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, 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 February 13,
2001: 2,521,059.
BANK WEST FINANCIAL CORPORATION
FORM 10-Q
Quarter Ended December 31, 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 -
December 31, 2000 (unaudited) and June 30, 2000 . . . . . . . . 3
Consolidated Statements of Income (unaudited) -
For The Three and Six Months Ended December 31, 2000 and 1999 . 4
Consolidated Statements of Comprehensive Income (unaudited) -
For The Three and Six Months Ended December 31, 2000 and 1999 . 5
Consolidated Statements of Cash Flows (unaudited) -
For The Six Months Ended December 31, 2000 and 1999. . . . . . 6
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . 8
ITEM 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations . . . . . . . . . . . . . . . . . . . 13
.
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
ITEM 2 - Changes in Securities and Use of Proceeds . . . . . . . . . . . . . . . 21
ITEM 3 - Defaults upon Senior Securities . . . . . . . . . . . . . . . . . . . . 21
ITEM 4 - Submission of Matters to a Vote of Security Holders . . . . . . . . . . 21
ITEM 5 - Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
ITEM 6 - Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . 22
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
2
BANK WEST FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEETS
December 31, June 30,
2000 2000
------------- -------------
(Unaudited)
Cash and due from banks $ 5,784,215 $ 3,564,615
Interest-bearing deposits 3,303,288 169,330
------------- -------------
Total cash and cash equivalents 9,087,503 3,733,945
Securities available for sale (Note 5) 34,767,185 42,601,603
Loans held for sale 4,138,851 572,731
Loans, net (Note 6) 225,400,478 210,717,246
Federal Home Loan Bank stock 4,500,000 4,500,000
Premises and equipment 3,648,622 3,694,888
Accrued interest receivable 1,586,696 1,439,246
Mortgage servicing rights 224,327 230,703
Real estate owned 520,574 380,332
Other assets 397,449 499,404
------------- -------------
Total assets $ 284,271,685 $ 268,370,098
============= =============
Deposits $ 176,447,272 $ 155,839,830
Federal Home Loan Bank borrowings 83,042,669 88,803,024
Accrued interest payable 985,740 655,568
Advance payments by borrowers
for taxes and insurance 238,986 574,319
Other liabilities 314,235 274,531
------------- -------------
Total liabilities 261,028,902 246,147,272
------------- -------------
Stockholders' Equity:
Common stock, $.01 par value; 10,000,000 shares
authorized; 2,521,059 issued at
December 31, 2000
and at June 30, 2000 25,211 25,211
Additional paid-in-capital 10,667,773 10,645,624
Retained earnings, substantially restricted 13,467,434 13,034,267
Accumulated other comprehensive loss,
net of tax benefit of $188,951 at December 31, 2000
and $428,081 at June 30, 2000 (366,787) (830,981)
Unallocated ESOP shares (Note 3) (550,848) (615,648)
Unearned Management Recognition Plan shares (Note 4) -- (35,647)
------------- -------------
Total stockholders' equity 23,242,783 22,222,826
------------- -------------
Total liabilities and stockholders' equity $ 284,271,685 $ 268,370,098
============= =============
See accompanying notes to consolidated financial statements.
