UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______________ TO _____________
Commission File Number 0-25666
BANK WEST FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
MICHIGAN 38-3203447
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2185 THREE MILE ROAD, N.W., GRAND RAPIDS, MICHIGAN 49544
(Address of principal executive offices)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (616) 785-3400
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 [ ]
Shares of common stock, par value $.01 per share, outstanding as of January 28,
2000: 2,521,059.
BANK WEST FINANCIAL CORPORATION
FORM 10-Q
Quarter Ended December 31, 1999
PART I - FINANCIAL INFORMATION
Interim Financial Information required by Rule 10-01 of Regulation S-X and Item
303 of Regulation S-K is included in this Form 10-Q as referenced below:
ITEM 1 - Financial Statements
Consolidated Balance Sheets -
December 31, 1999 (unaudited) and June 30, 1999
Consolidated Statements of Income (unaudited) -
For The Three and Six Months Ended December 31, 1999 and 1998
Consolidated Statements of Comprehensive Income (unaudited) -
For The Six Months Ended December 31, 1999 and 1998
Consolidated Statements of Cash Flows (unaudited) -
For The Six Months Ended December 31, 1999 and 1998
Notes to Consolidated Financial Statements
ITEM 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations
ITEM 3 - Quantitative and Qualitative Disclosures About Market Risk
Not applicable since the registrant is a small business issuer.
PART II - OTHER INFORMATION
ITEM 1 - Legal Proceedings
ITEM 2 - Changes in Securities and Use of Proceeds
ITEM 3 - Defaults upon Senior Securities
ITEM 4 - Submission of Matters to a Vote of Security Holders
ITEM 5 - Other Information
ITEM 6 - Exhibits and Reports on Form 8-K
SIGNATURES
BANK WEST FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEETS
December 31, June 30,
1999 1999
------------- -------------
(Unaudited)
ASSETS
Cash and due from banks ............................... $ 2,824,049 $ 1,527,481
Interest-bearing deposits ............................. 630,752 7,578,387
------------- -------------
Total cash and cash equivalents ................. 3,454,801 9,105,868
Securities available for sale (Note 5) ................ 44,743,218 42,272,306
Loans held for sale (Note 6) ......................... 629,041 2,380,576
Loans, net (Note 7) ................................... 179,015,546 145,205,691
Federal Home Loan Bank stock .......................... 3,850,000 2,700,000
Premises and equipment ................................ 3,634,583 3,000,951
Accrued interest receivable ........................... 1,271,893 1,019,165
Mortgage servicing rights ............................. 234,769 232,561
Real estate owned ..................................... 750,016 309,826
Other assets .......................................... 360,430 442,257
------------- -------------
Total assets ..................................... $ 237,944,297 $ 206,669,201
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits .............................................. $ 138,026,752 $ 132,401,205
Federal Home Loan Bank borrowings ..................... 75,242,348 50,000,000
Federal Funds Purchased ............................... 2,000,000 --
Accrued interest payable .............................. 334,041 292,289
Advance payments by borrowers
for taxes and insurance ............................ 174,965 509,218
Other liabilities ..................................... 394,041 914,358
------------- -------------
Total liabilities .............................. 216,172,147 184,117,070
------------- -------------
Stockholders' Equity:
Common stock, $.01 par value; 10,000,000 shares
authorized; 2,521,059 issued at December 31, 1999
and 2,597,729 at June 30, 1999 ..................... 25,211 25,978
Additional paid-in-capital ............................ 10,629,171 11,328,830
Retained earnings, substantially restricted ........... 12,670,334 12,517,215
Net unrealized loss on securities available for
sale, net of tax benefit of $403,091 at December 31,
1999 and tax benefit of $211,018 at June 30, 1999 .. (782,471) (409,623)
Unallocated ESOP shares (Note 3) ...................... (680,448) (745,248)
Unearned Management Recognition Plan shares (Note 4) .. (89,647) (165,021)
------------- -------------
Total stockholders' equity ..................... 21,772,150 22,552,131
------------- -------------
Total liabilities and stockholders' equity ..... $ 237,944,297 $ 206,669,201
============= =============
See accompanying notes to consoldiated financial statements.
