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 , 1995.
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 officer)
(510) 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, 1995, there were
835,165 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
Notes to Consolidated Financial Statements 6-7
Item 2 Management's Discussion and Analysis
of Results of Operations 8-10
Interest Rate Sensitivity Table 11
PART II - OTHER INFORMATION
Item 1 Legal Proceedings 12
Item 2 Changes in Securities 12
Item 3 Defaults Upon Senior Securities 12
Item 4 Submission of Matters to a Vote of
Security Holders 12
Item 5 Other Materially Important Events 12
Item 6 Exhibits and Reports on Form 8-K 12
Signatures 13
BWC FINANCIAL CORP
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
ASSETS 1995 1994
Cash and Due From Banks $8,983,000 $8,552,000
Federal Funds Sold $3,450,000 3,300,000
Other Short Term Investments 3,018,000 3,018,000
Total Cash and Cash Equivalents 15,451,000 14,870,000
Investment Securities:
Available for Sale 15,752,000 17,419,000
Held to Maturity (approximate market value
of $10,402,000 in 1995 and $10,982,000 in 1994) 10,564,000 11,335,000
Loans, Net of Allowance for Credit Losses of $1,565,000
in 1995 and $1,498,000 in 1994. 83,775,000 86,411,000
Bank Premises and Equipment, Net 953,000 993,000
Interest Receivable and Other Assets 1,917,000 2,116,000
Total Assets $128,412,000 $133,144,000
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Deposits:
Noninterest-bearing $28,548,000 $27,340,000
Interest-bearing:
Money Market Accounts 31,969,000 37,062,000
Savings and NOW Accounts 24,016,000 24,681,000
Time Deposits:
Under $100,000 16,735,000 16,862,000
$100,000 or more 12,970,000 14,027,000
Total Interest-bearing 85,690,000 92,632,000
Total Deposits 114,238,000 119,972,000
Interest Payable and Other Liabilities 874,000 529,000
Total Liabilities 115,112,000 120,501,000
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 -
835,165 shares in 1995 and 830,737 in 1994. 9,052,000 9,026,000
Retained Earnings 4,248,000 3,617,000
Total Shareholders' Equity 13,300,000 12,643,000
Total Liabilities and
Shareholders' Equity $128,412,000 $133,144,000
<FN>
The accompanying notes are an integral part of these consolidated statements.
</FN>
BWC FINANCIAL CORP
CONSOLIDATED STATEMENTS OF INCOME
For the Three Months
Ended March 31,
1995 1994
INTEREST INCOME
Loans, Including Fees $2,264,000 $1,837,000
Investment Securities:
Taxable 280,000 131,000
Non-taxable 87,000 99,000
Federal Funds Sold 19,000 18,000
Other Short Term Investments 35,000
Total Interest Income 2,685,000 2,085,000
INTEREST EXPENSE
Deposits 729,000 526,000
1,000
Total Interest Expense 730,000 526,000
NET INTEREST INCOME 1,955,000 1,559,000
PROVISION FOR POSSIBLE CREDIT LOSSES 75,000 45,000
NET INTEREST INCOME AFTER PROVISION
FOR POSSIBLE CREDIT LOSSES 1,880,000 1,514,000
NONINTEREST INCOME
Service Charges on Deposit Accounts 127,000 88,000
Investment Securities Gains, Net -- 5,000
Other 99,000 42,000
Total Noninterest Income 226,000 135,000
NONINTEREST EXPENSE
Salaries and Related Benefits 773,000 693,000
Occupancy 188,000 159,000
Furniture and Equipment 98,000 100,000
Other 464,000 424,000
Total Noninterest Expense 1,523,000 1,376,000
INCOME BEFORE INCOME TAXES 583,000 273,000
Provision for Income Taxes 192,000 82,000
NET INCOME $391,000 $191,000
NET INCOME PER COMMON AND COMMON
EQUIVALENT SHARE $0.44 $0.22
Average common and common equivalent shares 897,815 876,322
<FN>
The accompanying notes are an intergral part of these consolidated statements.
