SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [ NO FEE REQUIRED]
For the fiscal year ended June 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from __________ to _______________
Commission File No.: 0-25666
Bank West Financial Corporation
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(Exact name of registrant as specified in its charter)
Michigan 38-3203447
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
2185 Three Mile Road N.W.
Grand Rapids, Michigan 49544
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (616) 785-3400
Securities registered pursuant to Section 12(b) of the Act: Not Applicable
Securities registered pursuant to Section 12(g) of the Act:
Common Stock (par value $.01 per share)
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(Title of Class)
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
Based upon the $11.00 per share closing price of the Registrant's common stock
as of September 21, 1998, the aggregate market value of the 1,919,804 shares of
the Registrant's common stock deemed to be held by non-affiliates of the
Registrant was $21.1 million. Although directors and executive officers of the
Registrant and certain of its employee benefit plans were assumed to be
"affiliates" of the Registrant for purposes of this calculation, the
classification is not to be interpreted as an admission of such status.
Number of shares of Common Stock outstanding as of September 21, 1998: 2,623,629
DOCUMENTS INCORPORATED BY REFERENCE
Listed below are the documents incorporated by reference and the Part of
the Form 10-K into which the document is incorporated: (1) portions of the
Annual Report to Stockholders for the year ended June 30, 1998 are incorporated
into Part II, Items 5 through 8 of this Form 10-K; and (2) portions of the
definitive proxy statement for the 1998 Annual Meeting of Stockholders are
incorporated into Part III, Items 10 through 13 of this Form 10-K.
PART I.
Item 1. Business.
General
Bank West Financial Corporation (the "Company") is a Michigan
corporation organized in December 1994 by Bank West ("Bank West" or the "Bank")
for the purpose of becoming a unitary holding company of the Bank. The only
significant assets of the Company are the capital stock of the Bank, the
Company's loan to the Company's Employee Stock Ownership Plan (the "ESOP"), and
the portion of the net proceeds retained by the Company in connection with the
conversion of the Bank from the mutual to stock form of organization in March
1995 (the "Conversion"). The business and management of the Company consists of
the business and management of the Bank.
Bank West is a Michigan-chartered stock savings bank that was originally
formed in 1887 as a Michigan-chartered mutual savings and loan association known
as West Side Building and Loan. In 1938, the Bank converted to a federal savings
association known as West Side Federal Savings and Loan Association. The Bank
changed its name and became a federally-chartered mutual savings bank in 1993.
In March 1995, the Bank converted from a federally-chartered mutual savings bank
to a federally-chartered stock savings bank, and in December 1997 the Bank
converted to a Michigan-chartered bank.
Bank West conducts business from three offices located in Grand Rapids,
Michigan. At June 30, 1998, the Company had $181.5 million of total assets,
$158.2 million of total liabilities, including $120.0 million of deposits, and
$23.3 million of total stockholders' equity.
Bank West is primarily engaged in attracting deposits from the general
public through its offices and using those and other available sources of funds
to originate loans secured primarily by one- to four-family residences located
in the western Michigan area. Bank West is a community-oriented savings
institution which emphasizes customer service. It generally has sought to
enhance its net income by, among other things, maintaining strong asset quality.
In pursuit of these goals, Bank West has adopted a business strategy that
emphasizes lending and deposit products and services traditionally offered by
savings institutions. In addition, since April 1993, the Bank has engaged in
mortgage banking activities by originating (and since fiscal 1994 purchasing)
one- to four-family residential loans for sale into the secondary market. The
implementation of such strategy has enabled the Bank to be profitable and to
exceed regulatory capital requirements. At June 30, 1998, the Bank's ratio of
Tier 1 capital to average total assets was 11.3%, its ratio of Tier 1 capital to
risk-weighted assets was 20.6% and its ratio of total capital to risk-weighted
assets was 20.9%. See "Regulation - The Bank - Regulatory Capital Requirements."
Beginning in fiscal 1995, the Bank expanded its loan products by
offering commercial loans and various types of consumer loans. At June 30, 1998,
there were $29.4 million in loans receivable outstanding for these loan products
compared to $16.5 million and $7.0 million outstanding for such loan products at
June 30, 1997 and 1996, respectively. Of the $29.4 million at June 30, 1998,
$18.0 million consisted of home equity lines of credit and second mortgages. The
Bank expects its commercial and consumer loan products will improve its net
interest margin and make the Bank more competitive in the marketplace.
The Company's total nonperforming assets, which consist of $841,000 of
non-accruing loans 90 days or more delinquent and $192,000 of net real estate
owned, totalled $1,033,000 or .87% of the net loan portfolio at June 30, 1998.
At the end of each of the last five fiscal years, the Company's total
nonperforming assets did not exceed fiscal 1998 levels. At June 30, 1998, the
Company's allowance for loan losses amounted to $290,000, representing .21% of
the total loan portfolio and .34% of total nonperforming loans at such date. See
"Asset Quality."
The Bank is subject to examination and comprehensive regulation by the
Commissioner of the Financial Institutions Bureau of the State of Michigan
("Commissioner" or "Financial Institutions Bureau"), which is the Bank's
chartering authority and primary regulator. The Bank is also regulated by the
Federal Deposit Insurance Corporation ("FDIC"), the administrator of the Savings
Association Insurance Fund ("SAIF"). The Bank also is subject to certain reserve
requirements established by the Board of Governors of the Federal Reserve System
("Federal Reserve Board" or "FRB") and is a member of the Federal Home Loan Bank
("FHLB") of Indianapolis, which is one of the 12 regional banks comprising the
FHLB System.
This Form 10-K 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 Form 10-K 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.
The Company's executive office is located at 2185 Three Mile Road N.W.,
Grand Rapids, Michigan 49544, and its telephone number is (616) 785-3400.
Market Area
The Company's market area consists of western Michigan, with its primary
market area consisting of Grand Rapids, Michigan and the surrounding
metropolitan statistical area. Grand Rapids is located in west central Michigan
on the Grand River, the state's longest river. With a population of 189,000 as
of 1990, the city is the 83rd largest in the United States and the second
largest in Michigan after Detroit. Grand Rapids is part of the Grand Rapids
Metropolitan Statistical Area with a population of 1,024,000 people as of 1997,
a 48.8% increase from the 1990 census. Per capita income has increased 10.3%
from $18,000 in 1990 to $19,851 in 1997. Major industries include furniture
manufacture, metal fabrication, medical supplies, plastics, footwear, processed
foods, agricultural products, mining of gypsum (for which Michigan is the
leading supplier in the nation), appliance manufacture, and health care
services. Major employers in the area include Meijer, Inc., Steelcase, General
Motors Corp., Amway Corporation and Spectrum Health.
Lending Activities
Loan Portfolio Composition. At June 30, 1998, the Company's total loan
portfolio, including loans held for sale but before net items, amounted to
$135.4 million. The net loan portfolio, excluding loans held for sale, amounted
to $118.9 million at June 30, 1998, representing approximately 65.5% of the
Company's $181.5 million of total assets at that date. The lending activities
are conducted through Bank West, and the principal lending activity of Bank West
is the origination of one- to four-family residential loans. The Bank has also
purchased such loans to supplement its loan originations. At June 30, 1998, one-
to four-family residential loans amounted to $80.6 million or 59.5% of the total
loan portfolio, including loans held for sale. To a lesser extent, the Bank
originates construction and land development loans, home equity lines of credit,
second mortgages, commercial and consumer loans. Construction and land
development loans amounted to $25.4 million or 18.8% of the Bank's total loan
portfolio, home equity lines of credit amounted to $9.9 million or 7.3% of the
total loan portfolio, and second mortgages amounted to $8.1 million or 6.0%, of
the total loan portfolio, including loans held for sale. At June 30, 1998,
commercial mortgages amounted to $6.5 million or 4.8%, commercial non-mortgages
amounted to $3.3 million or 2.4%, and consumer loans amounted to $1.7 million or
1.2%, of the total loan portfolio, including loans held for sale.
The following table sets forth the composition of Bank West's loan
portfolio by type of loan at the dates indicated.
June 30,
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1998 1997 1996 1995 1994
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Amount % Amount % Amount % Amount % Amount %
-------- ----- -------- ----- ------- ----- ------- ----- ------ -----
(Dollars In Thousands)
Real estate loans:(1)
One- to four-family residential $80,554 59.5% $83,065 68.6% $85,034 80.2% $92,673 91.7% $87,177 91.1%
Construction and land development 25,407 18.8 21,560 17.8 14,074 13.3 6,146 6.1 7,412 7.8
Commercial mortgages 6,485 4.8 2,764 2.3 1,194 1.1 90 .1 159 .2
Home equity lines of credit 9,877 7.3 6,371 5.2 2,214 2.1 1453 1.4 545 .5
Second mortgages 8,148 6.0 4,253 3.5 1,927 1.8 683 0.7 363 .4
Consumer loans 1,666 1.2 1,081 .9 622 0.6 30 -- -- --
Commercial non-mortgage 3,253 2.4 2,032 1.7 1,010 0.9 -- -- -- --
-------- ----- -------- ----- ------- ----- ------- ----- ------ -----
Total loans 135,390 100.0% 121,126 100.0% 106,075 100.0% 101,075 100.0% 95,656 100.0%
===== ===== ===== ===== =====
Less:
Loans held for sale 8,157 2,231 4,297 2,746 1,282
Loans in process 8,248 7,169 5,828 2,290 2,888
Deferred fees and discounts (211) (30) 47 95 159
Allowance for loan losses 290 226 166 108 88
-------- -------- ------- --------
Net loans $118,906 $111,530 $95,737 $95,836 $91,239
======= ======= ====== ======== ======
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(1) Includes loans held for sale.
Contractual Maturities. The following table sets forth the scheduled
contractual maturities of Bank West's loans at June 30, 1998. Demand loans,
loans having no stated schedule of repayments and no stated maturity, and
overdraft loans are reported as due in one year or less. The amounts shown for
each period do not take into account loan prepayments but do reflect normal
amortization.
One- to Construction
Four-Family and Land Commercial Home Second
Residential Development Mortgages Equity Mortgages
----------- ----------- --------- ------ ---------
(In Thousands)
Amounts due after June 30, 1998 in:
One year or less $ 675 $ 14,346 $ 2,226 $ 12 $ 422
After one year through two years 374 99 433 -- 8
After two years through three years 12,027 3,902 707 375 57
After three years through five years 2,789 410 3,119 960 1,341
After five years through ten years 12,366 4,422 -- 8,530 2,825
After ten years through fifteen years 10,616 -- -- -- 2,771
After fifteen years 41,707 2,228 -- -- 724
-------- -------- -------- -------- --------
Total(1) $ 80,554 $ 25,407 $ 6,485 $ 9,877 $ 8,148
======== ======== ======== ======== ========
Commercial
Consumer Non-Mortgage Total
-------- ------------ -----
Amounts due after June 30, 1998 in:
One year or less $ 59 $ 2,076 $ 19,816
After one year through two years 112 127 1,153
After two years through three years 380 368 17,816
After three years through five years 1,110 682 10,411
After five years through ten years 5 -- 28,148
After ten years through fifteen years -- -- 13,387
After fifteen years -- -- 44,659
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Total(1) $ 1,666 $ 3,253 $135,390
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(1) Gross of loans in process, deferred fees and discounts, and allowance for
loan losses.
The following table sets forth the dollar amount of all loans, before net
items, due after one year from June 30, 1998, based on the scheduled contractual
maturities shown in the preceding table, which have fixed interest rates or
which have floating or adjustable interest rates.
Floating or
Fixed-Rate Adjustable-Rate Total
---------- --------------- -----
(In Thousands)
One- to four-family residential $47,310 $32,569 $ 79,879
Construction and land development 10,135 926 11,061
Commercial mortgages 2,294 1,965 4,259
Home equity -- 9,865 9,865
Second mortgages 7,726 -- 7,726
Consumer 1,607 -- 1,607
Commercial non-mortgage 522 655 1,177
------- ------- --------
Total $69,594 $45,980 $115,574
======= ======= ========
Scheduled contractual maturities of loans do not necessarily reflect the
actual term of Bank West's portfolio. The average life of mortgage loans is
substantially less than their average contractual terms because of loan
prepayments and enforcement of due-on-sale clauses, which give Bank West the
right to declare a loan immediately due and payable in the event, among other
things, that the borrower sells the real property subject to the mortgage and
the loan is not repaid. The average life of mortgage loans tends to increase,
however, when current mortgage loan rates substantially exceed rates on existing
mortgage loans and, conversely, decrease when rates on existing mortgage loans
substantially exceed current mortgage loan rates.