BANK WEST FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended Six Months Ended
December 31, December 31,
1999 1998 1999 1998
----------- ----------- ----------- -----------
Interest and dividend income
Loans ............................................ $ 3,278,668 $ 2,661,927 $ 6,272,976 $ 5,254,972
Securities ....................................... 756,570 668,567 1,460,675 1,301,501
Other interest-bearing deposits .................. 41,872 46,463 75,163 89,584
Dividends on FHLB stock .......................... 75,550 49,195 136,701 92,271
----------- ----------- ----------- -----------
4,152,660 3,426,152 7,945,515 6,738,328
----------- ----------- ----------- -----------
Interest expense
Deposits ......................................... 1,522,476 1,490,137 2,976,703 2,989,827
FHLB borrowings .................................. 993,930 623,044 1,782,354 1,157,641
Federal Funds .................................... 14,238 -- 14,238 --
----------- ----------- ----------- -----------
2,530,644 2,113,181 4,773,295 4,147,468
----------- ----------- ----------- -----------
Net interest income ...................................... 1,622,016 1,312,971 3,172,220 2,590,860
Provision for loan losses ................................ 85,000 30,000 160,000 57,000
----------- ----------- ----------- -----------
Net interest income after provision
for loan losses ...................................... 1,537,016 1,282,971 3,012,220 2,533,860
----------- ----------- ----------- -----------
Other income
Gain (loss) on sale of securities ................ -- (4,509) -- (282,572)
Gain on sale of loans ............................ 17,648 236,119 73,410 395,184
Fees and service charges ......................... 87,601 60,715 162,764 134,550
----------- ----------- ----------- -----------
105,249 292,325 236,174 247,162
----------- ----------- ----------- -----------
Other expenses
Compensation and benefits ........................ 759,443 710,131 1,493,420 1,439,662
Professional fees ................................ 107,930 223,777 264,928 280,269
Federal Deposit Insurance ........................ 18,954 17,014 37,118 34,517
Occupancy ........................................ 85,081 90,296 161,741 175,695
Furniture, fixtures and equipment ................ 56,370 48,349 110,605 91,206
Data processing .................................. 63,564 64,357 123,455 127,887
Advertising ...................................... 31,545 27,335 45,351 53,737
State taxes ...................................... 7,000 22,500 20,000 40,000
Miscellaneous .................................... 158,647 157,725 304,238 308,441
----------- ----------- ----------- -----------
1,288,534 1,361,484 2,560,856 2,551,414
----------- ----------- ----------- -----------
Income before federal income tax expense ................. 353,731 213,812 687,538 229,608
Federal income tax expense ............................... 125,300 79,250 245,300 88,210
----------- ----------- ----------- -----------
Net income ............................................... $ 228,431 $ 134,562 $ 442,238 $ 141,398
=========== =========== =========== ===========
Earnings per share (Note 2) .............................. $ .10 $ .06 $ .19 $ .06
=========== =========== =========== ===========
Earnings per share assuming dilution (Note 2) ............ $ .10 $ .06 $ .18 $ .06
=========== =========== =========== ===========
Dividends per share ...................................... $ .06 $ .06 $ .12 $ .12
=========== =========== =========== ===========
See accompanying notes to consolidated financial statements.
BANK WEST FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
Six Months Ended
December 31,
1999 1998
--------- ---------
Net Income ........................................... $ 442,237 $ 141,398
Other comprehensive income, net of tax:
Unrealized losses on securities available
for sale arising during the year .... (372,848) (236,329)
--------- ---------
Comprehensive income ................................. $ 69,389 ($ 94,931)
========= =========
See accompanying notes to consolidated fianancial statements.
BANK WEST FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
December 31,
1999 1998
------------ ------------
Cash flows from operating activities
Net income ............................................... $ 442,237 $ 141,398
Adjustments to reconcile net income to
net cash from operating activities
Origination and purchase of loans for sale .......... (4,233,125) (21,431,201)
Proceeds from sale of mortgage loans ................ 6,058,070 23,112,395
Net (gain) loss on sales of:
Loans ............................................ (73,410) (395,184)
Securities ....................................... -- 282,572
Real estate owned ................................ -- 2,501
Depreciation ........................................ 131,391 123,405
Amortization of premiums, net ....................... 20,785 156,647
ESOP expense ........................................ 102,516 118,843
MRP expense ......................................... 65,000 76,200
Provision for loan losses ........................... 160,000 57,000
Change in:
Deferred loan fees ............................... (119,988) (52,312)
Other assets ..................................... (68,332) (32,750)
Other liabilities ................................ (745,456) (49,716)
------------ ------------
Net cash from operating activities ......... 1,739,688 2,109,798
------------ ------------
Cash flows from investing activities
Purchases of securities available for sale ............... (4,566,675) (21,087,786)
Purchases of securities held to maturity ................. -- (2,074,375)
Proceeds from sale of securities ......................... 40,000 10,691,302
Proceeds from maturities, calls and principal
payments of securities available for sale ............ 1,470,251 7,678,015
Loan originations, net of repayments ..................... (29,186,772) (10,168,219)
Loans purchased for portfolio ............................ (5,083,352) (3,825,400)
Purchase of FHLB stock ................................... (1,150,000) (550,000)
Proceeds from sale of real estate owned .................. -- 189,579
Property and equipment expenditures ...................... (765,217) (88,755)
------------ ------------
Net cash from (used in) investing activities (39,241,765) (19,235,639)
------------ ------------
Cash flows from financing activities
Proceeds from FHLB borrowings ............................ 37,242,348 22,121,053
Repayment of FHLB borrowings ............................. (12,000,000) (8,000,000)
Proceeds from Federal Funds borrowings ................... 2,000,000 --
Increase in deposits ..................................... 5,625,547 6,439,178
Repurchase of common stock ............................... (751,937) --
Exercise of stock options ................................ 24,170 --
Dividends paid on common stock ........................... (289,118) (292,143)
------------ ------------
Net cash from financing activities ......... 31,851,010 20,268,088
------------ ------------
See accompanying notes to consolidated financial statements.
