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 September 30, 2000
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 November 13,
2000: 2,521,059.
BANK WEST FINANCIAL CORPORATION
FORM 10-Q
Quarter Ended September 30, 2000
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 Page
----
Consolidated Balance Sheets -
September 30, 2000 (unaudited) and June 30, 2000 . . . . 3
Consolidated Statements of Income (unaudited) -
For The Three Months Ended September 30, 2000 and 1999 . 4
Consolidated Statements of Comprehensive Income (unaudited) -
For The Three Months Ended September 30, 2000 and 1999 . 5
Consolidated Statements of Cash Flows (unaudited) -
For The Three Months Ended September 30, 2000 and 1999. 6
Notes to Consolidated Financial Statements . . . . . . . . . . 8
ITEM 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations . . . . . . . . . . . . . . . . . . 14
ITEM 3 - Quantitative and Qualitative Disclosures About Market Risk
Not applicable since the registrant meets the definition of a
small business issuer.
PART II - OTHER INFORMATION
ITEM 1 - Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . 22
ITEM 2 - Changes in Securities and Use of Proceeds . . . . . . . . . . . . 22
ITEM 3 - Defaults upon Senior Securities . . . . . . . . . . . . . . . . . 23
ITEM 4 - Submission of Matters to a Vote of Security Holders . . . . . . . 23
ITEM 5 - Other Information . . . . . . . . . . . . . . . . . . . . . . . . 23
ITEM 6 - Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . 23
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
2
BANK WEST FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEETS
September 30, June 30,
2000 2000
-------------- ------------
(Unaudited)
ASSETS
Cash and due from banks $ 4,097,894 $ 3,564,615
Interest-bearing deposits 131,083 169,330
------------- -------------
Total cash and cash equivalents 4,228,977 3,733,945
Securities available for sale (Note 5) 37,531,781 42,601,603
Loans held for sale (Note 6) 2,495,749 572,731
Loans, net (Note 7) 221,211,660 210,717,246
Federal Home Loan Bank stock 4,500,000 4,500,000
Premises and equipment 3,657,402 3,694,888
Accrued interest receivable 1,608,149 1,439,246
Mortgage servicing rights 224,379 230,703
Real estate owned 623,697 380,332
Other assets 286,390 499,404
------------- -------------
Total assets $ 276,368,184 $ 268,370,098
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $ 167,244,625 $ 155,839,830
Federal Home Loan Bank borrowings 84,913,331 88,803,024
Accrued interest payable 1,060,689 655,568
Advance payments by borrowers
for taxes and insurance 311,864 574,319
Other liabilities 169,500 274,531
------------- -------------
Total liabilities 253,700,009 246,147,272
------------- -------------
Stockholders' Equity:
Common stock, $.01 par value; 10,000,000 shares
authorized; 2,521,059 issued at September 30, 2000
and at June 30, 2000 25,211 25,211
Additional paid-in-capital 10,652,712 10,645,624
Retained earnings, substantially restricted 13,237,258 13,034,267
Accumulated other comprehensive income (loss),
net of tax benefit of $337,481 at September 30, 2000
and tax benefit of $428,081 at June 30, 2000 (655,111) (830,981)
Unallocated ESOP shares (Note 3) (583,248) (615,648)
Unearned Management Recognition Plan shares (Note 4) (8,647) (35,647)
------------- -------------
Total stockholders' equity 22,668,175 22,222,826
------------- -------------
Total liabilities and stockholders' equity $ 276,368,184 $ 268,370,098
============= =============
See accompanying notes to consolidated financial statements.
