UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 0-25666
BANK WEST FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
Michigan 38-3203447
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2185 Three Mile Road, N.W., Grand Rapids, Michigan 49544
(Address of principal executive offices)
Registrant's telephone number, including area code: (616) 785-3400
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Shares of common stock, par value $.01 per share, outstanding as of May 14,
1999: 2,603,629.
<PAGE>
BANK WEST FINANCIAL CORPORATION
FORM 10-Q
Quarter Ended March 31, 1999
PART I - FINANCIAL INFORMATION
Interim Financial Information required by Rule 10-01 of Regulation S-X and Item
303 of Regulation S-K is included in this Form 10-Q as referenced below:
ITEM 1 - Financial Statements
Consolidated Balance Sheets -
March 31, 1999 (unaudited) and June 30, 1998 . . . . . . . . .
Consolidated Statements of Income (unaudited) -
For The Three and Nine Months Ended March 31, 1999 and 1998 .
Consolidated Statements of Comprehensive Income (unaudited) -
For The Nine Months Ended March 31, 1999 and 1998 . . . . . .
Consolidated Statements of Cash Flows (unaudited) -
For The Nine Months Ended March 31, 1999 and 1998. . . . . . .
Notes to Consolidated Financial Statements . . . . . . . . . . . . .
ITEM 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations . . . . . . . . . . . . . . . . . . . . .
ITEM 3 - Quantitative and Qualitative Disclosures About Market Risk
Not applicable since the registrant is a small business
issuer.
PART II - OTHER INFORMATION
ITEM 1 - Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 2 - Changes in Securities and Use of Proceeds . . . . . . . . . . . . . . .
ITEM 3 - Defaults upon Senior Securities . . . . . . . . . . . . . . . . . . . .
ITEM 4 - Submission of Matters to a Vote of Security Holders . . . . . . . . . .
ITEM 5 - Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 6 - Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . .
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
<PAGE>
<TABLE>
<CAPTION>
BANK WEST FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEETS
March 31, June 30,
1999 1998
------------- -------------
(Unaudited)
<S> <C> <C>
ASSETS
Cash and due from banks $ 2,626,033 $ 2,408,476
Interest-bearing deposits 4,807,754 1,797,063
------------- -------------
Total cash and cash equivalents 7,433,787 4,205,539
Securities available for sale (Note 5) 33,250,303 32,167,697
Securities held to maturity
(fair value: $13,929,499 at March 31 , 1999, 14,129,749 11,084,361
$11,079,178 at June 30, 1998) (Note 5)
Loans held for sale (Note 6) 3,623,418 8,156,572
Loans, net (Note 7) 135,234,817 118,905,611
Federal Home Loan Bank stock 2,700,000 2,100,000
Premises and equipment 3,010,305 3,164,905
Accrued interest receivable 933,861 879,082
Mortgage servicing rights 247,482 280,869
Real estate owned 0 192,080
Other assets 414,989 332,136
------------- -------------
Total assets $ 200,978,711 $ 181,468,852
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $ 128,642,323 $ 119,979,379
Federal Home Loan Bank borrowings 48,160,378 37,000,000
Accrued interest payable 241,481 253,037
Advance payments by borrowers
for taxes and insurance 363,726 512,538
Deferred federal income tax 211,640 335,182
Other liabilities 590,689 114,029
------------- -------------
Total liabilities 178,210,237 158,194,165
------------- -------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
BANK WEST FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEETS
March 31, June 30,
1999 1998
------------- -------------
(Unaudited)
<S> <C> <C>
Stockholders' Equity:
Common stock, $.01 par value; 10,000,000 shares
authorized; 2,603,629 issued at March 31, 1999
and at June 30, 1998 26,037 26,237
Additional paid-in-capital 11,376,330 11,551,136
Retained earnings, substantially restricted 12,591,382 12,928,028
Net unrealized gain (loss) on securities available for
sale, net of tax benefit of $(123,542) at March 31,
1999 and tax of $2,644 at June 30, 1998 (234,690) 5,132
Unallocated ESOP shares (Note 3) (777,648) (874,848)
Unearned Management Recognition Plan shares (Note 4) (212,937) (360,998)
------------- -------------
Total stockholders' equity 22,768,474 23,274,687
------------- -------------
Total liabilities and stockholders' equity $ 200,978,711 $ 181,468,852
============= =============
</TABLE>
See accompanying notes to consoldiated financial statements.
<PAGE>
<TABLE>
<CAPTION>
BANK WEST FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended Nine Months Ended
March 31, March 31,
1999 1998 1999 1998
----------- ----------- ------------ ----------
<S> <C> <C> <C> <C>
Interest and dividend income
Loans $ 2,648,963 $ 2,427,803 $ 7,903,935 $7,245,199
Securities 716,217 626,847 2,017,718 1,755,483
Other interest-bearing deposits 51,772 41,365 141,356 105,523
Dividends on FHLB stock 53,019 38,871 145,290 113,940
----------- ----------- ------------ ----------
3,469,971 3,134,886 10,208,299 9,220,145
----------- ----------- ------------ ----------
Interest expense
Deposits 1,453,406 1,393,561 4,443,233 4,124,054
FHLB borrowings 647,546 485,186 1,805,187 1,481,624
----------- ----------- ------------ ----------
2,100,952 1,878,747 6,248,420 5,605,678
----------- ----------- ------------ ----------
Net interest income 1,369,019 1,256,139 3,959,879 3,614,467
Provision for loan losses 80,000 21,000 137,000 57,000
----------- ----------- ------------ ----------
Net interest income after provision
for loan losses 1,289,019 1,235,139 3,822,879 3,557,467
----------- ----------- ------------ ----------
Other income
Gain (loss) on sale of securities (16,075) 28,733 (298,647) 41,328
Gain on trading securities -- 9,721 -- 179,023
Gain on sale of loans 173,202 147,132 568,386 465,744
Fees and service charges 99,667 64,434 227,519 232,978
Miscellaneous income 2,191 2,102 8,889 7,718
----------- ----------- ------------ ----------
258,985 252,122 506,147 926,791
----------- ----------- ------------ ----------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
BANK WEST FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(continued)
Three Months Ended Nine Months Ended
March 31, March 31,
1999 1998 1999 1998
----------- ----------- ------------ ----------
<S> <C> <C> <C> <C>
Other expenses
Compensation and benefits 879,620 718,688 2,319,282 2,062,229
Professional fees 270,893 60,370 551,162 222,638
Federal Deposit Insurance 17,779 16,231 52,296 47,711
Occupancy 77,853 76,385 253,548 213,709