3
BANK WEST FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended Six Months Ended
December 31, December 31,
2000 1999 2000 1999
------------- ------------ ------------ ------------
Interest and dividend income
Loans $ 4,827,330 $ 3,278,668 $ 9,439,819 $ 6,272,976
Securities 665,292 756,570 1,360,698 1,460,675
Other interest-bearing deposits 13,150 41,872 29,131 75,163
Dividends on FHLB stock 96,148 75,550 192,295 136,701
------------ ------------ ------------ ------------
5,601,920 4,152,660 11,021,943 7,945,515
------------ ------------ ------------ ------------
Interest expense
Deposits 2,447,104 1,522,476 4,690,160 2,976,703
FHLB borrowings 1,339,713 993,930 2,733,023 1,782,354
Federal Funds 2,031 14,238 2,031 14,238
------------ ------------ ------------ ------------
3,788,848 2,530,644 7,425,214 4,773,295
------------ ------------ ------------ ------------
Net interest income 1,813,072 1,622,016 3,596,729 3,172,220
Provision for loan losses 130,000 85,000 250,000 160,000
------------ ------------ ------------ ------------
Net interest income after provision
for loan losses 1,683,072 1,537,016 3,346,729 3,012,220
------------ ------------ ------------ ------------
Other income
Gain on sale of securities 15,089 -- 14,213 --
Loss on real estate owned -- -- (10,943) --
Gain on sale of loans 83,282 17,648 107,590 73,410
Fees and service charges 125,281 87,601 226,837 162,764
------------ ------------ ------------ ------------
223,652 105,249 337,697 236,174
------------ ------------ ------------ ------------
Other expenses
Compensation and benefits 756,742 759,443 1,479,975 1,493,420
Professional fees 70,176 107,930 126,220 264,928
Federal Deposit Insurance 7,767 18,954 15,011 37,118
Occupancy 102,205 85,081 195,056 161,741
Furniture, fixtures and equipment 83,123 56,370 161,027 110,605
Data processing 65,502 63,564 128,799 123,455
Advertising 37,785 31,545 77,065 45,351
Miscellaneous 202,412 165,647 381,631 324,238
------------ ------------ ------------ ------------
1,325,712 1,288,534 2,564,784 2,560,856
------------ ------------ ------------ ------------
Income before federal income tax expense 581,012 353,731 1,119,642 687,538
Federal income tax expense 206,700 125,300 398,000 245,300
------------ ------------ ------------ ------------
Net income $ 374,312 $ 228,431 $ 721,642 $ 442,238
============ ============ ============ ============
Earnings per share (Note 2) $ .16 $ .10 $ .30 $ .19
============ ============ ============ ============
Earnings per share assuming dilution (Note 2) $ .16 $ .10 $ .30 $ .18
============ ============ ============ ============
Dividends per share $ .06 $ .06 $ .12 $ .12
============ ============ ============ ============
See accompanying notes to consolidated financial statements.
4
BANK WEST FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
Three Months Ended Six Months Ended
December 31, December 31,
2000 1999 2000 1999
-------------- ------------- ---------------- -------------
Net Income $374,312 $228,431 $721,642 $442,238
Other comprehensive income, net of tax:
Unrealized gains (losses) on securities available
for sale arising during the period 298,283 (219,876) 473,575 (372,848)
Less reclassification adjustments for net gains
included in net income (9,959) - (9,381) -
-------------- ------------- ---------------- -------------
Total other comprehensive income 288,324 (219,876) 464,194 (372,848)
Comprehensive income $662,636 $8,555 $1,185,836 $69,390
============== ============= ================ =============
See accompanying notes to consolidated financial statements.
5
BANK WEST FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
December 31,
2000 1999
------------- ------------
Cash flows from operating activities
Net income $ 721,642 $ 442,238
Adjustments to reconcile net income to
net cash from operating activities
Origination and purchase of loans for sale (11,248,165) (4,233,125)
Proceeds from sale of mortgage loans 7,789,635 6,058,070
Net (gain) loss on sales of:
Real estate owned 10,943 --
Loans (107,590) (73,410)
Securities (14,213) --
Depreciation 169,750 131,391
Amortization of premiums, net 16,424 20,785
ESOP expense 86,949 102,516
MRP expense 35,647 65,000
Provision for loan losses 250,000 160,000
Change in:
Deferred loan fees (15,890) (119,988)
Other assets (282,601) (68,332)
Other liabilities 34,543 (745,456)
------------ ------------
Net cash from (used in) operating activities (2,552,926) 1,739,689
------------ ------------
Cash flows from investing activities
Purchases of securities available for sale (4,125,945) (4,566,675)
Proceeds from sale of securities 12,470,962 40,000
Proceeds from maturities, calls and principal
payments of securities available for sale 190,512 1,470,251
Loan originations, net of repayments (10,690,580) (29,186,772)
Loans purchased for portfolio (4,503,600) (5,083,352)
Purchase of FHLB stock -- (1,150,000)
Proceeds from sale of real estate owned 130,007 --
Property and equipment expenditures (123,484) (765,217)
------------ ------------
Net cash used in investing activities (6,820,263) (39,241,765)
------------ ------------
Cash flows from financing activities
Proceeds from FHLB borrowings 61,000,000 37,242,348
Repayment of FHLB borrowings (66,760,355) (12,000,000)
Proceeds from Federal Funds borrowings -- 2,000,000
Increase in deposits 20,607,442 5,625,547
Repurchase of common stock -- (751,937)
Exercise of stock options -- 24,170
Dividends paid on common stock (288,475) (289,118)
------------ ------------
Net cash from financing activities 14,558,612 31,851,010
------------ ------------
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 5,353,558 (5,651,066)
Cash and cash equivalents at beginning of period 3,733,945 9,105,868
----------- ------------
Cash and cash equivalents at end of period $9,087,503 $3,454,802
=========== ============
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest $7,095,042 $4,731,543
Income taxes 375,000 100,000
Transfer of loans to real estate owned 276,838 420,257
See accompanying notes to consolidated financial statements.