Origination, Purchase and Sale of Loans. The lending activities of Bank West
are subject to the written, non-discriminatory underwriting standards and loan
origination procedures established by Bank West's Board of Directors and
management. Loan originations are obtained through a variety of sources,
including referrals from real estate brokers, developers, builders and existing
customers. Written loan applications are taken by lending personnel, and the
loan department supervises the procurement of credit reports, appraisals and
other documentation involved with a loan. Property valuations are performed by
independent outside appraisers. Except for second mortgages and home equity
lines of credit, as to which only title searches are performed, Bank West
generally requires title insurance with respect to residential and construction
loans. Hazard insurance is also required on all secured property, as is flood
insurance if the property is located within a designated flood zone.
Bank West's loan approval process is intended to assess the borrower's
ability to repay the loan, the viability of the loan and the adequacy of the
value of the property that will secure the loan. If the loan is to be sold to
one of the investors with which the Bank has an agreement, as discussed below,
the Bank's loan underwriter may approve the loan if the investor has delegated
such authority to the Bank. If the investor requires that the loan be
underwritten by it, the loan is submitted to the investor for its approval. If
the loan is to be held in the Bank's portfolio, it must also be approved by
individuals granted loan approval authority if the loan does not exceed
$275,000. If the loan is to be held in the portfolio and exceeds $275,000 but
does not exceed $500,000, it must be approved by the Loan Committee. Loans in
excess of $500,000 must be approved by the Board of Directors.
The Bank has entered into agreements with the Federal Home Loan Mortgage
Corporation ("FHLMC") and several private investors. The Bank sells loans with
servicing retained to FHLMC on a mandatory commitment basis. Each private
investor has agreed to purchase loans, together with servicing thereof, from the
Bank on a loan-by-loan best efforts basis, provided that the investor is
satisfied after its review of the loan that the loan complies with its
established underwriting guidelines and lending requirements. The Bank does not
approve a loan to be originated for sale unless either the loan has been
satisfactorily reviewed by one of the investors or the loan is to be sold to an
investor that has delegated the approval authority to the Bank. The Bank makes
certain representations and warranties regarding the loans it sells pursuant to
the above agreements, primarily with respect to the origination of the loans,
the loan documents and the existence of valid liens and insurance policies. Any
violation of these representations and warranties or, with respect to certain of
the agreements, the existence of certain deficiencies in the loans during a
specified period may result in the Bank being required to repurchase the
affected loans that were sold. As of June 30, 1998, the Bank has not been
required to repurchase any of the loans it has sold. The above agreements may be
terminated by either party at any time with respect to future loan commitments,
with varying amounts of termination notice required.
To supplement its loan originations, the Bank has entered into third-party
origination agreements with a number of mortgage banking companies and financial
institutions. Pursuant to such agreements, the third-party originators sell
first and second mortgage loans, together with the servicing thereof, to the
Bank on a loan-by-loan basis. The Bank is under no obligation to purchase any of
such loans, and the Bank agrees to purchase specific loans only after it has
determined that such loan meets its underwriting standards and, for first
mortgages, the standards of the secondary market. The third-party originator
makes certain representations and warranties regarding the loans it sells to the
Bank. If there is a violation of the representations and warranties, then the
Bank may require the third-party originator to repurchase the affected loans.
The above agreements may be terminated by either party at any time with respect
to future loan commitments. Pursuant to the third-party origination agreements,
the Bank purchased $33.1 million of loans in the year ended June 30, 1998. Of
the loans purchased in fiscal 1998, $14.8 million consisted of fixed-rate, one-
to four-family residential loans, $448,000 consisted of mortgage loans which
provide for periodic interest rate adjustments ("ARMs"), $5.5 million consisted
of balloon mortgages, $8.9 million consisted of construction loans, part of
which were included in loans in process at June 30, 1998, $2.8 million consisted
of fixed-rate second mortgages and $617,000 consisted of variable-rate home
equity loans. Most of the one- to four-family loans purchased by the Bank were
for resale, whereas the purchased construction, home equity and second mortgage
loans were for portfolio.
The Bank sold $45.0 million, $32.9 million and $45.8 million of loans in
fiscal 1998, 1997 and 1996, respectively, representing 39.1%, 42.5% and 66.2%,
respectively, of total loans originated and purchased in such periods. Loan
originations and purchases were at record levels in fiscal 1998, as greater
emphasis was placed on originating residential construction, commercial and
various types of consumer loans for portfolio instead of concentrating primarily
on residential mortgage banking activities. In addition, lower prevailing market
interest rates during fiscal 1998 compared to the prior fiscal year increased
the dollar amount of refinances. Total loan originations and purchases were
$115.0 million in fiscal 1998 compared to $77.4 million and $69.2 million in
fiscal 1997 and 1996, respectively.
At June 30, 1998, Bank West was servicing $33.2 million of loans for the
FHLMC.
The following table shows total loans originated, purchased, sold and repaid
during the periods indicated, including in each case loans held for sale.
Year Ended June 30,
------------------------------------
1998 1997 1996
--------- ------- --------
(In Thousands)
Loan originations:
One- to four-family residential:
Adjustable-rate $ 1,054 $ 9,290 $ 6,201
Fixed-rate 44,655 14,890 26,524
Construction:
Adjustable-rate 9,565 14,758 7,693
Fixed-rate 8,737 1,470 4,078
Commercial mortgages 5,433 2,002 1,212
Consumer loans 2,078 1,006 768
Home equity loans 3,383 5,565 1,039
Second mortgages 5,043 4,194 1,645
Commercial non-mortgage 1,919 2,315 1,139
--------- ------- --------
Total loan originations 81,867 55,490 50,299
Loans purchased:
Second mortgages 2,776 -- --
Home equity loans 617 -- --
One- to four-family residential 29,717 21,892 18,919
--------- ------- --------
Total loans originated
and purchased 114,977 77,382 69,218
--------- ------- --------
Sales and loan principal repayments:
Carrying value of loans sold 44,320 32,416 45,181
Loan principal repayments 56,393 29,915 19,037
--------- ------- --------
Total loans sold and
principal repayments 100,713 62,331 64,218
--------- ------- --------
Increase (decrease) due to other
items, net (1) (6,888) 742 (5,099)
--------- ------- --------
Net increase (decrease) in
loan portfolio, net $ 7,376 $15,793 $ (99)
========= ======= ========
- ----------------------
(1) Other items consist of loans in process, deferred fees and discounts,
allowance for loan losses and loans held for sale.
Real Estate Lending Standards and Underwriting Policies. Effective March 19,
1993, all financial institutions were required to adopt and maintain
comprehensive written real estate lending policies that are consistent with safe
and sound banking practices. These lending policies must reflect consideration
of the Interagency Guidelines for Real Estate Lending Policies adopted by the
federal banking agencies in December 1992 ("Guidelines"). The Guidelines set
forth uniform regulations prescribing standards for real estate lending. Real
estate lending is defined as extensions of credit secured by liens on interests
in real estate or made for the purpose of financing the constructions of a
building or other improvements to real estate, regardless of whether a lien has
been taken on the property.
The policies must address certain lending considerations set forth in the
Guidelines, including loan-to-value ("LTV") limits, loan administration
procedures, underwriting standards, portfolio diversification standards and
requirements for documentation, approval and reporting. These policies must also
be appropriate to the size of the institution and the nature and scope of its
operations, and must be reviewed and approved by the institution's board of
directors at least annually. The LTV ratio framework, with the LTV ratio being
the total amount of credit to be extended divided by the appraised value or
purchase price of the property at the time the credit is originated, must be
established for each category of real estate loans. If not a first lien, the
lender must combine all senior liens when calculating this ratio.
Certain institutions can make real estate loans that do not conform with the
established LTV ratio limits up to 100% of the institution's total capital.
Within this aggregate limit, total loans for all commercial, agricultural,
multi-family and other non-one-to-four family residential properties should not
exceed 30% of total capital. An institution will come under increased
supervisory scrutiny as the total of such loans approaches these levels. Certain
loans are exempt from the LTV ratios (e.g., those guaranteed by a government
agency, loans to facilitate the sale of real estate owned, loans renewed,
refinanced or restructured by the original lender(s) to the same borrower(s)
where there is no advancement of new funds, etc.).
Bank West is in compliance with the above standards.
Although Michigan-chartered savings institutions, such as Bank West, are
permitted to originate and purchase loans secured by real estate located
throughout the United States, Bank West's present lending is primarily done
within western Michigan. Subject to Bank West's loans-to-one borrower
limitation, Bank West is permitted to invest without limitation in residential
mortgage loans and up to 400% of its capital in loans secured by non-residential
or commercial real estate. Bank West may also invest in secured and unsecured
consumer loans in an amount not exceeding 35% of Bank West's total assets. This
35% limitation may be exceeded for certain types of consumer loans, such as home
equity and property improvement loans secured by residential real property. In
addition, Bank West may invest up to 10% of its total assets in secured and
unsecured loans for commercial, corporate, business or agricultural purposes. At
June 30, 1998, Bank West was well within each of the above lending limits.
Bank West requires title insurance insuring the priority of its lien, as
well as fire and extended coverage casualty insurance, in order to protect the
properties securing its real estate loans. Borrowers must also obtain flood
insurance policies when the property is in a flood hazard area as designated by
the Federal Emergency Management Agency. Borrowers may be required to advance
funds on a monthly basis together with each payment of principal and interest to
a mortgage loan account from which Bank West makes disbursements for items such
as real estate taxes, hazard insurance premiums and private mortgage insurance
premiums as they become due.
Loans on Existing Residential Properties. The primary real estate lending
activity of Bank West is the origination of loans secured by first mortgage
liens on one- to four-family residences. At June 30, 1998, $80.6 million or
59.5% of Bank West's total loan portfolio, including loans held for sale but
before net items, consisted of one- to four-family residential loans.
The LTV ratio, maturity and other provisions of the loans made by Bank West
generally have reflected the policy of making less than the maximum loan
permissible under applicable regulations, in accordance with sound lending
practices, market conditions and underwriting standards established by Bank
West. Bank West's lending policies on one- to four-family residential mortgage
loans generally limit the maximum LTV ratio to 97% of the lesser of the
appraised value or purchase price of the property, and generally one- to
four-family residential loans in excess of an 80% LTV ratio require private
mortgage insurance. Prior to November 1992, the Bank had required a minimum 25%
down payment with respect to such loans. For 95% loans, the borrower's down
payment must come from the borrower's own funds and cannot be in the form of a
gift. A borrower's total debt-to-income ratio generally may not exceed 41%.
Bank West offers fixed-rate one- to four-family residential loans with terms
up to 30 years. Such loans are amortized on a monthly basis with principal and
interest due each month and customarily include "due-on-sale" clauses, which are
provisions giving Bank West the right to declare a loan immediately due and
payable in the event the borrower sells or otherwise disposes of the real
property subject to the mortgage or the loan is not repaid. Bank West enforces
due-on-sale clauses to the extent permitted under applicable laws.
Various legislative and regulatory changes have given Bank West the
authority to originate and purchase ARMs, subject to certain limitations. At
June 30, 1998, one- to four-family residential ARMs represented $32.6 million or
24.1% of the total loan portfolio, including loans held for sale.
Bank West's one- to four-family residential ARMs are fully amortizing loans
with contractual maturities of up to 30 years. These loans have interest rates
which are scheduled to adjust annually in accordance with a designated index
(which, at present, is the one-year Treasury security index, plus a range from
2.75% to 2.875%). Bank West currently offers a one-year adjustable-rate mortgage
with a 2% cap on the rate adjustment per period and a 6% cap rate adjustment
over the life of the loan. The adjustable-rate loans in Bank West's loan
portfolio are not convertible by their terms into fixed-rate loans, may be
assumable and do not produce negative amortization. Bank West also offers 3, 5,
7 and 10 year balloon mortgages. During the past fiscal year, the Bank
experienced a higher dollar amount of ARM prepayments and refinancings than
anticipated. As a result, in fiscal 1998 the Bank instituted a 1% prepayment
penalty on newly originated or purchased ARMs for portfolio. ARM loans
originated or purchased for sale do not contain such prepayment penalties.