BANK WEST FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)
Six Months Ended
December 31,
1999 1998
----------- -----------
Net change in cash and cash equivalents ........... (5,651,067) 3,142,247
Cash and cash equivalents at beginning of period .. 9,105,868 4,205,539
----------- -----------
Cash and cash equivalents at end of period ........ $ 3,454,801 $ 7,347,786
=========== ===========
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest $4,731,543 $4,166,722
Income taxes 100,000 150,000
See accompanying notes to consolidated financial statements.
BANK WEST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three and Six Months Ended December 31, 1999
(Unaudited)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying consolidated financial statements consist of the accounts of
Bank West Financial Corporation (the Company) and its wholly owned subsidiary,
Bank West (the Bank). All significant intercompany accounts and transactions
have been eliminated in consolidation.
The accompanying unaudited consolidated financial statements were prepared in
accordance with instructions for Form 10-Q and, therefore, do not include
information or footnotes necessary for a complete presentation of financial
position, results of operations and cash flows in conformity with generally
accepted accounting principles. However, all adjustments (consisting only of
normal recurring accruals) which, in the opinion of management, are necessary
for a fair presentation of the consolidated financial statements have been
included.
The results of operations for the three and six months ended December 31, 1999
are not necessarily indicative of the results to be expected for the year ending
June 30, 2000. The unaudited consolidated financial statements and notes thereto
should be read in conjunction with the consolidated financial statements and
notes thereto, for the fiscal year ended June 30, 1999, included in the
Company's 1999 Annual Report.
NOTE 2 - EARNINGS PER SHARE
Earnings Per Share and Earnings Per Share Assuming Dilution were computed under
the provisions of SFAS No. 128, "Earnings Per Share," which was adopted
retroactively beginning with the quarter ended December 31, 1997. All earnings
per share data for prior periods have been restated to be comparable. Earnings
Per Share is calculated by dividing net income by the weighted average number of
shares outstanding during the period, including shares that have been released
or committed to be released by the Employee Stock Ownership Plan (ESOP) and
fully vested Management Recognition Plan (MRP) shares. Earnings Per Share
Assuming Dilution further assumes the issuance of dilutive potential common
shares relating to outstanding stock options and unvested MRP shares.
BANK WEST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three and Six Months Ended December 31, 1999
(Unaudited)
NOTE 2 - EARNINGS PER SHARE (Continued)
A reconciliation of the numerators and denominators of Earnings Per Share and
Earnings Per Share Assuming Dilution for the three and six months ended December
31, 1999 and 1998 is as follows:
Three Months Ended Six Months Ended
December 31, December 31,
1999 1998 1999 1998
---------- ---------- ---------- ----------
Earnings Per Share
Net Income .......................... $ 228,431 $ 134,562 $ 442,237 $ 141,398
========== ========== ========== ==========
Weighted average common shares
outstanding ....................... 2,335,717 2,401,196 2,362,867 2,398,159
========== ========== ========== ==========
Earnings Per Share .................. $ .10 $ .06 $ .19 $ .06
========== ========== ========== ==========
Earnings Per Share Assuming Dilution
Net Income .......................... $ 228,431 $ 134,562 $ 442,237 $ 141,398
========== ========== ========== ==========
Weighted average common shares
outstanding ....................... 2,335,717 2,401,196 2,362,867 2,398,159
Add: dilutive effects of assumed
exercise of stock options
and unvested MRP's
Stock options .............. 27,026 56,063 39,092 77,341
MRP shares ................. 1,211 3,265 923 10,460
---------- ---------- ---------- ----------
Weighted average common and dilutive
potential common shares outstanding 2,363,955 2,456,254 2,402,882 2,485,960
========== ========== ========== ==========
Earnings Per Share Assuming Dilution $ .09 $ .05 $ .18 $ .06
========== ========== ========== ==========
NOTE 3 - EMPLOYEE STOCK OWNERSHIP PLAN
The Company has established an Employee Stock Ownership Plan (ESOP) for the
benefit of employees who have completed at least twelve consecutive months of
service and have been credited with at least 500 hours of service with the Bank.
The Company has received a favorable determination letter from the Internal
Revenue Service that the ESOP is a tax-qualified plan.
BANK WEST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three and Six Months Ended December 31, 1999
(Unaudited)
NOTE 3 - EMPLOYEE STOCK OWNERSHIP PLAN (Continued)
To fund the ESOP, $1,296,048 was borrowed from the Company for the purpose of
purchasing 243,009 shares of common stock at $5.33 per share. Principal and
interest payments on the loan are due in quarterly installments, with the final
payment of principal and accrued interest being due and payable at maturity,
which is June 30, 2005. Interest is payable during the term of the loan at a
fixed rate of 7.0%. The loan is collateralized by the shares of the Company's
common stock purchased with the proceeds. As the Bank periodically makes
contributions to the ESOP to repay the loan, shares are allocated among
participants on the basis of total compensation, as defined. The unallocated
ESOP shares are shown as a reduction to stockholders' equity in the accompanying
consolidated balance sheets. ESOP expense of $50,000 and $103,000 was recorded
for the three and six months ended December 31, 1999.
