SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by Registrant [ ]
Filed by a Party other than the Registrant [ X ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
[ X ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss. 240.14A-11(c) or ss. 240.14a-12
Bank West Financial Corporation
- - --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
Bank West Financial Corporation
- - --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than Registrant)
<PAGE>
Payment of Filing Fee (Check the appropriate box):
[X] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
[ ] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
Common Stock.
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
Cash payment for securities totals .
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
<PAGE>
BANK WEST FINANCIAL CORPORATION
2185 Three Mile Road N.W.
Grand Rapids, Michigan 49544
(616) 785-3400
September 18, 1996
Dear Fellow Stockholder:
You are cordially invited to attend the 1996 Annual Meeting of
Stockholders of Bank West Financial Corporation. The meeting will be held at the
Grand Rapids Elks Lodge 48 located at 2715 Leonard Street, N.W., Grand Rapids,
Michigan 49504 on Wednesday, October 23, 1996 at 10:00 a.m., Eastern Time. The
matters to be considered by stockholders at the Annual Meeting are described in
the accompanying materials.
It is very important that you be represented at the Annual Meeting
regardless of the number of shares you own or whether you are able to attend the
meeting in person. We urge you to mark, sign, and date your proxy card today and
return it in the envelope provided, even if you plan to attend the Annual
Meeting. This will not prevent you from voting in person, but will ensure that
your vote is counted if you are unable to attend.
Your continued support of and interest in Bank West Financial
Corporation are sincerely appreciated.
Sincerely,
Paul W. Sydloski, President and
Chief Executive Officer
<PAGE>
BANK WEST FINANCIAL CORPORATION
2185 Three Mile Road N.W.
Grand Rapids, Michigan 49544
(616) 785-3400
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS To
Be Held on October 23, 1996
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders ("Annual
Meeting") of Bank West Financial Corporation (the "Company") will be held at the
Grand Rapids Elks Lodge 48 located at 2715 Leonard Street, N.W., Grand Rapids,
Michigan 49504 on Wednesday, October 23, 1996 at 10:00 a.m., Eastern Time, for
the following purposes, all of which are more completely set forth in the
accompanying Proxy Statement:
(1) To elect three directors for terms of three years or until
their successors have been elected and qualified;
(2) To ratify the appointment of Crowe Chizek and Company as the
Company's independent auditors for the fiscal year ending June
30, 1997; and
(3) To transact such other business as may properly come before
the meeting or any adjournment thereof. Except with respect to
procedural matters incident to the conduct of the meeting,
management is not aware of any other such business.
Stockholders of record of the Company as of the close of business on
September 4, 1996 are entitled to notice of and to vote at the Annual Meeting or
any adjournment thereof.
BY ORDER OF THE BOARD OF DIRECTORS
Paul W. Sydloski, President and
Chief Executive Officer
Grand Rapids, Michigan
September 18, 1996
- - -------------------------------------------------------------------------------
YOU ARE CORDIALLY INVITED TO ATTEND THE ANNUAL MEETING. IT IS IMPORTANT THAT
YOUR SHARES BE REPRESENTED REGARDLESS OF THE NUMBER YOU OWN. EVEN IF YOU PLAN TO
BE PRESENT, YOU ARE URGED TO COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY
PROMPTLY IN THE ENVELOPE PROVIDED. IF YOU ATTEND THE MEETING, YOU MAY VOTE
EITHER IN PERSON OR BY PROXY. ANY PROXY GIVEN MAY BE REVOKED BY YOU IN WRITING
OR IN PERSON AT ANY TIME PRIOR TO THE EXERCISE THEREOF.
- - -------------------------------------------------------------------------------
<PAGE>
BANK WEST FINANCIAL CORPORATION
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
October 23, 1996
This Proxy Statement is being furnished to the holders of common stock,
par value $.01 per share ("Common Stock"), of Bank West Financial Corporation
(the "Company"), which acquired all of the common stock of Bank West, FSB (the
"Bank") issued in connection with the conversion of the Bank from a federally
chartered mutual savings bank to a federally chartered stock savings bank in
March 1995 (the "Conversion").
Proxies are being solicited on behalf of the Board of Directors of the
Company to be used at the Annual Meeting of Stockholders ("Annual Meeting") to
be held at the Grand Rapids Elks Lodge 48 located at 2715 Leonard Street N.W.,
Grand Rapids, Michigan 49504 on Wednesday, October 23, 1996 at 10:00 a.m.,
Eastern Time, and at any adjournment thereof for the purposes set forth in the
Notice of Annual Meeting of Stockholders. This Proxy Statement is first being
mailed to stockholders on or about September 18, 1996.
Each proxy solicited hereby, if properly signed and returned to the
Company and not revoked prior to its use, will be voted in accordance with the
instructions contained therein. If no contrary instructions are given, each
proxy received will be voted for each of the matters described herein and, upon
the transaction of such other business as may properly come before the meeting,
in accordance with the best judgment of the persons appointed as proxies.
Any stockholder giving a proxy has the power to revoke it at any time
before it is exercised by (i) filing with the Secretary of the Company written
notice thereof (James A. Koessel, Secretary, Bank West Financial Corporation);
(ii) submitting a duly executed proxy bearing a later date; or (iii) appearing
at the Annual Meeting and giving the Secretary notice of his or her intention to
vote in person. Proxies solicited hereby may be exercised only at the Annual
Meeting and any adjournment thereof and will not be used for any other meeting.
VOTING AND REQUIRED VOTES
Only stockholders of record at the close of business on September 4, 1996
("Voting Record Date") will be entitled to vote at the Annual Meeting. On the
Voting Record Date, there were 1,981,475 shares of Common Stock issued and
outstanding, and the Company had no other class of equity securities
outstanding. Each share of Common Stock outstanding is entitled to one vote at
the Annual Meeting on each matter properly presented at the Annual Meeting,
except that 13,686 shares of Common Stock held by John Hancock Advisers, Inc.
are not entitled to be voted at the meeting. See "Beneficial Ownership of Common
Stock by Certain Beneficial Owners and Management."
Directors are elected by a plurality of the votes cast with a quorum
present. A quorum consists of stockholders representing, either in person or by
proxy, a majority of the outstanding Common Stock entitled to vote at the
meeting. Abstentions are considered in determining the presence of a quorum and
will not affect the plurality vote required for the election of directors. The
affirmative vote of the holders of a majority of the total votes present in
<PAGE>
person or by proxy is required to ratify the appointment of the independent
auditors. Under rules of the New York Stock Exchange, the election of directors
and the ratification of the auditors are considered "discretionary" items upon
which brokerage firms may vote in their discretion on behalf of their clients if
such clients have not furnished voting instructions and for which there will not
be "broker non-votes."
INFORMATION WITH RESPECT TO NOMINEES FOR DIRECTOR, DIRECTORS
WHOSE TERMS CONTINUE AND EXECUTIVE OFFICERS
Election of Directors
The Bylaws of the Company presently provide that the Board of Directors
shall consist of eight members, and the Articles of Incorporation and Bylaws of
the Company presently provide that the Board of Directors shall be divided into
three classes as nearly equal in number as possible. The members of each class
are to be elected for a term of three years or until their successors are
elected and qualified. One class of directors is to be elected annually. There
are no arrangements or understandings between the Company and any person
pursuant to which such person has been elected a director, and no director or
nominee for director is related to any other director, nominee for director or
executive officer of the Company by blood, marriage or adoption.
Unless otherwise directed, each proxy executed and returned by a
stockholder will be voted for the election of the nominees for director listed
below. If any person named as a nominee should be unable or unwilling to stand
for election at the time of the Annual Meeting, the proxies will nominate and
vote for any replacement nominee or nominees recommended by the Board of
Directors. At this time, the Board of Directors knows of no reason why any of
the nominees listed below may not be able to serve as a director if elected.
<PAGE>
Position with the Company and the
Bank and Principal Occupation Director
Name Age(1) During the Past Five Years Since(2)
- - ---- ------ -------------------------- --------
Nominees for Director
Richard L. Bishop 52 Director; President, Treasurer and a 50% 1991
owner of Jurgens & Holtvluwer Men's
Store, Inc., Grand Rapids, Michigan.
Thomas D. DeYoung 58 Director; President and principal 1979
stockholder of DeYoung & Associates,
Grand Rapids, Michigan, a commercial
building contractor since 1993. Prior
thereto, President of DeYoung & Bagin,
Grand Rapids, Michigan, a commercial
building contractor, since 1975.
Jacob Haisma 60 Director; owner of Jacob Haisma 1979
Builders, Inc., Grand Rapids, Michigan,
since 1960.
The Board of Directors recommends that you vote FOR the election of the
above nominees for director.
Directors Whose Terms Expire in 1997
Paul W. Sydloski 54 President, Chief Executive Officer and 1992
Director of the Company since 1994 and
of the Bank since 1992. Prior thereto,
President, Chief Executive Officer and
Director of Homestead, F.S.B. in Albion,
Michigan.
John H. Zwarensteyn 51 Director; President, Chief Executive 1992
Officer and sole stockholder of Gemini
Corporation, Grand Rapids, Michigan, a
publishing and communications concern,
since 1979; Chairman of the Board and
Chief Executive Officer of Plexus
Communications Services, Grand Rapids,
Michigan, since July 1996.
Directors Whose Terms Expire in 1998
George A. Jackoboice 54 Chairman of the Board of the Company 1978
and the Bank since 1994 and 1992,
respectively. President of Monarch
Hydraulics, Inc., Grand Rapids, Michigan
since 1983, and a 25% owner of that firm.
Carl A. Rossi 66 Director; President of Kentwater Land 1972
Co., Grand Rapids, Michigan since 1970.
Also part owner and Sales and Contract
Manager for Bay Area Interiors, Grand
Rapids, Michigan since 1991.
(Footnotes on following page)
<PAGE>
Position with the Company and the
Bank and Principal Occupation Director
Name Age(1) During the Past Five Years Since(2)
- - ---- ------ -------------------------- --------
Robert J. Stephan 60 Director; President, Chief Executive 1990
Officer and 91% stockholder of
BeneComp, Inc., Grand Rapids,
Michigan, which insures businesses
against various risks, since July 1995.
Prior thereto, President, Chief Executive
Officer and sole stockholder of Risk
Control, Inc., Grand Rapids, Michigan,
from 1993 to July 1995. Prior thereto,
President of the Risk Control Division of
Willis Corroon Corporation of Western
Michigan from 1979 to 1993.
(1) As of August 31, 1996.
(2) Includes service as a director of the Bank.
<PAGE>
Stockholder Nominations
Article 7.F of the Company's Articles of Incorporation governs
nominations for election to the Board of Directors and requires all such
nominations, other than those made by the Board, to be made at a meeting of
stockholders called for the election of directors, and only by a stockholder who
has complied with the notice provisions in that section. Stockholder nominations
must be made pursuant to timely notice in writing to the Secretary of the
Company. To be timely, a stockholder's notice must be delivered to, or mailed
and received at, the principal executive offices of the Company not later than
60 days prior to the anniversary date of the immediately preceding annual
meeting. No stockholder nominations were received by August 26, 1996. The
Articles of Incorporation set forth specific requirements with respect to
stockholder nominations.
Board Meetings and Committees
The Board of Directors of the Company met eight times during the year
ended June 30, 1996. Directors of the Company receive no fees from the Company
for attending Board of Directors meetings or committee meetings. The Board of
Directors has standing audit and executive committees as described below. The
Board of Directors of the Company does not have a compensation committee. No
director of the Company attended fewer than 75% in the aggregate of the meetings
of the Board of Directors held during fiscal 1996 and the total number of
meetings held by all committees of the Board on which he served during the year.
The Audit Committee reviews the scope and results of the audit performed
by the Company's independent auditors and reviews with management and such
independent auditors the Company's system of internal control and audit. The
Audit Committee also reviews all examination and other reports by federal
banking regulators. The members of the Audit Committee for both the Company and
the Bank are Messrs. Stephan (Chairman), Jackoboice and Rossi. The Audit
Committee met once in fiscal 1996.
The Executive Committee, which consists of Messrs. Jackoboice (Chairman),
Rossi, Haisma, Sydloski and, as nonvoting members, Koessel and Twardy, is
authorized to act on behalf of the Board of Directors of the Company between
scheduled Board meetings, subject to the limitations on its powers and
authorities set forth under Michigan law. The Executive Committee is the same
for the Company and the Bank did not meet in fiscal 1996.
The full Board of Directors of the Company serves as the Nominating
Committee and met once during fiscal 1996 in such capacity. Although the Board
of Directors will consider nominees recommended by stockholders, it has not
actively solicited recommendations from stockholders of the Company. Article 7.F
of the Company's Articles of Incorporation provides certain procedures which
stockholders must follow in making director nominations. If such stockholder
nominations are made, ballots will be provided at the Annual Meeting bearing the
name of a stockholder's nominee or nominees.
Regular meetings of the Board of Directors of the Bank are held on at
least a monthly basis and special meetings of the Board of Directors are held
from time-to-time as needed. There were 14 meetings of the Board of Directors
held during the year ended June 30, 1996. No director attended fewer than 75% of
the total number of meetings of the Board of Directors of Bank West during
fiscal 1996 and the total number of meetings held by all committees of the Board
on which the director served during such year.
The Board of Directors of the Bank has established various committees,
<PAGE>
including Executive, Audit, Compensation and Nominating Committees. The Bank's
Executive and Audit Committees consist of the same members with the same
responsibilities as the Company's Executive and Audit Committees. The Bank's
Executive and Audit Committees each met four times in fiscal 1996.
The Compensation Committee reviews the compensation of the Bank's
officers and employees, and the members of the Committee also serve as trustees
of the ESOP and as administrators of the Company's stock benefit plans. The
members of the committee are Messrs. Bishop (Chairman), Jackoboice and Stephan,
and the committee met four times during the year ended June 30, 1996.
<PAGE>
Executive Officers Who Are Not Directors
The following table sets forth certain information with respect to the
executive officers of the Company who are not directors. There are no
arrangements or understandings between the Company and any such person pursuant
to which such person was elected an executive officer of the Company, and no
such officer is related to any director or officer of the Company by blood,
marriage or adoption.
Name Age(1) Principal Occupation During the Past Five Years
- - ---- ------ -----------------------------------------------
James A. Koessel 48 Vice President and Chief Lending Officer of the
Company and the Bank since December 1994 and
September 1992, respectively; Secretary of the
Company and the Bank since February 1996; Vice
President and Branch Manager for Mortgage
Corporation of America, Grand Rapids, Michigan,
from 1991 to August 1992; prior thereto, Vice
President and Residential Lending Manager for
NBD Bank, Grand Rapids, Michigan.
Kevin A. Twardy, CPA 29 Vice President and Chief Financial Officer of the
Company and the Bank since December 1994 and
November 1994, respectively; prior to joining the
Bank in November 1994, Manager for six months
with the accounting firm of Crowe Chizek and
Company, Grand Rapids, Michigan; prior thereto,
Senior Auditor with Ernst & Young, Chicago,
Illinois.
Laurie Adams 40 Director of Retail Banking of the Company and
the Bank since July 1996; prior thereto,
Administrative Services Manager and Investment
Representative for FMB State Savings Bank and
FMB Investment Services, Holland, Michigan,
from 1990 and 1993, respectively.
- - ----------------------------
(1) As of August 31, 1996.
<PAGE>
BENEFICIAL OWNERSHIP OF COMMON STOCK
BY CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table includes, as of the Voting Record Date, certain
information as to the Common Stock beneficially owned by (i) the only person or
entity, including any "group" as that term is used in Section 13(d)(3) of the
Securities Exchange Act of 1934, as amended ("1934 Act"), who or which was known
to the Company to be the beneficial owner of more than 5% of the issued and
outstanding Common Stock, (ii) the directors of the Company, and (iii) all
directors and executive officers of the Company and the Bank as a group.
Common Stock
Beneficially Owned as of
September 4, 1996(1)(2)(3)
--------------------------
Name of Beneficial Owner Amount %
------------------------ ------ -
Wellington Management Company 229,000(4) 11.6%
75 State Street
Boston, Massachusetts 02109
John Hancock Advisers, Inc. 210,000(5) 10.6%
101 Huntington Avenue
Boston, Massachusetts 02199
Bank West Financial Corporation 162,006(6) 8.2%
Employee Stock Ownership Plan Trust
2185 Three Mile Road N.W.
Grand Rapids, Michigan 49544
Harry E. Mika 116,000 5.9%
2147 Wildfield Drive, N.E.
Grand Rapids, Michigan 49505
Directors:
George A. Jackoboice 22,470(7) 1.1%
Paul W. Sydloski 32,179(8) 1.6%
Richard L. Bishop 17,557(9) *
Thomas D. DeYoung 13,023(10) *
Jacob Haisma 30,057(11) 1.5%
Carl A. Rossi 15,339(12) *
Robert J. Stephan 22,557(13) 1.1%
John H. Zwarensteyn 21,328(14) 1.1%
All directors and executive officers of
the Company and the Bank 204,775(2)(3)(6) 10.3%
as a group (11 persons)
- - -----------------
* Represents less than 1% of the outstanding Common Stock.
(Footnotes continued on following page)
<PAGE>
(1) Based upon information furnished by the respective persons. Pursuant to
rules promulgated under the 1934 Act, a person is deemed to beneficially
own shares of Common Stock if he or she directly or indirectly has or
shares (i) voting power, which includes the power to vote or to direct the
voting of the shares; or (ii) investment power, which includes the power
to dispose or direct the disposition of the shares. Unless otherwise
indicated, the named beneficial owner has sole voting power and sole
investment power with respect to the indicated shares.
(2) Under applicable regulations, a person is deemed to have beneficial
ownership of any shares of Common Stock which may be acquired within 60
days of the Voting Record Date pursuant to the exercise of outstanding
stock options. Shares of Common Stock which are subject to stock options
are deemed to be outstanding for the purpose of computing the percentage
of outstanding Common Stock owned by such person or group but not deemed
outstanding for the purpose of computing the percentage of Common Stock
owned by any other person or group. The amounts set forth in the table
include shares which may be received upon the exercise of stock options
within 60 days of the Voting Record Date as follows: for each non-employee
director, 1,487 shares; for Mr. Sydloski, 1,800 shares; and for all
directors and executive officers as a group, 15,209 shares.
(3) Includes restricted shares granted pursuant to the Company's Management
Recognition Plans ("MRPs") as follows: for each non-employee director,
3,570 shares; for Mr. Sydloski, 22,033 shares; and for all directors and
executive officers as a group, 67,759 shares. While these restricted
shares have not yet vested or been distributed to the recipient of the
grant, the grant recipients are entitled to vote the restricted shares.
The trustees of the MRPs, who consist of directors of the Company, may
vote the aggregate 18,335 shares of Common Stock held by the MRPs which
have not yet been granted. The trustees disclaim beneficial ownership of
such shares, which are not included in the above table.
(4) These shares are owned by various investment advisory clients of
Wellington Management Company ("WMC"). WMC has shared voting power as to
178,500 shares and shared dispositive power as to 229,000 shares.
