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 March 31, 2001
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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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 May 14,
2001: 2,485,491.
BANK WEST FINANCIAL CORPORATION
FORM 10-Q
Quarter Ended March 31, 2001
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 -
March 31, 2001 (unaudited) and June 30, 2000 . . . . . . . 3
Consolidated Statements of Income (unaudited) -
For The Three and Nine Months Ended March 31, 2001 and 2000 4
Consolidated Statements of Comprehensive Income (unaudited) -
For The Three and Nine Months Ended March 31, 2001 and 2000 5
Consolidated Statements of Cash Flows (unaudited) -
For The Nine Months Ended March 31, 2001 and 2000 . . . . . 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 . . . . . . . . . . . . . . . . . . 22
ITEM 4 - Submission of Matters to a Vote of Security Holders . . . . . . . . 22
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
March 31, June 30,
2001 2000
------------- -------------
(Unaudited)
ASSETS
Cash and due from banks $ 3,954,165 $ 3,564,615
Interest-bearing deposits 2,468,945 169,330
------------- -------------
Total cash and cash equivalents 6,423,110 3,733,945
Securities available for sale (Note 6) 27,933,103 42,601,603
Loans held for sale 5,736,302 572,731
Loans, net (Note 7) 228,304,086 210,717,246
Federal Home Loan Bank stock 4,500,000 4,500,000
Premises and equipment 3,591,444 3,694,888
Accrued interest receivable 1,579,803 1,439,246
Mortgage servicing rights 223,623 230,703
Real estate owned 251,084 380,332
Other assets 393,013 499,404
------------- -------------
Total assets $ 278,935,568 $ 268,370,098
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $ 178,619,910 $ 155,839,830
Federal Home Loan Bank borrowings 74,259,486 88,803,024
Accrued interest payable 1,415,816 655,568
Advance payments by borrowers
for taxes and insurance 291,546 574,319
Other liabilities 374,433 274,531
------------- -------------
Total liabilities 254,961,191 246,147,272
------------- -------------
Stockholders' Equity:
Common stock, $.01 par value; 10,000,000 shares
authorized; 2,485,491 issued
at March 31, 2001
and 2,521,059 at June 30, 2000 24,855 25,211
Additional paid-in-capital 10,714,529 10,645,624
Retained earnings, substantially restricted 13,750,432 13,034,267
Accumulated other comprehensive income (loss),
net of taxes of $1,550 at March 31, 2001
and tax benefit of $428,081 at June 30, 2000 3,009 (830,981)
Unallocated ESOP shares (Note 3) (518,448) (615,648)
Unearned Management Recognition Plan shares (Note 5) -- (35,647)
------------- -------------
Total stockholders' equity 23,974,377 22,222,826
------------- -------------
Total liabilities and stockholders' equity $ 278,935,568 $ 268,370,098
============= =============
See accompanying notes to consolidated financial statements.