NOTE 4 - STOCK BASED COMPENSATION PLANS
An employee and a directors' stock option plan (SOPs) and an officers' and a
directors' management recognition plan (MRPs) were authorized by the
shareholders at the October 25, 1995 annual meeting. The employee stock option
plan and the officers' MRP are administered by a committee of non-employee
directors of the Company, while grants under the directors' stock option plan
and the directors' MRP are pursuant to formulas set forth in the plans. Total
shares made available under the SOPs and MRPs were 347,155 and 138,862,
respectively. The Committee has awarded under the SOPs options to purchase
317,503 shares of common stock at exercise prices between $6.625 and $13.25 per
share, which represent the average of the high and low sales prices of the
Company's stock on the dates of the awards. Both the option shares and grant
prices have been adjusted for the three-for-two stock split in December 1997. At
December 31, 1999, there were 29,652 option shares reserved for future grants.
As of December 31, 1999, 24,430 options have been exercised. No compensation
expense was recognized in connection with the issuance of the options.
Management has concluded that the Company will not adopt the accounting
provisions of SFAS No. 123 and will continue to apply its current method of
accounting. Accordingly, SFAS No. 123 will have no impact on the Company's
consolidated financial position or results of operations.
During 1995, the Company repurchased 4% of its then outstanding shares and
placed them in a trust for the exclusive use of the MRPs. The Committee has
awarded 59,099 shares of common stock under the officers' MRP and 41,657 shares
of common stock under the directors' MRP, net of forfeitures. MRP awards vest in
five equal annual installments, with the first award vesting on October 25,
1996. Compensation expense for the MRPs is recognized on a pro-rata basis over
the vesting period of the awards. During the three and six months ended December
31, 1999, $37,000 and $65,000 was charged to compensation expense for the MRPs,
which includes a $10,000 accrual related to the accelerated vesting of 1,310 MRP
shares due to the death of Chairman of the Board George A. Jackoboice in
November 1999. The unearned compensation value of the MRPs is shown as a
reduction to stockholders' equity in the accompanying consolidated balance
sheets.
BANK WEST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three and Six Months Ended December 31, 1999
(Unaudited)
NOTE 5 - SECURITIES
The amortized cost and estimated fair values of securities at December 31, 1999
and June 30, 1999 are as follows:
Available for Sale
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------- ----------- ----------- -----------
December 31, 1999 (unaudited)
U.S. agencies ..................... $10,909,050 $ -- $ 252,487 $10,656,563
Equity securities ................. 522,139 -- 97,987 424,152
Corporate bonds ................... 6,267,526 -- 74,713 6,192,813
Municipal bonds ................... 4,233,460 2,763 90,301 4,145,922
Mortgage-backed securities ........ 3,397,153 -- 164,280 3,232,873
Collateralized mortgage obligations 20,599,449 16,419 524,973 20,090,895
----------- ----------- ----------- -----------
$45,928,777 $ 19,182 $ 1,204,741 $44,743,218
=========== =========== =========== ===========
June 30, 1999
U.S. agencies ..................... $10,898,521 $ 5,382 $ 130,128 $10,773,775
Equity securities ................. 62,140 -- 2,215 59,925
Corporate bonds ................... 3,285,678 570 7,723 3,278,525
Taxable municipal bonds ........... 3,659,131 -- 37,463 3,621,668
Mortgage-backed securities ........ 3,501,610 -- 94,083 3,407,527
Collateralized mortgage obligations 21,485,867 40,689 395,670 21,130,886
----------- ----------- ----------- -----------
$42,892,947 $ 46,641 $ 667,282 $42,272,306
=========== =========== =========== ===========
During September of 1998, equity securities were written-down by $401,000
relating to what management perceived to be an other-than-temporary decline in
the market value of these investments resulting from the downturn in the U.S.
stock market, especially in small cap stocks.
BANK WEST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three and Six Months Ended December 31, 1999
(Unaudited)
NOTE 6 - SECONDARY MARKET MORTGAGE ACTIVITIES
The following summarizes the Company's secondary market mortgage activities,
which consist solely of one- to four-family real estate loans:
Six Months Ended
December 31,
1999 1998
------------ ------------
Loans held for sale - beginning of period .... $ 2,380,576 $ 8,156,572
Activity during the periods:
Loans originated and purchased for resale .... 4,233,125 21,431,201
Proceeds from sale of loans originated
and purchased for resale ................... (6,058,070) (23,112,395)
Gain on sale of loans ........................ 73,410 395,184
------------ ------------
Loans held for sale - end of period .......... $ 629,041 $ 6,870,562
============ ============
The unpaid principal balance of mortgage loans serviced for others amounted to
$26.2 million and $27.2 million at December 31, 1999 and June 30, 1999,
respectively. Custodial escrow balances maintained in connection with the
foregoing loans serviced for others were approximately $63,000 and $174,000 at
December 31, 1999 and June 30, 1999, respectively.