Furniture, fixtures and equipment 47,947 41,757 139,153 110,519
Loss on disposal of fixed assets 77,293 -- 77,293 --
Data processing 66,886 50,909 194,773 143,537
Advertising 15,781 23,787 69,518 79,403
State taxes 12,954 19,000 52,954 66,978
Miscellaneous 149,533 165,515 457,974 417,484
----------- ----------- ------------ ----------
1,616,539 1,172,642 4,167,953 3,364,208
----------- ----------- ------------ ----------
Income (loss) before federal income tax expense (68,535) 314,619 161,073 1,120,050
Federal income tax expense (benefit) (30,210) 106,800 58,000 380,060
----------- ----------- ------------ ----------
Net income (loss) ($ 38,325) $ 207,819 $ 103,073 $ 739,990
=========== =========== ============ ==========
Earnings (loss) per share (Note 2) $ (.02) $ .09 $ .04 $ .31
=========== =========== ============ ==========
Earnings (loss) per share assuming dilution (Note 2) $ (.02) $ .08 $ .04 $ .28
=========== =========== ============ ==========
Dividends per share $ .06 $ .06 $ .18 $ .16
=========== =========== ============ ==========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
BANK WEST FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
Nine Months Ended
March 31,
1999 1998
--------- --------
<S> <C> <C>
Net Income $ 103,073 $739,990
Other comprehensive income, net of tax:
Unrealized gains (losses) on securities available
for sale (239,822) 215,215
--------- --------
Comprehensive income ($136,749) $955,205
========= ========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
BANK WEST FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
March 31,
1999 1998
------------ -------------
<S> <C> <C>
Cash flows from operating activities
Net income $ 103,073 $ 739,990
Adjustments to reconcile net income to
net cash from operating activities
Origination and purchase of loans for sale (30,258,727) (35,692,295)
Proceeds from sale of mortgage loans 35,360,475 30,490,182
Purchase of trading securities -- (2,530,635)
Proceeds from sale of trading securities -- 3,936,841
Net (gain) loss on sales of:
Loans (568,594) (465,744)
Securities 298,646 (220,351)
Real estate owned 2,501 (2,241)
Depreciation 188,096 155,234
Loss on disposal of fixed assets 77,229 --
Amortization of premiums, net 194,603 49,215
ESOP expense 173,518 260,719
MRP expense 80,800 114,300
Provision for loan losses 137,000 57,000
Change in:
Deferred loan fees (127,860) (87,431)
Other assets (104,245) (562,573)
Other liabilities 316,292 (173,473)
------------ ------------
Net cash from operating activities 5,872,807 (3,931,262)
------------ ------------
Cash flows from investing activities
Purchases of securities available for sale (24,088,802) (21,323,884)
Purchases of securities held to maturity (3,093,501) (7,993,997)
Proceeds from sale of securities 11,707,642 15,163,389
Proceeds from maturities, calls and principal
payments of securities available for sale 10,490,054 3,499,391
Loan originations, net of repayments (11,031,938) (2,808,910)
Loans purchased for portfolio (5,306,408) (1,745,675)
Purchase of FHLB stock (600,000) (550,000)
Proceeds from sale of real estate owned 189,579 22,153
Property and equipment expenditures (110,725) (190,575)
------------ ------------
Net cash from investing activities (21,844,099) (15,928,108)
------------ ------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
BANK WEST FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
March 31,
1999 1998
------------ -------------
<S> <C> <C>
Cash flows from financing activities
Proceeds from FHLB borrowings 29,160,378 38,209,202
Repayment of FHLB borrowings (18,000,000) (29,000,000)
Increase in deposits 8,662,944 14,694,105
Repurchase of common stock (197,313) (105,937)
Exercise of stock options 13,250 7,282
Dividends paid on common stock (439,719) (393,107)
------------ ------------
Net cash from financing activities 19,199,540 23,411,545
------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
BANK WEST FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)
Nine Months Ended
March 31,
1999 1998
---------- ----------
<S> <C> <C>
Net change in cash and cash equivalents 3,228,248 3,552,175
Cash and cash equivalents at beginning of period 4,205,539 3,673,256
---------- ----------
Cash and cash equivalents at end of period $7,433,787 $7,225,431
========== ==========
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest $6,159,976 $5,489,084
Income taxes 196,000 678,119
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
BANK WEST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three and Nine Months Ended March 31, 1999
(Unaudited)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying consolidated financial statements consist of the accounts of
Bank West Financial Corporation (the Company), its wholly owned subsidiary, Bank
West (the Bank) and Sunrise Mortgage Corporation. All significant intercompany
accounts and transactions have been eliminated in consolidation.
The accompanying unaudited consolidated financial statements were prepared in
accordance with instructions for Form 10-Q and, therefore, do not include
information or footnotes necessary for a complete presentation of financial
position, results of operations and cash flows in conformity with generally
accepted accounting principles. However, all adjustments (consisting only of
normal recurring accruals) which, in the opinion of management, are necessary
for a fair presentation of the consolidated financial statements have been
included.
The results of operations for the three and nine months ended March 31, 1999 are
not necessarily indicative of the results to be expected for the year ending
June 30, 1999. The unaudited consolidated financial statements and notes thereto
should be read in conjunction with the consolidated financial statements and
notes thereto, for the fiscal year ended June 30, 1998, included in the
Company's 1998 Annual Report.
In 1997, the Financial Accounting Standards Board ("FASB") issued Statement of
Financial Accounting Standards No. 130, Reporting Comprehensive Income ("SFAS
No. 130"). The Company adopted SFAS No. 130 retroactively beginning with the
quarter ended September 30, 1998. Under this standard, comprehensive income is
defined as all changes in equity other than those resulting from investments by
owners and distributions to owners, and therefore includes both net income and
other comprehensive income. Other comprehensive income includes the change in
unrealized gains and losses on securities available for sale.