(5) These shares are held by the John Hancock Bank and Thrift Opportunity Fund
(the "Fund"). Pursuant to an advisory agreement with the Fund date July
21, 1994, John Hancock Advisors, Inc. ("JHA") has sole voting and
dispositive power as to these shares. JHA is a wholly owned subsidiary of
The Berkeleley Financial Group ("TBFG"), which is a wholly owned
subsidiary of John Hancock Asset Management ("JHAM"), which is a wholly
owned subsidiary of John Hancock Subsidiaries, Inc. ("JHSI"), which is a
wholly owned subsidiary of John Hancock Mutual Life Insurance Company
("JHMLICO"). The principal business office of TBFG is located at the same
address as JHA, and the principal business offices of JHMLICO, JHSI and
JHAM are located at John Hancock Place, P. O. Box 111, Boston, MA 02117.
The direct and indirect parent companies of JHA may be deemed to have
indirect beneficial ownership of these shares. Because the 210,000 shares
exceed 10% of the Company's currently issued and outstanding Common Stock
as a result of a recently completed stock repurchase program, pursuant to
Article 11 of the Company's Articles of Incorporation a total of 13,686
shares held by JHA cannot be voted at the Annual Meeting.
(6) The Bank West Financial Corporation Employee Stock Ownership Plan Trust
("Trust") was established pursuant to the Bank West Financial Corporation
(Footnotes continued on following page)
<PAGE>
Employee Stock Ownership Plan ("ESOP") by an agreement between the Company
and Messrs. Jackoboice, Bishop and Haisma, who act as trustees of the plan
("Trustees"). As of the Voting Record Date, 141,756 shares of Common Stock
held in the Trust were unallocated and 20,250 shares had been allocated to
the accounts of participating employees. Under the terms of the ESOP, the
Trustees must vote the allocated shares held in the ESOP in accordance
with the instructions of the participating employees. Unallocated shares
held in the ESOP will be voted by the ESOP Trustees in the same proportion
for and against proposals to stockholders as the ESOP participants and
beneficiaries actually vote shares of Common Stock allocated to their
individual accounts. Any allocated shares which either abstain on the
proposal or are not voted will be disregarded in determining the
percentage of stock voted for and against each proposal by the
participants and beneficiaries. The amount of Common Stock beneficially
owned by each individual trustee or all directors and executive officers
as a group does not include the unallocated shares held by the Trust. The
total for all directors and executive officers as a group includes 4,500
shares allocated to the ESOP accounts of the four executive officers.
(7) Includes 11,000 shares held jointly with Mr. Jackoboice's spouse, with
whom voting and dispositive power is shared, 1,644 shares held by Mr.
Jackoboice's individual retirement account ("IRA"), 1,644 shares held by
his spouse's IRA, and 3,125 shares held as custodian for his children.
Excludes the shares held by the ESOP, of which Mr.
Jackoboice is one of three trustees.
(8) Includes 2,250 shares held jointly with Mr. Sydloski's spouse, with whom
voting and dispositive power is shared, 2,850 shares held by Mr.
Sydloski's IRA, 900 shares held by his spouse, which Mr. Sydloski may be
deemed to beneficially own, and 2,346 shares allocated to Mr. Sydloski's
ESOP account.
(9) Includes 9,289 shares held jointly with Mr. Bishop's spouse, with whom
voting and dispositive power is shared, and 3,211 shares held by Mr.
Bishop's IRA. Excludes the shares held by the ESOP, of which Mr. Bishop
is one of three trustees.
(10) Includes 2,772 shares held by Mr. DeYoung's IRA, 1,169 shares held by his
spouse's IRA, and 4,025 shares held as trustee for two different trusts.
(11) Includes 25,000 shares held jointly with Mr. Haisma's spouse, with whom
voting and dispositive power is shared. Excludes the shares held by the
ESOP, of which Mr.
Haisma is one of three trustees.
(12) Includes 1,537 shares held jointly with Mr. Rossi's spouse, with whom
voting and dispositive power is shared, 4,886 shares held by Mr. Rossi's
IRAs, 1,327 shares held by his spouse's IRA, and 2,532 shares held by a
corporation in which Mr. Rossi is President.
(13) Includes 4,182 shares held jointly with Mr. Stephan's spouse, with whom
voting and dispositive power is shared, 12,318 shares held by Mr.
Stephan's IRA, and 1,000 shares held by his spouse's IRA.
(14) Includes 3,500 shares held jointly with Mr. Zwarensteyn's spouse, with
whom voting and dispositive power is shared, 10,203 shares held by Mr.
Zwarensteyn's IRA, and 2,568 shares held by his spouse's IRA.
(Footnotes continued on following page)
<PAGE>
Under Section 16(a) of the Exchange Act, the Company's directors,
officers and any persons holding more than 10% of the Common Stock are required
to report their ownership of the Common Stock and any changes in that ownership
to the Securities and Exchange Commission ("Commission") and the National
Association of Securities Dealers, Inc. ("NASD") by specific dates. Based on
representations of its directors and officers and copies of the reports that
they have filed with the Commission and the NASD, the Company believes that all
of these filing requirements were satisfied by the Company's directors and
officers in the fiscal year ended June 30, 1996.
<PAGE>
EXECUTIVE COMPENSATION
Summary Compensation Table
The Company has not yet paid separate compensation directly to its
officers. However, the Company reimburses the Bank for the Company's pro rata
share of the compensation of the officers pursuant to an employee cost sharing
agreement. The following table sets forth a summary of certain information
concerning the compensation paid by the Bank for services rendered in all
capacities during the fiscal year ended June 30, 1996 to the President and Chief
Executive Officer of the Company and the Bank.
<TABLE>
<CAPTION>
===================================================================================================================================
Annual Compensation Long Term Compensation
----------------------------------------------------------------------------------------------
Awards Payouts
Other
Name and Fiscal Annual
Principal Position Year Salary(1) Bonus Compensation(2)
---------------------------------------------------
Restricted Securities LTIP All Other
Stock Award Underlying Payouts Compensation
(3) Options(4) (5)
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Paul W. Sydloski, 1996 $104,607 $ -- -- $220,330 9,000 -- $21,212
President and Chief 1995 99,365 -- -- -- -- -- 5,784
Executive Officer 1994 90,765 6,123 -- -- -- -- --
===================================================================================================================================
- - -----------------
(1) Includes directors' fees of $8,400, $8,400 and $9,000 for fiscal 1996,
1995 and 1994, respectively.
(2) Does not include amounts attributable to other miscellaneous benefits
received by Mr. Sydloski, including relocation expenses and the payment of
club dues. The costs to the Bank of providing such benefits did not exceed
10% of the total salary and bonus paid to or accrued for the benefit of
such individual executive officer in any of the fiscal years shown.
(3) Represents the grant of 22,033 shares of restricted Common Stock pursuant
to the Company's 1995 Management Recognition Plan for Officers, which
shares were deemed to have had the indicated value at the date of grant.
The restricted stock had a fair market value of $231,347 at June 30, 1996,
based on the $10.50 per share closing market price on such date. The award
vests at the rate of 20% a year over a five-year period commencing on the
first anniversary of the date of grant, and dividends are paid on the
restricted shares.
(4) Consists of stock options granted pursuant to the Company's 1995 Key
Employee Stock Compensation Program, which options vest and are
exercisable at the rate of 20% a year over a five-year period commencing
on the first anniversary of the date of grant.
(Footnotes continued on following page)
<PAGE>
<CAPTION>
(5) Includes $19,537 and $4,491 of Common Stock allocated to Mr. Sydloski's
account in the ESOP for fiscal 1996 and 1995, respectively. Also includes
$1,293 of annual life insurance premiums paid in each of fiscal 1996 and
1995 to provide life insurance on Mr. Sydloski's life for the benefit of
his spouse in the amount of $300,000 and, for fiscal 1996, $382 of
matching contributions paid by the Bank to Mr. Sydloski's account under
the Bank's 401(k) plan.
</TABLE>
Fiscal Year and Fiscal Year-End Option Values
Stock options for 24,000 shares were granted to all executive officers of
the Company and the Bank on November 1, 1995 at $9.9375 per share. The following
table sets forth, with respect to the executive officer named in the Summary
Compensation Table, information with respect to stock options granted during
fiscal 1996.
Individual Grants
---------------------------------------------------------
Percent of Total
Options Options Granted Exercise
Name Granted to Employees(2) Price Expiration Date
---- ------- --------------- ----- ---------------
Paul W. Sydloski 9,000(1) 11.8% $9.9375(3) November 1, 2005
- - ------------------------
(1) None of the indicated awards were accompanied by stock appreciation
rights.
(2) Percentage of options granted to all employees and directors during fiscal
1996.
(3) The exercise price was based on the market price of the Common Stock on
the date of the grant.
No options were exercised during fiscal 1996. The following table sets
forth, with respect to the executive officer named in the Summary Compensation
Table, information with respect to the number of options held at the end of the
fiscal year and the value with respect thereto.
<TABLE>
<CAPTION>
---------------------------------- -----------------------------------
Shares Number of Value of Unexercised
Acquired Unexercised Options in the Money Options
on Value at Fiscal Year End Fiscal Year End(1)
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- - ------------------ ----------- ---------- ------------- ---------------- ------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Paul W. Sydloski -- -- -- 9,000 -- $5,063
(1) Based on a per share market price of the Common Stock of $10.50 at June 30, 1996.
</TABLE>
<PAGE>
Director Compensation
During the year ended June 30, 1996, each non-employee director of the
Bank received a fee of $1,000 per Board meeting. However, if more than one Board
meeting was missed during the year, the fee was $500 for the second and third
meetings that were missed if the absence was excused by the Board, and no fees
were paid for unexcused absences or for more than three missed meetings. In
addition, each non-employee director received $300 per committee meeting.
Directors who are also officers did not receive any fees for committee meetings
in fiscal 1996. Mr. Sydloski received annual Board fees of $7,200 plus $600 per
day for any special meetings.
Employment and Severance Agreements
The Company and the Bank (collectively, the "Employers") entered into an
employment agreement with Mr. Sydloski on March 30, 1995 in connection with the
Conversion. The Employers have agreed to employ Mr. Sydloski for a term of three
years in his current position at an initial salary of $94,000. At least 30 days
prior to each annual anniversary date of the employment agreement, the Boards of
Directors of the Company and the Bank shall determine whether or not to extend
the term of the agreement for an additional one year. Any party may elect not to
extend the agreement for an additional year by providing written notice at least
30 days prior to any annual anniversary date. On April 22, 1996, the Boards of
Directors of the Company and the Bank decided to extend the term of the
agreement for an additional one year at Mr. Sydloski's current salary of
$95,586.
The employment agreement is terminable with or without cause by the
Employers. The officer shall have no right to compensation or other benefits
pursuant to the employment agreement for any period after voluntary termination
or termination by the Employers for cause, disability, retirement or death,
provided, however, that (i) in the event that the officer terminates his
employment because of failure of the Employers to comply with any material
provision of the employment agreement or (ii) the employment agreement is
terminated by the Employers other than for cause, disability, retirement or
death or by the officer as a result of certain adverse actions which are taken
with respect to the officer's employment following a Change in Control of the
Company, as defined, Mr. Sydloski will be entitled to a cash severance amount
equal to three times his average annual compensation over his most recent five
taxable years (or such shorter time as he has been employed by the Employers),
payable in equal monthly installments over 36 months. In addition, Mr. Sydloski
will be entitled to a continuation of benefits similar to those he is receiving
at the time of such termination for the remaining term of the agreement or until
the officer obtains full-time employment with another employer, whichever occurs
first.
The Employers also entered into three-year severance agreements with
Messrs. Koessel and Twardy on March 30, 1995. At least 30 days prior to each
annual anniversary date of the severance agreements, the Boards of Directors of
the Company and the Bank shall determine whether or not to extend the term of
the agreements for an additional one year. Any party may elect not to extend the
term of the agreements by providing written notice at least 30 days prior to any
annual anniversary date. On April 22, 1996, the Boards of Directors of the
Company and the Bank decided to extend the terms of the agreements for an
additional one year. Under the terms of such severance agreements, the Employers
have agreed that in the event either of such officer's employment is terminated
as a result of certain adverse actions which are taken with respect to the
officer's employment following a Change in Control of the Company, as defined,
such officer will be entitled to (1) a cash severance amount equal to two times
<PAGE>
the highest level of his base salary during any of the three calendar years
ending during the year in which the termination occurs, payable in equal monthly
installments over 24 months, and (2) a continuation of benefits similar to those
he is receiving at the time of such termination for a period of two years or
until the officer obtains full-time employment with another employer, whichever
occurs first.
A Change in Control is generally defined in the employment and severance
agreements to include any change in control required to be reported under the
federal securities laws, as well as (i) the acquisition by any person of 25% or
more of the Company's outstanding voting securities and (ii) a change in a
majority of the directors of the Company during any two-year period without the
approval of at least two-thirds of the persons who were directors of the Company
at the beginning of such period.
Each employment and severance agreement provides that in the event that
any of the payments to be made thereunder or otherwise upon termination of
employment are deemed to constitute a "parachute payment" within the meaning of
Section 280G of the Internal Revenue Code of 1986, as amended (the "Code"), then
such payments and benefits received thereunder shall be reduced, in the manner
determined by the employee, by the amount, if any, which is the minimum
necessary to result in no portion of the payments and benefits being
non-deductible by the Employers for federal income tax purposes. Parachute
payments generally are payments equal to or exceeding three times the base
amount, which is defined to mean the recipient's average annual compensation
from the employer includable in the recipient's gross income during the most
recent five taxable years ending before the date on which a change in control of
the employer occurred (or such lesser time as the recipient has been employed).
Recipients of parachute payments are subject to a 20% excise tax on the amount
by which such payments exceed the base amount, in addition to regular income
taxes, and payments in excess of the base amount are not deductible by the
employer as compensation expense for federal income tax purposes.
Although the above-described employment and severance agreements could
increase the cost of any acquisition of control of the Company, management of
the Company does not believe that the terms thereof would have a significant
anti-takeover effect.
Employee Stock Ownership Plan
The Company has established the ESOP for employees of the Company and the
Bank. Employees of the Company and the Bank who have been credited with at least
500 hours of service during a twelve month period and who have attained age 18
are eligible to participate in the ESOP.
As part of the Conversion, the ESOP borrowed funds from the Company to
purchase 162,006 shares of Common Stock issued in the Conversion. The loan to
the ESOP is being repaid principally from the Bank's contributions to the ESOP
over a period of 10 years, and the collateral for the loan is the Common Stock
purchased by the ESOP. The loan to the ESOP bears a fixed interest rate of 7.0%.
The Company may, in any plan year, make additional discretionary contributions
for the benefit of plan participants in either cash or shares of Common Stock,
which may be acquired through the purchase of outstanding shares in the market
or from individual stockholders, upon the original issuance of additional shares
by the Company or upon the sale of treasury shares by the Company. Such
purchases, if made, would be funded through additional borrowings by the ESOP or
additional contributions from the Company. The timing, amount and manner of
future contributions to the ESOP will be affected by various factors, including
prevailing regulatory policies, the requirements of applicable laws and
regulations and market conditions.
<PAGE>
Shares purchased by the ESOP with the proceeds of the loan are held in a
suspense account and released on a pro rata basis as debt service payments are
made. Discretionary contributions to the ESOP and shares released from the
suspense account are allocated among participants on the basis of compensation.
Forfeitures are reallocated among remaining participating employees and may
reduce any amount the Company might otherwise have contributed to the ESOP.
Participants vest in their right to receive their account balances within the
ESOP at the rate of 20% per year starting with the completion of three years of
service and will be 100% vested upon the completion of seven years of service.
Credit is given for years of service with the Bank prior to adoption of the
ESOP. In the case of a "change in control," as defined, however, participants
will become immediately fully vested in their account balances. Benefits are
payable upon retirement, early retirement, disability or separation from
service. The Company's contributions to the ESOP are not fixed, so benefits
payable under the ESOP cannot be estimated.
Messrs. Jackoboice, Bishop and Haisma serve as trustees of the ESOP.
Under the ESOP, the trustee must vote all allocated shares held in the ESOP in
accordance with the instructions of the participating employees, and unallocated
shares will be voted in the same ratio on any matter as to those allocated
shares for which instructions are given.
Generally accepted accounting principles ("GAAP") require that any third
party borrowing by the ESOP be reflected as a liability on the Company's
statement of financial condition. Since the ESOP's loan is from the Company,
such obligation is not treated as a liability, but the amount of the borrowing
is deducted from stockholders' equity. If the ESOP purchases newly issued shares
from the Company, total stockholders' equity would neither increase nor
decrease, but per share stockholders' equity and per share net earnings would
decrease as the newly issued shares are allocated to the ESOP participants.
The ESOP is subject to the requirements of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), and the regulations of the Internal
Revenue Service and the Department of Labor thereunder.
Defined Benefit Pension Plan
The Bank has a defined benefit pension plan ("Retirement Plan") for all
full-time employees who have completed three months of service with the Bank. In
general, the Retirement Plan provides a benefit at an employee's "normal
retirement age" (age 65) equal to 1.5% of average annual salary times years of
credited service. The average annual salary is the average of the highest five
consecutive annual salaries prior to retirement. An employee becomes fully
vested upon completion of five years of qualifying service. During the year
ended June 30, 1996, Bank West did not make a contribution to the Retirement
Plan, as the plan was adequately funded and subject to the IRS "full funding
limitation." When subject to the full funding limitation, no contribution is
either required or deductible.
<PAGE>
The following table illustrates annual pension benefits for retirement at
age 65 under various levels of compensation and years of credited service. The
benefits shown in the table are subject to reduction by a specified percentage
of the employee's social security benefit.
<TABLE>
<CAPTION>
Years of Credited Service
--------------------------------------------------------------------------------------------
Average
Compensation 15 20 25 30 35
------------ -- -- -- -- --
<S> <C> <C> <C> <C> <C>
$40,000 $9,000 $12,000 $15,000 $18,000 $21,000
60,000 13,500 18,000 22,500 27,000 31,500
80,000 18,000 24,000 30,000 36,000 42,000
100,000 22,500 30,000 37,500 45,000 52,500
120,000 27,000 36,000 45,000 54,000 63,000
140,000 31,500 42,000 52,500 63,000 73,500
</TABLE>
The figures in the above table assume that the Retirement Plan continues
in its present form and that the participants elect a 10-year certain and life
annuity form of benefit.
The maximum annual compensation which may be taken into account under the
Code (as adjusted from time to time by the IRS) for calculating benefits and
contributions under qualified defined benefit plans currently is $150,000, and
the maximum annual benefit permitted under such plans currently is $120,000.
The pension benefits listed in the table are not subject to any deduction
for Social Security or other offset amounts.
At June 30, 1996, Mr. Sydloski had eight years of credited service under
the Retirement Plan.
Transactions with Certain Related Persons
The Bank has made, and may in the future make, loans in the ordinary
course of business to directors and executive officers and their respective
associates. Such loans are made on substantially the same terms, including
interest rate and collateral, as those prevailing at the same time for
comparable transactions with persons unaffiliated with the Bank and do not
involve more than the normal risk of collectibility or present other unfavorable
features.
