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, 1999
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 $9.19 per share closing price of the Registrant's common stock as
of September 20, 1999, the aggregate market value of the 1,849,958 shares of the
Registrant's common stock deemed to be held by non-affiliates of the Registrant
was $17.0 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 20, 1999: 2,521,059
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, 1999 are incorporated
into Part II, Items 5 through 8 of this Form 10-K; and (2) portions of the
definitive proxy statement for the 1999 Annual Meeting of Stockholders are
incorporated into Part III, Items 10 through 13 of this Form 10-K.
PART I.
Item 1. Business.
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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 savings bank.
Bank West conducts business from three offices located in Grand Rapids,
Michigan. At June 30, 1999, the Company had $206.7 million of total assets,
$184.1 million of total liabilities, including $132.4 million of deposits, and
$22.6 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, 1999, the Bank's ratio of
Tier 1 capital to average total assets was 10.4%, its ratio of Tier 1 capital to
risk- weighted assets was 17.6% and its ratio of total capital to risk-weighted
assets was 18.0%. See "Regulation - The Bank - Regulatory Capital Requirements."
During April 1999, the Board of Directors appointed Ronald A. Van
Houten as interim Chief Executive Officer, replacing Paul W. Sydloski. Mr. Van
Houten was named President and Chief Executive Officer, removing the interim
status in June 1999.
2
During May 1999, the Bank went through a strategic realignment by
appointing Louis D. Knooihuizen as Vice President of the newly created
Commercial Lending Division. In addition, James A. Koessel, the former Vice
President and Chief Lending Officer, was named Senior Vice President of Mortgage
Lending. This division includes commercial mortgage lending and residential
mortgage lending, while the Commercial Lending Division concentrates primarily
on commercial loans not collateralized by mortgages. The strategic realignment
reflects the change in the focus of the Bank's business model and strategic plan
to concentrate greater efforts on commercial lending activities while
consolidating mortgage lending activities.
Beginning in fiscal 1995, the Bank expanded its loan products by
offering commercial loans and various types of consumer loans. At June 30, 1999,
there were $42.5 million in loans receivable outstanding for these loan products
compared to $29.4 million and $16.5 million outstanding for such loan products
at June 30, 1998 and 1997, respectively. Of the $42.5 million at June 30, 1999,
$21.3 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 $1.3 million
of non-accruing loans 90 days or more delinquent and $310,000 of net real estate
owned, totalled $1.6 million or 1.09% of the net loan portfolio at June 30,
1999. At the end of each of the last five fiscal years, the Company's total
nonperforming assets did not exceed fiscal 1999 levels. At June 30, 1999, the
Company's allowance for loan losses amounted to $480,000, representing .33% of
the total loan portfolio and 38% 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,
government legislation and regulation; and changes in other risks detailed in
this Form 10-K and in the Company's other Securities and Exchange
3
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, 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, 1999, the Company's total loan
portfolio, including loans held for sale but before net items, amounted to
$156.7 million. The net loan portfolio, excluding loans held for sale, amounted
to $145.2 million at June 30, 1999, representing approximately 70.2% of the
Company's $206.7 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, 1999, one-
to four-family residential loans amounted to $87.6 million or 55.9% of the total
loan portfolio, including loans held for sale. To a lesser extent, the Bank
originates residential construction and land development loans, home equity
lines of credit, second mortgages, commercial and consumer loans. Construction
and land development loans amounted to $26.6 million or 17.0% of the Bank's
total loan portfolio, home equity lines of credit amounted to $10.5 million or
6.7% of the total loan portfolio, and second mortgages amounted to $10.8 million
or 6.9%, of the total loan portfolio, including loans held for sale. At June 30,
1999, commercial mortgages amounted to $15.5 million or 9.9%, commercial
non-mortgages amounted to $3.8 million or 2.4%, and consumer loans amounted to
$1.8 million or 1.2%, of the total loan portfolio, including loans held for
sale.
