UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------------
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For the Quarterly Period Ended Commission File Number
September 30, 1997 0-20160
-----------------------------
COVEST BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
Delaware 36-3820609
(State or other jurisdiction (I.R.S. Employer Identification
of incorporation or Number)
organization)
749 Lee Street, Des Plaines, Illinois 60016
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (847) 294-6500
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 -----
As of November 13, 1997, there were 3,406,616 outstanding shares of
the registrant's Common Stock, par value $.01 per share. Of those
outstanding, 496,039 shares were being held as treasury stock.
The Company declared a 3 for 2 stock split on October 28, 1997,
effective November 14, 1997 and payable December 1, 1997. All
number of shares have been restated as though the stock split
occurred on January 1, 1996.
<PAGE>2
COVEST BANCSHARES, INC.
Table of Contents
PART I. FINANCIAL INFORMATION (UNAUDITED) PAGE NO.
Item 1. Financial Statements.................... 3
Item 2. Management's Discussion and
Analysis of Financial Condition and
Results of Operations.................. 15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings...................... 26
Item 2. Changes in Securities.................. 26
Item 3. Defaults upon Senior Securities........ 26
Item 4. Submission of Matters to a Vote
of Security Holders.................... 26
Item 5. Other Information...................... 26
Item 6. Exhibits and Reports on Form 8-K....... 26
Form 10-Q Signatures............................. 27
<PAGE>3
PART 1. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
see notes to condensed consolidated financial statements
(unaudited)
COVEST BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CONDITION
(Unaudited) SEPT. 30, DEC. 31,
(Dollars in thousands except 1997 1996
per share amounts) --------- ---------
ASSETS
- ------
CASH AND CASH EQUIVALENTS
Cash and Amounts Due from
Depository Institutions $ 13,695 $ 12,837
------- --------
TOTAL CASH AND CASH EQUIVALENTS 13,695 12,837
INVESTMENTS:
Securities Available-for-Sale 36,891 53,751
Mortgage-Backed Securities and
Related Securities Available-
for-Sale 95,682 111,935
FHLB and Federal Reserve Bank Stock 4,089 7,190
--------- ---------
TOTAL INVESTMENTS 136,662 172,876
LOANS RECEIVABLE:
Mortgage Loans 238,535 253,473
Commercial Loans, Leases & Real Estate 62,912 29,596
Consumer Loans 59,356 56,900
--------- ---------
TOTAL LOANS RECEIVABLE 360,803 339,969
Less Allowance for Possible Loan Loss ( 1,532) ( 1,424)
--------- ---------
LOANS RECEIVABLE, NET 359,271 338,545
ACCRUED INTEREST RECEIVABLE 4,354 3,608
PREMISES AND EQUIPMENT 9,853 9,859
OTHER ASSETS 3,633 3,444
--------- ---------
TOTAL ASSETS $ 527,468 $ 541,169
========= =========
<PAGE>4
SEPT. 30, DEC. 31,
1997 1996
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
LIABILITIES:
Deposits $386,468 $402,090
Short-Term Borrowings and Securities
Sold U/A to Repurchase 57,441 53,690
Long-Term Advances from Federal
Home Loan Bank 25,000 25,000
Advances from Borrowers for
Taxes and Insurance 1,400 3,724
Accrued Expenses and Other Liabilities 7,430 6,721
--------- ---------
TOTAL LIABILITIES 477,739 491,225
STOCKHOLDERS' EQUITY:
Common Stock, par value $.01 per share;
7,500,000 authorized shares; 4,365,866
and 5,109,924 shares issued at
9/30/97 and 12/31/96 respectively 44 34
Additional Paid-in Capital 19,146 22,155
Retained Earnings 30,564 33,990
Treasury Stock, at cost, 514,950
shares held at 12/31/96 0 ( 5,838)
ESOP Loan ( 685) ( 858)
Unearned Stock Award ( 73) ( 73)
Unrealized Gain on Assets
Available-for-Sale 733 534
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 49,729 49,944
--------- ---------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $527,468 $541,169
========= =========
BOOK VALUE PER COMMON SHARE $ 11.39 $ 10.87
========= ========
See notes to condensed consolidated financial statements (unaudited)
<PAGE>5
<TABLE>
<CAPTION>
COVEST BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME THREE MONTHS ENDED NINE MONTHS ENDED
(Unaudited) SEPT 30, SEPT 30, SEPT 30, SEPT 30,
(Dollars in thousands except 1997 1996 1997 1996
per share amounts) --------- --------- ---------------------
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans Receivable $ 7,133 $ 6,900 $20,772 $19,918
Mortgage-Backed and Related Securities 1,623 2,809 5,254 8,774
Securities 689 1,213 2,573 3,016
Other Interest and Dividend Income 160 112 606 611
--------- --------- --------- ---------
$9,605 $11,034 $29,205 $32,219
INTEREST EXPENSE
Deposits 4,716 5,887 14,315 18,039
Advances from Federal Home Loan Bank 823 1,515 2,635 4,031
Other Borrowed Money 194 295 705 711
--------- --------- --------- ---------
5,733 7,697 17,655 22,781
NET INTEREST INCOME 3,872 3,337 11,550 9,438
Provision for Possible Loan Losses 430 300 1,183 832
NET INTEREST INCOME AFTER PROVISION --------- --------- --------- ---------
FOR POSSIBLE LOAN LOSSES 3,442 3,037 10,367 8,606
NON-INTEREST INCOME
Loan Charges and Servicing Fees 252 183 778 568
Deposit Related Charges and Fees 229 156 621 415
Gain on Sale of Securities 316 54 1,190 2,561
Other 112 133 223 247
--------- --------- --------- ---------
TOTAL NON-INTEREST INCOME 909 526 2,812 3,791
NON-INTEREST EXPENSE
Compensation and Benefits 1,382 1,203 3,881 3,572
Occupancy and Equipment 388 314 1,131 1,041
Federal Deposit Insurance Premium 65 3,336 138 3,866
