UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to _____________
Commission File Number 0-25666
BANK WEST FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
Michigan 38-3203447
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2185 Three Mile Road, N.W., Grand Rapids, Michigan 49544
(Address of principal executive offices)
Registrant's telephone number, including area code: (616) 785-3400
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [ X ] No [ ]
Shares of common stock, par value $.01 per share, outstanding as of November 12,
1996: 1,981,475.
<PAGE>
BANK WEST FINANCIAL CORPORATION
FORM 10-Q
Quarter Ended September 30, 1996
PART I - FINANCIAL INFORMATION
Interim Financial Information required by Rule 10-01 of Regulation S-X and Item
303 of Regulation S-K is included in this Form 10-Q as referenced below:
ITEM 1 - Financial Statements
Consolidated Statements of Financial Condition -
September 30, 1996 (unaudited) and June 30, 1996
Consolidated Statements of Income (unaudited) -
For The Three Months Ended September 30, 1996 and 1995
Consolidated Statements of Cash Flows (unaudited) -
For The Three Months Ended September 30, 1996 and 1995
Notes to Consolidated Financial Statements
ITEM 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations
PART II - OTHER INFORMATION
ITEM 1 - Legal Proceedings
ITEM 2 - Changes in Securities
ITEM 3 - Defaults upon Senior Securities
ITEM 4 - Submission of Matters to a Vote of Security Holders
ITEM 5 - Other Information
ITEM 6 - Exhibits and Reports on Form 8-K
SIGNATURES
<PAGE>
<TABLE>
<CAPTION>
BANK WEST FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
September 30, June 30,
1996 1996
------------- -------------
(Unaudited)
<S> <C> <C>
ASSETS
Cash and due from banks ............................ $ 851,190 $ 1,571,662
Interest-bearing deposits .......................... 3,660,080 5,122,427
------------- -------------
Total cash and cash equivalents .............. 4,511,270 6,694,089
Interest-bearing time deposits ..................... 199,000 298,000
Securities available for sale (Note 6) ............. 25,686,242 22,779,280
Securities held to maturity
(market value: $2,005,625 at September 30, 1996,
$2,006,000 at June 30, 1996) (Note 6) .......... 2,003,049 2,004,288
Trading securities ................................. 1,481,663 708,438
Loans held for sale (Note 7) ...................... 3,413,269 4,297,092
Loans, net (Note 8) ................................ 96,588,808 95,737,191
Federal Home Loan Bank stock ....................... 1,475,000 1,475,000
Premises and equipment ............................. 3,109,896 3,106,972
Accrued interest receivable ........................ 608,509 632,043
Mortgage servicing rights .......................... 142,575 142,697
Other assets ....................................... 296,926 107,216
------------- -------------
Total assets .................................. $ 139,516,207 $ 137,982,306
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits ........................................... $ 92,773,780 $ 91,028,072
Short-term FHLB borrowings ......................... 8,000,000 6,000,000
Long-term FHLB borrowings .......................... 13,000,000 13,000,000
Accrued interest payable ........................... 178,228 156,946
Advance payments by borrowers
for taxes and insurance ......................... 226,680 459,391
Deferred federal income tax ........................ 248,315 225,760
Other liabilities .................................. 899,839 301,691
------------- -------------
Total liabilities ........................... 115,326,842 111,171,860
------------- -------------
<PAGE>
<CAPTION>
BANK WEST FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (Continued)
September 30, June 30,
1996 1996
------------- -------------
(Unaudited)
<S> <C> <C>
Stockholders' Equity:
Common stock, $.01 par value;
10,000,000 shares authorized; issued and outstanding
1,981,475 shares at September 30, 1996
and 2,199,575 shares at June 30, 1996 (Note 3) ..... 19,815 21,996
Additional paid-in-capital ......................... 13,964,510 16,542,107
Retained earnings, substantially restricted ........ 12,055,678 12,231,242
Net unrealized loss on securities available for
sale, net of tax of $73,526 at September 30, 1996
and $106,834 at June 30, 1996 .................. (142,726) (207,387)
Unallocated ESOP shares (Note 4) ................... (1,101,648) (1,134,048)
Unearned Management Recognition Plan shares (Note 5) (606,264) (643,464)
------------- -------------
Total stockholders' equity .................. 24,189,365 26,810,446
------------- -------------
Total liabilities and stockholders' equity .. $ 139,516,207 $ 137,982,306
============= =============
</TABLE>
See accompanying notes to consoldiated financial statements.
