Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
For the fiscal year ended December 31, 2002,
Commission File Number 0-10658
BWC FINANCIAL CORP.
Incorporated pursuant to the Laws of California
Internal Revenue Service - Employer Identification No. 94-2621001
1400 Civic Drive, Walnut Creek, California 94596
(925) 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
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 June 28, 2002: $41,946,000.
Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of June 28, 2002.
Title of Class: Common Stock, no par value Shares Outstanding: 3,402,297
| Documents Incorporated by Reference* | Incorporated Into: | |
| 2002 Annual Report to Shareholders | Part II and IV | |
| Definitive Proxy Statement for the 2003 | Part III | |
| Annual Meeting of Shareholders to be | ||
| filed by April 4, 2003. |
* Only selected portions of the document specified are incorporated by reference into this report, as more particularly described herein. Registrant is not an accelerated filer.
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, (“Bank”) 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 (925) 932-5353.
The Bank 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, SBA loans, leases, 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. The Bank 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, Cirrus and Star networks with ATM access at locations throughout the United States and Canada. The Bank offers its clients 24-hour telephone access to their accounts and 24-hour internet banking access with bill payment services. The Bank provides its clients with imaged statements and checks which it delivers to its clients by either postal service, fax or email.
The Bank operates an SBA (Small Business Administration) lending department, and also operates a leasing division. Both of these areas of the Bank add to the Corporation’s 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
The primary service area of the Bank and its branches is Contra Costa, Alameda and Santa Clara Counties with limited lending activity also in 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, Pleasanton, Fremont, Livermore and San Jose, 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, northern Alameda County and the San Jose area of Santa Clara 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.
The Bank 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, 2002, the Bank employed 124 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 16 employees and 33 agents working for the joint venture, BWC Mortgage Services.
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 noninterest-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.
The principal office of the Bank is located at 1400 Civic Drive, in the financial district of downtown Walnut Creek. The Bank opened for business on December 12, 1980 and its 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 the Bank in its principal office.
On September 24, 1982, a branch office was opened at 224 Brookwood Road, Orinda, California, serving the Orinda area. The premises are located in a new facility which was constructed on this site in 1994 with 2,186 square feet of office space.
On November 12, 1985, a branch office was opened at 3130 Crow Canyon Place, San Ramon, California, serving the San Ramon area. The premises are located in a modern building of which the Bank has leased approximately 3,375 square feet of office space.
On June 8, 1990, a branch office was opened at 424 Hartz Avenue, Danville, California, serving the Danville area. The premises are located in a modern building containing 2,263 square feet of office space.
On April 15, 1994 a branch office was opened at 249 Main Street, Pleasanton, California serving the Pleasanton area. The premises are located in a single building containing 3,880 square feet of office space.
On June 15, 1996 a branch office was opened at 4030 Clipper Court, Fremont, California, serving the Fremont area. The premises are located in an office park where the Bank leased 2,240 square feet of office space. A full service charter was approved; however, the facility is being used primarily for the development of loans to the surrounding business community.
On November 9, 1998 a branch office was opened in Livermore, California. It is located at 211 South J Street and the premises are in a single, modern building containing 2,100 square feet of office space.
On March 20, 2001 a branch office was opened in San Jose, California. The premises are located in a modern office building of which the Bank has leased approximately 2,386 square feet of office space.
None
None
The information required to be furnished pursuant to this item is set forth under the caption “Common Stock Prices” on page 23 of the Corporation’s 2002 Annual Report to Shareholders and is incorporated herein by reference.
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 20 of the Corporation’s 2002 Annual Report to Shareholders and is incorporated herein by reference.
For management's discussion and analysis of financial condition and results of operations, see "Management's Discussion and Analysis of Operations" at pages 20 through 24 of the 2002 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 2002 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.
