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, 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 June 30, 1996, 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 1996 1995
Cash and Due From Banks $9,417,000 $11,377,000
Federal Funds Sold 1,085,000 1,230,000
Other Short Term Investments 17,000 10,000
Total Cash and Cash Equivalents 10,519,000 12,617,000
Investment Securities:
Available for Sale 18,063,000 23,500,000
Held to Maturity (approximate market value
of $9,869,000 in 1996 and $7,848,000 in 1995) 10,784,000 10,971,000
Loans, Net of Allowance for Credit Losses of $1,816,000
in 1996 and $1,561,000 in 1995. 105,078,000 99,776,000
Bank Premises and Equipment, Net 1,506,000 1,475,000
Interest Receivable and Other Assets 2,465,000 2,258,000
$148,415,000 $150,597,000
Total Assets
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Deposits:
Noninterest-bearing $36,449,000 $36,854,000
Interest-bearing:
Money Market Accounts 28,854,000 33,917,000
Savings and NOW Accounts 23,043,000 21,224,000
Time Deposits:
Under $100,000 20,770,000 21,733,000
$100,000 or more 22,943,000 20,873,000
Total Interest-bearing 95,610,000 97,747,000
Total Deposits 132,059,000 134,601,000
Interest Payable and Other Liabilities 932,000 1,103,000
Total Liabilities 132,991,000 135,704,000
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 -
1,011,084 shares in 1996 and 1,029,498 in 1995. 10,368,000 10,508,000
Retained Earnings 5,205,074 4,257,000
Capital adjustment on available-for-sale securities (149,074) 128,000
Total Shareholders' Equity 15,424,000 14,893,000
Total Liabilities and Shareholders' Equity 148,415,000 150,597,000
<FN>
The accompanying notes are an integral part of these consolidated statements.
</FN>
BWC FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF INCOME
For the Six Months
Ended June 30,
1996 1995 1996 1995
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
INTEREST INCOME
Loans, Including Fees $2,682,000 $2,311,000 $5,302,000 $4,574,000
Investment Securities:
Taxable 274,000 280,000 559,000 561,000
Non-taxable 133,000 86,000 262,000 173,000
Federal Funds Sold 40,000 63,000 70,000 83,000
Other Short Term Investments 7,000 19,000 7,000 54,000
Total Interest Income 3,136,000 2,759,000 6,200,000 5,445,000
INTEREST EXPENSE
Deposits 864,000 830,000 1,750,000 1,560,000
Federal Funds Purchased 3,000 -- 9,000 1,000
Total Interest Expense 867,000 830,000 1,759,000 1,561,000
NET INTEREST INCOME 2,269,000 1,929,000 4,441,000 3,884,000
PROVISION FOR CREDIT LOSSES 150,000 75,000 300,000 150,000
NET INTEREST INCOME AFTER PROVISION
FOR CREDIT LOSSES 2,119,000 1,854,000 4,141,000 3,734,000
NONINTEREST INCOME
Service Charges on Deposit Accounts 170,000 124,000 310,000 250,000
Income from Real Estate Brokerage
Subsidiary 53,000 -- 93,000
Gain on SBA Loan Sales 19,000 -- 45,000
Investment Securities Gains (losses), Net (1,000) -- 44,000 --
Other 85,000 103,000 182,000 203,000
Total Noninterest Income 326,000 227,000 674,000 453,000
NONINTEREST EXPENSE
Salaries and Related Benefits 909,000 801,000 1,808,000 1,575,000
Occupancy 192,000 181,000 375,000 369,000
Furniture and Equipment 120,000 112,000 278,000 210,000
Other 535,000 559,000 1,008,000 1,022,000
Total Noninterest Expense 1,756,000 1,653,000 3,469,000 3,176,000
INCOME BEFORE INCOME TAXES 689,000 428,000 1,346,000 1,011,000
Provision for Income Taxes 204,000 139,000 398,000 331,000
NET INCOME $485,000 $289,000 $948,000 $680,000
NET INCOME PER COMMON AND COMMON
EQUIVALENT SHARE $0.43 $0.26 $0.85 $0.62
Average common and common equivalent shares 1,118,436 1,110,325 1,118,869 1,094,920
<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,
1996 1995
OPERATING ACTIVITIES:
Net Income $948,000 $680,000
Adjustments to reconcile net income to
net cash provided(used):
Amortization of loan fees (408,000) (311,000)
Provision for credit losses 300,000 150,000
Depreciation and amortization 205,000 144,000
Gain on sale of securities available for sale 44,000 --
Increase in accrued interest receivable
and other assets (207,000) (291,000)
Increase (decrease) in accrued interest payable
and other liabilities (171,000) 15,000
Net Cash Provided by Operating Activities 711,000 387,000
INVESTING ACTIVITIES:
Proceeds from maturities of investment securities 447,000 7,095,000
Proceeds from the sale of available-for-sale investment securities 10,537,000 --
Purchase of investment securities (5,216,000) (4,562,000)
Loans originated, net of collections (5,483,000) (1,011,000)
Purchase of bank premises and equipment (236,000) (159,000)
Net Cash Used by Investing Activities 49,000 1,363,000
FINANCING ACTIVITIES:
Net increase (decrease) in deposits (2,542,000) 3,413,000
Proceeds from issuance of common stock -- 168,000
Cash paid for the repurchase of common stock (316,000) --
Cash paid in lieu of fractional shares -- (4,000)
Net Cash Provided by Financing Activities (2,858,000) 3,577,000
