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, 1997
[ ] 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 May 9, 1997:
1,783,475.
BANK WEST FINANCIAL CORPORATION
FORM 10-Q
Quarter Ended March 31, 1997
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 -
March 31, 1997 (unaudited) and June 30, 1996 . . . . . . . .
Consolidated Statements of Income (unaudited) -
For The Three and Nine Months Ended March 31, 1997 and 1996 .
Consolidated Statements of Cash Flows (unaudited) -
For The Nine Months Ended March 31, 1997 and 1996. . . . . .
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
March 31, June 30,
1997 1996
------------- -------------
(Unaudited)
ASSETS
Cash and due from banks ............................ $ 1,720,067 $ 1,571,662
Interest-bearing deposits .......................... 2,396,214 5,122,427
------------- -------------
Total cash and cash equivalents .............. 4,116,281 6,694,089
Interest-bearing time deposits ..................... 99,000 298,000
Securities available for sale (Note 6) ............. 26,398,905 22,779,280
Securities held to
maturity
(market value: $4,008,643 at March 31, 1997, ..... 4,003,956 2,004,288
$2,006,000 at June 30, 1996) (Note
6)
Trading securities ................................. 1,783,966 708,438
Loans held for sale (Note 7) ...................... 1,682,592 4,297,092
Loans, net (Note 8) ................................ 103,296,781 95,737,191
Federal Home Loan Bank stock ....................... 1,475,000 1,475,000
Premises and equipment ............................. 3,161,644 3,106,972
Accrued interest receivable ........................ 658,288 632,043
Mortgage servicing rights .......................... 144,233 142,697
Real estate owned .................................. 45,928 --
Other assets ....................................... 152,454 107,216
------------- -------------
Total assets .................................. $ 147,019,028 $ 137,982,306
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits ........................................... $ 100,460,370 $ 91,028,072
Short-term FHLB borrowings ......................... 10,073,446 6,000,000
Long-term FHLB borrowings .......................... 13,000,000 13,000,000
Accrued interest payable ........................... 188,853 156,946
Advance payments by borrowers
for taxes and insurance ......................... 310,271 459,391
Deferred federal income tax ........................ 251,443 225,760
Other liabilities .................................. 226,256 301,691
------------- -------------
Total liabilities ........................... 124,510,639 111,171,860
------------- -------------
BANK WEST FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(continued)
March 31, June 30,
1997 1996
------------- -------------
(Unaudited)
Stockholders' Equity:
Common stock, $.01 par value;
10,000,000 shares authorized; issued and outstanding
1,783,475 shares at March 31, 1997
and 2,199,575 shares at June 30, 1996 (Note 3) ..... 17,835 21,996
Additional paid-in-capital ......................... 11,795,593 16,542,107
Retained earnings, substantially restricted ........ 12,427,016 12,231,242
Net unrealized loss on securities available for
sale, net of tax of $70,396 at March 31, 1997
and $106,834 at June 30, 1996 .................. (136,651) (207,387)
Unallocated ESOP shares (Note 4) ................... (1,036,848) (1,134,048)
Unearned Management Recognition Plan shares (Note 5) (558,556) (643,464)
------------- -------------
Total stockholders' equity .................. 22,508,389 26,810,446
------------- -------------
Total liabilities and stockholders' equity .. $ 147,019,028 $ 137,982,306
============= =============
See accompanying notes to consoldiated financial statements.
