SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the fiscal year ended December 31, 1995, Commission file number 0-10658
BWC FINANCIAL CORP.
(Exact name of registrant as specified in its charter)
California 94-2621001
(State of other jurisdiction of (I.R.S. Employee
incorporation or organization) Identification No.)
1400 Civic Drive, Walnut Creek, California 94596
(Address of principal executive office)
Registrant's telephone number, including area code: (510) 932-5353
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, no par value
(Title of Class)
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
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (229.405 of this chapter) is not contained herein, and will
not be contained, to the best of registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. [ ]
State the aggregate market value of the voting stock held by non-affiliates of
the registrant, as of March 1, 1995: $10,687,000.
Indicate the number of shares outstanding of each of the registrant's classes
of common stock, as of March 1, 1995.
Title of Class: Common Stock, no par value Shares Outstanding: 935,907
Documents Incorporated by Reference* Incorporated Into:
1995 Annual Report to Shareholders Part II and IV
Definitive Proxy Statement for the 1996 Part III
Annual Meeting of Shareholders to be
filed by March 27, 1996.
* Only selected portions of the document specified are incorporated by
reference into this report, as more particularly described herein.
<PAGE>
TABLE OF CONTENTS
PAGE
PART I
Item 1 Business 1
Item 2 Properties 3
Item 3 Legal Proceedings 3
Item 4 Submissions of Matters to a Vote of Shareholders 3
PART II
Item 5 Market for the Registrant's Common Stock and
Related Shareholder Matters 4
Item 6 Selected Financial Data 4
Item 7 Management's Discussion and Analysis of
Financial Condition and Results of Operations 5 - 14
Item 8 Financial Statements and Supplementary Data 15
Item 9 Changes in and Desagreements with Accountants on
Accounting and Financial Disclosure 15
PART III
Item 10 Directors and Executive Officers of
the Registrant 16
Item 11 Executive Compensation 16
Item 12 Security Ownership of Certain Beneficial
Owners and Management 16
Item 13 Certain Relationships and Related Transactions 16
PART IV
Item 13 Exhibits, Financial Statement Schedules and
Reports on Form 8-K 16
Signatures 17
Index to Exhibits 18
<PAGE>
PART I
ITEM 1. BUSINESS
BWC Financial Corp. ("Corporation") is a bank holding company registered under
the Bank Holding Company Act of 1956, as amended. It is a holding company for
Bank of Walnut Creek, which was incorporated under the laws of the State of
California on November 26, 1979. Its principal office is located at 1400
Civic Drive, Walnut Creek, California 94596, and its telephone number is (510)
932-5353.
Bank of Walnut Creek has conducted the business of a commercial bank since
December 12, 1980. The Bank's primary focus is to engage in wholesale
commercial banking, serving small to middle-sized businesses, professionals,
high net worth individuals and general retail banking business. Rather than
concentrate on any specific industry, the Bank has solicited and attracted
customers from a wide variety of light manufacturing, wholesaling, retailing,
contracting, real estate development and service businesses, accountants,
physicians and dentists.
The Bank offers a full range of commercial banking services emphasizing the
banking needs of individuals, and the business and professional community in
Walnut Creek, California and surrounding areas of Contra Costa County. The
Bank accepts checking and savings deposits, makes construction loans, mortgage
real estate loans, commercial loans, and installment loans, and offers safe
deposit services, including oversize boxes for short-term storage. It sells
travelers checks, issues drafts, and offers other customary banking services.
The Bank offers its depositors a wide selection of deposit instruments
including money market accounts, NOW accounts, and time certificates of
deposit. Bank of Walnut Creek also offers an auto deposit pick-up service to
its professional and business clients. Automatic teller machines are
available at all bank locations, 24 hours a day, and are part of the EDS and
Cirrus networks with ATM access at locations throughout the United States and
Canada.
The Bank operates an SBA (Small Business Administration) lending department,
and also has a "Business Credit" department which provides asset based
(factoring)loans with assignment of receivable. Both of these areas of the
Bank add to the Corporations range of services to its clients.
The Corporation also operates, through its subsidiary, BWC Real Estate, a
joint venture brokerage service called "BWC Mortgage Services". This
brokerage division not only provides long term mortgage placement services for
the Bank's construction loan clients but for non-clients seeking long term
mortgage financing. The long term financing is placed through the most
competitive mortgage investors available in the market.
The Bank is not at this time authorized to conduct trust business and has no
present intention to apply to regulatory authorities to do so. Although the
Bank does not directly offer international banking services, the Bank does
make such services available to its customers through other financial
institutions with which the Bank has correspondent banking relations.
Service Area
Contra Costa County represents the primary service area of Bank of Walnut
Creek and its branches, however, the service area also extends into Alameda
County and Solano County. Walnut Creek, California, is site of the
Corporation's main office and the Bank also operates offices in the cities of
Orinda, Danville, San Ramon and Pleasanton, California.
BWC Financial Corp. has no foreign or international activities or operations.
Competition
The banking business in the Bank's primary service area, consisting of Contra
Costa County, Southern Solano County, and Northern Alameda County, is highly
competitive with respect to both loans and deposits. The area is dominated by
the major California banks, all of which have multiple branch offices
throughout our defined service area. Additionally, there are many thrifts
representing most of the major thrift institutions operating in the California
market. There are also a number of other independent banks that are a source
of competition due to the similarity of the market served.
Among the advantages of major banks are their abilities to finance wide-
ranging advertising campaigns, to offer certain services (for example, trust
services) which are not offered directly by the Bank and to have substantially
higher legal lending limits due to their greater capitalizations. In addition
to major banks, some of the nation's largest savings and loan associations are
located in California and compete for mortgage business along with smaller
savings and loan associations.
Bank of Walnut Creek is in direct competition with all these financial
institutions. Management believes the Bank competes successfully with these
institutions because of sound management techniques and the flexibility to
adjust to changing economic situations. The dedication of founders,
directors, and bank personnel has been instrumental in the Bank's ability to
compete. The Bank is dedicated to providing personal attention to the
financial needs of businesses, professionals, and individuals in its service
area.
Employees
At December 31, 1995, Bank of Walnut Creek employed 66 people. At the present
time there are no employees directly employed by BWC Financial Corp. or by its
mortgage subsidiary BWC Real Estate. There are 10 persons employed by the
joint venture BWC Mortgage Services either directly on as independent
contractors.
Supervision and Regulation
As a California state-licensed bank, the Bank is subject to regulation,
supervision and periodic examination by the California State Banking
Department. The Bank is also subject to regulation, supervision, and periodic
examination by the Federal Deposit Insurance Corporation (the "FDIC"). The
Bank is not a member of the Federal Reserve System, but is nevertheless
subject to certain regulations of the Board of Governors of the Federal
Reserve System. As a state bank, the Bank's deposits are insured by the FDIC
to the maximum amount permitted by law, which is currently $100,000.
The regulations of those state and federal bank regulatory agencies govern
most aspects of the Bank's business and operations, including, but not limited
to, requiring the maintenance of non-interest bearing reserves on deposits,
limiting the nature and amount of investments and loans which may be made,
regulating the issuance of securities, restricting the payment of dividends,
regulating bank expansion and bank activities, including real estate
development activities and determining characteristics of certain deposit
accounts.
ITEM 2. PROPERTIES
The principal office of the Bank of Walnut Creek is located at 1400 Civic
Drive, in the financial district of downtown Walnut Creek. The premises are
located in a modern building of which the Bank has leased approximately 11,917
square feet.
BWC Financial Corp. shares common quarters with Bank of Walnut Creek in its
principal office.
On September 24, 1982, a branch office was opened at 224 Brookwood Road,
Orinda, California. The branch serves the Orinda area. The premises are
located in a remodeled building of approximately 320 square feet.
On November 12, 1985, a branch office was opened at 3130 Crow Canyon Place,
San Ramon, California. The branch serves the San Ramon area. The premises
are located in a modern building of which the Bank has leased approximately
3,375 square feet.
On June 8, 1990, the Bank leased 2263 square feet of office space located at
424 Hartz Avenue, Danville, California, to house the Bank's Danville office,
serving the community of Danville.
On January 6, 1994 the Bank leased 3880 square feet of office space located at
249 Main Street, Pleasanton, California to house the Bank's Pleasanton office,
serving the community of Pleasanton.
ITEM 3. LEGAL PROCEEDINGS
At this time there are no pending or threatened legal proceedings to which the
Corporation is a party or to which any of the Corporation's properties are
subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS
None
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER
MATTERS.
The information required to be furnished pursuant to this item is set forth
under the caption "Common Stock Prices" on page 27 of the Corporation's 1995
Annual Report to Shareholders and is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
The information required to be furnished pursuant to this item is set forth
under the caption "Management's Discussion and Analysis of Operations" on page
23 of the Corporation's 1995 Annual Report to Shareholders and is incorporated
herein by reference.
<PAGE>
<TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
For management's discussion and analysis of financial condition and results of operations, see
"Management's Discussion and Analysis of Operations" at pages 23 through 27 of the 1995 Annual
Report to Shareholders which is incorporated herein by reference. The following statistical
disclosures should be read in conjunction with the consolidated financial statements and notes
thereto of the 1995 Annual Report to Shareholders which is incorporated herein by reference.
The following is an analysis of net interest earnings for the years ended December 31.
