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, 1996
[ ] 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 12,
1997: 1,819,475.
BANK WEST FINANCIAL CORPORATION
FORM 10-Q
Quarter Ended December 31, 1996
PART I - FINANCIAL INFORMATION
Interim Financial Information required by Rule 10-01 of Regulation S-X and Item
303 of Regulation S-K is included in this Form 10-Q as referenced below:
ITEM 1 - Financial Statements
Consolidated Statements of Financial Condition -
December 31, 1996 (unaudited) and June 30, 1996
Consolidated Statements of Income (unaudited) -
For The Three and Six Months Ended December 31, 1996 and 1995
Consolidated Statements of Cash Flows (unaudited) -
For The Six Months Ended December 31, 1996 and 1995
Notes to Consolidated Financial Statements
ITEM 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations
PART II - OTHER INFORMATION
ITEM 1 - Legal Proceedings
ITEM 2 - Changes in Securities
ITEM 3 - Defaults upon Senior Securities
ITEM 4 - Submission of Matters to a Vote of Security Holders
ITEM 5 - Other Information
ITEM 6 - Exhibits and Reports on Form 8-K
SIGNATURES
BANK WEST FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
December 31, June 30,
1996 1996
------------- -------------
(Unaudited)
ASSETS
Cash and due from banks ............................ $ 1,552,822 $ 1,571,662
Interest-bearing deposits .......................... 3,704,393 5,122,427
------------- -------------
Total cash and cash equivalents .............. 5,257,215 6,694,089
Interest-bearing time deposits ..................... 99,000 298,000
Securities available for sale (Note 6) ............. 26,746,336 22,779,280
Securities held to
maturity
(market value: $2,002,500 at December 31, 1996, .. 2,001,810 2,004,288
$2,006,000 at June 30, 1996) (Note 6)
Trading securities ................................. 1,858,138 708,438
Loans held for sale (Note 7) ...................... 3,370,085 4,297,092
Loans, net (Note 8) ................................ 98,287,781 95,737,191
Federal Home Loan Bank stock ....................... 1,475,000 1,475,000
Premises and equipment ............................. 3,185,814 3,106,972
Accrued interest receivable ........................ 623,665 632,043
Mortgage servicing rights .......................... 141,686 142,697
Other assets ....................................... 139,343 107,216
------------- -------------
Total assets .................................. $ 143,185,873 $ 137,982,306
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits ........................................... $ 97,446,812 $ 91,028,072
Short-term FHLB borrowings ......................... 9,046,569 6,000,000
Long-term FHLB borrowings .......................... 13,000,000 13,000,000
Accrued interest payable ........................... 189,554 156,946
Advance payments by borrowers
for taxes and insurance ......................... 200,909 459,391
Deferred federal income tax ........................ 245,905 225,760
Other liabilities .................................. 363,390 301,691
------------- -------------
Total liabilities ........................... 120,493,139 111,171,860
------------- -------------
BANK WEST FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(continued)
December 31, June 30,
1996 1996
------------- -------------
(Unaudited)
Stockholders' Equity:
Common stock, $.01 par value;
10,000,000 shares authorized; issued and outstanding
1,819,475 shares at December 31, 1996
and 2,199,575 shares at June 30, 1996 (Note 3) ..... 18,195 21,996
Additional paid-in-capital ......................... 12,196,983 16,542,107
Retained earnings, substantially restricted ........ 12,292,492 12,231,242
Net unrealized loss on securities available for
sale, net of tax of $75,934 at December 31, 1996
and $106,834 at June 30, 1996 .................. (147,402) (207,387)
Unallocated ESOP shares (Note 4) ................... (1,069,248) (1,134,048)
Unearned Management Recognition Plan shares (Note 5) (598,286) (643,464)
------------- -------------
Total stockholders' equity .................. 22,692,734 26,810,446
------------- -------------
Total liabilities and stockholders' equity .. $ 143,185,873 $ 137,982,306
============= =============
See accompanying notes to consoldiated financial statements.
