UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 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 November 14,
1997: 1,748,475.
BANK WEST FINANCIAL CORPORATION
FORM 10-Q
Quarter Ended September 30, 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 Balance Sheets -
September 30, 1997 (unaudited) and June 30, 1997 . . . . . . .
Consolidated Statements of Income (unaudited) -
For The Three Months Ended September 30, 1997 and 1996 . . . .
Consolidated Statements of Cash Flows (unaudited) -
For The Three Months Ended September 30, 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 and Use of Proceeds . . . . . . . . . . . . . . .
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 BALANCE SHEETS
September 30, June 30,
1997 1997
------------- -------------
(Unaudited)
ASSETS
Cash and due from banks $ 2,631,604 $ 1,722,734
Interest-bearing deposits 1,473,228 1,950,522
------------- -------------
Total cash and cash equivalents 4,104,832 3,673,256
Interest-bearing time deposits 99,000 99,000
Securities available for sale (Note 6) 26,218,081 25,550,974
Securities held to maturity
(fair value: $6,653,534 at September 30, 1997, 6,623,704 4,003,575
$4,001,875 at June 30, 1997) (Note 6)
Trading securities 3,233,102 2,921,251
Loans held for sale (Note 7) 3,996,164 2,231,151
Loans, net (Note 8) 114,477,455 111,530,092
Federal Home Loan Bank stock 1,850,000 1,550,000
Premises and equipment 3,081,695 3,128,158
Accrued interest receivable 803,848 762,990
Mortgage servicing rights 183,368 148,569
Other assets 182,999 76,175
------------- -------------
Total assets $ 164,854,248 $ 155,675,191
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $ 105,171,910 $ 102,862,152
Federal Home Loan Bank borrowings 35,000,000 29,000,000
Accrued interest payable 252,299 202,217
Advance payments by borrowers
for taxes and insurance 277,755 491,710
Deferred federal income tax 357,933 287,635
Other liabilities 472,184 239,168
------------- -------------
Total liabilities 141,532,081 133,082,882
------------- -------------
BANK WEST FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(continued)
September 30, June 30,
1997 1997
------------- -------------
(Unaudited)
Stockholders' Equity:
Common stock, $.01 par value; 10,000,000 shares
authorized; 1,753,475 issued at September
30, 1997 and June 30, 1997 (Note 3) 17,535 17,535
Additional paid-in-capital 11,487,718 11,432,798
Retained earnings, substantially restricted 13,125,460 12,647,112
Net unrealized gain on securities available for
sale, net of tax of $76,845 at September 30, 1997
and $6,548 at June 30, 1997 149,170 12,710
Unallocated ESOP shares (Note 4) (972,048) (1,004,448)
Unearned Management Recognition Plan shares (Note 5) (485,668) (513,398)
------------- -------------
Total stockholders' equity 23,322,167 22,592,309
------------- -------------
Total liabilities and stockholders' equity $ 164,854,248 $ 155,675,191
============= =============
See accompanying notes to consoldiated financial statements.
BANK WEST FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended
September 30,
1997 1996
----------- -----------
Interest and dividend income
Loans $ 2,376,391 $ 1,946,286
Securities 530,416 422,460
Other interest-bearing deposits 28,196 75,709
Dividends on FHLB stock 36,537 29,105
----------- -----------
2,971,540 2,473,560
----------- -----------
Interest expense
Deposits 1,335,560 1,165,740
FHLB borrowings 490,072 263,049
----------- -----------
1,825,632 1,428,789
----------- -----------
Net interest income 1,145,908 1,044,771
Provision for loan losses 18,000 15,000
----------- -----------
Net interest income after provision
for loan losses 1,127,908 1,029,771
----------- -----------
Other income
Gain (loss) on sale of securities 7,105 (1,870)
Gain on trading securities 560,044 191,525
Gain on sale of loans 159,853 134,671
Fees and service charges 89,641 49,016
Miscellaneous income 1,503 12,385
----------- -----------
818,146 385,727
----------- -----------
BANK WEST FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(continued)
Three Months Ended
September 30,
1997 1996
----------- -----------
Other expenses
Compensation and benefits 658,554 533,831
Professional fees 78,103 44,030
Federal Deposit Insurance 15,537 51,002
FDIC Special Assessment (Note 9) -- 553,000
Occupancy 63,652 67,045
Furniture, fixtures and equipment 33,746 31,391
Data processing 43,337 38,966
Advertising 25,690 21,028
State taxes 29,478 6,000
Miscellaneous 101,296 118,319
----------- -----------
1,049,393 1,464,612
----------- -----------
Income (loss) before federal income tax expense 896,661 (49,114)
Federal income tax expense (benefit) 304,300 (17,600)
----------- -----------
Net income (loss) $ 592,361 ($ 31,514)
=========== ===========
Earnings (loss) per share (Note 2) $ .34 $ (.02)
=========== ===========
Dividends per share $ .07 $ .07
=========== ===========
See accompanying notes to consolidated financial statements.