NOTE 2 - EARNINGS PER SHARE
Earnings Per Share and Earnings Per Share Assuming Dilution were computed under
the provisions of SFAS No. 128, "Earnings Per Share," which was adopted
retroactively beginning with the quarter ended December 31, 1997. All earnings
per share data for prior periods have been restated to be comparable. Earnings
Per Share is calculated by dividing net income by the weighted average number of
shares outstanding during the period, including shares that have been released
or committed to be released by the Employee Stock Ownership Plan (ESOP) and
fully vested Management Recognition Plan (MRP) shares. Earnings Per Share
Assuming Dilution further assumes the issuance of dilutive potential common
shares relating to outstanding stock options and unvested MRP shares. All
earnings and dividends per share amounts have been retroactively adjusted for
the three-for-two stock split in December 1997.
<PAGE>
BANK WEST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three and Nine Months Ended March 31, 1999
(Unaudited)
NOTE 2 - EARNINGS PER SHARE (Continued)
A reconciliation of the numerators and denominators of Earnings Per Share and
Earnings Per Share Assuming Dilution for the three and nine months ended March
31, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
1999 1998 1999 1998
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Earnings Per Share
Net Income (loss) $ (38,325) $ 207,819 $ 103,073 $ 739,990
=========== ========== ========== ==========
Weighted average common shares
outstanding 2,403,691 2,356,792 2,397,779 2,354,217
=========== ========== ========== ==========
Earnings Per Share $ (.02) $ .09 $ .04 $ .31
=========== ========== ========== ==========
Earnings Per Share Assuming Dilution
Net Income (loss) $ (38,325) $ 207,819 $ 103,073 $ 739,990
=========== ========== ========== ==========
Weighted average common shares
outstanding 2,403,691 2,356,792 2,397,779 2,354,217
Add: dilutive effects of assumed
exercise of stock options
and unvested MRP's
Stock options 37,732 278,070 60,541 226,903
MRP shares -- 32,220 4,259 29,769
----------- ---------- ---------- ----------
Weighted average common and dilutive
potential common shares outstanding 2,441,423 2,667,082 2,462,579 2,610,889
=========== ========== ========== ==========
Earnings Per Share Assuming Dilution $ (.02) $ .08 $ .04 $ .28
=========== ========== ========== ==========
</TABLE>
NOTE 3 - EMPLOYEE STOCK OWNERSHIP PLAN
The Company has established an Employee Stock Ownership Plan (ESOP) for the
benefit of employees who have completed at least twelve consecutive months of
service and have been credited with at least 500 hours of service with the Bank.
The Company has received a favorable determination letter from the Internal
Revenue Service that the ESOP is a tax-qualified plan.
<PAGE>
BANK WEST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three and Nine Months Ended March 31, 1999
(Unaudited)
NOTE 3 - EMPLOYEE STOCK OWNERSHIP PLAN (Continued)
To fund the ESOP, $1,296,048 was borrowed from the Company for the purpose of
purchasing 243,009 shares of common stock at $5.33 per share. Principal and
interest payments on the loan are due in quarterly installments, with the final
payment of principal and accrued interest being due and payable at maturity,
which is June 30, 2005. Interest is payable during the term of the loan at a
fixed rate of 7.0%. The loan is collateralized by the shares of the Company's
common stock purchased with the proceeds. As the Bank periodically makes
contributions to the ESOP to repay the loan, shares are allocated among
participants on the basis of total compensation, as defined. The unallocated
ESOP shares are shown as a reduction to stockholders' equity in the accompanying
consolidated balance sheets. ESOP expense of $55,000 and $174,000 was recorded
for the three and nine months ended March 31, 1999.
NOTE 4 - STOCK BASED COMPENSATION PLANS
An employee and a directors' stock option plan (SOPs) and an officers' and a
directors' management recognition plan (MRPs) were authorized by the
shareholders at the October 25, 1995 annual meeting. The employee stock option
plan and the officers' MRP are administered by a committee of non-employee
directors of the Company, while grants under the directors' stock option plan
and the directors' MRP are pursuant to formulas set forth in the plans. Total
shares made available under the SOPs and MRPs were 347,155 and 138,862,
respectively. The Committee has awarded under the SOPs options to purchase
shares of common stock at exercise prices between $6.625 and $13.25 per share,
which represent the average of the high and low sales prices of the Company's
stock on the dates of the awards. Both the option shares and grant prices have
been adjusted for the three-for-two stock split in December 1997. At March 31,
1999, there were 23,857 option shares reserved for future grants. As of March
31, 1999, 3,000 options have been exercised. No compensation expense was
recognized in connection with the issuance of the options. Management has
concluded that the Company will not adopt the accounting provisions of SFAS No.
123 and will continue to apply its current method of accounting. Accordingly,
SFAS No. 123 will have no impact on the Company's consolidated financial
position or results of operations.
During 1995, the Company repurchased 4% of its then outstanding shares and
placed them in a trust for the exclusive use of the MRPs. The Committee has
awarded 72,320 shares of common stock under the officers' MRP and 41,657 shares
of common stock under the directors' MRP. MRP awards vest in five equal annual
installments, with the first award vesting on October 25, 1996. Compensation
expense for the MRPs is recognized on a pro-rata basis over the vesting period
of the awards. During the three and nine months ended March 31, 1999, $4,600 and
$80,800 was charged to compensation expense for the MRPs. The recent quarter's
compensation expense is lower due to forfeitures during the quarter. The
unearned compensation value of the MRPs is shown as a reduction to stockholders'
equity in the accompanying consolidated balance sheets.
<PAGE>
BANK WEST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three and Nine Months Ended March 31, 1999
(Unaudited)
NOTE 5 - SECURITIES
The amortized cost and estimated fair values of securities at March 31, 1999 and
June 30, 1998 are as follows:
Available for Sale
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------- -------- ----------- -----------
March 31, 1999 (unaudited)
- --------------------------
<S> <C> <C> <C> <C>
U.S. agencies $ 5,998,905 $ -- $ 8,593 $ 5,990,312
Equity securities 670,525 -- 119,585 550,940
Mortgage-backed securities 2,631,549 -- 18,737 2,612,812
Collateralized mortgage obligations 24,304,912 34,391 243,064 24,096,239
----------- -------- ----------- -----------
$33,605,891 $ 34,391 $ 389,979 $33,250,303
=========== ======== =========== ===========
<CAPTION>
June 30, 1998
- -------------
<S> <C> <C> <C> <C>
U.S. agencies $ 3,995,488 $ -- $ 3,613 $ 3,991,875
Equity securities 2,750,960 61,250 59,885 2,752,325
Mortgage-backed securities 817,236 -- 9,916 807,320
Collateralized mortgage obligations 24,596,237 230,029 210,089 24,616,177
----------- -------- ----------- -----------
$32,159,921 $291,279 $ 283,503 $32,167,697
=========== ======== =========== ===========
<CAPTION>
Held to Maturity
- ----------------
<S> <C> <C> <C> <C>
Collateralized mortgage obligations $14,129,749 $ -- $ 180,250 $13,929,499
=========== ======== =========== ===========
June 30, 1998
- -------------
Collateralized mortgage obligations $11,084,361 $ 42,498 $ 47,681 $11,079,178
=========== ======== =========== ===========
</TABLE>
During September of 1998, equity securities were written-down by $401,000
relating to what management believes to be an other-than-temporary decline in
the market value of these investments resulting from the recent downturn in the
U.S. stock market, especially in small cap stocks.