BANK WEST FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended Nine Months Ended
March 31, March 31,
1997 1996 1997 1996
----------- ----------- ----------- -----------
Interest and dividend income
Loans ........................... $ 2,047,688 $ 2,012,071 $ 5,997,175 $ 5,876,828
Investment ...................... 79,692 108,106 273,374 407,321
securities
Mortgage-backed securities ...... 394,935 298,290 1,106,898 943,177
Other interest-bearing deposits . 51,549 66,387 174,140 232,165
Trading securities .............. 4,101 -- 7,289 --
Dividends on FHLB stock ......... 28,550 41,761 86,760 123,076
----------- ----------- ----------- -----------
2,606,515 2,526,615 7,645,636 7,582,567
----------- ----------- ----------- -----------
Interest expense
1,256,577 1,145,588 3,635,490 3,466,940
Deposits
Short-term FHLB borrowings ...... 110,518 106,341 305,042 330,026
Long-term FHLB borrowings ....... 183,521 209,785 548,837 698,907
----------- ----------- ----------- -----------
1,550,616 1,461,714 4,489,369 4,495,873
----------- ----------- ----------- -----------
Net interest income ..................... 1,055,899 1,064,901 3,156,267 3,086,694
Provision for loan losses ............... 15,000 11,000 45,000 27,000
----------- ----------- ----------- -----------
Net interest income after provision
for loan losses ..................... 1,040,899 1,053,901 3,111,267 3,059,694
----------- ----------- ----------- -----------
BANK WEST FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(continued)
Three Months Ended Nine Months Ended
March 31, March 31,
1997 1996 1997 1996
----------- ----------- ----------- -----------
Other income
Gain (loss) on sale of securities (2,421) 13,481 (4,291) 18,254
Gain on trading securities ...... 98,865 57,763 577,936 64,763
Gain on sale of loans............ 123,473 147,126 399,691 416,042
Fees and service charges ........ 79,926 41,523 224,928 122,599
Miscellaneous income............. 1,550 8,497 4,054 17,778
----------- ----------- ----------- -----------
301,393 268,390 1,202,318 639,436
----------- ----------- ----------- -----------
Other expenses
Compensation and benefits ....... 561,475 490,765 1,663,136 1,401,373
Professional fees ............... 56,186 88,475 160,184 203,687
Federal Deposit Insurance ....... 14,727 49,183 103,280 146,224
FDIC Special Assessment (Note 9) -- -- 553,000 --
Occupancy ....................... 72,697 50,909 196,586 148,527
Furniture, fixtures and equipment 36,018 32,231 101,267 90,202
Data processing ................. 47,144 43,141 133,191 111,746
Advertising ..................... 29,189 24,868 92,270 56,573
State taxes ..................... 16,000 19,500 43,000 44,500
Miscellaneous ................... 126,668 108,527 378,417 371,270
----------- ----------- ----------- -----------
960,104 907,599 3,424,331 2,574,102
----------- ----------- ----------- -----------
Income before federal income tax expense 382,188 414,692 889,254 1,125,028
Federal income tax expense .............. 129,650 140,900 302,350 382,400
----------- ----------- ----------- -----------
Net income .............................. $ 252,538 $ 273,792 $ 586,904 $ 742,628
=========== =========== =========== ===========
Earnings per share (Note 2) ............. $ .16 $ .13 $ .33 $ .35
=========== =========== =========== ===========
Dividends per share ..................... $ .07 $ .07 $ .21 $ .21
=========== =========== =========== ===========
See accompanying notes to consolidated financial statements.
BANK WEST FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
March 31,
1997 1996
------------- ------------
Cash flows from operating activities
Net income ............................................... $ 586,904 $ 742,628
Adjustments to reconcile net income to
net cash from operating activities
Origination and purchase of loans for sale .......... (23,428,195) (35,268,229)
Proceeds from sale of mortgage loans ................ 26,442,386 29,704,162
Purchase of trading securities ...................... (4,217,015) (1,158,412)
Proceeds from sale of trading securities ............ 3,719,423 723,240
Net (gain) on sales of:
Loans ............................................ (399,691) (416,042)
Securities ....................................... (573,645) (83,017)
Depreciation ........................................ 141,793 132,674
Amortization of premiums, net ....................... 11,964 94,632
Loss on disposal of fixed assets .................... -- 1,809
ESOP expense ........................................ 135,169 121,754
MRP expense ......................................... 115,130 61,920
Provision to adjust loans held for sale
to lower of cost or market ........................ -- 16,000
Provision for loan losses ........................... 45,000 27,000
Change in:
Deferred loan fees ............................... 38,322 13,099
Other assets ..................................... (118,947) (33,514)
Other liabilities ................................ (203,404) (83,517)
------------ ------------
Net cash from (used by) operating activities 2,295,194 (5,403,813)
------------ ------------
BANK WEST FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(continued)
Nine Months Ended
March 31,
1997 1996