BANK WEST FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended Six Months Ended
December 31, December 31,
1996 1995 1996 1995
----------- ----------- ----------- -----------
Interest and dividend income
Loans ........................... $ 2,003,201 $ 1,977,928 $ 3,949,487 $ 3,864,757
Investment securities............ 95,990 120,355 193,682 299,215
Mortgage-backed securities ...... 387,195 311,318 711,963 644,887
Other interest-bearing deposits . 46,882 65,289 122,591 165,778
Dividends on FHLB stock ......... 29,105 40,516 58,210 81,315
----------- ----------- ----------- -----------
2,562,373 2,515,406 5,035,933 5,055,952
----------- ----------- ----------- -----------
Interest expense
1,213,173 1,168,125 2,378,913 2,321,352
Deposits
Short-term FHLB borrowings ...... 113,364 116,694 194,524 223,685
Long-term FHLB borrowings ....... 183,427 219,818 365,316 489,122
----------- ----------- ----------- -----------
1,509,964 1,504,637 2,938,753 3,034,159
----------- ----------- ----------- -----------
Net interest income ..................... 1,052,409 1,010,769 2,097,180 2,021,793
Provision for loan losses ............... 15,000 9,000 30,000 16,000
----------- ----------- ----------- -----------
Net interest income after provision
for loan losses ..................... 1,037,409 1,001,769 2,067,180 2,005,793
----------- ----------- ----------- -----------
Other income
Gain on sale of securities ...... -- 1,273 (1,870) 4,773
Gain on trading securities ...... 287,546 7,000 479,071 7,000
Gain on sale of loans............ 141,547 147,174 276,218 268,916
Fees and service charges ........ 71,033 41,820 120,049 81,076
Miscellaneous income............. 18,260 5,795 30,645 9,281
----------- ----------- ----------- -----------
518,386 203,062 904,113 371,046
----------- ----------- ----------- -----------
BANK WEST FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(continued)
Three Months Ended Six Months Ended
December 31, December 31,
1996 1995 1996 1995
----------- ----------- ----------- -----------
Other expenses
Compensation and benefits ....... 567,830 461,964 1,101,661 910,608
Professional fees ............... 59,968 73,100 103,998 115,212
Federal Deposit Insurance ....... 37,551 48,857 88,553 97,041
FDIC Special Assessment (Note 9) -- -- 553,000 --
Occupancy ....................... 56,844 59,147 123,889 97,618
Furniture, fixtures and equipment 33,858 28,028 65,249 57,971
Data processing ................. 47,081 32,587 86,047 68,605
Advertising ..................... 42,053 18,276 63,081 31,705
State taxes ..................... 21,000 10,000 27,000 25,000
Miscellaneous ................... 133,430 154,508 251,749 262,743
----------- ----------- ----------- -----------
999,615 886,467 2,464,227 1,666,503
----------- ----------- ----------- -----------
Income before federal income tax expense 556,180 318,364 507,066 710,336
Federal income tax expense .............. 190,300 108,325 172,700 241,500
----------- ----------- ----------- -----------
Net income .............................. $ 365,880 $ 210,039 $ 334,366 $ 468,836
=========== =========== =========== ===========
Earnings per share (Note 2) ............. $ .21 $ .10 $ .18 $ .22
=========== =========== =========== ===========
Dividends per share ..................... $ .07 $ .07 $ .14 $ .14
=========== =========== =========== ===========
See accompanying notes to consolidated financial statements.
