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 June 30, 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 June 30, 1995, there were
930,548 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 8-11
Interest Rate Sensitivity Table 12
PART II - OTHER INFORMATION
Item 1 Legal Proceedings 13
Item 2 Changes in Securities 13
Item 3 Defaults Upon Senior Securities 13
Item 4 Submission of Matters to a Vote of
Security Holders 13
Item 5 Other Materially Important Events 13
Item 6 Exhibits and Reports on Form 8-K 13
Signatures 14
BWC FINANCIAL CORP.
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
ASSETS 1995 1994
Cash and Due From Banks $15,166,000 $8,552,000
Federal Funds Sold $4,950,000 3,300,000
Other Short Term Investments 82,000 3,018,000
Total Cash and Cash Equivalents 20,198,000 14,870,000
Investment Securities:
Available for Sale 18,873,000 17,419,000
Held to Maturity (approximate market value
of $7,848,000 in 1995 and $10,982,000 in 1994) 7,863,000 11,335,000
Loans, Net of Allowance for Credit Losses of $1,561,000
in 1995 and $1,498,000 in 1994. 87,584,000 86,411,000
Bank Premises and Equipment, Net 1,007,000 993,000
Interest Receivable and Other Assets 2,247,000 2,116,000
Other Real Estate Owned 161,000 --
Total Assets $137,933,000 $133,144,000
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Deposits:
Noninterest-bearing $29,466,000 $27,340,000
Interest-bearing:
Money Market Accounts 34,352,000 37,062,000
Savings and NOW Accounts 20,806,000 24,681,000
Time Deposits:
Under $100,000 20,891,000 16,862,000
$100,000 or more 17,871,000 14,027,000
Total Interest-bearing 93,920,000 92,632,000
Total Deposits 123,386,000 119,972,000
Interest Payable and Other Liabilities 705,000 529,000
Total Liabilities 124,091,000 120,501,000
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 -
930,548 shares in 1995 and 830,737 in 1994. 10,481,000 9,026,000
Retained Earnings 3,361,000 3,617,000
Total Shareholders' Equity 13,842,000 12,643,000
Total Liabilities and
Shareholders' Equity $137,933,000 $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 For the six months
Ended June 30 Ended June 30
1995 1994 1995 1994
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
INTEREST INCOME
Loans, Including Fees $2,311,000 $2,106,000 $4,574,000 $3,943,000
Investment Securities:
Taxable 280,000 96,000 561,000 227,000
Non-taxable 86,000 95,000 173,000 193,000
Federal Funds Sold 63,000 56,000 83,000 73,000
Other Short Term Investments 19,000 54,000
Total Interest Income 2,759,000 2,353,000 5,445,000 4,436,000
INTEREST EXPENSE
Deposits 830,000 592,000 1,560,000 1,117,000
Federal Funds Purchased -- 1,000 1,000 2,000
Total Interest Expense 830,000 593,000 1,561,000 1,119,000
NET INTEREST INCOME 1,929,000 1,760,000 3,884,000 3,317,000
PROVISION FOR CREDIT LOSSES 75,000 60,000 150,000 105,000
NET INTEREST INCOME AFTER PROVISION
FOR CREDIT LOSSES 1,854,000 1,700,000 3,734,000 3,212,000
NONINTEREST INCOME
Service Charges on Deposit Accounts 124,000 100,000 250,000 188,000
Investment Securities Gains, Net -- 1,000 -- 5,000
Other 103,000 50,000 203,000 93,000
Total Noninterest Income 227,000 151,000 453,000 286,000
NONINTEREST EXPENSE
Salaries and Related Benefits 801,000 739,000 1,575,000 1,433,000
Occupancy 181,000 169,000 369,000 328,000
Furniture and Equipment 112,000 114,000 210,000 214,000
Other 559,000 436,000 1,022,000 860,000
Total Noninterest Expense 1,653,000 1,458,000 3,176,000 2,835,000
INCOME BEFORE INCOME TAXES 428,000 393,000 1,011,000 663,000
Provision for Income Taxes 139,000 118,000 331,000 199,000
NET INCOME $289,000 $275,000 $680,000 $464,000
NET INCOME PER COMMON AND COMMON
EQUIVALENT SHARE $0.28 $0.28 $0.68 $0.48
Average common and common equivalent shares 1,018,408 974,942 1,003,003 963,565
<FN>
The accompanying notes are an intergral part of these consolidated statements.
