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, 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 September 30, 1996, there
were 1,004,343 shares of common stock, no par value outstanding.
<PAGE>
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
<PAGE>
<TABLE>
BWC FINANCIAL CORP.
CONSOLIDATED BALANCE SHEETS
<CAPTION>
September 30, December 31,
ASSETS 1996 1995
<S> <C> <C>
Cash and Due From Banks $7,710,000 $11,377,000
Federal Funds Sold 1,200,000 1,230,000
Other Short Term Investments 15,000 10,000
Total Cash and Cash Equivalents 8,925,000 12,617,000
Investment Securities:
Available for Sale 10,835,000 23,500,000
Held to Maturity (approximate market value
of $9,234,000 in 1996 and $11,061,000 in 1995) 9,211,000 10,971,000
Loans, Net of Allowance for Credit Losses of $2,012,000
in 1996 and $1,528,000 in 1995. 118,187,000 99,776,000
Bank Premises and Equipment, Net 1,546,000 1,475,000
Interest Receivable and Other Assets 2,369,000 2,258,000
$151,073,000 $150,597,000
Total Assets
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Deposits:
Noninterest-bearing $36,761,000 $36,854,000
Interest-bearing:
Money Market Accounts 27,899,000 33,917,000
Savings and NOW Accounts 23,838,000 21,224,000
Time Deposits:
Under $100,000 21,901,000 21,733,000
$100,000 or more 23,392,000 20,873,000
Total Interest-bearing 97,030,000 97,747,000
Total Deposits 133,791,000 134,601,000
Interest Payable and Other Liabilities 1,422,000 1,103,000
Total Liabilities 135,213,000 135,704,000
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. 10,222,000 10,508,000
Retained Earnings 5,682,000 4,257,000
Capital adjustment on available-for-sale securities (44,000) 128,000
Total Shareholders' Equity 15,860,000 14,893,000
Total Liabilities and Shareholders' Equity 151,073,000 150,597,000
<FN>
The accompanying notes are an integral part of these consolidated statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
BWC FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF INCOME
<CAPTION>
For the Nine Months For the Nine Months
Ended Sepember 30, Ended September 30,
1996 1995 1996 1995
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans, Including Fees $2,960,000 $2,371,000 $8,262,000 $6,945,000
Investment Securities:
Taxable 243,000 382,000 802,000 943,000
Non-taxable 122,000 88,000 384,000 261,000
Federal Funds Sold 13,000 77,000 83,000 160,000
Other Short Term Investments 0 21,000 7,000 75,000
Total Interest Income 3,338,000 2,939,000 9,538,000 8,384,000
INTEREST EXPENSE
Deposits 881,000 917,000 2,631,000 2,477,000
Federal Funds Purchased 7,000 -- 16,000 1,000
Total Interest Expense 888,000 917,000 2,647,000 2,478,000
NET INTEREST INCOME 2,450,000 2,022,000 6,891,000 5,906,000
PROVISION FOR CREDIT LOSSES 200,000 90,000 500,000 240,000
NET INTEREST INCOME AFTER PROVISION
FOR CREDIT LOSSES 2,250,000 1,932,000 6,391,000 5,666,000
NONINTEREST INCOME
Service Charges on Deposit Accounts 162,000 142,000 472,000 392,000
Income from Real Estate Brokerage
Subsidiary -4,000 29,000 89,000 47,000
Gain on SBA Loan Sales and Servicing Fees 27,000 89,000 89,000 130,000
Accounts Receivable Factoring - Servicing Fees 38,000 12,000 55,000 18,000
Investment Securities Gains (losses), Net -23,000 -- 21,000 --
Other 130,000 60,000 278,000 198,000
Total Noninterest Income 330,000 332,000 1,004,000 785,000
NONINTEREST EXPENSE
Salaries and Related Benefits 962,000 835,000 2,770,000 2,410,000
Occupancy 197,000 181,000 572,000 550,000