<PAGE>
<TABLE>
<CAPTION>
BANK WEST FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended
September 30,
1996 1995
----------- -----------
<S> <C> <C>
Interest and dividend income
Loans ................................. $ 1,946,286 $ 1,886,829
Securities ............................ 97,692 178,860
Mortgage-backed securities ............ 324,768 333,569
Other interest-bearing deposits ....... 75,709 100,489
Dividends ............................. 29,105 40,799
----------- -----------
2,473,560 2,540,546
----------- -----------
Interest expense
Deposits .............................. 1,165,740 1,153,227
Short-term FHLB borrowings ............ 81,160 106,991
Long-term FHLB borrowings ............. 181,889 269,304
----------- -----------
1,428,789 1,529,522
----------- -----------
Net interest income ........................... 1,044,771 1,011,024
Provision for loan losses ..................... 15,000 7,000
----------- -----------
Net interest income after provision
for loan losses ........................... 1,029,771 1,004,024
----------- -----------
Other income
Gain (loss) on sale of securities ..... (1,870) 3,500
Gain on trading securities ............ 191,525 --
Gain on sale of loans ................. 134,671 121,742
Fees and service charges .............. 49,016 39,256
Miscellaneous income .................. 12,385 3,486
----------- -----------
385,727 167,984
----------- -----------
<PAGE>
<CAPTION>
BANK WEST FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME (Continued)
(Unaudited)
Three Months Ended
September 30,
1996 1995
----------- -----------
<S> <C> <C>
Other expenses
Compensation and benefits ............. 533,831 448,644
Professional fees ..................... 44,030 42,112
Federal Deposit Insurance ............. 51,002 48,184
FDIC Special Assessment (Note 9) ...... 553,000 --
Occupancy ............................. 67,045 38,471
Furniture, fixtures and equipment ..... 31,391 29,943
Data processing ....................... 38,966 36,018
Advertising ........................... 21,028 13,429
State taxes ........................... 6,000 15,000
Miscellaneous ......................... 118,319 108,235
----------- -----------
1,464,612 780,036
----------- -----------
Income (loss) before federal income tax expense (49,114) 391,972
Federal income tax expense (benefit) .......... (17,600) 133,175
----------- -----------
Net income (loss) ............................. ($ 31,514) $ 258,797
=========== ===========
Earnings (loss) per share (Note 2) ............ $ (.02) $ .12
=========== ===========
Dividends per share ........................... $ .07 $ .07
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
BANK WEST FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
September 30,
1996 1995
----------- -----------
<S> <C> <C>
Cash flows from operating activities
Net income (loss) ........................................ ($ 31,514) $ 258,797
Adjustments to reconcile net income (loss) to
net cash from operating activities
Origination and purchase of loans for sale .......... (8,419,487) (8,158,929)
Proceeds from sale of mortgage loans ................ 9,437,981 8,347,225
Net (gain) on sales of:
Loans ............................................ (134,671) (121,742)
Securities ....................................... (189,655) (3,500)
Depreciation ........................................ 44,650 42,250
Amortization of premiums, net ....................... 5,527 27,003
ESOP expense ........................................ 45,563 41,006
MRP expense ......................................... 37,200 --
Provision for loan losses ........................... 15,000 7,000
Change in:
Deferred loan fees ............................... 3,634 37,214
Other assets ..................................... (166,054) (192,538)
Other liabilities ................................ 375,963 (354,662)
----------- -----------
Net cash from operating activities .......... 1,024,137 (70,876)
----------- -----------
Cash flows from investing activities
Increase in interest-bearing time deposits ............... 99,000 --
Purchases of securities available for sale ............... (4,477,770) (4,079,736)
Proceeds from sale of securities available for sale ...... 1,495,001 701,750
Proceeds from maturity or call of securities ............. 0 2,000,000
Purchase of equity securities - trading .................. (1,549,350) --
Proceeds from sale of equity securities - trading ........ 967,650 --
Loan originations, net of repayments ..................... (846,501) 452,790
Loans purchased .......................................... (23,750) (498,850)
Principal payments on mortgage-backed securities and CMO's 167,621 843,981
Property and equipment expenditures ...................... (47,574) (107,127)
----------- -----------
Net cash from investing activities .......... (4,215,673) (687,192)
----------- -----------
<PAGE>
<CAPTION>
BANK WEST FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)
Three Months Ended
September 30,
1996 1995
----------- -----------
<S> <C> <C>
Cash flows from financing activities
Increase in FHLB advances ................................ 733,821 1,651,644
Repayment of long-term FHLB borrowings ................... -- (3,000,000)
Increase in deposits ..................................... 3,011,887 888,730
Dividends paid on common stock ........................... (144,050) (162,006)
Repurchase of common stock ............................... (2,592,941) --
Additional conversion costs .............................. -- (3,107)
----------- -----------
Net cash from financing activities .......... 1,008,717 (624,739)
----------- -----------
Net change in cash and cash equivalents .......................... (2,182,819) (1,382,807)
Cash and cash equivalents at beginning of period ................. 6,694,089 4,595,231
----------- -----------
Cash and cash equivalents at end of period ....................... $ 4,511,270 $ 3,212,424
=========== ===========
Supplemental disclosures of cash flow information
Cash paid during the period for
Interest .......................................... $ 1,407,507 $ 1,572,897
Income taxes ...................................... -- 10,000
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
BANK WEST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended September 30, 1996
(Unaudited)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying consolidated financial statements consist of the accounts of
Bank West Financial Corporation (the Company) and its wholly owned subsidiary,
Bank West, F.S.B. (the Bank). All significant intercompany accounts and
transactions have been eliminated in consolidation.