CASH AND CASH EQUIVALENTS:
Increase (decrease) in cash and cash equivalents (2,098,000) 5,327,000
Cash and cash equivalents at beginning of year 12,617,000 14,871,000
Cash and Cash Equivalents at period end $10,519,000 $20,198,000
ADDITIONAL CASH FLOW INFORMATION:
Interest Paid $898,000 $1,420,000
Income Taxes Paid $438,000 $458,000
<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, 1996 and the results of operations for the six months ended June 30,
1996 and 1995 and cash flows for the six months ended June 30, 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 six months ended June 30, 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 June 30, 1996 are as follows:
Gross
Amortized Unrealized Market
Cost Gain(Loss) Value
Held-to-maturity
Obligations of State and
Political Subdivisions $ 10,784,000 $ (17,000) $10,767,000
Available-for-sale
Taxable Obligations of
State & Political
Subdivisions $ 5,508,000 $(154,000) $ 5,354,000
Available-for-sale
U.S. Treasury Securities $ 7,610,000 $ (20,000) $ 7,590,000
Available-for-sale
U.S. Government Agencies $ 5,171,000 $ (52,000) $ 5,119,000
For the six months ended June 30, 1996, the Bank had proceeds of
$10,537,000 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, 1996.
Held-to-Maturity Available-for-Sale
Amortized Market Amortized Market
Cost Value Cost Value
Within one year $2,402,000 $2,405,000 $ 2,909,000 $ 2,920,000
After one but within
five years $7,657,000 $7,653,000 $12,794,000 $12,682,000
Over five years $ 725,000 $ 709,000 $ 2,586,000 $ 2,461,000
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 $17,000. 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,
1996 1995
Allowance for credit losses at
beginning of period $1,529,000 $1,498,000
Chargeoffs (34,000) (96,000)
Recoveries 21,000 9,000
Net chargeoffs (13,000) (87,000)
Provisions 300,000 150,000
Allowance for credit losses at
end of period $1,816,000 $1,561,000
Ratio of allowance for credit
losses to loans 1.70% 1.75%
4. DECLARATION OF STOCK DIVIDEND
On July 23, 1996 the Corporation's Board of Directors declared a 10%
stock dividend to shareholders of record July 31, 1996. Distribution of this
dividend will take place on August 15, 1996. Fractional shares will be paid
in cash as a value of $21.00 per share. All shares, share equivalent and
earnings per share figures in this report have been adjusted for this dividend
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS
Net Income
Net income for the first six months in 1996 of $948,000 is $268,000 greater
then the first six months in 1995. This represents a return on average assets
during this period of 1.28% and a return on average equity of 12.59%. During
the first six months of 1995 the Corporation earned $680,000 which was a
return on average assets of 1.06% and on average equity of 10.26%.
Net income for the three months ending June 30, 1995, of $485,000 was $196,000
over the comparable period in 1995. The return on average assets during the
second quarter was 1.32% and the return on average equity was 12.81% as
compared to a return on average assets during the second quarter of 1995 of
.90% and a return on average equity of 8.52%.
Earning assets averaged $135,158,000 during the six months ended June 30,
1996, as compared to $118,825,000 for the comparable period in 1995. Earning
assets averaged $136,584,000 during the second quarter of 1996 as compared to
$119,732,000 during the second quarter of 1995.
Earnings per average common and common equivalent shares, adjusted for the 10%
stock dividend declared July 23, 1996, (this includes any dilutive effect of
unexercised options outstanding) was $0.85 for the first six months of 1996 as
compared to $0.62 for the first six months of 1995. For the second quarter of
1996, earnings per average common and common equivalent shares was $0.43 as
compared to $0.26 for the second quarter 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 six months of 1996 was $4,441,000 or
$557,000 greater than the comparable period in 1995. This increase is the
result of an increase in the volume of loans outstanding during the 1996
period as compared to 1995. Net interest rate spreads during 1996 were
relatively unchanged from the comparable 1995 period, therefore the total
change in interest income was related to volume changes, not rate changes.
Net interest income during the three months ending June 30, 1996 was
$2,269,000 or $340,000 greater than the comparable period in 1995. As with
the six months results, the change is related to volume increases rather than
net interest margin changes.
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,
1996 was 1.70% as compared to 1.75% for the period ending June 30, 1995. 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 $13,000 during the first six months of
1996 as compared to a net loss of $87,000 during the comparable period in
1995.