7
BANK WEST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Three and Six
Months Ended December 31, 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. Certain prior year amounts
have been reclassified to conform to the current year presentation.
The results of operations for the three and six months ended December 31, 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 and Six Months Ended December 31, 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 and six months ended December
31, 2000 and 1999 is as follows:
Three Months Ended Six Months Ended
December 31, December 31,
2000 1999 2000 1999
---- ---- ---- ----
Earnings Per Share
Net income $ 374,312 $ 228,431 $ 721,642 $ 442,238
========== ========== ========== ==========
Weighted average common shares
outstanding 2,377,713 2,335,717 2,374,675 $2,362,867
========== ========== ========== ==========
Earnings Per Share $ .16 $ .10 $ .30 $ .19
========== ========== ========== ==========
Earnings Per Share Assuming Dilution
Net income $ 374,312 $ 228,431 $ 721,642 $ 442,237
========== ========== ========== ==========
Weighted average common shares
outstanding 2,377,713 2,335,717 2,374,675 2,362,867
Add: dilutive effects of assumed
exercise of stock options
and unvested MRP's
Stock options 1,112 27,026 -- 39,092
MRP shares 2,027 1,211 7,754 923
---------- ---------- ---------- ----------
Weighted average common and dilutive
potential common shares outstanding 2,380,852 2,363,954 2,382,429 2,402,882
========== ========== ========== ==========
Earnings Per Share Assuming Dilution $ .16 $ .10 $ .30 $ .18
========== ========== ========== ==========
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 and Six Months Ended December 31, 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 $47,000 and $49,000 was recorded for the three months ended December
31, 2000 and 1999, compared to $87,000 and $103,000 for the six months ended
December 31, 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 December 31, 2000, there were outstanding options
to purchase 240,262 shares of common stock at exercise prices between $6.063 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. At December 31, 2000, there were
82,464 option shares reserved for future grants. As of December 31, 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 December 31,
2000, 57,550 options were granted at an exercise price of $8.375, which was the
market price on the date of grant. Thus, no compensation expense was recorded
for these options. 37,500 of these options vest over an eight month period and
the remaining 20,050 options granted vest over an eighteen month period.
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. Compensation expense of
$9,000 and $37,000 were charged to compensation expense for the MRPs for the
three months ended December 31, 2000 and 1999, compared to $87,000 and $103,000
for the six months ended December 31, 2000 and 1999. The reduction in
compensation expense for current periods was due to the final vesting of MRP's
in October of 2000. Accordingly, the unearned compensation value of the MRPs
shown as a reduction to stockholders' equity in the accompanying consolidated
balance sheets was zero at December 31, 2000 versus $36,000 at June 30, 2000.
10
BANK WEST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three and Six Months Ended December 31, 2000
(Unaudited)
NOTE 5 - SECURITIES
The amortized cost and estimated fair values of securities at December 31, 2000
and June 30, 2000 are as follows:
Available for Sale
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------- ---------- ---------- -----------
December 31, 2000
U.S. agencies $ 5,999,338 $ - $ (40,547) $ 5,958,791
Corporate bonds 4,769,971 11,762 (299) 4,781,434
Commercial paper 2,725,461 - (5,244) 2,720,217
Taxable municipal bonds 3,451,312 20,489 (1,717) 3,470,084
Non-taxable municipal bonds 100,668 1,024 - 101,692
Mortgage-backed securities 2,786,153 1,697 (34,404) 2,753,446
Trust preferred stock 500,000 - (150,000) 350,000
Collateralized mortgage obligations 14,990,021 - (358,500) 14,631,521
----------- ---------- ---------- -----------
$35,322,924 $ 34,972 $ (590,711) $34,767,185
=========== ========== ========== ===========
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 and Six Months Ended December 31, 2000
(Unaudited)
NOTE 6 - LOANS
Loans are classified as follows: December 31, June 30,
2000 2000
---- ----
Real estate loans:
One-to four-family residential - fixed rate $ 14,137,925 $ 15,425,090
One-to four-family residential - balloon 81,438,912 79,222,832
One-to four-family residential - adjustable 15,615,834 17,215,143
Construction and land development 27,586,367 29,455,954
Commercial mortgages 38,963,826 32,867,625
Home equity lines of credit 13,786,720 12,516,347
Second mortgages 18,184,903 16,580,734
------------ -------------
Total mortgage loans 209,714,487 203,283,725
Consumer loans 2,824,052 2,368,998
Commercial non-mortgage 22,342,655 16,324,067
------------- -------------
Total 234,881,194 221,976,790
Less:
Loans in process 9,016,205 11,025,478
Deferred fees and costs (625,752) (609,862)
Allowance for loan losses 1,090,263 843,928
------------- -------------
$ 225,400,478 $ 210,717,246
============= =============
Provisions for losses on loans are charged to operations based on management's
evaluation of probable incurred 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.