<CAPTION>
EARNING ASSETS 1995 1994
Interest Rates Interest Rates
Average Income/ Earned/ Average Income/ Earned/
Balance Expense Paid (1) Balance Expense Paid (1)
<S> <C> <C> <C> <C> <C> <C>
Federal Funds Sold $3,139,000 $181,000 5.77% $4,431,000 $185,000 4.18%
Other Short Term Investments 1,314,000 76,000 5.78 1,562,000 76,000 4.87
Investment Securities:
U.S. Treasury Securities 12,209,000 705,000 5.77 10,090,000 497,000 4.92
Securities of U.S.
Government Agencies 8,496,000 551,000 6.48 1,958,000 114,000 5.84
Obligations of States &
Political Subdivisions (1) 10,125,000 498,000 6.78 11,169,000 508,000 6.27
Loans (2) (3) (4) (5) 89,518,000 9,480,000 10.59 85,893,000 8,293,000 9.66
TOTAL EARNING ASSETS $124,801,000 $11,491,000 9.36% $115,103,000 $9,673,000 8.56%
NONEARNING ASSETS 9,759,000 9,231,000
TOTAL $134,560,000 $124,334,000
<FN>
Note: Minor rate differences from a straight division of interest by average assets are due to
the rounding of average balances.
(1) Amounts calculated on a fully Tax-Equivalent Basis where appropriate (1995 and 1994
Federal Statutory Rate - 34%).
(2) Nonaccrual loans of $181,000 and $533,000 as of December 31, 1995 and 1994 have been
included in the average loan balance. Interest income is included on nonaccrual loans
only to the extent to which cash payments have been received.
(3) Average loans are net of average deferred loan origination fees of $546,000 and $435,000
in 1994 and 1993 respectively.
(4) Loan interest income includes loan origination fees of $691,000 and $830,000 in 1995
and 1994 respectively.
</FN>
</TABLE>
<PAGE>
<TABLE>
ITEM 7. (continued)
LIABILITIES AND SHAREHOLDERS' EQUITY
<CAPTION>
1994 1994
Interest Rates Interest Rates
Average Income/ Earned/ Average Income/ Earned/
Balance Expense Paid (1) Balance Expense Paid (1)
<S> <C> <C> <C> <C> <C> <C>
INTEREST-BEARING DEPOSITS:
Savings and NOW Accounts $21,587,000 $402,000 1.86% $19,984,000 $396,000 1.98%
Money Market Accounts 34,756,000 1,041,000 3.00 43,917,000 1,213,000 2.76
Time 35,882,000 1,962,000 5.47 23,718,000 936,000 3.95
TOTAL (6) 92,225,000 3,405,000 3.69 87,619,000 2,545,000 2.90
Funds Purchased 82,000 5,000 5.98 61,000 2,000 3.00
TOTAL INTEREST-BEARING
DEPOSITS AND BORROWINGS $92,307,000 $3,410,000 3.69 $87,680,000 $2,547,000 2.90
NONINTEREST-BEARING DEPOSITS 28,347,000 -- 24,656,000 --
OTHER LIABILITIES 1,047,000 -- 552,000 --
SHAREHOLDERS' EQUITY 12,860,000 -- 11,446,000 --
TOTAL $134,561,000 $124,334,000
NET INTEREST INCOME
AND NET INTEREST MARGIN
ON AVERAGE EARNING ASSETS $8,081,000 6.34% $7,126,000 6.13%
<FN>
Note: Minor rate differences from a straight division of interest by average assets are due to
the rounding of average balances.
</FN>
</TABLE>
Change in Interest and Expense
Due to Volume Change and Rate Change
The following table provides pertinent information about interest income and
expense between the years 1995 and 1994, and between the years 1994 and 1993.
The change resulting primarily from growth in each asset or liability
category is expressed as a volume change. The change resulting primarily from
changes in rates is expressed as a rate change. The change attributed to both
rate and volume is allocated equally between both rate and volume changes.
During 1995 total interest income increased $1,818,000 from 1994. Of this
increase $618,000 or 34% was related to volume increases of interest earning
assets and $1,200,000 or 66% was related to rate changes.
During 1995 total interest expense increased $863,000 from 1994. Of this
increase $346,000 or 40% was related to volume increases in deposits and
$517,000 or 60% was related to rate changes.
The result of the above is that net interest income increased $955,000 during
1995 as compared to 1994. Net volume increases accounted for an increase of
$271,000 whereas net rate changes accounted for $684,000.
During 1994 total interest income increased $1,215,000 from 1993. Of this
increase $640,000 or 53% was related to volume increases of interest earning
assets and $575,000 or 47% was related to rate changes.
During 1994 total interest expense increased $214,000 from 1993. Of this
increase $196,000 or 92% was related to volume increases in deposits and
$18,000 or 8% was related to rate changes.
The result of the above is that net interest income increased $1,001,000
during 1994 as compared to 1993. Net volume increases accounted for an
increase of $444,000 whereas net rate changes accounted for $557,000.
<PAGE>
<TABLE>
ANALYSIS OF CHANGES IN INTEREST INCOME AND EXPENSES
<CAPTION>
1995 over 1994 1994 over 1993
Volume Rate Total Volume Rate Total
<S> <C> <C> <C> <C> <C> <C>
Increases (Decreases) in Interest Income:
Federal Funds Sold ($64,000) $60,000 ($4,000) $40,000 $50,000 $90,000
Other Short Term Investments (14,000) 14,000 -- 38,000 38,000 76,000
Investment Securities:
U.S. Treasury Secutities 114,000 95,000 209,000 (94,000) (38,000) (132,000)
Securities of U.S. Government Agencies 403,000 33,000 436,000 86,000 27,000 113,000
Obligations of State and
Political Subdivisions (1) (45,000) 35,000 (10,000) 120,000 (7,000) 113,000
Loans (2) 226,000 961,000 1,187,000 450,000 505,000 955,000
TOTAL INCREASE (DECREASE) 620,000 1,198,000 1,818,000 640,000 575,000 1,215,000
Increase (Decrease) in Interest Expense
Deposits:
Savings & NOW Accounts 43,000 (37,000) 6,000 114,000 4,000 118,000
Money Market Accounts (264,000) 92,000 (172,000) (125,000) (68,000) (193,000)
Time Deposits 566,000 460,000 1,026,000 207,000 82,000 289,000
Federal Funds Purchased 1,000 2,000 3,000 -- -- --
TOTAL INCREASE (DECREASE) (2) 346,000 517,000 863,000 196,000 18,000 214,000
Increase (Decrease) on Net Interest Income $274,000 $681,000 $955,000 $444,000 $557,000 $1,001,000
<FN>
(1) Amounts calculated on a fully taxable equivalent basis where appropriate.
Volume changes are caused by differences in the level of earning assets and interest-bearing deposits.
Rate changes result from differences in yields earned on assets and rates paid on liabilities. Changes
not solely attributable to volumes or rates have been allocated equally between rate and volume.
</FN>
</TABLE>
<PAGE>
<TABLE>
INTEREST RATE SENSITIVITY
(in thousands except share and per share data)
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 December 31, 1995. 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.
<CAPTION>
Interest Rate Sensitivity 3 3-6 12 1-5 Over 5
Repricing within: months months months years years Totals
<S> <C> <C> <C> <C> <C> <C>
December 31, 1995
ASSETS:
Federal funds sold $1,230 $0 $0 $0 $0 $1,230
Investment securities $501 $703 $6,165 $24,988 $2,114 $34,471
Construction & real estate loans $23,741 $6,426 $5,745 $237 $707 $36,856
Commercial loans $31,922 $185 $519 $803 $44 $33,473
Consumer loans $25,571 $369 $669 $4,193 $173 $30,975
Real estate mortgages
Interest-bearing assets $82,965 $7,683 $13,098 $30,221 $3,038 $137,005
Savings and Now accounts $21,224 $0 $0 $0 $0 $21,224
Money market accounts $33,917 $0 $0 $0 $0 $33,917
Time deposits <$100,000 $4,641 $10,321 $4,301 $2,470 $0 $21,733
Time deposits >$100,000 $7,259 $9,208 $3,994 $412 $0 $20,873
Interest-bearing liabilities $67,041 $19,529 $8,295 $2,882 $0 $97,747
Rate sensitive gap $15,924 ($11,846) $4,803 $27,339 $3,038 $39,258
Cumulative rate sensitiveity gap $15,924 $4,078 $8,881 $36,220 $39,258 $78,516
Cumulative position to average
earning assets 11.62% 2.98% 6.48% 26.44% 28.65%
</TABLE>
<TABLE>
INVESTMENT SECURITIES
Information regarding the book value of investment securities as of December 31, 1995 and 1994 is set
forth in Note 2 on Page 12 of the Corporation's 1995 Annual Report to Shareholders and is incorporated
herein by reference.
The following table is a summary of the relative maturities and yields on BWC Financial Corp.'s
investment securities as of December 31, 1995. Yields have been computed by dividing annual interest
income, adjusted for amortization of premium and accretion of discount, by book values of the related
securities.