At June 30, 1996, the Bank had eight loans outstanding to directors and
executive officers of the Bank, or members of their immediate families, who had
an aggregate indebtedness in excess of $60,000. These loans totalled
approximately $841,851 or 3.1% of the Company's total stockholders' equity at
June 30, 1996.
<PAGE>
RATIFICATION OF APPOINTMENT OF AUDITORS
The Board of Directors of the Company has appointed Crowe Chizek and
Company, independent certified public accountants, to perform the audit of the
Company's consolidated financial statements for the year ending June 30, 1997,
and has further directed that the selection of auditors be submitted for
ratification by the stockholders at the Annual Meeting.
The Company has been advised by Crowe Chizek and Company that neither
that firm nor any of its associates has any relationship with the Company or its
subsidiaries other than the usual relationship that exists between independent
certified public accountants and clients. Crowe Chizek and Company will have one
or more representatives at the Annual Meeting who will have an opportunity to
make a statement, if they so desire, and who will be available to respond to
appropriate questions.
<PAGE>
The Board of Directors recommends that you vote FOR the ratification of
the appointment of Crowe Chizek and Company as independent auditors for the
fiscal year ending June 30, 1997.
STOCKHOLDER PROPOSALS
Any proposal which a stockholder wishes to have included in the proxy
materials of the Company relating to the next annual meeting of stockholders of
the Company, which is scheduled to be held in October 1997, must be received at
the principal executive offices of the Company, 2185 Three Mile Road N.W., Grand
Rapids, Michigan 49544, Attention: James A, Koessel, Secretary, no later than
May 21, 1997. If such proposal is in compliance with all of the requirements of
Rule 14a-8 under the 1934 Act, it will be included in the proxy statement and
set forth on the form of proxy issued for such annual meeting of stockholders.
It is urged that any such proposals be sent by certified mail, return receipt
requested.
Stockholder proposals which are not submitted for inclusion in the
Company's proxy materials pursuant to Rule 14a-8 under the 1934 Act may be
brought before an annual meeting provided that the requirements set forth in
Article 10.D of the Company's Articles of Incorporation are satisfied in a
timely manner. To be timely, a stockholder's notice must be delivered to, or
mailed and received at, the principal executive offices of the Company not less
than 60 days prior to the anniversary date of the mailing of the proxy materials
by the Company for the immediately preceding annual meeting.
ANNUAL REPORTS
A copy of the Company's Annual Report to Stockholders for the year ended
June 30, 1996 accompanies this Proxy Statement. Such annual report is not part
of the proxy solicitation materials.
UPON RECEIPT OF A WRITTEN REQUEST, THE COMPANY WILL FURNISH TO ANY
STOCKHOLDER WITHOUT CHARGE A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED JUNE 30, 1996 AND A LIST OF THE EXHIBITS THERETO REQUIRED TO
BE FILED WITH THE SECURITIES AND EXCHANGE COMMISSION UNDER THE 1934 ACT. SUCH
WRITTEN REQUEST SHOULD BE DIRECTED TO KEVIN A. TWARDY, VICE PRESIDENT AND CHIEF
FINANCIAL OFFICER, BANK WEST FINANCIAL CORPORATION, 2185 THREE MILE ROAD N.W.,
GRAND RAPIDS, MICHIGAN 49544. THE FORM 10-K IS NOT PART OF THE PROXY
SOLICITATION MATERIALS.
<PAGE>
OTHER MATTERS
Each proxy solicited hereby also confers discretionary authority on the
Board of Directors of the Company to vote the proxy with respect to the approval
of the minutes of the last meeting of stockholders, the election of any person
as a director if the nominee is unable to serve or for good cause will not
serve, matters incident to the conduct of the meeting, and upon such other
matters as may properly come before the Annual Meeting. Management is not aware
of any business that may properly come before the Annual Meeting other than
those matters described above in this Proxy Statement. However, if any other
matters should properly come before the Annual Meeting, it is intended that the
proxies solicited hereby will be voted with respect to those other matters in
accordance with the judgment of the persons voting the proxies.
The cost of the solicitation of proxies will be borne by the Company. The
Company will reimburse brokerage firms and other custodians, nominees and
fiduciaries for reasonable expenses incurred by them in sending the proxy
materials to the beneficial owners of the Company's Common Stock. In addition to
solicitations by mail, directors, officers and employees of the Company may
solicit proxies personally or by telephone without additional compensation.
YOUR VOTE IS IMPORTANT! WE URGE YOU TO SIGN AND DATE THE ENCLOSED PROXY
CARD AND RETURN IT TODAY IN THE ENCLOSED POSTAGE- PAID ENVELOPE.
<PAGE>
REVOCABLE PROXY
BANK WEST FINANCIAL CORPORATION
[ X ] PLEASE MARK VOTES
AS IN THIS EXAMPLE
Annual Meeting of Stockholders
OCTOBER 23, 1996
The undersigned hereby appoints the Board of Directors of the Company, or any
successors thereto, as proxies, with full powers of substitution, to vote the
shares of the undersigned at the Annual Meeting of Stockholders of the Company
to be held at the Grand Rapids Elks Lodge 48 located at 2715 Leonard Street,
N.W., Grand Rapids, Michigan 49504, on October 23, 1996, at 10:00 a.m., Eastern
Time, or at any adjournment thereof, with all the powers that the undersigned
would possess if personally present, as follows:
1. Election of Directors:
Nominees for three-year term:
Richard L. Bishop, Thomas D. DeYoung and Jacob Haisma
[ ] For [ ] Withhold [ ] For All Except
INSTRUCTION: To withhold authority to vote for any individual nominee, mark "For
All Except" and write that nominee's name in the space provided below.
- - --------------------------------------------------------------------------------
2. Proposal to ratify the appointment of Crowe Chizek and Company as the
Company's independent auditors for the fiscal year ending June 30, 1997.
[ ] For [ ] Against [ ] Abstain
In their discretion, the proxies are authorized to vote with respect to approval
of the minutes of the last meeting of stockholders, the election of any person
as a director if the nominee is unable to serve or for good cause will not
serve, matters incident to the conduct of the meeting, and upon such other
matters as may properly come before the meeting.
The Board of Directors recommends that you vote FOR the Board of Directors'
nominees listed above and FOR Proposal 2. Shares of common stock of the Company
will be voted as specified. If no specification is made, shares will be voted
for the election of the Board of Directors' nominees to the Board of Directors,
for Proposal 2, and otherwise at the discretion of the proxies. This proxy may
not be voted for any person who is not a nominee of the Board of Directors of
the Company. This proxy may be revoked at any time before it is exercised.
<PAGE>
Please be sure to sign and date this Proxy in the box below.
___________________________________________________
Date
___________________________________________________
Stockholder sign above
___________________________________________________
Co-holder (if any) sign above
Detach above card, sign, date and mail in postage paid envelope provided.
BANK WEST FINANCIAL CORPORATION
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF BANK WEST
FINANCIAL CORPORATION FOR USE ONLY AT THE ANNUAL MEETING OF STOCKHOLDERS TO BE
HELD ON OCTOBER 23, 1996 AND AT ANY ADJOURNMENT THEREOF. The above signed hereby
acknowledges receipt of the Notice of Annual Meeting of Stockholders of Bank
West Financial Corporation called for October 23, 1996, a Proxy Statement for
the Annual Meeting and the 1996 Annual Report to Stockholders. Please sign
exactly as your name(s) appear on this Proxy. Only one signature is required in
the case of a joint account. When signing in a representative capacity, please
give title.
PLEASE ACT PROMPTLY
SIGN, DATE & MAIL YOUR PROXY CARD TODAY
Bank West Financial Corporation
1996 Annual Report To Shareholders
<PAGE>
<TABLE>
<CAPTION>
Selected Consolidated Financial Data
(Dollars in thousands except per share data)
Nine Months Year
Ended Ended
Year Ended June 30 June 30 September 30
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
Net interest income .................................. $ 4,158 $ 3,185 $ 2,861 $ 2,187 $ 2,520
Provision for loan losses ............................. 60 21 25 13 5
Other income .......................................... 1,202 270 226 260 20
Other expenses ......................................... 3,469 2,352 2,045 1,181 1,246
Income taxes ........................................... 622 366 337 413 410
Cumulative effect of change in
accounting for income taxes ......................... -- -- -- (151) --
Net income ............................................. 1,208 716 680 689 879
BALANCE SHEET DATA
Total assets ........................................... 137,982 139,648 106,594 96,761 86,273
Cash and cash equivalents .............................. 6,694 6,694 4,923 3,388 2,187
Securities ............................................. 7,442 11,405 4,029 4,042 3,166
Mortgage-backed securities ............................. 2,307 14,100 1,600 2,378 4,279
Collateralized mortgage obligations .................... 15,034 4,255 1,840 -- --
Loans, net ............................................. 95,737 95,836 91,329 78,610 71,674
Loans held for sale .................................... 4,297 2,746 1,282 3,250 --
Deposits ............................................... 91,028 85,180 89,960 84,127 76,674
FHLB advances .......................................... 19,000 24,922 5,000 2,000 --
Equity.................................................. 26,810 28,171 10,844 10,230 9,541
PER SHARE DATA
Earnings per share(1) .................................. $ 0.57 $ 0.10 -- -- --
Dividends per share .................................... $ 0.28 -- -- -- --
Book value per share ................................... $ 12.19 $ 12.17 -- -- --
RATIOS
Average yield on interest-earning assets .............. 7.52 6.97 6.55 7.24 8.16
Average rate on interest-bearing liabilities ......... 5.37 4.76 4.12 4.48 5.86
Average interest rate spread ......................... 2.15 2.21 2.43 2.76 2.30
Net interest margin ................................... 3.10 2.83 2.86 3.24 2.90
Return on average assets ............................... .87 .62 .67 .76 1.00
Return on average equity ............................... 4.38 4.34 6.38 6.90 9.66
Efficiency ratio ...................................... 68.56 69.56 63.85 50.76 49.44
Dividend payout ratio .................................. 49.12 -- -- -- --
Average equity to average assets ....................... 19.77 14.46 10.57 11.01 10.40
Non-performing loans as a % of loans, net .............. .04 .15 .04 .33 .19
(1) Earnings per share for the year ended June 30, 1995 was computed by dividing
net income subsequent to the conversion on March 30, 1995 by the weighted
average number of shares outstanding subsequent to March 30, 1995.
</TABLE>
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations
The following sections are designed to provide a more detailed discussion of
Bank West Financial Corporation's (the "Company's") consolidated financial
condition and results of operations as well as provide additional information on
the Company's asset/liability management strategies, sources of liquidity and
capital resources. Management's Discussion and Analysis should be read in
conjunction with the consolidated financial statements contained herein. This
discussion provides information about the consolidated financial condition and
results of operations of the Company and its wholly-owned subsidiary, Bank West,
F.S.B. (the "Bank" or "Bank West").
General
Bank West Financial Corporation is the holding company for Bank West, F.S.B.,
a federal savings bank. Substantially all of the Company's assets are currently
held in, and its operations are conducted through, its sole subsidiary Bank
West. The Company's business consists primarily of attracting deposits from the
general public and using such deposits, together with Federal Home Loan Bank
(FHLB) advances, to make loans for the purchase and construction of residential
properties. To a lesser extent, the Company also makes commercial loans, home
equity loans and various types of consumer loans.
The Company's operations and profitability are subject to changes in interest
rates, applicable regulations and general economic conditions, as well as other
factors beyond the Company's control. The profitability of Bank West depends
primarily on its net interest income, which is the difference between interest
and dividend income on interest-earning assets, principally loans, investment
securities and mortgage collateralized securities, and interest expense on
interest-bearing deposits and FHLB borrowings. Net interest income is dependent
upon the level of interest rates and the extent to which such rates are
changing. In each of the last three fiscal years, net interest income after
provisions for loan losses exceeded total noninterest expense. The Bank's
profitability also is dependent, to a lesser extent, on the level of its other
income (including gains on sale of loans in connection with its mortgage banking
activities, gains (losses) on the sale of securities, and fees and service
charges). During fiscal 1996, 1995 and 1994, the sum of net interest income
after provisions for loan losses and total other income amounted to $5.3
million, $3.4 million, and $3.1 million, respectively.
The Company's net income was $1,208,000, $716,000 and $680,000 for fiscal
1996, 1995 and 1994, respectively. The increase in fiscal 1996 was primarily due
to increases in net interest income of $973,000 and other income of $932,000,
which were partially offset by an increase in other expenses of $1.1 million
compared to fiscal 1995.
Asset and Liability Management
Consistent net interest income is largely dependent upon the achievement of a
positive interest rate spread that can be sustained during fluctuations in
prevailing interest rates. Interest rate sensitivity is a measure of the
difference between amounts of interest-earning assets and interest-bearing
liabilities which either reprice or mature within a given period of time. The
difference, or the interest rate repricing "gap," provides an indication of the
extent to which an institution's interest rate spread will be affected by
changes in interest rates.
<PAGE>
The Bank attempts to manage its interest rate risk by maintaining a high
percentage of its assets in adjustable-rate mortgages ("ARMs"), other
adjustable-rate residential loans and mortgage-backed securities (including
collateralized mortgage obligations). The interest rate on ARMs, however,
adjusts no more frequently than once a year, with the amount of the change
subject to annual limitations, whereas the interest rates on most deposits can
change more frequently and are not subject to annual limitations. In addition,
the Bank has increased its percentage of assets in short-term balloon mortgages,
consumer loans and commercial loans.
Management continually works to achieve a neutral position regarding interest
rate risk. During fiscal 1996, the Bank placed greater emphasis on reducing the
duration of its interest-earnings assets by originating consumer, commercial and
one-to four-family construction loans. In addition, the Bank has placed greater
emphasis on increasing the percentage of adjustable-rate assets to total
interest-earning assets to better match its interest-bearing liabilities.
In order to increase the ratio of interest-sensitive assets to
interest-sensitive liabilities, the Bank has sold most of the newly originated,
fixed-rate mortgages with terms greater than 15 years, while originating ARMs,
consumer and commercial loans for retention in the loan portfolio. At June 30,
1996, the Bank's adjustable-rate assets consisted of ARMs amounting to $47.5
million or 34.5% of total assets, mortgage-backed securities (including
collateralized mortgage obligations) amounting to $17.3 million or 12.6% of
total assets, mortgages with three to seven year balloons amounting to $12.8
million or 9.3% of total assets and consumer loans (including home equity lines
and second mortgages) amounting to $4.8 million or 3.5% of total assets. It is
anticipated that the Bank will retain a sufficient amount of newly originated
ARMs and fixed-rate mortgages with terms of 15 years or less to offset loan
prepayments and repayments and sell the excess originations of one-to
four-family loans. The Bank anticipates increasing the loan portfolio with newly
originated consumer and commercial loans.
On the deposit side, management recently has emphasized noninterest-bearing
or low-interest deposit products and maintained competitive pricing on
longer-term certificates of deposit. The Bank also uses FHLB advances to
lengthen the average maturity of the Bank's funding sources when it is more cost
effective than alternative funding sources.
Management presently monitors and evaluates the potential impact of interest
rate changes upon the market value of the Bank's equity and the level of net
interest income on a quarterly basis, in an attempt to ensure that interest rate
risk is maintained within limits established by the Board of Directors. The
Office of Thrift Supervision ("OTS") adopted a final rule in August 1993
incorporating an interest rate risk component into the risk-based capital rules.
Under the rule, an institution with a greater than "normal" level of interest
rate risk will be subject to a deduction of its interest rate component from
total capital for purposes of calculating the risk-based capital requirement. An
institution with a greater than "normal" interest rate risk is defined as an
institution that would suffer a loss of net portfolio value ("NPV") exceeding
2.0% of the estimated market value of its assets in the event of a 200 basis
point increase or decrease in interest rates. NPV is the difference between
incoming and outgoing discounted cash flows from assets, liabilities, and
off-balance sheet contracts. A resulting change in NPV of more than 2% of the
estimated market value of an institution's assets will require the institution
to deduct from its capital 50% of that excess change when calculating regulatory
capital ratios. The rule provides that the OTS will calculate the interest rate
risk component quarterly for each institution. The effective date of the rule
<PAGE>
has been postponed by the OTS until further notice. The following table presents
the effects of changes in interest rates on the Bank's NPV as of June 30, 1996,
as calculated by the OTS, based on information provided to the OTS by the Bank.
<TABLE>
<CAPTION>
Change in Change in
Interest Rates NPV as % of NPV as % of
in Basis Points Net Portfolio Value Portfolio Value Portfolio Value
(Rate Shock) Amount $ Change %Change of Assets of Assets (1)
------------ ------ -------- ------- --------- -------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
400 $14,738 $(8,046) (35)% 12.1% (6.0)%
300 16,876 (5,907) (26) 13.5 (4.4)
200 18,881 (3,903) (17) 14.8 (2.9)
100 20,584 (2,200) (10) 15.8 (1.6)
Static 22,784 -- -- 17.1 --
(100) 23,677 893 4 17.5 .7
(200) 24,115 1,331 6 17.7 1.0
(300) 24,627 1,843 8 17.9 1.4
(400) 25,384 2,600 11 18.2 1.9
(1) Based on the portfolio value of the Bank's assets assuming no change in
interest rates.
The following table shows the effects of changes in interest rates on the
Bank's NPV as of June 30, 1995, as calculated by the OTS:
Change in Change in
Interest Rates NPV as % of NPV as % of
in Basis Points Net Portfolio Value Portfolio Value Portfolio Value
(Rate Shock) Amount $ Change %Change of Assets of Assets (1)
------------ ------ -------- ------- --------- -------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
400 $12,932 $(8,289) (39)% 10.5% (6.2)%
300 15,541 (5,680) (27) 12.3 (4.2)
200 17,916 (3,306) (16) 13.8 (2.5)
100 19,858 (1,363) (6) 15.0 (1.0)
Static 21,221 -- -- 15.8 --
(100) 22,075 854 4 16.3 .6
(200) 22,596 1,375 6 16.5 1.0
(300) 23,055 1,834 9 16.7 1.4
(400) 23,691 2,470 12 17.0 1.8
(1) Based on the portfolio value of the Bank's assets assuming no change in
interest rates.
</TABLE>
As shown by the above tables, increases in interest rates will result in net
decreases in the Bank's net portfolio value, while decreases in interest rates
will result in smaller net increases in the Bank's net portfolio value. The
tables reflect the Bank's net portfolio value decreasing by 2.9% and 2.5% as of
June 30, 1996 and June 30, 1995, respectively, if interest rates increase by 200
basis points. As a result, the Bank would have been required to make a $600,000
and $308,000 deduction from total capital as of June 30, 1996 and 1995,
respectively, for purposes of calculating the Bank's risk-based capital
requirement if such capital deduction was currently required.