The demand for adjustable-rate loans in Bank West's primary market area has
been a function of several factors, including the level of interest rates, and
the difference between the interest rates offered for fixed-rate loans and
adjustable-rate loans. Due to the generally lower interest rates prevailing in
recent periods, the market demand for adjustable-rate loans has decreased as
consumer preference for fixed-rate loans has increased. As a result, for fiscal
1998, ARMs represented only 2.3% of total one- to four-family residential loan
originations as compared to 38.4% and 18.9% for fiscal 1997 and 1996,
respectively. To offset ARM prepayments, the Bank originated various types of
balloon mortgages for portfolio.
Construction and Land Development Loans. The Bank originates and purchases
loans to finance the construction of one- to four-family dwellings. It also
originates loans for acquisition and development of unimproved property to be
used for residential purposes. Construction loans represent loans to individuals
who have a contract with a builder for the construction of their residence as
well as loans to builders of residential real estate property. This type of
lending has significantly increased in recent years and represents the second
most significant type of loan for the Bank. At the end of fiscal 1998, 1997 and
1996, construction and land development loans amounted to $25.4 million, $21.6
million and $14.1 million, respectively, or 18.8%, 17.8% and 13.3% of the total
loan portfolio (including loans held for sale), respectively. The Bank purchased
$8.9 million of construction loans in fiscal 1998, a portion of which were
included in loans in process at June 30, 1998. The Bank expects additional
growth in its construction loan portfolio in fiscal 1999.
Construction loans extended pursuant to a builder's line of credit are for
up to the Bank's regulatory lending limit at the prime rate plus a specified
percentage. A first mortgage on each home constructed is given as collateral.
Interest payments only are due for six months, after which the balance extended
is due. The Board of Directors has adopted a policy limiting builder's lines of
credit to four mortgages outstanding at any one time, for an aggregate balance
not to exceed the Bank's regulatory lending limit. Loans to builders under a
line of credit are limited to 75% of appraised value. The maximum term for any
loan pursuant to a builder's line of credit is one year. Pursuant to Bank West's
Construction Loan Policy, construction loans to individuals are limited to 95%
of the appraised value, or purchase price, whichever is less, of the security
property. Construction loans are offered with both fixed and adjustable interest
rates. Appropriate documentation related to the construction process must be
submitted by applicants for construction loans. Bank West has also adopted a
policy for "spec loans" to builders for construction of homes not under sales
contract. For these loans, the permissible LTV limit is 75%. A maximum of two
"spec loans" is permitted to any one builder to be outstanding at one time,
unless an exception is made based upon the financial stability of the builder.
Construction lending is generally considered to involve a higher degree of
risk than one- to four-family residential lending. Such lending typically
involves large loan balances concentrated in a single borrower or groups of
related borrowers for properties that are dependent upon sale of the home being
constructed. Construction financing also is generally considered to involve a
higher degree of risk of loss than long-term financing on improved,
owner-occupied real estate because of the uncertainties of construction,
including the possibility of costs exceeding the initial estimates and the need
to obtain a tenant or purchaser if the property will not be owner-occupied. Bank
West generally attempts to mitigate the risks associated with construction
lending by, among other things, lending primarily in its market area, using
conservative underwriting guidelines, and closely monitoring the construction
process.
Home Equity Lines of Credit. Bank West established a Home Equity Credit Line
Program in November 1993 to further develop its second mortgage lending. The
lines of credit are secured by one- to four-family residences and are available
for any purpose. Loans are offered at the prime rate up to prime plus 1.5%. The
minimum credit line is $1,000, and the maximum line of credit is equal to (a)
either 95% of the property's appraised value or two times its assessed
valuation, minus (b) any existing indebtedness secured by the property. The term
of the line of credit is seven years, with a minimum monthly payment of the
greater of 1% of the unpaid balance, $100 or the interest due on the line of
credit. At June 30, 1998, $9.9 million or 7.3% of the Bank's total loan
portfolio, including loans held for sale but before net items, consisted of home
equity loans. During fiscal 1998, the Bank purchased $617,000 of home equity
lines of credit from various correspondent financial institutions. The Bank had
unused commitments of $7.1million of home equity lines of credit at June 30,
1998. Management expects additional growth in its home equity lines of credit in
fiscal 1999.
Second Mortgages. At June 30, 1998, $8.1 million or 6.0% of the Bank's total
loan portfolio, including loans held for sale but before net items, consisted of
second mortgages. The second mortgages are secured by one- to four-family
residences, are for a fixed amount and a fixed term, and are made to individuals
for a variety of purposes. During fiscal 1998, the Bank purchased $2.8 million
of second mortgages from various correspondent financial institutions.
Management expects additional growth in its second mortgage loan portfolio in
fiscal 1999.
Commercial Lending. Bank West's commercial mortgage and commercial
non-mortgage loans amounted to $6.5 million and $3.3 million, respectively,
representing 4.8% and 2.4% of the total loan portfolio, including loans held for
sale but before net items at June 30, 1998. The origination of commercial
mortgages significantly increased to $5.4 million in fiscal 1998 from $2.0
million in fiscal 1997, as the Bank placed greater emphasis on these loans.
Management expects additional growth both in commercial mortgage and
non-mortgage loans in fiscal 1999.
Commercial real estate lending and commercial non-mortgage lending are
generally considered to involve a higher degree of risk than one- to four-family
residential lending. Such lending typically involves large loan balances
concentrated in a single borrower or groups of related borrowers for rental or
business properties or for the operation of businesses. In addition, the payment
experience on loans secured by income-producing properties is typically
dependent on the success of the operation of the related project and thus is
typically affected by adverse conditions in the real estate market and in the
economy. The Bank generally attempts to mitigate the risks associated with
commercial lending by, among other things, lending primarily in its market area
and using low LTV ratios in the underwriting process.
Consumer Lending. At June 30, 1998, Bank West's consumer loan portfolio
amounted to $1.6 million or 1.2% of the total loan portfolio, including loans
held for sale but before net items. The consumer loan portfolio consists of
automobile, boat, home improvement and unsecured loans. The origination of
consumer loans increased to $2.1 million in fiscal 1998 from $1.0 million in
fiscal 1997, as the Bank placed greater emphasis on these loans. Management
expects additional growth in its consumer loan portfolio during fiscal 1999.
Consumer loans generally have shorter terms and higher interest rates than
mortgage loans but generally involve more credit risk than mortgage loans
because of the type and nature of the collateral and, in certain cases, the
absence of collateral. In addition, consumer lending collections are dependent
on the borrower's continuing financial stability, and thus are more likely to be
adversely affected by job loss, divorce, illness and personal bankruptcy. In
many cases, any repossessed collateral for a defaulted consumer loan will not
provide an adequate source of repayment of the outstanding loan balance because
of its depreciated value or improper repair and maintenance of the underlying
collateral. The remaining deficiency often does not warrant further substantial
collection efforts against the borrower. The Bank believes that the generally
higher yields earned on consumer loans compensate for the increased credit risk
associated with such loans and that consumer loans are important to its efforts
to increase rate sensitivity, shorten the average maturity of its loan portfolio
and provide a full range of services to its customers.
Loan Fees and Servicing Income. In addition to interest earned on loans,
Bank West receives income through the servicing of loans sold and loan fees
charged in connection with loan originations and modifications, late payments,
prepayments, changes of property ownership and for miscellaneous services
related to its loans. Income from these activities varies from period-to-period
with the volume and type of loans made.
Loan origination fees or "points" are a percentage of the principal amount
of the mortgage loan and are charged to the borrower in connection with the
origination of the loan. Bank West's loan origination fees and certain related
direct loan origination costs are offset, and the resulting net amount is
deferred and amortized against interest income over the contractual life of the
related loans as an adjustment to the yield of such loans. At June 30, 1998,
Bank West had approximately $211,000 of net loan costs which had been deferred
and are being recognized as income over the lives of the related loans.
Asset Quality
Delinquent Loans. The following table sets forth information concerning
delinquent loans at June 30, 1998, in dollar amounts and as a percentage of the
Company's total loan portfolio. The amounts presented represent the total
outstanding principal balances of the related loans, rather than the actual
payment amounts which are past due.
June 30, 1998
-----------------------------------------------------------------------------------
30-59 60-89 90 or More Days
Days Overdue Days Overdue Overdue
----------------------- ------------------------- ----------------------
Percent Percent Percent
of Total of Total of Total
Amount Loans Amount Loans Amount Loans
------ ----- ------ ----- ------ -----
(Dollars in Thousands)
One- to four-family
residential real estate loans $1,135 .84% $ -- --% $ 682 .50%
Second mortgages 88 .06 -- -- 127 .09
Consumer loans 34 .03 -- -- -- --
Commercial loans 245 .18 -- -- 32 .03
Non-Performing Assets. When a borrower fails to make a required loan
payment, Bank West attempts to cause the default to be cured by contacting the
borrower. In general, contacts are made after a payment is more than 15 days
past due, at which time a late charge is assessed. In most cases defaults are
cured promptly. If the delinquency on a mortgage loan exceeds 90 days and is not
cured through Bank West's normal collection procedures, or an acceptable
arrangement is not worked out with the borrower, Bank West will institute
measures to remedy the default, including commencing a foreclosure action or, in
special circumstances, accepting from the borrower a voluntary deed of the
secured property in lieu of foreclosure with respect to mortgage loans or title
and possession of collateral in the case of consumer loans.
If foreclosure is effected, the property is sold at a sheriff's sale. If
Bank West is the successful bidder, the acquired real estate property is then
included in Bank West's "real estate owned" account until it is sold. Under
Michigan law, there is generally a six-month redemption period with respect to
one- to four- family residential properties during which the borrower has the
right to repurchase the property. Bank West is permitted under federal
regulations to finance sales of real estate owned by "loans to facilitate" which
may involve more favorable interest rates and terms than generally would be
granted under Bank West's underwriting guidelines. At June 30, 1998 and at the
end of each of the prior four fiscal years, Bank West had no loans to facilitate
real estate owned.
All loans are reviewed on a regular basis under the Bank's asset
classification policy. Loans are placed on a non-accrual status when the loan
becomes 90 days delinquent, in which case the accrual of interest is
discontinued. At June 30, 1998, the Bank had $841,000 of loans on non-accrual
status.
The following table sets forth the amounts of the Company's nonperforming
assets at the dates indicated, all of which consisted of non-accruing, one- to
four-family residential loans 90 days or more delinquent and real estate owned.
At such dates, there were no troubled debt restructurings.
June 30,
-------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(Dollars in Thousands)
Total nonperforming assets:
Non-accruing loans 90 days
or more delinquent $ 841 $417 $ 43 $ 145 $ 35
Real estate owned 192 20 -- -- --
------ ---- ----- ----- ------
Total $1,033 $437 $ 43 $ 145 $ 35
====== ==== ===== ===== ======
Total nonperforming loans as
a percentage of loans, net .71% .37% .04% .15% .04%
====== ==== ===== ===== ======
Total nonperforming assets as
a percentage of total assets .57% .28% .03% .10% .03%
====== ==== ===== ===== ======
The $1.0 million nonperforming assets at June 30, 1998 consisted of
primarily one- to four-family residential loans and construction mortgage loans.
The increase in nonperforming assets at June 30, 1998 was attributable to spec
construction mortgage loans. However, due to the Bank's low LTV ratio required
for each of these loans, no portion of the allowance for loan losses was
allocated to any specific loans at June 30, 1998.
The Bank's total classified assets at June 30, 1998 amounted to $1.0
million, which was classified as substandard.
At June 30, 1998, management was not aware of any additional loans with
possible credit problems which caused it to have doubts as to the ability of the
borrowers to comply with present loan repayment terms and which in management's
view may result in the future inclusion of such items in the non-performing
asset categories.