12
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, 2000 and June 30, 2000 and the consolidated results of operations
for the three and six months ended December 31, 2000 with the same periods 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 $15.9 million or 5.9% from $268.4 million at June 30,
2000 to $284.3 million at December 31, 2000. The increase in total assets was
due to an increase in total loans, net by $14.7 million or 7.0%, an increase in
cash and cash equivalents by $5.4 million or 145.9% and an increase in loans
held for sale by $3.5 million or 583.3%. The increase in total loans was
primarily due to commercial loan growth, while a higher dollar amount of loan
originations for resale contributed to the increase in loans held for sale. The
increase in cash and cash equivalents was due to higher than expected deposits
at year-end. Management expects continued growth in commercial loans during
fiscal 2001, which is anticipated to increase the Bank's net interest income.
The above increases in assets were partially offset by a decrease in securities
by $7.8 million. Securities decreased primarily due to sales of agencies,
collateralized mortgage obligations and corporate bonds to raise liquidity for
loan growth.
13
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
December 31, 2000 increased by $5.8 million or 363% to $7.4 million compared to
$1.6 million in the December 31, 1999 quarter. For the six months ended December
31, 2000, loans originated and purchased for resale increased by $7.0 million or
166.7% versus the six months ended December 31, 1999. The increases were
primarily due to the recent decline in overall market interest rates. The Bank
has continued to take 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. Due to competitive forces, management intends to
significantly decrease its efforts in the wholesale mortgage banking area in the
coming months. 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 since residential balloon loan products are no
longer available for portfolio.
The Bank has increased both its commercial mortgage and commercial non-mortgage
loans by $6.1 million and $6.0 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 $7.8 million since June
30, 2000 primarily due to the sale of $12.5 million of securities, partially
offset by purchases of short-term commercial paper (see Note 5 to consolidated
financial statements for more information). Securities were sold to generate
liquidity to fund anticipated loan growth. The unrealized loss, net of federal
income taxes, on available for sale securities at December 31, 2000 was
$367,000. This amount is shown as a component of stockholders' equity. The
recent decrease in overall market interest rates resulted in the total net
unrealized loss in securities available for sale to decrease by $464,000 from
June 30, 2000.
Cash and cash equivalents increased by $5.4 million from June 30, 2000 to
December 31, 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 $20.6 million or 13.2% from June 30, 2000 to
December 31, 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
14
BANK WEST FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
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 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 six months
ended December 31, 2000, the Bank decreased FHLB advances by $5.8 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 December 31, 2000, the Bank had
broker-arranged certificates of deposit totaling $51.0 million, compared to
$37.6 million at June 30, 2000. The rates paid on broker-arranged certificates
of deposit, including the amortization of any fee paid over the term of the
certificate, approximate the rates paid on retail certificates of deposit and
have been slightly higher than the comparable term FHLB borrowings.
Stockholders' equity increased from $22.2 million at June 30, 2000 to $23.2
million at December 31, 2000. The increase was primarily due to net income of
$722,000 and a decrease in the net unrealized loss on securities available for
sale by $464,000.