</FN>
BWC FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31,
1995 1994
OPERATING ACTIVITIES:
Net Income $391,000 $191,000
Adjustments to reconcile net income to
net cash provided(used):
Amortization of loan fees (159,000) (233,000)
Provision for possible credit losses 75,000 45,000
Depreciation and amortization 71,000 114,000
(Increase)decrease in accrued interest receivable
and other assets 198,000 (21,000)
Increase(decrease) in accrued interest payable
and other liabilities 345,000 (12,000)
Net Cash Provided(Used) by Operating Activities 921,000 84,000
INVESTING ACTIVITIES:
Proceeds from maturities of investment securities 2,871,000 1,458,000
Proceeds from the sales of investment securities -- 2,989,000
Purchase of investment securities -- (734,000)
Loans originated, net of collections 2,553,000 (3,741,000)
Purchase of bank premises and equipment (31,000) (141,000)
Net Cash Used by Investing Activities 5,393,000 (169,000)
FINANCING ACTIVITIES:
Net increase(decrease) in deposits (5,734,000) 4,104,000
Net Cash Provided(Used) by Financing Activities (5,734,000) 4,104,000
CASH AND CASH EQUIVALENTS:
Increase(decrease)in cash and cash equivalents 580,000 4,019,000
Cash and cash equivalents at beginning of year 14,871,000 9,125,000
Cash and Cash Equivalents at period end $15,451,000 $13,144,000
ADDITIONAL CASH FLOW INFORMATION:
Interest Paid $655,000 $506,000
Income Taxes Paid $1,000 $6,000
<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, 1995 and the results of operations for the three months ended March
31, 1995 and 1994 and cash flows for the three months ended March 31, 1995 and
1994.
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 1994 Annual Report to Shareholders, which is incorporated by
reference in the Company's 1994 annual report on Form 10-K. The results of
operations for the three months ended March 31, 1995 are not necessarily
indicative of the operating results for the full year.
Net income per common and common equivalent share is computed using the
weighted average number of shares outstanding during the period, adjusted for
the dilutive effect of stock options and stock dividends.
2. SIGNIFICANT ACCOUNTING POLICIES
The Corporation adopted FASB Statement No. 114, "Accounting by Creditors
for Imapirment of a Loan" on January 1, 1995. There was no material impact on
the Corporation's financial position or results of operations as a result this
adoption.
The amortized cost and approximate market value of investment securities
at March 31, 1995 are as follows:
Gross
Amortized Unrealized Market
Cost Loss Value
Held-to-maturity
Obligations of State and
Political Subdivisions $10,564,000 $ 162,000 $10,402,000
Available-for-sale
U.S. Treasury Securities $12,108,000 $ 81,000 $12,027,000
Available-for-sale
U.S. Government Agencies $ 3,748,000 $ 23,000 $ 3,725,000
For the three months ended March 31, 1995, the Bank had no proceeds from sale
of investment securities.
The Corporation had investments in a mutual fund comprised of
investments in short term US government securities and redeemable on a one day
notice, in the amount of $3,018,000. The yield on this investment averages
slightly higher than that available on Fed Funds and the liquidity is
approximately the same.
The following table shows the amortized cost and estimated market value
of investment securities by contractual maturity at March 31, 1995. (This
table does not include accounting adjustments related to FASB 115)
Held-to-Maturity Available-for-Sale
Amortized Market Amortize Market
Cost Value Cost Value
Within one year $5,545,000 $5,433,000 $4,541,000 $4,504,000
After one but within
five years $5,419,000 $4,969,000 $11,315,000 $11,248,000
Over five years -- -- -- --
3. RECONCILIATION OF ALLOWANCE FOR CREDIT LOSSES
For the Three months Ended
September 30,
1995 1994
Allowance for credit losses December $1,498,000 $1,418,000
Chargeoffs made (13,000) (49,000)
Recoveries made 5,000 47,000
Net (losses)/recoveries (8,000) (2,000)
Provisions made 75,000 180,000
Allowance for credit losses at end
of period $1,565,000 $1,596,000
Ratio of credit losses to loans 1.83% 1.93%
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS
Net Income
Net income for the first three months in 1995 of $391,000 is $200,000 greater
then the first three months in 1994. This represents a return on average
assets during the quarter of 1.24% and a return on average equity of 12.04%.