3
BANK WEST FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended
September 30,
2000 1999
----------------- ---------------
Interest and dividend income
Loans $4,612,489 $2,994,308
Securities 695,406 704,105
Other interest-bearing deposits 15,981 33,290
Dividends on FHLB stock 96,147 61,151
----------------- ---------------
5,420,023 3,792,854
----------------- ---------------
Interest expense
Deposits 2,243,056 1,454,227
FHLB borrowings 1,393,310 788,424
----------------- ---------------
3,636,366 2,242,651
----------------- ---------------
Net interest income 1,783,657 1,550,203
Provision for loan losses 120,000 75,000
----------------- ---------------
Net interest income after provision
for loan losses 1,663,657 1,475,203
----------------- ---------------
Other income
Loss on sale of securities (876) --
Loss on sale of REO (10,943) --
Gain on sale of loans 24,308 55,762
Fees and service charges 101,556 75,163
----------------- ---------------
114,045 130,925
----------------- ---------------
Other expenses
Compensation and benefits 723,233 733,977
Professional fees 56,044 156,998
Federal Deposit Insurance 7,244 18,164
Occupancy 92,851 85,081
Furniture, fixtures and equipment 64,904 45,814
Data processing 63,297 59,891
Advertising 39,280 13,806
Miscellaneous 192,219 158,591
----------------- ---------------
1,239,072 1,272,322
----------------- ---------------
Income before federal income tax expense 538,630 333,806
Federal income tax expense 191,300 120,000
----------------- ---------------
Net income $347,330 $213,806
================= ===============
Earnings per share (Note 2) $.15 $.09
================= ===============
Earnings per share assuming dilution (Note 2) $.15 $.09
================= ===============
Dividends per share $.06 $.06
================= ===============
See accompanying notes to consolidated financial statements.
4
BANK WEST FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
Three Months Ended
September 30,
2000 1999
---------- ---------
Net Income $347,330 $213,806
Other comprehensive income, net of tax:
Unrealized gains (losses) on securities available
for sale arising during the period 175,870 (152,972)
Less reclassification adjustments for net losses
included in net income 876 --
------------- ------------
Comprehensive income $524,076 $60,834
============= ============
5
BANK WEST FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
September 30,
2000 1999
------------ -----------
Cash flows from operating activities
Net income $ 347,330 $ 213,806
Adjustments to reconcile net income to
net cash from operating activities
Origination and purchase of loans for sale (3,847,568) (2,605,926)
Proceeds from sale of mortgage loans 1,948,858 4,620,372
Net (gain) loss on sales of:
Real estate owned 10,943 --
Loans (24,308) (55,762)
Securities 876 --
Depreciation 82,665 62,088
Amortization of premiums, net 7,648 12,490
ESOP expense 39,488 53,156
MRP expense 27,000 28,000
Provision for loan losses 120,000 75,000
Change in:
Deferred loan fees (7,152) (41,669)
Other assets (41,692) (6,758)
Other liabilities 37,635 (361,257)
------------ ------------
Net cash from (used in) operating activities (1,298,277) 1,993,540
------------ ------------
Cash flows from investing activities
Purchases of securities available for sale -- (3,986,675)
Proceeds from sale of securities 5,212,000 --
Proceeds from maturities, calls and principal
payments of securities available for sale 115,768 700,566
Loan originations, net of repayments (8,141,700) (12,796,999)
Loans purchased for portfolio (2,742,400) (1,404,466)
Purchase of FHLB stock -- (900,000)
Proceeds from sale of real estate owned 24,057 --
Property and equipment expenditures (45,179) (513,647)
------------ ------------
Net cash used in investing activities (5,577,454) (18,901,221)
------------ ------------
Cash flows from financing activities
Proceeds from FHLB borrowings 30,000,000 24,509,561
Repayment of FHLB borrowings (33,889,693) (5,000,000)
Increase (decrease) in deposits 11,404,795 (6,166,614)
Repurchase of common stock -- (751,937)
Exercise of stock options -- 24,170
Dividends paid on common stock (144,339) (146,237)
------------ ------------
Net cash from financing activities 7,370,763 12,468,943
------------ ------------
See accompanying notes to consolidated financial statements.
6
BANK WEST FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)
Three Months Ended
September 30,
2000 1999
------------ ------------
Net change in cash and cash equivalents 495,032 (4,438,738)
Cash and cash equivalents at beginning of period 3,733,945 9,105,868
------------ ------------
Cash and cash equivalents at end of period $4,228,977 $4,667,130
============ ============
Supplemental disclosures of cash flow information Cash paid during the period
for:
Interest $3,231,245 $2,124,834
Income taxes -- --
Transfer of loans to real estate owned 276,838 318,402
See accompanying notes to consolidated financial statements.
7
BANK WEST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended September 30, 2000
(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. These unaudited financial statements include estimates and assumptions
made by management based upon available information.
The results of operations for the three months ended September 30, 2000 are not
necessarily indicative of the results to be expected for the year ending June
30, 2001. 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, 2000, included in the
Company's 2000 Annual Report.