<PAGE>
BANK WEST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three and Nine Months Ended March 31, 1999
(Unaudited)
NOTE 6 - SECONDARY MARKET MORTGAGE ACTIVITIES
The following summarizes the Company's secondary market mortgage activities,
which consist solely of one- to four-family real estate loans:
<TABLE>
<CAPTION>
Nine Months Ended
March 31,
1999 1998
------------ ------------
<S> <C> <C>
Loans held for sale - beginning of period $ 8,156,572 $ 2,231,151
Activity during the periods:
Loans originated and purchased for sale 30,258,727 35,692,295
Proceeds from sale of loans originated
and purchased for sale (35,360,475) (30,490,182)
Gain on sale of loans 568,594 465,744
------------ ------------
Loans held for sale - end of period $ 3,623,418 $ 7,899,008
============ ============
</TABLE>
The unpaid principal balance of mortgage loans serviced for others amounted to
$28.7 million and $33.2 million at March 31, 1999 and June 30, 1998,
respectively. Custodial escrow balances maintained in connection with the
foregoing loans serviced for others were approximately $121,000 and $192,000 at
March 31, 1999 and June 30, 1998, respectively.
<PAGE>
BANK WEST FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three and Nine Months Ended March 31, 1999
(Unaudited)
NOTE 7 - LOANS
Loans are classified as follows:
<TABLE>
<CAPTION>
March 31, June 30,
1999 1998
------------- -------------
<S> <C> <C>
Real estate loans:
One-to four-family residential - fixed rate $ 15,165,788 $ 15,383,013
One-to four-family residential - balloon 44,708,541 24,413,846
One-to four-family residential - adjustable 21,719,724 32,599,924
Construction and land development 24,576,015 25,406,303
Commercial mortgages 11,529,902 6,485 449
Home equity lines of credit 10,401,668 9,877,359
Second mortgages 9,184,184 8,148,412
------------- -------------
Total mortgage loans 137,285,822 122,314,306
Consumer loans 1,825,718 1,665,606
Commercial non-mortgage 3,464,767 3,253,091
------------- -------------
Total 142,576,307 127,233,003
Less:
Loans in process 7,282,697 8,248,310
Deferred fees and costs (338,474) (210,614)
Allowance for loan losses 397,267 289,696
------------- -------------
$ 135,234,817 $ 118,905,611
============= =============
</TABLE>
Provisions for losses on loans are charged to operations based on management's
evaluation of potential losses in the portfolio. In addition to providing
reserves on specific loans where a decline in value has been identified, general
provisions for losses are established based upon the overall portfolio
composition and general market conditions. In establishing both specific and
general valuation allowances, management reviews individual loans, recent loss
experience, current and future impact of economic conditions, the overall
balance and composition of the portfolio, and such other factors which, in
management's judgment, deserve recognition in estimating possible losses.
Management believes the allowance for loan losses is adequate. While management
uses available information to recognize losses on loans, future additions to the
allowance may be necessary based on changes in economic conditions and borrower
circumstances.
<PAGE>
BANK WEST FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion compares the consolidated financial condition of Bank
West Financial Corporation, its wholly owned subsidiary, Bank West, and Sunrise
Mortgage Corporation a wholly-owned subsidiary of Bank West, at March 31, 1999
and June 30, 1998 and the consolidated results of operations for the three and
nine months ended March 31, 1999 with the same periods in 1998. This discussion
should be read in conjunction with the interim consolidated financial statements
and footnotes included herein.
This quarterly report on Form 10-Q includes statements that may constitute
forward-looking statements, usually containing the words "believe," "estimate,"
"project," "expect," "intend" or similar expressions. These statements are made
pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. Forward-looking statements inherently involve risks and
uncertainties that could cause actual results to differ materially from those
reflected in the forward-looking statements. Factors that could cause future
results to vary from current expectations include, but are not limited to, the
following: changes in economic conditions (both generally and more specifically
in the markets in which Bank West operates); changes in interest rates, deposit
flows, loan demand, real estate values and competition; changes in accounting
principles, government legislation and regulation; and other risks detailed in
this quarterly report on Form 10-Q and in the Company's other Securities and
Exchange Commission filings. Readers are cautioned not to place undue reliance
on these forward-looking statements, which reflect management's analysis only as
of the date hereof. The Company undertakes no obligation to publicly revise
these forward-looking statements to reflect events or circumstances that arise
after the date hereof.
Bank West Financial Corporation is the holding company for Bank West, a state
chartered 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. The Company also originates commercial loans, home equity loans and
various types of consumer loans.
FINANCIAL CONDITION
Total assets increased by $19.5 million or 10.7% from $181.5 million at June 30,
1998 to $201.0 million at March 31, 1999. The increase in total assets was
primarily attributable to an increase in total loans by $16.3 million or 13.7%.
Total loans increased as greater emphasis was placed on originating one- to
four-family balloon mortgages to offset prepayments of adjustable-rate and
longer term fixed-rate mortgages in the current interest rate environment. In
addition, greater emphasis was placed on originating second mortgage and
commercial mortgage loans. Management expects continued growth in these types of
portfolio lending activities which is expected to improve the Bank's net
interest income and margins. In addition, management expects future quarters to
reflect significant growth in commercial non-mortgage loans due to the strategic
realignment that occurred during March of 1999. The Bank's newly appointed Chief
Executive Officer and its Vice President of Commercial Lending have extensive
commercial loan and banking experience. The growth in commercial non-mortgage
loans is expected to improve the Bank's net interest income and margins.