The accompanying unaudited consolidated financial statements were prepared in
accordance with instructions for Form 10-Q and, therefore, do not include
information or footnotes necessary for a complete presentation of financial
position, results of operations and cash flows in conformity with generally
accepted accounting principles. However, all adjustments (consisting only of
normal recurring accruals) which, in the opinion of management, are necessary
for a fair presentation of the consolidated financial statements have been
included.
The results of operations for the three months ended September 30, 1996 are not
necessarily indicative of the results to be expected for the year ending June
30, 1997. The unaudited consolidated financial statements and notes thereto
should be read in conjunction with the consolidated financial statements and
notes thereto, for the fiscal year ended June 30, 1996, included in the
Company's 1996 Annual Report.
NOTE 2 - EARNINGS PER SHARE
Earnings per share is based on the weighted average number of outstanding common
shares and common stock equivalents which would arise from the exercise of stock
options and the vesting of Management Recognition Plan (MRP) shares. Employee
Stock Ownership Plan (ESOP) shares are considered outstanding for earnings per
share calculations as they are committed to be released; unallocated shares are
not considered outstanding. Common stock equivalents associated with the stock
options and MRP shares were not material to the computation of earnings per
share for the three months ended September 30, 1996 and 1995, respectively. The
weighted average number of shares outstanding for the three months ended
September 30, 1996 and 1995 was 1,921,875 and 2,158,444, respectively.
NOTE 3 - ADOPTION OF PLAN OF CONVERSION
On October 24, 1994, the Board of Directors of the Bank, subject to regulatory
approval and approval by the members of the Bank, unanimously adopted a Plan of
Conversion to convert from a federally chartered mutual savings bank to a
federally chartered stock savings bank with the concurrent formation of a
holding company (the "Conversion"). On December 13, 1994, the Bank incorporated
the Company in the state of Michigan to facilitate the Conversion of the Bank
from mutual to stock form. Proceeds of $18,515,000 were received by the Company
from the sale of 2,314,375 shares of common stock. Conversion costs totalling
$694,236 were deducted from the proceeds of the shares sold in the Conversion.
The Company used 50% of the net proceeds to purchase all of the common stock
issued by the Bank. The Bank is now a wholly-owned subsidiary of the Company.
<PAGE>
BANK WEST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three Months Ended September 30, 1996
(Unaudited)
NOTE 4 - EMPLOYEE STOCK OWNERSHIP PLAN
The Company has established an Employee Stock Ownership Plan (ESOP) for the
benefit of employees who have completed at least twelve consecutive months of
service and have been credited with at least 500 hours of service with the Bank.
The Company has received a favorable determination letter from the Internal
Revenue Service ("IRS") that the ESOP is a tax-qualified plan.
To fund the ESOP, $1,296,048 was borrowed from the Company for the purpose of
purchasing 162,006 shares of common stock at $8.00 per share. Principal and
interest payments on the loan are due in quarterly installments, with the final
payment of principal and accrued interest being due and payable at maturity,
which is June 30, 2005. Interest is payable during the term of the loan at a
fixed rate of 7.0%. The loan is collateralized by the shares of the Company's
common stock purchased with the proceeds. As the Bank periodically makes
contributions to the ESOP to repay the loan, shares are allocated among
participants on the basis of total compensation, as defined. ESOP expense of
$45,563 and $41,006 was recorded for the three months ended September 30, 1996
and 1995, respectively.