3
BANK WEST FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended Nine Months Ended
March 31, March 31,
2001 2000 2001 2000
------------ ------------ ------------ ------------
Interest and dividend income
Loans $ 4,825,254 $ 3,702,601 $ 14,265,073 $ 9,975,577
Securities 496,036 772,296 1,856,734 2,232,971
Other interest-bearing deposits 25,160 18,713 54,291 93,876
Dividends on FHLB stock 88,767 83,345 281,062 220,046
------------ ------------ ------------ ------------
5,435,217 4,576,955 16,457,160 12,522,470
------------ ------------ ------------ ------------
Interest expense
Deposits 2,453,340 1,665,537 7,143,500 4,642,240
FHLB borrowings 1,099,500 1,174,347 3,832,523 2,956,701
Federal Funds -- 18,433 2,031 32,671
------------ ------------ ------------ ------------
3,552,840 2,858,317 10,978,054 7,631,612
------------ ------------ ------------ ------------
Net interest income 1,882,377 1,718,638 5,479,106 4,890,858
Provision for loan losses 135,000 120,000 385,000 280,000
------------ ------------ ------------ ------------
Net interest income after provision
for loan losses 1,747,377 1,598,638 5,094,106 4,610,858
------------ ------------ ------------ ------------
Other income
Gain (loss) on sale of securities 34,004 (22,140) 48,217 (22,140)
Loss on sale of real estate owned (24,250) (4,260) (35,193) (4,260)
Gain on sale of loans 156,581 19,902 264,171 93,312
Fees and service charges 129,456 106,141 356,293 268,905
------------ ------------ ------------ ------------
295,791 99,643 633,488 335,817
------------ ------------ ------------ ------------
Other expenses
Compensation and benefits 815,319 719,111 2,295,294 2,212,531
Professional fees 70,999 60,168 197,219 325,096
Federal deposit insurance 8,078 6,903 23,089 44,021
Occupancy 93,524 75,934 270,868 226,953
Furniture, fixtures and equipment 120,407 99,203 273,146 200,726
Data processing 70,997 70,005 199,796 193,460
Advertising 37,935 53,713 115,000 99,064
Miscellaneous 163,173 145,323 570,804 489,365
------------ ------------ ------------ ------------
1,380,432 1,230,360 3,945,216 3,791,216
------------ ------------ ------------ ------------
Income before federal income tax expense 662,736 467,921 1,782,378 1,155,459
Federal income tax expense 235,000 166,200 633,000 411,500
------------ ------------ ------------ ------------
Net income $ 427,736 $ 301,721 $ 1,149,378 $ 743,959
============ ============ ============ ============
Earnings per share (Note 2) $ .18 $ .13 $ .48 $ .32
============ ============ ============ ============
Earnings per share assuming dilution (Note 2) $ .18 $ .13 $ .48 $ .31
============ ============ ============ ============
Dividends per share $ .06 $ .06 $ .18 $ .18
============ ============ ============ ============
See accompanying notes to consolidated financial statements.
4
BANK WEST FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
Three Months Ended Nine Months Ended
March 31, March 31,
2001 2000 2001 2000
----------- ----------- ----------- -----------
Net Income $ 427,736 $ 301,721 $ 1,149,378 $ 743,959
Other comprehensive income (loss), net of tax:
Net unrealized gains (losses) on securities available
for sale arising during the period 392,239 (275,049) 865,813 (647,897)
Less reclassification adjustments for net (gains)
losses included in net income (22,443) 14,612 (31,823) 14,612
----------- ----------- ----------- -----------
Total other comprehensive income (loss) 369,796 (260,437) 833,990 (633,285)
----------- ----------- ----------- -----------
Comprehensive income $ 797,532 $ 41,284 $ 1,983,368 $ 110,674
=========== =========== =========== ===========
5
BANK WEST FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
March 31,
2001 2000
------------- -------------
Cash flows from operating activities
Net income $ 1,149,378 $ 743,959
Adjustments to reconcile net income to
net cash from operating activities
Origination and purchase of loans for sale (23,470,396) (5,815,371)
Proceeds from sale of mortgage loans 18,570,996 7,531,160
Net (gain) loss on sales of:
Real estate owned 35,193 4,260
Loans (264,171) (93,312)
Securities (48,217) 22,140
Depreciation 256,716 216,440
Amortization of premiums, net 33,380 25,852
ESOP expense 138,586 147,318
MRP expense 35,647 92,000
Provision for loan losses 385,000 280,000
Change in:
Deferred loan fees (23,742) (142,304)
Other assets (45,545) (266,967)
Other liabilities 147,747 (563,251)
------------- -------------
Net cash from (used in) operating activities (3,099,428) 2,181,924
------------- -------------
Cash flows from investing activities
Purchases of securities available for sale (11,024,041) (4,667,769)
Proceeds from sale of securities available for sale 20,475,000 40,000
Proceeds from maturities, calls and principal
payments of securities available for sale 6,495,998 1,550,171
Loan originations, net of repayments (13,721,336) (35,332,073)
Loans purchased for portfolio (4,503,600) (16,317,406)
Purchase of FHLB stock -- (1,800,000)
Proceeds from sale of real estate owned 390,012 368,946
Property and equipment expenditures (153,932) (938,825)
------------- -------------
Net cash used in investing activities (2,041,899) (57,096,956)
------------- -------------
Cash flows from financing activities
Proceeds from FHLB borrowings 112,000,000 84,373,785
Repayment of FHLB borrowings (126,543,538) (46,000,000)
Proceeds from Federal Funds borrowings -- 500,000
Increase in deposits 22,780,080 12,022,914
Repurchase of common stock -- (751,937)
Exercise of stock options 27,163 24,170
Dividends paid on common stock (433,213) (431,997)
------------- -------------
Net cash from financing activities 7,830,492 49,736,935
------------- -------------
See accompanying notes to consolidated financial statements.