BANK WEST FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
September 30,
1997 1996
------------ ------------
Cash flows from operating activities
Net income $ 592,362 ($ 31,514)
Adjustments to reconcile net income to
net cash from operating activities
Origination and purchase of loans for sale (11,981,770) (8,419,487)
Proceeds from sale of mortgage loans 10,376,610 9,437,981
Purchase of trading securities (1,923,656) (1,549,350)
Proceeds from sale of trading securities 2,171,849 967,650
Net (gain) on sales of:
Loans (159,853) (134,671)
Securities (567,149) (189,655)
Depreciation 49,172 44,650
Amortization of premiums, net 8,993 5,527
ESOP expense 76,950 45,563
MRP expense 38,100 37,200
Provision for loan losses 18,000 15,000
Change in:
Deferred loan fees (48,229) 3,634
Other assets (182,481) (166,054)
Other liabilities 69,143 375,963
------------ ------------
Net cash from operating activities (1,461,959) 442,437
------------ ------------
Cash flows from investing activities
Increase in interest-bearing time deposits -- 99,000
Purchases of securities available for sale (7,723,954) (4,477,770)
Purchases of securities held to maturity (2,620,510) --
Proceeds from sale of securities available for sale 6,047,969 1,495,001
Proceeds from maturity or call of securities 1,000,000 --
Loan originations, net of repayments (2,783,784) (846,501)
Loans purchased (133,350) (23,750)
Principal payments on mortgage-backed securities and CMO's 214,129 167,621
Purchase of FHLB stock (300,000) --
Property and equipment expenditures (2,709) (47,574)
------------ ------------
Net cash from investing activities (6,302,209) (3,633,973)
------------ ------------
BANK WEST FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(continued)
Three Months Ended
September 30,
1997 1996
------------ ------------
Cash flows from financing activities
Proceeds from FHLB borrowings (4,000,000) (1,000,000)
Repayment of FHLB borrowings 10,000,000 3,000,000
Increase in deposits 2,309,758 1,745,708
Dividends paid on common stock (114,014) (144,050)
Repurchase of common stock -- (2,592,941)
------------ ------------
Net cash from financing activities 8,195,744 1,008,717
------------ ------------
Net change in cash and cash equivalents 431,576 (2,182,819)
Cash and cash equivalents at beginning of period 3,673,256 6,694,089
------------ ------------
Cash and cash equivalents at end of period $ 4,104,832 $ 4,511,270
============ ============
Supplemental disclosures of cash flow information
Cash paid during the period for
Interest $ 1,775,550 $ 1,407,507
Income taxes 63,119 --
See accompanying notes to consolidated financial statements.
BANK WEST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended September 30, 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 months ended September 30, 1997 are not
necessarily indicative of the results to be expected for the year ending June
30, 1998. 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, 1997, included in the
Company's 1997 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. The weighted average number of shares outstanding
for the three months ended September 30, 1997 was 1,723,763.
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 Months Ended September 30, 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
$76,950 was recorded for the three months ended September 30, 1997.