<PAGE>
As with any method of measuring interest rate risk, certain shortcomings are
inherent in the method of analysis presented in the foregoing tables. For
example, although certain assets and liabilities may have similar maturities or
periods to repricing, they may react differently to changes in market interest
rates. The interest rates on certain types of assets and liabilities may
fluctuate in advance of changes in market interest rates, while interest rates
on other types may lag behind changes in market rates.
Changes in Financial Condition
Assets. Total assets decreased by $1.7 million or 1.2% from June 30, 1995 to
June 30, 1996. This decrease is primarily due to the use of funds to repurchase
nine percent of the Company's outstanding common stock during the fiscal year.
The Bank's mortgage banking activities consist of selling newly originated
and purchased loans into the secondary market. Total loans sold amounted to
$45.8 million, $14.4 million and $13.2 million in fiscal 1996, fiscal 1995 and
fiscal 1994, respectively. Loans held for sale amounted to $4.3 million, $2.7
million and $1.3 million at June 30, 1996, 1995 and 1994, respectively. The
amount of loans sold and the amount of loans held for sale increased in fiscal
1996 due to increased wholesale and retail mortgage banking activities. The
majority of loans originated and purchased for resale have been 30-year fixed
rate loans. During fiscal 1996, the Bank transferred $1.8 million of loans from
held for sale to portfolio as a result of a rise in interest rates. A provision
of $22,000 was recorded to adjust loans held for sale to the lower of cost or
market. The Bank expects mortgage banking volume to increase in fiscal 1997.
Mortgage-backed securities and collateralized mortgage obligations decreased
from $18.4 million at June 30, 1995 to $17.3 million at June 30, 1996. The
Bank's mortgage-backed securities and collateralized mortgage obligations were
classified as available for sale as of June 30, 1996. At June 30, 1996, the
unrealized losses on such obligations, net of federal income tax, totalled
$170,000, and are shown as a reduction in shareholders' equity. During fiscal
1996, mortgage-backed securities and collateralized mortgage obligations with a
carrying value and fair value of $14.5 million were transferred from securities
classified as held to maturity to a securities available for sale classification
to provide greater flexibility in managing liquidity and interest rate risk.
Other securities primarily consisting of U.S. agency securities and corporate
bonds decreased from $11.4 million at June 30, 1995 to $7.4 million at June 30,
1996. The decrease is primarily due to the use of proceeds from sold or called
investment securities to fund newly originated consumer and commercial loans
instead of reinvesting the proceeds in other securities. The Bank expects
additional growth in its consumer and commercial loan portfolios during fiscal
1997 which may be funded by the sale of additional securities.
Cash and cash equivalents increased from $4.6 million at June 30, 1995 to
$6.7 million at June 30, 1996. 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. The Bank's regulatory liquidity ratio amounted to 16.94% at June 30,
1996.
The Bank's nonperforming assets totalled $43,000 or .04% of the total loan
portfolio at June 30, 1996. At the end of each of the last five fiscal years,
the Bank had no real estate owned and no troubled debt restructurings. During
fiscal 1996, the Bank sold real estate owned at a net gain of $4,800 and had net
charge-offs totaling $2,138. The Bank's low nonperforming assets are primarily
due to the Bank's conservative underwriting criteria. At June 30, 1996, $89.0
<PAGE>
million or 92.7% of the Bank's total loan portfolio was collateralized by first
liens on one-to four-family residences, and the net loan portfolio (excluding
loans held for sale) amounted to 69.4% of total assets.
Liabilities. Total deposits increased $5.8 million or 6.9% from June 30, 1995
to June 30, 1996. The increase in total deposits was primarily attributable to
growth in certificates of deposit of $4.5 million, or 7.0%, and growth in
non-interest bearing deposits of $1.7 million or 292.3%. Certificates of deposit
accounted for 75% of total deposits both at June 30, 1996 and 1995. At June 30,
1996, $50.7 million or 74.0% of the total certificates of deposit matured in one
year or less, and $11.9 million or 17.4% of the total certificates of deposit
had balances of $100,000 or more. The increase in deposits was achieved through
the opening of the Bank's new main office/branch and increased efforts to
attract non-interest bearing commercial accounts. In addition, the Bank has
attracted and retained certificate of deposit accounts by offering competitive
interest rates.
Because the growth in deposits had not matched the growth in assets in recent
years, the Bank began using FHLB advances. However, during fiscal 1996 the Bank
reduced short-term advances by $1.4 million and long-term advances by $4.5
million with excess liquidity generated from deposit growth. The advances have
generally been used to fund the Bank's mortgage banking activities.
During fiscal 1995, long-term variable-rate FHLB advances of $14.5 million
were utilized to purchase adjustable-rate mortgage-backed securities and
collateralized mortgage obligations. This strategy was implemented to earn a
positive spread during both an increasing and decreasing interest rate
environment and to supplement loan volume.
Shareholders' Equity. Shareholders' equity amounted to $26.8 million or 19.4%
of total assets at June 30, 1996 compared to $28.2 million or 20.2% of total
assets at June 30, 1995. The Company's trend of profitability continued in
fiscal 1996 with the Company earning $1.2 million. During fiscal 1996, the
Company repurchased 207,375 shares, or 9% of its common stock at a cost of $2.0
million and paid cash dividends of $603,000. The repurchased shares are
accretive both to book value per share and earnings per share. Of the 207,375
shares repurchased, 92,575 shares were used to fund the Company's Management
Recognition Plans ("MRPs"). During July 1996, the Board of Directors approved
the repurchase of an additional 218,100 shares or 10% or the Company's
outstanding common stock. The repurchase was approved by the OTS during August,
1996.
The cost of shares issued to the Company's Employee Stock Ownership Plan
(ESOP) but not yet allocated to participants totaling $1.1 million is presented
in the consolidated balance sheet as a reduction of shareholders' equity. The
unamortized unearned compensation value of the Company's MRPs also is shown as a
reduction of shareholders' equity.
In accordance with SFAS No. 115, which the Bank adopted effective June 30,
1994, the Company's investment securities classified as available for sale are
carried at market value, with unrealized gains or losses reported as a separate
component of shareholders' equity, net of federal income taxes. At June 30, 1996
and 1995, net unrealized losses were $207,000 and $27,000, respectively.
Results of Operations
While the Company's net income continues to be primarily dependent upon net
interest income, the Company's net income in recent years has been affected by
gains on the sales of loans in connection with its mortgage banking activities,
<PAGE>
gains (losses) on the sale of securities and a write-down of loans held for
sale. Other than the mortgage banking activities, the Company does not consider
these items to be of a recurring nature or part of the Company's "core"
earnings.
Average Balances, Net Interest Income, and Yields Earned and Rates Paid.
The following table presents for the periods indicated the total dollar
amount of interest from average interest-earning assets and the resultant
yields, as well as the interest expense on average interest-bearing liabilities,
expressed both in dollars and rates, and the net interest margin. Tax-exempt
income and yields have not been adjusted to a tax-equivalent basis. All average
balances are based on month end balances.
<TABLE>
<CAPTION>
Year Ended June 30, Year Ended June 30,
1996 1995
------------------------------------------- -----------------------------------
Average Average
Average Yield/ Average Yield/
Balance Interest Rate (1) Balance Interest Rate (1)
------- -------- -------- ------- -------- --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable(2) $100,350 $7,902 7.87% $ 97,031 $6,882 7.09%
Securities 7,987 509 6.37 6,006 356 5.93
Mortgage-backed securities(3) 18,790 1,231 6.55 4,621 316 6.84
Interest-earning deposits 5,476 326 5.95 3,910 229 5.86
Marketable equity securities -- -- -- -- -- --
FHLB stock 1,475 120 8.14 954 65 6.81
-------- ------ ---- -------- ----- ----
Total interest-earning assets 134,078 10,088 7.52 112,522 7,848 6.97
Noninterest-earning assets 5,410 3,287
-------- --------
Total assets $139,488 $115,809
======== ========
Interest-bearing liabilities:
Deposits $88,173 4,605 5.22 $87,179 4,066 4.66
FHLB advances 22,236 1,325 5.96 10,759 597 5.55
-------- ------ ---- -------- ----- ----
Total interest-bearing liabilities 110,409 5,930 5.37 97,938 4,663 4.76
Noninterest-bearing liabilities 1,504 1,125
-------- --------
Total liabilities 111,913 99,063
Stockholders' equity 27,575 16,746
-------- --------
Total liabilities and $139,488 $115,809
======== ========
stockholders' equity
Net interest income; average interest
rate spread $4,158 2.15% $3,185 .21%
====== ==== ====== ===
Net interest margin(4) 3.10% 2.83%
==== ====
Average interest-earning assets to
average interest-bearing liabilities 121.44% 114.89%
====== ======
<PAGE>
<CAPTION>
Year Ended June 30,
1994
-----------------------------------
Average
Average Yield/
Balance Interest Rate (1)
------- -------- --------
<S> <C> <C> <C>
Interest-earning assets:
Loans receivable(2) $85,414 $5,858 6.86%
Securities 4,036 230 5.70
Mortgage-backed securities(3) 2,632 172 6.53
Interest-earning deposits 3,759 96 2.55
Marketable equity securities 3,419 148 4.53
FHLB stock 780 45 5.77
-------- ------ ----
Total interest-earning assets 100,040 6,549 6.55
Noninterest-earning assets 830
--------
Total assets $100,870
========
Interest-bearing liabilities:
Deposits $86,865 3,589 4.13
FHLB advances 2,583 100 3.87
-------- ------ ----
Total interest-bearing liabilities 89,448 3,689 4.12
Noninterest-bearing liabilities 760
--------
Total liabilities 90,208
Stockholders' equity 10,662
--------
Total liabilities and $100,870
========
stockholders' equity
Net interest income; average interest
rate spread $2,860 2.43%
====== ====
Net interest margin(4) 2.86%
====
Average interest-earning assets to
average interest-bearing liabilities 111.84%
======
(1) At June 30, 1996, the weighted average yields earned and rates paid
were as follows: loans receivable, 7.83%; securities, 6.48%; interest-earning
deposits, 5.62%; mortgage-backed securities, 6.52%; FHLB stock, 7.60%; total
interest-earning assets, 7.49%; deposits, 5.05%; FHLB advances, 5.60%; total
interest-bearing liabilities, 5.15%; and interest rate spread, 2.34%.
(2) Includes nonaccrual loans and loans held for sale during the respective
periods. Calculated net of deferred fees and discounts, loans in process and
allowance for loan losses.
(3) Includes collateralized mortgage obligations.
(4) Net interest margin is net interest income divided by average
interest-earning assets.
</TABLE>
<PAGE>
Rate/Volume Analysis. The following table describes the extent to which
changes in interest rates and changes in volume of interest-related assets and
liabilities have affected the Company's interest income and expense during the
periods indicated. For each category of interest-earning assets and
interest-bearing liabilities, information is provided on changes attributable to
(i) changes in rate (change in rate multiplied by prior year volume), and (ii)
changes in volume (change in volume multiplied by prior year rate). The combined
effect of changes in both rate and volume has been allocated proportionately to
the change due to rate and the change due to volume.
<TABLE>
<CAPTION>
Year Ended Year Ended
June 30, 1996 June 30,1995
vs. vs.
Year Ended Year Ended
June 30, 1995 June 30, 1994
Increase Increase
(Decrease) (Decrease)
Due to Due to
----------------------------- -------------------------------
Total Total
Increase Increase
Rate Volume (Decrease) Rate Volume (Decrease)
---- ------ ---------- ---- ------ ----------
<S> <C> <C> <C> <C> <C> <C>
Interest income:
Loans receivable ....................... $ 778 $ 242 $ 1,020 $ 203 $ 821 $ 1,024
Securities ............................. 28 125 153 10 116 126
Mortgage-backed securities ............. (14) 929 915 9 135 144
Interest-earning deposits .............. 4 93 97 129 4 133
Marketable equity securities ........... -- -- -- (74) (74) (148)
FHLB stock ............................. 13 42 55 9 11 20
------- ------- ------- ------- ------- -------
Total interest income ................. 809 1,431 2,240 286 1,013 1,299
------- ------- ------- ------- ------- -------
Interest expense:
Deposits ............................... 492 47 539 464 13 477
FHLB advances .......................... 47 681 728 60 437 497
------- ------- ------- ------- ------- -------
Total interest expense ................. 539 728 1,267 524 450 974
------- ------- ------- ------- ------- -------
Increase (decrease) in net interest income $ 270 $ 703 $ 973 $ (238) $ 563 $ 325
======= ======= ======= ======= ======= =======
</TABLE>
Comparison of Year Ended June 30, 1996 and Year Ended June 30, 1995
Net Income. The Company's net income increased by $492,000 or 68.7% in fiscal
1996 from fiscal 1995. The increase in fiscal 1996 was primarily due to a
$973,000 increase in net interest income, a $480,000 increase in gain on the
sale of loans and a $358,000 increase in gain on trading securities. These
factors were partially offset by a $1.1 million or 47.5% increase in total other
expenses.
Net Interest Income. The $973,000 or 30.5% increase in net interest income in
fiscal 1996 was primarily due to a $3.3 million or 3.4% increase in the average
loan portfolio and a $14.2 million or 306.6% increase in the average
mortgage-backed securities (including collateralized mortgage obligations)
<PAGE>
portfolio. These amounts were partially offset by a $12.5 million or 12.7%
increase in average interest-bearing liabilities and a decline in the average
interest rate spread from 2.21% in fiscal 1995 to 2.15% in fiscal 1996. The
average spread declined as a result of the increases in interest rates during
the second half of fiscal 1996 which caused deposits to reprice faster than
adjustable-rate assets. The Bank expects a positive impact on its average
interest spread as a result of the anticipated growth of its commercial and
consumer loan portfolios. In addition, it is anticipated that the expanded
commercial relationships will generate growth in noninterest-bearing commercial
deposit accounts.
Interest Income. Total interest income increased by $2.2 million or 28.5% in
fiscal 1996 compared to fiscal 1995. The increase was primarily due to an
increase in the average mortgage-backed securities portfolio (including
collateralized mortgage obligations) of $14.2 million or 306.6% resulting in a
$929,000 or 294.0% increase in interest income (before giving effect to a slight
decrease in the average yield). In addition, the average loan portfolio
increased $3.3 million or 3.4% resulting in a $242,000 or 3.5% increase in
interest on loans (before giving effect to an increase in the average yield).
The increase in the average mortgage-backed securities portfolio was due to the
purchase of adjustable-rate mortgage-backed securities and collateralized
mortgage obligations which were funded by long-term variable-rate FHLB advances.
The increase in the average loan portfolio was primarily due to the total loan
originations exceeding total loans sold and repaid during fiscal 1996. Loan
originations also were supplemented by the purchase of $1.9 million of one- to
four-family residential loans. The interest on loans also increased due to the
average yield increasing from 7.09% in fiscal 1995 to 7.87% in fiscal 1996
resulting in a $778,000 or 11.3% increase in interest on loans (before giving
effect to the increase in the average balance) as adjustable-rate loans repriced
higher to reflect the higher prevailing market interest rates during fiscal 1996
as well as from the growth in the commercial and consumer loan portfolios.
Interest on securities increased by $153,000 or 43.0% in fiscal 1996 over
fiscal 1995 as the average balance increased by $2.0 million due to additional
purchases of securities during the fiscal year with part of the proceeds of the
common stock offering. The higher interest income also was attributable to an
increase in the average yield from 5.93% in fiscal 1995 to 6.37% in fiscal 1996.
Dividends on FHLB stock increased by $55,000 or 84.6% due to an increase in the
average yield from 6.81% in fiscal 1995 to 8.14% in fiscal 1996 as well as an
increase in the average balance of $521,000 or 54.6%. Interest on
interest-earning deposits increased by $97,000 or 42.4% in fiscal 1996 primarily
due to higher average balances from an increase in loan refinances and deposit
growth.
Interest Expense. Total interest expense increased by $1.3 million or 27.2%
in fiscal 1996 compared to fiscal 1995, primarily due to an increase in average
FHLB advances and higher average rates paid on both deposits and FHLB advances.
The average rate paid on deposits increased from 4.66% in fiscal 1995 to 5.22%
in fiscal 1996. The increase in the average rate paid is due to an increase in
the prevailing market interest rates compared to the prior fiscal year.
Interest on FHLB advances increased $728,000 in fiscal 1996 from fiscal 1995,
as the average balance increased $11.5 million and the average rate paid
increased to 5.96% in fiscal 1996 from 5.55% in fiscal 1995. The increases in
FHLB advances have primarily been used to fund increased loan originations for
the Bank's loan portfolio as well as to purchase adjustable-rate mortgage-backed
securities and collateralized mortgage obligations.
Provision for Loan Losses. The provision for loan losses increased by $39,500
<PAGE>
or 192.7% in fiscal 1996 compared to fiscal 1995. The allowance for loan losses
totalled $166,000, which represented .16% of the total loan portfolio at June
30, 1996. However, the allowance for loan losses represented 386.0% of total
nonperforming 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 the second half of fiscal 1996,
management determined that an increase in the amount of the quarterly provision
was necessary to provide general reserves for the growth in the commercial 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. Management expects the provision for loan losses to increase in the
next fiscal year as general reserves continue to be provided with the
anticipated growth in commercial and consumer loans.
Total Other Income. Total other income increased by $932,000 or 345.2% in
fiscal 1996 from fiscal 1995, primarily due to a $480,000 increase in gain on
the sale of loans and a $366,000 gain on trading securities achieved in fiscal
1996. The increase in the gain on the sale of loans is due to an increase in
sold loans from $14.4 million in fiscal 1995 to $45.8 million in fiscal 1996.
The Company expects to continue to expand its mortgage banking activities during
fiscal 1997. Total loans serviced for FHLMC totalled $28.6 million, which
represents an increase of $4.9 million or 20.6% from fiscal 1995 to fiscal 1996.
The Bank sold the majority of its loans held for sale servicing released to
private investors. The Company began trading equity securities in fiscal 1996.
The gain on trading securities is primarily the result of trading equity
securities in various financial institutions. Although to-date, the Company's
equity trading strategy has been successful, there is no guarantee that future
results will equal the current fiscal year's performance. The unrealized loss
recognized on securities classified as trading was $5,813 at June 30, 1996.
Total Other Expenses. Total other expenses increased by $1.1 million or 47.5%
in fiscal 1996 from fiscal 1995, primarily due to increases of $626,000 or 52.1%
in compensation and benefits, $120,000 or 78.9% in professional fees and
$190,000 or 135.7% in occupancy and furniture, fixtures and equipment expenses.
The higher compensation expense was primarily due to hiring individuals to
support the growth in the mortgage banking, consumer and commercial loans
departments as well as hiring individuals to staff the new branch location. In
addition, the Employee Stock Ownership Plan and Management Recognition Plans
expenses were $164,000 and $99,000 for fiscal 1996, respectively, compared to
$37,000 and none for fiscal 1995, respectively. The increase in professional
fees was primarily due to additional consulting, legal and audit fees and the
outsourcing of the internal audit and certain human resources functions. The
increase in occupancy and furniture, fixtures and equipment expense is primarily
due to the opening of the new main office building/branch during fiscal 1996 and
the depreciation expense associated with the renovation of the Bank's branch
location.