Data Processing 222 186 643 591
Advertising and Name Change Expenses 130 111 472 236
Other 562 423 1,793 1,674
--------- --------- --------- ---------
TOTAL NON-INTEREST EXPENSE 2,749 5,573 8,058 10,980
INCOME BEFORE TAXES 1,602 (2,010) 5,121 1,417
Income Tax Provision 562 (753) 1,776 433
--------- --------- --------- ---------
NET INCOME $1,040 ($1,257) $3,345 $ 984
========= ========= ========= =========
EARNINGS PER COMON SHARE
Primary $ .21 ($ .23) $ .68 $ .18
Fully diluted $ .21 ($ .23) $ .66 $ .18
See notes to condensed consolidated financial statements (unaudited)
</TABLE>
<PAGE>6
COVEST BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS NINE MONTHS ENDED
(Unaudited) SEPT 30, SEPT 30,
(Dollars in thousands) 1997 1996
--------- ---------
OPERATING ACTIVITIES
Net Income $ 3,345 $ 984
Adjustments to Reconcile Net Income to
Cash Provided by Operating Activities
Depreciation and Amortization of
Premises and Equipment 739 495
Provision for Possible Loan Losses 1,183 832
Net Gain on Sale of Securities ( 1,190) (2,556)
Stock Award Earned 0 4
Change In:
Prepaid Expenses and Other Assets ( 44) 845
Accrued Interest Receivable ( 177) (1,524)
Accrued Expenses and Other Liabilities 709 3,687
--------- ---------
NET CASH FROM OPERATING ACTIVITIES 4,565 2,767
CASH FLOWS FROM INVESTING ACTIVITIES
Loan Originations, Net of Principal
Payments (39,698) (32,127)
Principal Payments on Mortgage-Backed
and Related Securities 6,146 38,909
Purchases of Mortgage-Backed and
Related Securities ( 754) (112,444)
Purchases of Securities ( 9,995) ( 47,948)
Proceeds from Sales and Maturities
of Securities 56,443 157,690
Change in FHLB and FRB Stock 3,101 ( 2,355)
Purchase of Office Properties and
Equipment ( 733) ( 190)
--------- ---------
NET CASH FROM INVESTING ACTIVITIES 14,517 1,535
<PAGE>7
NINE MONTHS ENDED
SEPT 30, SEPT 30,
1997 1996
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Decrease in Deposits ( 15,622) ( 48,866)
Repayments of Federal Home Loan Bank
Advances ( 12,000) ( 41,900)
Proceeds from Federal Home Loan Bank
Advances 12,000 61,000
Repayments/Proceeds from Other Borrowing 3,751 16,213
Net Change in Mortgage Escrow Funds ( 2,324) ( 3,676)
Purchase of Common Stock for Treasury ( 3,989) ( 4,405)
Proceeds from Exercise of Stock Options,
Net of Treasury Shares issued 683 488
Payment Received on Loan to ESOP 173 198
Dividend Paid, Net of Dividend
Reinvestment Program ( 896) ( 896)
--------- ---------
NET CASH FROM FINANCING ACTIVITIES ( 18,224) ( 21,844)
--------- ---------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 858 ( 17,542)
CASH AND CASH EQUIVALENTS, BEGINNING 12,837 19,198
--------- ---------
CASH AND CASH EQUIVALENTS, ENDING $ 13,695 $ 1,656
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest Paid $ 17,382 $ 22,785
Income Taxes Paid 1,700 1,250
See notes to condensed consolidated financial statements (unaudited)
<PAGE>8
<TABLE>
COVEST BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited)
(Dollars in thousands)
Nine months ended September 30, 1997 and 1996
<CAPTION>
UNREALIZED
GAIN (LOSS)
ADDITIONAL UNEARNED ON ASSETS
COMMON PAID-IN RETAINED TREASURY ESOP STOCK AVAILABLE
STOCK CAPITAL EARNINGS STOCK LOAN AWARD FOR SALE TOTAL
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995 $28 $27,229 $39,373 ($ 9,397) ($1,198) ($ 97) $1,739 $57,677
Net Income 984 984
Cash Dividends ($.178 per share) ( 896) (896)
Purchase of Treasury Stock ($ 4,405) (4,405)
Principal Payment on ESOP Loan 198 198
Shares issued in conjunction with
three-for-two stock split, and
cash paid on fractional shares 6 ( 5,379) (5,209) 10,582 0
Treasury Stock reissued in conjunction
with stock option exercises ( 542) 1,030 488
Amortization of Stock Award 4 4
Change in Unrealized Gain/Loss on Securities
Available-for-Sale (2,417) (2,417)
- -----------------------------------------------------------------------------------------------------------------------
Balance at Sept 30, 1996 $34 $21,850 $33,710 ($ 2,190) ($1,000) ($ 93) ($ 678) $51,633
=======================================================================================================================
Balance at December 31, 1996 $34 $22,155 $33,990 ($5,838) ($ 858) ($ 73) $ 534 $49,944
Net Income 3,345 3,345
Cash Dividends ($.20 per share) ( 896) ( 896)
Purchase of Treasury Stock (3,989) (3,989)
Principal Payment on ESOP Loan 173 173
Treasury Stock reissued in conjunction 25 ( 578) 1,236 683
with stock option exercises
Tax Benefits related to Employee
Stock Plans 270 270
Shares Issued in Conjunction with a
Three for Two Stock Split 10 (3,304) (5,297) 8,591
Change in Unrealized Gain/Loss on Securities
Available-for-Sale 199 199
- -----------------------------------------------------------------------------------------------------------------------
Balance at Sept 30, 1997 $44 $19,146 $30,564 $ 0 ($ 685) ($ 73) $ 733 $49,729
=======================================================================================================================
See notes to condensed consolidated financial statements (unaudited)
</TABLE>
<PAGE>9
<TABLE>
COVEST BANCSHARES, INC.
AVERAGE BALANCE SHEET
(Dollars in thousands)
See notes to condensed consolidated financial statements (unaudited)
The following table sets forth certain information related to the Company's
average balance sheet. It reflects the average yield on assets and average
cost of liabilities for the periods indicated, as derived by dividing income
or expense by the average daily balance of assets or liabilities,
respectively, for the periods indicated.