NOTE 5 - STOCK BASED COMPENSATION PLANS
An employee stock option plan and a directors' stock option plan (SOPs) and an
officers' and a directors' management recognition plan (MRPs) were authorized by
the shareholders at the October 25, 1995 annual meeting. The employee stock
option plan and the officers' MRP are administered by a committee of
non-employee directors of the Company, while grants under the directors' stock
option plan and the directors' MRP are pursuant to formulas set forth in the
plans. Total shares made available under the SOPs and MRPs were 231,437 and
92,575, respectively. The committee has awarded under the SOPs options to
purchase 91,173 shares of common stock at exercise prices between $9.9375 and
$11.00 per share, which represent the average selling price of the Company's
stock on the dates of the awards. At September 30, 1996, there were 140,264
option shares reserved for future grants. As of September 30, 1996, no options
have been exercised or canceled. No compensation expense was recognized in
connection with the issuance of the options.
In October 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 123, "Accounting for Stock Based
Compensation" (SFAS No. 123). The Statement establishes a fair value based
method of accounting for employee stock options and similar equity instruments,
such as warrants, and encourages all companies to adopt that method of
accounting for their employee stock compensation plans. However, SFAS No. 123
allows companies to continue measuring compensation cost for such plans using
accounting guidance in place prior to SFAS No.123. Companies that elect to
remain with the former method of accounting must make pro-forma disclosures of
net income and earnings per share as if the fair value method provided for in
SFAS No. 123 had been adopted. This Statement is effective for the Company at
the beginning of its fiscal year ending June 30, 1997. Management has concluded
that the Company will not adopt the fair value accounting provisions of SFAS No.
123 and will continue to apply its current method of accounting. Accordingly,
adoption of SFAS No. 123 will have no impact on the Company's consolidated
financial position or results of operations.
<PAGE>
BANK WEST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three Months Ended September 30, 1996
(Unaudited)
NOTE 5 - STOCK BASED COMPENSATION PLANS (Continued)
On November 13, 1995, the Company repurchased 4% of its outstanding shares and
placed them in a trust for the exclusive use of the MRPs. As of September 30,
1996, 74,240 shares have been awarded under the MRPs. MRP awards vest in five
equal annual installments, with the first award vesting on October 25, 1996.
Compensation expense for the MRPs is recognized on a pro-rata basis over the
vesting period of the awards. During the three months ended September 30, 1996,
$37,200 was charged to compensation expense for the MRPs. The unearned
compensation value of the MRPs is shown as a reduction to stockholders' equity
in the accompanying consolidated statements of financial condition.
NOTE 6 - SECURITIES
The amortized cost and estimated fair values of securities at September 30, 1996
and June 30, 1996 are as follows:
<TABLE>
<CAPTION>
Available for Sale Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------- ------- -------- -----------
<S> <C> <C> <C> <C>
September 30, 1996 (unaudited)
U.S. agencies $ 3,997,804 $ 5,313 $ 48,252 $ 3,954,865
Mortgage-backed securities 2,190,066 8,678 18,209 2,180,535
Collateralized mortgage obligations 19,714,622 9,898 173,678 19,550,842
----------- ------- -------- -----------
$25,902,492 $23,889 $240,139 $25,686,242
=========== ======= ======== ===========
June 30, 1996
U.S. agencies $ 4,997,678 $ 7,500 $ 60,110 $ 4,945,068
Corporate bonds 496,870 - 4,271 492,599
Mortgage-backed securities 2,330,061 3,524 26,089 2,307,496
Collateralized mortgage obligations 15,268,892 302 235,077 15,034,117
----------- ------- -------- -----------
$23,093,501 $11,326 $325,547 $22,779,280
=========== ======= ======== ===========
Held to Maturity
September 30, 1996 (unaudited)
U.S. agencies $2,003,049 $ 3,544 $ 968 $ 2,005,625
=========== ======= ======== ===========
June 30, 1996
U.S. agencies $2,004,288 $ 3,998 $ 2,286 $ 2,006,000
=========== ======= ======== ===========
</TABLE>
<PAGE>
BANK WEST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three Months Ended September 30, 1996
(Unaudited)
NOTE 7 - SECONDARY MARKET MORTGAGE ACTIVITIES
The following summarizes the Company's secondary market mortgage activities,
which consist solely of one- to four-family real estate loans:
<TABLE>
<CAPTION>
Three Months Ended
September 30,
1996 1995
---------- ----------
<S> <C> <C>
Loans held for sale - beginning of period $4,297,092 $2,746,019
Activity during the periods:
Loans originated and purchased for sale 8,419,487 8,158,929
Proceeds from sale of loans originated
and purchased for sale (9,437,981) (8,347,225)
Gain on sale of loans 134,671 121,742
---------- ----------
Loans held for sale - end of period $3,413,269 $2,679,465
========== ==========
</TABLE>
The unpaid principal balance of mortgage loans serviced for others amounted to
$28.2 million and $28.6 million at September 30, 1996 and June 30, 1996,
respectively. Custodial escrow balances maintained in connection with the
foregoing loans serviced for others were $67,184 and $135,011 at September 30,
1996 and June 30, 1996, respectively.