EARNING ASSETS 2002 2001 2000
---------------------------------------- ---------------------------------------- ----------------------------------------
In thousands Interest Rates Interest Rates Interest Rates
Average Income/ Earned/ Average Income/ Earned/ Average Income/ Earned/
Balance Expense Paid(1) Balance Expense Paid(1) Balance Expense Paid(1)
---------------------------------------- ---------------------------------------- ----------------------------------------
Federal Funds Sold $ 13,153 $ 219 1.67% $ 14,139 $ 527 3.73% $ 9,004 $ 570 6.31%
Other Short-Term Investments 181 4 1.49 3,081 90 2.93 914 57 6.18
Investment Securities:
U.S. Treasury Securities 4,295 122 2.84 3,686 134 3.64 5,431 293 5.38
Securities of U.S.
Government Agencies 35,549 1,487 4.18 29,827 1,605 5.38 28,810 1,825 6.32
Obligations of States &
Political Subdivisions(2) 35,807 1,639 5.22 31,001 1,696 6.20 23,125 1,271 6.57
Other Securities 11,518 493 4.28 5,265 296 5.61 5,441 335 6.13
Loans (3) (4) (5) 279,888 21,452 7.67 267,177 26,531 9.93 231,991 27,787 11.95
----------------------------- ------------------------------ -----------------------------
TOTAL EARNING ASSETS $ 380,391 $ 25,416 6.74% $ 354,176 $ 30,879 8.87% $ 304,716 $ 32,138 10.60%
=============== =============== ==============
NONEARNING ASSETS 24,358 22,127 21,523
-------------- --------------- ---------------
TOTAL $ 404,749 $ 376,303 $ 326,239
============== =============== ===============
ITEM 7. (continued)
LIABILITIES AND SHAREHOLDERS' EQUITY
2002 2001 2000
---------------------------------------- ---------------------------------------- ----------------------------------------
Interest Rates Interest Rates Interest Rates
Average Income/ Earned/ Average Income/ Earned/ Average Income/ Earned/
Balance Expense Paid(1) Balance Expense Paid(1) Balance Expense Paid(1)
---------------------------------------- ---------------------------------------- ----------------------------------------
INTEREST-BEARING DEPOSITS:
Savings and NOW Accounts $ 45,258 $ 140 0.31% $ 40,449 $ 312 0.77% $ 38,296 $ 558 1.45%
Money Market Accounts 150,978 2,364 1.57 136,023 4,505 3.31 103,539 4,800 4.63
Time Deposits 55,998 1,559 2.78 65,529 3,385 5.17 65,847 3,708 5.63
----------------------------- ------------------------------ -----------------------------
TOTAL 252,234 4,063 1.61 242,001 8,202 3.39 207,682 9,066 4.36
Federal Funds Purchased 112 2 1.51 343 16 4.66 348 22 6.26
Other Borrowed Funds 16,861 938 5.56 6,538 373 5.71 939 51 5.43
---------------------------------------- ---------------------------------------- ----------------------------------------
TOTAL INTEREST-BEARING
DEPOSITS AND BORROWINGS $ 269,207 $ 5,003 1.86% $ 248,882 $ 8,591 3.45% $ 208,969 $ 9,139 4.36%
NONINTEREST-BEARING DEPOSITS 93,495 - 88,663 - 82,450 -
OTHER LIABILITIES 2,476 - 2,270 - 3,357 -
SHAREHOLDERS' EQUITY 39,571 - 36,488 - 31,463 -
----------------------------- ------------------------------ -----------------------------
TOTAL $ 404,749 $ 376,303 $ 326,239
============== =============== ===============
NET INTEREST INCOME
AND NET INTEREST MARGIN
ON AVERAGE EARNING ASSETS $ 20,413 5.43% $ 22,288 6.36% $ 22,999 7.61%
========================== ========================= =========================
1. Minor rate differences from a straight division of interest by average assets are do to the rounding of average balances.
2. Amounts calculated on a fully tax-equivalent basis where appropriate (2001 and 2000 Federal Statutory Rate was 34%).
3.
Nonaccrual loans of $426,000 and $846,000 as of December 31, 2002 and 2001 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.
4. Average loans are net of average deferred loan origination fees of $1,479,000 and $1,298,000 in 2002 and 2001, respectively.