<CAPTION>
THREE MONTHS ENDED
--------------------------------------------------------------------------------------
SEPT 30, 1997 SEPT 30, 1996
----------------------------------------- --------------------------------------
AVERAGE AVERAGE
AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST COST BALANCE INTEREST COST
INTEREST-EARNING ASSETS: ----------------------------------------- --------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Mortgage Loans $245,906 $4,541 7.39% $292,612 $ 5,537 7.57%
Commercial Loans, Leases
and Real Estate 53,982 1,230 9.11 5,056 110 8.59
Consumer Loans 59,443 1,362 9.17 53,382 1,253 9.39
Mortgage-Backed and
Related Securities 92,091 1,623 7.05 183,970 2,809 6.11
Investment Securities 40,144 689 6.87 71,985 1,183 6.57
Other Investments 11,800 160 5.42 8,949 142 6.32
----------------------------------------- ---------------------------------------
Total Interest-Earning Assets $503,366 9,605 7.63% $615,954 $ 11,034 7.15%
Non-Interest Earning Assets 15,737 13,480
----------------------------------------- ---------------------------------------
TOTAL ASSETS $519,103 $ 629,434
======== =========
INTEREST-BEARING LIABILITIES:
Interest-Bearing Checking $ 22,065 $ 99 1.79% $ 21,653 $ 98 1.78%
Money Market Accounts 52,082 636 4.88 20,081 215 4.27
Savings 62,580 395 2.52 69,233 434 2.50
Certificates of Deposit 245,870 3,586 5.83 325,664 5,140 6.30
FHLB Advances 53,580 823 6.14 101,345 1,515 5.85
Other Borrowed Funds 14,281 194 5.43 21,908 295 5.39
----------------------------------------- --------------------------------------
Total Interest-Bearing
Liabilities $450,458 $5,733 5.09% $ 559,884 $ 7,697 5.45%
Non-Interest Bearing
Deposits 11,845 4,748
Other Liabilities 10,934 11,580
----------------------------------------- --------------------------------------
TOTAL LIABILITIES $473,237 $ 576,212
----------------------------------------- --------------------------------------
Stockholders' Equity 45,866 53,222
----------------------------------------- --------------------------------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $519,103 $ 629,434
======== =========
NET INTEREST INCOME $3,872 $ 3,337
----------------------------------------- --------------------------------------
NET INTEREST RATE SPREAD (1) 2.54% 1.70%
----------------------------------------- --------------------------------------
NET INTEREST MARGIN (2) 3.08% 2.16%
----------------------------------------- --------------------------------------
(1) Interest Rate Spread is calculated by subtracting the average cost of
Interest-Bearing Liabilities from the average net rate on Interest-Earning
Assets.
(2) Net Interest Margin is calculated by dividing Net Interest Income by
average Interest-Earning Assets.
</TABLE>
<PAGE>10
COVEST BANCSHARES, INC.
AVERAGE BALANCE SHEET
(Dollars in thousands)
See notes to condensed consolidated financial statements (unaudited)
The following table sets forth certain information related to the Company's
average balance sheet. It reflects the average yield on assets and average
cost of liabilities for the periods indicated, as derived by dividing income
or expense by the average daily balance of assets or liabilities,
respectively, for the periods indicated.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
--------------------------------------------------------------------------------------
SEPT 30, 1997 SEPT 30, 1996
----------------------------------------- ---------------------------------------
AVERAGE
AVERAGE
AVERAGE YIELD/ AVERAGE
YIELD/
BALANCE INTEREST COST BALANCE INTEREST
COST
INTEREST-EARNING ASSETS: ----------------------------------------- ------------------------------
<S> <C> <C> <C> <C> <C>
Mortgage Loans $252,536 $14,030 7.41% $ 281,924 $ 15,793
<C>
7.47%
Commercial Loans, Leases,
and Real Estate 42,024 2,667 8.46 3,753 246
8.76
Consumer Loans 58,267 4,075 9.32 53,374 3,779
9.44
Mortgage-Backed and
Related Securities 99,438 5,254 7.05 192,663 8,774
6.07
Investment Securities 51,454 2,573 6.67 66,164 3,219
6.49
Other Investments 14,881 606 5.43 8,692 408
6.26
----------------------------------------- ---------------------------------------
Total Interest-Earning Assets $518,600 29,205 7.51% $ 606,570 $ 32,219
7.08%
Non-Interest Earning Assets 17,981 14,557
----------------------------------------- --------------------------------------
TOTAL ASSETS $536,581 $ 621,127
======== ========
INTEREST-BEARING LIABILITIES:
Interest-Bearing Checking $ 21,765 291 1.78% $ 22,029 $ 295
1.79%
Money Market Accounts 49,367 1,783 4.82 14,163 395
3.72
Savings 64,072 1,199 2.50 69,412 1,299
2.50
Certificates of Deposit 255,991 11,042 5.75 338,068 16,050
6.16
FHLB Advances 59,393 2,635 5.92 89,672 4,031
5.91
Other Borrowed Funds 16,495 705 5.70 17,904 711
5.29
----------------------------------------- ------------------------------------
Total Interest-Bearing
Liabilities $467,083 17,655 5.04% $ 551,248 $ 22,781
5.50%
Non-Interest Bearing
Deposits 10,950 7,703
Other Liabilities 11,699 7,075
----------------------------------------- -------------------------------------
TOTAL LIABILITIES $489,732 $ 566,026
----------------------------------------- -------------------------------------
Stockholders' Equity 46,839 55,101
----------------------------------------- -------------------------------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $536,581 $ 621,127
======== ========
NET INTEREST INCOME $11,550 $ 9,438
----------------------------------------- --------------------------------------
NET INTEREST RATE SPREAD (1) 2.47%
1.58%
----------------------------------------- --------------------------------------
NET INTEREST MARGIN (2) 2.97%
2.07%
----------------------------------------- ---------------------------------------
(1) Interest Rate Spread is calculated by subtracting the average cost of
Interest-Bearing Liabilities from the average net rate on Interest-Earning
Assets.