NOTE 2 - EARNINGS PER SHARE
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.
8
BANK WEST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three Months Ended September 30, 2000
(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 months ended September 30,
2000 and 1999 is as follows:
Three Months Ended
September 30,
2000 1999
---- ----
Earnings Per Share
Net income $347,330 $213,806
======== ========
Weighted average common shares
outstanding 2,369,999 2,371,328
========= =========
Earnings Per Share $ .15 $ .09
===== ======
Earnings Per Share Assuming Dilution
Net income $347,330 $213,806
======== ========
Weighted average common shares
outstanding 2,369,999 2,371,328
Add: dilutive effects of assumed
exercise of stock options
and unvested MRP's
Stock options -- 48,990
MRP shares 5,075 --
--------- -----------
Weighted average common and dilutive
potential common shares outstanding 2,375,074 2,420,318
========= =========
Earnings Per Share Assuming Dilution $ .15 $ .09
===== ======
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.
9
BANK WEST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three Months Ended September 30, 2000
(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%. 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 $39,488 and $53,156 were recorded for the three months ended
September 30, 2000 and 1999.
NOTE 4 - STOCK BASED COMPENSATION PLANS
The Company has established an employee and a directors' stock option plan
(SOPs) and an officers' and a directors' management recognition plan (MRPs). 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. As of September 30, 2000, there were outstanding options
to purchase 230,023 shares of common stock at exercise prices between $6.625 and
$9.00 per share, which represent the average of the high and low sales prices of
the Company's stock on the dates of the awards. During the quarter ended
September 30, 2000, two grants totaling 61,550 options were cancelled by the
board of directors. These grants had exercise prices of $11.375 and $13.25. At
September 30, 2000, there were 92,702 option shares reserved for future grants.
As of September 30, 2000, 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.
Subsequent to September 30, 2000, 16,666 options were granted at an exercise
price of $6.0625.
The Committee has awarded 58,321 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 final award vesting
on October 25, 2000. Compensation expense for the MRPs is recognized on a
pro-rata basis over the vesting period of the awards. During the three months
ended September 30, 2000 and 1999, $27,000 and $28,000 were charged to
compensation expense for the MRPs. The unearned compensation value of the MRPs
is shown as a reduction to stockholders' equity in the accompanying consolidated
balance sheets.
10
BANK WEST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three Months Ended September 30, 2000
(Unaudited)
NOTE 5 - SECURITIES
The amortized cost and estimated fair values of securities at September 30, 2000
and June 30, 2000 are as follows:
Available for Sale
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
September 30, 2000
- ------------------------------
U.S. agencies $ 10,925,790 $ -- $ (174,508) $ 10,751,282
Corporate bonds 4,738,972 -- (54,773) 4,684,199
Taxable municipal bonds 3,556,952 -- (48,231) 3,508,721
Non-taxable municipal bonds 100,817 347 -- 101,164
Mortgage-backed securities 2,838,142 -- (105,230) 2,732,912
Trust preferred stock 500,000 -- (82,500) 417,500
Collateralized mortgage obligations 15,863,701 -- (527,698) 15,336,003
------------ ------------ ------------ ------------
$ 38,524,374 $ 347 $ (992,940) $ 37,531,781
============ ============ ============ ============
June 30, 2000
- -------------
U.S. agencies $ 10,919,802 $ -- $ (357,927) $ 10,561,875
Corporate bonds 5,762,543 -- (149,730) 5,612,813
Taxable municipal bonds 3,559,878 -- (88,975) 3,470,903
Non-taxable municipal bonds 680,950 5,046 -- 685,996
Mortgage-backed securities 2,885,607 -- (180,195) 2,705,412
Trust preferred stock 500,000 -- (97,500) 402,500
Collateralized mortgage obligations 19,551,885 53,582 (443,363) 19,162,104
------------ ------------ ------------ ------------
$ 43,860,665 $ 58,628 $ (1,317,690) $ 42,601,603
============ ============ ============ ============
11
BANK WEST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three Months Ended September 30, 2000
(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:
Three Months Ended
September 30,
2000 1999
---- ----
Loans held for sale - beginning of period $ 572,731 $ 2,380,576
Activity during the periods:
Loans originated and purchased for resale 3,847,568 2,605,926
Proceeds from sale of loans originated
and purchased for resale (1,948,858) (4,620,372)
Gain on sale of loans 24,308 55,762
----------- -----------
Loans held for sale - end of period $ 2,495,749 $ 421,892
=========== ===========
The unpaid principal balance of mortgage loans serviced for others amounted to
$24.3 million and $26.7 million at September 30, 2000 and 1999. Custodial escrow
balances maintained in connection with the foregoing loans serviced for others
were approximately $84,000 and $98,000 at September 30, 2000 and 1999.