BANK WEST FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
December 31,
1996 1995
------------ ------------
Cash flows from operating activities
Net income ............................................... $ 334,366 $ 468,836
Adjustments to reconcile net income to
net cash from operating activities
Origination and purchase of loans for sale .......... (17,961,331) (21,351,959)
Proceeds from sale of mortgage loans ................ 19,164,556 18,704,966
Purchase of trading securities ...................... (2,908,400) (349,663)
Proceeds from sale of trading securities ............ 2,237,771 105,000
Net (gain) on sales of:
Loans............................................. (276,218) (268,916)
Securities ....................................... (477,201) (11,773)
Depreciation ........................................ 91,710 87,047
Amortization of premiums, net ....................... 8,063 68,996
Loss on disposal of fixed assets .................... -- 1,724
ESOP expense ........................................ 88,594 82,519
MRP expense ......................................... 75,400 33,398
Provision for loan losses ........................... 30,000 16,000
Change in:
Deferred loan fees ............................... 25,278 15,390
Other assets ..................................... (22,738) (166,269)
Other liabilities ................................ (174,931) (413,934)
------------ ------------
Net cash from operating activities .......... 234,919 (2,978,638)
------------ ------------
Cash flows from investing activities
Increase in interest-bearing time deposits ............... 199,000 98,000
Purchases of securities available for sale ............... (5,685,895) (7,587,549)
Proceeds from sale of securities available for sale ...... 1,495,001 1,201,750
Proceeds from maturity or call of securities ............. -- 6,280,000
Loan originations, net of repayments ..................... (2,294,118) 2,045,258
Loans purchased .......................................... (311,750) (599,850)
Principal payments on mortgage-backed securities and CMO's 307,269 1,922,278
Property and equipment expenditures ...................... (170,552) (158,031)
------------ ------------
Net cash from investing activities .......... (6,461,045) 3,201,856
------------ ------------
Cash flows from financing activities
Increase (decrease) in FHLB advances ..................... 1,780,390 106,077
Repayment of long-term FHLB borrowings ................... -- (3,000,000)
Increase (decrease) in deposits .......................... 7,684,919 2,856,704
Dividends paid on common stock ........................... (273,116) (324,013)
Repurchase of common stock ............................... (4,402,941) (934,893)
------------ ------------
Net cash from financing activities .......... 4,789,252 (1,296,125)
------------ ------------
See accompanying notes to consolidated financial statements.
BANK WEST FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)
Six Months Ended
December 31,
1996 1995
------------ ------------
Net change in cash and cash equivalents ................. (1,436,874) (1,072,907)
Cash and cash equivalents at beginning of period ........ 6,694,089 4,595,231
------------ ------------
Cash and cash equivalents at end of period .............. $ 5,257,215 $ 3,522,324
============ ============
Supplemental disclosures of cash flow information
Cash paid during the period for
$ 2,906,145 $ 2,983,440
Interest
Income taxes ............................. 171,050 170,000
Supplemental disclosures of noncash investing activities:
Transfer of securities from held to
maturity to available for sale ......... -- 15,008,939
During November of 1995, securities with a carrying value of $15,008,939 and a
fair value of $14,964,245 were transferred from securities held to maturity to
securities available for sale (Note 6).
See accompanying notes to consolidated financial statements.
BANK WEST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three and Six Months Ended December 31, 1996
(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, F.S.B. (the Bank). All significant intercompany accounts and
transactions have been eliminated in consolidation.
The accompanying unaudited consolidated financial statements were prepared in
accordance with instructions for Form 10-Q and, therefore, do not include
information or footnotes necessary for a complete presentation of financial
position, results of operations and cash flows in conformity with generally
accepted accounting principles. However, all adjustments (consisting only of
normal recurring accruals) which, in the opinion of management, are necessary
for a fair presentation of the consolidated financial statements have been
included.
The results of operations for the three and six months ended December 31, 1996
are not necessarily indicative of the results to be expected for the year ending
June 30, 1997. 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, 1996, included in the
Company's 1996 Annual Report.
NOTE 2 - EARNINGS PER SHARE
Earnings per share is based on the weighted average number of outstanding common
shares and common stock equivalents which would arise from the exercise of stock
options and the vesting of Management Recognition Plan (MRP) shares. Employee
Stock Ownership Plan (ESOP) shares are considered outstanding for earnings per
share calculations as they are committed to be released; unallocated shares are
not considered outstanding. Common stock equivalents associated with the stock
options and MRP shares were not material to the computation of earnings per
share for the three and six months ended December 31, 1996. The weighted average
number of shares outstanding for the three and six months ended December 31,
1996 was 1,735,991 and 1,825,677, respectively.
NOTE 3 - ADOPTION OF PLAN OF CONVERSION
On October 24, 1994, the Board of Directors of the Bank, subject to regulatory
approval and approval by the members of the Bank, unanimously adopted a Plan of
Conversion to convert from a federally chartered mutual savings bank to a
federally chartered stock savings bank with the concurrent formation of a
holding company (the "Conversion"). On December 13, 1994, the Bank incorporated
the Company in the state of Michigan to facilitate the Conversion of the Bank
from mutual to stock form. Proceeds of $18,515,000 were received by the Company
from the sale of 2,314,375 shares of common stock. Conversion costs totalling
$694,236 were deducted from the proceeds of the shares sold in the Conversion.