During the first quarter of 1994 the Corporation earned $191,000 which was a
return on average assets of .65% and on average equity of 6.36%.
Net interest income increased $396,000 during the first quarter of 1995 as
compared to 1994, and noninterest income increased $91,000. Noninterest
expense increased $147,000 between the respective periods. Provision for
possible credit losses increased $30,000 and the provision for income taxes
increased $110,000 between the respective periods.
Earning assets averaged $117,918,000 during the first quarter of 1995, up
$10,764,000 from the comparable quarter of 1994. During this same period
deposits averaged $113,579,000, up $8,431,000 from the comparable quarter of
1994.
Earnings per average common and common equivalent shares (this includes any
dilutive effect of unexercised options outstanding) was $0.44 for the first
three months of 1995 as compared to $0.22 for the first three months of 1994.
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 and deposits and interest rate fluctuations caused by economic
conditions greatly affect net interest income.
Net interest income during the first three months of 1995 was $1,955,000 or
$396,000 greater than the comparable period in 1994. This is primarily the
result of an increase in interest rates resulting in an improved net interest
spread in the 1995 period as compared to 1994. Based on the volume increase
alone, net interest income increased by $31,000 over the comparable quarter in
1994. Based in the improved net spread alone, net interest income increased
by $365,000.
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. 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,
1995 was 1.83% as compared to 1.74% for the period ending March 31, 1994.
This reflects a conservative attitude on the part of management and is
considered adequate to provide for potential future losses.
The Corporation had a net recovery of approximately $5,000 during the first
quarter of 1995 as compared to $36,000 during the comparable period in 1994.
The following table provides information on past due and nonaccrual loans:
For the Three Months Ended
March 31,
1995 1994
Loans Past Due 90 Days or More $ -- $ 7,000
Nonaccrual Loans 686,000 1,327,000
Total $ 686,000 $1,334,000
As of March 31, 1995 and 1994, no loans were outstanding that had been
restructured. No interest earned on nonaccrual loans that was recorded in
income during 1995 remains uncollected. Interest foregone on nonaccrual loans
was approximately $91,000 and $88,000 as of March 31, 1995 and 1994
respectively.
Noninterest Income
Noninterest income during the first quarter of 1995 was $91,000 greater than
earned during the comparable quarter of 1994. This was reflected in increases
in most areas of noninterest income and fees.
Noninterest Expense
Salaries and related benefits are $80,000 greater during the first quarter of
1995 as compared to 1994. This increase is related to general merit increases
and the opening of the Corporation's new banking office in Pleasanton
California. Occupancy expense also increased $29,000 during the respective
periods due to the addition of the new Pleasanton Office and to CPI rental
adjustments and operating expense increases. Total Furniture and Equipment
expense remained about the same between the respective periods, decreasing
only $2,000 between the respective periods. Other Expense increased $38,000
between the respective periods, related to increased fees for check clearing
and correspondent services, and to new services offered by the Bank, such as
its Prestige checking services and Visa card program.
Other Real Estate Owned
As of March 31, 1995 the Corporation had no Other Real Estate Owned assets
(assets acquired as the result of foreclosure on real estate collateral) on
its books.
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 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 8% at March 31, for both
1995 and 1994. At year-end 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 following table shows the Corporation's risk-based capital ratios and
leverage ratio as of March 31, 1995, December 31, 1994, and March 31, 1994.
Risk-based capital ratios: Capital Ratios
Minimum
Current guidelines March 31, December 31, March 31, regulatory
1995 1994 1994 requirements
Tier 1 capital 13.61% 12.70% 12.08% 4.00%
Total capital 14.86% 13.95% 13.34% 8.00%
Leverage ratio 9.84% 9.35% 9.53% 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
marketable securities and Federal Funds sold. Cash, investment securities and
other temporary investments represented 32% of total assets at March 31, 1995
and 27% at March 31, 1994. 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 $9,000,000.