(2) Net Interest Margin is calculated by dividing Net Interest Income by
average Interest-Earning Assets.
</TABLE>
<PAGE>11
COVEST BANCSHARES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) Basis of Presentation
The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-Q and Regulation S-X. Accordingly, they do
not include all the information and footnotes required by generally
accepted accounting principles for complete financial statements.
The results of operations and other data for the quarter and nine
months ended September 30, 1997 are not necessarily indicative of
results that may be expected for the entire year ending December 31,
1997.
In the opinion of management, the unaudited condensed consolidated
financial statements contain all adjustments (consisting only of
normal recurring adjustments) necessary to present fairly the
financial condition of CoVest Bancshares, Inc. (the "Company"),
formerly known as FirstFed Bancshares, Inc., including its wholly
owned subsidiary,CoVest Banc, National Association (the "Bank"),
formerly known as First Federal Bank for Savings, as of September
30, 1997 and December 31, 1996; the results of the Company's
operations for the three months ended September 30, 1997 and 1996
and the nine months ended September 30, 1997 and 1996; its cash
flows for the nine months ended September 30, 1997 and 1996; its
changes in stockholders' equity for the nine months ended September
30, 1997 and 1996; and its average balance sheet for the three
months ended September 30, 1997 and 1996, and the nine months ended
September 30, 1997 and 1996.
All references to number of shares issued, outstanding (primary and
fully-diluted) and held in treasury, earnings per share, and book
value per share, for periods prior to the third quarter of 1996,
have been restated as if the three-for-two stock split which
occurred on May 15, 1996, and the second three-for-two stock split
which will occur on December 1, 1997, had actually first occurred on
January 1, 1996.
Certain amounts in prior condensed consolidated financial statements
have been reclassified to conform with the September, 1997
presentation.
(2) Regulatory Capital Requirements
Pursuant to regulations promulgated by the Office of Comptroller of
Currency (the "OCC"), national banks must meet two separate minimum
capital requirements. The following table summarizes, as of
September 30, 1997, the Bank's capital requirements under OCC
regulations and its actual capital ratios. As of September 30,
1997, the Bank exceeded all current minimum regulatory capital
requirements.
<PAGE>12
BANK ONLY
--------------------------------------------------
Actual Regulatory Excess Above
Capital Capital Req. Capital Req.
Amount % Amount % Amount %
------- ------ ------- ----- ------- ---
(Dollars in Thousands)
Risk-Based Capital $46,714 16.51% $22,641 8.00% $24,073 8.51%
Leverage Capital 45,182 8.60 15,770 3.00 29,412 5.60
(3) Conversion and Earnings Per Share of Common Stock
On June 30, 1992, the Bank converted from a federally chartered
mutual savings bank to a federally chartered stock savings bank. The
Bank issued all of its Common Stock to the Company and at the same
time the Company issued 7,245,000 shares (post-splits) of Common
Stock at $4.44 per share (post-splits), all pursuant to a plan of
conversion.
On August 1, 1997, the Bank completed the conversion process from a
federally chartered stock savings bank to that of a national bank,
named CoVest Banc National Association.
On July 30, 1997, the Company's Board of Directors adopted a
Shareholders' Rights Plan. The Plan is intended to discourage
persons, groups and entities from acquiring large stakes in the
Company or making a tender offer without first discussing their
intentions with the Company's Board of Directors.
The Plan provided for the distribution of one Right on August 25,
1997, for each share of the Company's outstanding common stock as of
August 11, 1997. The Rights have no immediate economic value to
shareholders because they cannot be exercised unless and until a
person, group or entity acquires 15 percent or more of the Company's
common stock or announces a tender offer. The Plan also permits the
Company's Board of Directors to redeem the Rights for one cent each
under various circumstances.
In general, the Rights Plan provides that if a person, group or
entity acquires a 15 percent or larger stake in the Company or
announces a tender offer, and the Company's Board chooses not to
redeem the Rights, all holders of Rights, other than the 15 percent
shareholder or the tender offeror, will be able to purchase a
certain amount of the Company's common stock for half of its market
price.
Primary and fully diluted earnings per share for the third quarter
of 1997 were computed by dividing net income by 4,903,565 (post-
splits) and 5,067,344 (post-splits), and for the nine months ended
<PAGE>13
September 30, 1997 by 4,916,523 (post-splits) and 4,997,279 (post-
splits) respectively, the weighted average number of shares of
common stock and common stock equivalents outstanding during the
periods. Primary and fully diluted earnings per share for the third
quarter of 1996 were computed by dividing net income by 5,361,560
(post-splits) and 5,356,448 (post-splits), and for the nine months
ended September 30, 1996 by 5,378,679 (post-splits) and 5,416,523
(post-splits) respectively, the weighted average number of shares of
common stock and common stock equivalents outstanding during the
periods. Stock options are regarded as common stock equivalents and
are computed using the treasury stock method.
(4) Stock Repurchase Program
On June 24, 1997, the Company's Board of Directors approved a new
Stock Repurchase Program, enabling the Company to repurchase up to
100,000 shares of its outstanding stock. As of November 3, 1997,
all 100,000 shares had been repurchased at an average price of
$23.02.
On October 27, 1997, the Company's Board of Directors approved a new
Stock Repurchase Program, the Company's twelfth, enabling the
Company to repurchase up to 150,000 (post-splits) shares of its
outstanding stock. These purchases will be made in the open market
and/or through privately negotiated transactions. The stock will be
used for the issuance of shares in connection with the exercises of
previously granted stock options. On November 13, 1997, 57,450
shares (post-splits) had been repurchased at an average price of
$16.75 (post-splits).
(5) Stock and Cash Dividends
On May 15, 1996, the Company effectuated a three-for-two stock split
payable in the form of a one-for-two stock dividend. The regular
quarterly cash dividend rate remained at $.10 per share post-split,
representing a 50% increase in the dividend rate as a result of the
split. The regular cash dividend paid during the third quarter of
1997 was $.10 per common share.