4
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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1999 1998 1997 1996
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Amount % Amount % Amount % Amount %
------- ---- ------- ---- ------- ---- ------- ----
(Dollars In Thousands)
Real estate loans:(1)
One- to four-family residential $87,618 55.9% $80,554 59.5% $83,065 68.6% $85,034 80.2%
Construction and land development 26,585 17.0 25,407 18.8 21,560 17.8 14,074 13.3
Commercial mortgages 15,457 9.9 6,485 4.8 2,764 2.3 1,194 1.1
Home equity lines of credit 10,513 6.7 9,877 7.3 6,371 5.2 2,214 2.1
Second mortgages 10,820 6.9 8,148 6.0 4,253 3.5 1,927 1.8
Consumer loans 1,849 1.2 1,666 1.2 1,081 .9 622 0.6
Commercial non-mortgage 3,824 2.4 3,253 2.4 2,032 1.7 1,010 0.9
------- ---- ------- ---- ------- ---- ------- ----
Total loans 156,666 100.0% 135,390 100.0% 121,126 100.0% 106,075 100.0%
===== ===== ===== =====
Less:
Loans held for sale 2,381 8,157 2,231 4,297
Loans in process 9,001 8,248 7,169 5,828
Deferred fees and discounts (402) (211) (30) 47
Allowance for loan losses 480 290 226 166
-------- ------- --------- -------
Net loans $145,206 $118,906 $111,530 $95,737
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June 30,
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1995
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Amount %
------- ----
Real estate loans:(1)
One- to four-family residential $92,673 91.7%
Construction and land development 6,146 6.1
Commercial mortgages 90 .1
Home equity lines of credit 1,453 1.4
Second mortgages 683 0.7
Consumer loans 30 --
Commercial non-mortgage -- --
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Total loans 101,075 100.0%
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Less:
Loans held for sale 2,746
Loans in process 2,290
Deferred fees and discounts 95
Allowance for loan losses 108
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Net loans $95,836
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(1) Includes loans held for sale.
5
Contractual Maturities. The following table sets forth the scheduled
contractual maturities of Bank West's loans at June 30, 1999. 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, 1999 in:
One year or less $ 317 $11,999 $2,282 $ -- $ 257
After one year through two years 9,170 625 5,254 257 29
After two years through three years 2,267 1,260 340 208 49
After three years through five years 847 -- 7,581 2,096 2,993
After five years through ten years 42,073 11,410 -- 7,952 2,137
After ten years through fifteen years 8,970 -- -- -- 4,414
After fifteen years 23,974 1,291 -- -- 941
------- ------- ------- ------- -------
Total(1) $87,618 $26,585 $15,457 $10,513 $10,820
======= ======= ======= ======= =======
Commercial
Consumer Non-Mortgage Total
--------- ------------- ---------
Amounts due after June 30, 1999 in:
One year or less $ 43 $1,970 $ 16,868
After one year through two years 245 400 15,980
After two years through three years 421 -- 4,545
After three years through five years 1,140 370 15,027
After five years through ten years -- 1,022 64,594
After ten years through fifteen years -- 62 13,446
After fifteen years -- -- 26,206
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Total(1) $ 1,849 $ 3,824 $156,666
======= ======== ========
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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, 1999, 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 $ 68,467 $18,834 $ 87,301
Construction and land development 14,370 216 14,586
Commercial mortgages 7,135 6,040 13,175
Home equity -- 10,513 10,513
Second mortgages 10,563 -- 10,563
Consumer 1,764 42 1,806
Commercial non-mortgage 1,120 734 1,854
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Total $103,419 $36,379 $139,798
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6
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 actual 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
$500,000. If the loan is to be held in the portfolio and exceeds $500,000 but
does not exceed $750,000, it must be approved by the Loan Committee. Loans in
excess of $750,000 must be approved by the Board of Directors.
The Bank has entered into agreements with Freddie Mac and several private
investors. The Bank sells loans with servicing retained to Freddie Mac 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
7
repurchase the affected loans that were sold. As of June 30, 1999, 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 $35.2 million of loans in the year ended June 30, 1999. Of
the loans purchased in fiscal 1999, $6.6 million consisted of fixed-rate, one-
to four-family residential loans, $350,000 consisted of mortgage loans which
provide for periodic interest rate adjustments ("ARMs"), $7.3 million consisted
of balloon mortgages, $16.7 million consisted of construction loans, part of
which were included in loans in process at June 30, 1999, $3.9 million consisted
of fixed-rate second mortgages and $354,000 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 $41.6 million, $45.0 million and $32.9 million of loans in
fiscal 1999, 1998 and 1997, respectively, representing 41.9%, 39.1% and 42.5%,
respectively, of total residential first mortgage loans originated and purchased
in such periods. Loan originations and purchases were at record levels in fiscal
1999, as greater emphasis was placed on originating ten-year balloon,
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
1999 compared to the previous fiscal years increased the dollar amount of
refinances. Total loan originations and purchases were $125.8 million in fiscal
1999 compared to $115.0 million and $77.4 million in fiscal 1998 and 1997,
respectively.