The Company used 50% of the net proceeds to purchase all of the common stock
issued by the Bank. The Bank is now a wholly-owned subsidiary of the Company.
BANK WEST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three and Six Months Ended December 31, 1996
(Unaudited)
NOTE 4 - 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 ("IRS") that the ESOP is a tax-qualified plan.
To fund the ESOP, $1,296,048 was borrowed from the Company for the purpose of
purchasing 162,006 shares of common stock at $8.00 per share. Principal and
interest payments on the loan are due in quarterly installments, with the final
payment of principal and accrued interest being due and payable at maturity,
which is June 30, 2005. Interest is payable during the term of the loan at a
fixed rate of 7.0%. The loan is collateralized by the shares of the Company's
common stock purchased with the proceeds. As the Bank periodically makes
contributions to the ESOP to repay the loan, shares are allocated among
participants on the basis of total compensation, as defined. ESOP expense of
$43,031 and $88,594 was recorded for the three and six months ended December 31,
1996, respectively.
NOTE 5 - STOCK BASED COMPENSATION PLANS
An employee stock option plan and a directors' stock option plan (SOPs) and an
officers' and a directors' management recognition plan (MRPs) were authorized by
the shareholders at the October 25, 1995 annual meeting. The employee stock
option plan and the officers' MRP are administered by a committee of
non-employee directors of the Company, while grants under the directors' stock
option plan and the directors' MRP are pursuant to formulas set forth in the
plans. Total shares made available under the SOPs and MRPs were 231,437 and
92,575, respectively. The committee has awarded under the SOPs options to
purchase 166,626 shares of common stock at exercise prices between $9.9375 and
$11.00 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, 1996, there
were 64,811 option shares reserved for future grants. As of December 31, 1996,
no options have been exercised or canceled. No compensation expense was
recognized in connection with the issuance of the options.
In October 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 123, "Accounting for Stock Based
Compensation" (SFAS No. 123). The Statement establishes a fair value based
method of accounting for employee stock options and similar equity instruments,
such as warrants, and encourages all companies to adopt that method of
accounting for their employee stock compensation plans. However, SFAS No. 123
allows companies to continue measuring compensation cost for such plans using
accounting guidance in place prior to SFAS No.123. Companies that elect to
remain with the former method of accounting must make pro-forma disclosures of
net income and earnings per share as if the fair value method provided for in
SFAS No. 123 had been adopted. This Statement is effective for the Company at
the beginning of its current fiscal year.
BANK WEST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three and Six Months Ended December 31, 1996
(Unaudited)
NOTE 5 - STOCK BASED COMPENSATION PLANS (Continued)
Management has concluded that the Company will not adopt the accounting
provisions of SFAS No. 123 and will continue to apply its current method of
accounting. Accordingly, adoption of SFAS No. 123 will have no impact on the
Company's consolidated financial position or results of operations.
On November 13, 1995, the Company repurchased 4% of its outstanding shares and
placed them in a trust for the exclusive use of the MRPs. As of December 31,
1996, 77,019 shares have been awarded under the MRPs. MRP awards vest in five
equal annual installments, with the first award vesting on October 25, 1996.
Compensation expense for the MRPs is recognized on a pro-rata basis over the
vesting period of the awards. During the three and six months ended December 31,
1996, $38,200 and $75,400 was charged to compensation expense for the MRPs. The
unearned compensation value of the MRPs is shown as a reduction to stockholders'
equity in the accompanying consolidated statements of financial condition.