Allowance for Loan Losses. At June 30, 1998, Bank West's allowance for loan
losses amounted to $290,000 or .21% of the total loan portfolio, including loans
held for sale. Bank West's loan portfolio consists primarily of one- to
four-family residential loans and, to a lesser extent, construction and land
development loans, home equity lines of credit, second mortgage loans,
commercial mortgage and non-mortgage loans and consumer loans. The Bank believes
that there are no material elements of risk in its loan portfolio, and total
nonperforming assets have remained at low levels. The classification of assets
policy is reviewed quarterly by the Board of Directors. The loan loss allowance
is maintained by management at a level considered adequate to cover possible
losses that are currently anticipated 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. Although management
believes that it uses the best information available to make such
determinations, future adjustments to allowances may be necessary, and net
income could be significantly affected, if circumstances differ substantially
from the assumptions used in making the initial determinations.
The following table summarizes changes in the allowance for loan losses and
other selected statistics for the periods presented.
At or For the
Year Ended June 30,
---------------------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- -------
(Dollars in Thousands)
Total loans outstanding(1) $135,390 $121,126 $106,075 $101,075 $95,656
======== ======== ======== ======== =======
Allowance for loan losses,
beginning of period $ 226 $ 166 $ 108 $ 88 $ 63
Provision for loan losses 81 60 60 20 25
Charge-offs, net of recoveries(2) 17 2 -- -- --
-------- -------- -------- -------- -------
Allowance for loan losses,
end of period $ 290 $ 226 $ 166 $ 108 $ 88
======== ======== ======== ======== =======
Allowance for loan losses
as a percent of total loans
outstanding .21 % .19% .16% .11% .09%
======== ======== ======== ======== =======
One- to four-family residential
loans as a percent of total
loans outstanding
59.5% 68.6% 80.2% 91.7% 91.1%
======== ======== ======== ======== =======
- ---------------------------
(1) Includes loans held for sale.
(2) Of the $17,000 in charge-offs in fiscal 1998, $13,000 related to
construction loans and $4,000 related to consumer loans. The $2,000 in
charge-offs in fiscal 1997 related to residential loans. There were no
recoveries in fiscal 1998 and 1997.
The following table presents the allocation of the allowance for loan losses
by type of loan at each of the dates indicated.
June 30,
----------------------------------------------
1998 1997
----------------------------------------------
Loan Loan
Category Category
Amount as a % Amount as a %
of of Total of of Total
Allowance Loans Allowance Loans
--------- ----- --------- -----
(Dollars in Thousands)
Single-family residential $ 38 59.5% $ 43 80.2%
Construction and land development 19 18.8 16 13.3
Commercial(1) 110 7.2 48 2.0
Consumer(2) 89 14.5 44 4.5
Unallocated 34 -- 75 --
---- ----- ---- -----
Total $290 100.0% $226 100.0%
==== ===== ==== =====
(1) Includes commercial mortgages and commercial non-mortgage loans.
(2) Includes home equity lines of credit, second mortgages and other consumer
loans.
Mortgage-Backed Securities
The Company has invested in a portfolio of mortgage-backed securities and
related securities. Mortgage-backed securities (which also are known as mortgage
participation certificates or pass-through certificates) represent a
participation interest in a pool of one- to four-family or multi-family
residential mortgages, the principal and interest payments on which are passed
from the mortgage originators, through intermediaries (generally U.S. government
agencies and government sponsored enterprises) that pool and repackage the
participation interests in the form of securities, to investors such as the
Company. The Company's mortgage-backed securities are insured or guaranteed by
the Federal National Mortgage Association ("FNMA") or the FHLMC. FNMA and FHLMC
are public corporations chartered by the U.S. government. These institutions
guarantee the timely payment of interest and the ultimate return of principal.
FNMA and FHLMC mortgage-backed securities are not backed by the full faith and
credit of the United States, but because FNMA and FHLMC are U.S.
government-sponsored enterprises, these securities are considered high quality
investments with minimal credit risks.
During fiscal 1998, 1997 and 1996, the Company purchased $ 28.3 million,
$15.7 million and $13.7 million, respectively, of adjustable-rate collateralized
mortgage obligations ("CMOs"). The CMOs are not classified as "high-risk
mortgage securities" under OTS Thrift Bulletin 52 ("TB 52"). CMOs are a special
type of pass-through debt in which the stream of principal and interest payments
on the underlying mortgages or mortgage-backed securities is used to create
classes with different maturities and, in some cases, amortization schedules
with each such class possessing different risk characteristics. The CMOs reprice
monthly based on either the prime rate index or the London Interbank Offered
Rate ("LIBOR") index.
At June 30, 1998, the Company's mortgage-backed securities classified as
available for sale had a market value of $807,000 (gross of $10,000 in
unrealized losses), while CMOs classified as available for sale had a market
value of $24.6 million (gross of $20,000 in net unrealized gains). The book
value and market value of CMOs classified as held to maturity at June 30, 1998
totalled $11.1 million. In accordance with SFAS No. 115, "Accounting for Certain
Investments in Debt and Equity Securities," mortgage-backed and related
securities classified as available for sale are reported at fair value and
mortgage-backed and related securities classified as held for investment are
reported at amortized cost. For additional information relating to the Company's
mortgage-backed and related securities held to maturity or available for sale,
see Note 2 to the Consolidated Financial Statements in the 1998 Annual Report to
Stockholders, filed as Exhibit 13.1 hereto (the "1998 Annual Report").
Mortgage-backed securities and CMOs generally yield less than the loans that
underlie such securities, because of the cost of payment guarantees or credit
enhancements that result in nominal credit risk. In addition, mortgage-backed
securities are more liquid than individual mortgage loans and may be used to
collateralize obligations of the Company. In general, mortgage-backed
pass-through securities are weighted at no more than 20% for risk-based capital
purposes, compared to an assigned risk weighting of 50% to 100% for whole
residential mortgage loans. As a result, these types of securities allow the
Company to optimize regulatory capital to a greater extent than non-securitized
whole loans.
While mortgage-backed securities carry a reduced credit risk as compared to
whole loans, such securities remain subject to the risk that a fluctuating
interest rate environment, along with other factors such as the geographic
distribution of the underlying mortgage loans, may alter the prepayment rate of
such mortgage loans and so affect both the prepayment speed, and value, of such
securities. In contrast to mortgage-backed securities in which cash flow is
received (and, hence, prepayment risk is shared) pro rata by all securities
holders, the cash flows from the mortgages or mortgage-backed securities
underlying CMOs are segmented and paid in accordance with a predetermined
priority to investors holding various tranches of such securities or
obligations. A particular tranche of CMOs may therefore carry prepayment risk
that differs from that of both the underlying collateral and other tranches.
The following table sets forth the composition of the Company's
mortgage-backed and CMO securities portfolio at each of the dates indicated.
June 30,
-------------------------------
1998 1997 1996
------- ------- -------
(In Thousands)
Mortgage-backed and related securities:
Mortgage-backed securities $ 807 $ 1,583 $ 2,308
Collateralized mortgage obligations 35,700 23,995 15,034
------- ------- -------
Total mortgage-backed securities $36,507 $25,578 $17,342
======= ======= =======
Information regarding the contractual maturities and weighted average yield
of the Company's mortgage-backed securities portfolio at June 30, 1998 is
presented below. Due to repayments of the underlying loans, the actual
maturities of mortgage-backed securities generally are substantially less than
the scheduled maturities.
Amounts at June 30, 1998 Which Mature In
-------------------------------------------------------------------------
After Five
One Year After One to to Over 10
or Less Five Years 10 Years Years Total
------- ---------- -------- ----- -----
(Dollars in Thousands)
Mortgage-backed
securities $ -- $ -- $ -- $ 807 $ 807
Collateralized mortgage
obligations -- -- -- 35,700 35,700
----- ----- ----- ------- -------
Total $ -- $ -- $ -- $36,507 $36,507
===== ===== ===== ======= =======
Weighted average yield --% --% --% 6.68% 6.68%
The following table sets forth the purchases, sales and principal repayments
of the Company's mortgage-backed securities and CMOs during the periods
indicated.
At or For the
Year Ended June 30,
---------------------------------------
1998 1997 1996
-------- -------- --------
(Dollars In Thousands)
Mortgage-backed securities
and CMOs at beginning of period $ 25,578 $ 17, 342 $ 18,355
Purchases 28,348 15,729 14,721
Repayment (787) (545) (2,970)
Sales and calls (16,576) (7,247) (12,485)
Gain on sales 55 12 17
Amortization of premiums, net (80) (11) (90)
Change in net unrealized gain (loss)
on securities available for sale (31) 298 (206)
-------- -------- --------
Mortgage-backed securities
and CMOs at end of period $ 36,507 $ 25,578 $ 17,342
======== ======== ========
Weighted average yield at
end of period 6.68% 7.09% 6.52%
======== ======== ========
Securities
The investment policy of the Company, which is established by the Investment
Committee and approved by the Board of Directors, is designed primarily to
provide a portfolio of high quality, diversified instruments while seeking to
optimize net interest income within acceptable limits of interest rate risk,
credit risk and liquidity.
Securities (excluding FHLB stock, mortgage-backed securities and CMO's)
totalled $6.7 million or 3.7% of total assets at June 30, 1998. Such securities
consist of U.S. government agency and equity securities. At June 30, 1998, all
of the securities are classified as available for sale.
On May 31, 1998, the Company reclassified equity securities with a carrying
and fair value of $1.2 million from the trading classification to the available
for sale classification to reflect management's intent to realize the long-term
potential underlying such securities rather than to benefit from short-term
changes in market values. The recent downturn in the U.S. equity markets,
especially in small cap stocks, has had a negative impact on the Company's
remaining equity investments. As a result, management determined that an
other-than-temporary market decline in the market value of certain equity
securities occurred totaling $260,000 as of June 30, 1998 based on market prices
at that date. Over time, management believes the market price of the Company's
remaining equity investments will reach estimated values based on underlying
fundamentals. At June 30, 1998, the Company had no remaining trading securities.
The following table sets forth certain information relating to the Company's
securities portfolio (excluding mortgage-backed securities and CMOs) at the
dates indicated.
June 30,
---------------------------------------------------------------------------------------
1998 1997 1996
----------------------- --------------------- -----------------------
Book Market Book Market Book Market
Value Value Value Value Value Value
----- ----- ----- ----- ----- -----
(In Thousands)
U.S. Government agency securities $ 3,995 $3,992 $3,999 $3,979 $6,949 $6,951
Corporate bonds -- -- - -- 493 493
Equity securities 3,011 3,011 - -- -- --
FHLB stock 2,100 2,100 1,550 1,550 1,475 1,475
------ ------- ------ ----- ------ ------
Total $ 9,106 $ 9,103 $5,549 $5,529 $8,917 $8,919
======== ====== ===== ===== ===== =====
The following table sets forth the amount of securities which mature during
each of the periods indicated and the weighted average yields for each range of
maturities at June 30, 1998.
Amounts at June 30, 1998 Which Mature In
-------------------------------------------------------------------------------
Over One Over Five
Weighted Year Weighted Years Weighted
One Year Average Through Average Through Average
or Less Yield Five Years Yield Ten Years Yield
---------- ------------- ------------ ------------ ----------- ---------
(Dollars in Thousands)
Bonds and other debt securities:
U.S. Government agency $ -- -- % $3,992 6.28% $ -- -- %
securities
Equity securities(1)
FHLB stock(1)
- ---------------------------
(1) As a member of the FHLB of Indianapolis, the Company is required to
maintain its investment in FHLB stock which has no stated maturity. The
average yield on the FHLB stock was 8.0% in fiscal 1998. Also, the
Company's equity securities have no stated maturity.
At June 30, 1998, the Company did not have securities in any one issuer
which exceeded 10% of the Company's stockholders' equity.
Interest-Bearing Deposits
At June 30, 1998, the Company had interest-bearing deposits in financial
institutions of $1.8 million, as compared to $2.0 million at June 30, 1997 and
1996, respectively. The $200,000 decrease in interest-bearing deposits from June
30, 1998 to June 30, 1998 is due to excess liquidity being utilized to fund loan
originations.
Sources of Funds
General. Deposits are the primary source of Bank West's funds for lending
and other investment purposes. In addition to deposits, Bank West derives funds
from principal repayments on loans and mortgage-backed securities. Loan
repayments are a relatively stable source of funds, while deposit inflows and
outflows are significantly influenced by general interest rates and money market
conditions. FHLB advances may be used to compensate for reductions in the
availability of funds from other sources. They may also be used on a longer-term
basis for general business purposes.