</FN>
BWC FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30,
1995 1994
OPERATING ACTIVITIES:
Net Income $680,000 $464,000
Adjustments to reconcile net income to
net cash provided(used):
Amortization of loan fees (311,000) (448,000)
Provision for credit losses 150,000 105,000
Depreciation and amortization 144,000 148,000
Gain on sale of securities available for sale -- (5,000)
Increase in accrued interest receivable
and other assets (291,000) (36,000)
Increase in accrued interest payable
and other liabilities 15,000 14,000
Net Cash Provided by Operating Activities 387,000 242,000
INVESTING ACTIVITIES:
Proceeds from maturities of investment securities 7,095,000 3,972,000
Proceeds from the sales of investment securities -- 4,995,000
Purchase of investment securities (4,562,000) (5,065,000)
Loans originated, net of collections (1,011,000) (5,048,000)
Purchase of bank premises and equipment (159,000) (303,000)
Net Cash Used by Investing Activities 1,363,000 (1,449,000)
FINANCING ACTIVITIES:
Net increase in deposits 3,413,000 11,329,000
Proceeds from issuance of common stock 168,000 88,000
Cash paid for the repurchase of common stock -- (123,000)
Cash paid in lieu of fractional shares (4,000) --
Net Cash Provided by Financing Activities 3,577,000 11,294,000
CASH AND CASH EQUIVALENTS:
Increase in cash and cash equivalents 5,327,000 10,087,000
Cash and cash equivalents at beginning of year 14,871,000 9,126,000
Cash and Cash Equivalents at period end $20,198,000 $19,213,000
ADDITIONAL CASH FLOW INFORMATION:
Interest Paid $1,420,000 $463,000
Income Taxes Paid $458,000 $167,000
<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
June 30, 1995 and the results of operations for the six months ended June 30,
1995 and 1994 and cash flows for the six months ended June 30, 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 six months ended June 30, 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. INVESTMENT SECURITIES AND OTHER SHORT TERM INVESTMENTS
The amortized cost and approximate market value of investment securities
at June 30, 1995 are as follows:
Gross
Amortized Unrealized Market
Cost Gain(Loss) Value
Held-to-maturity
Obligations of State and
Political Subdivisions $7,863,000 ($ 15,000) $7,848,000
Available-for-sale
U.S. Treasury Securities $12,080,000 $ 47,000 $12,127,000
Available-for-sale
U.S. Government Agencies $ 6,726,000 $ 20,000 $ 6,746,000
For the six months ended June 30, 1995, the Bank had no proceeds from
sale of investment securities.
The following table shows the amortized cost and estimated market
value of investment securities by contractual maturity at June 30, 1995.
Held-to-Maturity Available-for-Sale
Amortized Market Amortize Market
Cost Value Cost Value
Within one year $2,407,000 $2,405,000 $ 7,571,000 $ 7,562,000
After one but within
five years $5,456,000 $5,443,000 $10,235,000 $10,319,000
Over five years -- -- $ 1,000,000 $ 992,000
The Corporation had investments in a mutual fund comprised of
investments in short term U.S. government securities and redeemable on a one day
notice, in the amount of $82,000. The yield on this investment averages
slightly higher than that available on Fed Funds and the liquidity is
approximately the same.
3. ALLOWANCE FOR CREDIT LOSSES
For the Six months Ended
June 30,
1995 1994
Allowance for credit losses at
beginning of period $1,498,000 $1,418,000
Chargeoffs (96,000) (21,000)
Recoveries 9,000 43,000
Net chargeoffs (87,000) 22,000
Provisions 150,000 105,000
Allowance for credit losses at end
of period $1,561,000 $1,545,000
Ratio of allowance for credit
losses to loans 1.75% 1.76%
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS
Net Income
Net income for the first six months in 1995 of $680,000 is $216,000 greater
then the first six months in 1994. This represents a return on average assets
during this period of 1.06% and a return on average equity of 10.26%. During
the first six months of 1994 the Corporation earned $273,000 which was a
return on average assets of .78% and on average equity of 7.73%.
