UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the quarterly period ended March 31, 2000.
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)
(925) 932-5353
(Registrant's telephone number: (including area code)
N/A
(Former name, former address, and former fiscal year,
if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No _____
APPLICABLE ONLY TO ISSUERS INVOLVED
IN BANKRUPTCY PROCEEDINGS DURING
THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1924 subsequent to the distribution of securities under a
plan confirmed by court. Yes No _____
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock as the latest practicable date. As of March 31, 2000,
there were 2,594,537 shares of common stock, no par value outstanding.
<PAGE>
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
PAGE
Item 1 Consolidated Balance Sheets 3
Consolidated Statements of Income 4
Consolidated Statements of Cash Flows 5
Consolidated Statements of Changes in
Shareholders' Equity 6
Notes to Consolidated Financial Statements 7-11
Item 2 Management's Discussion and Analysis
of Results of Operations 12-16
Interest Rate Sensitivity 17
PART II - OTHER INFORMATION
Item 1 Legal Proceedings 18
Item 2 Changes in Securities 18
Item 3 Defaults Upon Senior Securities 18
Item 4 Submission of Matters to a Vote of
Security Holders 18
Item 5 Other Materially Important Events 18
Item 6 Exhibits and Reports on Form 8-K 18
Signatures 19
<PAGE>
<TABLE>
BWC FINANCIAL CORP.
CONSOLIDATED BALANCE SHEETS
<CAPTION>
March 31, December 31,
ASSETS 2000 1999
(Unaudited)
<S> <C> <C>
Cash and Due From Banks $ 18,869,000 $ 12,593,000
Federal Funds Sold 10,462,000 --
Other Short Term Investments 1,340,000 25,000
Total Cash and Cash Equivalents 30,671,000 12,618,000
Investment Securities:
Available for Sale 51,444,000 53,717,000
Held to Maturity (approximate fair value of
$11,029,000 in 2000 and $11,595,000 in 1999) 11,213,000 11,739,000
Loans, Net of Allowance for Credit Losses of $4,665,000
in 2000 and $4,466,000 in 1999 216,860,000 209,493,000
Real Estate Loans Held for Sale 301,000 480,000
Bank Premises and Equipment, Net 3,039,000 2,965,000
Interest Receivable and Other Assets 6,519,000 5,719,000
Total Assets $ 320,047,000 $ 296,731,000
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Deposits:
Noninterest-bearing $ 81,791,000 $ 76,958,000
Interest-bearing:
Money Market Accounts 97,083,000 93,439,000
Savings and NOW Accounts 40,105,000 38,059,000
Time Deposits:
Under $100,000 35,718,000 29,354,000
$100,000 or more 31,648,000 20,859,000
Total Interest-bearing 204,554,000 181,711,000
Total Deposits 286,345,000 258,669,000
Federal Funds Purchased -- 5,350,000
BWC Mortgage Services Line-of-Credit 301,000 473,000
BWC Mortgage Services Other Borrowed Funds 4,000 77,000
Interest Payable and Other Liabilities 3,117,000 2,733,000
Total Liabilities 289,767,000 267,302,000
COMMITMENTS AND CONTINGENT LIABILITIES
SHAREHOLDERS' EQUITY
Preferred Stock, no par value:
5,000,000 shares authorized, none outstanding. -- --
Common Stock, no par value:
25,000,000 shares authorized; issued and outstanding -
2,646,291 shares in 2000 and 2,612,786 in 1999. 19,816,000 20,154,000
Retained Earnings 11,132,000 9,802,000
Capital adjustment on available-for-sale securities (668,000) (527,000)
Total Shareholders' Equity 30,280,000 29,429,000
Total Liabilities and Shareholders' Equity $ 320,047,000 $ 296,731,000
<FN>
The accompanying notes are an integral part of these consolidated statements.