In July 1995, the Chairman of the FDIC announced in testimony before the U.S.
Congress related to the condition of the Savings Association Insurance Fund (the
"SAIF") and related issues a proposal to recapitalize the SAIF by a one-time
charge to SAIF-insured institutions of approximately $6.6 billion, or
approximately $.85 to $.90 for every $100 of assessable deposits, and an
eventual merger of the SAIF with the Bank Insurance Fund (the "BIF"). The
Company currently is unable to predict the likelihood of legislation effecting
these changes, although a consensus for the one-time charge to the SAIF among
regulators, legislators and bankers appears to be developing in this regard. If
<PAGE>
the proposed assessment of $.85 to $.90 per $100 of assessable deposits was
effected based on deposits as of March 31, 1995, as proposed, Bank West's
prorata share would amount to approximately $716,000 to $758,000, respectively.
Federal Income Tax Expense. Federal income tax expense increased by $256,000
or 69.9% in fiscal 1996 from fiscal 1995, due to a 69.2% increase in pretax
income.
Comparison of Year Ended June 30, 1995 and Year Ended June 30, 1994
Net Income. The Company's net income increased by $36,000 or 5.3% in fiscal
1995 from fiscal 1994. The increase in fiscal 1995 was primarily due to a
$324,000 increase in net interest income and improved results from the sale of
securities of $123,000 resulting from gains of $19,000 recorded on the sales of
securities in fiscal 1995 compared to a loss on the sale of securities of
$104,000 in fiscal 1994. These factors were partially offset by a $307,000 or
15.4% increase in total other expenses and an $82,000 or 37.4% decrease in the
gain on sale of loans.
Net Interest Income. The $324,000 or 11.3% increase in net interest income in
fiscal 1995 was primarily due to an $11.6 million or 13.6% increase in the
average loan portfolio, which was partially offset by an $8.5 million or 9.5%
increase in average interest-bearing liabilities and a decline in the average
interest rate spread from 2.43% in fiscal 1994 to 2.21% in fiscal 1995. The
average spread declined as a result of the increases in interest rates during
the first three quarters of fiscal 1995, which caused deposits to reprice faster
than adjustable-rate assets.
Interest Income. Total interest income increased by $1.3 million or 19.8% in
fiscal 1995 compared to fiscal 1994. The increase was primarily due to an
increase in the average loan portfolio of $11.6 million resulting in a $1.0
million or 17.5% increase in interest on loans. The increase in the average loan
portfolio was primarily due to the total loan originations exceeding total loans
sold and repaid during fiscal 1995 by $11.6 million, as the Bank portfolioed the
majority of balloon and ARM loans in process. Loan originations also were
supplemented by the purchase of $3.0 million of one- to four-family residential
loans. The increase in interest on loans was also due to the average yield
increasing from 6.86% in fiscal 1994 to 7.09% in fiscal 1995 as adjustable-rate
loans repriced higher to reflect the increase in interest rates during the
second half of fiscal 1995.
Interest on securities increased by $126,000 or 54.8% in fiscal 1995 over
fiscal 1994 as the average balance increased by $2.0 million due to purchases of
$9.7 million in the fourth quarter of fiscal 1995. The higher interest income
also was attributable to an increase in the average yield from 5.70% in fiscal
1994 to 5.93% in fiscal 1995. Dividends on marketable equity securities
decreased by $148,000 in fiscal 1995 as all of such securities were sold in
fiscal 1994.
Interest on mortgage-backed securities increased by $144,000 or 83.7% in
fiscal 1995 over fiscal 1994, as the average balance increased by $2.0 million
due to purchases of $12.8 million of mortgage-backed securities and $2.5 million
of collateralized mortgage obligations during the fourth quarter of fiscal 1995.
The higher interest income also was attributable to an increase in the average
yield from 6.53% in fiscal 1994 to 6.84% in fiscal 1995.
Interest Expense. Total interest expense increased by $974,000 or 26.4% in
fiscal 1995 compared to fiscal 1994, primarily due to an increase in average
FHLB advances and higher average rates paid on both deposits and FHLB advances.
<PAGE>
The average rate paid on deposits increased from 4.13% in fiscal 1994 to 4.66%
in fiscal 1995. The increase in the average rate paid is due to an increase in
the prevailing market interest rates during the first three quarters of the past
fiscal year.
Interest on FHLB advances increased $497,000 in fiscal 1995 from fiscal 1994,
as the average balance increased $8.2 million and the average rate paid
increased to 5.55% in fiscal 1995 from 3.87% in fiscal 1994. The increases in
FHLB advances were primarily used to fund increased loan originations for the
Bank's loan portfolio as well as to purchase adjustable-rate mortgage-backed
securities and collateralized mortgage obligations. In addition, during fiscal
1995, the Bank obtained a $3.0 million line of credit from the FHLB of
Indianapolis to fund its mortgage banking activities, of which $1.4 million had
been drawn upon at June 30, 1995.
Provision for Loan Losses. The provision for loan losses decreased by $4,500
or 18.0% in fiscal 1995 compared to fiscal 1994. The allowance for loan losses
totalled $108,000, which represented .11% of the total loan portfolio at June
30, 1995. However, the allowance for loan losses represented 74.7% of total
nonperforming loans at such date. For the second half of fiscal 1995, management
determined that a reduction in the amount of the quarterly provision from $6,250
to $4,000 was necessary based on a consistently low dollar amount of
nonperforming loans. 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.
Total Other Income. Total other income increased by $44,000 or 19.3% in
fiscal 1995 from fiscal 1994, primarily due to a $123,000 increase in gain on
the sale of securities. The Company recognized a gain of $19,000 in fiscal 1995
compared to a loss of $104,000 in fiscal 1994. This increase was partially
offset by an $82,000 or 37.4% decline in the gain on sale of loans. The lower
gain on sale of loans was due to increased competition for the sale of such
loans and an upward trend in interest rates during the fiscal year.
Total Other Expenses. Total other expenses increased by $307,000 or 15.0% in
fiscal 1995 from fiscal 1994, primarily due to increases of $160,000 or 15.4% in
compensation and benefits, $101,000 or 196.6% in professional fees and $57,000
or 119.3% in advertising expenses. The higher compensation expense was primarily
due to hiring a new Chief Financial Officer, Secondary Marketing Manager, Small
Business Manager, commissioned loan officers and operations personnel to staff
the new branch operation. In addition, the Employee Stock Ownership Plan expense
was $37,000 for fiscal 1995 compared to none for fiscal 1994. The increase in
professional fees was due to consulting expenses attributable to the Bank's
mortgage banking business, costs incurred for a full-scope compliance exam,
increased marketing and advertising, audit and legal expenses. The increase in
marketing and advertising expenses is due to the Company's grand opening of its
new main office building during fiscal 1995 as well as additional promotions of
loan and deposit products. The Company incurred marketing and advertising
expenses to aggressively increase its market share.
Federal Income Tax Expense. Federal income tax expense increased by $30,000
or 8.9% in fiscal 1995 from fiscal 1994, due to a 6.4% increase in pretax income
and a slight increase in the effective tax rate to 33.9% in fiscal 1995 from
33.1% in fiscal 1994.
<PAGE>
Liquidity and Capital Resources
The Bank 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 June 30, 1996, the Bank's
liquidity was 16.9% or $11.4 million in excess of the minimum OTS requirement.
Cash was utilized by the Bank's operating activities during fiscal 1996 and
1995, primarily as a result of the amount of new loans originated and purchased
for sale exceeding the proceeds from the sale of loans held for sale. These
amounts were partially offset by net income in each period. Cash was generated
by the Bank's operating activities during fiscal 1994 primarily as a result of
net income and the proceeds from the sale of loans held for sale exceeding the
amount of new loans originated for sale.
The primary investing activities of the Company are the origination of loans
and the purchase of mortgage-backed securities, and other securities which are
primarily funded with the proceeds from repayments and prepayments on existing
loans and mortgage-backed securities and the maturity or sale of mortgage-backed
and other securities. Investing activities provided net cash in fiscal 1996
primarily because loan repayments exceeded loan originations, the maturity of
interest-bearing time deposits and principal payments on mortgage-backed
securities. Investing activities used net cash in fiscal 1995 and fiscal 1994
primarily because loan originations exceeded loan repayments in each period. In
addition, in fiscal 1995, the amount of mortgage-backed and other securities
purchased exceeded the amount sold by $22.7 million. These purchases were
primarily funded by a combination of proceeds from the initial public offering
and long-term variable-rate FHLB advances. Also in fiscal 1995, property and
equipment expenditures totaled $2.7 million as a result of the construction of
the new corporate headquarters and the remodeling of its branch facility.
The primary financing activity consists of deposits, which increased in
fiscal 1996 and fiscal 1994 and decreased in fiscal 1995. The decrease in fiscal
1995 was primarily due to depositors utilizing their deposits at the Bank to
purchase common stock of the Company in the initial public offering. Financing
activities also include FHLB advances, which decreased in fiscal 1996 as deposit
growth reduced the need for higher costing wholesale funds. FHLB advances
increased in fiscal 1995 and 1994 in order to fund increased loan originations
and purchase adjustable-rate mortgage-backed securities and collateralized
mortgage obligations. Total cash and cash equivalents increased by $2.1 million
and $1.5 million in fiscal 1996 and 1994, respectively, and decreased by
$328,000 in fiscal 1995. Total cash and cash equivalents amounted to $6.7
million at June 30, 1996.
At June 30, 1996, the Company had outstanding commitments to originate or
purchase $6.7 million of loans. In addition, the Company had unused lines of
credit totaling $4.0 million. At the same date, the total amount of certificates
of deposit which were scheduled to mature in the following 12 months was $50.7
million. The Company believes that it has adequate resources to fund all of its
commitments and that it can adjust the rate on certificates of deposit to retain
deposits to the extent desired. If the Company requires funds beyond its
internal funding capabilities, advances from the FHLB of Indianapolis are
available as an additional source of funds.
The Bank is required to maintain regulatory capital sufficient to meet
<PAGE>
tangible, core and risk-based capital ratios of 1.5%, 3.0% and 8.0%,
respectively. At June 30, 1996, the Bank exceeded each of its capital
requirements, with tangible, core and risk-based capital ratios of 15.4%, 15.4%
and 31.4%, respectively (see Note 13 to the Consolidated Financial Statements).
Impact of Inflation and Changing Prices
The consolidated financial statements and related financial data presented
herein have been prepared in accordance with generally accepted accounting
principles, which generally require the measurement of financial position and
operating results in terms of historical dollars, without considering changes in
relative purchasing power over time due to inflation. Unlike most industrial
companies, virtually all of the Company's assets and liabilities are monetary in
nature. As a result, interest rates generally have a more significant impact on
the Company's performance than does the effect of inflation. Interest rates do
not necessarily move in the same direction or in the same magnitude as the
prices of goods and services, since such prices are affected by inflation to a
larger extent than interest rates.
Recent Accounting and Regulatory 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, was not
material to the Company's 1996 consolidated financial condition or results of
operations.
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of,"
will require the Company to periodically consider whether an impairment loss
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 and results of operations.
In May 1995, the FASB issued SFAS No. 122, "Accounting for Mortgage Servicing
Rights," which is effective for fiscal years beginning after December 15, 1995.
SFAS No. 122 amends certain provisions of SFAS No. 65 to allow the separate
capitalization of rights to service mortgage loans that are acquired through
loan origination activities. The total cost of the mortgage loans originated is
allocated to the mortgage servicing rights and the loans (without the mortgage
servicing rights) based on their relative fair values. The Company elected to
adopt this accounting standard as of July 1, 1995. The impact of SFAS No. 122 on
the Company's consolidated financial position and results of operations for
fiscal 1996 was an increase of $96,000 to other assets and gain on the sale of
loans.
Statement of Financial Accounting Standards No. 123, "Accounting for Stock
Based Compensation" establishes a fair value based method of accounting for
employee stock options and similar equity instruments which the FASB encourages
companies to adopt 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
<PAGE>
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.
The FDIC is authorized to adjust the insurance rates for banks that are
insured by the BIF as well as for SAIF members. On November 14, 1995, the FDIC
approved a final rule regarding deposit insurance premiums. The final rule
reduced deposit insurance premiums for BIF member institutions to zero basis
points (subject to a $2,000 minimum) for institutions in the lowest risk
category, while holding deposit insurance premiums for SAIF members at their
current levels (23 basis points for institutions in the lowest risk category).
The reduction was effective with respect to the semiannual premium assessment
beginning January 1, 1996. Accordingly, in the absence of further legislative
action, SAIF members such as Bank West will be competitively disadvantaged as
compared to commercial banks by the resulting premium differential.
<PAGE>
Report of Independent Auditors
Shareholders and Board of Directors
Bank West Financial Corporation
Grand Rapids, Michigan
We have audited the accompanying consolidated balance sheets of Bank West
Financial Corporation (the "Company") as of June 30, 1996 and 1995 and the
related consolidated statements of income, shareholders' equity and cash flows
for each of the three years in the period ended June 30, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Bank West
Financial Corporation as of June 30, 1996 and 1995, and the results of its
operations and its cash flows for each of the three years in the period ended
June 30, 1996 in conformity with generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, the Company
changed its methods of accounting for impaired loans and originated mortgage
servicing rights in 1996 and for securities in 1994 to conform to new accounting
guidance.
Crowe, Chizek and Company LLP
Grand Rapids, Michigan
August 9, 1996
<PAGE>
<TABLE>
<CAPTION>
Consolidated Balance Sheets
June 30, 1996 and 1995
1996 1995
---- ----
<S> <C> <C>
ASSETS
Cash and due from financial institutions ........................ $ 1,571,662 $ 417,397
Interest-bearing deposits in financial institutions ............. 5,122,427 4,177,834
------------- -------------
Total cash and cash equivalents ............................. 6,694,089 4,595,231
Interest-bearing time deposits .................................. 298,000 1,287,000
Trading securities .............................................. 708,438 --
Securities available for sale (Note 3) .......................... 22,779,280 9,815,401
Securities held to maturity (market value:
1996 - $2,006,000; 1995 - $19,886,289) (Note 3) ............. 2,004,288 19,945,791
Loans held for sale (Note 4) .................................... 4,297,092 2,746,019
Loans, net (Note 5) ............................................. 95,737,191 95,836,247
Federal Home Loan Bank stock .................................... 1,475,000 1,475,000
Premises and equipment - net (Note 6) ........................... 3,106,972 3,087,171
Accrued interest receivable ..................................... 632,043 726,573
Mortgage servicing rights (Note 4) .............................. 142,697 68,196
Other assets .................................................... 107,216 71,814
------------- -------------
$ 137,982,306 $ 139,654,443
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Deposits (Note 7) ............................................... $ 91,028,072 $ 85,180,250
Short-term FHLB borrowings (Note 8) ............................. 6,000,000 7,422,256
Long-term FHLB borrowings (Note 8) .............................. 13,000,000 17,500,000
Accrued interest payable ........................................ 156,946 181,737
Advanced payments by borrowers for taxes and insurance .......... 459,391 629,303
Deferred federal income tax (Note 9) ............................ 225,760 192,290
Other liabilities ............................................... 301,691 377,513
------------- -------------
Total liabilities ........................................... 111,171,860 111,483,349
Commitments and Contingencies (Note 10)
Shareholders' equity (Notes 9, 12 and 13)
Preferred stock, 5,000,000 shares authorized, none issued
Common stock, $.01 par value; 10,000,000 shares authorized;
2,199,575 and 2,314,375 issued at June 30, 1996 and 1995 (Note 2) 21,996 23,144
Additional paid-in capital ...................................... 16,542,107 17,812,757
Retained earnings, substantially restricted (Notes 9 and 13) .... 12,231,242 11,626,136
Net unrealized loss on securities available for sale,
net of tax of $106,834 in 1996 and $14,062 in 1995 .............. (207,387) (27,295)
Management Recognition Plan (unearned shares) (Note 12) ......... (643,464) --
Employee Stock Ownership Plan (unallocated shares) (Note 12) .... (1,134,048) (1,263,648
------------- -------------
26,810,446 28,171,094
------------- -------------
$ 137,982,306 $ 139,654,443
============= =============
See accompanying notes to consolidated financial statements.
<PAGE>
<CAPTION>
Consolidated Statements of Income
Years ended June 30, 1996, 1995 and 1994
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Interest and dividend income
Loans .......................................... $ 7,901,948 $ 6,882,198 $ 5,857,639
Securities ..................................... 509,137 356,140 231,144
Mortgage-backed securities and CMO's ........... 1,230,655 315,588 171,887
Other interest-earning deposits ................ 325,796 229,097 95,591
Marketable equity securities ................... -- -- 147,727
Dividends on Federal Home Loan Bank stock ...... 120,467 65,156 45,340
---------- ----------- -----------
10,088,003 7,848,179 6,549,328
Interest expense
Deposits (Note 7) .............................. 4,605,347 4,065,586 3,588,696
Short-term FHLB advances (Note 8) .............. 419,757 475,088 100,066
Long-term FHLB borrowings (Note 8) ............. 904,975 122,490 --
---------- ----------- -----------
5,930,079 4,663,164 3,688,762
---------- ----------- -----------
Net interest income ............................... 4,157,924 3,185,015 2,860,566
Provision for loan losses (Note 5) ................ 60,000 20,500 25,000
---------- ----------- -----------
Net interest income after provision for loan losses 4,097,924 3,164,515 2,835,566
Other income
Gain on sale of loans (Note 4) ................. 617,286 136,747 218,539
Fees and service charges ....................... 175,199 104,580 106,827
Gain on trading securities ..................... 366,465 -- --
Gain (loss) on securities available
for sale (Note 3) ............................ 10,529 18,999 (104,014)
Miscellaneous income ........................... 32,533 9,849 5,071
---------- ----------- -----------
1,202,012 270,175 226,423
Other expenses
Compensation and benefits (Notes 11 and 12) .... 1,827,177 1,200,931 1,040,762
Federal deposit insurance expense .............. 196,397 205,209 190,225
Professional fees .............................. 272,163 152,098 51,288
Data processing expense ........................ 172,596 113,157 104,649
Occupancy expense .............................. 206,058 76,878 62,356
Furniture, fixtures and equipment expense ...... 124,366 63,317 93,516
Advertising .................................... 87,770 104,497 47,659
Provision to adjust loans held for sale
to lower of cost or market .................... 22,039 -- 107,043
State taxes .................................... 56,103 27,433 64,318
Miscellaneous expense .......................... 504,379 408,680 283,195
---------- ----------- -----------
3,469,048 2,352,200 2,045,011
---------- ----------- -----------
See accompanying notes to consolidated financial statements.
<PAGE>
<CAPTION>
Consolidated Statements of Income
Years ended June 30, 1996, 1995 and 1994
(continued)
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Income before federal income tax expense .......... 1,830,888 1,082,490 1,016,978
Federal income tax expense (Note 9) ............... 622,400 366,478 336,869
Net income ........................................ $ 1,208,488 $ 716,012 $ 680,109
=========== =========== ===========
Earnings per common and common equivalent
share subsequent to conversion (Note 1) ......... $ .57 $ .10 N/A
=========== =========== ===========
Dividends per common share ........................ $ .28 N/A N/A
=========== =========== ===========
See accompanying notes to consolidated financial statements.