------------- ------------
Cash flows from investing activities
Increase in interest-bearing time deposits ............... 199,000 197,000
Purchases of securities available for sale ............... (9,685,270) (19,217,480)
Purchases of securities held to maturity ................. (3,002,813) --
Proceeds from sale of securities available for sale ...... 5,700,584 12,985,814
Proceeds from maturity or call of securities ............. 1,000,000 8,282,760
Loan originations, net of repayments ..................... (6,837,612) 2,700,856
Loans purchased .......................................... (805,300) (854,900)
Principal payments on mortgage-backed securities and CMO's 459,126 2,686,756
Property and equipment expenditures ...................... (196,465) (176,428)
------------ ------------
Net cash from (used by) investing activities (13,168,750) 6,604,378
------------ ------------
Cash flows from financing activities
Increase (decrease) in FHLB advances ..................... 2,807,267 (150,334)
Repayment of long-term FHLB borrowings ................... -- (3,000,000)
Increase in deposits ..................................... 10,698,477 3,497,154
Dividends paid on common stock ........................... (391,130) (941,610)
Repurchase of common stock ............................... (4,818,866) (491,941)
------------ ------------
Net cash from (used by) financing activities 8,295,748 (1,086,731)
------------ ------------
Net change in cash and cash equivalents (2,577,808) 113,834
Cash and cash equivalents at beginning of period 6,694,089 4,595,231
------------ ------------
Cash and cash equivalents at end of period $ 4,116,281 $ 4,709,065
============ ============
Supplemental disclosures of cash flow information
Cash paid during the period for
$ 4,457,462 $ 4,577,741
Interest
Income taxes 336,050 230,000
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 Nine Months Ended March 31, 1997
(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 nine months ended March 31, 1997 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 nine months ended March 31, 1997. The weighted average
number of shares outstanding for the three and nine months ended March 31, 1997
was 1,624,274 and 1,778,419 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 Nine Months Ended March 31, 1997
(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
$46,575 and $135,169 was recorded for the three and nine months ended March 31,
1997, 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 164,326 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 March 31, 1997, there were
67,111 option shares reserved for future grants. As of March 31, 1997, 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 Nine Months Ended March 31, 1997
(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. The Committee has
awarded 47,954 shares of common stock under the officers' MRP and 27,769 shares
of common stock under the directors' MRP. 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 nine months ended March 31, 1997, $39,730
and $115,130 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 March 31, 1997 and
June 30, 1996 are as follows:
Available for Sale Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------- ----------- ----------- -----------
March 31, 1997 (unaudited)
U.S. agencies ..................... $ 4,997,431 $ -- $ 63,663 $ 4,933,768
Mortgage-backed securities ........ 1,958,246 3,440 18,396 1,943,290
Collateralized mortgage obligations 19,650,239 55,839 184,231 19,521,847
----------- ----------- ----------- -----------
$26,605,916 $ 59,279 $ 266,290 $26,398,905
=========== =========== =========== ===========
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 Nine Months Ended March 31, 1997
(Unaudited)
NOTE 6 - SECURITIES (Continued)
Held to Maturity Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- -------- ---------- ---------
March 31, 1997 (unaudited)
U.S. agencies $1,001,143 $ - $ - $1,001,143
Collateralized mortgage obligations 3,002,813 4,687 - 3,007,500
--------- -------- ---------- ---------
$4,003,956 $ 4,687 $ - $4,008,643
========== ======== ========== ==========
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:
Nine Months Ended
March 31,
1997 1996
------------ ------------
Loans held for sale - beginning of period .. $ 4,297,092 $ 2,746,019
Activity during the periods:
Loans originated and purchased for sale .... 23,428,195 35,268,229
Proceeds from sale of loans originated
and purchased for sale ................... (26,442,386) (29,704,162)
Allowance to adjust loans held for
sale to lower of cost or market .......... -- (16,000)
Gain on sale of loans ...................... 399,691 416,042
------------ ------------
Loans held for sale - end of period ........ $ 1,682,592 $ 8,710,128
============ ============
During the current fiscal year, loans were generally sold with servicing
released. The unpaid principal balance of mortgage loans serviced for others
amounted to $27.5 million and $28.6 million at March 31, 1997 and June 30, 1996,
respectively. Custodial escrow balances maintained in connection with the
foregoing loans serviced for others were $64,294 and $135,011 at March 31, 1997
and June 30, 1996, respectively.