</FN>
<PAGE>
<CAPTION>
BWC FINANCIAL CORP. For the Three Months
CONSOLIDATED STATEMENTS OF INCOME Ended March 31,
2000 1999
<S> <C> <C>
Interest Income
Loans, Including Fees $ 6,128,000 $ 4,852,000
Investment Securities:
Taxable 795,000 651,000
Non-taxable 127,000 148,000
Federal Funds Sold 89,000 75,000
Other Short Term Investments 15,000 8,000
Total Interest Income 7,154,000 5,734,000
Interest Expense
Deposits 1,948,000 1,542,000
Federal Funds Purchased 15,000 5,000
Other Borrowed Funds 40,000
Total Interest Expense 2,003,000 1,547,000
Net Interest Income 5,151,000 4,187,000
Provision For Credit Losses 225,000 150,000
Net Interest Income After Provision For Credit Losses 4,926,000 4,037,000
Noninterest Income
BWC Mortgage Services - Commissions 515,000 903,000
BWC Mortgage Services - Fees & Other 144,000 233,000
Service Charges on Deposit Accounts 197,000 206,000
Other 256,000 220,000
Gains on Security Transactions -- 30,000
Total Noninterest Income 1,112,000 1,592,000
Noninterest Expense
Salaries and Related Benefits 2,025,000 1,655,000
BWC Mortgage Services - Commissions 369,000 525,000
BWC Mortgage Services - Fees & Other 157,000 353,000
Occupancy 243,000 214,000
Furniture and Equipment 169,000 120,000
Other 1,006,000 809,000
Total Noninterest Expense 3,969,000 3,676,000
BWC Mortgage Services - Minority Interest 10,000 129,000
Income Before Income Taxes 2,059,000 1,824,000
Provision For Income Taxes 729,000 704,000
Net Income $ 1,330,000 $ 1,120,000
Basic Earnings Per Share $0.50 $0.45
Diluted Earnings Per Share $0.48 $0.38
Average Basic Shares 2,679,978 2,513,799
Average Diluted Share Equivalents Related to Options 103,776 441,472
Average Diluted Shares 2,783,754 2,955,271
<FN>
The accompanying notes are an integral part of these consolidated statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
BWC FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
For the Three Months
Ended March 31,
OPERATING ACTIVITIES: 2000 1999
<S> <C> <C>
Net Income $ 1,330,000 $ 1,120,000
Adjustments to reconcile net income to
net cash provided(used):
Amortization of loan fees (464,000) (465,000)
Provision for credit losses 225,000 150,000
Depreciation and amortization 122,000 90,000
Gain of sale of securities available-for-sale -- 30,000
Increase in accrued interest receivable
and other assets (799,000) (214,000)
Increase in accrued interest payable
and other liabilities 635,000 842,000
Net Cash Provided by Operating Activities 1,049,000 1,553,000
INVESTING ACTIVITIES:
Proceeds from maturities of investment securities 3,389,000 1,117,000
Proceeds from the sales of available-for-sale
investment securities 1,000,000 5,991,000
Purchase of investment securities (1,983,000) (5,053,000)
Loans originated, net of collections (6,949,000) (1,782,000)
Purchase of bank premises and equipment (196,000) (101,000)
Net CashProvided (Used) by Investing Activities (4,739,000) 172,000
FINANCING ACTIVITIES:
Net increase(decrease) in deposits 27,676,000 5,658,000
Decrease in Fed Funds Purchased (5,350,000) --
Proceeds from issuance of common stock 626,000 --
Tax benefit from the exercise of stock options 250,000 --
Cash paid for the repurchase of common stock (1,214,000) --
Increase(decrease) in BWC Mortgage Services borrowings (245,000) 1,647,000
Net Cash Provided(Used) by Financing Activities 21,743,000 7,305,000
CASH AND CASH EQUIVALENTS:
Increase in cash and cash equivalents 18,053,000 9,030,000
Cash and cash equivalents at beginning of year 12,618,000 16,680,000
Cash and Cash Equivalents at period end $ 30,671,000 $ 25,710,000
ADDITIONAL CASH FLOW INFORMATION:
Interest Paid $ 1,782,000 $ 1,494,000
Income Taxes Paid $ - $ 20,000
<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 periods ending December 31, 1999, and March 31, 2000
<CAPTION>
Accumulated
other
Number Common Retained Comprehensive Comprehensive