<PAGE>
BANK WEST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three Months Ended September 30, 1996
(Unaudited)
NOTE 8 - LOANS
Loans are classified as follows:
<TABLE>
<CAPTION>
September 30, June 30,
1996 1996
------------ ------------
<S> <C> <C>
Real estate loans:
One-to four-family residential - fixed rate $ 19,618,218 $ 20,351,715
One-to four-family residential - balloon 12,523,456 12,841,337
One-to four-family residential - adjustable 47,132,107 47,544,192
Construction 15,409,764 14,073,497
Commercial mortgages 1,486,741 1,193,464
Home equity lines of credit 2,860,376 2,214,227
Second mortgages 2,171,975 1,927,282
------------ ------------
Total mortgage loans 101,202,637 100,145,714
Consumer loans 750,919 622,353
Commercial non-mortgage 1,064,468 1,010,076
------------ ------------
Total 103,018,024 101,778,143
Less:
Loans in process 6,204,604 5,827,705
Deferred fees and costs 43,750 47,385
Allowance for loan losses 180,862 165,862
------------ ------------
$ 96,588,808 $ 95,737,191
============ ============
</TABLE>
<PAGE>
BANK WEST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three Months Ended September 30, 1996
(Unaudited)
NOTE 9 - FDIC SPECIAL ASSESSMENT
On September 30, 1996, as part of the omnibus appropriations package signed by
President Clinton, the government mandated a special assessment to recapitalize
the Savings Association Insurance Fund ("SAIF"), which is administered by the
Federal Deposit Insurance Corporation ("FDIC"). The one-time, special SAIF
assessment amounted to $.657 for every $100 of SAIF-insured deposits as of March
31, 1995. The FDIC notified the Bank that the Bank's special assessment was
$553,000, which after taxes reduced the Company's net income by $365,000 or
$0.19 per share in the quarter ended September 30, 1996. The Bank's deposit
premiums, which are currently $.23 for every $100 of assessable deposits, will
be reduced to $.064 for every $100 of assessable deposits beginning January 1,
1997. Based on the Bank's deposits at September 30, 1996, the premium reduction
should result in a pre-tax cost savings of approximately $154,000 per year for
the Bank, or approximately $.05 per share after taxes.
NOTE 10 - SUBSEQUENT EVENTS
On October 21, 1996, the Company declared a quarterly dividend of $.07 per share
payable November 15, 1996 to shareholders of record on November 4, 1996. The
Board of Directors also approved the repurchase of up to 198,000 shares or 10%
of its outstanding common stock. The repurchase of common stock is subject to
the prior approval of the Company's principal federal regulator, the Office of
Thrift Supervision, which has not yet been received.
<PAGE>
BANK WEST FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion compares the financial condition of Bank West Financial
Corporation and its wholly owned subsidiary, Bank West, F.S.B., at September 30,
1996 and June 30, 1996 and the results of operations for the three months ended
September 30, 1996 with the same period in 1995. This discussion should be read
in conjunction with the interim consolidated financial statements and footnotes
included herein.
FINANCIAL CONDITION
Total assets increased by $1.5 million or 1.1% from $138.0 million at June 30,
1996 to $139.5 million at September 30, 1996. The increase was primarily
attributable to the purchase of additional collateralized mortgage obligations
with liquidity generated from deposit growth and additional FHLB borrowings. The
increase was partially offset by approximately $2.6 million as cash was utilized
to repurchase ten percent of the Company's outstanding common stock during the
quarter.
The Bank's mortgage banking activities consist of selling newly originated and
purchased loans into the secondary market. Total loans sold amounted to $9.4
million and $8.3 million in the three months ended September 30, 1996 and 1995,
respectively. Loans held for sale amounted to $3.4 million and $2.7 million at
September 30, 1996 and 1995, respectively. The dollar amount of loans sold have
increased in the most recent three months due to the Bank increasing the amount
of loans purchased from correspondent lending relationships and the hiring of
additional mortgage loan officers to increase retail loan volume. The Bank
intends to continue to expand its correspondent lending relationships and to
hire additional mortgage loan officers. The majority of loans originated and
purchased in the current fiscal year have been 30-year fixed-rate loans. The
Bank has sold the majority of these loans as one way to increase the ratio of
its interest-sensitive assets to its interest-sensitive liabilities.