BANK WEST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three and Six Months Ended December 31, 1999
(Unaudited)
NOTE 7 - LOANS
Loans are classified as follows:
December 31, June 30,
1999 1999
------------- -------------
Real estate loans:
One-to four-family residential - fixed rate $ 15,305,765 $ 14,559,680
One-to four-family residential - balloon .. 63,332,288 51,842,742
One-to four-family residential - adjustable 17,932,336 18,833,825
Construction and land development ......... 32,200,771 26,585,310
Commercial mortgages ...................... 22,541,036 15,457,293
Home equity lines of credit ............... 11,680,569 10,512,823
Second mortgages .......................... 13,582,658 10,820,377
------------- -------------
Total mortgage loans ................. 176,575,423 148,612,050
Consumer loans ..................................... 1,849,685 1,849,363
Commercial non-mortgage ............................ 9,563,593 3,823,834
------------- -------------
Total ................................ 187,988,701 154,285,247
Less:
Loans in process .......................... 8,859,191 9,001,424
Deferred fees and costs ................... (522,131) (402,135)
Allowance for loan losses ................. 636,095 480,267
------------- -------------
$ 179,015,546 $ 145,205,691
============= =============
Provisions for losses on loans are charged to operations based on management's
evaluation of potential losses in the portfolio. In addition to providing
reserves on specific loans where a decline in value has been identified, general
provisions for losses are established based upon the overall portfolio
composition and general market conditions. In establishing both specific and
general valuation allowances, management reviews individual loans, recent loss
experience, current and future impact of economic conditions, the overall
balance and composition of the portfolio, and such other factors which, in
management's judgment, deserve recognition in estimating possible losses.
Management believes the allowance for loan losses is adequate. While management
uses available information to recognize losses on loans, future additions to the
allowance may be necessary based on changes in economic conditions and borrower
circumstances.
BANK WEST FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion compares the consolidated financial condition of Bank
West Financial Corporation and its wholly owned subsidiary, Bank West, at
December 31, 1999 and June 30, 1999 and the consolidated results of operations
for the three and six months ended December 31, 1999 with the same period in
1998. This discussion should be read in conjunction with the interim
consolidated financial statements and footnotes included herein.
This quarterly report on Form 10-Q includes statements that may constitute
forward-looking statements, usually containing the words "believe," "estimate,"
"project," "expect," "intend" or similar expressions. These statements are made
pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. Forward-looking statements inherently involve risks and
uncertainties that could cause actual results to differ materially from those
reflected in the forward-looking statements. Factors that could cause future
results to vary from current expectations include, but are not limited to, the
following: changes in economic conditions (both generally and more specifically
in the markets in which Bank West operates); changes in interest rates, deposit
flows, loan demand, real estate values and competition; changes in accounting
principles, government legislation and regulation; and other risks detailed in
this quarterly report on Form 10-Q and in the Company's other Securities and
Exchange Commission filings. Readers are cautioned not to place undue reliance
on these forward-looking statements, which reflect management's analysis only as
of the date hereof. The Company undertakes no obligation to publicly revise
these forward-looking statements to reflect events or circumstances that arise
after the date hereof.
Bank West Financial Corporation is the holding company for Bank West, a state
chartered savings bank. Substantially all of the Company's assets are currently
held in, and its operations are conducted through, its sole subsidiary Bank
West. The Company's business consists primarily of attracting deposits from the
general public and using such deposits, together with Federal Home Loan Bank
(FHLB) advances, to make loans for the purchase and construction of residential
properties. The Company also originates commercial loans, home equity loans and
various types of consumer loans.
During the quarter ended December 31, 1999, Vice Chairman Robert J. Stephan was
appointed Chairman of the Board, replacing the late George A. Jackoboice who
passed away in November.
The Bank experienced no Year 2000-related problems with its internal systems or
external vendors. In addition, management is not aware of any Year 2000-related
negative impact on any of its loan customers.
BANK WEST FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
FINANCIAL CONDITION
Total assets increased by $31.2 million or 15.1% from $206.7 million at June 30,
1999 to $237.9 million at December 31, 1999. The increase in total assets was
primarily attributable to an increase in total loans by $33.8 million or 23.3%.
Total loans increased as greater emphasis was placed on originating one- to
four-family balloon mortgages, construction and land development loans and
commercial mortgages. Management expects continued growth in these types of
portfolio lending activities which is expected to significantly improve the
Bank's net interest income. The strategic realignment that occurred during March
of 1999 with the appointment of the Bank's President and Chief Executive Officer
and the establishment of a Commercial Lending Division brought to Bank West
experienced commercial lenders. The Bank's loan growth during the past two
quarters is indicative of the loan mix and growth expected over the next several
quarters.