of Shares Stock Earnings Income Total Income
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1999 2,511,151 $19,002,000 $5,006,000 $335,000 $24,343,000
Net Income as of December 31, 1999 0 0 4,796,000 0 4,796,000 $4,796,000
Other Comprehensive Income(Loss), net of tax
benefit of $323,000 0 0 0 (862,000) (862,000) (862,000)
Comprehensive Income 0 0 0 0 0 3,934,000
Common stock issued and sold to the
Defined Contribution Plan 22,186 466,000 0 0 466,000
Stock options exercised 79,449 261,000 0 0 261,000
Tax benefit from the exercise of stock optio 0 425,000 0 0 425,000
Balance, December 31, 1999 2,612,786 20,154,000 9,802,000 (527,000) 29,429,000
Net Income as of March 31, 2000 0 0 1,330,000 0 1,330,000 1,330,000
Other Comprehensive Income(Loss), net of tax
benefit of $85,000 0 0 0 (141,000) (141,000) (141,000)
Comprehensive Income 0 0 0 0 0 $1,189,000
Stock options exercised at $3.10 to $9.92 pe 83,208 378,000 0 0 378,000
Repurchase and retirement of shares by the
Corporation at an average of $19.72 per s (61,562) (1,214,000) 0 0 (1,214,000)
Common Stock Issued and sold to the
Defined Contribution Plan at $20.88 per 11,859 248,000 0 0 248,000
Tax benefit from the exercise of stock optio 0 250,000 0 0 250,000
Balance, March 31, 2000 2,646,291 $19,816,000 $11,132,000 ($668,000) $30,280,000
<FN>
The accompanying notes are an integral part of these consolidated statements.
</FN>
</TABLE>
<PAGE>
BWC FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. CONSOLIDATED FINANCIAL STATEMENTS
In the opinion of management, the unaudited interim consolidated financial
statements contain all adjustments (consisting of only normal recurring
adjustments) necessary to present fairly the financial position at March
31, 2000 and the results of operations for the three months ended March 31,
2000 and 1999 and cash flows for the three months ended March 31, 2000 and
1999.
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 1999 Annual Report to Shareholders, which is incorporated by
reference in the Company's 1999 annual report on Form 10-K. The results of
operations for the three months ended March 31, 2000 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
March 31, 2000 are as follows:
GROSS
AMORTIZED UNREALIZED MARKET
COST GAIN/(LOSS) VALUE
Held-to-maturity
Obligations of State and
Political Subdivisions $11,213,000 $ (184,000) $11,029,000
Available-for-sale
Taxable Obligations of
State & Political
Subdivisions $11,353,000 $ (217,000) $11,136,000
U.S. Treasury Securities 6,029,000 (56,000) 5,973,000
U.S. Government Agencies 27,921,000 (445,000) 27,476,000
U.S. Government Agencies
Preferred Stock 1,650,000 (195,000) 1,455,000
Corporate Securities 5,567,000 (163,000) 5,404,000
Total Available-for-sale $52,520,000 $(1,076,000) $51,444,000
<PAGE>
The following table shows the amortized cost and estimated market value of
investment securities by contractual maturity at March 31, 2000.
HELD-TO-MATURITY AVAILABLE-FOR-SALE
Amortized Market Amortized Market
Cost Value Cost Value
Within one year $ 1,749,000 $1,859,000 $ 9,620,000 $ 9,577,000
After one but within
five years 6,219,000 6,017,000 36,090,000 35,383,000
Over five years 3,245,000 3,153,000 6,810,000 6,484,000
Total $11,213,000 $11,029,000 $52,520,000 $51,444,000
3. ALLOWANCE FOR CREDIT LOSSES
For the Three months Ended
March 31,
2000 1999_
Allowance for credit losses at
beginning of period $4,466,000 $3,919,000
Chargeoffs (47,000) (39,000)
Recoveries 21,000 9,000
Net (chargeoffs)/recoveries (26,000) (30,000)
Provisions 225,000 150,000
Allowance for credit losses at
end of period $4,665,000 $4,039,000
Ratio of allowance for credit
losses to loans 2.11% 2.15%
4. COMPREHENSIVE INCOME
For the Bank, comprehensive income includes net income reported on the
statements of income and changes in the fair value of its available-for-
sale investments reported as a component of shareholders' equity.
