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, 1997.
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, 1997, there were
1,004,343 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,
ASSETS 1997 1996
(Unaudited)
Cash and Due From Banks $10,266,000 $15,383,000
Federal Funds Sold $10,900,000 --
Other Short Term Investments 27,000 26,000
Total Cash and Cash Equivalents 21,193,000 15,409,000
Investment Securities:
Available for Sale 9,269,000 10,399,000
Held to Maturity (approximate fair value of
$8,707,000 in 1997 and $8,765,000 in 1996) 8,712,000 8,726,000
Loans, Net of Allowance for Credit Losses of $2,080,000
in 1997 and $1,893,000 in 1996. 139,793,000 138,878,000
Bank Premises and Equipment, Net 1,537,000 1,522,000
Interest Receivable and Other Assets 2,486,000 2,439,000
Total Assets $182,990,000 $177,373,000
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Deposits:
Noninterest-bearing $42,714,000 $41,766,000
Interest-bearing:
Money Market Accounts 33,114,000 29,561,000
Savings and NOW Accounts 25,292,000 25,189,000
Time Deposits:
Under $100,000 35,687,000 34,167,000
$100,000 or more 27,479,000 25,208,000
Total Interest-bearing 121,572,000 114,125,000
Total Deposits 164,286,000 155,891,000
Federal Funds Purchased -- 3,600,000
Interest Payable and Other Liabilities 1,793,000 1,472,000
Total Liabilities 166,079,000 160,963,000
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 -
1,122,780 shares in 1997 and 1,016,598 in 14,685,000 12,172,000
Retained Earnings 2,296,000 4,231,000
Capital adjustment on available-for-sale securitie (70,000) 7,000
Total Shareholders' Equity 16,911,000 16,410,000
Total Liabilities and Shareholders' $182,990,000 $177,373,000
<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,
1997 1996
(Unaudited) (Unaudited)
INTEREST INCOME
Loans, Including Fees $3,611,000 $2,620,000
Investment Securities:
Taxable 157,000 285,000
Non-taxable 106,000 129,000
Federal Funds Sold 53,000 30,000
Total Interest Income 3,927,000 3,064,000
INTEREST EXPENSE
Deposits 1,177,000 886,000
Fed Funds Purchased 3,000 6,000
Total Interest Expense 1,180,000 892,000
NET INTEREST INCOME 2,747,000 2,172,000
PROVISION FOR POSSIBLE CREDIT LOSSES 225,000 150,000
NET INTEREST INCOME AFTER PROVISION
FOR POSSIBLE CREDIT LOSSES 2,522,000 2,022,000
NONINTEREST INCOME
Service Charges on Deposit Accounts 184,000 140,000
Income from Real Estate Brokerage Subsidiar 22,000 40,000
Gain on SBA Loan Sales 65,000 26,000
Investment Securities Gains, Net -- 45,000
Other 126,000 97,000
Total Noninterest Income 397,000 348,000
NONINTEREST EXPENSE
Salaries and Related Benefits 1,154,000 899,000
Occupancy 195,000 183,000
Furniture and Equipment 128,000 158,000
Other 540,000 473,000
Total Noninterest Expense 2,017,000 1,713,000
INCOME BEFORE INCOME TAXES 902,000 657,000
Provision for Income Taxes 311,000 194,000
NET INCOME $591,000 $463,000
NET INCOME PER COMMON AND COMMON
EQUIVALENT SHARE $0.46 $0.38
Average common and common equivalent shares 1,279,241 1,231,143
<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,
1997 1996
OPERATING ACTIVITIES:
Net Income $591,000 $463,000
Adjustments to reconcile net income to
net cash provided(used):
Amortization of loan fees (286,000) (198,000)
Provision for possible credit losses 225,000 150,000
Depreciation and amortization 93,000 73,000
(Increase)decrease in accrued interest receivable
and other assets (48,000) 276,000
Increase in accrued interest payable
and other liabilities 321,000 228,000
Net Cash Provided(Used) by Operating 896,000 992,000
INVESTING ACTIVITIES:
Proceeds from maturities of investment securities 1,059,000 --
Proceeds from the sales of investment securities -- 5,692,000
Purchase of investment securities -- (2,496,000)
Loans originated, net of collections (853,000) (1,173,000)
Purchase of bank premises and equipment (108,000) (112,000)
Net Cash Used by Investing Activitie 98,000 1,911,000
FINANCING ACTIVITIES:
Net increase(decrease) in deposits 8,395,000 (4,329,000)
Decrease in Fed Funds Purchases (3,600,000)
Cash paid in lieu of fractional shares (5,000)
Net Cash Provided(Used) by Financing 4,790,000 (4,329,000)
CASH AND CASH EQUIVALENTS:
Increase(decrease)in cash and cash equivalents 5,784,000 (1,426,000)
Cash and cash equivalents at beginning of year 15,409,000 11,377,000
Cash and Cash Equivalents at period end $21,193,000 $9,951,000
ADDITIONAL CASH FLOW INFORMATION:
Interest Paid $1,038,000 $750,000
Income Taxes Paid $47,000 $114
<FN>
The accompanying notes are an integral part of these consolidated statements.