BANK WEST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three and Nine Months Ended March 31, 1997
(Unaudited)
NOTE 8 - LOANS
Loans are classified as follows:
March 31, June 30,
1997 1996
------------ ------------
Real estate loans:
One-to four-family residential - fixed rate $ 18,696,927 $ 20,351,715
One-to four-family residential - balloon .. 11,933,627 12,841,337
One-to four-family residential - adjustable 47,601,750 47,544,192
Construction .............................. 19,317,540 14,073,497
Commercial mortgages ...................... 2,290,948 1,193,464
Home equity lines of credit ............... 4,766,561 2,214,227
Second mortgages .......................... 3,063,768 1,927,282
------------ ------------
Total mortgage loans ................. 107,671,121 100,145,714
Consumer loans ..................................... 1,013,330 622,353
Commercial non-mortgage ............................ 1,680,916 1,010,076
------------ ------------
Total ................................ 110,365,367 101,778,143
Less:
Loans in process .......................... 6,848,661 5,827,705
Deferred fees and costs ................... 9,063 47,385
Allowance for loan losses ................. 210,862 165,862
------------ ------------
$103,296,781 $ 95,737,191
Provisions for losses on loans are charged to operations based on management's
evaluation of potential losses in the portfolio. In addition to providing
reserves on specific loans where a decline in value has been identified, general
provisions for losses are established based upon the overall portfolio
composition and general market conditions. In establishing both specific and
general valuation allowances, management reviews individual loans, recent loss
experience, current and future impact of economic conditions, the overall
balance and composition of the portfolio, and such other factors which, in
management's judgment, deserve recognition in estimating possible losses. At
March 31, 1997, no portion of the allowance for loan losses was allocated to a
specific loan.
Management believes the allowance for loan losses is adequate. While management
uses available information to recognize losses on loans, future additions to the
allowance may be necessary based on changes in economic conditions and borrower
circumstances.
BANK WEST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three and Nine Months Ended March 31, 1997
(Unaudited)
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 March 31, 1997, the premium reduction
should result in a pre-tax cost savings of approximately $167,000 per year for
the Bank, or approximately $.06 per share after taxes.
NOTE 10 - SUBSEQUENT EVENTS
On April 21, 1997, the Company declared a quarterly dividend of $.07 per share
payable May 20, 1997 to shareholders of record at the close of business on May
6, 1997.
On April 21, 1997, the Company also approved a repurchase of an additional
89,000 shares, or 5% of its outstanding common stock. The repurchase is subject
to the prior approval by the Office of Thrift Supervision.
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, F.S.B.,
at March 31, 1997 and June 30, 1996 and the consolidated results of operations
for the three and nine months ended March 31, 1997 with the same periods in
1996. This discussion should be read in conjunction with the interim
consolidated financial statements and footnotes included herein.
FINANCIAL CONDITION
Total assets increased by $9.0 million or 6.5% from $138.0 million at June 30,
1996 to $147.0 million at March 31, 1997. The increase was primarily
attributable to net loan growth of $7.6 million and the purchase of $7.5 million
in additional collateralized mortgage obligations. These amounts were partially
offset by a decline in cash of $2.6 million and loans held for sale of $2.6
million.
The Bank's mortgage banking activities consist of selling newly originated and
purchased loans into the secondary market. The dollar amount of loans originated
and purchased for sale in the nine months ended March 31, 1997 declined by $11.8
million or 33.6% to $23.4 million compared to $35.3 million 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 $26.4 million and $29.7 million in the nine months ended March
31, 1997 and 1996, respectively. Loans held for sale amounted to $1.7 million
and $8.7 million at March 31, 1997 and 1996, 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 $24.5 million at March 31,
1997. 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 March 31,
1997, the unrealized loss on securities (including mortgage-backed securities
and collateralized mortgage obligations) classified as available for sale
totalled $137,000 net of federal income taxes and is shown as a reduction in
stockholders' equity.
The Bank's nonperforming assets totalled $46,000 or .03% of total assets at
March 31, 1997. The Bank's low nonperforming assets are primarily due to the
Bank's conservative underwriting criteria. At March 31, 1997, $97.5 million or
88.4% 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 70.3% of
total assets. During the nine months ended March 31, 1997, there were no net
charge-offs. The Company has recently emphasized one- to four-family
construction, consumer, small business loans (see Note 8 of Notes to
Consolidated Financial Statements 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 $9.4 million or 10.4% from June 30, 1996 to March
31, 1997 primarily due to an increase in certificates of deposit of $7.9
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 did not match 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 $10.1 million at March 31, 1997.