NOTE 6 - SECURITIES
The amortized cost and estimated fair values of securities at December 31, 1996
and June 30, 1996 are as follows:
Available for Sale
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------- ------- -------- -----------
December 31, 1996 (unaudited)
U.S. agencies $ 3,997,930 $ 5,000 $ 29,982 $ 3,972,948
Mortgage-backed securities 2,087,214 7,987 26,835 2,068,366
Collateralized mortgage obligations 20,884,529 36,974 216,481 20,705,022
---------- ------- -------- -----------
$26,969,673 $49,961 $273,298 $26,746,336
=========== ======= ======== ===========
June 30, 1996
U.S. agencies $ 4,997,678 $ 7,500 $60,110 $4,945,068
Corporate bonds 496,870 - 4,271 492,599
Mortgage-backed securities 2,330,061 3,524 26,089 2,307,496
Collateralized mortgage obligations 15,268,892 302 235,077 15,034,117
---------- ------- -------- -----------
$23,093,501 $11,326 $325,547 $22,779,280
=========== ======= ======== ===========
BANK WEST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three and Six Months Ended December 31, 1996
(Unaudited)
NOTE 6 - SECURITIES (Continued)
Held to Maturity
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------- ------- -------- -----------
December 31, 1996 (unaudited)
U.S. agencies $2,001,810 $ 976 $ 286 $2,002,500
========== ====== ===== ==========
June 30, 1996
U.S. agencies $2,004,288 $ 3,998 $2,286 $2,006,000
========== ======= ====== ==========
NOTE 7 - SECONDARY MARKET MORTGAGE ACTIVITIES
The following summarizes the Company's secondary market mortgage activities,
which consist solely of one- to four-family real estate loans:
Six Months Ended
December 31,
1996 1995
---- ----
Loans held for sale - beginning of period .... $ 4,297,092 $ 2,746,019
Activity during the periods:
Loans originated and purchased for sale ...... 17,961,331 21,351,959
Proceeds from sale of loans originated
and purchased for sale ..................... (19,164,556) (18,704,966)
Gain on sale of loans ........................ 276,218 268,918
------------ ------------
Loans held for sale - end of period .......... $ 3,370,085 $ 5,661,928
============ ============
The unpaid principal balance of mortgage loans serviced for others amounted to
$27.9 million and $28.6 million at December 31, 1996 and June 30, 1996,
respectively. Custodial escrow balances maintained in connection with the
foregoing loans serviced for others were $23,598 and $135,011 at December 31,
1996 and June 30, 1996, respectively.
BANK WEST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three and Six Months Ended December 31, 1996
(Unaudited)
NOTE 8 - LOANS
Loans are classified as follows:
December 31, June 30,
1996 1996
------------ ------------
Real estate loans:
One-to four-family residential - fixed rate $ 19,219,581 $ 20,351,715
One-to four-family residential - balloon 12,337,742 12,841,337
One-to four-family residential - adjustable 46,734,284 47,544,192
Construction 16,501,204 14,073,497
Commercial mortgages 1,708,439 1,193,464
Home equity lines of credit 3,803,128 2,214,227
Second mortgages 2,484,186 1,927,282
------------ ------------
Total mortgage loans 102,788,564 100,145,714
Consumer loans 948,732 622,353
Commercial non-mortgage 1,122,645 1,010,076
------------ ------------
Total 104,859,941 101,778,143
Less:
Loans in process 6,354,191 5,827,705
Deferred fees and costs 22,107 47,385
Allowance for loan losses 195,862 165,862
------------ ------------
$ 98,287,781 $ 95,737,191
NOTE 9 - FDIC SPECIAL ASSESSMENT
On September 30, 1996, as part of the omnibus appropriations package signed by
President Clinton, the government mandated a special assessment to recapitalize
the Savings Association Insurance Fund ("SAIF"), which is administered by the
Federal Deposit Insurance Corporation ("FDIC"). The one-time, special SAIF
assessment amounted to $.657 for every $100 of SAIF-insured deposits as of March
31, 1995. The FDIC notified the Bank that the Bank's special assessment was
$553,000, which after taxes reduced the Company's net income by $365,000 or
$0.19 per share in the quarter ended September 30, 1996. The Bank's deposit
premiums, which were $.23 for every $100 of assessable deposits in 1996, were
reduced to $.064 for every $100 of assessable deposits beginning January 1,
1997. Based on the Bank's deposits at December 31, 1996, the premium reduction
should result in a pre-tax cost savings of approximately $162,000 per year for
the Bank, or approximately $.06 per share after taxes.
NOTE 10 - SUBSEQUENT EVENT
On January 27, 1997, the Company declared a quarterly dividend of $.07 per share
payable February 21, 1997 to shareholders of record on February 10, 1997.
