reflect an increase of $301,000 over the previous
year. The increase between the two periods was related to staff increases,
merit increases on existing staff and bonuses paid under incentive and
performance plans The Corporation opened a new office in Pleasanton.
Salaries and benefits for officers and staff for Pleasanton amounted to
approximately $134,000. Personnel were also added for the new SBA division of
the Bank, amounting to approximately $85,000 during the 1994 calendar year.
Total occupancy expense increased $94,000 between the respective periods; the
new Pleasanton office accounted for $57,000 of this. The balance is related
to consummer price index and operating expense increases.
FF&E expense increased approximately $71,000 over the previous year, related
to in-house data processing and the new Pleasanton office. Also, per
regulatory reporting requirements, the inclusion of insurance expense on
equipment is now included in this category, instead of the insurance expense
category as was the previous practice.
Other expenses are relatively the same as incurred during 1993. Reviewing
specific components in this category, however, provides information on areas
of change from the prior year. The most significant of these are discussed
below.
The Bank's activities in marketing increased significantly in 1994 over 1993
related not only to the Pleasanton opening but to a number of deposit-
gathering promotions and equity line programs. Total marketing expenses were
up approximately $86,000 over the previous year.
Telephone expenses increased $14,000, of which approximately $10,000 is
related to the Pleasanton office.
Regulatory fees based on higher deposit levels increased $24,000 over 1993.
It is hoped that a decrease in premium will take place by mid-year 1995,
resulting in a lowering of our expenses during the forthcoming year.
Business development, education, conference and staff expense increased
$32,000 over 1993.
Professional fees, primarily attorneys' fees, were down during 1994 as
compared to 1993, resulting in a total decrease in all professional fees of
approximately $32,000 from the 1993 period. Attorneys' fees were higher in
1993 in part related to a litigation expense settled in 1993 as mentioned in
the paragraph below.
Other expenses decreased over $75,000 from the previous year because of an out
of court settlement, as more fully explained in the final paragraph of 1993
vs. 1992 below.
1993 vs. 1992
Total noninterest expense in 1993 was $455,000 over that of 1992. Salaries
and benefits accounted for $283,000 of this increase, which was related to
general salary and merit increases plus a staff increase of two persons,
related to the inhouse data processing operations and for utility and vacation
relief.
The Corporation converted to an in-house system in May of 1993, installing
systems, equipment and personnel related to this operation. Data processing
related expenses were higher during 1993 because during the conversion process
the Corporation was supporting two systems: third party data processing
services and in-house data processing equipment and personnel.
Of the balance of the increase of $172,000, the majority was related to the
out of court settlement of a liability claim against the Corporation which
together with related legal fees amounted to over $130,000. Settlement of
this suit was believed to be the most expedient and least costly approach and
does not imply any guilt or wrongdoing on the part of the Corporation, its
officers or staff.
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 consists of the
eligible allowance for credit 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 8% at December 31, for both
1994 and 1993.
At yearend 1990, 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 Bank's leverage ratio surpassed the regulatory minimum of 3% at December
31, for both 1994 and 1993.
The following table shows the risk-based capital ratios and leverage ratio as
of December 31, 1994 and 1993.
Risk-based
capital ratios:
Risk-based capital ratios:
Minimum
regulatory
1994 1995 requirements
Tier 1 capital: 12.70% 12.40% 4.00%
Total capital: 13.95% 13.66% 8.00%
Leverage raito: 9.35% 9.66% 3.00%
LIQUIDITY
Liquidity is a key aspect of the overall financial condition of a bank. The
primary source of liquidity for the Corporation is its marketable securities,
bankers' acceptances, and federal funds sold. Marketable securities are
investments of high grade which may be sold with minimal risk of market loss.
Cash, investment securities, and other temporary investments represent 33% of
total assets at December 31, 1994 as compared to 28% of total assets at
December 31, 1993. The Corporation's management has an effective asset and
liability management program, and carefully monitors its liquidity on a
continuing basis, including undisbursed loan commitments and future payments
receivable. Additionally, the Corporation has available from correspondent
banks, federal fund lines of credit totaling $8,000,000.
GENERAL
1994 as compared to 1993
During 1994 the nation, and finally California, showed continued growth and
economic strength following the recession gripping the country the beginning
of this decade. Although California is lagging the rest of the country in
this recovery, 1994 statistics seemed to indicate we were indeed on the path
to recovery. The strength exhibited by the nation was enough to significantly
raise the concern of the Fed that inflation was just around the corner.
Uncharacteristically, the Fed moved aggressively in a preemptive strike
against inflation by successively moving up rates on five different occasions
during 1994 resulting in the prime rate increasing from 6.00% at the beginning
of the year to 8.50% by year end. Further increases may yet be in store.
A reflection of the economic conditions is in the Corporation's growth of over
15% or $17,727,000, from the prior year. The Corporation also founded a new
branch office in Pleasanton, Ca. on April 15, 1994. As of year end this
office had over $12,000,000 in deposits and is now contributing to the profits
of the Corporation. Total deposit growth was in excess of 16% which far
exceeded loan demand which was slightly under 7%.
The Corporation started a new financial service for its clients during 1994,
which was the creation of a subsidiary called BWC Real Estate. The subsidiary
entered into a joint venture arrangement with a real estate brokerage firm,
creating a company called BWC Mortgage Services. This joint venture will
augment the activities of the Bank by offering a long term mortgage placement
service for the Bank's construction loan clients. BWC Mortgage Services also
provides mortgage placement services for the general public outside of the
activities of the Bank. Construction loan clients of the Bank may seek any
brokerage service for placement of permanent financing, however, with the
Corporation providing the convenience of its own brokerage service company, it
is expected that many clients will take advantage of it, resulting in added
service for the Bank's clients and added income to the Corporation.
The Corporation's banking subsidiary, Bank of Walnut Creek, created an SBA
(Small Business Administration) loan department and also developed our own
credit card program. The Bank, continued to expand its mutual funds and
annuities services, through "Preferred Investments" and offers a money market
sweep program to its commercial clients.
1993 as compared to 1992
During 1993 interest rates stopped falling and became stable, although at very
low levels, allowing the Corporation to adjust its deposit rates in line with
the return on earning assets. In spite of the continuing recession in
California, the Corporation enjoyed a growth in deposits of over six million
dollars, and a similar growth in assets of seven million dollars between the
respective year ends. Net interest income improved significantly during 1993,
although increases in noninterest expense consumed most of this increase, some
being of a non-recurring nature, in particular, startup data processing
expenses and liability and related legal expenses.
COMMON STOCK PRICES
The common stock of BWC Financial Corp. is traded in the over-the-counter
market through market makers.
At December 31, 1994, BWC Financial Corp. had 564 record holders of common
stock. At December 31, 1993, BWC Financial Corp. had 581 shareholders of
record of common stock.
The shareholders of BWC Financial Corp. will be entitled to receive dividends
when and as declared by its Board of Directors, out of funds legally available
therefor, subject to the dividend preference, if any, on preferred shares that
may be outstanding and also subject to the restrictions of the California
General Corporation Law. There are no preferred shares outstanding at this
time. It is not anticipated that any cash dividends will be declared in the
foreseeable future.
According to the principal market makers, the high and low bid quotations for
1994 and 1993 were:
1994
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
$13.37-$14.00 $13.37-14.75 10.75-$12.00 $12.50-$13.50
1993
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
$8.25-$9.50 $7.50-$8.50 $7.50-$9.00 $8.00-10.75
A 10% stock dividend was granted to shareholders of record April 15, 1993.
Common stock prices have not been adjusted to reflect the above stock
dividends.