Deposits. Bank West's deposits are attracted principally from within Bank
West's primary market area through the offering of a broad selection of deposit
instruments, including NOW accounts, money market accounts, regular savings
accounts, and term certificate accounts. Included among these deposit products
are individual retirement account certificates of approximately $9.1 million or
7.6% of total deposits at June 30, 1998. Deposit account terms vary, with the
principal differences being the minimum balance required, the time periods the
funds must remain on deposit and the interest rate.
The large variety of deposit accounts offered by Bank West has increased
Bank West's ability to retain deposits and has allowed it to be more competitive
in obtaining new funds, but has not eliminated the threat of disintermediation
(the flow of funds away from savings institutions into direct investment
vehicles such as government and corporate securities). During periods of high
interest rates, deposit accounts that have adjustable interest rates have been
more costly than traditional passbook accounts. In addition, Bank West has
become increasingly subject to short-term fluctuations in deposit flows. Bank
West's ability to attract and maintain deposits is affected by the rate
consciousness of its customers and their willingness to move funds into
higher-yielding accounts. Bank West's cost of funds has been, and will continue
to be, affected by money market conditions.
The following table shows the distribution of, and certain other information
relating to, Bank West's deposits by type of deposit, as of the dates indicated.
June 30,
-----------------------------------------------------------------------
1998 1997 1996
------------------- -------------------- -------------------
Amount % Amount % Amount %
-------- ----- -------- ----- ------- -----
(Dollars in Thousands)
Certificate accounts:
2.00% - 3.99% $ -- --% $ -- --% $ -- --%
4.00% - 5.99% 61,575 51.3 45,409 44.2 51,043 56.1
6.00% - 7.99% 27,601 23.0 32,230 31.3 17,351 19.1
8.00% - 9.99% 23 -- 21 -- 21 --
-------- ----- -------- ----- ------- -----
Total certificate accounts 89,199 74.3 77,660 75.5 68,415 75.2
-------- ----- -------- ----- ------- -----
Transaction accounts:
Passbook and statement savings 19,335 16.1 17,388 16.9 16,572 18.2
Money market accounts 572 .5 786 .8 1,031 1.1
NOW and noninterest-bearing accounts 10,873 9.1 7,028 6.8 5,010 5.5
-------- ----- -------- ----- ------- -----
Total transaction accounts 30,780 25.7 25,202 24.5 22,613 24.8
-------- ----- -------- ----- ------- -----
Total deposits $119,979 100.0% $102,862 100.0% $91,028 100.0%
======== ===== ======== ===== ======= =====
The following table presents the average balance of each type of deposit and
the average rate paid on each type of deposit for the periods indicated.
Year Ended June 30,
-----------------------------------------------------------------------------------------
1998 1997 1996
--------------------------- ----------------------- ---------------------
Average Average Average
Average Rate Average Rate Average Rate
Balance Paid Balance Paid Balance Paid
------- ---- ------- ---- ------- ----
(Dollars in Thousands)
Passbook and statement
savings accounts $ 18,808 3.61% $17,247 3.61% $16,930 3.64%
Money market accounts
and NOW accounts 7,013 1.65 6,260 1.69 4,711 2.21
Certificates of deposit 83,032 5.79 73,465 5.71 66,532 5.84
-------- ----- ------- ----- ------ ----
Total $108,853 5.15% $96,972 5.08% $88,173 5.22%
======== ===== ======= ===== ======= ====
The following table sets forth the savings flows of Bank West during the
periods indicated.
Year Ended June 30,
-------------------------------------
1998 1997 1996
-------------------------------------
(In Thousands)
Increase before
interest credited(1) $11,546 $ 6,945 $1,234
Interest credited 5,571 4,889 4,614
------- ------- ------
Net increase in deposits $17,117 $11,834 $5,848
======= ======= ======
- -----------------
(1) Information provided is net because information necessary to present the
gross amounts of deposits and withdrawals is not readily available.
Bank West attempts to control the flow of deposits by pricing its accounts
to remain generally competitive with other financial institutions in its market
area, but does not necessarily seek to match the highest rates paid by competing
institutions. Bank West has generally not taken a position of price leadership
in its markets unless there has been an opportunity to market longer-term
deposits.
The principal methods used by Bank West to attract deposits include the
offering of a wide variety of services and accounts, competitive interest rates,
convenient office locations and cards that access deposits at Bank West through
automatic teller machines ("ATMs") established by other banking organizations.
Bank West uses traditional marketing methods to attract new customers and
deposits, including mass media advertising and direct mailings.
The following table sets forth the maturities of Bank West's certificates of
deposit having principal amounts of $100,000 or more at June 30, 1998.
Quarter Ending: Amounts
- --------------- -------
(In Thousands)
September 30, 1998 $ 5,683
December 31, 1998 2,330
March 31, 1999 2,095
June 30, 1999 2,248
After June 30, 1999 4,827
-------
Total certificates of deposit with
balances of $100,000 or more $17,183
=======
Borrowings. Bank West may obtain advances from the FHLB of Indianapolis
based upon the security of the common stock it owns in that bank and certain of
its residential mortgage loans, investment securities and mortgage-backed
securities, provided certain standards related to credit worthiness have been
met. See "Regulation - The Bank - Federal Home Loan Bank System." Such advances
are made pursuant to several credit programs, each of which has its own interest
rate and range of maturities. Such advances are generally available to meet
seasonal and other withdrawals of deposit accounts and to permit increased
lending. At June 30, 1998, Bank West had $37 million of advances from the FHLB
of Indianapolis, $22 million of which represent putable advances which gives the
FHLB the option to convert the advance to an adjustable-rate beginning one, two
or five years after the purchase date, depending on the advance, and quarterly
thereafter. In addition, $10 million of adjustable-rate advances mature during
fiscal 1999 and $5 million of adjustable-rate advances mature in fiscal 2000.
See Note 7 to the Consolidated Financial Statements in the 1998 Annual Report
for additional information. During fiscal 1998 and 1997, the Bank utilized
additional FHLB advances to fund loans and securities growth as well as mortgage
banking activities. During fiscal 1996, the Bank reduced advances by $5.9
million with excess liquidity generated from deposit growth.
The following table sets forth certain information regarding borrowings at
or for the dates indicated:
At or for the Year Ended June 30,
-------------------------------------
1998 1997 1996
------- ------- -------
(Dollars in Thousands)
FHLB advances:
Average balance outstanding $35,803 $22,433 $22,236
Maximum amount outstanding
at any month-end during
the period $38,000 $29,000 $22,500
Balance outstanding at end
of period $37,000 $29,000 $19,000
Average interest rate
during the period 5.61% 5.46% 5.96%
Weighted average interest rate
at end of period 5.48% 5.84% 5.52%
Subsidiaries
At June 30, 1998, the Bank had one wholly-owned subsidiary, Sunrise
Mortgage Corporation, which was formed in December 1997. Sunrise Mortgage
Corporation originates and purchases non-conforming mortgage loans, including
sub-prime mortgage loans for resale. All of the loans originated and purchased
have a commitment to sell in place to an investor other than Bank West on a
servicing released basis.
Competition
Bank West faces significant competition both in attracting deposits and
in making loans. Some of the Bank's major competitors include Bank One, Comerica
Bank, Michigan National Bank, Old Kent Bank, Huntington Bank, and National City.
Its most direct competition for deposits historically has come from commercial
banks, credit unions and other savings institutions located in
its primary market area, including many large financial institutions which have
greater financial and marketing resources available to them. In addition, Bank
West faces significant competition for investors' funds from short-term money
market mutual funds and issuers of corporate and government securities. Bank
West competes for deposits principally by offering depositors a variety of
deposit programs. Bank West does not rely upon any individual group or entity
for a material portion of its deposits. The Bank estimates that its market share
of total deposits in Kent County, Michigan is approximately 1%.
Bank West's competition for real estate loans comes principally from
mortgage banking companies, commercial banks and other savings institutions.
Bank West competes for loan originations primarily through the interest rates
and loan fees it charges, and the efficiency and quality of services it provides
borrowers and real estate brokers. Factors which affect competition include
general and local economic conditions, current interest rate levels and
volatility in the mortgage markets. The Bank estimates that its market share of
total mortgage loans secured by properties located in Kent County, Michigan is
approximately 3%.
Employees
Bank West and its subsidiaries had 61 full-time employees and 10
part-time employees at June 30, 1998. None of these employees is represented by
a collective bargaining agent, and Bank West believes that it enjoys good
relations with its personnel.
REGULATION
The following is a summary of certain statutes and regulations
affecting the Company and the Bank. This summary is qualified in its entirety by
such statutes and regulations. A change in applicable laws or regulations may
have a material effect on the Company, the Bank and the business of the Company
and the Bank.
General
Financial institutions and their holding companies are extensively
regulated under federal and state law. Consequently, the growth and earnings
performance of the Company and the Bank can be affected not only by management
decisions and general economic conditions, but also by the statutes administered
by, and the regulations and policies of, various governmental regulatory
authorities. Those authorities include, but are not limited to, the Federal
Reserve Board, the FDIC, the Commissioner, the Internal Revenue Service, and
state taxing authorities. The effect of such statutes, regulations and policies
can be significant, and cannot be predicted with a high degree of certainty.
Federal and state laws and regulations generally applicable to
financial institutions and their holding companies regulate, among other things,
the scope of business, investments, reserves against deposits, capital levels
relative to operations, lending activities and practices, the nature and amount
of collateral for loans, the establishment of branches, mergers, consolidations
and dividends. The system of supervision and regulation applicable to the
Company and the Bank establishes a comprehensive framework for their respective
operations and is intended primarily for the protection of the FDIC's deposit
insurance funds, the depositors of the Bank and the public, rather than
shareholders of the Bank or the Company.
Federal law and regulations establish supervisory standards applicable
to the lending activities of the Bank, including internal controls, credit
underwriting, loan documentation and loan-to-value ratios for loans secured by
real property.
The Company
General. The Company, as a registered savings and loan holding company
within the meaning of the Home Owners' Loan Act ("HOLA"), is subject to Office
of Thrift Supervision ("OTS") regulations, examinations, supervision and
reporting requirements. As a subsidiary of a savings and loan holding company,
Bank West is subject to certain restrictions in its dealings with the Company
and affiliates thereof.
Activities Restrictions. There are generally no restrictions on the
activities of a savings and loan holding company which holds only one subsidiary
savings institution. However, if the Director of the OTS determines that there
is reasonable cause to believe that the continuation by a savings and loan
holding company of an activity constitutes a serious risk to the financial
safety, soundness or stability of its subsidiary savings institution, the
Director may impose such restrictions as deemed necessary to address such risk,
including limiting (i) payment of dividends by the savings institution; (ii)
transactions between the savings institution and its affiliates; and (iii) any
activities of the savings institution that might create a serious risk that the
liabilities of the holding company and its affiliates may be imposed on the
savings institution. Notwithstanding the above rules as to permissible business
activities of unitary savings and loan holding companies, if the savings
institution subsidiary of such a holding company fails to meet the qualified
thrift lender ("QTL") test set forth in HOLA, then such unitary holding company
also shall become subject to the activities restrictions applicable to multiple
savings and loan holding companies and, unless the savings institution
requalifies as a QTL within one year thereafter, shall register as, and become
subject to the restrictions applicable to, a bank holding company. At June 30,
1998, the Bank satisfied the QTL test.
If the Company were to acquire control of another savings institution,
other than through merger or other business combination with Bank West, the
Company would thereupon become a multiple savings and loan holding company.
Except where such acquisition is pursuant to the authority to approve emergency
thrift acquisitions and where each subsidiary savings institution meets the QTL
test, the activities of the Company and any of its subsidiaries (other than Bank
West or other subsidiary savings institutions) would thereafter be subject to
further restrictions. Among other things, no multiple savings and loan holding
company or subsidiary thereof which is not a savings institution shall commence
or continue for a limited period of time after becoming a multiple savings and
loan holding company or subsidiary thereof any business activity, upon prior
notice to, and no objection by the OTS, other than: (i) furnishing or performing
management services for a subsidiary savings institution; (ii) conducting an
insurance agency or escrow business; (iii) holding, managing, or liquidating
assets owned by or acquired from a subsidiary savings institution; (iv) holding
or managing properties used or occupied by a subsidiary savings institution; (v)
acting as trustee under deeds of trust; (vi) those activities authorized by
regulation as of March 5, 1987 to be engaged in by multiple savings and loan
holding companies; or (vii) unless the Director of the OTS by regulation
prohibits or limits such activities for savings and loan holding companies,
those activities authorized by the FRB as permissible for bank holding
companies. Those activities described in (vii) above also must be approved by
the Director of the OTS prior to being engaged in by a multiple savings and loan
holding company.