NON-PERFORMING ASSETS AND ALLOWANCE FOR LOAN LOSSES
The table below sets forth the amounts and categories of non-performing assets
at December 31, 2000 and June 30, 2000: December 31, June 30,
2000 2000
---- ----
(Dollars in Thousands)
Non-accrual loans
One- to four-family $ 164 $ 14
Construction and land development 157 275
Commercial mortgage - -
Commercial non-mortgage 118 -
Consumer (including home equity loans) 252 115
------ -----
Total 691 404
Foreclosed assets
One- to four-family 521 380
------ -----
Total non-performing assets $1,212 $ 784
====== =====
Total as a percentage of total assets .43% .29%
====== =====
15
BANK WEST FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
The allowance for loan losses totaled $1,090,000 or 157.7% of total
non-performing loans at December 31, 2000 compared to $844,000 or 208.9% of
total non-performing loans at December 31, 1999. During the three and six months
ended December 31, 2000, charge-offs totaled $3,000 and $4,000. The increase in
one- to four- family foreclosed assets relates to taking the deed to the
underlying properties that collateralized builder spec loans during the
relatively higher interest rate environment and the corresponding slow-down
middle-market spec home sales during the past year. As a result, the Bank has
tightened its underwriting standards with respect to builder spec loans.
Recently, management decided to significantly decrease the number of
correspondents eligible to sell these types of loans to the Bank and concentrate
primarily on local builders. At December 31, 2000, $137.1 million or 58.3% of
the Bank's total loan portfolio was collateralized by first liens on one-to
four-family residences compared to $141.3 million or 63.7% at December 31, 1999.
RESULTS OF OPERATIONS
Net Income. Net income increased by $146,000 or 64.0% in the three months ended
December 31, 2000 and by $280,000 or 63.3% in the six months ended December 31,
2000 as compared to the same periods in the prior fiscal year. The increases
were primarily due to growth in net interest income, lower professional fees and
higher gains on sale of loans. See the following sections for additional
information.
Net Interest Income. Net interest income increased by $191,000 or 11.8% in the
quarter ended December 31, 2000 over the comparable 1999 period. Net interest
income increased due to higher average loans outstanding by $55.9 million or
32.6% 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 2.92% for the quarter ended December 31, 1999 to 2.69% for
the quarter ended December 31, 2000. The decrease in interest margin was
primarily due to the upward repricing of certificates of deposit and FHLB
advances in the relatively higher overall interest rate environment compared to
the prior year.
For the six months ended December 31, 2000, net interest income increased by
$425,000 or 13.4% due to higher average loans outstanding by $59.7 million or
36.4% 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 2.95% for the six months ended December 31, 1999 to 2.70%
for the six months ended ended December 31, 2000. The decrease in interest
margin was primarily due to the upward repricing of certificates of deposit and
FHLB advances in the relatively higher overall interest rate environment
compared to the prior year.
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.
16
BANK WEST FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Average Balances, Interest Rates and Yields (Continued).
Six Months Ended Six Months Ended
December 31, 2000 December 31, 1999
----------------- -----------------
Average Average
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
------- -------- ---- ------- -------- ----
(Dollars in Thousands)
Interest-earning assets:
Loans receivable $ 223,469 $ 9,440 8.45% $163,820 $ 6,273 7.66%
Securities 38,206 1,361 7.12 44,754 1,461 6.53
Interest-bearing deposits 475 29 6.25 2,649 75 5.66
FHLB stock 4,500 192 8.53 3,508 137 7.81
---------- ------- ---- -------- ------- ----
Total interest-earning assets 266,650 11,022 8.27 214,731 7,946 7.40
Noninterest-earning assets 11,195 7,997
---------- --------
Total assets $ 277,845 $222,728
========== ========
Interest-bearing liabilities:
Savings, checking and MMDA's $ 38,172 $ 581 3.04% $ 35,380 $ 472 2.67%
Certificate of deposit 129,642 4,109 6.34 94,906 2,520 5.31
Other borrowings 85,513 2,735 6.40 68,991 1,782 5.17
---------- ------- ---- -------- ------- ----
Total interest-bearing liabilities 253,327 7,425 5.86 199,277 4,774 4.79
Noninterest-bearing liabilities 1,839 1,398
---------- --------
Total liabilities 255,166 200,675
Stockholders' equity 22,679 22,053
---------- --------
Total liabilities and stockholders' equity $277,845 $222,728
========== ========
Net interest income; average interest spread $ 3,597 2.41% $ 3,172 2.61%
======= ==== ======= ===
Net interest margin 2.70% 2.95%
==== ====
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).
Six Months Ended December 31, 2000 vs.