</FN>
BWC FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited Interim)
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, 1997 and the results of operations for the three months ended March
31, 1997 and 1996 and cash flows for the three months ended March 31, 1997 and
1996.
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 1996 Annual Report to Shareholders, which is incorporated by
reference in the Company's 1996 annual report on Form 10-K. The results of
operations for the three months ended March 31, 1997 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, 1997 are as follows:
Gross
Amortized Unrealized Market
Cost Gain(Loss) Value
Held-to-maturity
Obligations of State and
Political Subdivisions $ 8,712,000 $ (5,000) $ 8,707,000
Available-for-sale
Taxable Obligations of
State & Political
Subdivisions $ 3,341,000 $ (89,000) $ 3,252,000
Available-for-sale
U.S. Treasury Securities $ 4,533,000 $ (8,000) $ 4,525,000
Available-for-sale
U.S. Government Agencies $ 1,501,000 $ (10,000) $ 1,491,000
For the three months ended March 31, 1997, the Bank had no proceeds from
sale of investment securities.
<PAGE
The following table shows the amortized cost and estimated market value
of investment securities by contractual maturity at March 31, 1997.
Held-to-Maturity Available-for-Sale
Amortized Market Amortized Market
Cost Value Cost Value
Within one year $ 1,716,000 $1,721,000 $ 3,516,000 $ 3,516,000
After one but within
five years $ 6,095,000 $6,074,000 $ 4,592,000 $ 4,527,000
Over five years $ 901,000 $ 912,000 $ 1,267,000 $ 1,225,000
3. ALLOWANCE FOR CREDIT LOSSES
For the Three months Ended
March 31,
1997 1996
Allowance for credit losses at
beginning of period $1,893,000 $1,529,000
Chargeoffs (45,000) (20,000)
Recoveries 7,000 8,000
Net chargeoffs (38,000) (12,000)
Provisions 225,000 150,000
Allowance for credit losses at
end of period $2,080,000 $1,667,000
Ratio of allowance for credit
losses to loans 1.47% 1.62%
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS
Net Income
Net income for the first three months in 1997 of $591,000 was $128,000 greater
then the first three months in 1996. This represented a return on average
assets during the quarter of 1.32%, and a return on average equity of 14.19%.
Net income for the first three months in 1996 was $463,000. This represented
a return on average assets during that quarter of 1.25%, and a return on
average equity of 12.46%.
Net interest income increased $575,000 during the first quarter of 1997 as
compared to 1996, and noninterest income increased $49,000. Noninterest
expense increased $304,000 between the respective periods, and the provision
for credit losses increased $75,000. The provision for income taxes increased
$137,000 between the respective periods.
Earning assets averaged $163,316,000 during the first quarter of 1997, an
increase of $29,585,000 from the comparable quarter of 1996. During this same
period, loans averaged $140,443,000 and deposits averaged $157,399,000; as
compared to $102,396,000 in average loans and $128,174,000 in average deposits
during the first quarter of 1996.
Earnings per average common and common equivalent shares, adjusted for the
stock dividend to shareholders of record March 31, 1997, (this includes any
dilutive effect of unexercised options outstanding) was $0.46 for the first
three months of 1997, as compared to $0.38 for the first three months of 1996.
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 1997 was $2,747,000, or
$575,000 greater than the comparable period in 1996. This increase is
primarily the result of increases in volume of funds rather than in rates.
Based on the volume increase alone, net interest income increased by $567,000
over the comparable quarter in 1996. An additional $8,000 was earned due to
an increase in the net interest margin.
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 and is in accordance
with SFAS 114. 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,
1997, was 1.47% as compared to 1.62% for the period ending March 31, 1996.
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 losses of $37,000 during the first quarter of 1997 as
compared to $12,000 during the comparable period in 1996.
The following table provides information on past due and nonaccrual loans:
For the Three Months Ended
March 31,
1997 1996
Loans Past Due 90 Days or More $ -- $ --
Nonaccrual Loans 241,000 289,000
Total $ 241,000 $ 289,000
As of March 31, 1997 and 1996, no loans were outstanding that had been
restructured. No interest earned on nonaccrual loans that was recorded in
income during 1997 remains uncollected. Interest foregone on nonaccrual loans
was approximately $29,000, and $18,000 as of March 31, 1997 and 1996
respectively.