8
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,
-----------------------------------
1999 1998 1997
-------- --------- -------
(In Thousands)
Loan originations:
One- to four-family residential:
Adjustable-rate $ 91 $ 1,054 $ 9,290
Fixed-rate 29,648 32,669 13,036
Balloon 18,950 11,986 1,854
Construction and land development:
Adjustable-rate 9,029 9,565 14,758
Fixed-rate 153 632 937
Balloon 11,481 8,105 533
Commercial mortgages 11,053 5,433 2,002
Consumer loans 1,215 2,078 1,006
Home equity loans 2,644 3,383 5,565
Second mortgages 4,625 5,043 4,194
Commercial non-mortgage 1,711 1,919 2,315
-------- --------- -------
Total loan originations 90,600 81,867 55,490
Loans purchased:
Second mortgages 3,850 2,776 --
Home equity loans 354 617 --
One- to four-family residential 30,963 29,717 21,892
-------- --------- -------
Total loans originated
and purchased 125,767 114,977 77,382
-------- --------- -------
Sales and loan principal repayments:
Carrying value of loans sold 34,463 44,320 32,416
Loan principal repayments 70,028 56,393 29,915
-------- --------- -------
Total loans sold and
principal repayments 104,491 100,713 62,331
-------- --------- -------
Increase (decrease) due to other
items, net (1) 5,024 (6,888) 742
-------- --------- -------
Net increase (decrease) in
loan portfolio, net $ 26,300 $ 7,376 $15,793
======== ========= =======
- ----------------------
(1) Other items consist of loans in process, deferred fees and discounts,
allowance for loan losses and loans held for sale.
9
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. At least 50% of Bank West's total assets are required
to consist of one or more of the following: loans that were made to purchase,
refinance, construct, improve or repair domestic residential housing; home
equity loans; cash and other highly liquid assets; securities backed by or
representing an interest in mortgages on domestic residential housing, including
single or multi-family dwellings, or manufactured housing; shares of stock
issued by any federal home loan bank; 50% of the dollar amount of the domestic
residential housing mortgage loans, including single or multi-family dwellings,
originated by Bank West and sold within 90 days of origination; 200% of the
dollar amount of loans and investments to purchase, construct or develop one- to
four-family residences the purchase price of which is, or is guaranteed to be,
not greater than 60% of the median value of comparable newly constructed one- to
four-family residences within the savings bank's local community; 200% of the
dollar amount of loans for the
10
purchase, construction, development or improvement of domestic residential
housing, or loans to small businesses, located within a geographic region or
neighborhood in which the credit needs of low and moderate income residents are
not being adequately met at the time the relevant loan is made; shares of stock
issued by Freddie Mac and Fannie Mae; loans for personal, family, household or
educational purposes; and certain other miscellaneous assets. At June 30, 1999,
Bank West significantly exceeded these asset requirements.
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, 1999, $87.6 million or
55.9% 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, 1999, one- to four-family residential ARMs represented $18.8 million or
12.0% 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
11
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.
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 and a relatively flat U.S. Treasury yield curve, the market
demand for adjustable-rate loans has decreased as consumer preference for
fixed-rate loans has increased. During fiscal 1999, the Bank experienced a
higher dollar amount of ARM prepayments and refinances than anticipated. As a
result, ARMs represented only 21.5% of total one- to four-family residential
loan originations in fiscal 1999 as compared to 40.5% and 59.9% for fiscal 1998
and 1997, respectively. To offset ARM prepayments and refinances, the Bank
originated various types of balloon mortgages for portfolio, primarily ten-year
balloons. At June 30, 1999, one- to four-family balloons represented 59.2% of
total one- to four-family residential loan originations as compared to 30.3% and
15.0% for fiscal 1998 and 1997, respectively.
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 increased in recent years and represents the second most significant
type of loan for the Bank. At the end of fiscal 1999, 1998 and 1997,
construction and land development loans amounted to $26.6 million, $25.4 million
and $21.6 million, respectively, or 17.0%, 18.8% and 17.8% of the total loan
portfolio (including loans held for sale), respectively. The Bank purchased
$16.7 million of construction loans in fiscal 1999, a portion of which were
included in loans in process at June 30, 1999. The Bank expects additional
growth in its construction loan portfolio in fiscal 2000.
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
12
"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 1.0%. 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, 1999, $10.5 million or 6.7% of the Bank's total loan
portfolio, including loans held for sale but before net items, consisted of home
equity loans. During fiscal 1999, the Bank purchased $354,000 of home equity
lines of credit from various correspondent financial institutions. The Bank had
unused commitments of $8.9 million of home equity lines of credit at June 30,
1999. Management expects additional growth in its home equity lines of credit in
fiscal 2000.
Second Mortgages. At June 30, 1999, $10.8 million or 6.9% 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 1999, the Bank purchased
$3.9 million of second mortgages from various correspondent financial
institutions. The majority of second mortgages purchased during the fiscal year
were required to have private mortgage insurance in place. Management expects
additional growth in its second mortgage loan portfolio in fiscal 2000.
Commercial Lending. Bank West's commercial mortgage and commercial
non-mortgage loans amounted to $15.5 million and $3.8 million, respectively,
representing 9.9% and 2.4% of the total loan portfolio, including loans held for
sale but before net items at June 30, 1999. The origination of commercial
mortgages significantly increased to $11.1 million in fiscal 1999 from $5.4
million in fiscal 1998, as the Bank placed greater emphasis on these loans. The
expected result of the previously mentioned strategic realignment that took
place during fiscal 1999 is to significantly increase both commercial mortgage
and non-mortgage loan volume in fiscal 2000.