5. Loan interest income includes loan origination fees of $1,938,000 and $2,048,000 in 2002 and 2001, respectively.
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 2002 and 2001, and between the years 2001 and 2000. 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 2002, total interest income decreased $5,463,000 as compared to 2001. This was related in total to the drop in interest rates. Analysis of the influence rates had on interest income showed that interest income was approximately 6.5 million dollars less in 2002 than would have been earned using the rates in effect during 2001.
Total interest expense in 2002 decreased $3,588,000 from 2001. This was also related in total to the drop in interest rates. Analysis of the influence rates had on interest expense showed that interest expense was approximately 4.2 million dollars less in 2002 than would have been expensed using the rates in effect during 2001.
Based on the above factors affecting interest income and interest expense, net interest income decreased $1,875,000 during 2002 as compared to 2001. Had the same rates been in effect during 2002 as were experienced in 2001, the net interest income of the Corporation would have increased by over 2.3 million dollars.
During 2001, total interest income decreased $1,259,000 as compared to 2000. This was related in total to the drop in interest rates. Analysis of the influence rates had on interest income showed that interest income was over 5 million dollars less in 2001 than would have been earned using the rates in effect during 2000.
Total interest expense in 2001 decreased $548,000 from 2000. This was also related in total to the drop in interest rates. Analysis of the influence rates had on interest expense showed that interest expense was approximately 2 million dollars less in 2001 than would have been expensed using the rates in effect during 2000.
Based on the above factors affecting interest income and interest expense, net interest income decreased $711,000 during 2001 as compared to 2000. Had the same rates been in effect during 2001 as were experienced in 2000, the net interest income of the Corporation would have increased by over 3 million dollars.
ANALYSIS OF CHANGES IN INTEREST INCOME AND EXPENSES
In thousands 2002 over 2001 2001 over 2000
------------------------------------------- ------------------------------------------
Volume Rate Total Volume Rate Total
------------------------------------------- ------------------------------------------
Increases (Decreases) in Interest Income
Federal Funds Sold $ (27) $ (281) $ (308) $ 258 $ (301) $ (43)
Other Short-Term Investments (64) (23) (87) 98 (65) 33
Investment Securities:
U.S. Treasury Securities 20 (32) (12) (78) (80) (158)
Securities of U.S. Government Agencies 274 (392) (118) 60 (280) (220)
Obligations of State and
Political Subdivisions 252 (309) (57) 501 (78) 423
Corporate Debit Securities 309 (112) 197 (10) (28) (38)
Loans 247 (5,325) (5,078) 3,262 (4,518) (1,256)
------------------------------------------- ------------------------------------------
Total Increase (Decrease) $ 1,011 $ (6,474) $ (5,463) $ 4,091 $ (5,350) $ (1,259)
Increase (Decrease) in Interest Expense
Deposits:
Savings and NOW Accounts $ 26 $ (199) $ (173) $ 2 $ (98) $ (96)
Money Market Accounts 365 (2,505) (2,140) 1,292 (1,737) (445)
Time Deposits (378) (1,447) (1,825) (16) (307) (323)
Federal Funds Purchased (7) (7) (14) - (6) (6)
Other Borrowed Funds 579 (15) 564 248 74 322
------------------------------------------- ------------------------------------------
Total Increase (Decrease) $ 585 $ (4,173) $ (3,588) $ 1,526 $ (2,074) $ (548)
Increase (Decrease) on
------------------------------------------- ------------------------------------------
Net Interest Income $ 426 $ (2,301) $ (1,875) $ 2,565 $ (3,276) $ (711)
=========================================== ==========================================
INVESTMENT SECURITIES
An analysis of the investment security portfolio at December 31 follows:
In thousands 2002
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Available-for-sale Cost Gains Loss Value
-----------------------------------------------------------------------
Securities of U.S. Government Agencies $ 26,664 $ 471 $ - $ 27,135
Taxable Securities of State and
Political Subdivisions 15,158 546 - 15,704
Corporate Debt Securities 17,095 356 - 17,451
-----------------------------------------------------------------------
Total 58,917 1,373 - 60,290
Held-to-maturity
Obligations of State and Political Subdivisions 10,815 455 - 11,270
-----------------------------------------------------------------------
Total Investment Securities $ 69,732 $ 1,828 $ - $ 71,560
=======================================================================
In thousands 2001
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Available-for-sale Cost Gains Loss Value
-----------------------------------------------------------------------