On December 1, 1997, the second three-for-two stock split, payable
in the form of a one-for-two stock dividend, will take place. All
amounts have been restated to show the effect of this stock
dividend.
(6) Safe Harbor Statement
This report contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended,
and Section 21E of the Securities Exchange Act of 1934, as amended.
The company intends such forward-looking statements to be covered by
the safe harbor provisions for forward-looking statements contained
in the Private Securities Reform Act of 1995, and is included in
this statement for purposes of these safe harbor provisions.
Forward-looking statements, strategies and expectations of the
Company, are generally identifiable by use of the words "believe",
"expect", "intend", "anticipate", "estimate", "project" or similar
expressions. The company's ability to predict results or the actual
effect of future plans or strategies is inherently uncertain.
Factors which could have a material adverse affect on the operations
and future prospects of the Company and its subsidiaries include,
but are not limited to, changes in: interest rates, general economic
conditions, legislative/regulatory changes, monetary and fiscal
policies of the U.S. Government, including policies of the U.S.
Treasury and the Federal Reserve Board, the quality of composition
of the loan or investment portfolios, demand for loan products,
deposit flows, competition, demand for financial services in the
<PAGE>14
Company's market area and accounting principles, policies and
guidelines. These risks and uncertainties should be considered in
evaluating forward-looking statements and undue reliance should not
be placed on such statements. Further information concerning the
Company and its business, including additional factors that could
materially affect the Company's financial results, is included in
the Company's filings with the Securities and Exchange Commission.
<PAGE>15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
- --------
The Company's business activities currently consist of ownership of
the Bank, and investments in other equity securities. The Bank's
principal business consists of attracting deposits from the public and
investing these deposits, together with funds generated from operations,
primarily in commercial loans, leases and commercial real estate,
loans secured by mortgages on one-to-four family residences and
consumer loans. It is management's intention that commercial loans
will become an increasingly larger portion of the total loan
portfolio as the balance sheet restructuring continues. The Bank's
deposit accounts are insured to the maximum allowable by the Federal
Deposit Insurance Corporation (the "FDIC").
The Bank's results of operations are dependent primarily on net
interest income, which is the difference between the interest earned
on its loans, and securities portfolios, and the interest paid on
deposits and borrowed funds. The Bank's operating results are also
affected, to a lesser extent, by loan commitment and servicing fees,
customer service charges, fees from annuity and insurance products,
and other income. Operating expenses of the Bank include employee
compensation and benefits, equipment and occupancy costs, federal
deposit insurance premiums and other administrative expenses.
The Bank's results of operations are further affected by economic
and competitive conditions, particularly changes in market interest
rates. Results are also affected by monetary and fiscal policies of
federal agencies, and actions of regulatory authorities.
The name of the company was changed to CoVest Bancshares, Inc.
effective as of June 2, 1997. The Company's common stock, formerly
listed on the Nasdaq Stock market under the trading symbol "FFDP"
became "COVB" on June 2, 1997. In addition, the Company, which was
a thrift holding company owning all of the capital stock of CoVest
Banc, formerly First Federal Bank for Savings, a federally chartered
savings bank with its main office in Des Plaines, Illinois, applied
for and received approval from the Office of the Comptroller of the
Currency and converted the charter of the Bank to that of a national
banking association, effective August 1, 1997.
FINANCIAL CONDITION
- -------------------
Total consolidated assets of the Company decreased by $13.7 million
from $541.2 million at December 31, 1996, to $527.5 million at
September 30, 1997. Although total assets remained relatively
stable, the redeployment of securities proceeds from maturities,
paydowns, and sales continue to fund additional loans as well as to
redeem high yielding certificates of deposit.
<PAGE>16
Total loans receivable increased $20.8 million, or 6.1% from $340
million at December 31, 1996, to $360.8 million at September 30,
1997. This increase occurred even though the Bank securitized $17.8
million of long-term first mortgage loans and now holds them as
mortgage-backed securities available-for-sale. Loans originated
during the nine months ended September 30, 1997 were comprised of
45% commercial loans, leases and commercial real estate, 36% of
mortgages and 19% of consumer loans. This compares with loans
originated during the nine month period ended September 30, 1996,
when 4% were commercial real estate loans, 59% were mortgages and
37% were consumer loans.
Securities available-for-sale decreased by $16.9 million as various
government agency securities were called as a result of the decline
in interest rate levels since December 31, 1996.
Mortgage-backed and other mortgage-related securities decreased
$16.3 million or 14.5% from December 31, 1996. This decrease occurred
even after the previously discussed securitization of $17.8 million
of the Bank's first mortgages. During this nine month period,
proceeds from the sales of and paydowns on mortgage-backed
securities were used to fund additional loan volume and to a lesser
extent, pay off high yielding certificates of deposit. At September
30, 1997, mortgage-backed and non mortgage-backed securities
comprised 26% of total assets.
Deposits decreased to $386.5 million at September 30, 1997, from
$402.1 million at December 31, 1996. All of this decrease resulted from
the Bank's previously heavy reliance on certificates of deposit
which, as a percentage of deposits, have decreased to 63% as of
September 30, 1997 from 66% as of December 31, 1996. The only
deposit account to show growth was the Bank's Preferred Money Market
account. This account is indexed to the 91 day U.S. Treasury Bill
rate, to reflect the weekly change that occurs as a result of the
auction in the bond market.
Book value per common share increased to $11.39 (post-splits) at
September 30, 1997 from $10.87 (post-splits) at December 31, 1996,
partially as a result of stock repurchases.
Total non-performing assets as of September 30, 1997 stood at
$1,182,000 or .22% of total assets. At December 31, 1996, non-
performing assets were $856,000 or 0.16% of total assets.
Historically this number has ranged between .04% and .24% of total
assets, which is below the rate experienced by the Bank's peer
group. Management believes the reserves for possible loan losses to
be adequate. Furthermore, 68% of non-performing loans were single
family mortgages, and the Bank has not incurred a loss on single
family mortgages within the last six years.