<PAGE>
The Corporation's comprehensive income for the period is reflected in the
following table:
For the For the
Three months Three months
Ended March 31, Ended March 31,
2000 1999
Net Income $1,330,000 $1,120,000
Other Comprehensive Income, net of tax:
Adjustment for available-
for-sale securities (141,000) (145,000)
Total Comprehensive Income $1,189,000 $ 975,000
5. FASB 131 DISCLOSURE
The Corporation is principally engaged in community banking activities
through its seven Bank branches. In addition to its community banking
activities, the Corporation provides mortgage brokerage services through
its joint venture, BWC Mortgage Services. These activities are monitored
and reported by Corporation management as a separate operating segment. The
separate banking offices have been aggregated into a single reportable
segment, Community Banking.
The Corporation's community banking segment provides loans, leases, SBA
loan products, asset based lending services and lines of credit to local
businesses and individuals. This segment also derives revenue by investing
funds, that are not loaned to others in the form of loans, leases or lines
of credits, into investment securities. The business purpose of BWC
Mortgage Services is the origination and placement of long-term financing
for real estate mortgages.
Summarized financial information for the period ending March 31, 2000, and
1999 concerning the Corporation's reportable segments is shown in the
following table.
<PAGE>
<TABLE>
<CAPTION>
For the Three Months, Community Mortgage
Ended 03/31/2000 Banking Services All Other Adjustments Total
<S> <C> <C> <C> <C> <C>
Total Interest Income $7,147,000 $9,000 ($2,000) $7,154,000
Commissions Received $515,000 $0 515,000
Total Interest Expense 1,992,000 13,000 ($2,000) 2,003,000
Salaries & Benefits 1,916,000 109,000 $0 2,025,000
Commissions Paid 369,000 $0 369,000
Segment Profit before Tax 2,063,000 20,000 ($14,000) ($10,000) 2,059,000
Total Assets $319,524,000 $664,000 $903,000 ($1,044,000) $320,047,000
<CAPTION>
For the Three Months, Community Mortgage
Ended 03/31/1999 Banking Services Adjustments Total
<S> <C> <C> <C> <C> <C>
Total Interest Income $5,734,000 $0 $5,734,000
Commissions Received $903,000 $0 903,000
Total Interest Expense 1,547,000 $0 1,547,000
Salaries & Benefits 1,655,000 $0 1,655,000
Commissions Paid 525,000 $0 525,000
Segment Profit before Tax 1,711,000 254,000 ($141,000) 1,824,000
Total Assets $272,616,000 $2,021,000 $1,232,000 ($1,607,000) $274,262,000
</TABLE>
<PAGE>
6. SFAS No. 133
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 (SFAS 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.
SFAS 133 is effective for fiscal years beginning after June 15, 2000. A
company may also implement the Statement as of the beginning of any fiscal
quarter.
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.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS
GENERAL
The nation, and California, continues to show economic strength and growth
although forecasters predict a slower growth during 2000 than we
experienced in 1999. The economy, the business environment and real estate
construction demand all continue to be strong in our market, with no signs
of weakness as yet. California's economic outlook for 2000 remains bright,
with aggregate growth rates exceeding the national average and nearly
duplicating 1999. Construction is expected to remain strong, recording
solid employment gains. The rebound in high-tech manufacturing and
international trade should also create positive job growth this year.
Total assets of the Corporation at March 31, 2000 of $320,047,000 increased
$45,785,000, or 17%, as compared to March 31, 1999. Total loans of
$221,826,000 at March 31, 2000 increased $32,631,000 during the same
period. Total deposits of $286,345,000 increased $42,546,000 during the
same period.
The Corporation's loan-to-deposit ratio as of March 31, 2000 was 77%, as
compared to 78% on March 31, 1999.
