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 September 30, 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 offices)
(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 September 30, 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
September 30, December 31,
ASSETS 1997 1996
(Unaudited)
Cash and Due From Banks $18,446,000 $15,383,000
Federal Funds Sold 4,000,000 --
Other Short Term Investments 136,000 26,000
Total Cash and Cash Equivalents 22,582,000 15,409,000
Investment Securities:
Available for Sale 34,110,000 10,399,000
Held to Maturity (approximate market value
of $7,367,000 in 1997 and $8,765,000 in 1996) 7,310,000 8,726,000
Loans, Net of Allowance for Credit Losses of $2,592,000
in 1997 and $1,893,000 in 1996. 149,614,000 138,878,000
Bank Premises and Equipment, Net 1,410,000 1,522,000
Interest Receivable and Other Assets 3,208,000 2,439,000
$218,234,000 $177,373,000
Total Assets
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Deposits:
Noninterest-bearing $52,019,000 $41,766,000
Interest-bearing:
Money Market Accounts 41,755,000 29,561,000
Savings and NOW Accounts 27,424,000 25,189,000
Time Deposits:
Under $100,000 40,489,000 34,167,000
$100,000 or more 35,698,000 25,208,000
Total Interest-bearing 145,366,000 114,125,000
Total Deposits 197,385,000 155,891,000
Federal Funds Purchased -- 3,600,000
Interest Payable and Other Liabilities 2,298,000 1,472,000
Total Liabilities 199,683,000 160,963,000
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 -
1,121,280 shares in 1997 and 1,016,598 in 1996. 14,685,000 12,172,000
Retained Earnings 3,772,000 4,231,000
Capital adjustment on available-for-sale securities 94,000 7,000
Total Shareholders' Equity 18,551,000 16,410,000
Total Liabilities and Shareholders' Equity $218,234,000 $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 For the Nine Months
Ended September 30, Ended September 30,
1997 1996 1997 1996
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
INTEREST INCOME
Loans, Including Fees $4,196,000 $2,960,000 $11,702,000 $8,262,000
Investment Securities:
Taxable 449,000 243,000 853,000 802,000
Non-taxable 95,000 122,000 301,000 384,000
Federal Funds Sold 114,000 13,000 302,000 83,000
Other Short Term Investments 15,000 0 39,000 7,000
Total Interest Income 4,869,000 3,338,000 13,197,000 9,538,000
INTEREST EXPENSE
Deposits 1,591,000 881,000 4,170,000 2,631,000
Federal Funds Purchased -- 7,000 3,000 16,000
Total Interest Expense 1,591,000 888,000 4,173,000 2,647,000
NET INTEREST INCOME 3,278,000 2,450,000 9,024,000 6,891,000
PROVISION FOR CREDIT LOSSES 300,000 200,000 825,000 500,000
NET INTEREST INCOME AFTER PROVISION
FOR CREDIT LOSSES 2,978,000 2,250,000 8,199,000 6,391,000
NONINTEREST INCOME
Service Charges on Deposit Accounts 191,000 162,000 565,000 472,000
Other 210,000 168,000 621,000 532,000
Total Noninterest Income 401,000 330,000 1,186,000 1,004,000
NONINTEREST EXPENSE
Salaries and Related Benefits 1,201,000 962,000 3,480,000 2,770,000
Occupancy 205,000 197,000 603,000 572,000
Furniture and Equipment 142,000 119,000 398,000 397,000
Other 558,000 562,000 1,696,000 1,570,000
Total Noninterest Expense 2,106,000 1,840,000 6,177,000 5,309,000
INCOME BEFORE INCOME TAXES 1,273,000 740,000 3,208,000 2,086,000
Provision for Income Taxes 464,000 260,000 1,140,000 658,000
NET INCOME $809,000 $480,000 $2,068,000 $1,428,000
NET INCOME PER COMMON AND COMMON
EQUIVALENT SHARE $0.63 $0.38 $1.61 $1.14
Average common and common equivalent shares 1,287,997 1,268,849 1,283,567 1,247,455
<FN>
The accompanying notes are an intergral part of these consolidated statements.