<PAGE>17
The following table sets forth the amounts and categories of non-
performing loans and assets.
Sept. 30, 1997 Dec. 31, 1996
------------- -------------
(Dollars in Thousands)
Non-performing loans:
Commercial loans, leases and
commercial real estate $ -0- $ -0-
One-to-four family 813 599
Consumer 337 257
------------- -------------
Total non-performing loans $ 1,150 $ 856
Other real estate owned $ -0- $ -0-
Other repossessed assets $ 32 $ -0-
------------- -------------
Total non-performing assets $ 1,182 $ 856
Total non-performing loans as
a percentage of net loans .32% .22%
Total non-performing loans as
a percentage of total assets .22% .16%
Total non-performing assets as
a percentage of total assets .22% .16%
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Company's primary sources of funds are deposits, principal and
interest payments on loans and mortgage-backed securities, and funds
provided by other operations. While scheduled loan and mortgage-
backed securities repayments and maturities of short-term investments are a
relatively predictable source of funds, deposit flows and loan
prepayments are greatly influenced by general interest rates,
economic conditions, competition and the restructuring occurring in the
banking industry.
The Company's cash flows are a result of three principal activities:
operating activities, investing activities and financing activities.
Net cash provided by operating activities, primarily net income, was
$4.6 million for the nine months ended September 30, 1997. Net cash
used in investing activities was $14.5 million for the nine months
ended September 30. Net cash used in financing activities amounted
to $18.2 million for the nine months ended September 30, 1997.
The Company uses its liquidity to meet its ongoing commitments to
fund maturing certificates of deposit and deposit withdrawals, repay
borrowings, fund existing and continuing loan commitments, and pay
operating expenses. At September 30, 1997, the Company had
commitments to originate loans and undisbursed loan balances
totaling $12.7 million, and its customers had approved but unused
lines of credit totaling $64.8 million. The Company considers its
liquidity and capital resources to be adequate to meet its foreseeable
short and long-term needs. The Company expects to be able to fund or
refinance, on a timely basis, its material commitments and long-term
liabilities.
<PAGE>18
At September 30, 1997, the Bank had Tier 1 capital of $45.2
million, or 8.60% of adjusted total assets, which was approximately
$29.4 million and $37.3 million above the minimum leverage ratio
requirement in effect on that date of 3% of adjusted total assets.
On September 30, 1997, the Bank had total risk-based capital of $
46.7 million (including $45.2 million in core capital), or 16.5% of
risk-weighted assets of $283 million. This amount was approximately
$24.1 million above the 8% total risk-based capital requirement in
effect on that date.
SELECTED RATIOS
- ---------------
(unaudited) THREE MONTHS ENDED NINE MONTHS ENDED
SEPT 30, SEPT 30, SEPT 30, SEPT 30,
1997 1996 1997 1996
-------------------------------------
Annualized Return on Avg. Equity 9.07% -9.45% 9.52% 2.38%
Annualized Return on Avg. Assets 0.80% -0.80% 0.83% 0.21%
Book Value per Share $11.39 $ 10.50 $11.39 $10.50
Tangible Book Value per Share $10.81 $ 10.15 $10.81 $10.15
Closing Market Price per Share $16.17 $ 11.00 $16.17 $11.00
Earnings per Primary Share $ .21 $( .23) $ .68 $ .18
Net Interest Margin 3.08% 2.16% 2.97% 2.07%
Ratio of Operating Expense to
Average Total Assets,
Annualized 2.12% 3.54% 2.00% 2.65%
Ratio of Net Interest Income to
Non-Interest Expense,
Annualized 1.41x .60X 1.43x .86X
YEAR 2000 COMPLIANCE
- --------------------
The Bank has an ongoing program designed to ensure that its
operational and financial systems will not be adversely affected by
year 2000 software failures due to processing errors arising from
calculations using the year 2000 date. While the Bank believes it
is taking adequate measures to assure year 2000 compliance, it is to
a great extent dependent upon vendor cooperation. The Bank has
recently converted many of its major applications to new vendors and
purchased new hardware and software in this transition.
The Bank is requiring its computer systems and software vendors to
represent that the products provided are or will be year 2000
compliant and has planned a program of testing for compliance. It
is recognized that any year 2000 compliance failures could result in
additional expense to the Bank.
<PAGE>19
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997
AND 1996
- --------------------------------------------------------------------
GENERAL. Net income for the three months ended September 30, 1997
was $1,040,000, or $.21 per share, compared to a loss of $1,257,000, or
a loss of $.23 per share for the three months ended September 30,
1996. This represents an increase of $2,297,000 or 183%. The
special $3,070,000 pre-tax assessment to recapitalize the Savings
Association Insurance Fund ("SAIF") and corresponding decrease in
income tax expense had the most significant "one time" impact on net
income. Without the effect of this special assessment and income
tax reduction, net income for the three months ended September 30,
1996, would have been $731,000, or $.13 per share. Earnings for the
third quarter of 1996 were further reduced as a result of the
restructuring of the balance sheet, which resulted in a yield
reduction as 15 and 30-year fixed rate investments were replaced by
adjustable rate securities. The redeployment of assets from
variable rate mortgage-backed securities into commercial loans,
leases and commercial real estate loans and the maturity of the
7.80% certificates of deposit in September, 1996, positively
impacted the net interest spread significantly. The average net
interest rate spread for the three month period ended September 30,
1997 was 2.54% compared to 1.70% for the same period in 1996.
INTEREST INCOME. Interest income decreased by $1.4 million or 13%
to $9,605,000 for the three month period ended September 30, 1997 as
compared to $11,034,000 for the same period in 1996, even though the
yield on average earning assets increased 48 basis points to 7.63%
for the quarter ended September 30, 1997 as compared to a 7.15%
yield for the same period in 1996. Contributing to the increase in
yield was the restructuring of the balance sheet, which resulted in
higher levels of commercial loans, leases and commercial real estate
loans. The average volume of earning assets decreased by almost
$112.6 million as mortgage-backed and related securities were liquidated
during the last half of 1996 to fund maturities relating to the 7.80%
certificate of deposit promotion and to repay Federal Home Loan Bank
advances.
