UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the quarterly period ended June 30, 1998.
Commission File Number 0-10658
BWC FINANCIAL CORP.
(Exact name of registrant as specified in its charter)
CALIFORNIA 94-262100
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1400 Civic Drive, Walnut Creek, California _ 94596 __
(Address of principal executive offices)
(510) 932-5353
(Registrant's telephone number: (including area code)
N/A
(Former name, former address, and former fiscal year,
if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No _____
APPLICABLE ONLY TO ISSUERS INVOLVED
IN BANKRUPTCY PROCEEDINGS DURING
THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1924 subsequent to the distribution of securities under a
plan confirmed by court. Yes No _____
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as the latest practicable date. As of June 30, 1998, there
were 1,234,162 shares of common stock, no par value outstanding.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS
Net Income
Net income for the first six months in 1998 of $1,940,000 was $682,000 greater
than the first six months in 1997. This represented a return on average
assets during this period of 1.67% and a return on average equity of 18.88%.
The return on average assets during the first six months of 1997 was 1.36% and
the return on average equity was 14.82%.
Net income for the three months ending June 30, 1998, of $974,000 was $307,000
over the comparable period in 1997. The return on average assets during the
second quarter was 1.62% and the return on average equity was 18.45%. The
return on average assets during the second quarter of 1997 was 1.37% and the
return on average equity was 15.44%.
Earning assets averaged $218,124,000 during the six months ended June 30,
1998, as compared to $172,222,000 for the comparable period in 1997. Earning
assets averaged $226,316,000 during the second quarter of 1998 as compared to
$181,129,000 during the second quarter of 1997.
Diluted earnings per average common share, adjusted for the 10% stock dividend
to shareholders of record February 2, 1998 and March 31, 1997 and the 2 for 1
stock split to shareholders of record July 10, 1998, was $0.67 for the first
six months of 1998 as compared to $0.45 for the first six months of 1997. For
the second quarter of 1998, diluted earnings per average common share was
$0.33 as compared to $0.24 for the second quarter of 1997.
Net Interest Income
Interest income represents the interest earned by the Corporation on its
portfolio of loans, investment securities, and other short term investments.
Interest expense represents interest paid to the Corporation's depositors, as
well as to others from whom the Corporation borrows funds on a temporary
basis.
Net interest income is the difference between interest income on earning
assets and interest expense on deposits and other borrowed funds. The volume
of loans and deposits and interest rate fluctuations caused by economic
conditions greatly affect net interest income.
Net interest income during the first six months of 1998 was $7,145,000 or
$1,400,000 greater than the comparable period in 1997. Of this increase, 83%
was due to increases in the volume of loans outstanding during the 1998 period
as compared to 1997 and the balance as related to rate changes. Similar
results existed for the second quarter of 1998.
Provision for Credit Losses
An allowance for credit losses is maintained at a level considered adequate to
provide for losses that can be reasonably anticipated and is in accordance
with SFAS 114. The allowance is increased by provisions charged to expense
and reduced by net charge-offs. Management continually evaluates the economic
climate, the performance of borrowers, and other conditions to determine the
adequacy of the allowance.
The ratio of the allowance for credit losses to total loans as of June 30,
1998 was 2.07% as compared to 1.60% for the period ending June 30, 1997. 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 recoveries of $148,000 during the first six
months of 1998 as compared to net loan losses of $38,000 during the comparable
period in 1997.
The following table provides information on past due and nonaccrual loans:
For the Six months Ended
June 30,
1998 1997
Loans Past Due 90 Days or More $ 1,000 $ 479,000
Nonaccrual Loans 477,000 428,000
Total $ 478,000 $ 907,000
As of June 30, 1998 and 1997, no loans were outstanding that had been
restructured. No interest earned on nonaccrual loans that was recorded in
income during 1998 remains uncollected. Interest foregone on nonaccrual loans
was approximately $21,000 and $24,000 as of June 30, 1998 and 1997
respectively.
Noninterest Income
Noninterest income during the first six months of 1998 of $1,064,000 was
$249,000 greater than earned during the comparable period of 1997. This was
reflected in increases in all categories of noninterest income and fees and
was commensurate with the Corporation's growth during these comparable
periods.
During the second quarter of 1998 noninterest income of $544,000 was $148,000
greater than earned during the comparable quarter of 1997. The same reasons
applicable for the first six months apply to the second quarter results.
Noninterest Expense
Total noninterest expenses of $4,672,000 during the first six months of 1998
are $601,000 over the comparable period in 1997. The major categories of this
are detailed below.