12
BANK WEST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three Months Ended September 30, 2000
(Unaudited)
NOTE 7 - LOANS
Loans are classified as follows: September 30, June 30,
2000 2000
---- ----
Real estate loans:
One-to four-family residential - fixed rate $ 14,971,644 $ 15,425,090
One-to four-family residential - balloon 82,053,239 79,222,832
One-to four-family residential - adjustable 16,501,772 17,215,143
Construction and land development 29,475,735 29,455,954
Commercial mortgages 35,799,853 32,867,625
Home equity lines of credit 13,391,505 12,516,347
Second mortgages 17,106,181 16,580,734
------------- -------------
Total mortgage loans 209,299,929 203,283,725
Consumer loans 2,788,522 2,368,998
Commercial non-mortgage 17,795,623 16,324,067
------------- -------------
Total 229,884,074 221,976,790
Less:
Loans in process 8,326,135 11,025,478
Deferred fees and costs (617,014) (609,862)
Allowance for loan losses 963,293 843,928
------------- -------------
$ 221,211,660 $ 210,717,246
Provisions for losses on loans are charged to operations based on management's
evaluation of probable losses in the portfolio. In addition to providing loss
allocations 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 loss allocations, management reviews individual loans, recent loss
experience, current economic conditions, the overall balance and composition of
the portfolio, and such other factors which, in management's judgment, deserve
recognition in estimating probable 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.
13
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
September 30, 2000 and June 30, 2000 and the consolidated results of operations
for the three months ended September 30, 2000 with the same period in 1999. 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 originate residential real estate loans, including
residential construction loans, commercial loans, home equity loans, and, to a
lesser extent, consumer loans.
FINANCIAL CONDITION
Total assets increased by $8.0 million or 3.0% from $268.4 million at June 30,
2000 to $276.4 million at September 30, 2000. The increase in total assets was
due to an increase in total loans by $10.5 million or 5.0% and an increase in
loans held for sale by $1.9 million. Commercial loans primarily contributed to
the increase in total loans, while a higher dollar amount of loan originations
for resale contributed to the increase in loans held for sale. Management
expects continued growth in commercial loans during fiscal 2001, which is
expected to increase the Bank's net interest income. These amounts were
partially offset by a decrease in securities by $5.1 million. Securities
decreased due to sales of collateralized mortgage obligations and corporate
bonds to raise liquidity for loan growth.
14
BANK WEST FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
The Bank's mortgage banking activities consist of selling newly originated and
purchased one- to four -family loans into the secondary market. The dollar
amount of loans originated and purchased for resale in the three months ended
September 30, 2000 increased by $1.2 million or 46.2% to $3.8 million compared
to $2.6 million in the three months ended September 30, 1999. The increase in
loan originations and purchases for resale is primarily due to the recent modest
decrease 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 in the one- to
four -family lending area has been to sell the majority of its residential loan
volume.
The Bank has increased both its commercial mortgage and commercial non-mortgage
loans by $2.9 million and $1.5 million, respectively since June 30, 2000.
Management expects to continue its emphasis on commercial lending in an effort
to improve the Bank's interest margin and earnings, as well as to diversify its
loan portfolio.
Commercial real estate lending and commercial non-mortgage lending are generally
considered to involve a higher degree of risk than one-to four-family
residential lending. Such lending typically involves large loan balances for
business properties or for the operation of businesses. In addition, the payment
experience on loans secured by income-producing properties is typically
dependent on the success of the operation of the related project and thus is
typically affected by adverse conditions in the real estate market and in the
economy. The Bank generally attempts to mitigate the risks associated with
commercial lending by, among other things, lending primarily in its market area
and using conservative LTV ratios in the underwriting process.