<CAPTION>
Maturing
After One but Within
Within one Year Five Years Over Five Years Total
Amount Yield Amount Yield Amount Yield Amount Yield
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury Securities $4,008,000 6.27% $4,503,000 6.13% -- -- $8,511,000 6.20%
Obligations of U.S. Government
Agencies 1,017,000 6.29 $10,126,000 6.48 -- -- $11,143,000 6.46
Obligations of State and
Political Subdivisions:
Tax-exempt* 2,141,000 4.56 8,219,000 4.73 $611,000 4.71 $10,971,000 4.69
Taxable 170,000 4.87 2,983,000 6.23 $500,000 6.23 $3,653,000 6.16
TOTAL $7,336,000 5.74% $25,831,000 5.83% $1,111,000 5.39% $34,278,000 5.80%
<FN>
* Interest is exempt from Federal Income Taxes.
</FN>
</TABLE>
<PAGE>
<TABLE>
LOAN PORTFOLIO
Information regarding the loan portfolio of the Corporation as of December 31, 1995 and 1994
is set forth in Note 3 on page 13 of the Corporation's 1995 Annual Report to Shareholders and
is incorporated herein by reference.
Maturity Distribution and Interest Rate Sensitivity of Loans
The following table shows the maturity distribution and interest rate sensitivity of loans
of the Corporation on December 31, 1995.
<CAPTION>
LOANS WITH A MATURITY OF
One Year One to After Five
or Less Five Years Years Total
<S> <C> <C> <C> <C>
Real Estate Construction $19,829,000 $1,588,000 -- $21,417,000
Commercial 17,561,000 $8,664,000 $7,248,000 33,473,000
Installment 4,151,000 6,135,000 20,689,000 30,975,000
Real Estate Mortgages 1,142,000 9,087,000 5,210,000 15,439,000
TOTAL $42,683,000 $25,474,000 $33,147,000 $101,304,000
Loans with Fixed Interest Rates $4,578,000 $5,170,000 $923,000 $10,671,000
Loans with Floating Interest Rates 47,399,000 10,592,000 32,642,000 90,633,000
TOTAL $51,977,000 $15,762,000 $33,565,000 $101,304,000
</TABLE>
<TABLE>
ALLOWANCE FOR CREDIT LOSSES
Information regarding the analysis of the allowance for credit losses of the Corporation for
the years ended December 31, 1995, 1994 and 1993 is set forth in Note 4 on page 14 of the
Corporation's 1995 Annual Report to Shareholders and is incorporated herein by reference.
Allocation of Allowance for Credit Losses is based upon estimates of potential credit losses
and is maintained at a level considered adequate to provide for losses that can be reasonable
anticipated. The allowance is increased by provisions charged to expense and reduced by net
charge-offs. Management continually evaluates the economic climate and other conditions to
determine the adequacy of the allowance. Ultimate losses may vary from current estimates.
<CAPTION>
1995 1994
Allocation Loans As A Allocation Loans As A
of Allowance Percent Of of Allowance Percent Of
Type of Loan Balance Total Loans Balance Total Loans
<S> <C> <C> <C> <C>
Real Estate Construction $247,000 21.14% $237,000 20.37%
Commercial 490,000 33.04 329,000 32.46
Installment 298,000 30.58 235,000 31.07
Real Estate Mortgages 39,000 15.24 35,000 16.10
Unallocated 454,000 -- 662,000 --
TOTAL $1,528,000 100.00% $1,498,000 100.00%
<FN>
BWC Financial Corp. believes that any breakdown or allocation of the allowance into loan
categories lends an appearance of exactness which does not exist, in that the allowance is
utilized as a single unallocated reserve available for all loans and commitments to extend
credit. The allowance breakdown shown above should not be interpreted as an indication of
the specific amount or specific loan categories in which future charge-offs may ultimately
occur.
</FN>
</TABLE>
<PAGE>
<TABLE>
DEPOSITS
The following table shows daily average balances for the various
classifications of deposits for the periods indicated.
<CAPTION>
For the Year Ended December 31
1995 1994
Average Average
Balance Rates Balance Rates
<S> <C> <C> <C> <C>
Noninterest-Bearing Demand $28,347,000 -- $24,656,000 --
Savings and NOW Accounts 21,587,000 1.86% 19,984,000 1.98%
Money Market Accounts 34,756,000 3.00 43,917,000 2.76
Time Deposits 35,882,000 5.47 23,718,000 3.95
Total Deposits $120,572,000 2.82% $112,275,000 2.27%
</TABLE>
Time Certificates in Amounts of $100,000 or More
December 31,
Time Remaining to Maturity 1995
Less than three months $7,259,000
Three to six months 9,208,000
Six to twelve months 3,994,000
More than twelve months 412,000
TOTAL $20,873,000
FINANCIAL RATIOS
The following table shows key financial ratios for the Corporation for
the years indicated.
Year Ended December 31,
1995 1994
Return on average assets 1.20% 0.94%
Return on average shareholders' equ 11.75% 9.54%
Cash dividend payout ratio 0.00% 0.00%
Average shareholders' equity as % of:
Average total assets 10.18% 9.90%
Average total deposits 11.44% 10.96%
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required to be furnished in this item is set forth in the
Consolidated Financial Statements on pages 6 through 22 of the Corporation's
1995 Annual Report to Shareholders and is incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None
<PAGE>
PART III
Pursuant to General Instruction G(3), the information in Items 10, 11, 12 and
13 of Part III is furnished by way of incorporation by reference to those
sections of the Registrant's Proxy Statement for the 1996 Annual Meeting of
Shareholders which contain the information required by Items 401, 402, 403,
404 and 405 of Regulation S-K. The Registrant intends to file a definitive
copy of such Proxy Statement, pursuant to Regulation 14A, by March 20, 1996.
PART IV
ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(A) Documents Filed as Part of this Report
1. Financial Statements
The consolidated financial statements of BWC Financial Corp. and
subsidiary listed below and appearing at the indicated page number in
BWC's 1995 Annual Report to Shareholders are incorporated by reference
into this report.
BWC FINANCIAL CORP. AND SUBSIDIARIES Page Number*
Independent Public Accountants' Report 22
Independent Public Accountants' Report for the years
ended December 31, 1995 and 1994 is filed herewith 22
Consolidated Balance Sheets as of December 31, 1995 and 1994 6
Consolidated Statements of Income for the years ended
December 31, 1995, 1994 and 1993 7
Consolidated Statements of Shareholders' Equity for the
years ended December 31, 1995, 1994 and 1993 8
Consolidated Statements of Cash Flows for the years ended
December 31, 1995, 1994 and 1993 9
Notes to Consolidated Financial Statements 10 - 21
2. Financial Statement Schedules
All financial statement schedules have been omitted, as they are
inapplicable or the required information is included in the consolidated
financial statements or notes thereto.
(B) Reports on Form 8-K
No reports on form 8-K were filed by BWC Financial Corp. during the fourth
quarter of 1995.
(C) Exhibits Filed:
See Index to Exhibits at page 19 of this Form 10-K.
*Refers to page number in the 1995 Annual Report to Shareholders.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
By
Leland E. Wines
Executive Vice President and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
Signature Title Date
Chairman of the Board ________________
James L. Ryan and Director
Executive Vice President and
Leland E. Wines Chief Financial Officer _______________
Director ________________
Tom Mantor
Director ________________
Richard G. Hill
Director ________________
Reynold C. Johnson III
Director ________________
Craig Lazzareschi
Director ________________
John F. Nohr
Director ________________
John L. Winther
<PAGE>
INDEX TO EXHIBITS
EXHIBIT EXHIBIT NUMBER
Articles of Incorporation and Amendments Refer to 10K filing
of March, 1994.
By-Laws Refer to 10K filing
of March, 1994.