BANK WEST FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion compares the financial condition of Bank West Financial
Corporation and its wholly owned subsidiary, Bank West, F.S.B., at December 31,
1996 and June 30, 1996 and the results of operations for the three and six
months ended December 31, 1996 with the same periods in 1995. This discussion
should be read in conjunction with the interim consolidated financial statements
and footnotes included herein.
FINANCIAL CONDITION
Total assets increased by $5.2 million or 3.8% from $138.0 million at June 30,
1996 to $143.2 million at December 31, 1996. The increase was primarily
attributable to net loan growth of $2.5 million and the purchase of $4.0 million
in additional collateralized mortgage obligations.
The Bank's mortgage banking activities consist of selling newly originated and
purchased loans into the secondary market. The dollar amount of loans originated
in the six months ended December 31, 1996 declined by $3.4 million or 15.9% to
$18.0 million compared to $21.4 million originated in the comparable prior
period. The decline in loan originations is a result of the increase in the
overall interest rate environment compared to the prior year. Total loans sold
amounted to $19.2 million and $18.7 million in the six months ended December 31,
1996 and 1995, respectively. Loans held for sale amounted to $3.4 million and
$5.7 million at December 31, 1996 and 1995, respectively. The Bank continues to
increase the number of correspondent lending relationships and is exploring
additional options to increase retail loan volume. The majority of loans
originated and purchased in the current fiscal year have been 30-year fixed-rate
loans. The Bank has sold the majority of these loans increasing the ratio of its
interest-sensitive assets to its interest-sensitive liabilities.
Mortgage-backed securities (including collateralized mortgage obligations) have
increased from $17.3 million at June 30, 1996 to $22.8 million at December 31,
1996. As permitted by the Financial Accounting Standards Board (FASB), the Bank
made a one-time reclassification of all of its mortgage-backed securities and
collateralized mortgage obligations on November 20, 1995 from the held to
maturity classification to the available for sale classification. At December
31, 1996, the unrealized loss on securities (including mortgage-backed
securities and collateralized mortgage obligations) classified as available for
sale totalled $147,402 net of federal income taxes and is shown as a reduction
in stockholders' equity.
The Bank's nonperforming assets totalled $67,000 or .05% of total assets at
December 31, 1996. The Bank's low nonperforming assets are primarily due to the
Bank's conservative underwriting criteria. At December 31, 1996, $94.8 million
or 90.4% of the Bank's total loan portfolio was collateralized by first liens on
one-to four-family residences, and the net loan portfolio amounted to 68.6% of
total assets. During the six months ended December 31, 1996, there were no net
charge-offs. The Company has recently expanded its loan product line to include
additional consumer loan products and small business loans (see Note 8 for
outstanding balances). The Company expects these activities to improve its net
interest margin and make the Bank more competitive in the market.
BANK WEST FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Total deposits increased by $6.4 million or 7.1% from June 30, 1996 to December
31, 1996 primarily due to an increase in certificates of deposit of $3.7
million. The variety of deposit accounts offered by the Bank has allowed it to
be competitive in obtaining funds and to respond with flexibility to changes in
consumer demand. The Bank has become more susceptible to short-term fluctuations
in deposit flows, as customers have become more interest rate conscious. Based
on its experience, the Bank believes that its passbook savings, statement
savings, money market accounts, NOW and demand accounts are relatively stable
sources of deposits. However, the ability of the Bank to attract and maintain
certificates of deposit, and the rates paid on these deposits, has been and will
continue to be affected by market conditions.
Because the growth in deposits has not matched the growth in assets in recent
years, the Bank began using FHLB advances. Short-term FHLB advances have
generally been used to fund the Bank's mortgage banking activities, loan and
investment securities growth. Short-term FHLB advances increased from $6.0
million at June 30, 1996 to $9.0 million at December 31, 1996.
Stockholders' equity decreased from $26.8 million at June 30, 1996 to $22.7
million at December 31, 1996. The decrease was primarily due to $4.4 million
being utilized to repurchase 380,000 shares of the Company's outstanding common
stock during the six months ended December 31, 1996.