U.S. Treasury Securities $ 9,160 $ - $ 1 $ 9,159
Securities of U.S. Government Agencies 40,102 522 - 40,624
Taxable Securities of State and
Political Subdivisions 19,815 521 - 20,336
Corporate Debt Securities 6,477 88 - 6,565
-----------------------------------------------------------------------
Total 75,554 1,131 1 76,684
Held-to-maturity
Obligations of State and Political Subdivisions 10,025 313 - 10,338
-----------------------------------------------------------------------
Total Investment Securities $ 85,579 $ 1,444 $ 1 $ 87,022
=======================================================================
In thousands 2000
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Available-for-sale Cost Gains Loss Value
-----------------------------------------------------------------------
U.S. Treasury Securities $ 3,015 $ - $ 6 $ 3,009
Securities of U.S. Government Agencies 34,341 - 29 34,312
Taxable Securities of State and
Political Subdivisions 14,558 126 - 14,684
Corporate Debt Securities 6,041 - 21 6,020
-----------------------------------------------------------------------
Total 57,955 126 56 58,025
Held-to-maturity
Obligations of State and Political Subdivisions 9,920 55 - 9,975
-----------------------------------------------------------------------
Total Investment Securities $ 67,875 $ 181 $ 56 $ 68,000
=======================================================================
In 2002, 2001, and 2000, the Corporation received proceeds from sale of available-for-sale investment securities of
$32,037,000, $29,819,000 and $3,200,000 respectively, and gains included in other noninterest income totaled $84,000,
$55,000 and $10,000 respectively.
INVESTMENT SECURITIES (Cont.)
The maturities of the investment security portfolio at December 31, 2002 follow:
Held-to-maturity
-------------------------------------------------------
Amortized Estimated Fair Effective
Cost Value Yield
-------------------------------------------------------
Within one year $ 2,456 $ 2,494 5.10%
After one-through-five years 8,359 8,776 5.69%
Over five years through 10 years - - -
-------------------------------------------------------
Total $ 10,815 $ 11,270 5.55%
=======================================================
Available-for-Sale
-------------------------------------------------------
Amortized Estimated Fair Effective
Cost Value Yield
-------------------------------------------------------
Within one year $ 29,505 $ 29,890 4.68%
After one-through-five years 29,177 30,159 4.25%
Over five years through 10 years 235 241 4.07%
-------------------------------------------------------
Total $ 58,917 $ 60,290 4.46%
=======================================================
At December 31, 2002, 2001 and 2000, securities with a book value of $14,321,000, $11,118,000, and $8,470,000 respectively,
were pledged to secure public deposits. Market value of these same securities on those dates were $14,744,000 and
$11,443,000 respectively.
LOAN PORTFOLIO
Information regarding the loan portfolio of the Corporation as of December 31, 2002 and 2001
is set forth in Note 3 on pages 10 and 11 of the Corporation's 2002 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, 2002.
In thousands
LOANS WITH A MATURITY OF
-------------------------------------------------------
One Year One to After Five
or Less Five Years Years Total
-------------------------------------------------------
Real Estate Construction $ 80,390 $ 1,871 $ - $ 82,261
Commercial Real Estate 2,601 10,413 59,318 72,332
Commercial 34,947 15,079 39,479 89,505
Installment 2,399 4,359 45,099 51,857
Leases 6,715 6,890 - 13,605
-------------------------------------------------------
TOTAL $ 127,052 $ 38,612 $ 143,896 $ 309,560
=======================================================
Loans with Fixed Interest Rates $ 9,579 $ 10,826 $ 16,019 $ 36,424
Loans with Floating Interest Rates 117,473 27,786 127,877 273,136
-------------------------------------------------------
TOTAL $ 127,052 $ 38,612 $ 143,896 $ 309,560
=======================================================
Outstanding loans by type were: December 31,
In thousands 2002 2001 2000 1999 1998
- ---------------------------------------------------------------------------------------------------------------------------
Real Estate Construction $ 82,261 $ 91,673 $ 72,638 $ 78,158 $ 69,054
Commercial Real Estate 72,332 47,028 29,436 24,285 21,533
Commercial 89,505 81,878 94,592 70,409 64,261
Installment 51,857 47,732 43,220 34,127 30,450
Leases 13,605 13,156 12,437 6,980 1,679
------------------------------------------------------------------
Total 309,560 281,467 252,323 213,959 186,977
Less: Allowance for Credit Losses (5,977) (5,403) (5,042) (4,466) (3,919)
------------------------------------------------------------------
Net Loans $ 303,583 $ 276,064 $ 247,281 $ 209,493 $ 183,058
==================================================================
The following table provides further information on past-due and nonaccrual loans.