1995 Annual Report to Shareholders 13.1
Consents of Auditors:
Arthur Andersen LLP Consent dated March 15, 1996 24.1
Report of Independent Public Accountants:
Arthur Andersen LLP Report dated March 15, 1996 25.1
<PAGE>
<TABLE>
BWC FINANCIAL CORP
CONSOLIDATED BALANCE SHEETS
<CAPTION>
December 31
ASSETS 1995 1994
<S> <C> <C>
Cash and Due From Banks $11,377,000 $8,552,000
Federal Funds Sold 1,230,000 3,300,000
Other Short Term Investments 10,000 3,018,000
Total Cash and Cash Equivalents 12,617,000 14,870,000
Investment Securities:
Available for Sale 23,500,000 17,419,000
Held to Maturity (approximate fair value
of $11,061,000 in 1995 and $10,892,000 in 1994) 10,971,000 11,335,000
Loans, Net of Allowance for Credit Losses of $1,528,000
in 1995 and $1,498,000 in 1994. 99,776,000 86,411,000
Bank Premises and Equipment, Net 1,475,000 993,000
Interest Receivable and Other Assets 2,258,000 2,116,000
Total Assets $150,597,000 $133,144,000
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Deposits:
Noninterest-bearing $36,854,000 $27,340,000
Interest-bearing:
Money Market Accounts 33,917,000 37,062,000
Savings and NOW Accounts 21,224,000 24,681,000
Time Deposits:
Under $100,000 21,733,000 16,862,000
$100,000 or more 20,873,000 14,027,000
Total Interest-bearing 97,747,000 92,632,000
Total Deposits 134,601,000 119,972,000
Interest Payable and Other Liabilities 1,103,000 529,000
Total Liabilities 135,704,000 120,501,000
COMMITMENTS AND CONTINGENT LIABILITIES (Note 10)
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 -
935,907 shares in 1995 and 830,737 in 1994. 10,508,000 9,026,000
Retained Earnings 4,257,000 3,927,000
Capital adjustment on available for sale securities 128,000 (310,000)
Total Shareholders' Equity 14,893,000 12,643,000
Total Liabilities and
Shareholders' Equity $150,597,000 $133,144,000
<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 Year Ended December 31,
1995 1994 1993
<S> <C> <C> <C>
INTEREST INCOME
Loans, Including Fees $9,480,000 $8,293,000 $7,338,000
Investment Securities:
Taxable 1,389,000 744,000 684,000
Non-taxable 365,000 375,000 341,000
Federal Funds Sold 181,000 185,000 95,000
Other Short Term Investments 76,000 76,000 --
Total Interest Income 11,491,000 9,673,000 8,458,000
INTEREST EXPENSE
Deposits 3,405,000 2,545,000 2,331,000
Federal Funds Purchased 5,000 2,000 2,000
Total Interest Expense 3,410,000 2,547,000 2,333,000
NET INTEREST INCOME 8,081,000 7,126,000 6,125,000
PROVISION FOR CREDIT LOSSES 330,000 255,000 120,000
NET INTEREST INCOME AFTER PROVISION
FOR CREDIT LOSSES 7,751,000 6,871,000 6,005,000
NONINTEREST INCOME
Service Charges on Deposit Accounts 535,000 391,000 378,000
Gain on SBA Loan Sales 189,000 -- --
Other 412,000 260,000 238,000
Total Noninterest Income 1,136,000 651,000 616,000
NONINTEREST EXPENSE
Salaries and Related Benefits 3,250,000 2,903,000 2,602,000
Occupancy 747,000 683,000 589,000
Furniture and Equipment 439,000 452,000 381,000
Other 2,008,000 1,829,000 1,825,000
Total Noninterest Expense 6,444,000 5,867,000 5,397,000
INCOME BEFORE INCOME TAXES 2,443,000 1,655,000 1,224,000
PROVISION FOR INCOME TAXES 823,000 481,000 377,000
NET INCOME $1,620,000 $1,174,000 $847,000
NET INCOME PER COMMON AND COMMON
EQUIVALENT SHARE $1.64 $1.21 $0.91
Average common and common equivalent shares 990,472 973,388 931,361
<FN>
The accompanying notes are an integral part of these consolidated statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
BWC FINANCIAL CORP
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
For the years ended December 31, 1995, 1994 and 1993
<CAPTION>
Capital
Number Common Retained Adjustment
of Shares Stock Earnings on Securities Total
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1993 757,825 $8,461,000 $2,574,000 -- $11,035,000
Net Income for 1993 -- -- 847,000 -- 847,000
10% Stock Dividend, Including
Payment of fractional shares 75,931 666,000 (668,000) -- (2,000)
Common Stock Purchased by the
Defined Contribution Plan at
$8.00 to $9.00 per share 6,036 52,000 -- -- 52,000
Stock Options Exercised at $5.08
to $5.64 per share 9,742 52,000 -- -- 52,000
Repurchase of shares by the Corporation
at $9.25 to $9.60 per share (17,900) (170,000) -- -- (170,000)
Balance, December 31, 1993 831,634 9,061,000 2,753,000 -- 11,814,000
Net Income for 1994 -- -- 1,174,000 -- 1,174,000
Common Stock Purchased by the
Defined Contribution Plan at $8.77 per share 10,103 88,000 -- -- 88,000
Repurchase of shares by the Corporation
at $10.38 to $12.25 per share (11,000) (123,000) -- -- (123,000)
Capital adjustment on available for sale securities -- -- (310,000) (310,000)
Balance, December 31, 1994 830,737 9,026,000 3,927,000 (310,000) 12,643,000
Net Income for 1995 -- -- 1,620,000 -- 1,620,000
10% Stock Dividend, Including
Payment of fractional shares 84,393 1,286,000 (1,290,000) -- (4,000)
Common Stock Purchased by the
Defined Contribution Plan at $12.90 per share 10,990 142,000 -- -- 142,000
Stock Options Exercised at $5.13
to $5.93 per share 9,787 54,000 -- -- 54,000
Capital adjustment on available for sale securities -- -- -- 438,000 438,000
Balance, December 31, 1995 935,907 $10,508,000 $4,257,000 $128,000 $14,893,000
<FN>
The accompanying notes are an integral part of these consolidated statements.
</FN>
</TABLE>
<PAGE>
BWC FINANCIAL CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: Summary of Significant Accounting Policies. The accounting and
reporting policies of BWC Financial Corp. (the "Corporation") and its
subsidiaries, Bank of Walnut Creek (the "Bank"), and BWC Real Estate (see Note
6), conform with generally accepted accounting principles and general practice
within the banking industry. The following is a summary of the more
significant accounting policies.
Nature of Operations. BWC Financial Corp. operates four branches in Contra
Costa County and one in northern Alameda County. The Corporation's primary
source of revenue is providing loans to customers, who are predominately small
and middle-market businesses and middle-income individuals.
Basis of Presentation. The consolidated financial statements of the
Corporation include the accounts of the Corporation, the Bank and BWC Real
Estate. All significant inter-company balances and transactions have been
eliminated in consolidation.
Cash and Due from Banks includes balances with the Federal Reserve. The Bank
is required by federal regulations to maintain certain minimum average
balances with the Federal Reserve, based primarily on the Bank's average daily
deposit balances. At December 31, 1995, the Bank had balances with the
Federal Reserve of $1,044,000 as compared to $491,000 at December 31, 1994.
Investment Securities. In accordance with the Statement of Financial
Accounting Standards No. 115 (FASB 115), "Accounting for Certain Investments
in Debt and Equity Securities" the Corporation classifies its investments in
debt and equity securities as "held-to-maturity," "trading" or "available-for-
sale." Investments classified as held-to-maturity are reported at amortized
cost; investments classified as trading are reported at fair value with
unrealized gains and losses included in earnings; investments classified as
available-for-sale are reported at fair value with unrealized gains and
losses, net of related tax, if any, reported as a separate component of
shareholders' equity.
Amortization and accretion are included in interest income, while gains and
losses on disposition are included in non-interest income and are determined
using the specific identification method.
The Corporation's policy of carrying investment securities as held-to-maturity
is based upon its ability to hold such securities to maturity and management's
current intent to hold such securities for the foreseeable future.
Loans are stated at the principal amount outstanding. Interest income is
recognized using methods which approximate a level yield on principal amounts
outstanding. The accrual of interest on loans is discontinued when the
payment of principal or interest is considered to be in doubt, or when a loan
becomes contractually past-due by 90 days or more with respect to principal or
interest, except for loans that are well secured and in the process of
collection. When a loan is placed on non-accrual status, any accrued but
uncollected interest is reversed from current income. Loan origination fees
are deferred and amortized as yield adjustments over the contractual lives of
the underlying loans.
Sales and Servicing of SBA Loans. The Corporation originates loans to
customers under a Small Business Administration ("SBA") program that generally
provides for SBA guarantees of 70% to 90% of each loan. The Corporation
generally sells the guaranteed portion of each loan to a third party and
retains the unguaranteed portion in its own portfolio. The Corporation may be
required to refund a portion of the sales premium received, if the borrower
defaults or the loan prepays within 90 days of the settlement date. As a
result, the Corporation recognizes no fee income on these loan sales until the
90 day period elapses. On December 31, 1995 the Corporation was holding
$52,000 in pending SBA fees. A gain is recognized on the sale of SBA loans
through collection on the sale of a premium over the adjusted carrying value,
through retention of an ongoing rate differential less a normal service fee
(excess servicing fee) between the rate paid by the borrower to the Company
and the rate paid by the Company to the purchaser, or both.
To calculate the gain (loss) on sale, the Corporation's investment in an SBA
loan is allocated among the retained portion of the loan and the sold portion
of the loan, based on the relative fair market value of each portion. The
gain (loss) on the sold portion of the loan is recognized at the time of sale
based on the difference between the sale proceeds and the allocated
investment. As a result of the relative fair value allocation, the carrying
value of the retained portion is discounted, with the discount accreted to
interest income over the life of the loan. In the event of future prepayments,
the unearned servicing fee is realized as additional fee income at the time of
prepayment. The Corporation is using as its estimate of a normal servicing fee
1.00%, which is the standard recommended by the SBA.
Allowance for Credit Losses is based upon estimates of potential credit losses
and 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 and other conditions to determine the adequacy
of the allowance. The allowance is based on estimates, and ultimate losses
may vary from current estimates. As adjustments become necessary, they are
reported in the periods in which they become known.
Financial Accounting Standards Board issued Statement of Financial Accounting
Standards No. 114 as amended by No. 118, Accounting by Creditors for
Impairment of a Loan. The Corporation adopted this statement effective January
1, 1995. There was no material impact on its financial position or results of
operations as a result of this adoption.
Premises and Equipment consists of leasehold improvements, furniture and
equipment and are stated at cost, less accumulated depreciation and
amortization. Depreciation is computed on a straight-line basis over the
estimated useful lives of furniture and equipment, primarily from five to
fifteen years. Leasehold improvements are amortized over the terms of the
leases or their estimated useful lives, whichever is shorter.
Income Taxes. The Corporation files consolidated income tax returns which
include both the parent company and its subsidiaries. The parent company
reimburses the Bank for allocations of tax liabilities or benefits as
determined by the parent company. Deferred income taxes are recorded for all
significant income and expense items recognized in different periods for
financial reporting and income tax purposes.