Salaries and related benefits are $300,000 greater during the first six months
of 1998 as compared to 1997. This increase is related to award bonuses paid to
staff and officers plus staffing increases and general merit increases related
to the Corporation's growth and expanding operations. Staff FTE (full time
equivalency) averaged 83.5 during the first six months of 1998 as compared to
78.8 for the comparable 1997 period.
Occupancy expense increased $15,000 during the respective periods due to
rental adjustments and operating expense increases on office facilities.
Total furniture and equipment expense increased $29,000 between the respective
periods reflecting the growth and added technology in the Corporation's
operations.
Other expense increased $257,000 between the respective periods and is related
to general increases in growth and activity.
During the second quarter of 1998 the Corporation had a total of $2,400,000 in
noninterest expense which was $346,000 over the comparable quarter of 1997.
The same reasons applicable for the first six months apply to the second
quarter results.
Other Real Estate Owned
As of June 30, 1998 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 includes the eligible
allowance for credit losses. The Bank has no subordinated notes or debentures
included in its capital. Risk-weighted assets are calculated by applying risk
percentages specified by the FDIC to categories of both balance-sheet assets
and off-balance-sheet assets.
The Bank's Tier 1 and Total (which included Tier 1 and Tier 2) risk-based
capital ratios surpassed the regulatory minimum of 8% at June 30, for both
1998 and 1997. At year-end 1990, the FDIC also adopted a leverage ratio
requirement. This ratio supplements the risk-based capital ratios and is
defined as Tier 1 capital divided by the quarterly average assets during the
reporting period. The requirement established a minimum leverage ratio of 3%
for the highest rated banks.
The following table shows the Corporation's risk-based capital ratios and
leverage ratio as of June 30, 1998, December 31, 1997, and June 30, 1997.
Risk-based capital ratios: Capital Ratios
Minimum
June 30, December 31, June 30, regulatory
1998 1997 1997 requirements
Tier 1 capital 11.35% 10.90% 10.43% 4.00%
Total capital 12.60% 12.15% 11.68% 8.00%
Leverage ratio 9.05% 9.64% 8.64% 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 33% of total assets at June 30, 1998
and 27% at June 30, 1997. 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 $11,000,000.
SFAS No. 130
On January 1, 1998 the Corporation adopted Statement of Financial Accounting
Standards No. 130, Reporting Comprehensive Income. This statement establishes
standards for the reporting and display of comprehensive income and its
components in the financial statements. Comprehensive income is defined as
the change in equity of a business enterprise during a period from
transactions and other events and circumstances from nonowner sources. For
the Corporation, comprehensive income includes net income reported on the
income statement and changes in the fair value of its available for sale
securities reported as a component of shareholder's equity.
The Corporation's comprehensive income for the period is reflected in the
Corporation's consolidated statements of income.
SFAS No. 133
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities. The Statement establishes accounting
and reporting standards requiring that every derivative instrument
(including certain derivative instruments embedded in other contracts) be
recorded in the balance sheet as either an asset or liability measured at
its fair value. The Statement requires that changes in the derivative's
fair value be recognized currently in earnings unless specific hedge
accounting criteria are met. Special accounting for qualifying hedges
allows a derivative's gains and losses to offset related results on the
hedged item in the income statement, and requires that a company must
formally document, designate, and assess the effectiveness of transactions
that receive hedge accounting.
Statement 133 is effective for fiscal years beginning after June 15, 1999.
A company may also implement the Statement as of the beginning of any
fiscal quarter after issuance (that is, fiscal quarters beginning June 16,
1998 and thereafter). Statement 133 cannot be applied retroactively.
Statement 133 must be applied to (a) derivative instruments and (b) certain
derivative instruments embedded in hybrid contracts that were issued,
acquired, or substantively modified after December 31, 1997 (and, at the
company's election, before January 1, 1998).
The Corporation has no derivative or hedged instruments and therefore the
implementation of this statement is not expected to have a material impact
on the Corporation's financial position or results of operations.
General
Total assets of the Corporation at June 30, 1998 of $252,542,000 have
increased $48,982,000 or 24% as compared to June 30, 1997. Total loans of
$167,333,000 have increased $18,776,000 or 13% and total deposits of
$228,741,000 have increased $44,720,000 or 24%. Since year end 1997 the
Corporation's assets have increased 10%, loans increased 2% and deposits
increased 10%. The increase in deposit growth over loan growth was placed in
investments which increased 27% from last year end.
The Corporation's loan to deposit ratio as of June 30, 1998 was 73% and was
81% in 1997.
Other Short Term Investments are investments in a mutual fund operated by
Federated Funds Investments and comprised of short term US Treasury
Securities. Investments are done on a daily basis and are similar in liquidity
to Fed Funds Investments, but carry a slightly higher yield.