Stockholders' equity decreased from $26.8 million at June 30, 1996 to $22.5
million at March 31, 1997. The decrease was primarily due to $4.8 million being
utilized to repurchase 416,100 shares of the Company's outstanding common stock
during the nine months ended March 31, 1997.
RESULTS OF OPERATIONS
Net Income. Net income decreased by $21,000 or 7.7% in the quarter ended March
31, 1997 to $253,000 from $274,000 in the comparable 1996 period. The decrease
was primarily due to a decline in net interest income of $13,000 or 1.2%and an
increase in other expenses of $52,000 or 5.7%. These amounts were partially
offset by an increase in other income of $37,000 or 13.8%. For the nine months
ended March 31, 1997, net income decreased by $156,000 or 21.0%. 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 $209,000 or 28.1% 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 decreased by $9,000 or .8% in the three
months ended March 31, 1997, and increased by $69,000 or 2.2% in the nine months
ended March 31, 1997, over the comparable 1996 periods, respectively. Net
interest income decreased in the quarter due to a decrease in the net interest
margin from 3.18% in the comparable 1996 period to 3.05%. The lower net interest
margin was primarily due to utilizing $4.8 million of equity to repurchase
416,100 shares of the Company's common stock during the fiscal year, which
reduced net interest-earning assets. The negative impact on net interest income
from a lower net interest margin was partially offset by an increase in the
average interest rate spread, which increased from 2.28% to 2.45% reflecting
continued emphasis on higher yielding consumer and commercial loans and lower
costing core deposits. For the nine months ended March 31, 1997, net interest
income increased primarily due to an increase in the average interest rate
spread from 2.09% to 2.41%.
BANK WEST FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Provision for Loan Losses. The provision for loan losses increased by $4,000 or
36.4% in the three months ended March 31, 1997 over the comparable 1996 period.
The allowance for loan losses totalled $211,000 or .19% of the total loan
portfolio at March 31, 1997. There were no nonperforming loans at March 31,
1997.
The Bank's management establishes allowances for loan losses. On a quarterly
basis, management evaluates the loan portfolio and determines the amount that
must be added. These allowances are charged against income in the year they are
established. When establishing the appropriate levels for the provision and the
allowance for loan losses, management considers a variety of factors, in
addition to the fact that an inherent risk of loss always exists in the lending
process. Consideration is also given to the current and future impact of
economic conditions, the diversification of the loan portfolio, historical loss
experience, delinquency rates, the review of loans by loan review personnel, the
individual borrower's financial and managerial strengths, and the adequacy of
underlying collateral.
Other Income. Total other income increased by $33,000 or 12.3% in the three
months ended March 31, 1997 from the comparable prior period. The increase was
primarily due to a $41,000 or 70.7% increase in gain on trading securities and a
$38,000 or 90.5% increase in fees and service charges. These amounts was
partially offset by a decrease of $24,000 or 16.3% in gain on sale of loans as a
result of lower volume of loan sales from $29.7 million to $26.4 million. The
increase in fees and service charges is primarily related to higher fees
associated with emphasizing construction lending as well as higher service
charges on deposits.
During the nine months ended March 31, 1997, total other income increased
$571,000. The increase was primarily due to a $513,000 increase in gain on
trading securities and a $102,000 or 82.9% increase in fees and service charges.
The trading securities portfolio is comprised of equity securities in various
financial institutions. Although to-date, the Company's equity trading strategy
has been successful, there is no guarantee that future results will equal the
current fiscal year's performance. The increase in fees and service charges is
primarily related to higher fees associated with emphasizing construction
lending as well as higher service charges on deposits.
Other Expenses. Total other expenses increased by $52,000 or 5.7% in the three
months ended March 31, 1997 over the comparable 1996 period. The increase was
primarily due to increased compensation and benefits expense of $70,000 or 14.3%
as a result of the hiring of additional staff to expand the Bank's core business
activities. Occupancy expense increased by $22,000 or 43.1% related to the
opening of the Bank's third branch location and higher real estate taxes. These
amounts were partially offset by a $34,000 or 69.4% decrease in FDIC insurance
expense as a result of the annual premium reduction from .23% to .064%. In
addition, professional fees decreased by $32,000 or 36.4% related to lower
consulting fees. The other categories of other expenses did not significantly
change in the three months ended March 31, 1997.