General
Total assets of the Corporation at March 31, 1995 of $128,412,000 are up
$8,712,000 as compared to March 31, 1994 Total deposits of $114,238,000 are
up $6,968,000 from March 31, 1994.
The Corporation's loan to deposit ratio as of March 31, 1995 was 75%, as
compared to 80% on March 31, 1994.
Other Short Term Investments are investments in a mutual fund operated by
Federated Funds Investments and comprised of short term US Treasury
Securities. Investments are done on a daily basis and are similar in
liquidity to Fed Funds Investments, but carry a slightly higher yield.
The increase in Interest Payable and Other Liabilities from year end to March
31, 1995 is comprised primarily of an increase in income taxes payable.
In addition to a SBA (Small Business Administration) department opened in 1994
the Corporation began offering mortgage brokerage services through a new
subsidiary opened in September 1994. Although these services were not
financial contributors during 1994 the Corporation expects them to provide a
positive impact during 1995.
INTEREST RATE SENSITIVITY
(in thousands except share and per share data)
<FN>
Proper management of the rate sensitivity and maturities of assets and liabilities are 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, 1994 and December 31, 1993. 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.
</FN>
Interest Rate Sensitivity 3 3-6 12 1-5 Over 5
Repricing within: months months months years years Totals
March 31, 1995
ASSETS:
Federal funds sold $3,450 -- -- -- -- $3,450
Other Short Term Securities $3,018 -- -- -- -- $3,018
Investment securities $2,004 $2,933 $5,605 $8,619 0 $19,261
Construction & real estate loans $19,991 $7,751 $1,226 $0 $0 $28,968
Commercial loans $24,133 $171 $327 $931 $1,089 $25,562
Consumer loans $24,254 $150 $307 $1,041 $228 $25,980
Interest-bearing assets $76,850 $11,005 $7,465 $10,591 $1,317 $106,239
Savings and Now accounts $18,816 0 0 0 0 $18,816
Money market accounts $46,579 0 0 0 0 $46,579
Time deposits <$100,000 $2,692 $5,923 $2,198 $651 $3 $11,467
Time deposits >$100,000 $1,212 $5,193 $648 $111 0 $7,164
Interest-bearing liabilities $69,299 $11,116 $2,846 $762 $0 $84,026
Rate sensitive gap $7,551 ($111) $4,619 $9,829 $1,317 $22,213
Cumulative rate sensitiveity gap $7,551 $7,440 $12,059 $21,888 $23,205 $45,418
Cumulative position to average
earning assets 7.11% 7.00% 11.35% 20.60% 21.84%
Interest Rate Sensitivity 3 3-6 12 1-5 Over 5
Repricing within: months months months years years Totals
March 31, 1994
ASSETS:
Federal funds sold $3,600 0 0 0 0 $3,600
Investment securities $2,004 $2,933 $5,605 $8,619 0 $19,261
Construction & real estate loans $26,245 $6,025 $1,866 $147 $519 $34,802
Commercial loans $24,133 $171 $327 $931 $1,089 $25,562
Consumer loans $24,254 $150 $307 $1,041 $228 $25,980
Interest-bearing assets $80,236 $9,279 $8,105 $10,738 $1,836 $109,205
Savings and Now accounts $18,816 0 0 0 0 $18,816
Money market accounts $46,579 0 0 0 0 $46,579
Time deposits <$100,000 $2,692 $5,923 $2,198 $651 $3 $11,467
Time deposits >$100,000 $1,212 $5,193 $648 $111 0 $7,164
Interest-bearing liabilities $69,299 $11,116 $2,846 $762 $0 $84,026
Rate sensitive gap $10,937 ($1,837) $5,259 $9,976 $1,836 $25,179
Cumulative rate sensitiveity gap $10,937 $9,100 $14,359 $24,335 $26,171 $51,350
Cumulative position to average
earning assets 10.02% 8.33% 13.15% 22.28% 23.97%
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)
April 26, 1995
___________________________ _________________________________
Date James L. Ryan
President and Chief Executive Officer
April 26, 1995
______________________ ________________________________
Date Leland E. Wines
CFO and Corp. Secretary