Other Short-term investments are investments in a mutual fund operated by
Federated Funds Investments and are comprised of short-term US Treasury
Securities. Investments are done on a daily basis and are similar in
liquidity to Fed Funds Investments, but often carry a slightly higher
yield.
NET INCOME
Net income for the first three months in 2000 of $1,330,000 was $210,000
greater then the first three months in 1999. This represented a return on
average assets during the quarter of 1.72% as compared to 1.69% in 1999,
and a return on average equity of 17.76% as compared to 18.09% in 1999.
The reduced return on average equity, as compared to average assets, is a
result of the capital growth between the respective periods.
Net interest income increased $964,000 during the first quarter of 2000, as
compared to 1999, and noninterest income decreased $480,000, which was
primarily related to the reduction of income in the Corporation's mortgage
subsidiary.
Noninterest expense increased $293,000 between the respective periods, and
the provision for credit losses increased $75,000. The provision for
income taxes increased $25,000 between the respective periods.
Earning assets averaged $288,258,000 during the first quarter of 2000, an
increase of $38,323,000 from the comparable quarter of 1999. During this
same period loans averaged $217,569,000, an increase of $31,761,000 over
1999, and deposits averaged $275,780,000, an increase of $36,753,000 over
1999.
<PAGE>
Diluted earnings per average common share for the first three months of
2000 were $0.48, as compared to $0.38 for the first three months of 1999.
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, deposits, and interest rate fluctuations caused by
economic conditions greatly affect net interest income.
Net interest income during the first three months of 2000 was $5,151,000,
or $964,000 greater than the comparable period in 1999. This increase is
primarily the result of increases in volume of funds rather than in rates.
Based on the volume increase alone, net interest income increased by
$782,000 over the comparable quarter in 1999. An additional $182,000 was
earned due to an increase in the net interest margin.
PROVISION FOR CREDIT LOSSES
An allowance for credit losses is maintained at a level considered adequate
to provide for losses that can be reasonably anticipated and is in
accordance with SFAS 114. The allowance is increased by provisions charged
to expense, and reduced by net charge-offs. Management continually
evaluates the economic climate, the performance of borrowers, and other
conditions to determine the adequacy of the allowance.
The ratio of the allowance for credit losses to total loans as of March 31,
2000, was 2.11% as compared to 2.15% for the period ending March 31, 1999.
Industry standards for this ratio are generally averaging between 1.5% to
2.0%. The Corporation's ratios for both periods is considered adequate to
provide for potential future losses.
The Corporation performs a quarterly analysis of the adequacy of its
allowance for credit losses. As of March 31, 2000 it had $2,791,000 in
allocated reserves and $1,874,000 in unallocated reserves. The
Corporation's management believes that the amount of unallocated reserves
is reasonable, due to the growth of the Bank's loan portfolio and the new
credit products that have been introduced. In the past few years, the Bank
has opened an Asset-based Lending Department, a Leasing Department and a
Small Business Association lending program. The Bank also has a high
concentration of credit in Construction Real Estate lending. The
uncertainties associated with these new products, coupled with the Bank's
traditionally strong construction concentration, fully supports the
justification for a strong reserve position.
<PAGE>
The Corporation had net charge-offs of $26,000 during the first quarter of
2000 as compared to net charge-offs of $30,000 during the comparable period
in 1999.
The following table provides information on past-due and nonaccrual loans:
For the Three Months Ended
March 31,
2000 1999
Loans Past Due 90 Days or More $ 29,000 $ 0
Nonaccrual Loans 25,000 192,000
Total $ 54,000 $ 192,000
As of March 31, 2000 and 1999, no loans were outstanding that had been
restructured. No interest earned on nonaccrual loans that was recorded in
income during 2000 remains uncollected. Interest foregone on nonaccrual
loans was approximately $6,000 and $16,000 as of March 31, 2000 and 1999,
respectively.
NONINTEREST INCOME
Noninterest income during the first quarter of 2000 was $480,000 less than
during the comparable quarter of 1999. The decrease is attributed to the
decrease in income from the Corporation's subsidiary, BWC Mortgage
Services. Their income is down due to the drop in mortgage activity
related to increased rates and lack of inventory in our market.