Total other expenses increased by $850,000 or 33.0% in the nine months ended
March 31, 1997. The increase was primarily due to a $553,000 FDIC special
assessment to recapitalize the SAIF insurance
BANK WEST FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
fund (See Note 9 of Notes to Consolidated Financial Statements). Compensation
and benefits expense also increased by $262,000 or 18.7% primarily as a result
of hiring additional staff to expand the Bank's core business activities and
increased ESOP and MRP expense. Occupancy expense increased by $48,000 or 32.2%
related to the opening of the Bank's third branch location and higher real
estate taxes.
Advertising expense increased by $35,000 or 61.4% as a result of various
promotions to attract loans and deposits. These amounts were partially offset by
a reduction in FDIC insurance expense as a result of the reduction in annual
FDIC premiums from .23% to .064%. In addition, professional fees decreased by
$44,000 or 21.6% related to lower consulting fees. The other categories of other
expenses did not significantly change in the nine months ended March 31, 1997.
Federal Income Tax Expense. Federal income tax expense decreased by $11,000 or
7.8% in the quarter ended March 31, 1997 from the comparable 1996 period. The
decrease was due to a decrease in pre-tax income. For the nine months ended
March 31, 1997, federal income tax expense decreased by $80,000 or 20.9% from
the comparable 1996 period due to a decrease in pre-tax income related to the
special SAIF charge during the period.
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 March 31, 1997, Bank West's liquidity was
9.7% or $4.7 million in excess of the 5% minimum OTS requirement.
BANK WEST FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
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 March 31, 1997, under these capital requirements, the Bank had:
Actual Requirement Excess
------ ----------- ------
Tangible capital ratio ................ 13.3% 1.5% 11.8%
Leverage capital ratio ................ 13.3 3.0 10.3
Risk-based capital ratio .............. 26.5 8.0 18.5
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 November 1996, the Bank paid a dividend of $1,500,000 to the Company.
This amount was utilized by the Company during its most recent 10% stock
repurchase program.
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
BANK WEST FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
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 has not had a material impact on the Company's consolidated financial
condition or results of operations.
Statement of Financial Accounting Standards No. 125, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishment of Liabilities," provides
authoritative guidance as to the accounting and financial reporting for
transfers and servicing of financial assets and extinguishment of liabilities.
Example transactions covered by SFAS No. 125 include asset securitization,
repurchase agreements, wash sales, loan participations, transfers of loans with
recourse and servicing of loans. The Statement provides consistent standards for
distinguishing transfers of financial assets that are sales from transfers that
are secured borrowings. The Statement also requires measuring instruments that
have a substantial prepayment risk at fair value, much like debt instruments
classified as available for sale or trading. While SFAS No. 125 supersedes SFAS
No. 122, "Accounting for Mortgage Servicing Rights," it only marginally modifies
the accounting and disclosure requirements of SFAS No. 122. SFAS No. 125, as
amended by SFAS No. 127, is expected to have no material impact on the Company's
consolidated financial condition or results of operations.
In March 1997, the FASB issued Statement No. 128, "Earnings Per Share," which is
effective for financial statements beginning with year end 1997. SFAS No. 128
simplifies the calculation of earnings per share by replacing primary EPS with
basic EPS. It also requires dual presentation of basic EPS and diluted EPS for
entities with complex capital structures. Basic EPS includes no dilution and is
computed by dividing income available to common shareholders by the
weighted-average common shares outstanding for the period. Diluted EPS reflects
the potential dilution of securities that could share in earnings, such as stock
options, warrants or other common stock equivalents. The Company expects SFAS
No. 128 to have little impact on its earnings per share calculations in future
years, other than changing terminology from primary EPS to basic EPS. All prior
period EPS data will be restated to conform with the new presentation.
BANK WEST FINANCIAL CORPORATION
Form 10-Q
Quarter Ended March 31, 1997
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 March 31, 1997.
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 9, 1997 /s/Paul W. Sydloski
-------------------
Paul W. Sydloski, President and
Chief Executive Officer
(Duly Authorized Officer)
Date: May 9, 1997 /s/Kevin A. Twardy
------------------
Kevin A. Twardy, Vice President and
Chief Financial Officer
(Principal Financial Officer)