Mortgage-backed securities (including collateralized mortgage obligations) have
increased from $17.3 million at June 30, 1996 to $21.7 million at September 30,
1996. As permitted by the Financial Accounting Standards Board (FASB), the Bank
made a one-time reclassification of all of its mortgage-backed securities and
collateralized mortgage obligations on November 20, 1995. At September 30, 1996,
the unrealized loss on securities (including mortgage-backed securities and
collateralized mortgage obligations) classified as available for sale totalled
$143,000 net of federal income taxes and is shown as a reduction in
stockholders' equity.
The Bank's nonperforming assets totalled $143,000 or .10% of total assets at
September 30, 1996. The Bank's low nonperforming assets are primarily due to the
Bank's conservative underwriting criteria. At September 30, 1996, $94.7 million
or 91.9% of the Bank's total loan portfolio was collateralized by first liens on
one-to four-family residences, and the net loan portfolio amounted to 69.2% of
total assets. During the three months ended September 30, 1996, there were no
net charge-offs. The Company has recently expanded its loan product line to
include additional consumer loan products and small business loans. The Company
expects these activities to improve its net interest margin and make the Bank
more competitive in the market. As of September 30, 1996, the outstanding
balances of consumer and small business loans were $.8 million and $2.6 million,
respectively.
<PAGE>
BANK WEST FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Total deposits increased by $1.7 million or 1.9% from June 30, 1996 to September
30, 1996 primarily due to an increase in certificates of deposit of $1.5
million. The variety of deposit accounts offered by the Bank has allowed it to
be competitive in obtaining funds and to respond with flexibility to changes in
consumer demand. The Bank has become more susceptible to short-term fluctuations
in deposit flows, as customers have become more interest rate conscious. Based
on its experience, the Bank believes that its passbook savings, statement
savings, money market accounts, NOW and demand accounts are relatively stable
sources of deposits. However, the ability of the Bank to attract and maintain
certificates of deposit, and the rates paid on these deposits, has been and will
continue to be affected by market conditions.
Because the growth in deposits has not matched the growth in assets in recent
years, the Bank began using FHLB advances. Short-term FHLB advances have
generally been used to fund the Bank's mortgage banking activities, loan and
investment securities growth. Short-term FHLB advances increased from $6.0
million at June 30, 1996 to $8.0 million at September 30, 1996.
Stockholders' equity decreased from $26.8 million at June 30, 1996 to $24.2
million at September 30, 1996. The decrease was primarily due to $2.6 million
being utilized to repurchase ten percent of the Company's outstanding common
stock during the September 30, 1996 quarter.
RESULTS OF OPERATIONS
Net Income. Net income decreased by $290,000 or 112.0% in the quarter ended
September 30, 1996 to a loss of $32,000 from net income of $259,000 in the
comparable 1995 period. The decrease was primarily due to the FDIC special
assessment which had an after tax impact of $365,000 (See Note 9 for further
discussion). Excluding the impact of the FDIC special assessment on net income,
net income actually increased by $75,000 or 29.0% due to an increase in net
interest income and other income. These amounts were partially offset by
increases in other expenses.
Net Interest Income. Net interest income increased by $34,000 or 3.4% in the
quarter ended September 30, 1996 over the comparable 1995 period. Net interest
income increased for the quarter due to an increase in the average interest rate
spread, which increased to 2.32% in the quarter ended September 30, 1996 from
1.97% in the comparable 1995 quarter. The increased spread was primarily due to
a decrease in the average cost of funds from 5.54% in the September 30, 1995
quarter to 5.13% in the September 30, 1996 quarter, reflecting the continued
emphasis on attracting lower costing core deposits. The positive impact of the
lower cost of funds was partially offset by a decrease in average
interest-earning assets by $2.6 million or 1.9%, as excess cash flow was
utilized to repurchase ten percent of the Company's outstanding common stock and
to pay-down higher costing FHLB borrowings.