Securities available for sale decreased by approximately $5.1 million since June
30, 2000 primarily due to the sale of $3.6 million of collateralized mortgage
obligations ("CMO's") and $1.6 million of corporate and municipal bonds. These
securities were sold to generate liquidity to fund loan growth. The unrealized
loss, net of federal income taxes, on available for sale securities at September
30, 2000 was $655,000. This amount is shown as a component of stockholders'
equity. The recent decrease in overall market interest rates caused the total
net unrealized loss in securities to decrease by $176,000 from June 30, 2000.
Cash and cash equivalents increased by $495,000 or 13.3% from June 30, 2000 to
September 30, 2000, primarily due to higher customer deposits on the last day of
the current quarter versus the prior year's quarter. See "Liquidity and Capital
Resources" section for additional information on the Bank's liquidity.
Total deposits increased by $11.4 million or 7.3% from June 30, 2000 to
September 30, 2000, primarily due to an increase in certificates of deposit and
money market accounts. 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
15
BANK WEST FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
believes that its savings, NOW and demand accounts are relatively stable sources
of deposits. However, the Bank's ability 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 September 30, 2000, the Bank decreased FHLB advances by $3.9 million since
the proceeds from the sales of securities and deposit growth were adequate to
fund loan growth. The Bank's continued strong loan growth is expected to result
in a greater dependence on broker-arranged certificates of deposit if retail
deposit growth does not match loan growth. At September 30, 2000, the Bank had
broker-arranged certificates of deposit totaling $44.9 million compared to $37.6
million at June 30, 2000.
Stockholders' equity increased from $22.2 million at June 30, 2000 to $22.7
million at September 30, 2000. The increase was primarily due to net income of
$347,000 and a decrease in the net unrealized loss on securities available for
sale by $176,000. Subsequent to September 30, 2000, the Company announced its
intent to repurchase 252,100 shares, or 10% of its outstanding common stock over
the next twelve months. The Company's capital ratios, liquidity position and
prevailing market price of its common stock will all be considered prior to
commencing any repurchases.
NON-PERFORMING ASSETS AND ALLOWANCE FOR LOAN LOSSES
The table below sets forth the amounts and categories of non-performing assets
at September 30, 2000 and June 30, 2000: September 30, June 30,
2000 2000
---- ----
(Dollars in Thousands)
Non-accrual loans
One- to four-family $ 26 $ 14
Construction and land development -- 275
Commercial mortgage -- --
Commercial non-mortgage 57 --
Consumer (including home equity loans) 194 115
---- ----
Total 277 404
Foreclosed assets
One- to four-family 623 380
---- ----
Total non-performing assets $900 $784
==== ====
Total as a percentage of total assets .33% .29%
==== ====
16
BANK WEST FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
The allowance for loan losses totaled $963,000 or 347.7% of total non-performing
loans at September 30, 2000. Specific loss allocations totaling $35,000 have
been allocated to one commercial loan and $8,000 to residential loans. During
the three months ended September 30, 2000, charge-offs totaled $1,000. The
increase in one- to four- family foreclosed assets relates to taking the deed to
the underlying properties that collateralize builder spec loans. At September
30, 2000, $143.0 million or 62.2% 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 80.0% of total assets.
RESULTS OF OPERATIONS
Net Income. Net income increased by $133,000 or 62.1% in the three months ended
September 30. The increase was 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 $234,000 or 15.1% in the
quarter ended September 30, 2000 over the comparable 1999 period. Net interest
income increased due to higher average loans outstanding by $62.2 million or
40.0% resulting from strong growth in residential balloon mortgages and
commercial loans. This increase was partially offset by a decrease in the Bank's
interest margin from 3.01% for the quarter ended September 30, 1999 to 2.70% for
the quarter ended September 30, 2000. The decrease in interest margin was
primarily due to the upward repricing of certificates of deposit and FHLB
advances in the present higher overall interest rate environment.
Average Balances, Interest Rates and Yields. The following table
presents for the periods indicated the total dollar amount of interest income
from average interest-earning assets and the resultant yields, as well as the
interest expense on average interest-bearing liabilities, expressed both in
dollars and rates, and the net interest margin.
BANK WEST FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Average Balances, Interest Rates and Yields (Continued).