Six Months Ended December 31, 1999
--------------------------------------
Increase
(Decrease)
Due to
----------
Total
Rate Increase
Effect Volume (Decrease)
------ ------ ----------
(In Thousands)
Interest income:
Loans receivable $ 699 $ 2,468 $3,167
Securities 125 (225) (100)
Interest-bearing deposits 9 (55) (46)
FHLB stock 14 41 55
-------- ------- ------
Total interest income 847 2,229 3,076
-------- ------- ------
Interest expense:
Savings, checking and MMDA's 69 39 108
Certificates of deposit 551 1,039 1,590
Other borrowings 475 478 953
-------- ------- ------
Total interest expense 1,095 1,556 2,651
-------- ------- ------
Increase (decrease) in net interest income $ (248) $ 673 $ 425
======== ======= ======
Provision for Loan Losses. The provision for loan losses increased by $45,000 or
52.9% and $90,000 or 56.3% in the three and six months ended December 31, 2000
over the comparable 1999 periods. Management has increased the provision for
loan losses due primarily to the increase in commercial loans requiring
additional loss allocations. The allowance for loan losses equaled .46% of the
total loan portfolio and 157.7% of nonperforming loans at December 31, 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 increased by $119,000 or 113.3% in the three
months ended December 31, 2000 from the comparable prior period. The increase
was primarily due to higher mortgage banking related gain on sale of loans by
$65,000 or 361.1%. The increase is due to higher mortgage loan sales volume
resulting from the recent decline in mortgage interest rates. Also, fees and
service charges were higher by $37,000 related to increased service charge
related activities in the Bank's deposit branch system.
For the six months ended December 31, 2000, other income increased by $102,000
or 43.2% primarily due to higher gain on sale of loans by $35,000 or 47.9% and
by higher fees and service charges by $64,000 or 39.3%. The increases were due
to the same reasons discussed above.
Other Expenses. Total other expenses increased by $37,000 or 2.9% in the quarter
ended December 31, 2000 over the comparable 1999 period. Furniture, fixtures and
equipment expense ("FFE") was higher by $27,000 or 48.2% due to depreciation
expense and maintenance agreement costs associated with software purchases in
December 1999. Thus, the prior year did not reflect these higher costs.
Occupancy expense was higher by $17,000 or 20.0% due to accelerated depreciation
on leasehold improvements in one branch facility expected to be relocated during
calendar 2001. Miscellaneous expenses were higher by $36,000 or 21.7% during the
December 31, 2000 quarter; however no category materially changed when compared
to the prior period. The above increases were partially offset by lower
professional fees of $38,000 or 35.2%, 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. Also, FDIC
insurance expense was lower by $11,000 or 57.9% due to an expected premium
reduction for the thrift industry.
For the six months ended December 31, 2000, total other expenses were higher by
$4,000 or .2% from the comparable 1999 period. Increases in occupancy, FFE,
advertising and miscellaneous expenses were partially offset by decreases in
professional fees, FDIC insurance expense and compensation and benefits expense.
Federal Income Tax Expense. Federal income tax expense increased by $82,000 or
65.6% and by $153,000 or 62.4% in the three and six months ended December 31,
2000 over the comparable 1999 periods 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. However, during the recent quarter,
securities were sold to generate liquidity for anticipated loan growth during
the next quarter.
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 December 31, 2000, the Bank has approximately $8.9
million of excess borrowing capacity based on eligible collateral under the
hybrid blanket collateral agreement with the FHLB. At December 31, 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 December
31, 2000, the Bank had broker-arranged certificates of deposit totaling $51.0
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 December 31, 2000, Bank West was categorized as well capitalized
with a Tier I capital ratio of 8.1% and a risk-based capital ratio of 12.0%
compared to 8.3% and 12.4% at June 30, 2000.
20
BANK WEST FINANCIAL CORPORATION
Form 10-Q
Quarter Ended December 31, 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
management, 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.
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.
21
BANK WEST FINANCIAL CORPORATION
Form 10-Q
Quarter Ended December 31, 2000
PART II - OTHER INFORMATION (Continued)
Item 5 - Other Information:
There are no matters required to be reported under this item.
Item 6 - Exhibits and Reports on Form 8-K:
No exhibits are required to be filed.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed by the Registrant during the
quarter ended December 31, 2000.
22
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: February 14, 2001 /s/ Ronald A. Van Houten
------------------------- ----------------------------------------
Ronald A. Van Houten,
President and Chief Executive Officer
(Duly Authorized Officer)
Date: February 14, 2001 /s/ Kevin A. Twardy
------------------------ ----------------------------------------
Kevin A. Twardy, Vice President and
Chief Financial Officer
(Principal Financial Officer)
23