<PAGE>
BANK WEST FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Bank's mortgage banking activities consist of selling newly originated and
purchased loans into the secondary market. The dollar amount of loans originated
and purchased for resale in the three months ended March 31, 1999 decreased by
$5.4 million or 37.8% to $8.9 million from $14.3 million in the March 31, 1998
quarter. The decrease in loan originations and purchases for resale is primarily
the result of exceptionally strong refinance volume in the March 31, 1998
quarter due to a dramatic decline in long-term mortgage interest rates. Mortgage
loans originated and purchased for resale in the current quarter consisted
primarily of 30-year fixed-rate and ten-year balloon loans. The Bank's recent
strategy has been to sell 30-year fixed-rate loans and to portfolio ten-year
balloons. The Bank has portfolioed ten-year balloon loans in an effort to offset
the prepayments of adjustable-rate and longer-term fixed-rate mortgages. Also,
the current strategy will leverage the balance sheet which is expected to
provide additional net interest income. Total loans sold amounted to $12.3
million and $9.0 million in the three months ended March 31, 1999 and 1998,
respectively. Loans held for sale amounted to $3.6 million and $8.2 million at
March 31, 1999 and 1998, respectively. The Bank continues to increase the number
of correspondent lending relationships and is exploring additional options to
increase retail mortgage loan volume.
During December 1997, the Bank formed Sunrise Mortgage Corporation, a
wholly-owned subsidiary engaged to originate and purchase non-conforming first
and second mortgage loans including sub-prime mortgage loans for resale. Each of
the loans originated and purchased must have a commitment in place to sell the
loan to an investor on a servicing released basis and on a per loan basis.
Sunrise Mortgage Corporation is nearing break-even, but has not generated
significant loan volume to date. Management is exploring various options
relating to the future of Sunrise Mortgage.
Collateralized mortgage obligations have increased from $35.7 million at June
30, 1998 to $38.2 million at March 31, 1999. Generally, collateralized mortgage
obligations have been purchased with floating interest rates (prime rate or
LIBOR) and have been collateralized by mortgages with a weighted average note
rate of approximately 7.0%. The recent decline in overall interest rates and the
corresponding increase in prepayment speeds has negatively impacted the market
values of the Bank's collateralized mortgage obligations classified as available
for sale. This has resulted in an unrealized loss of approximately $138,000, net
of taxes, which is included in the total unrealized loss on available for sale
securities shown as a component of stockholders' equity. The unrealized loss on
collateralized mortgage obligations held to maturity was $119,000, net of taxes.
Management believes that the recent decline in the market values of these
securities is temporary.
Equity securities have decreased from $2.7 million at June 30, 1998 to $551,000
at March 31, 1999. The Bank has continued to orderly liquidate the equity
securities portfolio. During the September 30, 1998 quarter, the Company
recorded a write-down totaling $401,000 relating to what management believes to
be an other-than-temporary market decline on certain equity securities. At March
31, 1999, the unrealized loss on the remaining equity investments is
approximately $79,000, net of taxes and is included in the total unrealized loss
on available for sale securities shown as a component of stockholders' equity.
<PAGE>
BANK WEST FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Total deposits increased by $8.6 million or 7.2% from June 30, 1998 to March 31,
1999 primarily due to an increase in certificates of deposit and money market
accounts. The variety of deposit accounts offered by the Bank has allowed it to
be competitive in obtaining funds and to respond with flexibility to changes in
consumer demand. The Bank has become more susceptible to short-term fluctuations
in deposit flows, as customers have become more interest rate conscious. Based
on its experience, the Bank believes that its passbook savings, statement
savings, NOW and demand accounts are relatively stable sources of deposits.
However, the ability of the Bank to attract and maintain certificates of
deposit, and the rates paid on these deposits, has been and will continue to be
affected by market conditions.
When deposit growth does not match the growth of assets, other funding sources
such as FHLB advances are utilized. During the nine months ended March 31, 1999,
the Bank increased FHLB advances by $11.2 million since loan growth exceeded
deposit growth. FHLB advances have generally been used to fund the Bank's loan
growth and mortgage banking activities.
Stockholders' equity decreased from $23.3 million at June 30, 1998 to $22.8
million at March 31, 1999. The decrease was primarily due to dividends of
$440,000 paid during the nine month period and a change in the net unrealized
loss on securities available for sale by $240,000 primarily from collateralized
mortgage obligations and equity securities. These amounts were partially offset
by net income of $103,000.
NON-PERFORMING ASSETS AND ALLOWANCE FOR LOAN LOSSES
The table below sets forth the amounts and categories of non-performing assets
at March 31, 1999 and June 30, 1998:
<TABLE>
<CAPTION>
March 31, June 30,
1999 1998
---- ----
(Dollars in Thousands)
<S> <C> <C>
Non-accrual loans
One- to four-family $ 100 $ 682
Construction and land development 986 --
Commercial -- 32
Consumer 69 127
------ ------
Total 1,155 841
Foreclosed assets
One- to four-family -- 192
------ ------
Total non-performing assets $1,155 $1,033
====== ======
Total as a percentage of total assets .57% .57%
====== ======
</TABLE>
<PAGE>
BANK WEST FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Non-performing assets in the construction and land development category consist
of seven construction spec loans to four builders in the western and
southwestern Michigan area. These loans, which are collateralized by
single-family homes, require a loan-to-value ratio of 75%. The majority of these
homes are substantially complete. Management believes that these loans are
adequately collateralized. Accordingly, no specific reserves have been assigned
to these loans at March 31, 1999. The allowance for loan losses totalled
$397,000 or 34% of total non-performing loans at March 31, 1999, and no portion
of the allowance for loan losses was allocated to specific loans. During the
three months ended March 31, 1999, there were no charge-offs. At March 31, 1999,
$106.1 million or 74.5% of the Bank's total loan portfolio was collateralized by
first liens on one-to four-family residences, and the net loan portfolio
amounted to 67.3% of total assets.
RESULTS OF OPERATIONS
Net Income. Net income decreased by $246,000 in the quarter ended March 31, 1999
from net income of $208,000 in the March 31, 1998 quarter to a net loss of
$38,000 in the current quarter. The decrease was primarily due to non-core
expenses totaling $493,000 that did not exist in the March 31, 1998 quarter. See
Other Expenses section for additional information.