2002 2001 2000 1999 1998
------------------------------------------------------------------
Loans past due 90 days or more, still accruing interest $ 328 $ 257 $ 26 $ 5 $ -
Nonaccrual Loans 426 846 2,041 38 2,176
------------------------------------------------------------------
Total $ 754 $ 1,103 $ 2,067 $ 43 $ 2,176
==================================================================
ALLOWANCE FOR CREDIT LOSSES
Information regarding the analysis of the allowance for credit losses of the Corporation for the years ended set forth
December 31, 2002, 2001 and 2000 is in Note 4 on page 11 of the Corporation's 2002 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 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. Ultimate losses may vary from current estimates.
-------------------------------------------------------------------------------------------------
2002 2001 2000
-------------------------------------------------------------------------------------------------
In thousands Allocation Loans as a Allocation Loans as a Allocation Loans as a
of Allowance Percent of of Allowance Percent of of Allowance Percent of
Type of Loan Balance Total Loans Balance Total Loans Balance Total Loans
-------------------------------------------------------------------------------------------------
Commercial $ 2,813 28.91% $ 3,722 29.09% $ 1,098 28.78%
Real Estate Construction 420 26.57 412 32.57 2,831 37.49
Commercial Real Estate 142 23.37 81 16.71 376 17.13
Installment 439 16.75 389 16.96 434 4.93
Leases 670 4.40 612 4.67 75 11.67
Unallocated 1,493 - 187 - 228 -
-------------------------------------------------------------------------------------------------
TOTAL $ 5,977 100.00% $ 5,403 100.00% $ 5,042 100.00%
=================================================================================================
---------------------------------------------------------------
1999 1998
---------------------------------------------------------------
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
---------------------------------------------------------------
Real Estate Construction $ 1,134 36.53% $ 952 36.93%
Commercial 2,078 36.17 1,113 34.37
Installment 291 15.95 333 17.18
Leases - - -
Real Estate Mortgages 61 11.35 55 11.52
Unallocated 902 - 1,466 -
---------------------------------------------------------------
TOTAL $ 4,466 100.00% $ 3,919 100.00%
===============================================================
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.
ALLOWANCE FOR CREDIT LOSSES (Cont.)
In thousands For the Year Ended December 31,
2002 2001 2000 1999 1998
------------------------------------------------------------------------------
Total loans outstanding at end of period, before
deducting allowance for credit losses $ 309,560 $ 281,467 $ 252,323 $ 213,959 $ 186,977
==============================================================================
Average total loans outstanding during period $ 279,890 $ 267,177 $ 231,991 $ 190,755 $ 166,698
==============================================================================
Analysis of the allowance for credit losses:
Beginning Balance $ 5,403 $ 5,042 $ 4,466 $ 3,919 $ 2,936
------------------------------------------------------------------------------
Charge-offs:
Commercial 545 1,009 502 126 17
Leases 270 382 125 - -
Installment 23 75 34 27 96
------------------------------------------------------------------------------
Total Charge-Offs 838 1,466 661 153 113
Recoveries:
Commercial 82 138 72 - 215
Leases 119 79 8 96 -
Real Estate Loans - - - - 40
Installment 11 10 7 4 16
------------------------------------------------------------------------------
Total Recoveries 212 227 87 100 271
------------------------------------------------------------------------------
Net Charge-Offs (Recoveries) 626 1,239 574 53 (158)
------------------------------------------------------------------------------
Provisions charged to expense 1,200 1,600 1,150 600 825
------------------------------------------------------------------------------
Ending Balance $ 5,977 $ 5,403 $ 5,042 $ 4,466 $ 3,919
==============================================================================
Ratio of net charge-offs (recoveries)
to average total loans 0.22% 0.46% 0.25% 0.03% -0.09%
==============================================================================
Ratio of allowance for credit losses
to total loans at end of period 1.93% 1.92% 2.00% 2.09% 2.10%
==============================================================================
Allowance for Credit Losses
The Allowance for Loan and Lease Loss Reserve Methodology requires that certain loans be reviewed under the directives of the Federal Financial Institutions Examination Council’s (FFIEC) policy statement dated July 6, 2001and FASB 114, to determine whether or not the loan is impaired and necessitates a Specific Reserve. By Bank policy all loans and leases that are classified Substandard (Risk Rating 6) or Doubtful (Risk Rating 7) are reviewed to determine if they are impaired. An impaired loan defined by FASB 114, is one which “based on current information and events, it is probable that a creditor will be unable to collect all amounts due according to the contractual terms of the loan agreement”. All amounts due according to the contractual terms means “that both the contractual interest payments and contractual principal payments will be collected as scheduled in the loan agreement”.