The Bank's mortgage banking activities consist of selling newly originated and
purchased loans into the secondary market. The dollar amount of loans originated
and purchased for resale in the three months ended December 31, 1999 decreased
by $12.3 million or 88.5% to $1.6 million from $13.9 million. The decrease in
loan originations and purchases for resale is primarily due to the recent
increase in overall market interest rates. The Bank has taken steps to reduce
overhead expenses in the mortgage banking area by consolidating functions and by
re-assigning certain personnel to other departments within the Bank. Mortgage
loans originated and purchased for resale in the current quarter consisted
primarily of 30-year fixed-rate loans. The Bank's recent strategy has been to
sell 30-year fixed-rate loans and to portfolio residential balloon loans.
The Bank has increased its emphasis in adding residential balloon loans to its
portfolio during the past twelve months. Residential balloon loans increased by
$23.8 million or 60.3% during this time frame in an effort to offset the
prepayments of adjustable-rate and longer-term fixed-rate residential mortgages
that occurred over the past year. Also, the Bank increased both commercial
mortgage and commercial non-mortgage loans by $13.3 million and $6.2 million,
respectively. The Bank continues to increase its emphasis on commercial lending
in an effort to improve earnings and diversify the loan portfolio.
Total securities decreased by $571,000 during the quarter to $44.7 million. The
decrease was primarily related to the call of an agency security. Collateralized
mortgage obligations ("CMO's") have decreased from $21.1 million at June 30,
1999 to $20.1 million at December 31, 1999. The majority of the Bank's CMO's
have floating interest rates (prime rate or LIBOR index) and are collateralized
by residential mortgages with a weighted average note rate of approximately
7.1%. The recent increase in overall market interest rates and the corresponding
decrease in prepayment speeds has increased the yield on the CMO portfolio and
has extended their average lives. The unrealized loss on collateralized mortgage
obligations was $336,000, net of taxes which is included in the net unrealized
loss on available for sale securities of $782,000 shown as a component of
stockholders' equity. The recent increase in overall market interest rates
caused the total unrealized loss in securities to increase from June 30, 1999.
BANK WEST FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Total deposits increased by $5.6 million or 4.2% from June 30, 1999 to December
31, 1999, primarily due to an increase in commercial NOW accounts and money
market deposits as well as from certificates of deposit. The variety of deposit
accounts offered by the Bank has allowed it to be competitive in obtaining funds
and to respond with flexibility to changes in consumer demand. The Bank has
become more susceptible to short-term fluctuations in deposit flows, as
customers have become more interest rate conscious. Based on its experience, the
Bank believes that its savings, NOW and demand accounts are relatively stable
sources of deposits. However, the ability of the Bank to attract and maintain
certificates of deposit, and the rates paid on these deposits, has been and will
continue to be affected by market conditions.
When deposit growth does not match the growth of assets, other funding sources
such as FHLB advances and Federal Funds are utilized. During the three months
ended December 31, 1999, the Bank increased short-term FHLB advances by $5.7
million and purchased Federal Funds of $2 million since these types of
borrowings had a lower interest cost than short-term broker-arranged
certificates of deposit. At December 31, 1999, the Bank has broker-arranged
certificates of deposit totaling $21.5 million.
Stockholders' equity decreased from $22.6 million at June 30, 1999 to $21.8
million at December 31, 1999. The decrease was primarily due to utilizing
$752,000 to repurchase 80,000 shares of the Company's common stock, dividends
paid of $289,000 and a change in the net unrealized loss on securities available
for sale by $372,000 due to the recent rise in overall market interest rates.
These amounts were partially offset by net income of $442,000 during the six
months ended December 31, 1999.
NON-PERFORMING ASSETS AND ALLOWANCE FOR LOAN LOSSES
The table below sets forth the amounts and categories of non-performing assets
at December 31, 1999 and June 30, 1999:
December 31, June 30,
1999 1999
------ ------
(Dollars in Thousands)
Non-accrual loans
One- to four-family ....................... $ 54 $ 207
Construction and land development ......... 641 930
Commercial ................................ 253 --
Consumer .................................. 4 142
------ ------
Total .................................. 952 1,279
Foreclosed assets
One- to four-family ....................... 750 310
------ ------
Total non-performing assets ........................ $1,702 $1,589
====== ======
Total as a percentage of total assets .............. .72% .77%
====== ======
BANK WEST FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Non-performing assets in the construction and land development category consist
of five construction spec loans to five builders in the western and southwestern
Michigan area. These loans, which are collateralized by single-family homes,
require a loan-to-value ratio of 75%. The majority of these homes are
substantially complete. Management believes that these loans are adequately
collateralized. Therefore, only general reserve versus specific reserves have
been assigned to these loans at December 31, 1999. The allowance for loan losses
totalled $636,000 or 67% of total non-performing loans at December 31, 1999. A
specific reserve totaling $5,500 has been allocated to two loans. During the
three months ended December 31, 1999, charge-offs totaled $4,172. The growth in
one- to four-family foreclosed assets relates to taking the deed to the
underlying properties which collateralized builder spec loans. At December 31,
1999, $128.8 million or 68.5% of the Bank's total loan portfolio was
collateralized by first liens on one-to four-family residences, and the net loan
portfolio amounted to 75.2% of total assets.