The Corporation's mortgage brokerage subsidiary (BWC Mortgage Services), and
the Bank's SBA Division and Business Financing Division are all positive
contributors to the income growth of the Corporation this year.
Interest Rate Risk Management
Movement in interest rates can create fluctuations in the Corporation's
income and economic value due to an imbalance in the re-pricing or maturity
of assets or liabilities. The components of interest rate risk which are
actively measured and managed include: re-pricing risk, and the risk of
non-parallel shifts in the yield curve. Interest rate risk exposure is
actively managed with the goal of minimizing the impact of interest rate
volatility on current earnings and on the market value of equity.
In general, the assets and liabilities generated through ordinary business
activities do not naturally create offsetting positions with respect to re-
pricing or maturity characteristics. Therefore, the Corporation uses a
variety of measurement tools to monitor and control the overall interest
rate risk exposure of the on-balance-sheet positions. For each measurement
tool, the level of interest rate risk created by the assets and
liabilities, are a function primarily of their contractual interest rate
re-pricing dates and contractual maturity (including principal
amortization) dates.
The Corporation's interest rate risk as of June 30, 1998 was consistent
with the interest rate exposure presented in the Corporation's 1997 annual
report and was within the Corporation's risk policy range.
<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
June 30, 1998 and the results of operations for the six months ended June
30, 1998 and 1997 and cash flows for the six months ended June 30, 1998 and
1997.
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 1997 Annual Report to Shareholders, which is incorporated by
reference in the Company's 1997 annual report on Form 10-K. The results of
operations for the six months ended June 30, 1998 are not necessarily
indicative of the operating results for the full year.
Diluted earnings per share is computed using the weighted average
number of shares outstanding during the period, adjusted for the dilutive
effect of stock options, stock dividends and the stock splits.
2. INVESTMENT SECURITIES AND OTHER SHORT TERM INVESTMENTS
The amortized cost and approximate market value of investment
securities at June 30, 1998 are as follows:
Gross
Amortized Unrealized Market
Cost Gain Value
Held-to-maturity
Obligations of State and
Political Subdivisions $10,417,000 $ 57,000 $10,474,000
Available-for-sale
Taxable Obligations of
State & Political
Subdivisions $12,303,000 $ 90,000 $12,393,000
U.S. Treasury Securities 9,573,000 60,000 9,633,000
U.S. Government Agencies 19,353,000 171,000 19,524,000
Total Available-for-sale $41,229,000 $321,000 $41,550,000
For the six months ended June 30, 1998, the Bank did not sell any
investment securities, however, a number of securities were called.
The following table shows the amortized cost and estimated market
value of investment securities by contractual maturity at June 30, 1998.
Held-to-Maturity Available-for-Sale
Amortized Market Amortized Market
Cost Value Cost Value
Within one year $ 2,299,000 $2,314,000 $ 5,503,000 $4,515,000
After one but within
five years $ 4,775,000 $4,805,000 $21,066,000 $22,218,000
Over five years $ 3,343,000 $3,355,000 $14,660,000 $14,817,000
Total $10,417,000 $10,474,000 $41,229,000 $41,550,000
3. ALLOWANCE FOR CREDIT LOSSES
For the Six months Ended
June 30,
1998 1997_
Allowance for credit losses at
beginning of period $2,936,000 $1,893,000
Chargeoffs (53,000) (63,000)
Recoveries 201,000 25,000
Net (recoveries)/chargeoffs (148,000) 38,000
Provisions 375,000 525,000
Allowance for credit losses at
end of period $3,460,000 $2,380,000
Ratio of allowance for credit
losses to loans 2.07% 1.60%
4. SUBSEQUENT EVENTS:
During the regular board meeting held June 30, 1998, the Board of Directors
declared a two (2) for one (1) stock split to shareholders of record as of
July 10, 1998. All share and per share data in this 10Q report, as
appropriate, reflect this split. The Board of Directors instructed
management to proceed with the steps necessary to list the Corporation's
stock on NASDAQ, and the Corporation's stock was listed as of July 21, 1998.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS
Net Income
Net income for the first six months in 1998 of $1,940,000 was $682,000 greater
than the first six months in 1997. This represented a return on average
assets during this period of 1.67% and a return on average equity of 18.88%.
The return on average assets during the first six months of 1997 was 1.36% and
the return on average equity was 14.82%.
Net income for the three months ending June 30, 1998, of $974,000 was $307,000
over the comparable period in 1997. The return on average assets during the
second quarter was 1.62% and the return on average equity was 18.45%. The
return on average assets during the second quarter of 1997 was 1.37% and the
return on average equity was 15.44%.