The following table provides information on past due and nonaccrual loans:
For the Six months Ended
June 30,
1996 1995
Loans Past Due 90 Days or More $ -- $ 12,000
Nonaccrual Loans 92,000 313,000
Total $ 92,000 $ 325,000
As of June 30, 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 $15,000 and $45,000 as of June 30, 1996 and 1995
respectively.
Noninterest Income
Noninterest income during the first six months of 1996 of $674,000 was
$221,000 greater than earned during the comparable period of 1995. This was
reflected in increases in most areas of noninterest income and fees and
includes income from the Corporation's real estate brokerage subsidiary of
$92,000 and from gains on the sale of SBA loans.
During the second quarter of 1996 noninterest income of $326,000 was $99,000
greater than earned during the comparable quarter of 1995. The same reasons
applicable for the first six months apply to the second quarter results.
Noninterest Expense
Total noninterest expenses of $3,469,000 during the first six months of 1996
are $293,000 over the comparable period in 1995. The major categories of this
are detailed below.
Salaries and related benefits are $233,000 greater during the first six months
of 1996 as compared to 1995. This increase is related to staffing increases
and general merit increases related to the Corporation's growth and expanding
operations. Staff FTE (full time equivalency) averaged 68.5 during the first
six months of 1996 as compared to 62.8 for the comparable 1995 period.
Occupancy expense increased a modest $6,000 during the respective periods due
to the expanded facilities and remodeling of the Corporation's Orinda office
plus rental adjustments and operating expense increases.
Total Furniture and Equipment expense increased $68,000 between the respective
periods of which approximately $40,000 is related to the upgrade of the
Corporation's main computer and related write off of the old system.
Other Expense decreased $14,000 between the respective periods. During the
1995 period the Corporation spent approximately $32,000 for one time
consulting services related to improving operating efficiencies. This expense
was not repeated during the 1996 period.
During the second quarter of 1996 the Corporation had a total of $1,756,000 in
noninterest expense which was $103,000 over the comparable quarter of 1995.
This increase was concentrated in salary and related benefits expenses for the
reasons given above regarding the increase in the six month operating results.
Other Real Estate Owned
As of June 30, 1996 the Corporation had $123,000 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 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 June 30, for both
1996 and 1995. 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, 1996, December 31, 1995, and June 30, 1995.
Risk-based capital ratios: Capital Ratios
Minimum
June 30, December 31, June 30, regulatory
1996 1995 1995 requirements
Tier 1 capital 12.66% 12.51% 12.83% 4.00%
Total capital 13.91% 13.76% 14.08% 8.00%
Leverage ratio 9.88% 9.51% 10.00% 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 27% of total assets at June 30, 1996
and 37% at June 30, 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 $9,000,000.
General
Total assets of the Corporation at June 30, 1996 of $148,415,000 have
increased $10,482,000 as compared to June 30, 1995 Total deposits of
$132,059,000 have increased $8,673,000 from June 30, 1995.
The Corporation's loan to deposit ratio as of June 30, 1996 was 81%, as
compared to 72% on June 30, 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 is required to provide an optimum and
stable net interest margin. Interest rate sensitivity spread management is an important tool for achieving this objective
and for developing strategies and means to improve profitability. The schedules shown below reflect the interest rate
sensitivity position of the Corporation as of June 30, 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
June 30, 1996
ASSETS:
Federal funds sold $1,085 0 0 0 0 $1,085
Other Short Term Securities 17 0 0 0 0 17
Investment securities 1,730 $876 $2,716 $20,339 $3,186 28,847
Construction & real estate loans 27,860 6,866 4,293 254 724 39,997
Commercial loans 31,452 1,261 399 1,102 207 34,421
Consumer loans 26,991 369 741 4,210 165 32,476
Interest-bearing assets $89,135 $9,372 $8,149 $25,905 $4,282 $136,843
Savings and Now accounts $23,043 0 0 0 0 $23,043
Money market accounts 28,854 0 0 0 0 28,854
Time deposits <$100,000 6,854 $5,664 $6,682 $1,570 0 20,770
Time deposits >$100,000 10,003 7,999 4,544 397 0 22,943
Interest-bearing liabilities $68,754 $13,663 $11,226 $1,967 0 $95,610
Rate sensitive gap $20,381 ($4,291) ($3,077) $23,938 $4,282 $41,233
Cumulative rate sensitiveity gap $20,381 $16,090 $13,013 $36,951 $41,233 $82,466
Cumulative position to average
earning assets 14.89% 11.76% 9.51% 27.00% 30.13%
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
On July 23, 1996 the Corporation's Board of Directors declared a 10%
stock dividend to shareholders of record July 31, 1996. Distribution of this
dividend will take place on August 15, 1996. All shares, share equivalent and
earnings per share figures in this report have been adjusted for this
dividend.
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