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 208,526 shares of common stock at exercise prices between $9.9375 and
$17.0625 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 September 30, 1997, there
were 22,911 option shares reserved for future grants. As of September 30, 1997,
no options have been exercised or canceled. No compensation expense was
recognized in connection with the issuance of the options. Management has
concluded that the Company will not adopt the accounting provisions of SFAS No.
123 and will continue to apply its current method of accounting. 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 months ended September 30, 1997, $38,100 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.
BANK WEST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three Months Ended September 30, 1997
(Unaudited)
NOTE 6 - SECURITIES
The amortized cost and estimated fair values of securities at September 30, 1997
and June 30, 1997 are as follows:
Available for Sale Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------- -------- ------- -----------
September 30, 1997 (unaudited)
U.S. agencies $ 999,600 $ - $ 3,747 $ 995,853
Preferred stock 1,013,750 6,250 - 1,020,000
Mortgage-backed securities 1,393,262 168 13,145 1,380,285
Collateralized mortgage obligations 22,585,453 247,436 10,946 22,821,943
----------- -------- ------- -----------
$25,992,065 $253,854 $27,838 $26,218,081
=========== ======== ======= ===========
June 30, 1997
U.S. agencies $ 2,998,182 $ - $21,544 $ 2,976,638
Mortgage-backed securities 1,579,891 4,016 1,212 1,582,695
Collateralized mortgage obligations 20,953,643 88,217 50,219 20,991,641
---------- -------- ------- ----------
$25,531,716 $92,233 $72,975 $25,550,974
=========== ======= ======= ===========
Held to Maturity
September 30, 1997 (unaudited)
U.S. agencies $1,000,381 $ 869 $ - $1,001,250
Collateralized mortgage obligations 5,623,323 28,961 - 5,652,284
--------- ------- ------- ---------
$6,623,704 $29,830 $ - $6,653,534
========== ======= ======= ==========
June 30, 1997
U.S. agencies $1,000,762 $ 1,113 $ - $1,001,875
Collateralized mortgage obligations 3,002,813 - 2,813 3,000,000
--------- ----------- ------- ----------
$4,003,575 $ 1,113 $ 2,813 $4,001,875
========== ======== ======= ==========
BANK WEST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three Months Ended September 30, 1997
(Unaudited)
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:
Three Months Ended
September 30,
1997 1996
----------- -----------
Loans held for sale - beginning of period $ 2,231,151 $ 4,297,092
Activity during the periods:
Loans originated and purchased for sale 11,981,770 8,419,487
Proceeds from sale of loans originated
and purchased for sale (10,376,610) (9,437,981)
Gain on sale of loans 159,853 134,671
----------- -----------
Loans held for sale - end of period $ 3,996,164 $ 3,413,269
=========== ===========
During the current fiscal year, loans were generally sold with servicing
released. The unpaid principal balance of mortgage loans serviced for others
amounted to $27.9 million and $27.0 million at September 30, 1997 and June 30,
1997, respectively. Custodial escrow balances maintained in connection with the
foregoing loans serviced for others were $67,114 and $116,813 at September 30,
1997 and June 30, 1997, respectively.
BANK WEST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three Months Ended September 30, 1997
(Unaudited)
NOTE 8 - LOANS
Loans are classified as follows:
September 30, June 30,
1997 1997
------------- -------------
Real estate loans:
One-to four-family residential - fixed rate $ 17,633,531 $ 18,595,586
One-to four-family residential - balloon 14,127,688 12,493,524
One-to four-family residential - adjustable 46,860,786 49,743,799
Construction 23,181,615 21,500,849
Commercial mortgages 3,179,381 2,764,314
Home equity lines of credit 7,420,407 6,370,698
Second mortgages 5,295,324 4,312,760
------------- -------------
Total mortgage loans 117,698,732 115,781,530
Consumer loans 1,173,795 1,081,391
Commercial non-mortgage 2,163,680 2,032,190
------------- -------------
Total 121,036,207 118,895,111
Less:
Loans in process 6,393,035 7,169,073
Deferred fees and costs (78,145) (29,916)
Allowance for loan losses 243,862 225,862
------------- -------------
$ 114,477,455 $ 111,530,092
============= =============
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
September 30, 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 Months Ended September 30, 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
$551,000, which after taxes reduced the Company's net income by $364,000 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 June 30, 1997, the premium reduction
should result in a pre-tax cost savings of approximately $171,000 per year for
the Bank, or approximately $.06 per share after taxes.