For the nine months ended March 31, 1999, net income decreased by $637,000 from
net income of $740,000 in the March 31, 1998 period to $103,000 in the March 31,
1999 period. The decrease was primarily due to a loss of $299,000 on equity
securities in the current year compared to gains of $220,000 on securities in
the 1998 period. See Other Income section for more information. In addition,
professional fees were higher by $328,000 primarily due to litigation expense
associated with a class action lawsuit. Also, compensation and benefits expense
was impacted by $245,000 related to a contract settlement accrual for the former
President and Chief Executive Officer. Further, the Bank incurred a $77,000 loss
on disposal of fixed assets due to Year 2000 related obsolescence. See Other
Expenses section for more information on these areas. These amounts were
partially offset by an increase in net interest income by $346,000 or 9.6%.
Net Interest Income. Net interest income increased by $113,000 or 9.0% in the
quarter ended March 31, 1999 over the comparable 1998 period. Net interest
income increased due to higher average interest-earning assets by $14.6 million
or 8.5% primarily due to an increase in loans. The increase in average
interest-earning assets was partially offset by a decrease in the interest rate
spread to 2.34% from 2.61%. The decreased spread was primarily due to a decrease
in the yield on interest-earning assets to 7.19% from 7.68% reflecting the flat
yield curve, which resulted in refinances of adjustable-rate and 30-year
fixed-rate loans with higher rates into lower rate mortgages. The cost of
interest-bearing liabilities decreased to 4.85% from 5.07% reflecting
certificates of deposit and FHLB advances repricing to lower rates as a result
of the recent decline in the overall interest rate environment.
Net interest income increased by $346,000 or 9.6% in the nine months ended March
31, 1999 over the comparable 1998 period. Net interest income increased due to
higher average interest-earning assets by $22.7 million or 13.9% primarily due
to an increase in loans. The increase in average interest-earning assets was
partially offset by a decrease in the interest rate spread to 2.32%from 2.54%.
<PAGE>
BANK WEST FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
The decreased spread was primarily due to a decrease in the yield on
interest-earning assets to 7.30% from 7.77%, reflecting the flat yield curve
resulting in refinances of adjustable-rate and 30-year fixed-rate loans with
higher rates into lower rate mortgages. The cost of interest-bearing liabilities
decreased to 4.98% from 5.23% reflecting certificates of deposit and FHLB
advances repricing to lower rates as a result of the recent decline in the
overall interest rate environment.
Provision for Loan Losses. The provision for loan losses increased by $59,000 or
281% in the three months ended March 31, 1999 and by $80,000 or 140.4% in the
nine months ended March 31, 1999 over the comparable 1998 periods. During the
quarter, management increased the provision for loan losses as a result of
increases in general reserve percentage assumptions utilized for construction
and land development loans due to a recent increase in delinquencies of builder
spec loans. In addition, the increase in commercial loans, both on a dollar
basis and as a percentage of total loans, required additional general reserves.
The allowance for loan losses totalled approximately $397,000 or .28% of the
total loan portfolio and 34.4% of non-performing loans at March 31, 1999. The
non-performing loans at March 31, 1999 were comprised primarily of single-family
construction spec loans to builders which require a loan-to-value ratio of 75%.
The Bank's management establishes allowances for loan losses. On a quarterly
basis, management evaluates the loan portfolio and determines the amount that
must be added. These allowances are charged against income in the year they are
established. When establishing the appropriate levels for the provision and the
allowance for loan losses, management considers a variety of factors, in
addition to the fact that an inherent risk of loss always exists in the lending
process. Consideration is also given to the current and future impact of
economic conditions, the diversification of the loan portfolio, historical loss
experience, delinquency rates, the review of loans by loan review personnel, the
individual borrower's financial and managerial strengths, and the adequacy of
underlying collateral.
Other Income. Total other income increased by $7,000 in the three months ended
March 31, 1999 from the comparable prior period. The increase was primarily due
to an increase of $36,000 or 56.3% in fees and service charges, primarily
lending fees, and 26,000 or 17.7% in gain on sale of loans due to an increase in
loan sale proceeds by $3.3 million.
For the nine months ended March 31, 1999, total other income decreased by
$421,000 or 45.4%. The decrease was due to in part to a loss on available for
sale securities of $299,000 primarily relating to the first quarter's write-down
of a portion of the Company's remaining equity securities to reflect what
management believes to be an other-than-temporary market decline resulting from
the downturn in the U.S. stock market, especially in small cap stocks. Also,
during the 1998 period, the Company had $179,000 of gains from trading equity
securities compared to none in the current year due to the discontinuance of
these activities. At March 31, 1999, the remaining equity securities portfolio
was valued at $551,000. Management intends to continue to orderly liquidate the
remaining equity securities portfolio and does not anticipate any additional
write-downs.
<PAGE>
BANK WEST FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Gain on sale of loans increased by $102,000 or 21.9% in the nine months ended
March 31, 1999 over the comparable 1998 period. The increase is primarily
attributable to increases in loans sold due to higher refinancing volume in the
current low interest rate environment.
Other Expenses. Total other expenses increased by $444,000 or 37.9% in the
quarter ended March 31, 1999 over the comparable 1998 period. The increase was
primarily due to higher professional fees by $211,000 or 351.7% primarily
attributable to legal costs associated with a purported class action lawsuit
filed on July 17, 1998 by a Bank West borrower. Bank West is one of several
institutions that have been targeted in similar actions alleging the "practice
of law." Bank West possesses meritorious defenses and believes that filling in
blanks on mortgage instruments drafted by attorneys does not constitute the
"practice of law." Compensation and benefits expenses increased by $161,000 or
22.4% due to a $245,000 contract settlement accrual related to the former
President and Chief Executive Officer. The former President and Chief Executive
Officer was replaced by Ronald A. Van Houten, Interim Chief Executive Officer.
Also during the quarter, the Bank incurred a $77,000 loss on disposal of
non-compliant Year 2000 equipment and software. No additional Year 2000-related
losses on disposals are expected. The other categories of miscellaneous expenses
and other expenses did not significantly change in the quarter ended March 31,
1999 when compared to the March 31, 1998 quarter.
For the nine months ended March 31, 1999, total other expenses increased by
$804,000 or 23.9% over the comparable 1998 period. The increase was primarily
due to higher professional fees by $328,000 or 147.1%, compensation and benefits
by $257,000 or 12.5%, and loss on disposal of fixed assets of $77,000 for the
same reasons mentioned in the preceding paragraph. Also, occupancy expense was
higher by $40,000 or 18.7% due to leasing expenses incurred by Sunrise Mortgage
and data processing expense by $51,000 or 35.4% due to Year 2000 pass-thru
charges by the Bank's outside vendor which handles the core data processing. The
other categories of miscellaneous expenses and other expenses did not
significantly change in the nine months ended March 31, 1999 when compared to
the March 31, 1998 period.