Furniture and Equipment 119,000 122,000 397,000 332,000
Other 562,000 436,000 1,570,000 1,458,000
Total Noninterest Expense 1,840,000 1,574,000 5,309,000 4,750,000
INCOME BEFORE INCOME TAXES 740,000 690,000 2,086,000 1,701,000
Provision for Income Taxes 260,000 273,000 658,000 604,000
NET INCOME $480,000 $417,000 $1,428,000 $1,097,000
NET INCOME PER COMMON AND COMMON
EQUIVALENT SHARE $0.42 $0.37 $1.26 $1.02
Average common and common equivalent shares 1,153,499 1,126,499 1,134,050 1,078,114
<FN>
The accompanying notes are an intergral part of these consolidated statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
BWC FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
For the Nine Months Ended September 30,
1996 1995
<S> <C> <C>
OPERATING ACTIVITIES:
Net Income $1,428,000 $1,097,000
Adjustments to reconcile net income to
net cash provided(used):
Amortization of loan fees 640,000 (481,000)
Provision for credit losses 500,000 240,000
Depreciation and amortization 244,000 224,000
Gain on sale of securities available for sale 21,000 --
Increase in accrued interest receivable
and other assets (111,000) (634,000)
Increase (decrease) in accrued interest payable
and other liabilities 319,000 784,000
Net Cash Provided by Operating Activities 3,041,000 1,230,000
INVESTING ACTIVITIES:
Proceeds from maturities of investment securities 1,930,000 9,656,000
Proceeds from the sale of available-for-sale investment securities 16,417,000 --
Purchase of investment securities (5,216,000) (17,679,000)
Loans originated, net of collections (18,271,000) (2,633,000)
Purchase of bank premises and equipment (315,000) (241,000)
Net Cash Used by Investing Activities (5,455,000) (10,897,000)
FINANCING ACTIVITIES:
Net increase (decrease) in deposits (810,000) 7,423,000
Proceeds from issuance of common stock -- 196,000
Cash paid for the repurchase of common stock (463,000) --
Cash paid in lieu of fractional shares (5,000) (4,000)
Net Cash Provided by Financing Activities (1,278,000) 7,615,000
CASH AND CASH EQUIVALENTS:
Increase (decrease) in cash and cash equivalents (3,692,000) (2,052,000)
Cash and cash equivalents at beginning of year 12,617,000 14,871,000
Cash and Cash Equivalents at period end $8,925,000 $12,819,000
ADDITIONAL CASH FLOW INFORMATION:
Interest Paid $2,568,000 $2,148,000
Income Taxes Paid $412,000 $558,000
<FN>
The accompanying notes are an integral part of these consolidated statements.
</FN>
</TABLE>
<PAGE>
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, 1996 and the results of operations for the nine months ended
September 30, 1996 and 1995 and cash flows for the nine months ended September
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 nine months ended September 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 September 30, 1996 are as follows:
Gross
Amortized Unrealized Market
Cost Gain(Loss) Value
Held-to-maturity
Obligations of State and
Political Subdivisions $ 9,211,000 $ 23,000 $ 9,234,000
Available-for-sale
Taxable Obligations of
State & Political
Subdivisions $ 3,351,000 $ (70,000) $ 3,281,000
Available-for-sale
U.S. Treasury Securities $ 6,048,000 $ 12,000 $ 6,060,000
Available-for-sale
U.S. Government Agencies $ 1,503,000 $ (9,000) $ 1,494,000
For the nine months ended September 30, 1996, the Bank had proceeds of
$16,417,000 from sale of investment securities.
The following table shows the amortized cost and estimated market
value of investment securities by contractual maturity at September 30,
1996.