<PAGE>
<CAPTION>
Consolidated Statements of
Changes in Shareholders' Equity
Years ended June 30, 1996, 1995 and 1994
Unrealized
Gain (Loss)
Additional on Securities Unearned
Common Paid-In Retained Available for MRP
Stock Capital Earnings Sale (net of tax) Shares
<S> <C> <C> <C> <C> <C>
Balance at July 1, 1993 $10,230,015
Net income for the year ended June 30, 1994 680,109
Cumulative effect of adopting SFAS No. 115
as of June 30, 1994, net of tax of $34,272 $ (66,529)
----------- ---------
Balance at June 30, 1994 10,910,124 (66,529)
Net income for the year ended June 30, 1995 716,012
Sale of 2,314,375 shares of common stock,
net of conversion costs (Note 2, 12 and 14) $23,144 $17,807,694
Shares released under Employee Stock Ownership
Plan (Note 12)
Change in unrealized loss on securities available 5,063
for sale, net of tax of $20,210 39,234
------- ----------- ---------- --------
Balance at June 30, 1995 23,144 17,812,757 11,626,136 (27,295)
Net income for the year ended June 30, 1996 1,208,488
Issuance of 92,575 shares of common stock for
Management Recognition Plans (MRPs) (Note 12) 926 741,658 $(742,584)
Shares earned under MRPs 99,120
Cash dividends of $.28 per share (603,382)
Repurchase of 207,375 shares of stock,
at cost (Note 14) (2,074) (2,046,987)
Shares committed to be released under Employee
Stock Ownership Plan (Note 12) 34,679
Change in net unrealized loss on securities
available for sale, net of tax of $92,775 (180,092)
------- ----------- ---------- -------- ---------
Balance at June 30, 1996 $21,996 $16,542,107 $12,231,242 $(207,387) $(643,464)
======= =========== =========== ========= =========
See accompanying notes to consolidated financial statements.
<PAGE>
<CAPTION>
Unallocated Total
ESOP Shareholders'
Shares Equity
------ ------
<S> <C> <C>
Balance at July 1, 1993 $10,230,015
Net income for the year ended June 30, 1994 680,109
Cumulative effect of adopting SFAS No. 115
as of June 30, 1994, net of tax of $34,272 (66,529)
-----------
Balance at June 30, 1994 10,843,595
Net income for the year ended June 30, 1995 716,012
Sale of 2,314,375 shares of common stock,
net of conversion costs (Note 2, 12 and 14) $(1,296,048) 16,534,790
Shares released under Employee Stock Ownership
Plan (Note 12) 32,400 37,463
Change in unrealized loss on securities available
for sale, net of tax of $20,210 39,234
----------- -----------
Balance at June 30, 1995 (1,263,648) 28,171,094
Net income for the year ended June 30, 1996 1,208,488
Issuance of 92,575 shares of common stock for
Management Recognition Plans (MRPs) (Note 12)
Shares earned under MRPs 99,120
Cash dividends of $.28 per share (603,382)
Repurchase of 207,375 shares of stock,
at cost (Note 14) (2,049,061)
Shares committed to be released under Employee
Stock Ownership Plan (Note 12) 129,600 164,279
Change in net unrealized loss on securities
available for sale, net of tax of $92,775 (180,092)
----------- -----------
Balance at June 30, 1996 $(1,134,048) $26,810,446
=== ==== =========== ===========
<PAGE>
<CAPTION>
Consolidated Statements of Cash Flows
Years ended June 30, 1996, 1995 and 1994
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities
Net income .................................... $ 1,208,488 $ 716,012 $ 680,109
Adjustments to reconcile net income to
net cash from operating activities
Purchase of trading securities ................ (2,224,537) -- --
Proceeds from sale of trading securities ...... 1,882,564 -- --
Origination and purchase of mortgage
loans for sale .............................. (48,488,782) (16,997,866) (11,141,446)
Proceeds from sale of mortgage loans .......... 45,798,332 14,382,754 13,221,311
Net (gain) loss on sales of:
Loans .................................... (617,286) (136,747) (218,539)
Securities ............................... (376,994) (18,999) --
Marketable equity securities ............. -- -- 104,014
Real estate owned ........................ (4,806) --
Depreciation .................................. 179,742 62,718 70,440
Amortization (accretion) of premium
(discounts), net ............................ 103,072 17,154 (2,355)
ESOP expense .................................. 164,279 37,463 --
MRP expense ................................... 99,120 -- --
Loss on disposal of fixed assets .............. 2,662 -- --
Provision for loan losses ..................... 60,000 20,500 25,000
Provision to adjust loans held for sale
to lower of cost or market .................. 22,039 -- 107,043
Change in:
Deferred loan fees .......................... (47,292) (64,652) 30,896
Other assets ................................ (15,373) (532,741) (22,483)
Other liabilities ........................... (144,282) 563,259 412,722
------------ ------------ ------------
Net cash from operating activities ..... (2,399,054) (1,951,145) 3,266,712
<PAGE>
<CAPTION>
Consolidated Statements of Cash Flows
Years ended June 30, 1996, 1995 and 1994
(continued)
1996 1995 1994
---- ---- ----
Cash flows from investing activities
Purchase of marketable equity securities ...... -- -- (3,122,845)
Purchase of FHLB stock ........................ -- (635,200) (80,000)
(Increase) decrease in interest-bearing
time deposits ............................... 989,000 (1,287,000) --
Loan originations, net of repayments .......... 3,696,997 (248,962) (12,621,184)
Loans purchased for portfolio ................. (1,921,400) (3,016,261) (63,450)
Purchase of securities available for sale ..... (21,217,480) (9,728,635) (1,963,448)
Proceeds from sale of securities
available for sale .......................... 14,077,014 1,671,263 --
Purchase of securities held to maturity ....... -- (14,610,995) --
Proceeds from sale of marketable equity
securities .................................. -- -- 6,689,034
Proceeds from maturities or calls of securities
available for sale .......................... 7,282,760 -- --
Proceeds from maturities or calls of securities
held to maturity ............................ 1,500,000 -- --
Principal payments on mortgage-backed
securities .................................. 2,817,407 277,415 796,223
Principal payments on collateralized
mortgage obligations ........................ 152,515 160,528 --
Property and equipment expenditures ........... (202,205) (2,721,038) (199,450)
Proceeds from sale of real estate owned ....... 50,181
Proceeds from sale of real estate ............. -- 84,510 --
------------ ------------ ------------
Net cash from investing activities ....... 7,224,789 (30,054,375) (10,565,120)
See accompanying notes to consolidated financial statements.
<PAGE>
<CAPTION>
Consolidated Statements of Cash Flows
Years ended June 30, 1996, 1995 and 1994
(continued)
1996 1995 1994
---- ---- ----
Cash flows from financing activities
Repayment and maturities of FHLB borrowings ... (11,922,256) -- --
Proceeds from FHLB borrowings ................. 6,000,000 $ 19,922,256 $ 3,000,000
Increase (decrease) in deposits ............... 5,847,822 (4,779,731) 5,833,451
Repurchase of common stock .................... (2,049,061) -- --
Dividends paid on common stock ................ (603,382) -- --
Issuance of common stock ...................... -- 16,534,790 --
------------ ------------ ------------
Net cash from financing activities ....... (2,726,877) 31,677,315 8,833,451
------------ ------------ ------------
Net change in cash and cash equivalents .......... 2,098,858 (328,205) 1,535,043
Cash and cash equivalents at beginning of period . 4,595,231 4,923,436 3,388,393
------------ ------------ ------------
Cash and cash equivalents at end of period ....... $ 6,694,089 $ 4,595,231 $ 4,923,436
============ ============ ============
Supplemental disclosures of cash flow information:
Cash paid during the period for
Interest ...................................... $ 5,954,870 $ 4,595,797 $ 3,619,935
Income taxes .................................. 520,000 322,500 355,000
Supplemental disclosure of noncash investing
activities:
Transfer of loans from held for sale
to held to maturity ......................... 1,756,663 1,287,879 --
Transfer from loans to real estate owned ...... 45,375 -- --
Upon the adoption of SFAS No. 115 at June 30, 1994, the Company transferred
$1,940,580 from investment securities to securities available for sale and
transferred $5,629,700 from investment securities to securities held to
maturity.
During November of 1995, securities with a carrying value of $15,008,666 and
a fair value of $14,964,245 were transferred from securities held to maturity to
securities available for sale (Note 3).
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
Notes to Consolidated Financial Statements
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations: Bank West Financial Corporation (the "Company") was
organized as a thrift holding company to be the sole shareholder of Bank West,
FSB (the "Bank"), a federally chartered savings bank. The consolidated financial
statements include the accounts of the Company and the Bank. All significant
intercompany transactions and balances have been eliminated in consolidation.
The Bank's primary services include accepting deposits and making mortgage and
installment loans in Kent County and Eastern Ottawa County, Michigan. The Bank
also engages in mortgage banking activities consisting of selling originated and
purchased loans into the secondary market. The Bank has formed a wholly-owned
service company for the future purpose of involvement with insurance activities
permitted by federal and state regulations. At June 30, 1996, the service
company was inactive and had no assets or liabilities. During fiscal 1996, the
Company began trading equity securities to a limited extent.
Use of Estimates in the Preparation of Financial Statements: The preparation of
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, disclosure of contingent assets and
liabilities at the date of the financial statements, and the reported amount of
revenues and expenses during the reporting period. Actual results could differ
from those estimates. The primary estimates incorporated into the Company's
consolidated financial statements which are susceptible to change in the near
term include the allowance for loan losses, the determination and carrying value
of securities available for sale, trading securities, loans held for sale and
impaired loans, and the determination of other-than-temporary reductions in the
fair value of securities.
Concentrations of Credit Risk: The Bank grants mortgage loans to customers
primarily in Kent County, Michigan. No significant number of the Bank's
customers are employed at any one specific entity or in any one specific
industry. The Bank grants primarily one-to four-family residential real estate
loans. Substantially all loans are secured by specific items of collateral,
primarily single family residences.
Cash Equivalents: For purposes of the consolidated statements of cash flows, the
Bank considers all highly liquid debt instruments with original maturities when
purchased of three months or less to be cash equivalents. The Bank reports net
cash flows for customer loan transactions, deposit transactions, and deposits
made with other financial institutions.
Trading Securities: Securities that are bought and held principally for resale
in the near term (thus held for only a short period of time) are classified as
trading securities and recorded at their fair values. Realized and unrealized
gains and losses on trading securities are included immediately in other income.
Securities Available for Sale or Held to Maturity: Prior to June 30, 1994,
investment and mortgage-backed securities held for investment were carried at
amortized cost. Management had the intent and the Bank had the ability to hold
these securities until maturity. Securities held for sale were carried at the
lower of cost or market. Effective June 30, 1994, the Bank adopted Statement of
Financial Accounting Standards No. 115, Accounting for Certain Investments in
Debt and Equity Securities (SFAS No. 115). This Statement requires that the Bank
have positive intent and ability to hold to maturity those securities classified
as held to maturity. Any securities not classified as held to maturity or
trading, as discussed above, are classified as available for sale. As required
<PAGE>
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
by SFAS No. 115, securities classified as available for sale are reported at
their fair value and the related unrealized holding gain or loss is reported,
net of related income tax effects, as a separate component of shareholders'
equity, until realized. Gains and losses on the sale of securities available for
sale are determined using the specific identification method.
Securities held to maturity are carried at amortized cost. Upon adoption of SFAS
No. 115, management classified all of its collateralized mortgage obligations as
available for sale. The effect of adopting SFAS No. 115 on June 30, 1994 was a
decrease in retained earnings of $66,529, net of the income tax effect.
Premiums and discounts on investment and mortgage-backed securities are
recognized in interest income using the level yield method over the period to
maturity.
Loans Held for Sale: Mortgage loans originated for sale in the secondary market
are carried at the lower of cost or estimated market value on an individual loan
basis. Net unrealized losses are recognized in a valuation allowance by charges
to income. Gains on the sales of loans are recognized when proceeds from the
loan sales are received by the Bank.
Loans: Loans are stated at unpaid principal balances, less the allowance for
loan losses and net deferred loan origination fees. Interest income on loans is
accrued over the term of the loans based upon the principal outstanding except
where loans are 90 days or more past due, in which case the accrual of interest
is discontinued. Under SFAS No. 114 as amended by SFAS No. 118, the carrying
values of impaired loans are periodically adjusted to reflect cash payments,
revised estimates of future cash flows and increases in the present value of
expected cash flows due to the passage of time. Cash payments representing
interest income are reported as such. Other cash payments are reported as
reductions in carrying value, while increases or decreases due to changes in
estimates of future payments and due to the passage of time are reported as
adjustments to the provision for loan losses.
Loan fees, net of certain direct loan origination costs, are deferred. The net
amount deferred is reported in the consolidated balance sheet as part of loans
and is recognized as interest income over the term of the loan using the level
yield method.
Allowance for Loan Losses: Because some loans may not be repaid in full, an
allowance for loan losses is recorded. Increases to the allowance are recorded
by a provision for possible loan losses charged to expense. Estimating the risk
of loss and the amount of loss on any loan is necessarily subjective.
Accordingly, the 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 including their financial position and collateral values and
other factors and estimates which are subject to change over time. While
management may periodically allocate portions of the allowance for specific
problem loan situations, the whole allowance is available for any loan
charge-offs that occur. A loan is charged-off against the allowance by
management when deemed uncollectible, although collection efforts continue and
future recoveries may occur.
In May 1993, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards No. 114, Accounting by Creditors for Impairment
of a Loan (SFAS No. 114) as amended by SFAS No. 118. SFAS No. 114, effective for
<PAGE>
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
the Bank beginning July 1, 1995, requires that impaired loans, as defined, be
measured based on the present value of expected cash flows discounted at the
loan's effective interest rate or, as a practical expedient, at the loan's
observable market price or the fair value of collateral if the loan is
collateral dependent. The impact of the adoption of SFAS No. 114 and SFAS No.
118 on the Bank's consolidated financial position and results of operations was
not material.
Mortgage Loan Servicing Rights: The Company purchases and originates mortgage
loans for sale to the secondary market, and sells the loans with servicing
retained and released. Effective July 1, 1995, the Company adopted Statement of
Financial Accounting Standards No. 122, Accounting for Mortgage Servicing Rights
(SFAS No. 122). The Statement requires capitalizing the rights to service
originated mortgage loans. Prior to adoption of SFAS No. 122, only purchased
mortgage servicing rights were capitalized. Beginning in 1995, the total cost of
mortgage loans purchased or originated with the intent to sell is allocated
between the loan servicing right and the mortgage loan without servicing, based
on their relative fair values. The capitalized cost of loan servicing rights is
amortized in proportion to, and over the period of, estimated net future
servicing revenue.
Mortgage servicing rights are periodically evaluated for impairment by
stratifying them based on predominant risk characteristics of the underlying
serviced loans, such as loan type, term, and note rate. Impairment represents
the excess of cost of an individual mortgage servicing rights stratum over its
fair value, and is recognized through a valuation allowance.
Fair values for individual stratum are based on quoted market prices. Estimates
of fair value include assumptions about prepayment, default and interest rates,
and other factors which are subject to change over time. Changes in these
underlying assumptions could cause the fair value of loan servicing rights, and
the related valuation allowance, to change significantly in the future.
Premises and Equipment: The Company's premises and equipment are stated at cost
less accumulated depreciation. Premises and related components are depreciated
using the straight-line method with useful lives ranging from 31 to 50 years.
Furniture and equipment are depreciated using the straight-line method with
useful lives ranging from five to ten years. Maintenance and repairs are charged
to expense and improvements are capitalized. The cost and accumulated
depreciation applicable to assets retired, or otherwise disposed of, are
eliminated from the accounts and the gain or loss on disposition is credited or
charged to operations.
Real Estate Owned: Real estate owned is carried at the lower of cost (fair value
at date of foreclosure) or fair value minus estimated costs to sell. Adjustments
to fair value at the date of acquisition are charged to the allowance for loan
losses. Allowances are established for subsequent losses, if any, with
corresponding charges to operations.
Income Taxes: The Company records income tax expense based on the amount of
taxes due on its tax return plus deferred taxes computed based on the expected
future tax consequences of temporary differences between the carrying amounts
and tax bases of assets and liabilities, using enacted tax rates.
Employee Stock Ownership Plan: The Company accounts for its employee stock
ownership plan (ESOP) in accordance with AICPA Statement of Position 93-6. The
<PAGE>
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
cost of shares issued to the ESOP but not yet allocated to participants is
presented in the consolidated balance sheet as a reduction of shareholders'
equity. Compensation expense is recorded based on the market price of the shares
as they are committed to be released for allocation to participant accounts. The
difference between the market price and the cost of shares committed to be
released is recorded as an adjustment to paid in capital. Dividends on allocated
ESOP shares are recorded as a reduction of retained earnings; dividends on
unallocated ESOP shares are reflected as a reduction of debt and accrued
interest.
Management Recognition Plan: MRP awards vest in five equal annual installments
from the date of grant, subject to the continuous employment of the recipients
as defined under such plans. Compensation expense for the MRPs is recognized on
a prorata basis over the vesting period of the awards. The unamortized unearned
compensation value of the MRPs is shown as a reduction of shareholders' equity
in the accompanying consolidated balance sheets.
Preferred Stock: The Company is authorized to issue 5,000,000 shares of
preferred stock. Such stock may be issued with such preferences and designations
as the Board of Directors may determine. The Board of Directors can, without
stockholder approval, issue preferred stock with voting, dividend, liquidation
and conversion rights which could dilute the voting strength of the holders of
the Common Stock and may assist management in impeding an unfriendly takeover or
attempted change in control.
Earnings Per Share: Earnings per share is based on the weighted average number
of outstanding common shares and common stock equivalents. 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 year ended June 30, 1996. The
weighted average number of shares outstanding for the year ended June 30, 1996
was 2,104,921. The weighted average number of shares outstanding for the 1995
period subsequent to conversion was 2,154,394.
Issued But Not Yet Adopted Accounting Standards: The Financial Accounting
Standards Board has issued Statement of Financial Accounting Standard 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 all of their employee stock compensation
plans. However, the Statement 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. The
accounting requirements of the Statement are required for transactions entered
into in fiscal years that begin after December 15, 1995, although early adoption
is permitted. Companies which elect to continue measuring compensation costs
under current guidance must present pro-forma disclosures for awards granted in
the first fiscal year beginning after December 15, 1994; however, that
disclosure need not be made until financial statements for that fiscal year are
presented for comparative purposes with financial statements for a later fiscal
year. Management has concluded that the Company will not adopt the fair value
accounting provisions of SFAS No. 123 but will continue to apply its current
method of accounting. Accordingly, adoption of the SFAS No. 123 will have no
impact on the Company's financial position or results of operations. The
<PAGE>
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
disclosure provisions will be adopted as required.