Net Income Per Common and Common Equivalent Share is calculated by dividing
net income by the weighted average shares outstanding during the period
including the dilutive effect of stock options. Weighted average shares and
per share amounts reflect the 10% stock dividend paid on June 15, 1995.
Letters of credit and commitments to extend credit are extended based upon
evaluations of customer credit worthiness. The amount of collateral obtained
is based upon these evaluations. Collateral held varies but may include
accounts receivable, inventory, property, plant and equipment, and income-
producing commercial properties. Standby letters of credit and commitments to
extend credit generally have fixed expiration dates or other termination
clauses. Because many of the standby letters of credit and commitments to
extend credit are expected to expire without being drawn upon, total guarantee
and commitment amounts do not necessarily represent future cash requirements.
Significant Group Concentrations of Credit Risk. The Bank accepts deposits
and grants credit primarily within its local service area, the counties of
Contra Costa and Alameda, California. The Bank has a diversified loan
portfolio which is not dependent on any industry or group of customers.
Statement of Cash Flows. For purposes of reporting cash flows, cash and cash
equivalents include cash and due from banks and federal funds sold.
Use of Estimates in the Preparation of Financial Statements. The preparation
of financial statements in conformity with generally accepted accounting
principles, requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Pending Financial Accounting Pronouncements. In November, 1995, the Financial
Accounting Standards Board (FASB) issued Statement of Financial Accounting
Standards No. 123 (SFAS No. 123), Accounting for Stock-Based Compensation.
The Company will adopt the statement on January 1, 1996. The statement
requires that companies either change the accounting method for their stock-
based compensation plans or disclose proforma information. The Company has
decided to maintain its current accounting policies and will disclose pro forma
information in the footnotes, as described in SFAS No. 123.
<PAGE>
<TABLE>
NOTE 2: INVESTMENT SECURITIES
An analysis of the investment security portfolio at December 31 follows:
<CAPTION>
1995
Gross
Amortized Unrealized Fair
Available-for-sale Cost Losses Value
<S> <C> <C> <C>
U.S. Treasury Securities $8,511,000 $80,000 $8,591,000
Securities of U.S. Government Agencies 11,143,000 92,000 11,235,000
Taxable Securities of State and
Political Subdivisions 3,653,000 21,000 3,674,000
Total 23,307,000 193,000 23,500,000
Held-to-maturity
Obligations of State and Political
Subdivisions 10,971,000 90,000 11,061,000
Total Investment Securities $34,278,000 $283,000 $34,561,000
1994
Gross
Amortized Unrealized Fair
Available-for-sale Cost Losses Value
U.S. Treasury Securities $13,636,000 ($284,000) $13,352,000
Securities of U.S. Government Agencies 4,239,000 (172,000) 4,067,000
Total 17,875,000 (456,000) 17,419,000
Held-to-maturity
Obligations of State and Political
Subdivisions 11,335,000 (353,000) 10,982,000
Total Investment Securities $29,210,000 ($809,000) $28,401,000
<FN>
In 1995 and 1994, the Bank received proceeds from the sale of investment
securities of $7,016,000 and $4,995,000, respectively, and gains included in
other noninterest income totaled $19,000 and $5,000 respectively. There were
no sales of held-to-maturity securities in 1995 or 1994.
</FN>
</TABLE>
<PAGE>
NOTE 2 (Cont)
The maturities of the investment security portfolio at December 31, 1995
follows:
Held-to-maturity
Amortized Fair
Cost Value
Within one year $2,141,000 $2,150,000
After one through five years 8,219,000 8,297,000
Over five years 611,000 614,000
Total $10,971,000 $11,061,000
Available-for-sale
Amortized Fair
Cost Value
Within one year $5,195,000 $5,229,000
After one through five years 16,612,000 16,768,000
Over five years 1,500,000 1,503,000
Total $23,307,000 $23,500,000
At December 31, 1995 and 1994, securities with an approximate book value
of $6,439,000 and $6,985,000 respectively, were pledged to secure public
deposits.
The FASB permitted a one-time opportunity, effective November 15, 1995,
allowing institutions to reassess appropriateness of the designations of
all securities held, and allowed institutions to reclassify securities prior
to December 31, 1995 without calling into question their intent to hold other
debt securities to maturity. Under this ruling, the Corporation reclassified
$3,653,000 of held-to-maturity investments to held-for-sale investments during
the month of December, 1995.
<PAGE>
NOTE 3: LOANS
The majority of the Bank's loans are to customers in Contra Costa County and
surrounding areas. Depending upon the type of loan, the Bank generally
obtains a secured interest in the general assets of the borrower and/or in
any assets being financed.
Outstanding loans by type were: December 31
1995 1994
Real Estate Construction $21,417,000 $17,904,000
Real Estate Mortgages 15,439,000 14,150,000
Commercial 33,473,000 28,538,000
Installment 30,975,000 27,317,000
TOTAL 101,304,000 87,909,000
Less: Allowance for Credit Losses (1,528,000) (1,498,000)
NET LOANS $99,776,000 $86,411,000
The following table provides further information on past due and nonaccrual
loans.
December 31
1995 1994
Loans Past Due 90 Days or More, still
accruing interest $9,000 $14,000
Nonaccrual Loans 181,000 533,000
TOTAL $190,000 $547,000
As of December 31, 1995 and 1994, no loans were outstanding that had been
restructured. No interest earned on nonaccrual loans that was recorded in
income during 1995 remains uncollected. Interest foregone on nonaccrual
loans was approximately $9,000 in 1995, $73,000 in 1994, and $52,000 in 1993.
<PAGE>
<TABLE>
NOTE 4: ALLOWANCES FOR CREDIT LOSSES
<CAPTION>
For the Year Ended December 31
1995 1994 1993
<S> <C> <C> <C>
Total loans outstanding at end of period, before
deducting allowance for credit losses $101,304,000 $87,909,000 $82,334,000
Average total loans outstanding during period $89,518,000 $85,893,000 $79,270,000
Analysis of the allowance for credit losses:
Beginning Balance $1,498,000 $1,418,000 $1,502,000
Charge-offs:
Real Estate Construction 104,000 -- --
Real Estate Mortgages -- 140,000 --
Commercial 162,000 6,000 109,000
Installment 53,000 84,000 162,000
TOTAL CHARGE-OFFS 319,000 230,000 271,000
Recoveries:
Real Estate Construction -- -- --
Commercial 13,000 17,000 59,000
Installment 6,000 38,000 8,000
TOTAL RECOVERIES 19,000 55,000 67,000
NET CHARGE-OFFS 300,000 175,000 204,000
Provisions charged to operating expense 330,000 255,000 120,000
Ending Balance $1,528,000 $1,498,000 $1,418,000
Ratio of net charge-offs to average
total loans 0.34% 0.20% 0.26%
Ratio of allowance for credit losses
to total loans at end of period 1.51% 1.70% 1.72%
</TABLE>
<PAGE>
NOTE 4 (Cont.)
The Corporation adopted SFAS No. 114, Accounting by Creditors for Impairment of
a Loan and SFAS No. 118, Accounting by Creditors for Impairment of a Loan -
Income Recognition and Disclosures, as of January 1, 1995. SFAS No. 114
requires that certain impaired loans be measured based on the present value of
expected future cash flows discounted at the loan's original effective interest
rate. As a practical expedient, impairment may be measured based on the loan's
observable market price or the fair value of the collateral if the loan is
collateral dependent. When the measure of the impaired loan is less than the
recorded investment in the loan, the impairment is recorded through a valuation
allowance.
The Corporation had previously measured the allowance for credit losses using
methods similar to those prescribed in FASB No. 114. As a result of adopting
these statements, no additional allowance for loan losses was required as of
January 1, 1995.
As of December 31, the Corporation's recorded investment in impaired loans and
the related valuation allowance calculated under SFAS No. 114 are as follows:
1995
Recorded Valuation
Investment Allowance
Impaired Loans-
Valuation allowance required $389,000 $129,000
No valuation allowance required $181,000 --
The average recorded investment in impaired loans for the year ended 1995
was $816,000.
Interest payment received on impaired loans are recorded as interest income
unless collection of the remaining recorded investment is doubtful at which
time payments received are recorded as reductions of principal. The Corporation
recognized interest income on impaired loans of $31,000 for the year ended
December 31, 1995.
<PAGE>
NOTE 5: PREMISES AND EQUIPMENT
A summary of premises and equipment follows:
December 31
1995 1994
Leasehold Improvements $1,083,000 $562,000
Furniture and Equipment 2,424,000 2,184,000
3,507,000 2,746,000
Accumulated Depreciation and Amortization (2,032,000) (1,753,000)
Premises and Equipment, Net $1,475,000 $993,000
The amount of depreciation and amortization included in occupancy and
furniture and equipment expense was $309,000 in 1995, $302,000 in 1994,
and $283,000 in 1993.
NOTE 6: INVESTMENT IN BWC REAL ESTATE
BWC Real Estate, a subsidiary of the Corporation, was formed to enter into a
joint venture arrangement with a real estate brokerage firm, creating a
company called BWC Mortgage Services. BWC Real Estate owns 51% of this joint
venture. The business purpose of BWC Mortgage Services is the origination and
placement of long-term financing for real estate mortgages.