NONINTEREST EXPENSE
Noninterest expense during the first quarter of 2000 was $293,000 greater
than during the comparable quarter of 1999. The increase in 2000 was
reflected in increases in the Bank subsidiary, with reductions in the
Corporation's brokerage subsidiary, BWC Mortgage Services.
Salaries and related benefits are $370,000 greater during the first quarter
of 2000 as compared to 1999. This increase is related to general merit
increases, performance bonuses and growth of operations. Staff averaged
111.0 FTE (full time equivalent) persons during the first quarter of 2000
as compared to 96.3 FTE in 1999. Occupancy expense increased $29,000 over
the comparable period in 1999 due to CPI and operating increases. Total
equipment expense increased $49,000 as compared to the 1999 period. Other
expense reflects an increase of $197,000 between the respective periods and
is related to the Corporation's growth and expanded activities.
OTHER REAL ESTATE OWNED
As of March 31, 2000, the Corporation had no Other Real Estate Owned assets
(assets acquired as the result of foreclosure on real estate collateral) on
its books.
<PAGE>
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
is 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 March 31, 2000 was well within
the Corporation's risk policy range and comparable to the interest rate
exposure presented in the Corporation's 1999 annual report, which was also
within the Corporation's risk policy range.
CAPITAL ADEQUACY
In 1989, the Federal Deposit Insurance Corporation (FDIC) established risk-
based capital guidelines requiring banks to maintain certain ratios of
"qualifying capital" to "risk-weighted assets". Under the guidelines,
qualifying capital is classified into two tiers, referred to as Tier 1
(core) and Tier 2 (supplementary) capital. Currently, the bank's Tier 1
capital consists of shareholders' equity, while Tier 2 capital also
includes the eligible allowance for loan losses. The Bank has no
subordinated notes or debentures included in its capital. Risk-weighted
assets are calculated by applying risk percentages specified by the FDIC to
categories of both balance-sheet assets and off-balance-sheet assets.
The Bank's Tier 1 and Total (which included Tier 1 and Tier 2) risk-based
capital ratios surpassed the regulatory minimum of 4% and 8% at March 31
for both 2000 and 1999. 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.
<PAGE>
The following table shows the Corporation's risk-based capital ratios and
leverage ratio as of March 31, 2000, December 31, 1999, and March 31, 1999.
Risk-based capital ratios: Capital Ratios
Minimum
Current guidelines March 31, December 31, March 31, regulatory
2000 1999 1999 Requirements
Tier 1 capital 12.13% 12.21% 11.13% 4.00%
Total capital 13.39% 13.58% 13.13% 8.00%
Leverage ratio 10.00% 10.66% 9.56% 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 investment securities and Federal Funds Sold. Cash, investment
securities, and other temporary investments represented 29% of total assets
at March 31, 2000 and 30% at March 31, 1999. 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 $15,000,000.
YEAR 2000 ISSUES & STATUS REPORT
The Corporation is pleased to report that it experienced no system hardware
or software failures or interruptions due to year 2000 (Y2K) issues.
The year 2000 created challenges with respect to the automated systems used
by financial institutions and other companies. Many software programs were
not able to recognize the year 2000, since many programs and systems were
designed to store calendar years in the 1900's by assuming the "19" and
storing only the last two digits of the year. For example, these automated
systems would recognize a year stored as "00" as the year "1900," rather
than as the year 2000. If these automated systems were not appropriately
re-coded, updated, or replaced before the year 2000, they could likely
confuse data, crash, or fail in some manner.
The Corporation was committed to addressing these year 2000 challenges in a
prompt and responsible manner and dedicated resources to do so. Management
completed an assessment of its automated systems and implemented a plan to
resolve these issues, including purchasing appropriate computer technology.
The total costs associated with Y2K preparedness were approximately
$800,000. Most of this investment represents expenditures for systems and
equipment that will be used by the Corporation for years to come. It also
reflects replacement of systems or equipment that would have required
upgrading within a few years, in any event.