Reclassifications: Certain prior year amounts have been reclassified to conform
to the current year presentation.
NOTE 2 - CONVERSION TO STOCK FORM OF OWNERSHIP
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 the
Company as the Bank's holding company. The conversion was consummated on March
30, 1995 by amending the Bank's federal charter and the sale of the holding
company's common stock in an amount equal to the proforma market value of the
Bank after giving effect to the conversion. A subscription offering of the
shares of the Company's common stock was offered initially to the Bank's
depositors, to tax-qualified employee plans and then to other members and
directors, officers and employees of the Bank. Proceeds of $16,533,717 were
received from the sale of 2,314,375 common shares, after deduction of conversion
costs of $694,235 and the issuance of 162,006 shares for the ESOP in exchange
for a note receivable from the ESOP. Upon closing of the stock offering, the
Company purchased 100% of the common shares of the Bank. Bank West, F.S.B. is
now a wholly-owned subsidiary of the Company. The conversion was an internal
reorganization with historical balances carried forward without adjustment.
<PAGE>
NOTE 3 - SECURITIES
Debt and equity securities have been classified in the Consolidated Balance
Sheets according to management's intent. The amortized cost and estimated market
values of securities at June 30, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
Available for Sale
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
1996
U.S. agencies ..................... $ 4,997,678 $ 7,500 $ 60,110 $ 4,945,068
Corporate bonds ................... 496,870 -- 4,271 492,599
----------- ----------- ----------- -----------
5,494,548 7,500 64,381 5,437,667
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
=========== =========== =========== ===========
1995
U.S. agencies ..................... $ 5,501,973 $ 17,161 $ 383 $ 5,518,751
Corporate bonds ................... 1,876,452 -- 7,038 1,869,414
----------- ----------- ----------- -----------
7,378,425 17,161 7,421 7,388,165
Collateralized mortgage obligations 2,478,333 -- 51,097 2,427,236
----------- ----------- ----------- -----------
$ 9,856,758 $ 17,161 $ 58,518 $ 9,815,401
=========== =========== =========== ===========
Held to Maturity
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
----------- ----------- ----------- -----------
1996
U.S. agencies ..................... $ 2,004,288 $ 3,998 $ 2,286 $ 2,006,000
=========== =========== =========== ===========
1995
U.S. agencies ..................... $ 3,017,824 $ 2,440 $ 14,639 $ 3,005,625
Municipal bonds ................... 999,571 3,829 -- 1,003,400
----------- ----------- ----------- -----------
4,017,395 6,269 14,639 4,009,025
Mortgage-backed securities ........ 14,100,219 6,391 53,764 14,052,846
Collateralized mortgage obligations 1,828,177 -- 3,759 1,824,418
----------- ----------- ----------- -----------
$19,945,791 $ 12,660 $ 72,162 $19,886,289
=========== =========== =========== ===========
</TABLE>
<PAGE>
NOTE 3 - SECURITIES (Continued)
The scheduled maturities of securities available for sale and securities held to
maturity at June 30, 1996 are shown below. Expected maturities may differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
Available for Sale Held to Maturity
Amortized Fair Amortized Fair
Cost Value Cost Value
---- ----- ---- -----
<S> <C> <C> <C> <C>
Due within one year ......... -- -- $ 1,002,002 $ 1,006,000
Due after one year through
five years ................ $ 4,494,548 $ 4,435,167 1,002,286 1,000,000
Due after five years through
ten years ................. 1,000,000 1,002,500 -- --
Mortgage-backed securities
and collateralized mortgage
obligations ............... 17,598,953 17,341,613 -- --
----------- ----------- ----------- -----------
$23,093,501 $22,779,280 $ 2,004,288 $ 2,006,000
=========== =========== =========== ===========
</TABLE>
Proceeds from the sales of securities amounted to $15,969,000, $1,671,000 and
$6,689,000 for the years ended June 30, 1996, 1995 and 1994, respectively,
including $1,883,000 relative to trading securities in fiscal 1996.
Gross realized gains (losses) on sales of securities were as follows for the
years ended June 30:
1996 1995 1994
---- ---- ----
Gross realized gains $400,243 $18,999 --
Gross realized losses (17,436) -- $(104,014)
-------- ------- ---------
Net realized gains $382,807 $18,999 $(104,014)
======== ======= =========
The unrealized loss recognized on securities classified as trading was $5,813
for the year ended June 30, 1996.
In accordance with the FASB Special Report, A Guide to Implementation of
Statement No. 115 on Accounting for Certain Investments in Debt and Equity
Securities, securities held to maturity with a carrying value of $15,008,666,
fair value of $14,964,245, unrealized gain of $8,485 and unrealized loss of
$52,906 were transferred to the available for sale classification on November
20, 1995. The transfer decreased shareholders' equity by $29,318, which is net
of the related deferred tax asset of $15,103. The reclassification was made to
provide greater flexibility in managing liquidity and interest rate risk.
<PAGE>
NOTE 4 - SECONDARY MARKET MORTGAGE ACTIVITIES
The following summarizes the Bank's secondary market mortgage activities, which
consist solely of one-to four-family real estate loans:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Loans held for sale - beginning of period ... $ 2,746,019 $ 1,282,039 $ 3,250,408
Activity during the periods:
Loans originated and purchased for sale 48,488,782 16,997,866 11,141,446
Proceeds from sale of mortgage loans .. (45,798,332) (14,382,754) (13,221,311)
Transfer of loans from held for sale to
held to maturity .................... (1,756,663) (1,287,879) --
Gain on sale of loans ................. 617,286 136,747 218,539
Allowance to adjust loans held for
sale to lower of cost or market ..... -- -- (107,043)
------------ ------------ ------------
Loans held for sale - end of period ......... $ 4,297,092 $ 2,746,019 $ 1,282,039
============ ============ ============
</TABLE>
Mortgage loans serviced for others are not included in the accompanying balance
sheet. The unpaid principal balances of these loans at June 30 are summarized as
follows:
1996 1995 1994
---- ---- ----
Mortgage loan portfolios serviced for
FHLMC .......................... $28,590,578 $23,699,436 $15,431,873
=========== =========== ===========
Loans servicing fee income ........... $ 66,725 $ 47,451 $ 27,603
=========== =========== ===========
Custodial escrow balances maintained in connection with the foregoing loan
servicing were $135,011 and $292,374 at June 30, 1996 and 1995, respectively.
The carrying value of mortgage servicing rights, which approximates fair value,
was $142,697 at June 30, 1996.
Following is an analysis of the activity for mortgage servicing rights for 1996:
Balance at July 1, 1995 $ 68,196
Additions 124,501
Amortization (50,000)
---------
Balance at June 30, 1996 $ 142,697
=========
<PAGE>
NOTE 5 - LOANS
Loans are classified as follows at June 30:
1996 1995
Real estate loans:
One-to four-family residential - fixed rate $ 20,351,715 $ 20,278,403
One-to four-family residential - balloon ... 12,841,337 11,170,168
One-to four-family residential - adjustable 47,544,192 58,568,036
Construction ............................... 14,073,497 6,145,801
Commercial mortgages ....................... 1,193,464 --
Home equity lines of credit ................ 2,214,227 1,453,397
Second mortgages ........................... 1,927,282 682,869
------------ ------------
Total mortgage loans .................. 100,145,714 98,298,674
Consumer loans ................................... 622,353 29,859
Commercial non-mortgage .......................... 1,010,076 --
------------ ------------
Total ................................. 101,778,143 98,328,533
Less:
Loans in process ........................... 5,827,705 2,289,609
Deferred fees and discounts ................ 47,385 94,677
Allowance for loan losses .................. 165,862 108,000
------------ ------------
$ 95,737,191 $ 95,836,247
============ ============
An analysis of the allowance for loan losses for the years ended June 30, 1996,
1995 and 1994, follows:
1996 1995 1994
--------- --------- ---------
Beginning balance ......................... $ 108,000 $ 87,500 $ 62,500
Provision charged to operations ..... 60,000 20,500 25,000
Charge-offs ......................... (2,138) -- --
--------- --------- ---------
Ending balance ............................ $ 165,862 $ 108,000 $ 87,500
========= ========= =========
During the year ended June 30, 1996, the Company had no loans which were
impaired as defined under the provisions of SFAS No. 114 and No. 118.
Loans on which the accrual of interest has been discontinued amounted to $42,983
and $144,644 at June 30, 1996 and 1995, respectively. Interest income that would
have been recorded under the original terms of such loans would have been
$6,447, $6,187 and $932 for the years ended June 30, 1996, 1995 and 1994,
respectively.
<PAGE>
NOTE 5 - LOANS (Continued)
Certain directors and executive officers of the Corporation and the Bank
(including family members, affiliates, and companies in which they are principal
owners) had loans outstanding with the Bank in the ordinary course of business.
A summary of the aggregate loans outstanding which exceeded $60,000 to these
individuals follows:
Year Ending
1996 1995
--------- ---------
Balance at beginning of year ............... $ 935,104 $ 871,607
New loans ............................ 86,537 160,300
Payments ............................. (161,029) (96,803)
Officers transferred out ............. (18,761) --
--------- ---------
Balance at end of year ..................... $ 841,851 $ 935,104
========= =========
NOTE 6 - PREMISES AND EQUIPMENT - NET
A summary of premises and equipment is as follows at June 30:
1996 1995
---- ----
Land ....................................... $ 529,300 $ 492,123
Bank building and improvements ............. 2,301,045 2,353,656
Furniture and equipment .................... 814,944 709,710
---------- ----------
3,645,289 3,555,489
Accumulated depreciation ................... 538,317 468,318
---------- ----------
$3,106,972 $3,087,171
========== ==========
<PAGE>
NOTE 7 - DEPOSITS
Deposits at June 30, 1996 and 1995 are summarized as follows:
1996 1995
---- ----
Amount % Amount %
------ - ------ -
Noninterest-bearing .......... 2,338,248 2.57% $ 595,726 .70%
Now accounts and MMDAs ....... 3,703,359 4.07 3,534,556 4.15
Passbook and statement savings 16,571,616 18.20 17,135,154 20.12
Certificates of deposit ...... 68,414,849 75.16 63,914,814 75.03
----------- ------ ----------- ------
$91,028,072 100.00% $85,180,250 100.00%
=========== ====== =========== ======
At June 30, 1996, the scheduled maturities of certificates of deposit are as
follows by fiscal year:
1997 $50,651,945
1998 8,839,364
1999 5,818,200
2000 2,326,478
2001 and thereafter 778,862
-----------
$68,414,849
===========
As of June 30, 1996 and 1995, the Bank had deposit accounts with balances of
$100,000 or more of $11,914,000 and $9,733,000, respectively.
<PAGE>
NOTE 8 - FEDERAL HOME LOAN BANK BORROWINGS
Advances from the Federal Home Loan Bank of Indianapolis, collateralized by
mortgage loans and securities under a blanket collateral agreement, consist of
the following at June 30:
<TABLE>
<CAPTION>
Rate at
Date Due June 30, 1996 1996 1995
-------- ------------- ---- ----
<S> <C> <C> <C>
Line of credit; available limit of $3,000,000
Balance, June 30 ...................... 5.99% -- $ 1,422,256
Single-maturity fixed rate advance
July 25, 1995 ......................... -- 2,000,000
August 1, 1995 ........................ -- 4,000,000
September 3, 1996 ..................... 5.77 $ 1,000,000 --
December 16, 1996 ..................... 5.44 1,000,000 --
Adjustable rate advance
August 5, 1996 - reprices quarterly ... 5.47 4,000,000 --
October 30, 1997 - reprices monthly ... 5.61 2,000,000 2,000,000
October 30, 1998 - reprices monthly ... 5.61 4,000,000 4,000,000
October 30, 1999 - reprices monthly ... 5.61 5,000,000 5,000,000
August 26, 2001 - reprices monthly .... 5.77 2,000,000 6,500,000
----------- -----------
$19,000,000 $24,922,256
=========== ===========
</TABLE>
Maturities of borrowings outstanding at June 30, 1996 are as follows for the
next 5 fiscal years:
1997 $ 6,000,000
1998 2,000,000
1999 4,000,000
2000 5,000,000
2001 and thereafter 2,000,000
------------
$ 19,000,000
============
During 1996, the Company prepaid $4,500,000 of the advance due August 26, 2001
without penalty, as permitted under the terms of the FHLB advance agreement.
Prepayment of certain remaining advances is permitted only upon the Company's
termination of its FHLB membership, while others are subject to prepayment
penalties under the provisions and conditions of the credit policy of the FHLB.
<PAGE>
NOTE 9 - FEDERAL INCOME TAXES
The provision for federal income taxes for the years ended June 30, 1996, 1995
and 1994 consists of the following:
1996 1995 1994
---- ---- ----
Current income tax expense ........ $496,158 $358,085 $332,948
Deferred income tax expense ....... 126,242 8,393 3,921
-------- -------- --------
$622,400 $366,478 $336,869
======== ======== ========
Deferred tax assets and liabilities consist of the following:
1996 1995
---- ----
Deferred tax assets:
Loan fees ...................................... $ 7,021 $ 24,005
Capital loss ................................... -- 28,931
Unrealized loss on securities available for sale 106,834 14,062
Loans marked-to-market ......................... -- 15,723
Accrued expenses ............................... 17,211 13,703
Management Recognition Plan .................... 33,701 --
Other .......................................... 621 4,588
--------- ---------
165,388 101,012
Deferred tax liabilities
Bad debt allowance ............................. 209,164 208,207
FHLB stock dividend ............................ 49,116 49,116
Loans marked-to-market ......................... 12,674 --
Fixed assets ................................... 71,677 35,979
Mortgage servicing rights ...................... 48,517 --
--------- ---------
391,148 293,302
Net deferred tax liability ........................... $(225,760) $(192,290)
========= =========
No valuation allowance was provided on deferred tax assets.
<PAGE>
NOTE 9 - FEDERAL INCOME TAXES (Continued)
The provision for federal income taxes differs from that computed at the
statutory corporate tax rate as follows:
Years ended June 30,
1996 1995 1994
---- ---- ----
Statutory rate ................. 34% 34% 34%
Tax expense at statutory rate .. $ 622,502 $ 368,047 $ 345,772
Tax exempt interest ............ (639) (2,360) (3,979)
Other .......................... 537 791 (4,924)
--------- --------- ---------
$ 622,400 $ 366,478 $ 336,869
========= ========= =========
Effective rate ................. 34% 34% 33%
Differences in the methods of determining the deduction for bad debts for tax
and financial statement purposes after 1988 are included in deferred taxes. For
years prior to 1988, the Bank had determined taxable income after deducting a
provision for bad debts in excess of such provisions recorded in the financial
statements. Accordingly, retained earnings at June 30, 1996 and 1995 includes
approximately $3,364,000 on which no provision for federal income taxes has been
made. The amount of unrecorded deferred taxes is $1,144,000. If this portion of
retained earnings is used for any purpose other than to absorb bad debts, the
amount used will be added to future taxable income.
<PAGE>
NOTE 10 - COMMITMENTS, CONTINGENCIES AND FINANCIAL INSTRUMENTS
WITH OFF-BALANCE SHEET RISK
The Company is a party to financial instruments with off-balance sheet risk in
the normal course of business to meet the financing needs of its customers.
These financial instruments include unused lines of credit and commitments to
make loans and fund loans in process. The Company's exposure to credit loss in
the event of nonperformance by the other party to the financial instrument is
represented by the contractual amount of those instruments. The Company follows
the same credit policy to make such commitments as is followed for those loans
recorded in the financial statements.
The contract amounts of these financial instruments are as follows at June 30:
1996 1995
---- ----
Commitments to make loans $6,690,000 $7,368,000
Unused lines of credit 3,987,000 3,909,000
Loans in process 5,828,000 2,290,000
Approximately 77% and 92% of commitments to make loans and to fund loans in
process were made at fixed rates as of June 30, 1996 and 1995, respectively.
Rate ranges for these fixed rate commitments were 7.0% to 10.75% and 6.75% to
9.5% as of June 30, 1996 and 1995, respectively. Lines of credit are issued at
current market rates.
The Company does not anticipate any losses as a result of these commitments.
Collateral obtained upon exercise of the commitment is determined using the
Bank's credit evaluation of the borrower, and may include real estate, business
assets and other items. Since many commitments to make loans expire without
being used, the amount does not necessarily represent future cash commitments.
The Company and the Bank are subject to certain legal actions arising in the
ordinary course of business. In the opinion of management, after consultation
with legal counsel, the ultimate disposition of these matters is not expected to
have a material adverse effect on the consolidated financial position of the
Company.
The Company has entered into employment agreements with three of its officers.
Under the terms of those agreements, certain events leading to separation from
the Company could result in cash payments aggregating approximately $527,000.
The deposits of savings associations such as Bank West are presently insured by
the Savings Association Insurance Fund (SAIF) which is administered by the FDIC.
A recapitalization plan for the SAIF under consideration by Congress provides
for a special assessment of up to .90% of deposits to be imposed on all SAIF
insured institutions to enable the SAIF to achieve its required level of
reserves. If the proposed assessment of .90% was effected based on deposits as
of March 31, 1995 (as proposed), the special assessment would decrease net
income and shareholders' equity by approximately $500,000, net of taxes.
<PAGE>
NOTE 11 - EMPLOYEE PENSION PLANS
The Company participates in the Financial Institutions Retirement Fund, a
multi-employer defined benefit pension plan. Substantially all employees are
eligible for participation in the Plan. The benefits are based on each
employee's years of service and on the average of the highest five consecutive
annual salaries prior to retirement. The benefits are reduced by a specified
percentage of the employee's social security benefit. An employee becomes fully
vested upon completion of five years of qualifying service. The plan is
currently overfunded and did not require contributions or charges to income for
the years ended June 30, 1996, 1995 and 1994. Specific plan assets and
accumulated benefit information for the Bank's portion of the Fund is not
available. Under the Employee Retirement Income Security Act (ERISA), a
contributor to a multi-employer pension plan may be liable in the event of
complete or partial withdrawal for the benefit payments guaranteed under ERISA.
The Company has no present intention to withdraw from the Fund.
The Company established a qualified 401(k) plan effective January 1, 1996,
covering substantially all employees. Employees who are 18 years and older and
who have completed 1,000 hours of service in a 12 consecutive-month period are
eligible. Employees may elect to contribute to the plan from 1% to 15% of their
salary subject to statutory limitations. The Company will make a matching
contribution equal to 25% of the first 3% of employee contributions. Although
not required, the Company also has the option to make an additional, nonelective
contribution to the plan. Beginning after 2 years of service, employees become
vested in the Company's contributions 20% per year, with 100% vesting occurring
after 6 years of service. The Company's contribution for 1996 was $3,000.
NOTE 12 - STOCK-BASED COMPENSATION PLANS
As part of the conversion transaction, the Company established an employee stock
ownership plan ("ESOP") for the benefit of substantially all employees. The ESOP
borrowed $1,296,048 from the Company and used those funds to acquire 162,006
shares of the Company's stock at $8 per share.