</FN>
BWC FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30,
1997 1996
(Unaudited) (Unaudited)
OPERATING ACTIVITIES:
Net Income $2,068,000 $1,428,000
Adjustments to reconcile net income to
net cash provided(used):
Amortization of loan fees (966,000) 640,000
Provision for possible credit losses 825,000 500,000
Depreciation and amortization 292,000 244,000
Gain on sale of securities available for sale 3,000 21,000
Increase in accrued interest receivable
and other assets (769,000) (111,000)
Increase in accrued interest payable
and other liabilities 826,000 319,000
Net Cash Provided(Used) by Operating Activities 2,279,000 3,041,000
INVESTING ACTIVITIES:
Proceeds from maturities of investment securities 4,775,000 1,930,000
Proceeds from the sales of investment securities -- 16,417,000
Purchase of investment securities (26,987,000) (5,216,000)
Loans originated, net of collections (10,594,000) (18,271,000)
Purchase of bank premises and equipment (180,000) (315,000)
Net Cash Used by Investing Activities (32,986,000) (5,455,000)
FINANCING ACTIVITIES:
Net increase(decrease) in deposits 41,494,000 (810,000)
Decrease in Fed Funds Purchases (3,600,000) --
Proceeds from issuance of common stock 29,000 --
Cash paid for the repurchase of common stock (37,000) (463,000)
Cash paid in lieu of fractional shares (5,000) (5,000)
Net Cash Provided(Used) by Financing Activities 37,881,000 (1,278,000)
CASH AND CASH EQUIVALENTS:
Increase(decrease)in cash and cash equivalents 7,174,000 (3,692,000)
Cash and cash equivalents at beginning of year 15,409,000 12,617,000
Cash and Cash Equivalents at period end $22,583,000 $8,925,000
ADDITIONAL CASH FLOW INFORMATION:
Interest Paid $3,423,000 $2,568,000
Income Taxes Paid $1,435,000 $412,000
<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 September
30, 1997 and the results of operations for the nine months ended September 30,
1997 and 1996 and cash flows for the nine months ended September 30, 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 nine months ended September 30, 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 September 30, 1997 are as follows:
Gross
Amortized Unrealized Market
Cost Gain(Loss) Value
Held-to-maturity
Obligations of State and
Political Subdivisions $ 7,310,000 $ 57,000 $ 7,367,000
Available-for-sale
Taxable Obligations of
State & Political
Subdivisions $ 5,425,000 $ 15,000 $ 5,440,000
Available-for-sale
U.S. Treasury Securities $11,064,000 $ 64,000 $11,128,000
Available-for-sale
U.S. Government Agencies $17,479,000 $ 63,000 $17,542,000
For the nine months ended September 30, 1997, the Bank did not sell any
investment securities.
<PAGE
The following table shows the amortized cost and estimated market value of
investment securities by contractual maturity at September 30, 1997.
Held-to-Maturity Available-for-Sale
Amortized Market Amortized Market
Cost Value Cost Value
Within one year $ 1,203,000 $1,207,000 $ 9,324,000 $ 9,338,000
After one but within
five years $ 6,107,000 $6,160,000 $20,318,000 $20,430,000
Over five years $ -- $ -- $ 4,326,000 $ 4,342,000
3. ALLOWANCE FOR CREDIT LOSSES
For the Nine months Ended
September 30,
1997 1996
Allowance for credit losses at
beginning of period $1,893,000 $1,529,000
Chargeoffs (179,000) (45,000)
Recoveries 53,000 28,000
Net chargeoffs (126,000) (17,000)
Provisions 825,000 500,000
Allowance for credit losses at
end of period $2,592,000 $2,012,000
Ratio of allowance for credit
losses to loans 1.70% 1.67%
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS
Net Income
Net income for the first nine months in 1997 of $2,068,000 was $640,000 greater
than the first nine months in 1996. This represented a return on average
assets during this period of 1.42%, and a return on average equity of 15.87%.
The return on average assets during the first nine months of 1996 was 1.28%,
and the return on average equity was 12.49%.
Net income for the three months ending September 30, 1997, of $809,000, was
$329,000 over the comparable period in 1996. The return on average assets
during the third quarter was 1.53%, and the return on average equity was
17.88%. The return on average assets during the third quarter of 1996 was
1.28%, and the return on average equity was 12.30%.
Earning assets averaged $180,670,000 during the nine months ended September 30,
1997, as compared to $136,836,000 for the comparable period in 1996. Earning
assets averaged $197,564,000 during the third quarter of 1997 as compared to
$140,193,000 during the third quarter of 1996.
Earnings per average common and common equivalent shares, adjusted for the 10%
stock dividend declared March 31, 1997 (this includes any dilutive effect of
unexercised options outstanding), was $1.61 for the first nine months of 1997
as compared to $1.14 for the first nine months of 1996. For the third quarter
of 1997, earnings per average common and common equivalent shares was $0.63 as
compared to $0.38 for the third quarter 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 nine months of 1997 was $9,024,000, or
$2,133,000 greater than the comparable period in 1996. This increase was
primarily the result of an increase in the volume of loans outstanding during
the 1997 period as compared to 1996. Of this increase 96% was the result of
increased volume and only 4% to an increase in the net interest rate spread.
Net interest income during the three months ended September 30, 1997 was
$3,278,000, or $828,000 greater than the comparable period in 1996. As with
the nine months result, the change is related to volume increases rather than
net interest margin changes. Of the increase, 95% was related to volume and 5%
to rates.