INTEREST EXPENSE. Interest expense decreased by $2 million or 25.5%
to $5,733,000 for the three month period ended September 30, 1997 as
compared to $7,697,000 for the same period in 1996. This was
primarily the result of a decrease in funding liabilities which
declined by $109.4 million, or 19.5%, most notably in certificates
of deposit as discussed before. The largest growth in deposits came
in the Bank's Preferred Money Market account. The cost of total
interest-bearing liabilities for the three months ended September
30, 1997 was 5.09% compared to 5.45% for the three months ended
Setepmber 30, 1996, a decrease of 36 basis points.
NET INTEREST INCOME. Net interest income increased by $535,000 or
16% over the third quarter of 1996. The net interest margin
increased to 3.08% for the three months ended September 30,
1997 from 2.16% for the same quarter of 1996.
<PAGE>20
PROVISION FOR POSSIBLE LOAN LOSSES. The provision for possible loan
losses totaled $430,000 for the three months ended September 30,
1997, compared to $300,000 for the three months ended September 30, 1996.
This $130,000 increase was primarily related to new commercial and
commercial real estate loans, for which a provision is established
as new volume is added. The Company, and the banking industry as a
whole, has seen more credit card charge-offs resulting from personal
bankruptcies. For the quarter ended September 30, 1997, 49% of all
of the Company's charge-offs were for personal bankruptcy reasons.
Based upon recent experience of other credit card lenders, losses
are expected to continue at this general level for the near term.
Management regularly conducts a review of its loan portfolio, write-
off experiences and adequacy of allowance and believes the allowance
to be adequate.
LOAN LOSS ALLOWANCE ANALYSIS. The following table sets forth an
analysis of the Company's allowance for possible loan losses for the
periods indicated.
Three Months Ended
Sept 30, Sept 30,
1997 1996
--------- ---------
(Dollars in Thousands)
Balance at beginning of period $ 1,489 $ 1,254
Charge-offs:
Commercial loans, leases, and
commercial real estate -0- -0-
One-to-four family -0- -0-
Consumer 429 251
--------- ---------
Total 429 251
--------- ---------
Recoveries:
Commercial loans, leases, and
commercial real estate -0- -0-
One-to-four family -0- -0-
Consumer 42 60
--------- ---------
Total 42 60
--------- ---------
Net charge-offs 387 191
Additions charged to
operations 430 300
--------- ---------
Balance at end of period $ 1,532 $1,363
Ratio of net charge-offs during
the period to average loans
outstanding during the period .11% 0.05%
Ratio of allowance to non-
performing loans 1.33x 1.67x
<PAGE>21
NET INTEREST INCOME AFTER PROVISION FOR POSSIBLE LOAN LOSSES. Net
interest income after provision for possible loan losses increased
by $405,000 or 13.3% to $3,442,000 for the three month period ended
September 30, 1997 as compared to $3,037,000 for the three month
period ended September 30, 1996.
NON-INTEREST INCOME. Non-interest income increased by $383,000 or
72.8% to $909,000 for the three month period ended September 30,
1997 as compared to $526,000 for the same period in 1996. $262,000
of this increase was the result of sales of thrift and commercial
bank stocks at the holding company level. Loan related charges and
servicing fees increased $69,000 or 37.7%, from $183,000 for the
three months ended September 30, 1996, to $252,000 for the three
month period ended September 30, 1997.
Deposit related fees and charges increased, from $156,000 for the
third quarter of 1996 to $229,000 for the third quarter of 1997, an
increase of $73,000 or 46.8%, due to a general increase in fees charged or
generated by transaction accounts and other Bank services.
NON-INTEREST EXPENSE. Non-interest expense was $2,749,000 for the
quarter ended September 30, 1997, compared to $5,573,000 for the
same period in 1996, a decrease of $2,824,000 or 50.7%. During the
third quarter of 1996, a non-recurring expense was recorded for
$3,070,000 representing the special one time assessment to
recapitalize the SAIF.
Without giving consideration to the special SAIF expense, the
increase in non-interest expense of $246,000 was mostly due to the
increased staffing levels in the commercial lending area where the
bank added an experienced Executive Vice-President to head the
Bank's Commercial Lending Department, along with four commercial
lenders to generate commercial business.
INCOME TAX EXPENSE. Income tax expense increased $1,315,000 to
$562,000 for the quarter ended September 30, 1997, compared to
($753,000) for the same period in 1996, due to the increase in
income.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
AND 1996
- -----------------------------------------------------------------
GENERAL. Net income for the nine months ended September 30, 1997
was $3,345,000, compared to $984,000 for the nine months ended
September 30, 1996, an increase of $2,361,000 or 240%. Earnings per
share for the nine months of 1997 was $.68 per share versus $.18 per
share for the like period in 1996. The composition of the earnings,
however, changed dramatically between these two nine month periods.
Gains from the sale of securities decreased by $1,371,000. The
balance sheet restructuring which began in 1996 generated $2,507,000
from the sale of long-term fixed-rate assets versus $1,190,000 of
securities gains in 1997 from the sale of thrift and commercial bank
stocks at the holding company level.
<PAGE>22
Earnings for the nine months ended September 30, 1996 were reduced
as a result of the special $3,070,000 pre-tax assessment to
recapitalize the SAIF and corresponding decrease in income tax
expense. Returns on average assets and average equity for the nine
months were 0.83% and 9.52%, respectively, in 1997, compared to
0.21% and 2.38% in 1996. Without the 1996 special assessment and
tax benefit, the return on average assets and average equity for the
first nine months of 1996 would have been 0.64% and 7.19%,
respectively.
