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, 1996.
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, 1996, there were
919,167 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
March 31, December 31,
1996 1995
ASSETS
Cash and Due From Banks $9,950,000 $11,377,000
Federal Funds Sold $6,000,000 1,230,000
Other Short Term Investments 11,000 10,000
Total Cash and Cash Equivalents 15,961,000 12,617,000
Investment Securities:
Available for Sale 15,151,000 23,500,000
Held to Maturity (approximate fair value of
$10,895,000 in 1996 and $11,061,000 in 199 10,862,000 10,971,000
Loans, Net of Allowance for Credit Losses of $1,667,000
in 1996 and $1,528,000 in 1995. 100,996,000 99,776,000
Bank Premises and Equipment, Net 1,515,000 1,475,000
Interest Receivable and Other Assets 1,982,000 2,258,000
Total Assets $146,467,000 $150,597,000
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Deposits:
Noninterest-bearing $34,541,000 $36,854,000
Interest-bearing:
Money Market Accounts 28,532,000 33,917,000
Savings and NOW Accounts 23,859,000 21,224,000
Time Deposits:
Under $100,000 22,676,000 21,733,000
$100,000 or more 20,665,000 20,873,000
Total Interest-bearing 95,732,000 97,747,000
Total Deposits 130,273,000 134,601,000
Interest Payable and Other Liabilities 1,331,000 1,103,000
Total Liabilities 131,604,000 135,704,000
COMMITMENTS AND CONTINGENT LIABILITIES
SHAREHOLDERS' EQUITY
Preferred Stock, no par value:
5,000,000 shares authorized, none outstandi -- --
Common Stock, no par value:
25,000,000 shares authorized; issued and outstanding -
935,907 shares in 1996 and 830,737 in 1995 10,187,000 10,508,000
Retained Earnings 4,720,000 4,257,000
Capital adjustment on available-for-sale securities (44,000) 128,000
Total Shareholders' Equity 14,863,000 14,893,000
Total Liabilities and Shareholders' $146,467,000 $150,597,000
<FN>
The accompanying notes are an intergral part of these consolidated statements.
</FN>
BWC FINANCIAL CORP
CONSOLIDATED STATEMENTS OF INCOME
For the Three Months
Ended March 31,
1996 1995
INTEREST INCOME
Loans, Including Fees $2,620,000 $2,264,000
Investment Securities:
Taxable 285,000 280,000
Non-taxable 129,000 87,000
Federal Funds Sold 30,000 19,000
Other Short Term Investments -- 35,000
Total Interest Income 3,064,000 2,685,000
INTEREST EXPENSE
Deposits 886,000 729,000
Fed Funds Purchased 6,000 1,000
Total Interest Expense 892,000 730,000
NET INTEREST INCOME 2,172,000 1,955,000
PROVISION FOR CREDIT LOSSES 150,000 75,000
NET INTEREST INCOME AFTER PROVISION
FOR CREDIT LOSSES 2,022,000 1,880,000
NONINTEREST INCOME
Service Charges on Deposit Accounts 140,000 127,000
Income from Real Estate Brokerage Subsidiar 40,000 --
Gain on SBA Loan Sales 26,000 1,000
Investment Securities Gains, Net 45,000 --
Other 97,000 98,000
Total Noninterest Income 348,000 226,000
NONINTEREST EXPENSE
Salaries and Related Benefits 899,000 773,000
Occupancy 183,000 188,000
Furniture and Equipment 158,000 98,000
Other 473,000 464,000
Total Noninterest Expense 1,713,000 1,523,000
INCOME BEFORE INCOME TAXES 657,000 583,000
Provision for Income Taxes 194,000 192,000
NET INCOME $463,000 $391,000
NET INCOME PER COMMON AND COMMON
EQUIVALENT SHARE $0.45 $0.40
Average common and common equivalent shares 1,026,519 981,018
<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,
1996 1995
OPERATING ACTIVITIES:
Net Income $463,000 $391,000
Adjustments to reconcile net income to
net cash provided(used):
Amortization of loan fees (198,000) (159,000)
Provision for credit losses 150,000 75,000
Depreciation and amortization 73,000 71,000
(Increase)decrease in accrued interest receivable
and other assets 276,000 198,000
Increase(decrease) in accrued interest payable
and other liabilities 228,000 345,000
Net Cash Provided (Used) by Operatin 992,000 921,000
INVESTING ACTIVITIES:
Proceeds from maturities of investment securities -- 2,871,000
Proceeds from the sales of investment securities 5,692,000 --
Purchase of investment securities (2,496,000) --
Loans originated, net of collections (1,173,000) 2,553,000
Purchase of bank premises and equipment (112,000) (31,000)
Net Cash Used by Investing Activitie 1,911,000 5,393,000
FINANCING ACTIVITIES:
Net increase(decrease) in deposits (4,329,000) (5,734,000)
Net Cash Provided(Used) by Financing (4,329,000) (5,734,000)
CASH AND CASH EQUIVALENTS:
Increase(decrease)in cash and cash equivalents (1,426,000) 580,000
Cash and cash equivalents at beginning of year 11,377,000 14,871,000
Cash and Cash Equivalents at period end $9,951,000 $15,451,000
ADDITIONAL CASH FLOW INFORMATION:
Interest Paid $750,000 $655,000
Income Taxes Paid $114 $1,000
<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, 1996 and the results of operations for the three months ended March
31, 1996 and 1995 and cash flows for the three months ended March 31, 1996 and
1995.