RESULTS OF OPERATIONS
Net Income. Net income increased by $94,000 in the quarter ended December 31,
1999 and increased by $301,000 in the six months ended December 31, 1999. The
increases were primarily due to growth in net interest income and lower
professional fees. See the following sections for additional information.
Net Interest Income. Net interest income increased by $309,000 or 23.5% in the
quarter ended December 31, 1999 over the comparable 1998 period. Net interest
income increased due to higher average loans outstanding by $40.6 million or
31.1% resulting from strong growth in residential balloon mortgages and
commercial loans. The Bank's interest rate spread also increased from 2.29% for
the quarter ended December 31, 1998 to 2.62% for the quarter ended December 31,
1999. The increased interest rate spread is primarily due to an increase in the
yield on interest-earning assets to 7.48% from 7.24%, reflecting the upward
repricing of adjustable rate securities and loans as well as the higher yield on
loans added to portfolio in the present higher interest rate environment. In
addition, the Bank's average cost of funds decreased from 4.95% to 4.86%. The
decrease is primarily due to growth in the Bank's savings and checking account
balances. However, management expects the Bank's average cost of funds to
increase in the upcoming months due to the anticipated need for additional
wholesale borrowings to fund anticipated loan growth.
Net interest income increased by $581,000 or 22.4% in the six months ended
December 31, 1999 over the comparable 1998 period. Net interest income increased
primarily due to a higher average balance of loans outstanding by $36.6 million
or 28.9%. In addition, the Bank's interest spread increased to 2.64% from 2.36%
primarily due to a decrease in the Bank's average cost of funds to 4.79% from
5.05%. The decreased cost is primarily due to growth in the Bank's savings and
checking account balances. However, management expects the Bank's average cost
of funds to increase in the upcoming months due to the anticipated need for
additional wholesale borrowings to fund anticipated loan growth.
BANK WEST FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Provision for Loan Losses. The provision for loan losses increased by $55,000 or
183% and by $103,000 or 181% in the three and six months ended December 31,
1999, respectively over the comparable 1998 periods. Management has increased
the provision for loan losses due primarily to the increase in commercial loans,
both on a dollar basis and as a percentage of total loans requiring additional
general reserves. In addition, management increased the general reserve
assumptions utilized for construction and land development loans due to a recent
increase in delinquencies of builder spec loans. The allowance for loan losses
totalled approximately $636,000 or .34% of the total loan portfolio and 67% of
non-performing loans at December 31, 1999.
The Bank's management establishes allowances for loan losses. On a quarterly
basis, management evaluates the loan portfolio and determines the amount that
must be added. These allowances are charged against income in the year they are
established. When establishing the appropriate levels for the provision and the
allowance for loan losses, management considers a variety of factors, in
addition to the fact that an inherent risk of loss always exists in the lending
process. Consideration is also given to the current and future impact of
economic conditions, the diversification of the loan portfolio, historical loss
experience, delinquency rates, the review of loans by loan review personnel, the
individual borrower's financial and managerial strengths, and the adequacy of
underlying collateral.
Other Income. Total other income decreased by $187,000 in the three months ended
December 31, 1999 from the comparable prior period. The decrease was primarily
due to lower mortgage banking related gain on sale of loans by $218,000 or 92.4%
due to significantly lower mortgage loan sales volume resulting from the recent
rise in mortgage interest rates.
For the six months ended December 31, 1999, other income decreased by $11,000 or
4.5% due to lower mortgage banking related gain on sale of loans by $322,000 or
81.5%, largely offset by the absence of losses on sale of securities by $283,000
relating to a write-down of equity securities during the 1998 period.
Other Expenses. Total other expenses decreased by $73,000 or 5.4% in the quarter
ended December 31, 1999 over the comparable 1998 period. The increase was
primarily due to lower professional fees by $116,000 or 51.8%, primarily
attributable to lower legal costs associated with defending a class action
lawsuit filed on July 17, 1998 by a Bank West borrower. The Bank is a defendant
under two legal proceedings alleging the unauthorized practice of law and
various violations of law. Management intends to continue to contest these cases
vigorously. Based on a review of current facts and circumstances, management is
unable to determine the amount of loss, if any, that is possible (See Part II,
Item 1 for additional information). Compensation and benefits expense increased
by $49,000 or 6.9% due to higher overall staff levels, which include personnel
hired for the Bank's newly purchased Jenison branch and Caledonia loan
production office.
BANK WEST FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
For the six months ended December 31, 1999, total other expenses increased by
$10,000 or .4%. Compensation and benefits expense increased by $53,000 or 3.7%
reflecting higher overall staff levels. This amount was partially offset by
lower professional fees by $15,000 or 5.4%, primarily attributable to lower
legal costs associated with defending a class action lawsuit filed on July 17,
1998 by a Bank West borrower. In addition, state taxes was lower by $20,000 or
50% reflecting tax savings strategies employed by the Bank.