<PAGE>
NOTE 7: Fair Value of Financial Instruments
The following table presents the carrying amounts and fair values of the
Corporation's financial instruments at December 31, 1995. SFAS No. 107,
Disclosures about Fair Value of Financial Instruments, defines the fair
value of a financial instrument as the amount at which the instrument
could be exchanged in a current transaction between willing parties,
other than if a forced or liquidation sale.
1995
Carrying Fair
Amount Value
Cash and cash equivalents $ 12,617,000 $ 12,617,000
Loans (net) 99,776,000 101,591,000
Investment securities 34,471,000 34,571,000
Deposit liabilities 134,601,000 134,826,000
Other liabilities 646,000 646,000
The carrying amounts in the table are included in the statement of
financial position under the indicated captions.
The following notes summarize the major methods and assumptions used in
estimating the fair values of financial instruments.
Short-term financial instruments are valued at their carrying amounts
included in the statement of financial position, which are reasonable
estimates of fair value due to the relatively short period to maturity of
the instruments. This approach applies to cash and cash equivalents,
accrued interest receivable and payable.
Loans are valued on the basis of estimated future receipts of principal and
interest, discounted at various rates. Loan prepayments are assumed to
occur at the same rate as in previous periods when interest rates were at
levels similar to current levels. Future cash flows for homogeneous
categories of consumer loans, such as motor vehicle loans, are estimated on
a portfolio basis and discounted at current rates offered for similar loan
terms to new borrowers with similar credit profiles. The fair value of
nonaccrual loans also is estimated on a present value basis, using higher
discount rates appropriate to the higher risk involved.
Investment securities are valued at quoted market prices if available. For
unquoted securities, the reported fair value is estimated on the basis of
financial and other information.
Fair value of demand deposits and deposits with no defined maturity is
taken to be the amount payable on demand at the reporting date. The fair
value of fixed-maturity deposits is estimated using rates currently offered
for deposits of similar remaining maturities. The intangible value of
long-term relationships with depositors is not taken into account in
estimating the fair values disclosed.
Other liabilities include deferred and unearned fees in relation to loan
commitments. The unamortized carrying value of deferred and unearned fees
approximates its fair value.
<PAGE>
NOTE 8: INCOME TAXES
The provisions for income taxes in 1995, 1994, and 1993 consist of the
following:
1995 1994 1993
CURRENT
Federal $673,000 $392,000 $264,000
State 300,000 214,000 140,000
TOTAL CURRENT 973,000 606,000 404,000
DEFERRED
Federal (121,000) (93,000) (15,000)
State (29,000) (32,000) (12,000)
TOTAL DEFERRED (150,000) (125,000) (27,000)
TOTAL $823,000 $481,000 $377,000
The components of the net deferred tax assets of the Bank as of
December 31, 1995 and 1994 were as follows:
Deferred Tax Assets: 1995 1994
Allowance for credit losses $520,000 $559,000
Employee benefits and other 59,000 100,000
State taxes 41,000 66,000
Total deferred tax assets 620,000 725,000
Deferred Tax Liabilities:
Depreciation and other (29,000) (76,000)
Accretion and other (16,000) (224,000)
SFAS 115 deferred tax (liability) asset (66,000) 146,000
Total deferred tax liabilities (111,000) (154,000)
Net deferred tax asset $509,000 $571,000
The provisions for income taxes differ from the amounts computed by
applying the statutory Federal income tax rate to income before taxes.
The reasons for these differences are as follows:
1995 1994 1993
Provision based on the statutory
Federal rate of 34% $831,000 $563,000 $416,000
Increases (reduction) in income taxes resulting from:
State franchise taxes, net of
Federal income tax benefit 187,000 125,000 91,000
Non-taxable interest income (135,000) (135,000) (115,000)
Other (60,000) (72,000) (15,000)
TOTAL $823,000 $481,000 $377,000
<PAGE>
<TABLE>
NOTE 9: STOCK OPTION PLAN
The Corporation's stock option plan provides for the granting of options to
key employees for the purchase of the Corporation's shares at a price
not less than the fair market value on the date of grant. Options expire
ten years from the grant date, and vest over a five year period. A summary
of option activity follows:
<CAPTION>
Number
of Shares Option Price Per Share
<S> <C> <C> <C>
(Low) (High)
Outstanding at January 1, 1993 213,578 $4.62 $15.03
Exercised 10,716 $4.62 $5.13
Outstanding at December 31, 1993 202,862 $5.13 $15.03
Outstanding at December 31, 1994 202,862 $5.13 $15.03
Exercised 10,230 $5.13 $5.93
Outstanding at December 31, 1995 192,632 $7.44 $15.03
<FN>
At December 31, 1995, options for 151,613 shares were exercisable, and
89,540 shares were available for additional option grants under the
Corporation's 1990 Stock Option Plan (provides for the grant of both
incentive and non- qualified stock options). The share and per-share
amounts as of each December 31 above have been adjusted for stock dividends.
</FN>
</TABLE>
<PAGE>
NOTE 10: COMMITMENTS AND CONTINGENCIES
As of December 31, 1995, the approximate future minimum net rental
payments under non-cancellable operating leases for premises were as
follows:
Year Amount
1996 $612,000
1997 612,000
1998 612,000
1999 612,000
2000 548,000
Thereafter 1,652,000
Total $4,948,000
Rental expense for premises under operating leases included in
occupancy expense was $472,000, $419,000, and $366,000, in 1995,
1994, and 1993, respectively. Minimum rentals may be adjusted for
increases in the lessors' operating costs and/or increases in the
Consumer Price Index.
At December 31, 1995, the Bank had outstanding approximately
$49,782,000 in undisbursed loan commitments and $713,000 in standby
letters of credit, which are not reflected in the accompanying
consolidated balance sheets. Management does not anticipate any
material losses to result from these transactions.
The fair value of commitments to extend credit is estimated by using
the fees currently charged to others to enter into similar agreements
taking into account the terms of the agreements and the present
creditworthiness of the counterparties. The fair value of commitments
at December 31, 1995 were immaterial.
<PAGE>
NOTE 11: DEFINED CONTRIBUTION PLAN
Substantially all eligible, salaried employees of the Corporation are covered
by a defined contribution plan. Employees may, up to prescribed limits,
contribute to the plan. Portions of such contributions are matched by the
Corporation. The Corporation also may elect to make a discretionary
contribution to the plan based on the Corporation's earnings. The expense for
this plan, for both matching and discretionary contributions, was $124,000,
$84,000, and $63,000 in 1995, 1994, and 1993. Amounts vary from year to year
based on such factors as employees entering and leaving the plan, profits
earned by the Corporation, and variances of estimates from the final results.
<PAGE>
<TABLE>
NOTE 12: OTHER NONINTEREST EXPENSE
Other noninterest expense is comprised of the following:
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Data Processing $229,000 $208,000 $233,000
Regulatory Fees 153,000 255,000 231,000
Professional Fees 306,000 247,000 265,000
Memberships/Conferences/
Education/Business Development 197,000 175,000 142,000
Telephone and Postage 207,000 168,000 157,000
Advertising and Promotion 123,000 160,000 73,000
Office Supplies 138,000 139,000 142,000
Other 655,000 477,000 582,000
TOTAL $2,008,000 $1,829,000 $1,825,000
</TABLE>
<PAGE>
NOTE 13: RESTRICTIONS ON SUBSIDIARY TRANSACTIONS
The Bank is subject to legal limitations on the amount of dividends that can
be paid to the Corporation without prior approval from regulatory authorities.
The limitations for a given year equal the lesser of the Bank's net profits
(as defined in the regulations) for the current year, combined with the
retained net profits for the preceding two years or the Bank's retained
earnings. Under these restrictions, $3,608,000 of the Bank's retained
earnings were available for dividends at December 31, 1995.
The Bank is subject to certain restrictions under the Federal Reserve Act,
including restrictions on the extension of credit to affiliates. In
particular, the Corporation is prohibited from borrowing from the Bank, unless
the loans are secured by specified types of collateral. Such secured loans
and other advances from the Bank are limited to 10% of the Bank's
shareholders' equity. Under these provisions, secured loans and advances to
the Corporation were limited to $1,385,000 as of December 31, 1995. There
were no such extensions of credit by the Bank in 1995 or 1994.
<PAGE>
<TABLE>
NOTE 14: PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION
A summary of the financial statements of BWC Financial Corp.