Held-to-Maturity Available-for-Sale
Amortized Market Amortized Market
Cost Value Cost Value
Within one year $ 1,659,000 $1,662,000 $ 2,999,000 $ 3,014,000
After one but within
five years $ 7,430,000 $7,451,000 $ 5,629,000 $ 5,604,000
Over five years $ 122,000 $ 121,000 $ 2,274,000 $ 2,217,000
3. ALLOWANCE FOR CREDIT LOSSES
For the Nine months Ended
September 30,
1996 1995
Allowance for credit losses at
beginning of period $1,529,000 $1,498,000
Chargeoffs (45,000) (96,000)
Recoveries 28,000 14,000
Net chargeoffs (17,000) (82,000)
Provisions 500,000 240,000
Allowance for credit losses at
end of period $2,012,000 $1,656,000
Ratio of allowance for credit
losses to loans 1.67% 1.82%
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS
Net Income
Net income for the first nine months in 1996 of $1,428,000 is $331,000
greater then the first nine months in 1995. This represents a return on
average assets ($149,138,000 during this period) of 1.28% and a return on
average equity ($15,259,000 during this period) of 12.49%. During the first
nine months of 1995 the Corporation earned $1,097,000 which was a return on
average assets of 1.11% and on average equity of 10.82%.
Net income for the three months ending September 30, 1995, of $480,000 was
$63,000 over the comparable period in 1995. The return on average assets
($149,742,000 during the third quarter) was 1.28% and the return on average
equity ($15,640,000 during the third quarter) was 12.30% as compared to a
return on average assets during the third quarter of 1995 of 1.21% and a
return on average equity of 11.87%.
Earning assets averaged $136,836,000 during the nine months ended September
30, 1996, as compared to $121,995,000 for the comparable period in 1995.
Earning assets averaged $140,193,000 during the third quarter of 1996 as
compared to $128,334,000 during the third quarter of 1995.
Earnings per average common and common equivalent shares (this includes any
dilutive effect of unexercised options outstanding) was $1.26 for the first
nine months of 1996 as compared to $1.02 for the first nine months of 1995.
For the third quarter of 1996, earnings per average common and common
equivalent shares was $0.42 as compared to $0.37 for the third 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 nine months of 1996 was $6,891,000 or
$985,000 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. Of the increase in net interest income 98% was
due to volume increases and only 2% to rate changes.
Net interest income during the three months ending September 30, 1996 was
$2,450,000 or $428,000 greater than the comparable period in 1995. As with
the nine months results, the change is related to volume increases rather than
rate changes with 92% of the increase resulting from volume increases and 8%
from rate 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 September
30, 1996 was 1.67% as compared to 1.82% for the period ending September 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 $17,000 during the first nine months of
1996 as compared to a net loss of $82,000 during the comparable period in
1995.
The following table provides information on past due and nonaccrual loans:
For the Nine months Ended
September 30,
1996 1995
Loans Past Due 90 Days or More $ 1,000 $ 41,000
Nonaccrual Loans 89,000 229,000
Total $ 90,000 $ 270,000
As of September 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 $19,000 and $15,000 as of September 30, 1996 and 1995
respectively.
Noninterest Income
Noninterest income during the first nine months of 1996 of $1,004,000 was
$219,000 greater than earned during the comparable period of 1995. This was
reflected in increases in most areas of noninterest income and fees. It
includes income from the Corporation's real estate brokerage subsidiary and
gains on the sale of SBA loans and from fees generated from the Accounts
Receivable Factoring Department.
During the third quarter of 1996 noninterest income of $330,000 was relatively
unchanged from that earned during the comparable period in 1995.
Noninterest Expense
Total noninterest expenses of $5,309,000 during the first nine months of 1996
are $559,000 over the comparable period in 1995. The major categories of this
are detailed below.
Salaries and related benefits are $360,000 greater during the first nine
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.
Occupancy expense increased $22,000 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 $65,000 between the respective
periods which is primarily related to the upgrade of the Corporation's main
computer and major additions to the Corporation's PC networks.
Other Expense increased $112,000 between the respective periods, principally
related to the increased volume in our lending activities. These types of
expenses include such things as credit report fees, appraisal fees,
origination fees, etc.
During the third quarter of 1996 the Corporation had a total of $1,840,000 in
noninterest expense which was $266,000 over the comparable quarter of 1995.
The breakdown of expenses in the third quarter parallel those given for the
nine month results.