<PAGE>
BANK WEST FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Provision for Loan Losses. The provision for loan losses increased by $8,000 or
114.3% in the three months ended September 30, 1996 over the comparable 1995
period. The allowance for loan losses totalled $181,000 or .18% of the total
loan portfolio at September 30, 1996. However, the allowance for loan losses
represented 126.6% of total non-performing loans at such date. Because of the
stability of the loan portfolio's credit quality, management budgets a provision
for the entire year, and, on a quarterly basis, reviews this amount to determine
if any change in the amount of the provision is necessary. For fiscal 1997,
management increased the amount of the provision to $15,000 in the first quarter
and anticipates providing additional reserves relative to the growth in the
small business and consumer loan portfolios. Management of the Company believes
that the allowance is adequate to cover losses that are probable and reasonably
estimable based on past loss experience, general economic conditions,
information about specific borrower situations, and other factors and estimates
which are subject to change over time.
Other Income. Total other income increased by $218,000 or 129.8% in the three
months ended September 30, 1996 from the comparable prior period. The increase
was primarily due to a $192,000 gain on trading securities achieved in the three
months ended September 30, 1996, an increase in the gain on sale of loans of
$12,000 or 9.8% and an increase in fees and service charges of $10,000 or 25.6%.
The higher gains on the sale of loans and the increases in fees and service
charges are primarily due to the Bank increasing the volume of loans purchased
from correspondent lending relationships and originated at the retail level. The
Bank intends to continue to expand its correspondent lending relationships and
hire additional mortgage loan officers. The amount of loans sold in the quarter
ended September 30, 1996 totalled $9.4 million, of which $6.9 million were
originated and $2.5 million were purchased from correspondents.
Other Expenses. Total other expenses increased by $685,000 or 87.8% in the
quarter ended September 30, 1996 over the comparable 1995 period. The increase
was primarily due to a $553,000 FDIC special assessment to recapitalize the SAIF
insurance fund (See Note 9 of Notes to Consolidated Financial Statements). In
addition, compensation and benefits expense increased by $85,000 or 18.9% as a
result of the hiring of additional staff to expand the Bank's core business
activities of mortgage, consumer and small business lending. Occupancy expense
also increased by $29,000 or 76.3% due to the opening of the new corporate
office/branch facility and higher depreciation expense associated with the
renovation of the previous main office building. The other categories of other
expenses did not significantly change in the September 30, 1996 quarter.
Federal Income Tax Expense. Federal income tax expense decreased by $151,000 or
113.5% in the quarter ended September 30, 1996 from the comparable 1995 period.
The decrease was due to a decrease in pre-tax income.
LIQUIDITY
Bank West's principal sources of funds are deposits, principal and interest
payments on loans, sales of loans, maturities of securities, and FHLB advances.
While scheduled loan repayments and maturing investments are readily
predictable, deposit flows and loan prepayments are more influenced by interest
rates, general economic conditions and competition. Bank West uses its capital
resources principally to fund mortgage loan commitments, maturing certificates
of deposit and savings withdrawals, and provide for its foreseeable short and
long-term liquidity needs.
<PAGE>
BANK WEST FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Bank West is required under applicable federal regulations to maintain specified
levels of "liquid" investments in qualifying types of U.S. Government, federal
agency and other investments having maturities of five years or less. Current
OTS regulations require that a savings institution maintain liquid assets of not
less than 5% of its average daily balance of net withdrawable deposit accounts
and borrowings payable in one year or less, of which short-term liquid assets
must consist of not less than 1%. At September 30, 1996, Bank West's liquidity
was 12.1% or $6.9 million in excess of the minimum OTS requirement.
CAPITAL RESOURCES
Savings institutions insured by the Federal Deposit Insurance Corporation and
regulated by the OTS are required to meet three regulatory capital requirements.
If a requirement is not met, regulatory authorities may take legal or
administrative actions, including restrictions on growth or operations or, in
extreme cases, seizure. Institutions not in compliance must submit a
recapitalization or merger plan.
At September 30, 1996, under these capital requirements, the Bank had:
<TABLE>
<CAPTION>
Actual Requirement Excess
------ ----------- ------
<S> <C> <C> <C>
Tangible capital ratio 14.8% 1.5% 13.3%
Leverage capital ratio 14.8 3.0 11.8
Risk-based capital ratio 30.2 8.0 22.2
</TABLE>
At June 30, 1996, under these capital requirements, the Bank had:
<TABLE>
<CAPTION>
Actual Requirement Excess
------ ----------- ------
<S> <C> <C> <C>
Tangible capital ratio 15.4% 1.5% 13.9%
Leverage capital ratio 15.4 3.0 12.4
Risk-based capital ratio 31.4 8.0 23.4
</TABLE>
NEW ACCOUNTING STANDARDS
In May 1993, the FASB issued SFAS No. 114, "Accounting by Creditors for
Impairment of a Loan." SFAS No. 114 is effective for fiscal years beginning
after December 15, 1994. The Statement establishes accounting measurement,
recognition and reporting standards for impaired loans. SFAS No. 114 was amended
in October 1994 by SFAS No. 118, "Accounting by Creditors for Impairment of a
Loan - Income Recognition and Disclosures." SFAS No. 118 amended SFAS No. 114
primarily to remove its income recognition requirements and add some disclosure
requirements. The adoption of SFAS No. 114, as amended by SFAS No. 118, has not
been material to the Company's consolidated financial condition or results of
operations.