6
BANK WEST FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)
Nine Months Ended
March 31,
2001 2000
----------- -----------
Net change in cash and cash equivalents 2,689,165 (5,178,097)
Cash and cash equivalents at beginning of period 3,733,945 9,105,868
----------- -----------
Cash and cash equivalents at end of period $ 6,423,110 $ 3,927,771
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $10,217,806 $ 7,521,582
Income taxes 635,000 427,000
Supplemental disclosures of noncash investing activities:
Transfer of loans to real estate owned 276,838 502,568
See accompanying notes to consolidated financial statements.
7
BANK WEST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three and Nine Months Ended March 31, 2001
(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. 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 nine months ended March 31, 2001 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 Nine Months Ended March 31, 2001
(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 nine months ended March
31, 2001 and 2000 is as follows:
Three Months Ended Nine Months Ended
March 31, March 31,
2001 2000 2001 2000
---------- ---------- ---------- ----------
Earnings Per Share
Net income $ 427,736 $ 301,721 $1,149,178 $ 743,959
========== ========== ========== ==========
Weighted average common shares
outstanding 2,384,680 2,346,752 2,377,238 2,360,802
========== ========== ========== ==========
Earnings Per Share $ .18 $ .13 $ .48 $ .32
========== ========== ========== ==========
Earnings Per Share Assuming Dilution
Net income $ 427,736 $ 301,721 $1,149,178 $ 743,959
========== ========== ========== ==========
Weighted average common shares
outstanding 2,384,680 2,346,752 2,377,238 2,360,802
Add: dilutive effects of assumed
exercise of stock options
and unvested MRPs
Stock options 27,141 18,287 3,322 34,452
MRP shares -- 573 1,395 716
---------- ---------- ---------- ----------
Weighted average common and dilutive
potential common shares outstanding 2,411,821 2,365,612 2,381,955 2,395,970
========== ========== ========== ==========
Earnings Per Share Assuming Dilution $ .18 $ .13 $ .48 $ .31
========== ========== ========== ==========
For the three months ended March 31, 2001 and 2000, 101,884 and 113,129 stock
options were anti-dilutive. For the nine months ended March 31, 2001 and 2000,
254,196 and 121,129 stock options were anti-dilutive.
9
BANK WEST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three and Nine Months Ended March 31, 2001
(Unaudited)
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 Bank
West. 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 Bank West 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 $52,000 and $45,000 was recorded for the three months ended March 31,
2001 and 2000 compared to $139,000 and $147,000 recorded for the nine months
ended March 31, 2001 and 2000.
NOTE 4 - STOCK OPTION PLAN
Employee and director Stock Option Plans (SOPs) were authorized by the
shareholders at the October 25, 1995 annual meeting. The employee SOP are
administered by a committee of directors of the Company, while grants under the
directors' SOP are pursuant to formulas set forth in the plans. SOP options are
granted at the average of the high and low market prices of the Company's stock
on the date of grant, have vesting periods ranging from eight months to five
years and expire ten years from the date of grant.