Federal Income Tax Expense. Federal income tax expense decreased by $137,000 and
by $322,000 in the three and nine months ended March 31, 1999 over the
comparable 1998 periods, primarily due to lower pre-tax income levels.
LIQUIDITY
The Bank maintains a level of liquidity consistent with management's assessment
of expected loan demand, proceeds from loan sales, deposit flows and yields
available on interest-earning deposits and investment securities. When overnight
deposits fall below management's targeted level, management generally borrows
FHLB advances instead of selling securities.
The Bank's principal sources of liquidity are deposits, principal and interest
payments on loans, proceeds from loan sales, maturities of securities, sales of
securities available for sale and FHLB advances. While scheduled loan repayments
and maturing investments are relatively predictable, deposit flows and loan
prepayments are more influenced by interest rates, general economic conditions
and competition.
<PAGE>
BANK WEST FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
The Bank routinely borrows FHLB advances when overnight deposits are drawn to
low levels. These borrowings are made pursuant to the blanket collateral
agreement with the FHLB. At March 31, 1999, the Bank has approximately $25.2
million of excess borrowing capacity based on eligible collateral under the
blanket collateral agreement with the FHLB.
The Company (excluding the Bank) also has a need for, and sources of, liquidity.
Dividends from the Bank and interest income and gains on investments are its
primary sources. The Company also has modest operating costs and has paid a
regular quarterly cash dividend.
The Bank is subject to three capital to asset requirements in accordance with
banking regulations. Bank West's capital ratios are well in excess of minimum
capital requirements specified by federal banking regulations.
THE YEAR 2000
General. The Year 2000 issue confronting us, as well as our suppliers,
customers' suppliers and competitors, centers on the inability of many computer
systems to recognize the Year 2000. Many existing computer programs and systems
originally were programmed with six digit dates that provided only two digits to
identify the calendar year in the date field. With the impending millennium,
these programs and computers will recognize "00" as the year 1900 rather than
the year 2000 unless they are corrected or replaced.
Like most financial service providers, we may be significantly affected
by the Year 2000 issue due to our dependence on technology and date-sensitive
data. Computer software, hardware and other equipment, both within and outside
the Bank's direct control and third parties with whom the Bank electronically or
operationally interfaces are likely to be affected. If computer systems are not
modified in order to be able to identify the Year 2000, many computer
applications could fail or create erroneous results. In this event, calculations
which rely on date field information, such as interest, payment or due dates and
other operating functions, could generate results which are significantly
misstated.
In accordance with federal regulatory pronouncements, the Bank's Year
2000 plan addressed issues involving awareness, assessment, renovation,
validation, implementation and contingency planning. These phases are discussed
below.
Awareness and Assessment. The Bank has a Year 2000 team, consisting of
a committee of the Board of Directors which consists of two outside directors,
the Chief Executive Officer, three Vice Presidents, and an Information Systems
Coordinator. The Year 2000 Committee meets monthly and the Chairman of the
Committee, an outside director, reports to the Board of Directors on a monthly
basis.
<PAGE>
BANK WEST FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Management has conducted an assessment of all software, hardware,
environmental systems and other computer-controlled systems. In addition,
management has identified and developed an inventory of all technological
components and vendors. All "mission critical" areas have been identified.
Renovation Phase. The Bank is expected to complete its upgrade of
in-house hardware and software that is mission critical by June 30, 1999. The
Bank's core data processing software is provided by Fiserv Milwaukee, Inc.
("Fiserv"), an outside vendor. Fiserv represents that they are fully compliant.
Validation or Testing Phase. Utilizing a test lab environment, the Bank
during 1998 tested its loan origination, loan servicing, savings deposits,
savings withdrawal, general ledger and other activities for Year 2000
compliance. Extensive testing also took place with applications that interface
with Fiserv. The Bank explored during 1998 the steps involved in switching its
data processing to a different service provider in the event its current
provider was unable to become Year 2000 compliant in a timely manner. Based on
the results of the testing, the Bank does not believe that a switch to a new
service provider will be necessary.
Implementation Phase. Additional testing was conducted during the first
quarter of 1999, and the Bank is expected to complete the implementation phase
by June 30, 1999.
Contingency Planning. The Bank has adopted a contingency plan in the
event that one or more of its internal and external computer systems fail to
operate on or after January 1, 2000. In a worst case scenario, the Bank would
need to post accounts and general ledger entries manually. This system is in the
process of being set up. Testing of the Bank's business resumption plan is
scheduled to be completed by June 30, 1999.
The Bank has in place a $2 million line of credit from the Federal Home
Loan Bank of Indianapolis that can be used for liquidity purposes if other
sources of funds are not available when needed. The Bank can also obtain
short-term FHLB advances if necessary.
Risks. If one or more internal or external computer systems fail to
operate properly on or after January 1, 2000, the Bank may be unable to process
transactions, prepare statements or engage in similar normal business
activities. If all transactions were required to be handled manually due to
computer or other failures, the Bank would need to hire additional personnel
which could significantly increase expenses.
In the event any of our local utility companies were unable to provide
electricity or other needed services, our operations would be disrupted. Our
electricity provider has represented that they are Year 2000 complaint, however
the Bank is unable to provide any assurances as to the Year 2000 readiness of
the electricity provider or other utility companies.
<PAGE>
BANK WEST FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
We believe we have taken appropriate steps with respect to matters that
are within our control in order to become ready for the Year 2000 in a timely
manner. Based on the steps taken to date, including testing and other
documentation, management believes that issues related to Year 2000 will not
have a material adverse effect on the Company's liquidity, capital resources or
consolidated results of operations. However, we are unable to provide any
assurances that we have foreseen all problems that may develop on or after
January 1, 2000 or that we have taken all actions that may be considered
necessary in hindsight. In addition, the readiness of all third parties,
including customers and suppliers, in inherently uncertain and cannot be
guaranteed by us. While our outside service providers have shared with us their
testing results, none of the service providers have provided us with enforceable
assurances.