Legislation has been recently introduced into the U.S. Congress which
would subject all unitary holding companies to the same restrictions on
activities as are currently applied to multiple holding companies. If such
legislation is enacted in its current form, the ability of the Company to engage
in certain activities that are currently permitted to the Company may be
restricted. The Company, however, does not believe that it will be required to
discontinue any current activity. In addition, such legislation would preclude
companies that are engaged in activities not permitted to multiple savings and
loan holding companies from acquiring control of the Company. No prediction can
be made at this time as to whether such legislation will be enacted or whether
it will be enacted in its current form.
Limitations on Transactions with Affiliates. Transactions between
savings institutions and any affiliate are governed by Sections 23A and 23B of
the Federal Reserve Act and OTS regulations. An affiliate of a savings
institution is any company or entity which controls, is controlled by or is
under common control with the savings institution. In a holding company context,
the parent holding company of a savings institution (such as the Company) and
any companies which are controlled by such parent holding company are affiliates
of the savings institution. Generally, such provisions (i) limit the extent to
which the savings institution or its subsidiaries may engage in "covered
transactions" with any one affiliate to an amount equal to 10% of such
institution's capital stock and surplus, and contain an aggregate limit on all
such transactions with all affiliates to an amount equal to 20% of such capital
stock and surplus and (ii) require that all such transactions be on terms
substantially the same, or at least as favorable, to the institution or
subsidiary as those provided to a non-affiliate. The term "covered transaction"
includes the making of loans, purchase of assets, issuance of a guarantee and
other similar transactions. In addition to the restrictions imposed by such
provisions, no savings institution may (i) loan or otherwise extend credit to an
affiliate, except for any affiliate which engages only in activities which are
permissible for bank holding companies, or (ii) purchase or invest in any
stocks, bonds, debentures, notes or similar obligations of any affiliate, except
for affiliates which are subsidiaries of the savings institution.
In addition, Sections 22(h) and (g) of the Federal Reserve Act place
restrictions on loans to executive officers, directors and principal
stockholders. Under Section 22(h), loans to a director, an executive officer and
to a greater than 10% stockholder of a savings institution, and certain
affiliated interests of either, may not exceed, together with all other
outstanding loans to such person and affiliated interests, the savings
institution's loans to one borrower limit (generally equal to 15% of the
institution's unimpaired capital and surplus). Section 22(h) also requires that
loans to directors, executive officers and principal stockholders be made on
terms substantially the same as offered in comparable transactions to other
persons and also requires prior board approval for certain loans. In addition,
the aggregate amount of extensions of credit by a savings institution to all
insiders cannot exceed the institution's unimpaired capital and surplus.
Furthermore, Section 22(g) places additional restrictions on loans to executive
officers. Savings institutions also are subject to the restrictions of 12 U.S.C.
ss.1972, which prohibits (i) a depository institution from extending credit, or
offering any other services or fixing or varying the consideration for such
extension of credit or service, on the condition that the customer obtain some
additional service from the institution or certain of its affiliates or not to
obtain services of a competitor of the institution, subject to certain
exceptions, and (ii) extensions of credit to executive officers, directors and
greater than 10% stockholders of a depository institution by any other
institution that has a correspondent banking relationship with the institution,
unless such extension of credit is on substantially the same terms as those
prevailing at the time for comparable transactions with other persons and does
not involve more than the normal risk of repayment or present other unfavorable
features. At June 30, 1998, Bank West was in compliance with the above
restrictions.
Restrictions on Acquisitions. Except under limited circumstances,
savings and loan holding companies are prohibited from acquiring, without prior
approval of the Director of the OTS, (i) control of any other savings
institution or savings and loan holding company or substantially all the assets
thereof or (ii) more than 5% of the voting shares of a savings institution or
holding company thereof which is not a subsidiary. Except with the prior
approval of the Director of the OTS, no director or officer of a savings and
loan holding company or person owning or controlling by proxy or otherwise more
than 25% of such company's stock, may acquire control of any savings
institution, other than a subsidiary savings institution, or of any other
savings and loan holding company.
The Director of the OTS may only approve acquisitions resulting in the
formation of a multiple savings and loan holding company which controls savings
institutions in more than one state if (i) the multiple savings and loan holding
company involved controls a savings institution which operated a home or branch
office located in the state of the institution to be acquired as of March 5,
1987; (ii) the acquiror is authorized to acquire control of the savings
institution pursuant to the emergency acquisition provisions of the Federal
Deposit Insurance Act ("FDIA"); or (iii) the statutes of the state in which the
institution to be acquired is located specifically permit institutions to be
acquired by the state-chartered institutions or savings and loan holding
companies located in the state where the acquiring entity is located (or by a
holding company that controls such state-chartered savings institutions).
Under the Bank Holding Company Act of 1956, the FRB is authorized to
approve an application by a bank holding company to acquire control of a savings
institution. In addition, a bank holding company that controls a savings
institution may merge or consolidate the assets and liabilities of the savings
institution with, or transfer assets and liabilities to, any subsidiary bank
which is a member of the Bank Insurance Fund ("BIF") with the approval of the
appropriate federal banking agency and the FRB. As a result of these provisions,
there have been a number of acquisitions of savings institutions by bank holding
companies in recent years.
The Bank
General. As a Michigan-chartered state savings bank with deposits
insured by the SAIF, Bank West is subject to extensive regulation by the
Financial Institutions Bureau and the FDIC. The lending activities and other
investments of the Bank must comply with various federal and state regulatory
requirements. The Financial Institutions Bureau periodically examines the Bank
for compliance with various regulatory requirements. The FDIC also has the
authority to conduct special examinations of SAIF members. The Bank must file
reports with the Financial Institutions Bureau and the FDIC describing its
activities and financial condition. Bank West also is subject to certain reserve
requirements promulgated by the Board of Governors of the Federal Reserve System
(the "Federal Reserve Board"). This supervision and regulation is intended
primarily for the protection of depositors.
Regulatory Capital Requirements. The FDIC has established the following
minimum capital standards for state-chartered, FDIC-insured non-member banks,
such as the Bank: a leverage requirement consisting of a minimum ratio of Tier 1
capital to total assets of 3% for the most highly-rated banks with minimum
requirements of 4% to 5% for all others, and a risk-based capital requirement
consisting of a minimum ratio of total capital to total risk-weighted assets of
8%, at least one-half of which must be Tier 1 capital. Tier 1 capital consists
principally of shareholders' equity. These capital requirements are minimum
requirements. Higher capital levels will be required if warranted by the
particular circumstances or risk profiles of individual institutions. For
example, FDIC regulations provide that higher capital may be required to take
adequate account of, among other things, interest rate risk and the risks posed
by concentrations of credit, nontraditional activities or securities trading
activities.
Federal law provides the federal banking regulators with broad power to
take prompt corrective action to resolve the problems of undercapitalized
institutions. The extent of the regulators' powers depends on whether the
institution in question is "well capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized," or "critically
undercapitalized." Federal regulations define these capital categories as
follows:
Total Tier 1
Risk-Based Risk-Based
Capital Ratio Capital Ratio Leverage Ratio
------------- ------------- --------------
Well capitalized 10% or above 6% or above 5% or above
Adequately capitalized 8% or above 4% or above 4% or above
Undercapitalized Less than 8% Less than 4% Less than 4%
Significantly undercapitalized Less than 6% Less than 3% Less than 3%
Critically undercapitalized -- -- A ratio of tangible
equity to total assets
of 2% or less
As of June 30, 1998, each of the Bank's ratios exceeded minimum
requirements for the well capitalized category. See Note 13 to the Consolidated
Financial Statements in the 1998 Annual Report.
Depending upon the capital category to which an institution is
assigned, the regulators' corrective powers include requiring the submission of
a capital restoration plan; placing limits on asset growth and restrictions on
activities; requiring the institution to issue additional capital stock
(including additional voting stock) or to be acquired; restricting transactions
with affiliates; restricting the interest rate the institution may pay on
deposits; ordering a new election of directors of the institution; requiring
that senior executive officers or directors be dismissed; prohibiting the
institution from accepting deposits from correspondent banks; requiring the
institution to divest certain subsidiaries; prohibiting the payment of principal
or interest on subordinated debt; and ultimately, appointing a receiver for the
institution.
In general, a depository institution may be reclassified to a lower
category than is indicated by its capital levels if the appropriate federal
depository institution regulatory agency determines the institution to be
otherwise in an unsafe or unsound condition or to be engaged in an unsafe or
unsound practice. This could include a failure by the institution, following
receipt of a less-than-satisfactory rating on its most recent examination
report, to correct the deficiency.
Dividends. Under Michigan law, the Bank is restricted as to the maximum
amount of dividends it may pay on its common stock. The Bank may not pay
dividends except out of net profits after deducting its losses and bad debts. A
Michigan-chartered state savings bank may not declare or pay a dividend unless
the bank will have a surplus amounting to at least 20% of its capital after the
payment of the dividend. If the Bank has a surplus less than the amount of its
capital, it may not declare or pay any dividend until an amount equal to at
least 10% of net profits for the preceding one-half year (in the case of
quarterly or semi-annual dividends) or full-year (in the case of annual
dividends) has been transferred to surplus. A Michigan state bank may, with the
approval of the Commissioner, by vote of shareholders owning two-thirds of the
stock eligible to vote, increase its capital stock by a declaration of a stock
dividend, provided that after the increase the bank's surplus equals at least
20% of its capital stock, as increased. The Bank may not declare or pay any
dividend until the cumulative dividends on preferred stock (should any such
stock be issued and outstanding) have been paid in full.
Federal law generally prohibits a depository institution from making
any capital distribution (including payment of a dividend) or paying any
management fee to its holding company if the depository institution would
thereafter be undercapitalized. The FDIC may prevent an insured bank from paying
dividends if the bank is in default of payment of any assessment due to the
FDIC. In addition, the FDIC may prohibit the payment of dividends by the Bank,
if such payment is determined, by reason of the financial condition of the Bank,
to be an unsafe and unsound banking practice.
Safety and Soundness Standards. The federal banking agencies have
adopted guidelines to promote the safety and soundness of federally insured
depository institutions. These guidelines establish standards for internal
controls, information systems, internal audit systems, loan documentation,
credit underwriting, interest rate exposure, asset growth, compensation, fees
and benefits, asset quality and earnings. In general, the guidelines prescribe
the goals to be achieved in each area, and each institution will be responsible
for establishing its own procedures to achieve those goals. If an institution
fails to comply with any of the standards set forth in the guidelines, the
institution's primary federal regulator may require the institution to submit a
plan for achieving and maintaining compliance. The preamble to the guidelines
states that the agencies expect to require a compliance plan from an institution
whose failure to meet one or more of the standards is of such severity that it
could threaten the safe and sound operation of the institution. Failure to
submit an acceptable compliance plan, or failure to adhere to a compliance plan
that has been accepted by the appropriate regulator, would constitute grounds
for further enforcement action.
Federal Home Loan Bank System. Bank West is a member of the FHLB of
Indianapolis, which is one of 12 regional FHLBs that administers the home
financing credit function of savings institutions. Each FHLB serves as a reserve
or central bank for its members within its assigned region. It is funded
primarily from proceeds derived from the sale of consolidated obligations of the
FHLB System. It makes loans to members (i.e., advances) in accordance with
policies and procedures established by the Board of Directors of the FHLB. The
FHLB borrowings are collateralized by a blanket collateral loan agreement under
which the Bank must maintain minimum eligible collateral of 160% of the
outstanding advances. Under this agreement, the limit on the Bank's FHLB
borrowings was $74 million at June 30, 1998. At June 30, 1998, the Bank had $
37.0 million of FHLB advances and a $2.0 million line of credit. See Note 7 to
the Consolidated Financial Statements in the 1998 Annual Report.