Directors' SOP Employees' SOP
Weighted Weighted
Average Average
Exercise Exercise
Options Price Options Price
------- ----- ------- -----
Total options/shares available 104,146 243,009
Balance outstanding June 30, 2000 104,139 7.03 187,434 9.05
Exercised (4,100) 6.63
Cancellations (57,550) 12.03
Forfeited (14,877) 7.03 (5,550) 11.07
Granted July 24, 2000 10,000 5.75
Granted October 24, 2000 16,666 6.06
Granted January 25, 2001 57,550 8.38
------- -------
Balance outstanding March 31, 2001 89,262 $7.03 204,450 $7.40
====== =======
Options/shares exercisable
(vested) 84,800 88,430
====== =======
Options/shares available for
future grant 14,884 10,029
====== =======
10
BANK WEST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three and Nine Months Ended March 31, 2001
(Unaudited)
NOTE 4 - STOCK OPTION PLAN (Continued)
Had compensation cost for stock options been measured using FASB Statement No.
123, net income and earnings per share would have been the pro forma amounts
indicated below. The pro forma effect may increase in the future if more options
are granted.
Three Months Ended Nine Months Ended
March 31, March 31,
2001 2000 2001 2000
---- ---- ---- ----
Net income as reported $ 427,736 $ 301,721 $ 1,149,378 $ 743,959
Pro forma net income 425,954 290,607 1,144,632 710,617
Basic earnings per share as reported .18 .13 .48 .32
Pro forma basic earnings per share .18 .12 .48 .30
Diluted earnings per share as reported .18 .13 .48 .31
Pro forma diluted earnings per share .18 .12 .48 .30
Weighted-average fair value of options granted
during the period 2.03 - 1.85 1.32
The fair value of options granted during 2001 and 2000 is estimated using the
following weighted-average information: risk-free interest rate of 5.24% and
5.90%, expected life of 5 years, expected annual volatility of stock price of
28.8% and 30.1% and expected dividends of 3.4%, and 2.7% per year.
At March 31, 2001, options outstanding were as follows:
Number of options 293,712
Range of exercise prices $5.75 to $9.00
Weighted-average exercise price $7.44
Weighted-average remaining option life 6.83 Years
For options now exercisable: number 173,230
Weighted-average exercise price $7.21
All share and per share amounts have been retroactively adjusted for stock
splits.
11
BANK WEST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three and Nine Months Ended March 31, 2001
(Unaudited)
NOTE 5 - MANAGEMENT RECOGNITION PLANS
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. Compensation expense for the
MRPs is recognized on a pro-rata basis over the vesting period of the awards. No
compensation expense related to the MRPs was recognized during the three months
ended March 31, 2001, versus $27,000 for the three months ended March 31, 2000.
For the nine months ended March 31, 2001 and 2000, MRP expense of $36,000 and
$92,000 was recognized. The reduction in compensation expense for current
periods was due to a lower number of MRPs subject to remaining vesting. The
unearned compensation value of the MRPs shown as a reduction to stockholders'
equity in the accompanying consolidated balance sheets was zero at March 31,
2001 versus $36,000 at June 30, 2000. During the quarter, the 39,668 shares not
yet awarded under the officers' MRP were cancelled by the Committee resulting in
a corresponding reduction in total outstanding shares.