When a loan is determined to be impaired, the extent of impairment is based on the expected future cash flows discounted at the loan’s effective interest rate. However, as a practical expedient, FASB 114 permits a creditor to measure impairment based on the fair value of the collateral. It is this later form of measurement that the Bank has elected to use, as personal or real property assets collateralize a large percentage of the Bank’s loans.
In selecting this approach to determining the necessity of Specific Reserves, the Bank documents:
For purposes of the Bank’s Credit Policy regarding this section of the ALLL methodology the following practices and definitions apply.
| Gross Collateral Value | |
| Less: Cost to Sell | |
| Less: Loan-To-Value Discount (1) | |
| Equals: Net Collateral Value | |
| Less: Current Principal Outstanding |
If the calculation produces a collateral excess, it is not appropriate to assign a Specific Reserve. If the calculation results in a collateral shortfall, the Specific Reserve should equal the amount of the shortfall.
(1) The loan-to-value discount does not have to follow the Bank standard if the rationale for an adjustment warrants a greater or lesser amount.
DEPOSITS
The following table shows daily average balances for the various classifications of deposits for the
periods indicated.
In thousands
For the Year Ended December 31,
------------------------- ------------------------- -------------------------
2002 2001 2000
------------------------- ------------------------- -------------------------
Average Average Average
Balance Rates Balance Rates Balance Rates
------------------------- ------------------------- -------------------------
Noninterest-Bearing Demand $ 93,495 - $ 88,663 - $ 82,450 -
Savings and NOW Accounts 45,258 0.31% 40,449 0.77% 38,296 1.45%
Money Market Accounts 150,978 1.57 136,023 3.31 103,539 4.63
Time Deposits 55,998 2.78 65,529 5.17 65,847 5.63
------------------------- ------------------------- -------------------------
Total Deposits $ 345,729 1.61% $ 330,664 2.55% $ 290,132 3.10%
========================= ========================= =========================
FINANCIAL RATIOS
The following table shows key financial ratios for the Corporation for the years
indicated.
For the Year Ended December 31,
------------------------- ------------------------- --------------
2002 2001 2000
------------------------- ------------------------- --------------
Return on average assets 1.13% 1.45% 1.97%
Return on average shareholders' equity 11.59% 14.97% 20.45%
Cash dividend payout ratio - - -
Average shareholders' equity as % of:
Average total assets 9.78% 9.70% 9.64%
Average total deposits 11.41% 11.03% 10.84%
Information regarding market risk is included in Item 7 – Management’s Discussion and Analysis - under the caption “Interest-rate Risk Management” in the 2002 Annual Report and is incorporated herein by reference.
The information required to be furnished in this item is set forth in the Consolidated Financial Statements on pages 4 through 18 of the Corporation’s 2002 Annual Report to Shareholders and is incorporated herein by reference.
None
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 2002 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 April 4, 2003.