13
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, 1999, Bank West's consumer loan portfolio
amounted to $1.8 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 decreased to $1.2 million in fiscal 1999 from $2.1 million in
fiscal 1998, primarily as a result of increased competition for these loans.
Management expects to continue to offer these loans but does not expect
significant growth in this category during fiscal 2000.
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, 1999,
Bank West had approximately $402,000 of net loan costs which had been deferred
and are being recognized as income over the lives of the related loans.
14
At June 30, 1999, Bank West was servicing $27.2 million of loans for the
Freddie Mac. During fiscal 1999, the Bank experienced a high dollar amount of
prepayments or refinances of loans serviced for Freddie Mac due to the decline
in overall market interest rates. However, the increase in overall market
interest rates since June 30, 1999 has significantly reduced the prepayments of
loans serviced for Freddie Mac.
Asset Quality
Delinquent Loans. The following table sets forth information concerning
delinquent loans at June 30, 1999, 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, 1999
-------------------------------------------------------------------------------------
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 $ 217 .14% $ 7 --% $ 207 .13%
Construction and land
development -- -- -- -- 930 .59
Home equity and second
mortgages 195 .12 51 .03 136 .09
Consumer loans 34 .02 -- -- 6 --
Commercial loans(1) 323 .21 2 -- -- --
--- --- ----- --- ------ ----
Total $ 769 .49% $ 60 .03% $1,279 .81%
======= === ===== === ====== ====
- ------------------
(1) Includes commercial mortgage and commercial non-mortgage loans.
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
15
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, 1999 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, 1999, the Bank had $1,279,000 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,
----------------------------------------------------
1999 1998 1997 1996 1995
------ ------ ---- ----- -------
(Dollars in Thousands)
Total nonperforming assets:
Non-accruing loans 90 days
or more delinquent $1,279 $ 841 $417 $ 43 $ 145
Real estate owned 310 192 20 -- --
------ ------ ---- ----- -------
Total $1,589 $1,033 $437 $ 43 $ 145
====== ====== ==== ===== =======
Total nonperforming loans as
a percentage of loans, net 1.09% .71% .37% .04% .15%
====== ====== ==== ===== =======
Total nonperforming assets as
a percentage of total assets .77% .57% .28% .03% .10%
====== ====== ==== ===== =======
The $1.6 million of nonperforming assets at June 30, 1999 consisted
primarily of one- to four-family residential loans and construction spec loans.
The increase in nonperforming assets at June 30, 1999 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, 1999.
The Bank's total classified assets at June 30, 1999 amounted to $1.6
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.
16
Allowance for Loan Losses. At June 30, 1999, Bank West's allowance for loan
losses amounted to $480,000 or .31% 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,
----------------------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
(Dollars in Thousands)
Total loans outstanding(1) $156,666 $135,390 $121,126 $106,075 $101,075
======== ======== ======== ======== ========
Allowance for loan losses,
beginning of period 290 $ 226 $ 166 $ 108 $ 88
Provision for loan losses 220 81 60 60 20
Charge-offs, net of recoveries(2) 30 17 -- 2 --
-------- -------- -------- -------- --------
Allowance for loan losses, end of
period $ 480 $ 290 $ 226 $ 166 $ 108
======== ======== ======== ======== ========
Allowance for loan losses as a
percent of total loans
outstanding .31% .21% .19% .16% .11%
======== ======== ======== ======== ========
Allowance for loan losses as a
percent of total nonperforming
loans 37.5% 34.5% 54.2% 386.0% 74.5%
======== ======== ======== ======== ========
(Footnotes on next page)
17
- --------------------
(1) Includes loans held for sale.
(2) Of the $30,000 in charge-offs in fiscal 1999, $16,000 related to commercial
loans, $12,000 related to home equity loans and $2,000 related to consumer
loans. 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 1996 related to residential loans. There were no
recoveries in fiscal 1999, 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,
----------------------------------------------
1999 1998
-------------------- --------------------
Loan Loan
Category Category
Amount as a % Amount as a %
of of Total of of Total
Allowance Loans Allowance Loans
--------- ----- --------- -----
(Dollars in Thousands)
One- to four-family residential $ 52 55.9% $ 38 59.5%
Construction and land
development 70 17.0 19 18.8
Commercial(1) 176 12.3 110 7.2
Consumer(2) 91 14.8 89 14.5
Unallocated 91 -- 34 --
---- ----- ---- -----
Total $480 100.0% $290 100.0%
==== ===== ==== =====
- ------------------------
(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 Fannie Mae or the Freddie Mac. Fannie Mae and Freddie Mac are public
corporations chartered by
18
the U.S. government. These institutions guarantee the timely payment of interest
and the ultimate return of principal. Fannie Mae and Freddie Mac mortgage-backed
securities are not backed by the full faith and credit of the United States, but
because Fannie Mae and Freddie Mac are U.S. government-sponsored enterprises,
these securities are considered high quality investments with minimal credit
risks.