NOTE 6 - SECURITIES AVAILABLE FOR SALE
The amortized cost and estimated fair values of securities at March 31, 2001 and
June 30, 2000 are as follows:
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------ ------------ ------------ ---------
March 31, 2001
- --------------
U.S. Treasuries $ 4,182,658 $ 24,864 $ -- 4,207,522
U.S. Agencies 3,999,337 2,874 -- 4,002,211
Corporate bonds 5,849,838 75,559 -- 5,925,397
Taxable municipal bonds 1,414,286 12,084 -- 1,426,370
Non-taxable municipal bonds 205,411 723 (217) 205,917
Mortgage-backed securities 1,770,646 -- (8,217) 1,762,429
Trust preferred stock 485,000 -- (15,000) 470,000
Collateralized mortgage obligations 10,021,369 -- (88,112) 9,933,257
------------ ------------ ------------ ------------
$ 27,928,545 $ 116,104 $ (111,546) $ 27,933,103
============ ============ ============ ============
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
============ ============ ============ ============
12
BANK WEST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three and Nine Months Ended March 31, 2001
(Unaudited)
NOTE 7 - LOANS
Loans are classified as follows:
March 31, June 30,
2001 2000
------------- -------------
Real estate loans:
One-to four-family residential - fixed rate $ 13,225,431 $ 15,425,090
One-to four-family residential - balloon 78,869,113 79,222,832
One-to four-family residential - adjustable 14,397,576 17,215,143
Construction and land development 27,716,961 29,455,954
Commercial mortgages 44,938,184 32,867,625
Home equity lines of credit 13,895,482 12,516,347
Second mortgages 18,654,435 16,580,734
------------- -------------
Total mortgage loans 211,697,182 203,283,725
Consumer loans 2,892,583 2,368,998
Commercial non-mortgage 25,113,921 16,324,067
------------- -------------
Total 239,703,686 221,976,790
Less: Loans in process 10,765,118 11,025,478
Deferred fees and costs (586,120) (609,862)
Allowance for loan losses 1,220,602 843,928
------------- -------------
$ 228,304,086 $ 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 incurred 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.
NOTE 8 - SUBSEQUENT EVENT
On May 1, 2001, the Company entered into a letter of intent with Chemical
Financial Corporation (Chemical), pursuant to which Chemical proposes to acquire
the Company at a price of $11.50 per share in cash. The proposed merger is
subject to the execution of a definitive agreement, approval by the Company's
shareholders and by banking regulators, and other customary conditions. If a
definitive agreement is not executed by May 24, 2001, then either party may
terminate the letter of intent. The Company is in the process of reviewing and
negotiating the terms of the definitive agreement, although there can be no
assurances that a definitive agreement will be executed. The letter of intent
provides that the Company and Chemical shall each pay their own expenses
incident to preparing, entering into and performing their respective obligations
under the letter of intent and any definitive agreement. In addition, the
Company will be obligated to pay a $750,000 termination fee to Chemical if a
third party acquires control of the Company under certain 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 (the "Company") and its wholly owned subsidiary, Bank
West, at March 31, 2001 and June 30, 2000 and the consolidated results of
operations for the three and nine months ended March 31, 2001 with the same
periods in 2000. 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 $10.5 million or 3.9% from $268.4 million at June 30,
2000 to $278.9 million at March 31, 2001. The increase in total assets was
primarily due to an increase in total loans, net by $17.6 million or 8.4% and an
increase in loans held for sale by $5.1 million or 850%. 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. Management expects continued growth in commercial loans during fiscal
2001, which is anticipated to increase the Company's net interest income. The
above increases in asset categories were partially offset by a decrease in
securities available for sale of $14.7 million. Securities decreased primarily
due to sales of agencies and collateralized mortgage obligations 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 Company'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
March 31, 2001 increased by $10.7 million or 669% to $12.3 million compared to
$1.6 million in the March 31, 2000 quarter. For the nine months ended March 31,
2001, loans originated and purchased for resale increased by $17.7 million or
305% versus the nine months ended March 31, 2000. The increases were primarily
due to the recent decline in overall market interest rates. Due to competitive
forces, management has significantly decreased its efforts in the wholesale
mortgage banking business. Since the wholesale mortgage banking business has not
been a significant part of the Company's overall mortgage banking business, no
one-time expenses will be incurred in connection with decreasing the extent of
the wholesale lending business. Mortgage loans originated and purchased for
resale in the current quarter consisted primarily of 30-year fixed-rate loans.