NOTE 10 - SUBSEQUENT EVENT
On October 27, 1997, the Company declared a three-for-two stock split payable
December 2, 1997 to shareholders of record on November 14, 1997.
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 September 30, 1997 and June 30, 1997 and the consolidated results of
operations for the three months ended September 30, 1997 with the same period in
1996. 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, policies or guidelines and in government legislation and regulation
(which change from time to time and over which Bank West has no control); 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, F.S.B., a
federal savings bank. Substantially all of the Company's assets are currently
held in, and its operations are conducted through, its sole subsidiary Bank
West. In addition, equity securities trading portfolio activities are conducted
at the holding company. 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 make loans for the purchase and construction
of residential properties. The Company also originates commercial loans, home
equity loans and various types of consumer loans.
FINANCIAL CONDITION
Total assets increased by $9.2 million or 5.9% from $155.7 million at June 30,
1997 to $164.9 million at September 30, 1997. The increase was primarily
attributable to net loan growth of $2.9 million, an increase in securities held
to maturity of $2.6 million and an increase in loans held for sale of $1.8
million. Total loans increased as greater emphasis was placed on originating
residential construction, home equity, commercial and consumer loans instead of
concentrating primarily on residential mortgage banking activities. Management
expects continued growth in these types of lending activities and expects these
activities to improve the Bank's net interest margin. Securities held to
maturity increased due to the purchase of additional adjustable-rate
collateralized mortgage obligations. Loans held for sale increased due to
increased volume of loan originations not yet sold at the end of the quarter.
BANK WEST FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
The Bank's mortgage banking activities consist of selling newly originated and
purchased loans into the secondary market. The dollar amount of loans originated
and purchased for resale in the three months ended September 30, 1997 increased
by $3.6 million or 42.3% to $12.0 million compared to $8.4 million in the
comparable prior period. The increase in loan originations and purchases for
resale is primarily the result of the current decline in the overall interest
rate environment compared to the prior year as well as from the growth in the
Bank's wholesale mortgage banking operation. Total loans sold amounted to $10.4
million and $9.4 million in the three months ended September 30, 1997 and 1996,
respectively. Loans held for sale amounted to $4.0 million and $3.4 million at
September 30, 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 and collateralized mortgage obligations have
increased from $25.6 million at June 30, 1997 to $29.8 million at September 30,
1997. During the quarter ended September 30, 1997, the Bank purchased additional
adjustable-rate collateralized mortgage obligations which is consistent with the
Bank's strategy of increasing the ratio of interest-sensitive assets to
interest-sensitive liabilities. At September 30, 1997, the unrealized gain on
securities (including mortgage-backed securities and collateralized mortgage
obligations) classified as available for sale totalled $149,000 net of federal
income taxes and is shown as a reduction in stockholders' equity.
The Bank's nonperforming assets totalled $349,000 or .21% of total assets at
September 30, 1997 compared to $437,000 or .28% of total assets at June 30,
1997. The Bank's low nonperforming assets are primarily due to the Bank's
conservative underwriting criteria. At September 30, 1997, $101.8 million or
84.1% 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 69.0% of
total assets. During the three months ended September 30, 1997, there were no
net charge-offs.
Total deposits increased by $2.3 million or 2.2% from June 30, 1997 to September
30, 1997 primarily due to an increase in certificates of deposit of $2.0
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, 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.
When deposit growth does not match the growth of assets, other funding sources
such as FHLB advances are utilized. During the quarter ended September 30, 1997,
the Bank increased FHLB advances by $6.0 million since loan and securities
growth exceeded deposit growth. FHLB advances have generally been used to fund
the Bank's mortgage banking activities, loan and investment securities growth.