Earning assets averaged $218,124,000 during the six months ended June 30,
1998, as compared to $172,222,000 for the comparable period in 1997. Earning
assets averaged $226,316,000 during the second quarter of 1998 as compared to
$181,129,000 during the second quarter of 1997.
Diluted earnings per average common share, adjusted for the 10% stock dividend
to shareholders of record February 2, 1998 and March 31, 1997 and the 2 for 1
stock split to shareholders of record July 10, 1998, was $0.67 for the first
six months of 1998 as compared to $0.45 for the first six months of 1997. For
the second quarter of 1998, diluted earnings per average common share was
$0.33 as compared to $0.24 for the second quarter of 1997.
Net Interest Income
Interest income represents the interest earned by the Corporation on its
portfolio of loans, investment securities, and other short term investments.
Interest expense represents interest paid to the Corporation's depositors, as
well as to others from whom the Corporation borrows funds on a temporary
basis.
Net interest income is the difference between interest income on earning
assets and interest expense on deposits and other borrowed funds. The volume
of loans and deposits and interest rate fluctuations caused by economic
conditions greatly affect net interest income.
Net interest income during the first six months of 1998 was $7,145,000 or
$1,400,000 greater than the comparable period in 1997. Of this increase, 83%
was due to increases in the volume of loans outstanding during the 1998 period
as compared to 1997 and the balance as related to rate changes. Similar
results existed for the second quarter of 1998.
Provision for Credit Losses
An allowance for credit losses is maintained at a level considered adequate to
provide for losses that can be reasonably anticipated and is in accordance
with SFAS 114. The allowance is increased by provisions charged to expense
and reduced by net charge-offs. Management continually evaluates the economic
climate, the performance of borrowers, and other conditions to determine the
adequacy of the allowance.
The ratio of the allowance for credit losses to total loans as of June 30,
1998 was 2.07% as compared to 1.60% for the period ending June 30, 1997. 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 recoveries of $148,000 during the first six
months of 1998 as compared to net loan losses of $38,000 during the comparable
period in 1997.
The following table provides information on past due and nonaccrual loans:
For the Six months Ended
June 30,
1998 1997
Loans Past Due 90 Days or More $ 1,000 $ 479,000
Nonaccrual Loans 477,000 428,000
Total $ 478,000 $ 907,000
As of June 30, 1998 and 1997, no loans were outstanding that had been
restructured. No interest earned on nonaccrual loans that was recorded in
income during 1998 remains uncollected. Interest foregone on nonaccrual loans
was approximately $21,000 and $24,000 as of June 30, 1998 and 1997
respectively.
Noninterest Income
Noninterest income during the first six months of 1998 of $1,064,000 was
$249,000 greater than earned during the comparable period of 1997. This was
reflected in increases in all categories of noninterest income and fees and
was commensurate with the Corporation's growth during these comparable
periods.
During the second quarter of 1998 noninterest income of $544,000 was $148,000
greater than earned during the comparable quarter of 1997. The same reasons
applicable for the first six months apply to the second quarter results.
Noninterest Expense
Total noninterest expenses of $4,672,000 during the first six months of 1998
are $601,000 over the comparable period in 1997. The major categories of this
are detailed below.
Salaries and related benefits are $300,000 greater during the first six months
of 1998 as compared to 1997. This increase is related to award bonuses paid to
staff and officers plus staffing increases and general merit increases related
to the Corporation's growth and expanding operations. Staff FTE (full time
equivalency) averaged 83.5 during the first six months of 1998 as compared to
78.8 for the comparable 1997 period.
Occupancy expense increased $15,000 during the respective periods due to
rental adjustments and operating expense increases on office facilities.
Total furniture and equipment expense increased $29,000 between the respective
periods reflecting the growth and added technology in the Corporation's
operations.
Other expense increased $257,000 between the respective periods and is related
to general increases in growth and activity.
During the second quarter of 1998 the Corporation had a total of $2,400,000 in
noninterest expense which was $346,000 over the comparable quarter of 1997.
The same reasons applicable for the first six months apply to the second
quarter results.
Other Real Estate Owned
As of June 30, 1998 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 includes the eligible
allowance for credit losses. The Bank has no subordinated notes or debentures
included in its capital. Risk-weighted assets are calculated by applying risk
percentages specified by the FDIC to categories of both balance-sheet assets
and off-balance-sheet assets.
The Bank's Tier 1 and Total (which included Tier 1 and Tier 2) risk-based
capital ratios surpassed the regulatory minimum of 8% at June 30, for both
1998 and 1997. At year-end 1990, the FDIC also adopted a leverage ratio
requirement. This ratio supplements the risk-based capital ratios and is
defined as Tier 1 capital divided by the quarterly average assets during the
reporting period. The requirement established a minimum leverage ratio of 3%
for the highest rated banks.