The Company's recent strategy in one- to four -family lending has been to sell
the majority of its volume since residential balloon loan products are available
for portfolio on a limited basis.
The Company has increased its commercial mortgage and commercial non-mortgage
loans by $12.0 million and $8.8 million, respectively since June 30, 2000.
Management expects to continue its emphasis on commercial lending in an effort
to improve the Company'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 Company generally attempts to mitigate the risks associated with
commercial lending by, among other things, lending primarily in its market area
and using conservative loan-to-value ratios in the underwriting process.
Securities available for sale decreased by approximately $14.7 million since
June 30, 2000 primarily due to the sale of collateralized mortgage obligations
and U.S. agencies (see Note 5 to consolidated financial statements for more
information). Securities were sold to generate liquidity to fund anticipated
loan growth. The unrealized gain, net of federal income taxes, on available for
sale securities at March 31, 2001 was $3,009. This amount is shown as a
component of stockholders' equity. The recent decrease in overall market
interest rates has resulted in an $834,000 improvement in the unrealized
position, net of federal income taxes from June 30, 2000.
Cash and cash equivalents increased by $2.7 million from June 30, 2000 to March
31, 2001, primarily due to deposit growth and sales of securities. See
"Liquidity and Capital Resources" section for additional information on the
Company's liquidity.
Total deposits increased by $22.8 million or 14.6% from June 30, 2000 to March
31, 2001, primarily due to an increase in certificates of deposit and money
market accounts. The variety of deposit accounts offered by
15
BANK WEST FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
the Company has allowed it to be competitive in obtaining funds and to respond
with flexibility to changes in consumer demand. The Company has become more
susceptible to short-term fluctuations in deposit flows, as customers have
become more interest rate conscious. Based on its experience, management
believes that its savings, NOW and demand accounts are relatively stable sources
of deposits. However, the Company'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 nine months
ended March 31, 2001, the Company decreased FHLB advances by $14.5 million since
the proceeds from the sales of securities and deposit growth were adequate to
fund loan growth. The Company'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 March 31, 2001, the Company
had broker-arranged certificates of deposit totaling $48.5 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 $24.0
million at March 31, 2001. The increase was primarily due to net income of $1.1
million and a decrease in the net unrealized loss on securities available for
sale by $834,000.
NON-PERFORMING ASSETS AND ALLOWANCE FOR LOAN LOSSES
The table below sets forth the amounts and categories of non-performing assets
at March 31, 2001 and June 30, 2000:
March 31, June 30,
2001 2000
---- ----
(Dollars in Thousands)
Non-accrual loans
One- to four-family $174 $ 14
Construction and land development 156 275
Commercial mortgage -- --
Commercial non-mortgage 106 --
Consumer (including home equity loans) 295 115
---- ----
Total 731 404
Foreclosed assets
One- to four-family 251 380
---- ----
Total non-performing assets $982 $784
==== ====
Total as a percentage of total assets .35% .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 $1,221,000 or 167.0% of total
non-performing loans at March 31, 2001 compared to $844,000 or 208.9% of total
non-performing loans at June 30, 2000. During the three and nine months ended
March 31, 2001, charge-offs totaled $4,000 and $8,000. The decrease in one- to
four- family foreclosed assets relates to selling two single-family properties
during the March 2001 quarter. At March 31, 2001, $130.4 million or 55.3% of the
Company's total loan portfolio was collateralized by first liens on one-to
four-family residences compared to $139.5 million or 62.9% at June 30, 2000.
RESULTS OF OPERATIONS
Net Income. Net income increased by $126,000 or 41.7% in the three months ended
March 31, 2001 and by $405,000 or 54.4% in the nine months ended March 31, 2001
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 in the
nine month period and higher gains on sale of loans. See the following sections
for additional information.