Noninterest Income
Noninterest income during the first quarter of 1997 was $49,000 greater than
earned during the comparable quarter of 1996 in spite of the fact that the
1996 noninterest income included $45,000 in investment securities gains,
whereas there were no security gains during the comparable period in 1997.
The increase in 1997 was reflected in increases in service charges (due to
growth in the number of accounts), increased income from the Corporation's SBA
activities, and other noninterest income areas.
Noninterest Expense
Salaries and related benefits are $255,000 greater during the first quarter of
1997 as compared to 1996. This increase is related to general merit increases,
growth of operations, a new office in Fremont, and $40,000 in bonus expenses
related to 1996 achievements. Staff averaged 77.6 FTE (full time equivalent)
persons during the first quarter of 1997 as compared to 67.4 FTE in 1996.
Occupancy expense remained relatively constant reflecting a $12,000 increase
as compared to the 1996 period, and was related primarily to the new office in
Fremont. Total Furniture and Equipment expense decreased $30,000 as compared
to the 1996 period. The primary reason for the higher expenses in 1996, was
the write down of the Bank's primary computer system and its replacement with
a newer model in that period. Other Expense reflects an increase of $67,000
between the respective periods and is related to general increases in growth
and activity.
Other Real Estate Owned
As of March 31, 1996, 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
1997 and 1996. 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, 1997, December 31, 1996, and March 31, 1996.
Risk-based capital ratios: Capital Ratios
Minimum
Current guidelines March 31, December 31, March 31 regulatory
1997 1996 1996 requirements
Tier 1 capital 10.56% 10.42% 12.84% 4.00%
Total capital 11.81% 11.67% 14.09% 8.00%
Leverage ratio 9.20% 9.35% 9.52% 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 21% of total assets at March 31,
1997 and 29% at March 31, 1996. 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 $13,000,000.
General
Total assets of the Corporation at March 31, 1997 of $182,990,000 are up
$36,522,000 as compared to March 31, 1996. Total deposits of $164,286,000 are
up $34,013,000 from March 31, 1996.
The Corporation's loan to deposit ratio as of March 31, 1997 was 86%, as
compared to 79% on March 31, 1996.
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.
The Corporation has enjoyed strong growth over the previous six months,
totaling approximately $32,000,000 in total assets, or more than 21%. This
growth is attributed to several factors including a strong economy, the image
and business development efforts of the Corporation's officers and staff, the
technology systems the Corporation supports, and its community banking image.
<FN>
INTEREST RATE SENSITIVITY
(in thousands except share and per share data)
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 March 31, 1997. 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, 1997
ASSETS:
Federal funds sold $10,900 $0 $0 $0 $0 $10,900
Investment securities $992 $2,017 $2,249 $10,622 $2,127 $18,007
Construction & real estate loans $48,750 $9,412 $6,708 $240 $685 $65,795
Commercial loans $40,314 $2,939 $1,184 $921 $60 $45,418
Consumer loans $26,192 $455 $835 $3,755 $58 $31,295
Interest-bearing assets $127,148 $14,823 $10,976 $15,538 $2,930 $171,415
Savings and Now accounts $25,291 $0 $0 $0 $0 $25,291
Money market accounts $33,115 $0 $0 $0 $0 $33,115
Time deposits <$100,000 $11,095 $6,435 $16,272 $1,885 $0 $35,687
Time deposits >$100,000 $10,499 $5,169 $10,940 $871 $0 $27,479
Interest-bearing liabilities $80,000 $11,604 $27,212 $2,756 $0 $121,572
Rate sensitive gap $47,148 $3,219 ($16,236) $12,782 $2,930 $49,843
Cumulative rate sensitive gap $47,148 $50,367 $34,131 $46,913 $49,843 $99,686
Cumulative position to average
earning assets 27.51% 29.38% 19.91% 27.37% 29.08%
<FN>
The above totals have been adjusted to exclude unearned discounts and non-accrual loans.
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
The Corporation declared a 10% stock dividend to shareholders of record,
March 31, 1997.
Item 3 - Defaults Upon Senior Securities
None
Item 4 - Submission of Matters to a Vote of Security Holders
The annual shareholders meeting has been scheduled for April 22, 1997.
At this meeting shareholders will vote on the election of directors and
ratification of the selection of accountants. No additional matters are
planned for action at this meeting.
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)
April 24, 1997 James L. Ryan
___________________________ _________________________________
Date James L. Ryan
Chairman and Chief Executive Officer
April 24, 1997 Leland E. Wines
______________________ ________________________________
Date Leland E. Wines
CFO and Corp. Secretary