(parent company only) follows:
<CAPTION>
December 31
SUMMARY BALANCE SHEETS 1995 1994
<S> <C> <C>
ASSETS
Cash on Deposit with the Bank $1,007,000 $766,000
Investment in the Bank 13,852,000 11,851,000
Investment in BWC Real Estate 55,000 26,000
TOTAL ASSETS $14,914,000 $12,643,000
LIABILITIES
Reserve for Taxes Payable $21,000 --
SHAREHOLDERS' EQUITY
Common Stock $10,508,000 $9,026,000
Retained Earnings 4,385,000 3,617,000
TOTAL SHAREHOLDERS' EQUITY $14,893,000 $12,643,000
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $14,914,000 $12,643,000
</TABLE>
<TABLE>
<CAPTION>
SUMMARY STATEMENTS OF INCOME FOR THE YEAR ENDED DECEMBER 31,
1995 1994 1993
<S> <C> <C> <C>
Expenses - General and Administrative $13,000 $14,000 $16,000
Loss before income taxes and
equity in undistributed net income
of Subsidiaries (13,000) (14,000) (16,000)
Income tax benefit (provision) (21,000) 6,000 5,000
Equity in undistributed net income
of BWC Real Estate 91,000 (5,000) --
Equity in undistributed net income
of the Bank 1,563,000 1,187,000 858,000
NET INCOME $1,620,000 $1,174,000 $847,000
</TABLE>
<PAGE>
<TABLE>
NOTE 14 (Continued)
<CAPTION>
SUMMARY STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31,
OPERATING ACTIVITIES: 1995 1994 1993
<S> <C> <C> <C>
Net Income $1,620,000 $1,174,000 $847,000
Adjustments to reconcile net income
to net cash provided (used) by operating activities:
Equity in undistributed net income
of Subsidiaries (1,563,000) (1,187,000) (858,000)
Reserve for Taxes Payable 21,000 -- --
NET CASH PROVIDED (USED) BY
OPERATING ACTIVITIES 78,000 (13,000) (11,000)
FINANCING ACTIVITIES:
Proceeds from issuance of common stock 196,000 88,000 104,000
Cash paid in lieu of fractional shares (4,000) -- (1,000)
Shares repurchased by the Corporation -- (123,000) (170,000)
Investment in BWC Real Estate (29,000) (26,000)
NET CASH PROVIDED (USED) BY
FINANCING ACTIVITIES 163,000 (61,000) (67,000)
Increase (Decrease) in Cash 241,000 (74,000) (78,000)
CASH ON DEPOSIT WITH THE BANK:
Beginning of year 766,000 840,000 918,000
End of year $1,007,000 $766,000 $840,000
</TABLE>
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors of BWC Financial Corp.:
We have audited the accompanying consolidated balance sheets of BWC Financial
Corp. (a California banking corporation) and Subsidiaries (the Corporation) as
of December 31, 1995 and 1994, and the related consolidated statements of
income, changes in shareholders' equity and cash flows for each of the three
years in the period ended December 31, 1995. These consolidated financial
statements are the responsibility of the Corporation's management. Our
responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of BWC
Financial Corp. and Subsidiaries as of December 31, 1995 and 1994, and the
results of their operations and their cash flows each of the three years in
the period ended December 31, 1995 in conformity with generally accepted
accounting principles.
San Francisco, California,
March 15, 1996
<PAGE>
<TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS
The following is a summary of selected consolidated financial data for the five years ended December 31, 1995. The summary is
followed by management's discussion and analysis of the significant changes in income and expense presented therein. This
information should be read in conjunction with the consolidated financial statements and notes related thereto appearing elsewhere
in this annual report.
<CAPTION>
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
SUMMARY OF EARNINGS
Interest Income $11,491,000 $9,673,000 $8,458,000 $8,232,000 $9,934,000
Interest Expense 3,410,000 2,547,000 2,333,000 2,792,000 4,541,000
Net Interest Income 8,081,000 7,126,000 6,125,000 5,440,000 5,393,000
Provision for Possible Credit Losses 330,000 255,000 120,000 -- 135,000
Net Interest Income after Provision
for Possible Credit Losses 7,751,000 6,871,000 6,005,000 5,440,000 5,258,000
Noninterest Income 1,136,000 651,000 616,000 828,000 506,000
Noninterest Expense 6,444,000 5,867,000 5,397,000 4,942,000 4,963,000
Income Before Income Taxes 2,443,000 1,655,000 1,224,000 1,326,000 801,000
Provision for Income Taxes 823,000 481,000 377,000 516,000 317,000
NET INCOME 1,620,000 1,174,000 847,000 810,000 484,000
PER SHARE:
Net Income (1) $1.64 $1.21 $0.91 $0.88 $0.53
Average Common and Common
Equivalent Shares (1) 990,472 973,388 931,361 924,331 918,634
Book Value Per Common Share (1) $15.04 $12.99 $12.68 $11.94 $11.07
SUMMARY BALANCE SHEETS AT DECEMBER 31
Cash and Due from Banks $11,377,000 $8,552,000 $5,161,000 $6,326,000 $6,288,000
Federal Funds Sold 1,230,000 3,300,000 3,965,000 4,700,000 1,775,000
Other short Term Investments 10,000 3,018,000 -- -- --
Interest-earning Deposits -- -- -- -- --
Investment Securities 34,471,000 28,754,000 22,974,000 22,277,000 20,705,000
Loans, Net 99,776,000 86,411,000 80,916,000 71,733,000 65,735,000
Other Assets 3,733,000 3,109,000 2,401,000 3,474,000 3,693,000
TOTAL ASSETS $150,597,000 $133,144,000 $115,417,000 $108,510,000 $98,196,000
Noninterest-bearing Deposits $36,854,000 $27,340,000 $22,355,000 $16,706,000 $15,959,000
Interest-bearing Deposits 97,747,000 92,632,000 80,811,000 80,195,000 71,109,000
Other Liabilities 1,103,000 529,000 437,000 574,000 959,000
Shareholders' Equity 14,893,000 12,643,000 11,814,000 11,035,000 10,169,000
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $150,597,000 $133,144,000 $115,417,000 $108,510,000 $98,196,000
<FN>
(1) All share and per-share amounts give effect to 10% stock dividends in June 1995, April 1993 and March 1991.
</FN>
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS
Net Income
Net income in 1995 was $1,620,000 which represented a 1.20% return on
average assets and a return on average equity of 11.75% as compared to 1994
which saw a return on average assets of .94% and a return on average equity of
9.54%. This represents an increase of $446,000 over the 1994 figure. Net
interest margins increased .28% between the respective periods. In addition,
the Corporation's average earning assets increased an average of $9,698,000
during 1995 as compared to 1994.
Net income 1993 was 847,000 which represented a .75% return on average
assets and a return on average equity of 7.32%.
Net Interest Income
Interest income represents interest earned by the Corporation on its portfolio
of loans and investment securities. Interest expense represents interest paid
to the Corporation's depositors, as well as the temporary borrowing of Fed
Funds on an occasional overnight 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 resulting from various economic conditions may significantly
affect net interest income.
Total interest income in 1995 increased $1,818,000 over 1994. Of this
increase 34% was related to an increase in the volume of average earning
assets and 66% was the result of interest rate changes.
Total interest income in 1994 increased $1,215,000 over 1993. Of this
increase, 53% was related to an increase in the volume of average earning
assets, and 47% was the result of interest rate changes.
Total interest expense in 1995 increased $863,000 over 1994. Of this increase,
40% was related to an increase in the volume of average earning assets, and 60%
was due to interest rate changes.
Total interest expense in 1994 increased $214,000 over 1993. Of this increase,
92% was related to an increase in the volume of average earning assets and 8%
was due to interest rate changes.
Based on a combination of the above factors affecting interest income and
interest expense, net interest income increased $955,000 during 1995 as
compared to 1994. Of this increase, 28% was related to volume increases, and
72% was related to rate changes.
Based on a combination of the above factors affecting interest income and
interest expense, net interest income increased $1,001,000 during 1994 as
compared to 1993. Of this increase, 44% was related to volume increases and
56% was related to rate changes.
Net Interest Margin
Net interest margin is the ratio of net interest income divided by average
earning assets.
The Corporation's net interest margin for 1995 was 6.63% or .29% higher than
during 1994. During 1995 prime rate averaged 8.83% as compared to the average
prime rate during 1994 of 7.14%. Since the Corporation is slightly asset rate
sensitive, this worked in favor of improved net interest income during 1995 as
compared to 1994.
The Corporation's net interest margin for 1994 was 6.34% or .21% higher than
during 1993. During 1994 the prime rate averaged 7.14% as compared to 6.00%
for 1993. This also worked in favor of the Corporation's net interest income
during 1994 as compared to 1993.
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 on loans, letters of
credit, and commitments to extend credit. 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 December 31,
1995 was 1.51%. This reflects a conservative attitude on the part of
management and is considered adequate to provide for potential future losses.
Additional provisions of $330,000 were made during 1995 against net charge-
offs of $300,000.
The ratio of the allowance for credit losses to total loans as of December 31,
1994 was 1.70%. Additional provisions of $255,000 were made during 1994
against net charge-offs of $175,000.
Noninterest Income
Total noninterest income in 1995 of $1,136,000 was $485,000 greater than
earned in 1994.
Income from service charges on deposit accounts increased $144,000 over 1993
partly due to growth and partly due to pricing changes and analysis of
business accounts.
A new area of noninterest income for the Corporation is gains on the sale of
SBA loans, which earned $189,000 during the 1995 calendar year.
Other noninterest income from fees and services, exclusive of gains on the
sale of securities available for sale of $19,000, which are the result of
growth and expanded services, increased $138,000 over 1994, reflecting growth
and increased activity in financial services other than lending.
Total noninterest income in 1994 of $651,000 was $35,000 greater than earned
in 1993.
As a result of deposit growth, income from service charges increased $13,000
over 1993.
Other noninterest income, exclusive of gains on the sale of securities
available for sale of $5,000, which are the result of growth and expanded
services, increased $36,000 over the prior year.
Noninterest Expense
1995 vs. 1994
Total noninterest expense in 1995 increased $577,000 over that of 1994.
Officer and staff salaries reflect an increase of $347,000 over that of 1994.
The increase between the two periods was partly related to salary and merit
increases on existing staff and bonuses paid under incentive and performance
plans and to staff number increases. Due to growth and expansion in
departments and branch offices, full time equivalent (FTE) averaged 64.0 as
compared to 1994 which averaged 59.8.