Three Months Ended Three Months Ended
September 30, 2000 September 30, 1999
------------------ ------------------
Average Average
Average Yield/ Avg. Yield/
Balance Interest Rate Balance Interest Rate
------- -------- ---- ------- -------- ----
(Dollars in Thousands)
Interest-earning assets:
Loans receivable $218,646 $4,613 8.44% $156,065 $2,995 7.68%
Securities 39,836 695 6.98 44,337 704 6.35
Interest-bearing deposits 1,023 16 6.25 2,443 33 5.40
FHLB stock 4,500 96 8.55 3,217 61 7.58
----- ------- ---- ----- ------ ----
Total interest-earning assets 264,005 5,420 8.21 206,062 3,793 7.36
Noninterest-earning assets 10,451 7,943
--------- ---------
Total assets $274,456 $214,005
========== ========
Interest-bearing liabilities:
Savings, checking and MMDA's $ 37,835 $ 267 2.82% $ 34,403 $ 219 2.55%
Certificates of deposit 126,489 1,976 6.25 93,574 1,236 5.28
Other borrowings 85,896 1,393 6.49 62,324 788 5.06
------ ----- ---- ------ ------- ----
Total interest-bearing liabilities 250,220 3,636 5.81 190,301 2,243 4.71
Noninterest-bearing liabilities 1,815 1,428
--------- ---------
Total liabilities 252,035 214,005
Stockholders' equity 22,421 22,276
--------- ---------
Total liabilities and stockholders' equity $274,456 $214,005
========== ========
Net interest income; average interest spread $1,784 2.40% $1,550 2.65%
====== ===== ====== =====
Net interest margin 2.70% 3.01%
===== =====
Rate/Volume Analysis. The following table describes the extent to which
changes in interest rates and changes in volume of interest-related assets and
liabilities have affected the Company's interest income and expense during the
periods indicated. For each category of interest-earning assets and
interest-bearing liabilities, information is provided on changes attributable to
(I) changes in rate (change in rate multiplied by prior year volume), and (ii)
changes in volume (change in volume multiplied by prior year rate). The combined
effect of changes in both rate and volume has been allocated proportionately to
the change due to rate and the change due to volume.
17
BANK WEST FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Rate/Volume Analysis (Continued).
Three Months Ended September 30, 2000 Vs.
Three Months Ended September 30, 1999
Increase
(Decrease)
Due to
Total
Rate Increase
Effect Volume (Decrease)
------ ------ ----------
(In Thousands)
Interest income:
Loans receivable $320 $1,298 $1,618
Securities 66 (75) (9)
Interest-bearing deposits 5 (22) (17)
FHLB stock 9 26 35
------ -------- ------
Total interest income 400 1,227 1,627
------ --------- -----
Interest expense:
Savings, checking and MMDA's 25 23 48
Certificates of deposit 254 486 740
Other borrowings 259 346 605
------ --- ------
Total interest expense 538 855 1,393
------ --- ------
Increase (decrease) in net interest income $(138) $372 $ 234
====== ==== ======
Provision for Loan Losses. The provision for loan losses increased by $45,000 or
60.0% in the three months ended September 30, 2000 over the comparable 1999
period. Management has increased the provision for loan losses due primarily to
the increase in commercial loans requiring additional general loss allocations.
The allowance for loan losses equaled .42% of the total loan portfolio and
347.7% of nonperforming loans at September 30, 2000 compared to .38% and 208.9%
at June 30, 2000.
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 period 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 current economic conditions, the
diversification of the loan portfolio, loan growth, 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.
18
BANK WEST FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Other Income. Total other income decreased by $17,000 or 13.0% in the three
months ended September 30, 2000 from the comparable prior period. The decrease
was primarily due to lower mortgage banking related gain on sale of loans by
$32,000 or 57.1%. The decrease is due to lower mortgage loan sales volume
resulting from the rise in mortgage interest rates. Also, the Bank incurred a
loss on the sale of one real estate owned property of $11,000. These amounts
were partially offset by higher fees and service charges of $27,000 related to
increased service related charges in the Bank's deposit branch system.