BANK WEST FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Stockholders' equity increased from $22.6 million at June 30, 1997 to $23.3
million at September 30, 1997. The increase was primarily due to net income of
approximately $592,000 and an increase in the unrealized gain on securities
available for sale of approximately $136,000. In accordance with SFAS No. 115,
which the Bank adopted effective June 30, 1994, the Company's securities
classified as available for sale are carried at market value, with unrealized
gains or losses reported as a separate component of stockholders' equity, net of
federal income taxes. At September 30, 1997, the net unrealized gain was
$149,170, while at June 30, 1997, the net unrealized gain was $12,710.
RESULTS OF OPERATIONS
Net Income. Net income increased by $624,000 in the quarter ended September 30,
1997 to $592,000 from a net loss of $32,000 in the comparable 1996 period. The
net loss in the quarter ended September 30, 1996 was due to the one-time
government mandated FDIC special assessment which had an after tax impact of
$364,000 (See Note 9 for further discussion). Excluding the impact of the FDIC
special assessment, net income increased by $260,000 or 78.3% primarily due to
increases in other income and net interest income. These amounts were partially
offset by an increase in other expenses.
Net Interest Income. Net interest income increased by $101,000 or 9.7% in the
three months ended September 30, 1997 over the comparable 1996 period. Net
interest income increased in the quarter due to an increase in the average
interest rate spread which increased from 2.32% to 2.47% reflecting continued
emphasis on higher yielding construction, home equity, consumer and commercial
loans. In addition, average interest earning assets increased by $20.0 million
or 15.2% from $132.7 million in the quarter ended September 30, 1996 to $152.7
million in the quarter ended September 30, 1997 primarily due to an increase in
loans. These increases were partially offset by a decline in net interest margin
from 3.15% in the September 30, 1996 quarter to 3.00% in the September 30, 1997
quarter primarily due to utilizing equity to repurchase the shares of the
Company's common stock, which reduced net interest earning assets.
Provision for Loan Losses. The provision for loan losses increased by $3,000 or
20.0% in the three months ended September 30, 1997 over the comparable 1996
period. The allowance for loan losses totalled $244,000 or .20% of the total
loan portfolio and 74.2% of nonperforming loans at September 30, 1997. The
nonperforming loans at September 30, 1997 were comprised of one- to four-family
mortgage loans and construction loans. Management believes that these loans are
adequately collateralized. Accordingly, no specific reserves have been assigned
to these loans.
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.
BANK WEST FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Other Income. Total other income increased by $432,000 or 111.9% in the three
months ended September 30, 1997 from the comparable prior period. The increase
was primarily due to a $368,000 or 191.7% increase in gain on trading
securities, a $41,000 or 83.7% increase in fees and service charges and a
$25,000 or 18.5% increase in gain on sale of loans. The increase in gain on
trading securities was primarily due to a recovery of the financial institution
stock sector. 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 recent 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. The increase in gain on
sale of loans was primarily due to an increase in total loans sold from $9.4
million in the quarter ended September 30, 1996 to $10.4 million in the quarter
ended September 30, 1997.
Other Expenses. Total other expenses decreased by $416,000 or 28.4% in the three
months ended September 30, 1997 over the comparable 1996 period. The decrease
was primarily due to a $553,000 one-time government mandated FDIC special
assessment to recapitalize the SAIF insurance fund during the September 30, 1996
quarter that did not occur during the September 30, 1997 quarter. Excluding the
one-time FDIC special assessment, other expenses increased by $138,000 or 15.1%
in the three months ended September 30, 1997 over the comparable 1996 period.