Total occupancy expense increased $64,000 between the respective periods.
This is partly related to the new and expanded banking quarters in Orinda, to
a five year adjustment on the Corporation's office in Danville, plus Consumer
Price Index and operating price increases based on terms of leases.
Furniture Fixtures & Equipment expense were relatively stable, decreasing
$13,000 from the previous year.
Other operating expenses increased $179,000 in 1995 as compared to 1994 even
though the Corporation's expenses related to FDIC insurance premiums decreased
approximately $100,000. Most categories of operating expenses increased,
reflecting the growth and expansion of the Corporation. A few categories
however, reflect greater increases accounted for by growth alone, and are
explained in the following.
Expenses for professional services increased $59,000 over the prior year, most
of which was related to consulting services to enhance future earnings of the
Corporation. Most of this expense was recovered by improved noninterest
earnings during the 1995 calendar year.
Fees for other services increased $91,000 over the prior year, most of which
were related to increases in correspondent bank service charges, fees
associated with the Corporation's Prestige account program and charges related
to the Corporation's Visa card program.
Miscellaneous expenses and operating losses reflect an increase of $84,000
over the prior year. Operating losses, due to bad checks, fraud and cash
losses amounted to $48,000 of this increase. The major other areas of
increase were in messenger service, check printing costs associated with the
Corporation's Prestige account program, and SBA commissions paid.
1994 vs. 1993
Total noninterest expense in 1994 increased $470,000 over that of 1993.
Officer and staff salaries reflect an increase of $301,000 over the previous
year. In addition to merit increases on existing staff and bonuses paid under
incentive and performance plans, the Corporation opened a new office in
Pleasanton and formed a new SBA division in the Bank.
Total occupancy expense increased $94,000 between the respective periods; the
new Pleasanton office accounted for $57,000 of this. The balance is related
to consumer price index and operating expense increases.
FF&E expense increased approximately $71,000 over the previous year, related
to in-house data processing and the new Pleasanton office. Also, per
regulatory reporting requirements, the inclusion of insurance expense on
equipment is now included in this category, instead of the insurance expense
category as was the previous practice.
Other expenses are relatively the same as incurred during 1993. Reviewing
specific components in this category, however, provides information on areas
of change from the prior year. The most significant of these are discussed
below.
The Bank's activities in marketing increased significantly in 1994 over 1993
related, not only to the Pleasanton opening, but to a number of deposit-
gathering promotions and equity line programs. Total marketing expenses were
up approximately $86,000 over the previous year.
Regulatory fees based on higher deposit levels increased $24,000 over 1993.
Business development, education, conference and staff expense increased
$32,000 over 1993.
Professional fees, primarily attorneys' fees, were down during 1994 as
compared to 1993, resulting in a total decrease in all professional fees of
approximately $32,000 from the 1993 period, and other expenses decreased over
$75,000 from the previous year.
Capital Adequacy
The Federal Deposit Insurance Corporation (FDIC) has 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 December 31, for both
1995 and 1994.
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 Bank's leverage ratio surpassed the regulatory minimum of 3% at December
31, for both 1995 and 1994.
The following table shows the risk-based capital ratios and leverage ratio as
of December 31, 1995 and 1994.
Risk-based
capital ratios:
Risk-based capital ratios:
Capital Ratios Minimum
December 31, regulatory
1994 1995 requirements
Tier 1
capital: 12.51% 12.70% 4.00%
Total
capital: 13.76% 13.95% 8.00%
Leverage
ratio: 9.51% 9.35% 3.00%
Liquidity
Liquidity is a key aspect of the overall financial condition of a bank. The
primary source of liquidity for the Corporation is its marketable securities,
bankers' acceptances, and federal funds sold. Marketable securities are
investments of high grade which may be sold with minimal risk of market loss.
Cash, investment securities, and other temporary investments represent 31% of
total assets at December 31, 1995 as compared to 33% of total assets at
December 31, 1994. The Corporation's management has an effective asset and
liability management program, and carefully monitors its liquidity on a
continuing basis, including undisbursed loan commitments and future payments
receivable. Additionally, the Corporation has available from correspondent
banks, federal fund lines of credit totaling $8,000,000.
General
1995 as compared to 1994
During 1995 the nation, and California, showed economic strength and moderate
growth. The Fed has maintained a cautious policy that has thus far avoided
inflationary spending and allowed modest but stable growth.
During 1995, the Federal Reserve raised the Prime Rate to 9.00% but when it
became clear that inflation was not a current concern and the economy was
sluggish, the Federal Reserve lowered rates again to 8.50% where they were at
the end of 1994. The long term outlook is for continued moderate growth and
stable interest rates.
BWC Financial Corporation has enjoyed a growth of over 13% or $17,453,000,
from the prior year. Total deposit growth was in excess of 12% and loan growth
was 15%.
The Corporation's new mortgage financial service subsidiary, BWC Real Estate,
was profitable in its first year of operation.
The Corporation's SBA department (through Bank of Walnut Creek), was also a
contributor to the profits of the Corporation.
During 1995 the Corporation established a 24-hour voice response system that
has been well received by its clients as indicated by its heavy usage. During
1996, the Corporation will continue to explore banking technology
opportunities. We believe that technology will play an increasingly important
role in our services, and that as a community bank we can meet those
technology needs yet continue to provide the personal service expected from a
community bank.
1994 as compared to 1993
During 1994 the nation, and finally California, showed continued growth and
economic strength following the recession gripping the country the beginning
of this decade. Although California was lagging the rest of the country,
1994 statistics indicated that the state was on the path to recovery.
The Federal Reserve was concerned that inflation was just around the corner
and in a preemptive strike successively moved rates on five different
occasions during 1994 resulting in the Prime Rate increasing from 6.00% at the
beginning of the year to 8.50% by year end.
A reflection of the economic conditions was the Corporation's growth of over
15% or $17,727,000 in total assets. The Corporation also founded a new branch
office in Pleasanton, California on April 15, 1994. Total deposit growth was
in excess of 16% which exceeded loan demand of approximately 7%.
Common Stock Prices
The common stock of BWC Financial Corp. is traded in the over-the-counter
market through market makers.
At December 31, 1995, BWC Financial Corp. had 511 shareholders of record of
common stock. At December 31, 1994, BWC Financial Corp. had 564 shareholders
of record of common stock.
The shareholders of BWC Financial Corp. will be entitled to receive dividends
when and as declared by its Board of Directors, out of funds legally
available, subject to the dividend preference, if any, on preferred shares
that may be outstanding and also subject to the restrictions of the California
General Corporation Law. There are no preferred shares outstanding at this
time. It is not anticipated that any cash dividends will be declared in the
foreseeable future.
According to the principal market makers, the high and low bid quotations for
1995 and 1994 were:
1995
1st Quarter 2nd Quarter
$13.50 - $14.50 $13.50 - $15.75
3rd Quarter 4th Quarter
$14.75 - $16.50 $16.00 - 17.50
1994
1st Quarter 2nd Quarter
$10.75-$12.00 $12.50-$13.50
3rd Quarter 4th Quarter
$13.37-$14.00 $13.37-14.75
A 10% stock dividend was granted to shareholders of record June 30, 1995.
Common stock prices have not been adjusted to reflect the above stock
dividends.
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accounts, we hereby consent to the incorporation by
reference in this Form 10-K and the previously filed registration statement of
BWC Financial Corp. on Form S-8 (File No. 33-22290) of our report dated March
15, 1995, in BWC Financial Corp.'s 1994 Annual Report. It should be noted that
we have not audited any financial statements of BWC Financial Corp. subsequent
to December 31, 1994, or performed any audit procedures subsequent to the date
of our report.
San Francisco, California,
March 15, 1995
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000353650
<NAME> BWC FINANCIAL CORP.
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 11377000
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 1230000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 23500000
<INVESTMENTS-CARRYING> 10971000
<INVESTMENTS-MARKET> 11061000
<LOANS> 101304000
<ALLOWANCE> 1528000
<TOTAL-ASSETS> 150597000
<DEPOSITS> 134601000
<SHORT-TERM> 0
<LIABILITIES-OTHER> 1103000
<LONG-TERM> 0
<COMMON> 10508000
0
0
<OTHER-SE> 4385000
<TOTAL-LIABILITIES-AND-EQUITY> 150597000
<INTEREST-LOAN> 9480000
<INTEREST-INVEST> 1754000
<INTEREST-OTHER> 257000
<INTEREST-TOTAL> 11491000
<INTEREST-DEPOSIT> 3405000
<INTEREST-EXPENSE> 3410000
<INTEREST-INCOME-NET> 8081000
<LOAN-LOSSES> 330000
<SECURITIES-GAINS> 19000
<EXPENSE-OTHER> 6444000
<INCOME-PRETAX> 2443000
<INCOME-PRE-EXTRAORDINARY> 2443000
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1620000
<EPS-PRIMARY> 1.73
<EPS-DILUTED> 1.64
<YIELD-ACTUAL> 6.63
<LOANS-NON> 181000
<LOANS-PAST> 9000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 1602000
<ALLOWANCE-OPEN> 1498000
<CHARGE-OFFS> 319000
<RECOVERIES> 19000
<ALLOWANCE-CLOSE> 1528000
<ALLOWANCE-DOMESTIC> 1074000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 454000
</TABLE>