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 1995 Annual Report to Shareholders, which is incorporated by
reference in the Company's 1995 annual report on Form 10-K. The results of
operations for the three months ended March 31, 1996 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 March 31, 1996 are as follows:
Gross
Amortized Unrealized Market
Cost Gain(Loss) Value
Held-to-maturity
Obligations of State and
Political Subdivisions $ 10,862,000 $ 33,000 $10,895,000
Available-for-sale
Taxable Obligations of
State & Political
Subdivisions $ 5,015,000 $ (78,000) $ 4,937,000
Available-for-sale
U.S. Treasury Securities $ 5,041,000 $ 25,000 $ 5,066,000
Available-for-sale
U.S. Government Agencies $ 5,162,000 $ (14,000) $ 5,148,000
Total available-for sale $10,568,000 $ (67,000) $15,151,000
For the three months ended March 31, 1996, the Bank had proceeds of
$5,692,000 from sale of investment securities.
The following table shows the amortized cost and estimated market value
of investment securities by contractual maturity at March 31, 1996.
Held-to-Maturity Available-for-Sale
Amortized Market Amortize Market
Cost Value Cost Value
Within one year $2,139,000 $2,144,000 $ 2,406,000 $ 2,422,000
After one but within
five years $8,113,000 $8,149,000 $10,221,000 $10,211,000
Over five years $ 610,000 $ 602,000 $ 2,591,000 $ 2,518,000
3. ALLOWANCE FOR CREDIT LOSSES
For the Three months Ended
March 31,
1996 1995
Allowance for credit losses at
beginning of period $1,529,000 $1,498,000
Chargeoffs (20,000) (13,000)
Recoveries 8,000 5,000
Net chargeoffs (12,000) (8,000)
Provisions 150,000 75,000
Allowance for credit losses at
end of period $1,667,000 $1,565,000
Ratio of allowance for credit
losses to loans 1.62 1.83%
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS
Net Income
Net income for the first three months in 1996 of $463,000 was $72,000 greater
then the first three months in 1995. This represented a return on average
assets during the quarter of 1.25% and a return on average equity of 12.46%.
Net income for the first three months in 1995 was $391,000. This represented
a return on average assets during that quarter of 1.24% and a return on
average equity of 12.04%.
Net interest income increased $217,000 during the first quarter of 1996 as
compared to 1995, and noninterest income increased $123,000. Noninterest
expense increased $190,000 between the respective periods. Provision for
credit losses increased $75,000 and the provision of income taxes increased a
modest $2,000 between the respective periods.
Earning assets averaged $133,731,000 during the first quarter of 1996, an
increase of $15,813,000 from the comparable quarter of 1995. During this same
period loans averaged $102,396,000 and deposits averaged $128,174,000 as
compared to $86,780,000 in average loans and $113,579,000 in average deposits
during the first quarter of 1995.
Earnings per average common and common equivalent shares (this includes any
dilutive effect of unexercised options outstanding) was $0.45 for the first
three months of 1996 as compared to $0.40 for the first three months of 1995.
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 1996 was $2,172,000 or
$217,000 greater than the comparable period in 1995. This increase is the
result of increases in volume of funds rather than in rates. Based on the
volume increase alone, net interest income increased by $259,000 over the
comparable quarter in 1995. However, a slightly reduced rate spread resulted
in the reduction by $42,000.