Based on previous tests of our systems, and their successful performance
over the century-date-change, the Corporation does not anticipate any
disruptions related to future-date change events. The contingency plans
that the Corporation developed for the Y2K event will serve as an operating
guide for our Corporation to use in most disaster situations.
<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 is required
to provide an optimum and stable net interest margin. Interest rate sensitivity spread management
is an important tool for achieving this objective and for developing strategies and means to
improve profitability. The schedules shown below reflect the interest rate sensitivity position
of the Corporation as of March 31, 2000. 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>
3 3-6 12 1-5 Over 5
Repricing within: months months months years years Totals
ASSETS:
<S> <C> <C> <C> <C> <C> <C>
Federal funds sold & Short Term Inv. $ 11,802 $ - $ - $ - $ - $ 11,802
Investment securities 1,106 1,370 8,850 41,602 9,729 62,657
Construction & real estate loans 86,969 7,438 9,242 765 0 104,414
Commercial loans 46,322 3,329 21,880 1,842 -- 73,373
Consumer Loans 33,842 177 566 1,098 0 35,683
Leases 308 670 7,077 0 -- 8,055
Interest-bearing assets $180,349 $ 12,984 $47,615 $45,307 $ 9,729 $295,984
Savings and Now accounts $ 40,105 $ - $ - $ - $ - $ 40,105
Money market accounts 97,083 -- -- -- -- 97,083
Time deposits <$100,000 12,416 14,709 7,057 1,536 -- 35,718
Time deposits >$100,000 9,204 16,120 5,519 805 -- 31,648
Interest-bearing liabilities $158,808 $ 30,829 $12,576 $ 2,341 $ - $204,554
Rate sensitive gap $ 21,541 $(17,845) $35,039 $42,966 $ 9,729 $ 91,430
Cumulative rate sensitive gap $ 21,541 $ 3,696 $38,735 $81,701 $91,430
Cumulative rate sensitive ratio 1.14% 1.02% 1.19% 1.40% 1.45%
</TABLE>
<PAGE>
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
None
Item 2 - Changes in Securities
None
Item 3 - Defaults Upon Senior Securities
None
Item 4 - Submission of Matters to a Vote of Security Holders
The BWC Financial Corp. 2000 Stock Option Plan has been submitted to
shareholders for approval.
Item 5 - Other Materially Important Events
None
Item 6 - Exhibits and Reports on Form 8-K
None
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BWC FINANCIAL CORP.
(Registrant)
___________________________ _________________________________
Date James L. Ryan
Chairman and Chief Executive Officer
______________________ ________________________________
Date Leland E. Wines
CFO and Corp. Secretary
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000353650
<NAME> BWC FINANCIAL CORP.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 18869000
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 11802000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 51444000
<INVESTMENTS-CARRYING> 11213000
<INVESTMENTS-MARKET> 11029000
<LOANS> 221525000
<ALLOWANCE> 4665000
<TOTAL-ASSETS> 320047000
<DEPOSITS> 286345000
<SHORT-TERM> 0
<LIABILITIES-OTHER> 3422000
<LONG-TERM> 0
0
0
<COMMON> 19816000
<OTHER-SE> 10464000
<TOTAL-LIABILITIES-AND-EQUITY> 320047000
<INTEREST-LOAN> 6128000
<INTEREST-INVEST> 922000
<INTEREST-OTHER> 104000
<INTEREST-TOTAL> 7154000
<INTEREST-DEPOSIT> 1948000
<INTEREST-EXPENSE> 2003000
<INTEREST-INCOME-NET> 5151000
<LOAN-LOSSES> 225000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 3969000
<INCOME-PRETAX> 2059000
<INCOME-PRE-EXTRAORDINARY> 2059000
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1330000
<EPS-BASIC> .50
<EPS-DILUTED> .48
<YIELD-ACTUAL> 7.31
<LOANS-NON> 25000
<LOANS-PAST> 29000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 2274000
<ALLOWANCE-OPEN> 4466000
<CHARGE-OFFS> 47000
<RECOVERIES> 21000
<ALLOWANCE-CLOSE> 4665000
<ALLOWANCE-DOMESTIC> 2791000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1874000
</TABLE>