Costs. The Bank currently estimates the total cost of becoming Year
2000 compliant to be between $100,000 to $150,000. These costs will cover the
replacement of depreciable assets, primarily personal computers and consulting
costs. The costs associated with Year 2000 readiness are based on management's
best estimates. As testing continues and more progress is made, management will
continuously be assessing the estimated Year 2000 costs. As of March 31, 1999,
the Bank incurred approximately $75,000 representing purchases of equipment and
pass-through charges relating to Year 2000 readiness. During the March 31, 1999
quarter, the Bank recorded a loss of $77,000 (not included in the above
estimate) relating to Year 2000 obsolescence charges.
Status of Borrowers and Other Customers. The Bank's customer base
consists primarily of individuals who use the Bank's services for personal,
household or consumer uses. Management believes these customers are not likely
to individually pose material Year 2000 risks directly. It is not possible at
this time to gauge the indirect risks which could be faced if the employers of
these customers encounter unresolved Year 2000 issues. Most of the Bank's loans
are residential or consumer in nature. The Bank had approximately 125 commercial
borrowers as of March 31, 1999. Management has performed a review of these
commercial borrowers to determine if there are any Year 2000 issues or concerns
of the borrower that could affect repayment of the Bank's loan. To-date, no
issues or concerns have been identified. Accordingly, no specific Year 2000
related reserves have been assigned to these loans.
For new commercial loans, the Bank is requiring the borrower to
represent that it expects to become Year 2000 compliant in a timely manner and
that it will promptly notify the Bank if the borrower or any of its material
vendors or suppliers will not achieve compliance timely, in each case excluding
any noncompliance that would not have a material adverse effect on the
borrower's financial condition. The Bank believes these representations will
assist management in monitoring the status of new commercial borrowers.
NEW ACCOUNTING STANDARDS
A new accounting standard, SFAS No. 131, Disclosures About Segments of an
Enterprise and Related Information, will require future reporting of additional
information related to material business segments beginning with the year ended
June 30, 1999. The Company is in the process of determining whether the new
standard would result in the identification of additional reportable business
segments.
<PAGE>
BANK WEST FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
A new accounting standard, SFAS No. 133, Accounting for Derivative Instruments
and Hedging Activities, will require all derivatives to be recognized at fair
value as either assets or liabilities in the Consolidated Balance Sheets
beginning with the quarter ended September 30, 1999. Changes in the fair value
of derivatives not designated as hedging instruments are to be recognized
currently in earnings. Gains or losses on derivatives designated as hedging
instruments are either to be recognized currently in earnings or are to be
recognized as a component of other comprehensive income, depending on the
intended use of the derivatives and the resulting designations. The Company does
not believe adoption of this new standard will have a material impact on its
consolidated financial position or results of operations.
<PAGE>
BANK WEST FINANCIAL CORPORATION
Form 10-Q
Quarter Ended March 31, 1999
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings:
Other than the litigation filed by Kristine Cowles, discussed
in the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended
December 31, 1998, there are no material legal proceedings to which the Company
or its subsidiaries is a party or to which any of their property is subject. On
February 15, 1999, plaintiff filed a second amended complaint alleging a
violation of the federal Truth in Lending Act ("TILA"). Although extensive
discovery has been taken, discovery has not been completed.
Plaintiff's motion for class certification nevertheless
asserts that the class consists of no less than 2,862 loan customers, of which
plaintiff statistically calculates that about 2,582 loans included the
questioned document preparation charge. Plaintiff's damages claims include a
demand for the disgorgement of the entire document preparation fee, which
plaintiff alleges was $250 for most loans; plaintiff also seeks other damages
including statutory damages for alleged TILA violations, and attorney fees.
Although plaintiff seeks injunctive relief, that request is moot because
effective January 5, 1999 a document preparation fee is no longer charged. The
Company continues to vigorously defend this action.
Item 2 - Changes in Securities and Use of Proceeds:
There are no matters required to be reported under this item.
Item 3 - Defaults Upon Senior Securities:
There are no matters required to be reported under this item.
Item 4 - Submission of Matters to a Vote of Security-Holders:
There are no matters required to be reported under this item
Item 5 - Other Information:
There are no matters required to be reported under this item.
Item 6 - Exhibits and Reports on Form 8-K:
(a) Exhibits: The following exhibit is filed herewith:
Exhibit No. Description
----------- -----------
27.1 Financial Data Schedule
(b) Reports on Form 8-K:
No reports on Form 8-K were filed by the Registrant during
the quarter ended March 31, 1999.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BANK WEST FINANCIAL CORPORATION
Registrant
Date: May 14, 1999
/s/Ronald A. Van Houten
-----------------------
Ronald A. Van Houten
Chief Executive Officer
(Duly Authorized Officer)
Date: May 14, 1999
/s/Kevin A. Twardy
------------------
Kevin A. Twardy, Vice President and
Chief Financial Officer
(Principal Financial Officer)
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> MAR-31-1999
<CASH> 2,626,033
<INT-BEARING-DEPOSITS> 4,807,754
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 33,250,303
<INVESTMENTS-CARRYING> 14,129,749
<INVESTMENTS-MARKET> 13,929,499
<LOANS> 135,234,817
<ALLOWANCE> 397,267
<TOTAL-ASSETS> 200,978,711
<DEPOSITS> 128,642,323
<SHORT-TERM> 18,160,378
<LIABILITIES-OTHER> 1,407,536
<LONG-TERM> 30,000,000
0
0
<COMMON> 26,037
<OTHER-SE> 22,742,437
<TOTAL-LIABILITIES-AND-EQUITY> 200,978,711
<INTEREST-LOAN> 7,903,935
<INTEREST-INVEST> 2,017,718
<INTEREST-OTHER> 286,646
<INTEREST-TOTAL> 10,208,299
<INTEREST-DEPOSIT> 4,443,233
<INTEREST-EXPENSE> 6,248,420
<INTEREST-INCOME-NET> 3,959,879
<LOAN-LOSSES> 137,000
<SECURITIES-GAINS> (298,647)
<EXPENSE-OTHER> 4,167,953
<INCOME-PRETAX> 161,073
<INCOME-PRE-EXTRAORDINARY> 161,073
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 103,073
<EPS-PRIMARY> .04
<EPS-DILUTED> .04
<YIELD-ACTUAL> 7.19
<LOANS-NON> 1,155,000
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
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<ALLOWANCE-OPEN> 289,696
<CHARGE-OFFS> 29,429
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<ALLOWANCE-CLOSE> 397,267
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 31,759
</TABLE>