During fiscal 1999, 1998 and 1997, the Company purchased $19.2 million,
$28.3 million and $15.7 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, 1999, the Company's mortgage-backed securities classified as
available for sale had a market value of $3.4 million (gross of $94,000 in
unrealized losses), while CMOs classified as available for sale had a market
value of $21.1 million (gross of $355,000 in net unrealized losses). During
April of 1999, CMO's were transferred from the held to maturity portfolio to the
available for sale portfolio and trading portfolio in accordance with the
provisions of Statement of Financial Accounting Standards No. 133, Accounting
for Derivative Instruments and Hedging Activities to provide the Company with
additional flexibility in the management of its security portfolio as more fully
discussed in the "Management's Discussion and Analysis of Financial Condition
and Results of Operations" section of the 1999 Annual Report to Stockholders,
filed as Exhibit 13.1 hereto (the "1999 Annual Report"). At the date of
transfer, these securities had an amortized cost of $14.1 million. For
additional information relating to the Company's mortgage-backed securities and
CMO's and the transfer of securities noted above, see Note 2 to the Consolidated
Financial Statements in the 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
19
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,
-------------------------------
1999 1998 1997
------- ------ -------
(In Thousands)
Mortgage-backed and related securities:
Mortgage-backed securities $ 3,408 $ 807 $ 1,583
Collateralized mortgage obligations 21,131 35,700 23,995
------- ------- -------
Total mortgage-backed securities $24,539 $36,507 $25,578
======= ======= =======
During the fourth quarter of fiscal 1999, the Bank sold approximately $15
million of its CMO's that were lower yielding and had longer average lives than
the bonds that replaced them, taking advantage of the recent rise in overall
market interest rates.
Information regarding the contractual maturities and weighted average yield
of the Company's mortgage-backed securities portfolio at June 30, 1999 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, 1999 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 $ -- $ -- $ -- $ 3,408 $ 3,408
Collateralized mortgage
obligations -- -- 848 20,283 21,131
------ ------- --- ------ --------
Total $ -- $ -- $ 848 $ 23,691 $24,539
------ ======= ====== ======== ========
Weighted average yield --% --% 6.55% 5.95% 5.97%
===== ======= ====== ======= ========
20
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,
---------------------------------------
1999 1998 1997
-------- -------- ---------
(Dollars In Thousands)
Mortgage-backed securities
and CMOs at beginning of period $ 36,507 $ 25,578 $ 17, 342
Purchases 21,180 28,348 15,729
Repayment (7,450) (787) (545)
Sales and calls (24,813) (16,576) (7,247)
Gain (loss) on sales (184) 55 12
Amortization of premiums, net (243) (80) (11)
Change in net unrealized gain (loss)
on securities available for sale (458) (31) 298
-------- -------- --------
Mortgage-backed securities
and CMOs at end of period $ 24,539 $ 36,507 $ 25,578
======== ======== ========
Weighted average yield at
end of period 5.97% 6.68% 7.09%
======== ======== ========
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 $17.7 million or 8.6% of total assets at June 30, 1999. Such securities
consist of U.S. government agencies, corporate bonds, taxable municipal bonds
and equity securities. At June 30, 1999, 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 downturn in the U.S. equity markets, especially in
small cap stocks, had a negative impact on the Company's equity investments. As
a result, the Company liquidated the majority of its equity securities during
the fiscal year. Remaining equity securities have a carrying value of $60,000 at
June 30, 1999.
21
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,
----------------------------------------------------------------
1999 1998 1997
------------------- ----------------- ------------------
Book Market Book Market Book Market
Value Value Value Value Value Value
------- ------- ------ ------ ------ ------
(In Thousands)
U.S. Government agency
securities $10,899 $10,774 $3,995 $3,992 $3,999 $3,979
Corporate bonds 3,286 3,278 -- -- -- --
Taxable municipal bonds 3,659 3,622 -- -- -- --
Equity securities 62 60 3,011 3,011 -- --
FHLB stock 2,700 2,700 2,100 2,100 1,550 1,550
------- ------- ------ ------ ------ ------
Total $20,606 $20,434 $9,106 $9,103 $5,549 $5,529
======= ======= ====== ====== ====== ======
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, 1999.
Amounts at June 30, 1999 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
------- ----- ---------- ----- --------- -----
Bonds and other debt securities:
U.S. Government agency
securities $ -- --% $10,774 6.12% $ -- --%
Corporate bonds -- -- 3,278 6.52 -- --
Taxable municipal bonds -- -- 995 6.33 2,627 6.79
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 7.89% in fiscal 1999. Also, the
Company's equity securities have no stated maturity.