The following table shows the Corporation's risk-based capital ratios and
leverage ratio as of June 30, 1998, December 31, 1997, and June 30, 1997.
Risk-based capital ratios: Capital Ratios
Minimum
June 30, December 31, June 30, regulatory
1997 1997 1997 requirements
Tier 1 capital 11.35% 10.90% 10.43% 4.00%
Total capital 12.60% 12.15% 11.68% 8.00%
Leverage ratio 9.05% 9.64% 8.64% 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 33% of total assets at June 30, 1998
and 27% at June 30, 1997. 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 $11,000,000.
SFAS No. 130
On January 1, 1998 the Corporation adopted Statement of Financial Accounting
Standards No. 130, Reporting Comprehensive Income. This statement establishes
standards for the reporting and display of comprehensive income and its
components in the financial statements. Comprehensive income is defined as
the change in equity of a business enterprise during a period from
transactions and other events and circumstances from nonowner sources. For
the Corporation, comprehensive income includes net income reported on the
income statement and changes in the fair value of its available for sale
securities reported as a component of shareholder's equity.
The Corporation's comprehensive income for the period is reflected in the
Corporation's consolidated statements of income.
SFAS No. 133
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities. The Statement establishes accounting
and reporting standards requiring that every derivative instrument
(including certain derivative instruments embedded in other contracts) be
recorded in the balance sheet as either an asset or liability measured at
its fair value. The Statement requires that changes in the derivative's
fair value be recognized currently in earnings unless specific hedge
accounting criteria are met. Special accounting for qualifying hedges
allows a derivative's gains and losses to offset related results on the
hedged item in the income statement, and requires that a company must
formally document, designate, and assess the effectiveness of transactions
that receive hedge accounting.
Statement 133 is effective for fiscal years beginning after June 15, 1999.
A company may also implement the Statement as of the beginning of any
fiscal quarter after issuance (that is, fiscal quarters beginning June 16,
1998 and thereafter). Statement 133 cannot be applied retroactively.
Statement 133 must be applied to (a) derivative instruments and (b) certain
derivative instruments embedded in hybrid contracts that were issued,
acquired, or substantively modified after December 31, 1997 (and, at the
company's election, before January 1, 1998).
The Corporation has no derivative or hedged instruments and therefore the
implementation of this statement is not expected to have a material impact
on the Corporation's financial position or results of operations.
General
Total assets of the Corporation at June 30, 1998 of $252,542,000 have
increased $48,982,000 or 24% as compared to June 30, 1997. Total loans of
$167,333,000 have increased $18,776,000 or 13% and total deposits of
$228,741,000 have increased $44,720,000 or 24%. Since year end 1997 the
Corporation's assets have increased 10%, loans increased 2% and deposits
increased 10%. The increase in deposit growth over loan growth was placed in
investments which increased 27% from last year end.
The Corporation's loan to deposit ratio as of June 30, 1998 was 73% and was
81% in 1997.
Other Short Term Investments are investments in a mutual fund operated by
Federated Funds Investments and comprised of short term US Treasury
Securities. Investments are done on a daily basis and are similar in liquidity
to Fed Funds Investments, but carry a slightly higher yield.
The Corporation's mortgage brokerage subsidiary (BWC Mortgage Services), and
the Bank's SBA Division and Business Financing Division are all positive
contributors to the income growth of the Corporation this year.
Interest Rate Risk Management
Movement in interest rates can create fluctuations in the Corporation's
income and economic value due to an imbalance in the re-pricing or maturity
of assets or liabilities. The components of interest rate risk which are
actively measured and managed include: re-pricing risk, and the risk of
non-parallel shifts in the yield curve. Interest rate risk exposure is
actively managed with the goal of minimizing the impact of interest rate
volatility on current earnings and on the market value of equity.
In general, the assets and liabilities generated through ordinary business
activities do not naturally create offsetting positions with respect to re-
pricing or maturity characteristics. Therefore, the Corporation uses a
variety of measurement tools to monitor and control the overall interest
rate risk exposure of the on-balance-sheet positions. For each measurement
tool, the level of interest rate risk created by the assets and
liabilities, are a function primarily of their contractual interest rate
re-pricing dates and contractual maturity (including principal
amortization) dates.
The Corporation's interest rate risk as of June 30, 1998 was consistent
with the interest rate exposure presented in the Corporation's 1997 annual
report and was within the Corporation's risk policy range.
<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>