Other Real Estate Owned
As of September 30, 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 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 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 September 30, 1996, December 31, 1995, and September 30,
1995.
* Risk-based capital ratios: Capital Ratios
Minimum
September 30, December 31, September 30,
Regulatory
1996 1995 1995 requirements
Tier 1 capital 12.08% 12.51% 13.52% 4.00%
Total capital 13.34% 13.76% 14.78% 8.00%
Leverage ratio 9.95% 9.51% 9.60% 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 19% of total assets at September 30,
1996 and 38% at September 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 $13,000,000.
General
Total assets of the Corporation at September 30, 1996 of $151,073,000 have
increased $8,105,000 as compared to September 30, 1995 Total deposits of
$133,791,000 have increased $6,395,000 from September 30, 1995. Total loans
of $127,421,000 have increased $36,480,000 from September 30, 1995.
The Corporation's loan to deposit ratio as of September 30, 1996 was 89%, as
compared to 71% on September 30, 1995.
<PAGE>
<TABLE>
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, 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>
<CAPTION>
Interest Rate Sensitivity 3 3-6 12 1-5 Over 5
Repricing within: months months months years years Totals
September 30, 1996
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Federal funds sold $1,200 0 0 0 0 $1,200
Other Short Term Securities 15 0 0 0 0 15
Investment securities 876 $1,976 $1,820 $13,034 $2,340 20,046
Construction & real estate loans 36,323 10,507 2,398 250 712 50,190
Commercial loans 36,033 1,521 262 964 109 38,889
Consumer loans 25,671 783 385 4,129 150 31,118
Interest-bearing assets $100,118 $14,787 $4,865 $18,377 $3,311 $141,458
Savings and Now accounts $23,839 0 0 0 0 $23,839
Money market accounts 27,899 0 0 0 0 27,899
Time deposits <$100,000 7,404 $9,970 $2,956 $1,571 0 21,901
Time deposits >$100,000 12,878 7,790 2,124 600 0 23,392
Interest-bearing liabilities $72,020 $17,760 $5,080 $2,171 0 $97,031
Rate sensitive gap $28,098 ($2,973) ($215) $16,206 $3,311 $44,427
Cumulative rate sensitiveity gap $28,098 $25,125 $24,910 $41,116 $44,427 $88,854
Cumulative position to average
earning assets 19.86% 17.76% 17.61% 29.07% 31.41%
</TABLE>
<PAGE>
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
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000353650
<NAME> BWC FINANCIAL CORP
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 7710000
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 1200000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 10835000
<INVESTMENTS-CARRYING> 9211000
<INVESTMENTS-MARKET> 9234000
<LOANS> 120199000
<ALLOWANCE> 2012000
<TOTAL-ASSETS> 151073000
<DEPOSITS> 133791000
<SHORT-TERM> 0
<LIABILITIES-OTHER> 1422000
<LONG-TERM> 0
0
0
<COMMON> 10222000
<OTHER-SE> 5638000
<TOTAL-LIABILITIES-AND-EQUITY> 151073000
<INTEREST-LOAN> 8262000
<INTEREST-INVEST> 1186000
<INTEREST-OTHER> 90000
<INTEREST-TOTAL> 9538000
<INTEREST-DEPOSIT> 2631000
<INTEREST-EXPENSE> 2647000
<INTEREST-INCOME-NET> 6891000
<LOAN-LOSSES> 500000
<SECURITIES-GAINS> 21000
<EXPENSE-OTHER> 5309000
<INCOME-PRETAX> 2086000
<INCOME-PRE-EXTRAORDINARY> 2086000
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1428000
<EPS-PRIMARY> 1.41
<EPS-DILUTED> 1.26
<YIELD-ACTUAL> 6.90
<LOANS-NON> 89000
<LOANS-PAST> 1000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 1178000
<ALLOWANCE-OPEN> 1529000
<CHARGE-OFFS> 45000
<RECOVERIES> 28000
<ALLOWANCE-CLOSE> 2012000
<ALLOWANCE-DOMESTIC> 1472000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 540000
</TABLE>