At June 30, 1999, the Company did not have securities in any one issuer
which exceeded 10% of the Company's stockholders' equity.
22
Interest-Bearing Deposits
At June 30, 1999, the Company had interest-bearing deposits in
financial institutions of $7.6 million, as compared to $1.8 million and $2.0
million at June 30, 1998 and 1997, respectively. The increase in
interest-bearing deposits from June 30, 1998 to June 30, 1999 is primarily due
to excess liquidity generated from loan prepayments.
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
and from FHLB advances. 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 $9.4
million or 7.1% of total deposits at June 30, 1999. 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.
23
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,
----------------------------------------------------------------------
1999 1998 1997
--------------------- --------------------- ---------------------
Amount % Amount % Amount %
-------- ----- -------- ----- -------- -----
(Dollars in Thousands)
Certificate accounts:
2.00% - 3.99% $ 169 .1% $ -- --% $ -- --%
4.00% - 5.99% 84,699 64.0 61,575 51.3 45,409 44.2
6.00% - 7.99% 10,090 7.6 27,601 23.0 32,230 31.3
8.00% - 9.99% 25 -- 23 -- 21 --
-------- ----- -------- ----- -------- -----
Total certificate accounts 94,983 71.7 89,199 74.3 77,660 75.5
-------- ----- -------- ----- -------- -----
Transaction accounts:
Passbook and statement savings 19,268 14.6 19,335 16.1 17,388 16.9
Money market accounts 5,313 4.0 572 .5 786 .8
NOW and noninterest-bearing accounts 12,837 9.7 10,873 9.1 7,028 6.8
-------- ----- -------- ----- -------- -----
Total transaction accounts 37,418 28.3 30,780 25.7 25,202 24.5
-------- ----- -------- ----- -------- -----
Total deposits $132,401 100.0% $119,979 100.0% $102,862 100.0%
======== ===== ======== ===== ======== =====
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,
---------------------------------------------------------------------------
1999 1998 1997
----------------------- ---------------------- ---------------------
Average Average Average Average Average Average
Balance Rate Paid Balance Rate Paid Balance Rate Paid
------- --------- ------- --------- ------ ----------
(Dollars in Thousands)
Passbook and
statement $ 19,465 3.14% $ 18,808 3.61% $17,247 3.61%
savings accounts
Money market
accounts 12,418 1.97 7,013 1.65 6,260 1.69
and NOW accounts
Certificates of deposit 91,307 5.52 83,032 5.79 73,465 5.71
-------- ---- -------- ---- ------- ----
Total $123,190 4.79% $108,853 5.15% $96,972 5.08%
======== ==== ======== ==== ======= ====
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.
24
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,
1999.
Quarter Ending: Amounts
- --------------- -------
(In Thousands)
September 30, 1999 $ 6,636
December 31, 1999 5,863
March 31, 2000 3,006
June 30, 2000 949
After June 30, 2000 4,436
-------
Total certificates of deposit with
balances of $100,000 or more $20,890
=======
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, 1999, Bank West had $50 million of advances from the FHLB
of Indianapolis, $30 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, $20 million of adjustable-rate advances mature during
fiscal 2000. See Note 7 to the Consolidated Financial Statements in the 1999
Annual Report for additional information. During fiscal 1999, 1998 and 1997, the
Bank utilized additional FHLB advances to fund loans and securities growth as
well as mortgage banking activities.
25
The following table sets forth certain information regarding borrowings
at or for the dates indicated:
At or for the Year Ended June 30,
--------------------------------------------------
1999 1998 1997
---- ---- ----
(Dollars in Thousands)
FHLB advances:
Average balance outstanding $46,686 $35,803 $22,433
Maximum amount outstanding
at any month-end during
the period $51,925 $38,000 $29,000
Balance outstanding at end
of period $50,000 $37,000 $29,000
Average interest rate
during the period 5.11% 5.61% 5.46%
Weighted average interest rate
at end of period 5.22% 5.48% 5.84%
Subsidiaries
At June 30, 1999, the Bank had one wholly-owned subsidiary, Sunrise
Mortgage Corporation ("Sunrise"), which was formed in December 1997. Sunrise was
established to originate and purchase non-conforming mortgage loans, including
sub-prime mortgage loans for resale. Recently, management decided to discontinue
non-conforming lending through Sunrise due to the lower than expected loan
volume originated and purchased during the most recent fiscal year.