As a member, Bank West is required to purchase and maintain stock in
the FHLB of Indianapolis in an amount equal to at least 1% of its aggregate
unpaid residential mortgage loans, home purchase contracts or similar
obligations at the beginning of each year. At June 30, 1998, Bank West had $ 2.1
million in FHLB stock, which was in compliance with this requirement.
The FHLBs are required to provide funds for the resolution of troubled
savings institutions and to contribute to affordable housing programs through
direct loans or interest subsidies on advances targeted for community investment
and low- and moderate-income housing projects. These contributions have
adversely affected the level of FHLB dividends paid and could continue to do so
in the future. These contributions also could have an adverse effect on the
value of FHLB stock in the future.
Deposit Insurance. The deposits of Bank West are insured to the maximum
extent permitted by the SAIF, which is administered by the FDIC, and are backed
by the full faith and credit of the U.S. Government. As insurer, the FDIC is
authorized to conduct examinations of, and to require reporting by, FDIC-insured
institutions. It also may prohibit any FDIC-insured institution from engaging in
any activity the FDIC determines by regulation or order to pose a serious threat
to the FDIC. The FDIC also has the authority to initiate enforcement actions
against savings institutions, after giving the Commissioner an opportunity to
take such action.
Under current FDIC regulations, SAIF-insured institutions are assigned
to one of three capital groups which are based solely on the level of an
institution's capital--"well capitalized," "adequately capitalized," and
"undercapitalized"--which are defined as discussed above under "- Regulatory
Capital Requirements." These three groups are then divided into three subgroups
which reflect varying levels of supervisory concern, from those which are
considered to be healthy to those which are considered to be of substantial
supervisory concern. The matrix so created results in nine assessment risk
classifications, with rates ranging prior to September 30, 1996 from .23% for
well capitalized, healthy institutions to .31% for undercapitalized institutions
with substantial supervisory concerns. The insurance premiums for Bank West for
the two semi-annual periods in each of calendar 1994, calendar 1995 and calendar
1996 were .23% (per annum) of insured deposits.
The deposits of the Bank are currently insured by the SAIF. Both the
SAIF and the BIF are required by law to attain and thereafter maintain a reserve
ratio of 1.25% of insured deposits. The BIF has achieved a fully funded status,
and therefore as discussed below, in fiscal 1996 the FDIC substantially reduced
the average deposit insurance premium paid by BIF-insured banks to a level
approximately 75% below the average premium then paid by savings institutions.
On November 14, 1995, the FDIC approved a final rule regarding deposit
insurance premiums. The final rule reduced deposit insurance premiums for BIF
member institutions to zero basis points (subject to a $2,000 minimum) for
institutions in the lowest risk category, while holding deposit insurance
premiums for SAIF members at their then current levels (23 basis points for
institutions in the lowest risk category). The reduction was effective with
respect to the semiannual premium assessment beginning January 1, 1996.
On September 30, 1996, President Clinton signed into law legislation
which eliminated the premium differential between SAIF-insured institutions and
BIF-insured institutions by recapitalizing the SAIF's reserves to the required
ratio. The legislation required all SAIF member institutions to pay a one-time
special assessment to recapitalize the SAIF, with the aggregate amount to be
sufficient to bring the reserve ratio to 1.25% of insured deposits. The
legislation also provides for the merger of the BIF and the SAIF, with such
merger being conditioned upon the prior elimination of the thrift charter.
Implementing FDIC regulations imposed a one-time special assessment
equal to 65.7 basis points for all SAIF-assessable deposits as of March 31,
1995, which was accrued as an expense on September 30, 1996. The Bank's one-time
special assessment amounted to $551,000. Net of related tax benefits, the
one-time special assessment amounted to $364,000 or $0.14 per share. The payment
of the special assessment had the effect of immediately reducing the Bank's
capital by such amount. However, management does not believe that this one-time
special assessment had a material adverse effect on the Company's consolidated
financial condition.
In the fourth quarter of 1996, the FDIC lowered the assessment rates
for SAIF members to reduce the disparity in the assessment rates paid by BIF and
SAIF members. Beginning October 1, 1996, effective SAIF rates generally range
from zero basis points to 27 basis points, except that during the fourth quarter
of 1996, the rates for SAIF members ranged from 18 to 27 basis points in order
to include assessments paid to the Financing Corporation ("FICO"). From 1997
through 1999, SAIF members will pay 6.4 basis points to fund the FICO, while BIF
member institutions will pay approximately 1.3 basis points. The Bank's
insurance premiums, which had amounted to 23 basis points, were thus reduced to
6.4 basis points effective January 1, 1997.
The FDIC may terminate the deposit insurance of any insured depository
institution, including Bank West, if it determines after a hearing that the
institution has engaged or is engaging in unsafe or unsound practices, is in an
unsafe or unsound condition to continue operations, or has violated any
applicable law, regulation, order or any condition imposed by an agreement with
the FDIC. It also may suspend deposit insurance temporarily during the hearing
process for the permanent termination of insurance, if the institution has no
tangible capital. If insurance of accounts is terminated, the accounts at the
institution at the time of the termination, less subsequent withdrawals, shall
continue to be insured for a period of six months to two years, as determined by
the FDIC. Management is aware of no existing circumstances which would result in
termination of the Bank's deposit insurance.
Restrictions on Certain Activities. Under FDICIA, state-chartered banks
with deposits insured by the FDIC are generally prohibited from acquiring or
retaining any equity investment of a type or in an amount that is not
permissible for a national bank. The foregoing limitation, however, does not
prohibit FDIC-insured state banks from acquiring or retaining an equity
investment in a subsidiary in which the bank is a majority owner.
State-chartered banks are also prohibited from engaging as principal in any type
of activity that is not permissible for a national bank and subsidiaries of
state-chartered, FDIC-insured state banks may not engage as principal in any
type of activity that is not permissible for a subsidiary of a national bank
unless in either case the FDIC determines that the activity would pose no
significant risk to the appropriate deposit insurance fund and the bank is, and
continues to be, in compliance with applicable capital standard.
The FDIC has adopted regulations to clarify the foregoing restrictions
on activities of FDIC-insured, state-chartered banks and their subsidiaries.
Under the regulations, the term activity refers to the authorized conduct of
business by an insured state bank and includes acquiring or retaining any
investment other than an equity investment. A bank or subsidiary is considered
acting as principal when conducted other than as an agent for a customer, as
trustee, or in a brokerage, custodial, advisory or administrative capacity. An
activity permissible for a national bank includes an activity expressly
authorized for national banks by statute or recognized as permissible in
regulations, official circulars or bulletins or in any order or written
interpretation issued by the Office of the Comptroller of the Currency ("OCC").
In its regulations, the FDIC indicated that it will not permit state banks to
directly engage in commercial ventures or directly or indirectly engage in any
insurance underwriting activity other than to the extent such activities are
permissible for a national bank or a national bank subsidiary or except for
certain other limited forms of insurance underwriting permitted under the
regulations. Under the regulations, the FDIC permits state banks that meet
applicable minimum capital requirements to engage as principal in certain
activities that are not permissible to national banks including guaranteeing
obligations of others, activities which the Federal Reserve Board has found by
regulation or order to be closely related to banking and certain securities
activities conducted through subsidiaries.
Uniform Lending Standards. Federal regulations require banks to adopt
and maintain written policies establishing appropriate limits and standards for
extensions of credit that are secured by liens or interests in real estate or
are made for the purpose of financing permanent improvements to real estate.
These policies must establish loan portfolio diversification standards, prudent
underwriting standards, including loan-to-value limits, that are clear and
measurable, loan administration procedures and documentation, approval and
reporting requirements. A bank's real estate lending policy must reflect
consideration of the guidelines that have been adopted by the banking agencies.
The Bank does not believe that such guidelines materially affect its lending
activities.
Limits on Loans to One Borrower. The permissible amount of loans-to-one
borrower now generally follows the national bank standard for all loans made by
savings institutions. The standard generally does not permit loans-to-one
borrower to exceed the greater of $500,000 or 15% of unimpaired capital and
surplus. At June 30, 1998, the 15% limit for the Bank was $1.5 million, and the
Bank did not have any loans to one borrower in excess of such amount. Loans in
an amount equal to an additional 10% of unimpaired capital and surplus also may
be made to a borrower if the loans are fully secured by readily marketable
collateral.
Consumer Protection Laws. The Bank's business includes making a variety
of types of loans to individuals. In making these loans, the Bank is subject to
state usury and regulatory laws and to various federal statutes, such as the
Equal Credit Opportunity Act, the Fair Credit Reporting Act, the Truth in
Lending Act, the Real Estate Settlement Procedures Act, and the Home Mortgage
Disclosure Act, and the regulations promulgated thereunder, which prohibit
discrimination, specify disclosures to be made to borrowers regarding credit and
settlement costs, and regulate the mortgage loan servicing activities of the
Bank, including the maintenance and operation of escrow accounts and the
transfer of mortgage loan servicing. In receiving deposits, the Bank is subject
to extensive regulation under state and federal law and regulations, including
the Truth in Savings Act, the Expedited Funds Availability Act, the Bank Secrecy
Act, the Electronic Funds Transfer Act, and the Federal Deposit Insurance Act.
Violation of these laws could result in the imposition of significant damages
and fines upon the Bank and its directors and officers.
Commissioner Assessments. Michigan banks are required to pay
supervisory fees to the Commissioner to fund the operations of the Commissioner.
The amount of supervisory fees paid by a bank is based upon the bank's total
assets, as reported to the Commissioner.
Branching Authority. Michigan banks, such as the Bank, have the
authority under Michigan law to establish branches anywhere in the State of
Michigan, subject to receipt of all required regulatory approvals (including the
approval of the Commissioner and the FDIC).
Effective June 1, 1997, the Riegle-Neal Interstate Banking and
Branching Efficiency Act of 1994 (the "IBBEA") allows banks to establish
interstate branch networks through acquisitions of other banks, subject to
certain conditions, including certain limitations on the aggregate amount of
deposits that may be held by the surviving bank and all of its insured
depository institution affiliates. The establishment of de novo interstate
branches or the acquisition of individual branches of a bank in another state
(rather than the acquisition of an out-of-state bank in its entirety) is allowed
by IBBEA only if specifically authorized by state law. The legislation allowed
individual states to "opt-out" of interstate branching authority by enacting
appropriate legislation prior to June 1, 1997.
Michigan did not opt out of IBBEA, and now permits both U.S. and
non-U.S. banks to establish branch offices in Michigan. The Michigan Banking
Code permits, in appropriate circumstances and with the approval of the
Commissioner, (i) the acquisition of all or substantially all of the assets of a
Michigan-chartered bank by an FDIC-insured bank, savings bank, or savings and
loan association located in another state, (ii) the acquisition by a
Michigan-chartered bank of all or substantially all of the assets of an
FDIC-insured bank, savings bank or savings and loan association located in
another state, (iii) the consolidation of one or more Michigan-chartered banks
and FDIC-insured banks, savings banks or savings and loan associations located
in other states having laws permitting such consolidation, with the resulting
organization chartered by Michigan, (iv) the establishment by a foreign bank,
which has not previously designated any other state as its home state under the
International Banking Act of 1978, of branches located in Michigan, and (v) the
establishment or acquisition of branches in Michigan by FDIC-insured banks
located in other states, the District of Columbia or U.S. territories or
protectorates having laws permitting Michigan-chartered banks to establish
branches in such jurisdiction. Further, the Michigan Banking Code permits, upon
written notice to the Commissioner, (i) the acquisition by a Michigan-chartered
bank of one or more branches (not comprising all or substantially all of the
assets) of an FDIC-insured bank, savings bank or savings and loan association
located in another state, the District of Columbia, or a U.S. territory or
protectorate, (ii) the establishment by Michigan-chartered banks of branches
located in other states, the District of Columbia, or U.S. territories or
protectorates, and (iii) the consolidation of one or more Michigan-chartered
banks and FDIC-insured banks, savings banks or savings and loan associations
located in other states, with the resulting organization chartered by one of
such other states.
TAXATION
Federal Taxation
General. The Company and Bank West are subject to the generally
applicable corporate tax provisions of the Code, and Bank West is subject to
certain additional provisions of the Code which apply to thrift and other types
of financial institutions. The following discussion of federal taxation is
intended only to summarize certain pertinent federal income tax matters and is
not a comprehensive discussion of the tax rules applicable to the Company and
Bank West.