Net income for the three months ending June 30, 1995, of $289,000 was $14,000
over the comparable period in 1994. The return on average assets during the
second quarter was .90% and the return on average equity was 8.52% as compared
to a return on average assets during the second quarter of 1994 of .91% and a
return on average equity of 9.10%.
Earning assets averaged $118,825,000 during the six months ended June 30, 1995,
as compared to $108,968,000 for the comparable period in 1994. Earning assets
averaged $119,732,000 during the second quarter of 1995 as compared to
$110,782,000 during the second quarter of 1994.
Earnings per average common and common equivalent shares (this includes any
dilutive effect of unexercised options outstanding) was $0.68 for the first
six months of 1995 as compared to $0.48 for the first six months of 1994. For
the second quarter of 1995, earnings per average common and common equivalent
shares was $0.28 which was the same per share earnings as experienced during
the second quarter of 1994.
Net income during the second quarter of 1995 was $14,000 over the second
quarter income of 1994. This was due to one time noninterest expenses that
reduced earnings for the quarter.
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 six months of 1995 was $3,884,000 or
$567,000 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 $89,000 over the comparable quarter in
1994. Based in the improved net spread alone, net interest income increased
by $478,000.
Net interest income during the three months ending June 30, 1995 was
$1,929,000 or $169,000 greater than the comparable period in 1994. Based on
the volume increase alone, net interest income increased by $18,000 over the
comparable quarter in 1994. Based in the improved net spread alone, net
interest income increased by $151,000.
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 June 30,
1995 was 1.75% as compared to 1.76% for the period ending June 30, 1994. This
reflects a conservative attitude on the part of management and is considered
adequate to provide for potential future losses.
The Corporation had net loan losses of $87,000 during the first six months of
1995 as compared to a net recovery of $22,000 during the comparable period in
1994.
The following table provides information on past due and nonaccrual loans:
For the Six months Ended
June 30,
1995 1994
Loans Past Due 90 Days or More $ 12,000 $ 90,000
Nonaccrual Loans 313,000 1,072,000
Total $ 325,000 $1,162,000
As of June 30, 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 $45,000 and $68,000 as of June 30, 1995 and 1994
respectively.
Noninterest Income
Noninterest income during the first six six months of 1995 of $453,000 was
$167,000 greater than earned during the comparable period of 1994. This was
reflected in increases in most areas of noninterest income and fees and
includes gains on the sale of SBA loans.
Noninterest Expense
Salaries and related benefits are $142,000 greater during the first six months
of 1995 as compared to 1994. This increase is related to staffing additions
for the Bank's SBA division and the new business factoring division. It also
includes general merit increases and the opening of the Corporation's new
banking office in Pleasanton California and additional staffing for the
expanded Orinda Office.
Occupancy expense also increased $41,000 during the respective periods due to
the addition of the new Pleasanton Office in April 1994 and the expanded
facilities and remodeling of the Corporation's Orinda office. Also included
are CPI rental adjustments and operating expense increases. Total Furniture
and Equipment expense decreased $4,000 between the respective periods.
Other Expense increased $162,000 between the respective periods. The primary
catagories accounting for this increase are the following: Professional fees
increased $47,000; postage expense (related to increase in US Postage fees) up
$14,000; Regulatory fees (related to asset growth) increased $17,000;
Correspondent service fees (related to check clearing costs) increased
$21,000; Fees related to the Corporation's Prestige line of checking accounts
(free check and related services) increased $21,000; Operating losses
increased $35,000.
During the second quarter of 1995 the Coproration spent $89,000 for outside
professional services, which included $32,000 for consulting services. Also
during the second quarter of 1995 the Corporation experienced an operating
loss which was paid by the Corporation's bond insurance except for the
deductable portion of $25,000.