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
26
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 59 full-time employees and 12
part-time employees at June 30, 1999. 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 institution 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
27
institution 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 institution 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
institution 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 (1) payment of dividends by the savings institution;
(2) transactions between the savings institution and its affiliates; and (3) 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 institution 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,
1999, 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 institution 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 institution
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 institution holding company or subsidiary thereof any business activity,
upon prior notice to, and no objection by the OTS, other than: (1) furnishing or
performing management services for a subsidiary savings institution; (2)
conducting an insurance agency or escrow business; (3) holding, managing or
liquidating assets owned by or acquired from a subsidiary savings institution;
(4) holding or managing properties used or occupied by a subsidiary savings
institution; (5) acting as trustee under deeds of trust; (6) those activities
authorized by regulation as of March 5, 1987 to be engaged in by multiple
savings institution holding companies; or (7) unless the Director of the OTS by
regulation prohibits or limits such activities for savings institution holding
companies, those activities authorized by the FRB as permissible for bank
holding companies. Those activities described in (7) above also must be approved
by the Director of the OTS prior to being engaged in by a multiple savings
institution holding company.
Pending legislation in the U.S. Congress provides for the modernization
of the banking system and would significantly affect the operations and
regulatory structure of the financial services industry. The legislation is
intended to permit the banking, securities and insurance industries to compete
more efficiently and more effectively. The legislation restricts the activities
of unitary holding companies that were not in existence as of March 4, 1999 and
that had not filed an application to become a unitary holding company by that
date. New unitary holding companies would (1) have their activities limited to
those that are financial in nature or incidental thereto, and (2) no longer be
able to be acquired by
28
commercial companies. The Company currently believes that it will be
grandfathered and that it will not be required to discontinue any current
activity. 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 (1) 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 (2) 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 (a) 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 (b) 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 (1) 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 (2) 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, 1999, Bank West was in compliance with the above
restrictions.
29
Restrictions on Acquisitions. Except under limited circumstances,
savings institution holding companies are prohibited from acquiring, without
prior approval of the Director of the OTS, (1) control of any other savings
institution or savings institution holding company or substantially all the
assets thereof or (2) 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
institution 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 institution holding company.
The Director of the OTS may only approve acquisitions resulting in the
formation of a multiple savings institution holding company which controls
savings institutions in more than one state if (1) the multiple savings
institution 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; (2) 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 (3) 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 institution
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.
30
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, 1999, each of the Bank's ratios exceeded minimum
requirements for the well capitalized category. See Note 13 to the Consolidated
Financial Statements in the 1999 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
31
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 $75.6 million at June 30, 1999. At June 30, 1999, the Bank had
$50 million of FHLB advances outstanding, and available credit of $2 million
under a line of credit with the FHLB, of which no balance was outstanding. See
Note 7 to the Consolidated Financial Statements in the 1999 Annual Report.
32
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, 1999, Bank West had $ 2.7
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 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 achieved a fully funded status
first, and effective January 1, 1996 the FDIC substantially reduced the average
deposit insurance premium paid by BIF-insured banks. The deposit insurance
premiums for BIF member institutions were reduced to zero basis points (subject
to a $2,000 minimum) for institutions in the lowest risk category, as compared
to 23 basis points for SAIF members in the lowest risk category.
On September 30, 1996, new 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 provided for elimination of the premium
differential between SAIF-insured and BIF-insured institutions and 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
33
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.
Beginning January 1, 1997, effective SAIF rates generally range from
zero basis points to 27 basis points. From 1997 through 1999, SAIF members will
pay 6.4 basis points to fund the Financing Corporation, 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.
34
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 capital and surplus.
However, upon approval by two-thirds vote of the Board of Directors, the limit
may be increased not to exceed 25% of the capital and surplus. During fiscal
1998, the Board of Directors approved the 25% limit. At June 30, 1999, the 25%
limit for the Bank was $2.6 million, and the Bank did not have any loans to one
borrower in excess of such amount.
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).
35
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, (1) 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, (2) 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, (3) 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, (4) 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 (5) 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, (a) 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, (b) the establishment by Michigan-chartered banks of branches
located in other states, the District of Columbia, or U.S. territories or
protectorates, and (c) 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.
36
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 beginning in fiscal
1999. 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 30,1999 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, (1) it is in redemption of shares, (2) it is pursuant to a liquidation
of the institution, or (3) 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 (1) adjusted current earnings as defined in
the Code, over (2) AMTI (determined without regard to this preference and prior
to reduction by net operating losses).
37
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, 1999, 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,
1996 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 was 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. In 1999, the State of Michigan repealed this tax over a 23
year phase-out period beginning in calendar year 2000.
Item 2. Properties.
At June 30, 1999, 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, 1999.
38
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 $2,269 $ 53,474
910 Bridge Street
Grand Rapids, MI 49504 Owned 608 71,771
6740 Cascade Road S.E.
Grand Rapids, MI 49546 Leased 124 7,156
------ ---------
Total $3,001 $132,401
====== ========
Item 3. Legal Proceedings.