The increase was primarily due to increased compensation and benefits expense of
$125,000 or 23.4% as a result of the hiring of additional staff to expand the
Bank's core business activities. In addition, ESOP expense, a component of
compensation and benefits expense, was higher by $29,000 due to the increase in
the Company's stock price compared to the prior period. Professional fees
increased by $34,000 or 77.2% related to higher legal fees. State taxes
increased by $23,000 or 383.3% due to higher pre-tax income levels. These
amounts were partially offset by a $35,000 or 68.6% decline in FDIC insurance
expense (excluding the one-time assessment) as a result of the annual premium
reduction from .23% to .064%. In addition, miscellaneous expenses decreased by
$17,000 or 14.4% due to continued success in the Bank's cost reduction program.
The other categories of other expenses did not significantly change in the three
months ended September 30, 1997.
Federal Income Tax Expense. Federal income tax expense increased by $322,000 in
the quarter ended September 30, 1997 from the comparable 1996 period. The
increase was due to an increase in pre-tax income.
LIQUIDITY
Bank West's principle 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 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 FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
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. At September 30, 1997, Bank West's
liquidity was 9.0% or $4.5 million in excess of the 5% 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 September 30, 1997, under these capital requirements, the Bank had:
Actual Requirement Excess
------ ----------- ------
Tangible capital ratio 11.7% 1.5% 10.2%
Leverage capital ratio 11.7 3.0 8.7
Risk-based capital ratio 21.9 8.0 13.9
At June 30, 1997, under these capital requirements, the Bank had:
Actual Requirement Excess
------ ----------- ------
Tangible capital ratio 12.2% 1.5% 10.7%
Leverage capital ratio 12.2 3.0 9.2
Risk-based capital ratio 23.4 8.0 15.4
NEW ACCOUNTING STANDARDS
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
BANK WEST FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
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 September 30, 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 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:
At the Annual Meeting of Stockholders held on October 29, 1997, the
stockholders of the Company approved each of the proposals as set forth
below. The number of shares present at the Annual Meeting in person or
by proxy was 1,377,564. The matters voted upon together with the
applicable voting results were as follows:
FOR WITHHOLD
--- --------
1. Election of Directors
Paul W. Sydloski 1,373,059 4,505
John H. Zwarensteyn 1,374,255 3,309
Harry E. Mika 1,367,193 10,371
FOR AGAINST ABSTAIN
--- ------- -------
2. Ratification of appointment
of Crowe Chizek and Company as
independent auditors. 1,372,513 600 4,451
Item 5 - Other Information:
The Board of Directors of the Company amended the Company's
Bylaws regarding the date of the annual stockholders' meeting
(Section 2.2), the number of authorized directors and the
deletion of a sentence regarding director qualifications (Section
4.1), the inclusion of clarfying provisions regarding stockholder
proposals and nominiations (Sections 2.13 and 4.15), and the
inclusion of provisions governing the qualifications of directors
(Section 4.16).
The authorized number of directors was increased from eight
to nine to facilitate the nomination and election of Harry E.
Mika. In addition, the Board of Directors recently added a
provision requiring both current and future directors to be
either domiciled in, have a principal residence in or have their
primary place of business located in any county in which the
Company or any of its subsidiaries has a full-service office.
Because the Company is a community oriented financial institution
holding company, this provision is designed to ensure that the
directors of the Company have close ties to the local community
and are familiar with the Company's market area.
BANK WEST FINANCIAL CORPORATION
Form 10-Q
Quarter Ended September 30, 1997
Item 6 - Exhibits and Reports on Form 8-K:
(a) Exhibits: The following exhibits are filed herewith:
Exhibit No. Description
----------- -----------
3.2 Bylaws of Bank West Financial Corporation
(As amended and restated effective October
29, 1997)
27.1 Financial Data Schedule
(b) Reports on Form 8-K:
No reports on Form 8-K were filed by the Registrant during
the quarter ended September 30, 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: November 14, 1997 /s/ Paul W. Sydloski
---------------------
Paul W. Sydloski, President and
Chief Executive Officer
(Duly Authorized Officer)
Date: November 14, 1997 /s/ Kevin A. Twardy
---------------------
Kevin A. Twardy, Vice President and
Chief Financial Officer
(Principal Financial Officer)