Net Interest Income. Net interest income increased by $163,000 or 9.5% in the
quarter ended March 31, 2001 over the comparable 2000 period primarily due to
the same reasons discussed for the nine month periods following:
For the nine months ended March 31, 2001, net interest income increased by
$588,000 or 12.0% due to higher average loans outstanding by $54.3 million or
31.6% resulting from strong growth in residential balloon mortgages and
commercial loans. This increase was partially offset by a decrease in the
Company's net interest margin from 2.93% for the nine months ended March 31,
2000 to 2.74% for the nine months ended March 31, 2001. The decrease in net
interest margin was primarily due to the upward repricing of certificates of
deposit and FHLB advances. However, the current lower interest rate environment
is expected to improve the Company's net interest margin in the next several
quarters.
17
BANK WEST FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
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.
Nine Months Ended Nine Months Ended
March 31, 2001 March 31, 2000
-------------- --------------
Average Average
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
------- -------- ---- ------- -------- ----
(Dollars in Thousands)
Interest-earning assets:
Loans receivable $226,263 $14,265 8.41% $171,934 $9,976 7.74%
Securities 34,909 1,857 7.09 44,749 2,233 6.65
Interest-bearing deposits 1,210 54 5.95 2,163 94 5.79
FHLB stock 4,500 281 8.33 3,772 220 7.81
-------- ------- ---- -------- ------ ----
Total interest-earning assets 266,882 16,457 8.22 222,618 12,523 7.50
Non-interest-earning assets 10,695 9,275
-------- --------
Total assets $277,577 $231,893
======== ========
Interest-bearing liabilities:
Savings, checking and MMDA's $ 38,716 861 2.97 $ 36,368 713 2.61
Certificates of deposit 131,796 6,283 6.36 97,656 3,929 5.36
Other borrowings 82,109 3,834 6.23 74,515 2,990 5.35
-------- ------ ---- -------- ------ ----
Total interest-bearing liabilities 252,621 10,978 5.79 208,539 7,632 4.88
Non-interest-bearing liabilities 1,973 1,377
-------- --------
Total liabilities 254,594 209,916
Stockholders' equity 22,983 21,977
-------- --------
Total liabilities and stockholders' equity $277,577 $231,893
======== ========
Net interest income; average interest spread $5,479 2.43% $4,891 2.62%
====== ===== ====== =====
Net interest margin 2.74% 2.93%
===== =====
18
BANK WEST FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
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.
Nine Months Ended March 31, 2001 vs.
Nine Months Ended March 31, 2000
Increase
(Decrease)
Due to
------
Total
Rate Increase
Effect Volume (Decrease)
------ ------ ----------
(In Thousands)
Interest income:
Loans receivable $ 922 $ 3,367 $ 4,289
Securities 140 (516) (376)
Interest-bearing deposits 3 (43) (40)
FHLB stock 16 45 61
------- ------- -------
Total interest income 1,081 2,853 3,934
------- ------- -------
Interest expense:
Savings, checking and MMDA's 101 47 148
Certificates of deposit 819 1,535 2,354
Other borrowings 521 323 844
------- ------- -------
Total interest expense 1,441 1,905 3,346
------- ------- -------
Increase (decrease) in net interest income $ (360) $ 948 $ 588
======= ======= =======
Provision for Loan Losses. The provision for loan losses increased by $15,000 or
12.5% and $105,000 or 37.5% in the three and nine months ended March 31, 2001
over the comparable 2000 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 .52% of the
total loan portfolio and 167.0% of nonperforming loans at March 31, 2001
compared to .38% and 208.9% at June 30, 2000.
The Company'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.
19
BANK WEST FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Other Income. Total other income increased by $196,000 or 196% in the three
months ended March 31, 2001 from the comparable prior period. The increase was
primarily due to higher mortgage banking related gain on sale of loans by
$137,000 or 685%. The increase is due to higher mortgage loan sales volume
resulting from the recent decline in mortgage interest rates. Also, gain on sale
of securities was higher by $56,000 due to the favorable interest rate
environment. Fees and service charges were also higher by $23,000 or 22% related
to increased utilization of services in the Company's deposit branch system and
higher mortgage banking fees.