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,
1996 was 1.62% as compared to 1.83% for the period ending March 31, 1995.
Industry standards for this ratio generally range between 1% to 1.5%. The
Corporation's ratios for both periods reflect a conservative attitude on the
part of management and is considered adequate to provide for potential future
losses.
The Corporation had net recoveries of $4,000 during the first quarter of 1996
as compared to $5,000 during the comparable period in 1995.
The following table provides information on past due and nonaccrual loans:
For the Three Months Ended
March 31,
1996 1995
Loans Past Due 90 Days or More $ -- $ --
Nonaccrual Loans 289,000 686,000
Total $ 289,000 $ 686,000
As of March 31, 1996 and 1995, no loans were outstanding that had been
restructured. No interest earned on nonaccrual loans that was recorded in
income during 1996 remains uncollected. Interest foregone on nonaccrual loans
was approximately $18,000 and $91,000 as of March 31, 1996 and 1995
respectively.
Noninterest Income
Noninterest income during the first quarter of 1996 was $122,000 greater than
earned during the comparable quarter of 1995. This was reflected in increases
in most areas of noninterest income and fees. It also includes income from
the Corporation's Real Estate Brokerage subsidiary of $40,000 and gains on
sales of securities available for sale of $45,000. The Corporation also
realized an increase in gains on SBA loan sales of $25,000 over the comparable
period in 1995.
Noninterest Expense
Salaries and related benefits are $126,000 greater during the first quarter of
1996 as compared to 1995. This increase is related to general merit increases,
growth of operations and a new business financing department in the
Corporation. Staff averaged 67.4 FTE (full time equivalent) persons during
the first quarter of 1996 as compared to 61.8 FTE in 1995. Occupancy expense
remained relatively constant, reflecting a modest $5,000 decrease as compared
to the 1995 period. Total Furniture and Equipment expense increased $60,000 as
compared to the 1995 period. The primary reason was the write down of the
Bank's primary computer system and its replacement with a newer model. Other
Expense reflects a modest increase of $9,000 between the respective periods.
Other Real Estate Owned
As of March 31, 1996 the Corporation had $108,000 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 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, 1996, December 31, 1995, and March 31, 1995.
Risk-based capital ratios: Capital Ratios
Minimum
Current guidelines March 31, December 31, March 31 regulatory
1996 1995 1995 requirements
Tier 1 capital 12.84% 12.51% 13.61% 4.00%
Total capital 14.09% 13.76% 14.86% 8.00%
Leverage ratio 9.52% 9.51% 9.84% 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 29% of total assets at March 31, 1996
and 32% at March 31, 1995. 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 $10,000,000.
General
Total assets of the Corporation at March 31, 1996 of $146,467,000 are up
$18,056,000 as compared to March 31, 1995 Total deposits of $130,273,000 are
up $16,034,000 from March 31, 1995.
The Corporation's loan to deposit ratio as of March 31, 1996 was 79%, as
compared to 75% on March 31, 1995.
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 Corporation's Mortgage Brokerage Subsidiary and the Bank's SBA Division
and Business Financing Division are all positive contributors to the income
growth of the Corporation this year.
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, 1996. 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, 1996
ASSETS:
Federal funds sold $6,000 -- -- -- -- $6,000
Other Short Term Securities 11 -- -- -- -- 11
Investment securities 200 $1,731 $2,629 $18,324 $3129 26,013
Construction & real estate l 25,837 8,408 3,802 257 737 39,041
Commercial loans 31,137 339 363 896 162 32,897
Consumer loans 25,445 357 699 4,064 160 30,725
Interest-bearing assets $88,630 $10,835 $7,493 $23,541 $4,188 $134,687
Savings and Now accounts $23,859 0 0 0 0 $23,859
Money market accounts 28,532 0 0 0 0 28,532
Time deposits <$100,000 11,704 $5,143 $4,387 $1,442 0 22,676
Time deposits >$100,000 11,000 5,444 3,998 223 0 20,665
Interest-bearing liabilities $75,095 $10,587 $8,385 $1,665 0 $95,732
Rate sensitive gap $13,535 $248 ($892) $21,876 $4,188 $38,955
Cumulative rate sensitiveity $13,535 $13,783 $12,891 $34,767 $38,955 $77,910
Cumulative position to average
earning assets 10.05% 10.23% 9.57% 25.81% 28.92%
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