<PAGE
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 September 30,
1997, was 1.70% as compared to 1.67% for the period ending September 30, 1996.
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 $126,000 during the first nine months of
1997, as compared to a net loss of $17,000 during the comparable period in
1996.
The following table provides information on past due and nonaccrual loans:
For the Nine months Ended
September 30,
1997 1996
Loans Past Due 90 Days or More $ 0 $ 1,000
Nonaccrual Loans 296,000 89,000
Total $ 296,000 $ 90,000
As of September 30, 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 $30,000 and $19,000 as of September 30, 1997 and 1996
respectively.
Noninterest Income
Noninterest income during the first nine months of 1997 of $1,186,000 was
$182,000 greater than earned during the comparable period of 1996. This was
reflected in increases in most areas of noninterest income and fees, and is
commensurate with the Corporation's growth.
During the third quarter of 1997, noninterest income of $401,000 was $71,000
greater than earned during the comparable quarter of 1996. The same reasons
applicable for the first nine months apply to the third quarter results.
Noninterest Expense
Total noninterest expenses of $6,177,000 during the first nine months of 1997
are $868,000 over the comparable period in 1996. The major categories of this
are detailed below.
Salaries and related benefits are $710,000 greater during the first nine months
of 1997 as compared to 1996. This increase is related to award bonuses paid to
staff and officers, plus staffing increases and general merit increases related
to the Corporation's growth and expanding operations. Staff FTE (full time
equivalency) averaged 80.5 during the first nine months of 1997 as compared to
69.8 for the comparable 1996 period.
Occupancy expense increased $31,000 during the respective periods due to the
Corporation's new Fremont office, plus rental adjustments and operating expense
increases on other office facilities.
Total furniture and equipment expense were essentially the same between the
respective periods.
Other expense increased $126,000 between the respective periods and is related
to general increases in growth and activity.
During the third quarter of 1997, the Corporation had a total of $2,106,000 in
noninterest expense which was $266,000 over the comparable quarter of 1996.
This increase was primarily attributed to increases in salary and related
benefits expenses for the same reasons as given above regarding the increase in
the nine month operating results.
Other Real Estate Owned
As of September 30, 1997, 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 also includes 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 September 30 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 September 30, 1997, December 31, 1996, and September 30,
1996.
Risk-based capital ratios: Capital Ratios
Minimum
September 30, December 31, September 30, regulatory
1997 1996 1996 requirements
Tier 1 capital 10.51% 10.42% 12.08% 4.00%
Total capital 11.76% 11.67% 13.34% 8.00%
Leverage ratio 8.28% 9.35% 9.95% 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 September 30,
1997, and 19% at September 30, 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 September 30, 1997 of $218,234,000 have
increased $67,161,000, or 44% as compared to September 30, 1996. Total loans
of $152,206,000 have increased $32,009,000, or 27%, and total deposits of
$197,385,000 have increased $63,594,000 or 48%.
The Corporation's loan to deposit ratio as of September 30, 1997 and 1996 was
77% and 89% respectively.
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 September 30, 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
September 30, 1997
ASSETS:
Federal funds sold $4,000 $0 $0 $0 $0 $4,000
Investment securities $2,302 $1,008 $3,209 $27,571 $7,466 $41,556
Construction & real estate loans $56,592 $9,887 $4,841 $242 $658 $72,220
Commercial loans $44,087 $2,999 $1,423 $726 $36 $49,271
Consumer loans $25,955 $452 $850 $3,416 $42 $30,715
Real estate mortgages
Interest-bearing assets $132,936 $14,346 $10,323 $31,955 $8,202 $197,762
Savings and Now accounts $27,424 $0 $0 $0 $0 $27,424
Money market accounts $41,755 $0 $0 $0 $0 $41,755
Time deposits <$100,000 $20,008 $7,246 $11,573 $1,662 $0 $40,489
Time deposits >$100,000 $21,697 $9,801 $3,293 $907 $0 $35,698
Interest-bearing liabilities $110,884 $17,047 $14,866 $2,569 $0 $145,366
Rate sensitive gap $22,052 ($2,701) ($4,543) $29,386 $8,202 $52,396
Cumulative rate sensitive gap $22,052 $19,351 $14,808 $44,194 $52,396 $104,792
Cumulative position to average
earning assets 11.15% 9.78% 7.49% 22.35% 26.49%
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
None
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)
October 27, 1997 James L. Ryan
___________________________ _________________________________
Date James L. Ryan
Chairman and Chief Executive Officer
October 27, 1997 Leland E. Wines
______________________ ________________________________
Date Leland E. Wines
CFO and Corp. Secretary