- ---------------------------
Bank West is a defendant under two legal proceedings pending in Kent
County Circuit Court: Cowles v. Bank West and Newton v. Bank West. Cowles'
original complaint was filed on July 17, 1998 and was premised upon a claim that
the Bank was engaged in the unauthorized practice of law because it charged
residential mortgagors a $250 document preparation fee and that the Bank also
violated the Michigan Consumer Protection Act. The complaint contained
additional claims, largely dependent upon the foregoing allegations. Plaintiff
later filed amendments, alleging claims under the Federal Truth in Lending Act.
Judge Johnston dismissed on August 30, 1999 the claim for unauthorized practice
of law and the claim under the Michigan Consumer Protection Act. He earlier had
dismissed one of the Truth in Lending Act claims. There currently remain in the
case a claim for violation of the Truth in Lending Act, and claims for unjust
enrichment and innocent and negligent misrepresentation. On September 9, 1999,
plaintiff filed a motion to file yet a third amended complaint, trying to
conform the allegations concerning the remaining claims to Judge Johnston's
August 30, 1999 opinion.
The case of Newton v. Bank West, filed on August 12, 1999 in Kent
County Circuit Court by the same attorneys who represent the plaintiff in
Cowles, also is based upon Bank West's charging of a document preparation fee
and contains claim for the unauthorized practice of law and violation of the
Michigan Consumer Protection Act. Newton also is pending before Judge Johnston
and if the judge follows his reasoning in Cowles, those claims should be
dismissed. Newton also contains claims for unjust enrichment and negligent and
innocent misrepresentation and replevin. These latter claims have not yet been
sought to be amended to conform to Judge Johnston's August 30, 1999 rulings in
Cowles.
Management intends to continue to contest these cases vigorously. Based
on a review of current facts and circumstances, management is unable to
determine the amount of loss, if any, that is possible.
39
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 other 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 1999
Annual Report.
Item 6. Selected Financial Data.
- ---------------------------------
The information required herein is incorporated by reference from page
2 of the 1999 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 16 of the 1999 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
17 to 44 of the 1999 Annual Report.
Item 9. Changes in and Disagreements With Accountants on Accounting and
- ------------------------------------------------------------------------
Financial Disclosure.
---------------------
Not applicable.
40
PART III.
Item 10. Directors and Executive Officers of the Registrant.
- -------------------------------------------------------------
The information required herein is incorporated by reference from pages
3 to 5 and 11 of the definitive proxy statement of the Company for the Annual
Meeting of Stockholders to be held on October 27, 1999, which will be filed
within 120 days of June 30, 1999 ("Definitive Proxy Statement").
Item 11. Executive Compensation.
- ---------------------------------
The information required herein is incorporated by reference from pages
11 to 17 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
17 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, 1999 and 1998
Consolidated Statements of Income for the Years Ended
June 30, 1999, 1998 and 1997
Consolidated Statements of Changes in Shareholders' Equity for
the Years Ended June 30, 1999, 1998 and 1997
Consolidated Statements of Cash Flows for the Years
ended June 30, 1999, 1998 and 1997
Notes to Consolidated Financial Statements
41
(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 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
10.8 Form of Amendment to Employment Security Agreement among Bank
West Financial Corporation, Bank West and certain executive
officers
10.9 Amended and Restated Agreement and General Release among Bank
West Financial Corporation, Bank West and Paul W. Sydloski,
dated February 24, 1999
10.10 Employment Agreement with Bank West Financial Corporation,
Bank West and Ronald A. Van Houten, effective April 13, 1999
10.11 Employment Security Agreement among Bank West Financial
Corporation, Bank West and Louis D. Knooihuizen, dated May 6,
1999
13.1 1999 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.
42
(**) 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, 1999.
(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.
43
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 23, 1999 By: /s/ Ronald A. Van Houten
------------------------
Ronald A. Van Houten
President and
Chief Executive Officer
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/ Ronald A. Van Houten September 23, 1999
- ------------------------
Ronald A. Van Houten
President and Chief Executive Officer
/s/ George A. Jackoboice September 23, 1999
- ------------------------
George A. Jackoboice
Chairman of the Board and
Director
/s/ Richard L. Bishop September 23, 1999
- ---------------------
Richard L. Bishop
Director
/s/ Thomas D. DeYoung September 23, 1999
- ---------------------
Thomas D. DeYoung
Director
/s/ Jacob Haisma September 23, 1999
- ----------------
Jacob Haisma
Director
/s/ Harry E. Mika September 23, 1999
- -----------------
Harry E. Mika
Director
/s/ Wallace D. Riley September 23, 1999
- --------------------
Wallace D. Riley
Director
/s/ Carl A. Rossi September 23, 1999
- -----------------
Carl A. Rossi
Director
/s/ Robert J. Stephan September 23, 1999
- ---------------------
Robert J. Stephan
Director
/s/ John H. Zwarensteyn September 23, 1999
- -----------------------
John H. Zwarensteyn
Director
/s/ Kevin A. Twardy September 23, 1999
- -------------------
Kevin A. Twardy
Chief Financial Officer
(also principal accounting
officer)