The other categories of miscellaneous and other expenses did not materially
change in the three and six months ended December 31, 1999 when compared to the
December 31, 1998 periods.
Federal Income Tax Expense. Federal income tax expense increased by $46,000 and
$157,000 in the three and six months ended December 31, 1999 over the comparable
1998 periods primarily due to higher pre-tax income levels.
LIQUIDITY AND CAPITAL RESOURCES
The Bank maintains a level of liquidity consistent with management's assessment
of expected loan demand, proceeds from loan sales, deposit flows and yields
available on interest-earning deposits and investment securities. When overnight
deposits fall below management's targeted level, management generally borrows
FHLB advances instead of selling securities.
The Bank's principal sources of liquidity are deposits, principal and interest
payments on loans, proceeds from loan sales, maturities of securities, sales of
securities available for sale and FHLB advances. While scheduled loan repayments
and maturing investments are relatively predictable, deposit flows and loan
prepayments are more influenced by interest rates, general economic conditions
and competition.
The Bank routinely borrows FHLB advances when overnight deposits are drawn to
low levels. These borrowings are made pursuant to a hybrid blanket collateral
agreement with the FHLB. At December 31, 1999, the Bank has approximately $12
million of excess borrowing capacity based on eligible collateral under the
hybrid blanket collateral agreement with the FHLB.
The Company (excluding the Bank) also has a need for, and sources of, liquidity.
Dividends from the Bank and interest income and gains on investments are its
primary sources. The Company also has modest operating costs and has paid a
regular quarterly cash dividend.
The Bank is subject to three capital to asset requirements in accordance with
banking regulations. Bank West's capital ratios are well in excess of minimum
capital requirements specified by federal banking regulations.
BANK WEST FINANCIAL CORPORATION
Form 10-Q
Quarter Ended December 31, 1999
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings:
Bank West is a defendant in two class-action cases pending
before Judge Johnston in Kent County Circuit Court: Cowles v.
Bank West and Newton v. Bank West. Cowles' original complaint,
filed on July 17, 1998, alleged claims under state common law
and the Michigan Consumer Protection Act, all based on the
theory that the Bank engaged in the unauthorized practice of
law when it charged residential mortgage borrowers a $250 fee
for the preparation of documents. Plaintiff later filed
amendments, alleging claims under the federal Truth in Lending
Act. The case was certified for class action in April, 1999.
Shortly thereafter, Cowles' Truth in Lending Act claims were
dismissed on statute of limitations grounds and Karen Paxon
intervened in the suit as a named plaintiff and class
representative for those claims. On August 30, 1999, the Court
ruled that the Bank had not engaged in the unauthorized
practice of law and that the Michigan Consumer Protection Act
did not apply to plaintiffs' claims. An order dismissing all
claims except the one remaining Truth in Lending Act claim was
entered on January 10, 2000. On January 24, 2000, the Court
dismissed the final claim on statute of limitations grounds
(i.e. one year time frame). The Bank expects plaintiffs to
appeal these rulings.
The case of Newton v. Bank West, filed on August 12, 1999 in
Kent County Circuit court by the same attorneys who represent
the plaintiff in the Cowles case, assert the same state law
claims on behalf of borrowers who were excluded from the class
in Cowles. The Bank has filed a motion for summary
disposition, relying on its successful arguments in the Cowles
case, and expects Judge Johnston to dismiss the claims as he
did in Cowles.
The Company and the Bank are also subject to certain other
legal actions arising in the ordinary course of business. In
the opinion of management, after consultation with legal
counsel, the ultimate disposition of these other matters is
not expected to have a material adverse effect on the
consolidated financial position of the Company.
Item 2 - Changes in Securities and Use of Proceeds:
There are no matters required to be reported under this item.
BANK WEST FINANCIAL CORPORATION
Form 10-Q
Quarter Ended December 31, 1999
PART II - OTHER INFORMATION (Continued)
Item 3 - Defaults Upon Senior Securities:
There are no matters required to be reported under this item.
Item 4 - Submission of Matters to a Vote of Security-Holders:
There are no matters required to be reported under this item.
Item 5 - Other Information:
There are no matters required to be reported under this item.
Item 6 - Exhibits and Reports on Form 8-K:
(a) Exhibits: The following exhibit is filed herewith:
Exhibit No. Description
----------- -----------
27.1 Financial Data Schedule
(b) Reports on Form 8-K:
No reports on Form 8-K were filed by the Registrant during
the quarter ended December 31, 1999.
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.
BANK WEST FINANCIAL CORPORATION
Registrant
Date: January 31, 2000 /s/ Ronald A. Van Houten
---------------------- -------------------------
Ronald A. Van Houten
Chief Executive Officer
(Duly Authorized Officer)
Date: January 31, 2000 /s/ Kevin A. Twardy
----------------------- --------------------
Kevin A. Twardy, Vice President and
Chief Financial Officer
(Principal Financial Officer)