Other Expenses. Total other expenses decreased by $33,000 or 2.6% in the quarter
ended September 30, 2000 over the comparable 1999 period. Professional fees were
lower by $101,000 or 64.3%, primarily due to lower legal costs associated with
defending the class action lawsuit filed on July 17, 1998 by a Bank West
borrower. This lawsuit was dismissed in March of 2000 during summary judgment
hearings. See Part II, Item 1 for additional information. Compensation and
benefits expense decreased by $11,000 or 1.5% primarily due to lower ESOP
expense. These amounts were partially offset by higher furniture, fixtures and
equipment expense by $19,000 or 41.3% due to depreciation expense associated
with recent software purchases. Advertising expense was also higher by $25,000
or 178.6% due to advertising and marketing associated with deposit products and
services. Miscellaneous expense was higher by $46,000 or 31.5% during the
September 30, 2000 quarter; however no category materially changes when compared
to the prior period. The other categories of other expenses did not materially
change in the three months ended September 30, 2000 from the comparable 1999
period.
Federal Income Tax Expense. Federal income tax expense increased by $71,000 or
59.2% in the three months ended September 30, 2000 over the comparable 1999
period due to higher pre-tax income levels.
19
BANK WEST FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
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, maturity 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 September 30, 2000, the Bank has approximately $13.4
million of excess borrowing capacity based on eligible collateral under the
hybrid blanket collateral agreement with the FHLB. At September 30, 2000, the
Bank had $8.0 million of excess borrowing capacity of Federal Funds with a
correspondent bank. The Bank's continued strong loan growth will require a
greater usage of broker-arranged certificates of deposit, FHLB advances and
Federal Funds if retail deposit growth does not match loan growth. At September
30, 2000, the Bank had broker-arranged certificates of deposit totaling $44.9
million.
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.
Bank West is subject to capital to asset requirements in accordance with banking
regulations. At September 30, 2000, Bank West was categorized as well
capitalized with a Tier I capital ratio of 8.05% and a risk-based capital ratio
of 12.43%.
20
BANK WEST FINANCIAL CORPORATION
Form 10-Q
Quarter Ended September 30, 2000
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings:
Bank West was a defendant in two legal proceedings in Kent
County Circuit Court: Cowles v. Bank West and Newton v. Bank
West. Cowles' original complaint, filed on July 17, 1998, was
premised upon a claim that the Bank was engaged in the
unauthorized practice of law because it charged residential
mortgagors a $250 document preparation fee and that the Bank
also violated the Michigan Consumer Protection Act. The
complaint contained additional claims, largely dependent upon
the foregoing allegations. Plaintiff later filed amendments,
alleging claims under the Federal Truth in Lending Act.
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, also is based upon Bank
West's charging of a document preparation fee and contains
claims for the unauthorized practice of law and violation of
the Michigan Consumer Protection Act.
During fiscal 2000, a final judgment in favor of the Bank was
made in the Cowles case and an order granting summary
disposition to the Bank was made in the Newton case. A claim
for appeal has been made in each case. Based on a review of
current facts and circumstances, management is unable to
determine the amount of loss, if any, that is possible.
Therefore, no accrual for any liability has been made in these
consolidated financial statements Management intends to
continue to contest these cases vigorously.
The Company and the Bank are also subject to certain other
legal actions arising in the ordinary course of business. In
the opinion of 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.
21
BANK WEST FINANCIAL CORPORATION
Form 10-Q
Quarter Ended September 30, 2000
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:
At the Annual Meeting of Stockholders held on October 25,
2000, the stockholders of the Company approved each of the
proposals as set forth below. The number of shares present at
the Annual Meeting in person or by proxy was 1,977,465. The
matters voted upon together with the applicable voting results
were as follows:
FOR WITHHOLD
--- --------
1. Election of Directors
John H. Zwarensteyn 1,911,484 65,981
Harry E. Mika 1,960,471 16,994
FOR AGAINST ABSTAIN
--- ------- -------
2. Ratification of appointment
of Crowe, Chizek and Company
LLP as independent auditors 1,907,684 65,581 4,200
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 September 30, 2000.
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: November 13, 2000 Ronald A. Van Houten
---------------------- -------------------------------------
Ronald A. Van Houten,
President and Chief Executive Officer
(Duly Authorized Officer)
Date: November 13, 2000 Kevin A. Twardy
--------------------- -------------------------------------
Kevin A. Twardy, Vice President and
Chief Financial Officer
(Principal Financial Officer)
22