Shares issued to the ESOP are committed to be released based on the number of
unallocated shares held immediately before release for the current plan year
multiplied by a fraction. The numerator of the fraction is the amount of
quarterly principal and interest paid. The denominator of the fraction is the
sum of the numerator plus the principal and interest to be paid for all future
periods. The loan is secured by shares purchased with the loan proceeds and will
be repaid by the ESOP with funds from the Company's contributions to the ESOP
and earnings on ESOP assets. Principal and interest payments are scheduled to
occur in quarterly amounts of $45,326 over a ten-year period. An employee
becomes fully vested upon completion of seven years of qualifying services. Upon
withdrawal from the plan, participants are entitled to a distribution in cash or
Company stock, or both, at the discretion of the Company. However, participants
may demand that their entire distribution be in the form of Company stock.
During 1996, 16,200 shares of stock with an average fair value of $10.14 per
share were committed to be released. ESOP compensation expense for the years
ended June 30, 1996 and 1995 were $164,279 and $37,463, respectively. Shares
held by the ESOP at June 30 are as follows:
<PAGE>
NOTE 12 - STOCK-BASED COMPENSATION PLANS (Continued)
1996 1995
---- ----
Allocated to participants 20,250 4,050
Unallocated 141,756 157,956
---------- ----------
Total ESOP shares 162,006 162,006
========== ==========
Fair value of unallocated shares $1,488,438 $1,461,093
========== ==========
Employee and director Stock Option Plans (SOPs) and officer and director
Management Recognition Plans (MRPs) were authorized by the shareholders at the
October 25, 1995 annual meeting. The MRPs are restricted stock award plans. The
employee stock option plan and the officers' MRP are administered by a committee
of 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 are 231,437 and 92,575,
respectively. The Committee has granted under the employee SOP options to
purchase 24,000 shares of common stock at an exercise price of $9.9375 per
share, which was the market price of the Company's stock on the date of the
grant. At June 30, 1996, there were 138,006 shares reserved for future grants.
Options to purchase 52,073 shares were granted to directors under the directors'
SOP at an exercise price of $10.4375 per share which was the market price of the
Company's stock on the date of the grant. At June 30, 1996, there were 17,358
shares reserved for future grants. During fiscal 1996, no options were exercised
or canceled. SOP options vest in five equal annual installments from the date of
grant and expire ten years from the date of grant. No compensation expense is
being recognized in connection with the issuance of the options.
The Committee has awarded 49,250 shares of common stock under the officers' MRP
and 24,992 shares of common stock under the directors' MRP. During fiscal 1996,
$99,120 was charged to compensation expense for the MRP.
NOTE 13 - CAPITAL REQUIREMENTS AND RESTRICTIONS ON RETAINED EARNINGS
The Bank is subject to various regulatory capital requirements administered by
the federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory or discetionary actions by regulators that, if
undertaken, could have an effect on the Bank's financial statements. The Bank
must meet specific capital guidelines that involve quantitative measures of the
Bank's assets, liabilities, and certain off-balance-sheet items under regulatory
accounting practices. The Bank's capital is also subject to qualitative
judgments by the regulators about components, risk weightings, and other
factors.
Regulation requires the Bank to maintain minimum amounts and ratios (set forth
in the table below) of risk-based capital (as defined in the regulations) to
risk-weighted assets (as defined), and of core and tangible capital (as defined)
to total adjusted assets (as defined). Management believes, as of June 30, 1996,
that the Bank meets capital adequacy requirements.
The most recent notification from the Office of Thrift Supervision categorizes
the Bank as well capitalized under the regulatory framework for prompt
corrective action.
<PAGE>
NOTE 13 - CAPITAL REQUIREMENTS AND RESTRICTIONS ON RETAINED EARNINGS (Continued)
The Bank's actual capital amounts and ratios are presented below:
<TABLE>
<CAPTION>
Actual Minimum Requirements Excess
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
As of June 30, 1996
Risk-Based Capital
(to Risk Weighted Assets) $20,336,000 31.4% $ 5,189,360 8.0% $15,146,640 23.4%
Core Capital
(to Total Adjusted Assets) 20,170,000 15.4 3,941,250 3.0 16,228,750 12.4
Tangible Capital
(To Total Adjusted Assets) 20,170,000 15.4 1,970,760 1.5 18,199,240 13.9
As of June 30, 1995
Risk-Based Capital
(to Risk Weighted Assets) 19,278,506 31.8 4,851,680 8.0 14,426,826 23.8
Core Capital
(to Total Adjusted Assets) 19,170,506 14.5 3,959,580 3.0 15,210,926 11.5
Tangible Capital
(to Total Adjusted Assets) 19,170,506 14.5 1,979,790 1.5 17,190,716 13.0
</TABLE>
FIRREA also includes restrictions on loans to one borrower, on certain types of
investments and loans, on loans to officers, directors and principal
shareholders, on brokered deposits and on transactions with affiliates.
The Qualified Thrift Lender (QTL) test requires 65% of assets to be maintained
in housing-related finance and other specified areas. If the QTL test is not
met, limits are placed on growth, branching, new investments, FHLB advances, and
dividends, or the institution must convert to a commercial bank charter.
Management believes that the QTL test has been met.
Under OTS regulations, limitations have been imposed on all "capital
distributions" by savings institutions, including cash dividends. The regulation
establishes a three-tiered system of restrictions, with the greatest flexibility
afforded to thrifts which are both well-capitalized and given favorable
qualitative examination ratings by the OTS. For example, a thrift which is given
one of the two highest examination ratings and has "capital" equal to its fully
phased-in regulatory capital requirements (a "tier 1 institution") could, after
prior notice but without the prior approval of the OTS, make capital
distributions in any year that would reduce by up to one-half the amount of its
capital which exceeds its most stringent capital requirement as of the beginning
of the calendar year plus net income to date for the six months ended June 30,
1996. Other thrifts would be subject to more stringent procedural and
substantive requirements, the most restrictive being prior OTS approval of any
capital distribution. The Bank is a tier one institution.
The Bank has established a liquidation account with an initial balance of
$11,150,000, which is equal to its total net worth as of the date of the latest
balance sheet appearing in the final conversion prospectus. The liquidation
<PAGE>
13 - CAPITAL REQUIREMENTS AND RESTRICTIONS ON RETAINED EARNINGS (Continued)
account is maintained for the benefit of eligible depositors who continue to
maintain their accounts at the Bank after the conversion. The liquidation
account is reduced annually to the extent that eligible depositors have reduced
their qualifying deposits. Subsequent increases will not restore an eligi NOTE
ble account holder's interest in the liquidation account. In the event of a
complete liquidation, each eligible depositor will be entitled to receive a
distribution from the liquidation account in an amount proportionate to the
current adjusted qualifying balances for accounts then held. The Bank may not
pay dividends that would reduce shareholders' equity below the required
liquidation account balance.
Under the most restrictive of the dividend limitations described above, during
the fiscal year ending June 30, 1997, the Bank may pay dividends to the holding
company equal to $7,573,000 plus fiscal 1997 year-to-date income.
NOTE 14 - STOCK REPURCHASE PROGRAMS
During fiscal 1996, the Company repurchased 207,375 shares of its common stock
after receiving regulatory approval for this amount. The shares were repurchased
at an average price of $9.88 and remain available for general corporate
purposes, including issuance in connection with stock-based compensation plans.
On July 29, 1996, the Board of Directors also approved a repurchase of an
additional 218,100 shares, or 10% of its outstanding common stock. The
repurchase was approved by the OTS in August of 1996.
NOTE 15 - PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION
Condensed financial information of Bank West Financial Corporation is as follows
at June 30:
<TABLE>
<CAPTION>
CONDENSED BALANCE SHEET
1996 1995
---- ----
<S> <C> <C>
ASSETS
Cash and cash equivalents ...................... $ 2,222,329 $ 1,021,842
Interest-bearing time deposits ................. 198,000 1,287,000
Trading securities ............................. 708,438 --
Securities available for sale .................. 2,473,199 5,384,102
Loan receivable from Employee Stock
Ownership Plan ............................... 1,178,792 1,273,403
Investment in subsidiary bank .................. 19,978,259 19,138,386
Accrued interest receivable .................... 19,733 84,090
Other assets ................................... 35,629 57,513
----------- -----------
Total assets ............................. $26,814,379 $28,246,336
=========== ===========
LIABILITIES
Other liabilities .............................. $ 3,933 $ 75,242
SHAREHOLDERS' EQUITY ........................... 26,810,446 28,171,094
----------- -----------
Total liabilities and shareholders' equity $26,814,379 $28,246,336
=========== ===========
</TABLE>
<PAGE>
NOTE 15 - PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION
(Continued)
<TABLE>
<CAPTION>
CONDENSED STATEMENT OF INCOME,
for the period:
March 30, 1995
Year ended through
June 30, 1996 June 30, 1995
------------- -------------
<S> <C> <C>
Interest and dividend income
Securities .................................. $ 249,350 $ 97,074
Loan to Employee Stock Ownership Plan ....... 86,691 22,681
Other interest-bearing deposits ............. 164,328 42,358
Dividends ................................... 3,772 --
---------- ----------
Total interest and dividend income .... 504,141 162,113
Other income
Gain on sale of investments ................. 358,740 18,922
Operating expenses ................................ 90,521 10,635
---------- ----------
Income before federal income taxes and equity in
undistributed earnings of subsidiary bank ....... 772,360 170,400
Federal income tax expense ........................ 262,500 57,936
---------- ----------
Income before equity in undistributed
earnings of subsidiary bank ..................... 509,860 112,464
Equity in undistributed earnings of subsidiary bank 698,628 96,442
---------- ----------
Net income ........................................ $1,208,488 $ 208,906
========== ==========
</TABLE>
<PAGE>
NOTE 15 - PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION
(Continued)
<TABLE>
<CAPTION>
CONDENSED STATEMENT OF CASH FLOWS,
for the period:
March 30, 1995
Year ended through
June 30, 1996 June 30, 1995
------------- -------------
<S> <C> <C>
Cash flows from operating activities
Net income ............................................... $ 1,208,488 $ 208,906
Adjustments to reconcile net income to
cash provided by operations
Equity in undistributed earnings of subsidiary bank (698,628) (96,442)
Purchase of trading securities ..................... (2,224,537) --
Proceeds from sale of trading securities ........... 1,882,564 --
Gain on sales of securities ........................ (358,740) (18,922)
Net accretion of securities discounts .............. (1,411) (390)
Change in
Interest receivable .......................... 64,357 (84,090)
Other assets ................................. 21,884 (57,513)
Other liabilities ............................ (55,739) 72,757
------------ ------------
Net cash provided by operating activities (161,762) 24,306
Cash flows from investing activities
Purchases of securities available for sale ............... (2,000,000) (6,527,180)
Proceeds from sale of securities available for sale ...... 1,091,200 1,169,700
Proceeds from maturity and call of
securities available for sale .......................... 3,782,408 --
Principal reduction on ESOP note receivable .............. 94,611 22,645
Contribution to subsidiary bank .......................... (42,527) --
(Increase) decrease in interest-bearing time deposits .... 1,089,000 (1,287,000)
Investment in subsidiary bank ............................ -- (8,915,419)
------------ ------------
Net cash used in investing activities .............. 4,014,692 (15,537,254)
Cash flows from financing activities
Proceeds from issuance of common stock,
net of conversion costs ................................ -- 16,534,790
Dividends paid on common stock ........................... (603,382) --
Repurchase of common stock ............................... (2,049,061) --
------------ ------------
Net cash from financing activities ................. (2,652,443) 16,534,790
------------ ------------
Net change in cash and cash equivalents ........................ 1,200,487 1,021,842
Cash and cash equivalents at beginning of period ............... 1,021,842 --
------------ ------------
Cash and cash equivalents at end of period ..................... $ 2,222,329 $ 1,021,842
============ ============
</TABLE>
<PAGE>
NOTE 16 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of
each class of financial instrument for which it is practicable to estimate that
value.
Cash and cash equivalents
For these short-term instruments, the carrying amount is a reasonable estimate
of fair value.
Interest-bearing time deposits
Fair values for these instruments are estimated by discounting cash flows using
rates currently offered for deposits of similar remaining maturities.
Securities
Fair values for securities are based on quoted market prices or dealer quotes.
If a quoted market price is not available, fair value is estimated using quoted
market prices for similar instruments.
Loans
The fair value of fixed and variable rate loans is principally estimated by
discounting future cash flows using the current rates at which similar loans
would be made to borrowers with similar credit ratings and for the same
remaining maturities, and using prepayment assumptions provided by the Office of
Thrift Supervision, which management believes are reasonable. The carrying value
of the allowance for loan losses is a reasonable estimate of fair value.
Federal Home Loan Bank stock
The carrying amount of this stock is a reasonable estimate of fair value.
Accrued interest receivable and payable
For these items, the carrying amount is a reasonable estimate of fair value.
Deposit liabilities
The fair value of demand deposits, savings accounts and money market deposits is
the amount payable on demand at the reporting date. The fair value of
fixed-maturity certificates of deposit is estimated by discounting future cash
flows using the rates currently offered for deposits of similar remaining
maturities.
Federal Home Loan Bank borrowings
The fair values for these advances are determined by discounting cash flows
using rates currently offered for advances of similar remaining maturities.
<PAGE>
NOTE 16 - FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
Advance payments by borrowers for taxes and insurance
For these items, the carrying amount is a reasonable estimate of fair value.
Off-balance sheet activities
The fair value of commitments is estimated using the fees currently charged to
enter similar agreements, taking into account the remaining terms of the
agreements and the present creditworthiness of the counterparties. For
fixed-rate loan commitments, fair value also considers the difference between
current levels of interest rates and the committed rates. The fair value of
commitments was immaterial at the reporting dates presented.
The estimated fair values of the Company's financial instruments are as follows:
<TABLE>
<CAPTION>
1996
Carrying Fair
Value Value
----- -----
<S> <C> <C>
Financial assets
Cash and cash equivalents $ 6,694,089 $ 6,694,089
Interest-bearing time deposits 298,000 298,000
Trading securities 708,438 708,438
Securities available for sale 22,779,280 22,779,280
Securities held to maturity 2,004,288 2,006,000
Loans, net 95,737,191 96,186,000
Loans held for sale 4,297,092 4,346,000
Federal Home Loan Bank stock 1,475,000 1,475,000
Accrued interest receivable 632,043 632,043
Financial liabilities
Deposits 91,028,072 90,940,900
Federal Home Loan Bank borrowings 19,000,000 19,000,000
Accrued interest payable 156,946 156,946
Advance payments by borrowers for taxes and insurance 459,391 459,391
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
DIRECTORS EXECUTIVE OFFICERS
George A. Jackoboice, Chairman of the Board; Paul W. Sydloski, President,
President and 25% owner of Monarch Chief Executive Officer
Hydraulics, Inc. Kevin A. Twardy, Vice President,
Carl A. Rossi, Treasurer; President of Chief Financial Officer
Kentwater Land Co. James A. Koessel, Vice President,
Paul W. Sydloski, President, Chief Executive Officer Chief Lending Officer
Jacob Haisma, Owner of Jacob Haisma Builders, Inc. Laurie S. Adams, Director of
Thomas D. DeYoung, Owner and President Retail Banking
of DeYoung and Associates
Robert J. Stephan, President, Chief Executive Officer
and 91% owner of BeneComp, Inc.
Richard L. Bishop, President, Treasurer and 50% TRANSFER AGENT
owner of Jurgens & Holtvluwer Men's Store, Inc. Registrar and Transfer Company
John H. Zwarensteyn, President, Chief Executive 10 Commerce Drive
Officer and owner of Gemini Corporation Cranford, N.J. 07016
LEGAL COUNSEL INDEPENDENT AUDITORS
Elias, Matz, Tiernan and Herrick L.L.P. Crowe, Chizek & Company
Suite 1200 400 Riverfront Plaza Building
734 15th Street, N.W. 55 Campau, N.W.
Washington, D.C. 20005 Grand Rapids, MI 49502
</TABLE>
<PAGE>
CORPORATE HEADQUARTERS
2185 Three Mile Road, N.W.
Grand Rapids, MI 49544
STOCK INFORMATION
Bank West Financial Corporation is traded on the Nasdaq National Market under
the symbol of "BWFC." Total shares outstanding as of June 30, 1996 were
2,199,575. The high and low bid quotations for the common stock as reported on
the Nasdaq, as well as dividends declared per share, were as follows:
Quarter Ended High Low Dividends
June 30, 1995 $9.750 $8.500 $ --
September 30, 1995 10.250 8.750 .07
December 31, 1995 11.000 9.625 .07
March 31, 1996 10.500 9.625 .07
June 30, 1996 11.125 8.875 .07
The information set forth in the table above was provided by The Nasdaq Stock
Market. Such information reflects interdealer prices, without retail mark-up,
mark-down or commission and may not represent actual transactions. As of
September 4, 1996, the Company had approximately 670 shareholders of record and
1,981,475 shares of common stock outstanding.
INVESTOR INFORMATION
A copy of Bank West Financial Corporation's Annual Report on Form 10-K and a
list of the exhibits thereto, as filed with the Securities and Exchange
Commission, may be obtained without charge upon written request to Kevin Twardy,
Chief Financial Officer, Bank West Financial Corporation, 2185 Three Mile Road,
N.W., Grand Rapids, MI 49544, or by calling (616) 785-3400.
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> JUN-30-1996
<CASH> 1,571,662
<INT-BEARING-DEPOSITS> 5,122,427
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 708,438
<INVESTMENTS-HELD-FOR-SALE> 22,779,280
<INVESTMENTS-CARRYING> 2,004,288
<INVESTMENTS-MARKET> 2,006,000
<LOANS> 95,737,191
<ALLOWANCE> 165,862
<TOTAL-ASSETS> 137,982,306
<DEPOSITS> 91,028,072
<SHORT-TERM> 6,000,000
<LIABILITIES-OTHER> 1,143,788
<LONG-TERM> 13,000,000
0
0
<COMMON> 21,996
<OTHER-SE> 26,788,450
<TOTAL-LIABILITIES-AND-EQUITY> 137,982,306
<INTEREST-LOAN> 7,901,948
<INTEREST-INVEST> 1,739,792
<INTEREST-OTHER> 446,263
<INTEREST-TOTAL> 10,088,003
<INTEREST-DEPOSIT> 4,605,347
<INTEREST-EXPENSE> 5,930,079
<INTEREST-INCOME-NET> 4,157,924
<LOAN-LOSSES> 60,000
<SECURITIES-GAINS> 376,994
<EXPENSE-OTHER> 3,469,048
<INCOME-PRETAX> 1,830,888
<INCOME-PRE-EXTRAORDINARY> 1,208,488
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,208,488
<EPS-PRIMARY> .57
<EPS-DILUTED> .57
<YIELD-ACTUAL> 7.52
<LOANS-NON> 42,983
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 108,000
<CHARGE-OFFS> (2,138)
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 165,862
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 165,862
</TABLE>