Other Real Estate Owned
As of June 30, 1995 the Corporation had $161,000 in 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 June 30, 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 June 30, 1995, December 31, 1994, and June 30, 1994.
Risk-based capital ratios: Capital Ratios
Minimum
Current guidelines June 30, December 31, June 30 regulatory
1995 1994 1994 requirements
Tier 1 capital 12.83% 12.70% 12.43% 4.00%
Total capital 14.08% 13.95% 13.69% 8.00%
Leverage ratio 10.00% 9.35% 10.05% 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 37% of total assets at June 30, 1995
and 30% at June 30, 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 June 30, 1995 of $137,933,000 have
increased $10,831,000 as compared to June 30, 1994 Total deposits of
$123,386,000 have increased $8,890,000 from June 30, 1994.
The Corporation's loan to deposit ratio as of June 30, 1995 was 72%, as
compared to 76% on June 30, 1994.
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 June 30, 1995 and June 30, 1994. 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
JUNE 30, 1995
ASSETS:
Federal funds sold $4,950 -- -- -- -- $4,950
Other Short Term Securities $82 -- -- -- -- $82
Investment securities $2,614 $5,124 $2,231 $15,775 992 $26,736
Construction & Real Estate Loans $20,086 $9,055 $286 $2,772 $726 $32,925
Commercial loans $24,930 $1,326 $28 $990 $153 $27,427
Consumer loans $25,047 $463 $303 $2,791 $190 $28,794
Interest-bearing assets $77,709 $15,968 $2,848 $22,328 $2,061 $120,914
Savings and Now accounts $20,806 0 0 0 0 $20,806
Money market accounts $34,352 0 0 0 0 $34,352
Time deposits <$100,000 $4,903 $7,421 $6,325 $1,069 $1,173 $20,891
Time deposits >$100,000 $2,106 $10,395 $1,508 $3,252 610 $17,871
Interest-bearing liabilities $62,167 $17,816 $7,833 $4,321 $0 $93,920
Rate sensitive gap $15,542 ($1,848) ($4,985) $18,007 $2,061 $26,994
Cumulative rate sensitiveity gap $15,542 $13,694 $8,709 $26,716 $28,777 $55,771
Cumulative position to average
earning assets 12.85% 11.33% 7.20% 22.10% 23.80%
Interest Rate Sensitivity 3 3-6 12 1-5 Over 5
Repricing within: months months months years years Totals
June 30, 1994
ASSETS:
Federal funds sold $7,495 $0 $0 $0 $0 $7,495
Other short term investments $3,000 $0 $0 $0 $3,000
Investment securities $2,472 $2,243 $3,101 $11,173 $0 $18,989
Construction & Real Estate Loans $26,839 $5,462 $1,882 $307 $766 $35,256
Commercial loans $24,835 $26 $374 $997 $0 $26,232
Consumer loans $24,859 $134 $257 $907 $208 $26,365
Interest-bearing assets $89,500 $7,865 $5,614 $13,384 $974 $117,337
Savings and Now accounts $20,622 $0 $0 $0 $0 $20,622
Money market accounts $43,248 $0 $0 $0 $0 $43,248
Time deposits <$100,000 $5,464 $2,234 $5,875 $2,328 $3 $15,904
Time deposits >$100,000 $5,272 $1,265 $2,072 $311 $0 $8,920
Interest-bearing liabilities $74,606 $3,499 $7,947 $2,639 $3 $88,694
Rate sensitive gap $14,894 $4,366 ($2,333) $10,745 $971 $28,643
Cumulative rate sensitiveity gap $14,894 $19,260 $16,927 $27,672 $28,643 $57,286
Cumulative position to average
earning assets 12.69% 16.41% 14.43% 23.58% 24.41%
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
At this time there are no pending or threatened material legal
proceedings to which the corporation is a party or to which any of the
corporation's properties are subject.
Item 2 - Changes in Securities
None
Item 3 - Defaults Upon Senior Securities
None
Item 4 - Submission of Matters to a Vote of Security Holders
None
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