<PAGE>
BANK WEST FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of,"
will require the Company to periodically consider whether an impairment loss
should be recognized on long-lived assets and other certain intangible assets
based on an estimate of future cash flows. SFAS No. 121 is effective for fiscal
years beginning after December 15, 1995, and earlier adoption is encouraged.
Adoption of this Statement is not expected to have a material impact on the
Company's consolidated financial condition or results of operations.
<PAGE>
BANK WEST FINANCIAL CORPORATION
Form 10-Q
Quarter Ended September 30, 1996
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings:
There are no matters required to be reported under this item.
Item 2 - Changes in Securities:
There are no matters required to be reported under this item.
Item 3 - Defaults Upon Senior Securities:
There are no matters required to be reported under this item.
Item 4 - Submission of Matters to a Vote of Security-Holders:
At the Annual Meeting of Stockholders held on October 23, 1996, the stockholders
of the Company approved each of the proposals as set forth below. The number of
shares present at the Annual Meeting in person or by proxy was 1,734,455. The
matters voted upon together with the applicable voting results were as follows:
<TABLE>
<CAPTION>
FOR WITHHOLD
--- --------
<S> <C> <C>
1. Election of Directors
Richard L. Bishop 1,727,955 6,500
Thomas D. DeYoung 1,724,147 10,308
Jacob Haisma 1,723,897 10,558
<CAPTION>
FOR AGAINST ABSTAIN
--- ------- -------
<S> <C> <C> <C>
2. Ratification of appointment of Crowe
Chizek and Company as independent
auditors. 1,722,125 400 11,930
</TABLE>
Item 5 - Other Information:
There are no matters required to be reported under this item.
Item 6 - Exhibits and Reports on Form 8-K:
(a) Exhibits: The following exhibit is filed herewith:
Exhibit No. Description
----------- -----------
27.1 Financial Data Schedule
(b) Reports on Form 8-K:
No reports on Form 8-K were filed by the Registrant
during the quarter ended September 30, 1996.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BANK WEST FINANCIAL CORPORATION
Registrant
Date: November 12, 1996 /s/ Paul W. Sydloski
----------------------- ---------------------
Paul W. Sydloski, President and
Chief Executive Officer
(Duly Authorized Officer)
Date: November 12, 1996 /s/ Kevin A. Twardy
------------------------ ---------------------
Kevin A. Twardy, Vice President
and Chief Financial Officer
(Principal Financial Officer)
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> SEP-30-1996
<CASH> 851,190
<INT-BEARING-DEPOSITS> 3,660,080
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 1,481,663
<INVESTMENTS-HELD-FOR-SALE> 25,686,242
<INVESTMENTS-CARRYING> 2,003,049
<INVESTMENTS-MARKET> 2,005,625
<LOANS> 96,588,808
<ALLOWANCE> 180,862
<TOTAL-ASSETS> 139,516,207
<DEPOSITS> 92,773,780
<SHORT-TERM> 8,000,000
<LIABILITIES-OTHER> 1,553,062
<LONG-TERM> 13,000,000
0
0
<COMMON> 19,815
<OTHER-SE> 26,169,550
<TOTAL-LIABILITIES-AND-EQUITY> 139,516,207
<INTEREST-LOAN> 1,946,286
<INTEREST-INVEST> 422,460
<INTEREST-OTHER> 104,814
<INTEREST-TOTAL> 2,473,560
<INTEREST-DEPOSIT> 1,165,740
<INTEREST-EXPENSE> 1,428,789
<INTEREST-INCOME-NET> 1,044,771
<LOAN-LOSSES> 15,000
<SECURITIES-GAINS> 189,655
<EXPENSE-OTHER> 1,464,612
<INCOME-PRETAX> (49,114)
<INCOME-PRE-EXTRAORDINARY> (49,114)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (31,154)
<EPS-PRIMARY> (.02)
<EPS-DILUTED> (.02)
<YIELD-ACTUAL> 7.45
<LOANS-NON> 143,000
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 165,862
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 180,862
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 180,862
</TABLE>