For the nine months ended March 31, 2001, other income increased by $297,000 or
88.4% primarily due to higher gain on sale of loans by $171,000 or 184%, higher
gain on sale of securities by $70,000 and by higher fees and service charges by
$87,000 or 32.3%. The increases were due to the same reasons discussed above.
Other Expenses. Total other expenses increased by $150,000 or 12.2% in the
quarter ended March 31, 2001 over the comparable 2000 period. Compensation and
benefits expense was higher by $96,000 or 13.4% due to higher overall staff
levels. Because the Company's ESOP expense varies based upon the market price of
the Company's common stock, this expense is expected to increase in light of the
increase in the market price of the Company's common stock following the
announcement of the letter of intent with Chemical. Occupancy expense was higher
by $18,000 or 23.7% due primarily to higher repairs and maintenance. Furniture,
fixture and equipment expense was higher by $21,000 or 21.2% due primarily to
depreciation and maintenance agreement costs associated with the purchase of
lending and teller software. The other categories of other expenses did not
materially change during the quarter ended March 31, 2001 versus the comparable
prior period.
For the nine months ended March 31, 2001, total other expenses were higher by
$154,000 or 4.1% from the comparable 2000 period. Increases in compensation and
benefits expense, occupancy, furniture fixtures and equipment, advertising and
miscellaneous expenses were partially offset by decreases in professional fees
and FDIC insurance expense.
Federal Income Tax Expense. Federal income tax expense increased by $69,000 or
41.6% and by $221,000 or 53.6% in the three and nine months ended March 31, 2001
over the comparable 2000 periods due to higher pre-tax income levels.
20
BANK WEST FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
LIQUIDITY AND CAPITAL RESOURCES
The Company 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 due to a favorable interest rate environment to
generate liquidity for anticipated loan growth during the next quarter.
The Company'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 Company 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 March 31, 2001, the Company has approximately $15.0
million of excess borrowing capacity based on eligible collateral under the
hybrid blanket collateral agreement with the FHLB. At March 31, 2001, the
Company had $8.0 million of excess borrowing capacity of Federal Funds with a
correspondent bank. The Company'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 March 31,
2001, the Company had broker-arranged certificates of deposit totaling $48.5
million.
The Company (excluding Bank West) also has a need for, and sources of,
liquidity. Dividends from Bank West 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 March 31, 2001, Bank West was categorized as well capitalized
with a Tier I capital ratio of 8.2% and a risk-based capital ratio of 12.3%
compared to 8.3% and 12.4% at June 30, 2000.
21
BANK WEST FINANCIAL CORPORATION
Form 10-Q
Quarter Ended March 31, 2001
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 Bank West was engaged in the
unauthorized practice of law because it charged residential
mortgagors a $250 document preparation fee and that Bank West
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 Bank West was
made in the Cowles case and an order granting summary
disposition to Bank West 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 Bank West 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.
22
BANK WEST FINANCIAL CORPORATION
Form 10-Q
Quarter Ended March 31, 2001
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:
(a) Exhibits: The following exhibit is filed herewith:
Exhibit No. Description
----------- -----------
10.12 Amendment Number One to
Van Houten Employment Agreement
(b) Reports on Form 8-K:
The Company filed a Form 8-K on May 7, 2001 to report the
execution of a letter of intent with Chemical Financial
Corporation on May 1, 2001. The letter of intent was discussed
under "Item 5. Other Events" of the Form 8-K and was included
as an exhibit to the Form 8-K. No financial statements were
required to be filed with the Form 8-K.
23
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: May 14, 2001 /s/ Ronald A. Van Houten
------------ ------------------------
Ronald A. Van Houten,
President and Chief Executive Officer
(Duly Authorized Officer)
Date: May 14, 2001 /s/ Kevin A. Twardy
------------ -------------------
Kevin A. Twardy, Vice President and
Chief Financial Officer
(Principal Financial Officer)
24