RESULTS OF OPERATIONS
Net Income. Net income increased by $156,000 or 74.3% in the quarter ended
December 31, 1996 to $366,000 from $210,000 in the comparable 1995 period. The
increase was primarily due to a $281,000 increase in gain on trading securities
and a $42,000 increase in net interest income. These amounts were partially
offset by an increase in other expenses of $113,000. For the six months ended
December 31, 1996, net income decreased by $135,000 or 28.8%. The decrease was
primarily due to the one-time FDIC special assessment which had an after tax
impact of $365,000 (See Note 9 for further discussion). Excluding the impact of
the FDIC special assessment, net income increased by $231,000 or 49.2% due to an
increase in other income and net interest income. These amounts were partially
offset by increases in other expenses.
Net Interest Income. Net interest income increased by $42,000 or 4.1%, and by
$75,000 or 3.7% in the three and six months ended December 31, 1996, over the
comparable 1995 periods, respectively. Net interest income increased due to an
increase in the average interest rate spread, which increased to 2.45% and 2.39%
in the three and six months ended December 31, 1996, respectively, from 2.02%
and 2.00% in the comparable 1995 periods. The increased spreads were primarily
due to a decrease in the average cost of funds to 5.19% and 5.16% in the three
and six months ended December 31, 1996, respectively, from 5.47% and 5.50% in
the comparable prior year periods, reflecting the continued emphasis on
attracting lower costing core deposits.
Provision for Loan Losses. The provision for loan losses increased by $6,000 or
66.7% in the three months ended December 31, 1996 over the comparable 1995
period. The allowance for loan losses totalled $196,000 or .19% of the total
loan portfolio at December 31, 1996. However, the allowance for loan losses
represented 292.5% of total non-performing loans at such date. Because of the
BANK WEST FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
stability of the loan portfolio's credit quality, management budgets a provision
for the entire year, and, on a quarterly basis, reviews this amount to determine
if any change in the amount of the provision is necessary. For fiscal 1997,
management increased the amount of the provision to $15,000 in the first quarter
and anticipates providing additional reserves relative to the growth in the
small business and consumer loan portfolios. Management of the Company believes
that the allowance is adequate to cover losses that are probable and reasonably
estimable based on past loss experience, general economic conditions,
information about specific borrower situations, and other factors and estimates
which are subject to change over time.
Other Income. Total other income increased by $315,000 or 155.2% in the three
months ended December 31, 1996 from the comparable prior period. The increase
was primarily due to a $281,000 increase in gain on trading securities and a
$29,000 or 69.9% increase in mortgage related fees and service charges. The
increase in fees and service charges are primarily due to the Bank emphasizing
construction loan programs and higher loan servicing related revenues. During
the six months ended December 31, 1996, total other income increased $533,000.
The increase was primarily due to a $472,000 increase in gain on trading
securities and a $39,000 or 48.1% increase in mortgage related fees and service
charges.
Other Expenses. Total other expenses increased by $113,000 or 12.8% in the
quarter ended December 31, 1996 over the comparable 1995 period. The increase
was primarily due to increased compensation and benefits expense of $106,000 or
22.9% as a result of the hiring of additional staff to expand the Bank's core
business activities. Advertising and data processing expenses increased by
$24,000 and $14,000, respectively, during the quarter as a result of one-time
costs associated with the opening of the Bank's third branch location. The other
categories of other expenses did not significantly change in the three months
ended December 31, 1996.
Total other expenses increased by $798,000 or 47.9% in the six months ended
December 31, 1996. The increase was primarily due to a $553,000 FDIC special
assessment to recapitalize the SAIF insurance fund (See Note 9 of Notes to
Consolidated Financial Statements). Compensation and benefits expense also
increased by $191,000 or 21.0% primarily as a result of hiring additional staff
to expand the Bank's core business activities and recognition of MRP expense.
Occupancy expense increased by $26,000 or 26.9% related to the opening of the
main office/branch facility and higher depreciation expense associated with the
renovation of the previous main office building. Advertising expense increased
by $31,000 or 96.9% as a result of one-time costs associated with the opening of
the Bank's third branch location. The other categories of other expenses did not
significantly change in the six months ended December 31, 1996.
Federal Income Tax Expense. Federal income tax expense increased by $82,000 or
75.9% in the quarter ended December 31, 1996 from the comparable 1995 period.
The increase was due to an increase in pre-tax income. For the six months ended
December 31, 1996, federal income tax expense decreased by $69,000 or 28.5% from
the comparable 1995 period due to a decrease in pre-tax income related to the
special SAIF charge during the period.