(a) Evaluation of Disclosure Controls and Procedures: An evaluation of the Registrant's disclosure controls and procedures (as defined in Section 13(a)-14(c) of the Securities Exchange Act of 1934 (the "Act")) was carried out under the supervision and with the participation of the Registrant's Chief Executive Officer, Chief Financial Officer and several other members of the Registrant's senior management within the 90-day period preceding the filing date of this annual report. The Registrant's Chief Executive Officer and Chief Financial Officer concluded that the Registrant's disclosure controls and procedures as currently in effect are effective in ensuring that the information required to be disclosed by the Registrant in the reports it files or submits under the Act is (i) accumulated and communicated to the Registrant's management (including the Chief Executive Officer and Chief Financial Officer) in a timely manner, and (ii) recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms.
(b) Changes in Internal Controls: During the year ended December 31, 2002, the Registrant did not make any significant changes in, nor take any corrective actions regarding, its internal controls or other factors that could significantly affect these controls.
(A) Documents Filed as Part of this Report
1. Financial Statements
The consolidated financial statements of BWC Financial Corp. and its subsidiary listed below, and
appearing at the indicated page number in BWC's 2002 Annual Report to Shareholders, are incorporated by
reference into this report.
BWC FINANCIAL CORP. AND SUBSIDIARIES Page Number*
Independent Public Accountants' Report for the years
ended December 31, 2002, 2001 and 2000 is filed herewith 19
Consolidated Balance Sheets as of December 31, 2002 and 2001 4
Consolidated Statements of Income for the years ended
December 31, 2002, 2001 and 2000 5
Consolidated Statements of Shareholders' Equity for the
years ended December 31, 2002, 2001 and 2000 6
Consolidated Statements of Cash Flows for the years ended
December 31, 2002, 2001 and 2000 7
Notes to Consolidated Financial Statements 8 - 18
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 2002.
(C) Exhibits Filed:
See Index to Exhibits at page 24 of this Form 10-K.
*Refers to page number in the 2002 Annual Report to Shareholders.
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 March 27, 2003
James L. Ryan and Director
Executive Vice President and March 27, 2003
Leland E. Wines Chief Financial Officer
Director March 27, 2003
Tom Mantor
Director March 27, 2003
Richard G. Hill
Director March 27, 2003
Reynold C. Johnson III
Director March 27, 2003
Craig Lazzareschi
Director March 27, 2003
John F. Nohr
Director March 27, 2003
John L. Winther
EXHIBIT EXHIBIT NUMBER
Articles of Incorporation and Amendments Refer to 10K filing
of March 1994.
By-Laws Refer to 10K filing
of March 1994.
2002 Annual Report to Shareholders 13.1
Consents of Independent Public Accountants:
Moss Adams LLP Consent dated January 23, 2003 23.1
Certification:
I, Leland E. Wines, EVP/CFO, certify that:
1. I have reviewed this annual report on Form 10-K of BWC Financial Corp;
2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the
periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including
its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which
this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the
filing date of this annual report (4/4/2003); and
c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's
auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data and have identified for the registrant's auditors any
material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this annual report whether or not there were significant
changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most
recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Date: March 27, 2003
Leland E. Wines
EVP/CFO
I, James L. Ryan, Chairman and CEO, certify that:
1. I have reviewed this annual report on Form 10-K of BWC Financial Corp;
2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the
periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including
its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which
this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the
filing date of this annual report (4/4/2003); and
c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's
auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data and have identified for the registrant's auditors any
material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this annual report whether or not there were significant
changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most
recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Date: March 27, 2003
James L. Ryan
Chairman and CEO
As independent public accountants, we hereby consent to the incorporation of our report dated January 23, 2003 incorporated by reference in this Form 10-K into the previously filed registration statements on Form S-8 for BWC Financial Corp.‘s 1990 Stock Option Plan (Registration Statement File No. 33-22290) and 2000 Stock Option Plan (Registration Statement File No. 333-42830). It should be noted that we have not audited any financial statements of BWC Financial Corp. subsequent to December 31, 2002, or performed any audit procedures subsequent to the date of our report.
Moss Adams LLP
Stockton, California,
January 23, 2003
Exhibit 23.1