Fiscal Year. The Company and Bank West file a consolidated federal
income tax return on the basis of a fiscal year ending June 30.
Bad Debt Reserves. Savings institutions, such as Bank West, which meet
certain definitional tests primarily relating to their assets and the nature of
their businesses, are permitted to establish a reserve for bad debts and to make
annual additions to the reserve. These additions may, within specified formula
limits, be deducted in arriving at the institution's taxable income.
In August 1996, legislation was enacted that repeals the reserve method
of accounting (including the percentage of taxable income method) previously
used by many savings institutions to calculate their bad debt reserve for
federal income tax purposes. Savings institutions with $500 million or less in
assets may, however, continue to use the experience method. As a result, the
Bank must recapture that portion of its reserve which exceeds the amount that
could have been taken under the experience method for post-1987 tax years. At
June 30, 1996, the Bank's post-1987 excess reserves amounted to approximately
$781,000. The recapture will occur over a six-year period, the commencement of
which will begin in fiscal 1999, provided the Bank meets certain residential
lending requirements. No recapture took place in fiscal 1998 because the Bank
met its residential loan requirement under the Code. The legislation also
requires savings institutions to account for bad debts for federal income tax
purposes on the same basis as commercial banks for tax years beginning after
December 31, 1995.
At June 30, 1998, the federal income tax reserves of Bank West included
$3.4 million for which no federal income tax has been provided. Because of these
federal income tax reserves and the liquidation account established for the
benefit of certain depositors of Bank West in connection with the conversion of
the Bank to stock form, the retained earnings of Bank West are substantially
restricted.
Distributions. If Bank West were to distribute cash or property to its
sole stockholder, and the distribution was treated as being from its accumulated
bad debt reserves, the distribution will cause Bank West to have additional
taxable income. A distribution is deemed to have been made from accumulated bad
debt reserves to the extent that (a) the reserves exceed the amount that would
have been accumulated on the basis of actual loss experience, and (b) the
distribution is a "non-qualified distribution." A distribution with respect to
stock is a non-qualified distribution to the extent that, for federal income tax
purposes, (i) it is in redemption of shares, (ii) it is pursuant to a
liquidation of the institution, or (iii) in the case of a current distribution,
together with all other such distributions during the taxable year, it exceeds
the institution's current and post-1951 accumulated earnings and profits. The
amount of additional taxable income created by a non-qualified distribution is
an amount that when reduced by the tax attributable to it is equal to the amount
of the distribution.
Minimum Tax. The Code imposes an alternative minimum tax at a rate of
20%. The alternative minimum tax generally applies to a base of regular taxable
income plus certain tax preferences ("alternative minimum taxable income" or
"AMTI") and is payable to the extent such AMTI is in excess of an exemption
amount. The Code provides that an item of tax preference is the excess of the
bad debt deduction allowable for a taxable year pursuant to the percentage of
taxable income method over the amount allowable under the experience method.
Other items of tax preference that constitute AMTI include (a) depreciation and
(b) 75% of the excess (if any) of (i) adjusted current earnings as defined in
the Code, over (ii) AMTI (determined without regard to this preference and prior
to reduction by net operating losses).
Net Operating Loss Carryovers. A financial institution may carry back
net operating losses ("NOLs") to the preceding three taxable years and forward
to the succeeding 15 taxable years. This provision applies to losses incurred in
taxable years beginning after 1986. At June 30, 1998, Bank West had no NOL
carryforwards for federal income tax purposes.
Capital Gains and Corporate Dividends-Received Deduction. Corporate net
capital gains are currently taxed at a maximum rate of 35%. Corporations which
own 20% or more of the stock of a corporation distributing a dividend may deduct
80% of the dividends received. Corporations which own less than 20% of the stock
of a corporation distributing a dividend may deduct 70% of the dividends
received. However, a corporation that receives dividends from a member of the
same affiliated group of corporations may deduct 100% of the dividends received.
Other Matters. Federal legislation is introduced from time to time that
would limit the ability of individuals to deduct interest paid on mortgage
loans. Individuals are currently not permitted to deduct interest on consumer
loans. Significant increases in tax rates or further restrictions on the
deductibility of mortgage interest could adversely affect Bank West.
Bank West's federal income tax returns for the tax years ended June 30,
1995 forward are open under the statute of limitations and are subject to review
by the IRS.
State Taxation
The State of Michigan imposes a tax on intangible personal property in
the amount of $0.20 per $1,000 of deposits of a savings bank or a savings and
loan institution, less deposits owed to the federal or Michigan state
governments, their agencies or certain other financial institutions. In 1996,
the State of Michigan repealed this tax over a phase-out period beginning in
calendar 1995 and ending in calendar 1998. For calendar years 1997, 1996 and
1995, the amount of the tax calculated pursuant to the above formula is reduced
by 75%, 50% and 25%, respectively. The State of Michigan also imposes a "Single
Business Tax," which is a value-added type of tax and is for the privilege of
doing business in the State of Michigan. The major components of the Single
Business Tax base are compensation, depreciation and federal taxable income,
increased by NOLs, if any, utilized in arriving at federal taxable income, and
decreased by the cost of acquisition of depreciable tangible assets during the
year. The tax rate through September 30, 1994 was 2.35% of the Michigan adjusted
tax base. Beginning October 1, 1994, the rate decreased to 2.30% of the Michigan
adjusted tax base.
Item 2. Properties.
At June 30, 1998, Bank West conducted its business from its main office
in Walker, Michigan and two branch offices in Grand Rapids, Michigan. The
following table sets forth the net book value (including leasehold improvement,
furnishings and equipment) and certain other information with respect to the
offices and other properties of Bank West at June 30, 1998.
Net Book
Value of Amount of
Description/Address Leased/Owned Property Deposits
------------------- ------------ -------- --------
(In Thousands)
2185 Three Mile Road N.W.
Grand Rapids, MI 49544 Owned $ 2,364 $39,223
910 Bridge Street
Grand Rapids, MI 49504 Owned 661 74,761
6740 Cascade Road S.E.
Grand Rapids, MI 49546 Leased 140 5,995
------- -------
Total $ 3,165 $ 119,979
======= =========
Item 3. Legal Proceedings.
On July 1, 1998, Kristine Cowles filed a complaint against the Bank in
the Circuit Court for the County of Kent, State of Michigan. The complaint
alleges that the Bank has been engaged in the unauthorized practice of law as
the result of charging a fee for preparing loan documents. The complaint seeks
class action certification, restitution of all fees paid for the last six years,
interest, attorney fees and other costs. Management believes after consultation
with legal counsel that the complaint is wholly without merit, and intends to
vigorously defend against this suit and has filed a motion for summary judgement
and dismissal. A hearing has been scheduled for mid-October 1998.
The Company and the Bank are also subject to certain other legal
actions arising in the ordinary course of business. In the opinion of
management, after consultation with legal counsel, the ultimate disposition of
these matters is not expected to have a material adverse effect on the
consolidated financial position of the Company.
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
PART II.
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
The information required herein, to the extent applicable, is
incorporated by reference from the inside back cover page of the Company's 1998
Annual Report.
Item 6. Selected Financial Data.
The information required herein is incorporated by reference from page
2 of the 1998 Annual Report.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
The information required herein is incorporated by reference from pages
3 to 14 of the 1998 Annual Report.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Not applicable since the Company qualifies as a small business issuer.
See Item 305(e) of Regulation S-K.
Item 8. Financial Statements and Supplementary Data.
The information required herein is incorporated by reference from pages
15 to 43 of the 1998 Annual Report.
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure.
Not applicable.
PART III.
Item 10. Directors and Executive Officers of the Registrant.
The information required herein is incorporated by reference from pages
3, 4, 7 and 11 of the definitive proxy statement of the Company for the Annual
Meeting of Stockholders to be held on October 28, 1998, which will be filed
within 120 days of June 30, 1998 ("Definitive Proxy Statement").
Item 11. Executive Compensation.
The information required herein is incorporated by reference from pages
12 to 18 of the Definitive Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The information required herein is incorporated by reference from pages
8 to 11 of the Definitive Proxy Statement.
Item 13. Certain Relationships and Related Transactions.
The information required herein is incorporated by reference from page
18 of the Definitive Proxy Statement.
PART IV.
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) Documents Filed as Part of this Report
(1) The following financial statements are incorporated by reference
from Item 8 hereof (see Exhibit 13):
Report of Independent Auditors
Consolidated Balance Sheets as of June 30, 1998 and 1997
Consolidated Statements of Income for the Years Ended
June 30, 1998, 1997 and 1996
Consolidated Statements of Changes in Shareholders' Equity for
the Years Ended June 30, 1998, 1997 and 1996
Consolidated Statements of Cash Flows for the Years
ended June 30, 1998, 1997 and 1996
Notes to Consolidated Financial Statements
(2) All schedules for which provision is made in the applicable
accounting regulation of the SEC are omitted because of the absence of
conditions under which they are required or because the required information is
included in the consolidated financial statements and related notes thereto.
(3) The following exhibits are filed as part of this Form 10-K, and
this list includes the Exhibit Index.
Exhibit Index
2.1* Plan of Conversion
3.1* Articles of Incorporation of Bank West Financial Corporation
3.2** Bylaws of Bank West Financial Corporation
4.1*** Stock Certificate of Bank West Financial Corporation
10.1* Employee Stock Ownership Plan
10.2*** Employment Agreement among Bank West
Financial Corporation, Bank West, F.S.B. and Paul W. Sydloski
dated March 30, 1995
10.3* Form of Employment Security Agreement among
Bank West Financial Corporation, Bank West, F.S.B. and
certain executive officers
10.4**** 1995 Key Employee Stock Compensation Program
10.5**** 1995 Directors' Stock Option Plan
10.6**** 1995 Management Recognition Plan for Officers
10.7**** 1995 Management Recognition Plan for Directors
13.1 1998 Annual Report to Stockholders
21.1 Subsidiaries of the Registrant - Reference is made to "Item 2.
Business" for the required information
23.1 Consent of Crowe, Chizek and Company LLP
27.1 Financial Data Schedule
(*) Incorporated herein by reference from the Company's Registration
Statement on Form S-1 (Registration No. 33-87620) filed with the SEC on
December 21, 1994, as subsequently amended.
(**) Incorporated herein by reference from the Company's Form 10-Q filed
with the SEC on November 14, 1997.
(***) Incorporated herein by reference from the Company's Annual Report on
Form 10-K filed with the SEC on September 28, 1995.
(****) Incorporated herein by reference from the Company's Annual Report on
Form 10-K filed with the SEC on September 26, 1996.
(b) The Company did not file any reports on Form 8-K during the quarter
ended June 30, 1998.
(c) See (a)(3) above for all exhibits filed herewith and the Exhibit
Index.
(d) There are no financial statements or schedules which were excluded
from Item 8 which are required to be reported herein.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
Date: September 22, 1998 By: /s/ Paul W. Sydloski
--------------------
Paul W. Sydloski
President, Chief Executive Officer
and Director
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
/s/ Paul W. Sydloski September 22, 1998
- --------------------------
Paul W. Sydloski
President, Chief Executive
Officer and Director
/s/ George A. Jackoboice September 22, 1998
- --------------------------
George A. Jackoboice
Chairman of the Board and
Director
/s/ Richard L. Bishop September 22, 1998
- --------------------------
Richard L. Bishop
Director
/s/ Thomas D. DeYoung September 22, 1998
- --------------------------
Thomas D. DeYoung
Director
/s/ Jacob Haisma September 22, 1998
Jacob Haisma
Director
/s/ Harry E. Mika September 22, 1998
- --------------------------
Harry E. Mika
Director
/s/ Carl A. Rossi September 22, 1998
- --------------------------
Carl A. Rossi
Director
/s/ Robert J. Stephan September 22, 1998
- --------------------------
Robert J. Stephan
Director
/s/ John H. Zwarensteyn September 22, 1998
- --------------------------
John H. Zwarensteyn
Director
/s/ Kevin A. Twardy September 22, 1998
- --------------------------
Kevin A. Twardy
Chief Financial Officer
(also principal accounting
officer)