BANK WEST FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
LIQUIDITY
Bank West's principal sources of funds are deposits, principal and interest
payments on loans, sales of loans, maturities of securities, and FHLB advances.
While scheduled loan repayments and maturing investments are readily
predictable, deposit flows and loan prepayments are more influenced by interest
rates, general economic conditions and competition. Bank West uses its capital
resources principally to fund mortgage loan commitments, maturing certificates
of deposit and savings withdrawals, and provide for its foreseeable short and
long-term liquidity needs.
Bank West is required under applicable federal regulations to maintain specified
levels of "liquid" investments in qualifying types of U.S. Government, federal
agency and other investments having maturities of five years or less. Current
OTS regulations require that a savings institution maintain liquid assets of not
less than 5% of its average daily balance of net withdrawable deposit accounts
and borrowings payable in one year or less, of which short-term liquid assets
must consist of not less than 1%. At December 31, 1996, Bank West's liquidity
was 12.0% or $7.0 million in excess of the minimum OTS requirement.
CAPITAL RESOURCES
Savings institutions insured by the Federal Deposit Insurance Corporation and
regulated by the OTS are required to meet three regulatory capital requirements.
If a requirement is not met, regulatory authorities may take legal or
administrative actions, including restrictions on growth or operations or, in
extreme cases, seizure. Institutions not in compliance must submit a
recapitalization or merger plan.
At December 31, 1996, under these capital requirements, the Bank had:
Actual Requirement Excess
------ ----------- ------
Tangible capital ratio 13.5% 1.5% 12.0%
Leverage capital ratio 13.5 3.0 10.5
Risk-based capital ratio 27.5 8.0 19.5
At June 30, 1996, under these capital requirements, the Bank had:
Actual Requirement Excess
------ ----------- ------
Tangible capital ratio 15.4% 1.5% 13.9%
Leverage capital ratio 15.4 3.0 12.4
Risk-based capital ratio 31.4 8.0 23.4
During the quarter ended December 31, 1996, the Bank paid an upstream dividend
of $1,500,000 to the Company. This amount was utilized by the Company during its
most recent ten percent stock repurchase program.
BANK WEST FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
NEW ACCOUNTING STANDARDS
In May 1993, the FASB issued SFAS No. 114, "Accounting by Creditors for
Impairment of a Loan." SFAS No. 114 is effective for fiscal years beginning
after December 15, 1994. The Statement establishes accounting measurement,
recognition and reporting standards for impaired loans. SFAS No. 114 was amended
in October 1994 by SFAS No. 118, "Accounting by Creditors for Impairment of a
Loan - Income Recognition and Disclosures." SFAS No. 118 amended SFAS No. 114
primarily to remove its income recognition requirements and add some disclosure
requirements. The adoption of SFAS No. 114, as amended by SFAS No. 118, has not
been material to the Company's consolidated financial condition or results of
operations.
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of,"
will require the Company to periodically consider whether an impairment loss
should be recognized on long-lived assets and other certain intangible assets
based on an estimate of future cash flows. SFAS No. 121 is effective for fiscal
years beginning after December 15, 1995, and earlier adoption is encouraged.
Adoption of this Statement is not expected to have a material impact on the
Company's consolidated financial condition or results of operations.
BANK WEST FINANCIAL CORPORATION
Form 10-Q
Quarter Ended December 31, 1996
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings:
There are no matters required to be reported under this item.
Item 2 - Changes in Securities:
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.
Item 5 - Other Information:
There are no matters required to be reported under this item.
Item 6 - Exhibits and Reports on Form 8-K:
(a) Exhibits: The following exhibit is filed herewith:
Exhibit No. Description
----------- -----------
27.1 Financial Data Schedule
(b) Reports on Form 8-K:
No reports on Form 8-K were filed by the Registrant
during the quarter ended December 31, 1996.
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 13, 1997 /s/ Paul W. Sydloski
----------------------
Paul W. Sydloski, President and
Chief Executive Officer
(Duly Authorized Officer)
Date: February 13, 1997 /s/ Kevin A. Twardy
---------------------
Kevin A. Twardy, Vice President and
Chief Financial Officer
(Principal Financial Officer)