INTEREST INCOME. Interest income decreased by $3.0 million or 9.4%
to $29.2 million for the nine month period ended September 30, 1997
as compared to $32.2 million for the same period in 1996, as the
average volume fell from $606.6 million to $518.6 million, even
though the yield on average earning assets increased 43 basis points
to 7.51% for the first nine months of 1997, as compared to a 7.08%
yield for the same period in 1996. Contributing to the increase in
yield was the restructuring of the balance sheet which took place
during 1996. Mortgage-backed securities continued to be converted
to higher yielding commercial loans, leases and commercial real
estate loans. In addition, some of the proceeds from the sale of
mortgage-backed securities were used to pay off depositors when the
7.80% certificates of deposit came due in September, 1996.
INTEREST EXPENSE. Interest expense decreased by $5.1 million or
22.5% to $ 17,655,000 for the nine month period ended September 30, 1997
as compared to $22,781,000 for the same period in 1996. This
decrease was attributed to two factors. The first factor was the
special 7.8% Certificate of Deposit promotion, which was held in March of
1995 and matured in September, 1996. The other factor was an increase in
money market accounts which rose on average for the nine months by
$35.2 million. The Company launched its Preferred Money Market
account, which has become one of the Company's core accounts, in
July of 1996. This account is indexed to the 91-day U.S.Treasury
Bill rate, and it reflects the weekly changes that occur in the
market. The cost of total interest-bearing liabilities for the nine
months ended September 30, 1997 was 5.04%, compared to 5.50% for the
nine months ended September 30, 1996, a decrease of 46 basis points.
NET INTEREST INCOME. Net interest income increased by $2,112,000 or
22.4% over the first nine months of 1996. The net interest margin
increased to 2.97% for the nine months ended September 30, 1997,
from 2.07% for the first nine months of 1996.
PROVISION FOR POSSIBLE LOAN LOSSES. The provision for possible loan
losses totaled $1,183,000 for the nine months ended September 30,
1997 compared to $832,000 for the nine months ended September 30,
1996. Of this $351,000, or 42% increase, $231,000 was related to
new commercial loans, leases, and commercial real estate loans. The
Company establishes an allowance for possible losses on a percentage
of outstanding balances basis as this new line of business grows at
the Bank. The balance of this increase resulted from a decision by
management to increase possible loan loss allowances in light of
higher write-off experiences, particularly on credit cards. The
entire industry and the Bank as a whole, has, and continues to
experience more credit card charge-offs resulting from personal
bankruptcies. For the nine months ended September 30, 1997, 55% of
all of the charge-offs experienced by the Company were for personal
bankruptcy reasons. Management regularly conducts a review of its
loan portfolio, write-off experiences and adequacy of allowance and
believes the allowance to be adequate.
<PAGE>23
LOAN LOSS ALLOWANCE ANALYSIS. The following table sets forth an
analysis of the Company's allowance for possible loan losses for the
periods indicated.
Nine Months Ended
Sept 30, Sept 30,
1997 1996
--------- ---------
(Dollars in Thousands)
Balance at beginning of period $ 1,424 $ 1,379
Charge-offs:
Commercial loans, leases, and
commercial real estate -0- -0-
One-to-four family -0- -0-
Consumer 1,147 976
--------- --------
Total 1,147 976
--------- --------
Recoveries:
Commercial loans, leases, and
commercial real estate -0- -0-
One-to-four family -0- -0-
Consumer 72 128
--------- --------
Total 72 128
--------- --------
Net charge-offs 1,075 848
Additions charged to
operations 1,183 832
--------- ---------
Balance at end of period $ 1,532 $ 1,363
Ratio of net charge-offs during
the period to average loans
outstanding during the period .41% 0.33%
Ratio of allowance to non-
performing loans 1.33x 1.67x
NET INTEREST INCOME AFTER PROVISION FOR POSSIBLE LOAN LOSSES. Net
interest income after provision for possible loan losses increased
by $1,761,000 or 20.5% to $10,367,000 for the nine month period ended
September 30, 1997 as compared to $8,606,000 for the nine month
period ended September 30, 1996. The average net interest rate
spread for the nine months ended September 30, 1997 was 2.47%
compared to 1.58% for the same period in 1996.
<PAGE>24
NON-INTEREST INCOME. Non-interest income decreased by $979,000 or
25.8% to $2,812,000 for the nine month period ended September 30,
1997 from $3,791,000 for the same period in 1996. Without
consideration of the securities gains of $1,190,000 for 1997 from
the sale of thrift and commercial bank stocks by the holding company
and the $2,561,000 in net gains for 1996 from the sale of mortgage-
backed securities as part of the balance sheet restructuring
program, non-interest income increased by $392,000. This increase in
non-interest income was attributed to recognition of loan related
charges and servicing fees, which increased $210,000 or 37%, from
$568,000 for the nine months ended September 30, 1996, to $778,000
for the nine month period ended September 30, 1997.
Deposit related fees and charges increased $206,000 or 49.6%, from
$415,000 for the first nine months of 1996 to $ 621,000 for the same
period in 1997, as there was a general increase in fees charged for
various Bank services and expansion in the base of transaction
accounts.
NON-INTEREST EXPENSE. Non-interest expense was $8,058,000 for the
nine months ended September 30, 1997, compared to $10,980,000 for the
same period in 1996, a decrease of $2,922,000 or 26.6%. During the
third quarter of 1996, a non-recurring expense was recorded for
$3,070,000, representing the special $3,070,000 pre-tax assessment
to recapitalize the SAIF. Without giving consideration to this
item, non-interest expense increased $148,000 or less than 2
percent.
The largest increase in expense was mostly due to advertising and
name change expenses. The expenses related to renaming the Company and
the Bank from FirstFed Bancshares, Inc. and First Federal Bank for
Savings to CoVest Bancshares, Inc. and CoVest Banc and the
presentation of the new name to the community. The largest decrease
in expenses was in Federal Deposit Insurance Premiums as a result of
the special assessment that took place on September 30, 1996.
INCOME TAX EXPENSE. Income tax expense increased $1,343,000 to
$1,776,000 for the nine months ended September 30, 1997, compared to
$433,000 for the same period of 1996, due to the increase in income.
<PAGE>25
CHANGE IN ACCOUNTING PRINCIPLES and OTHER REGULATORY ISSUES
- -----------------------------------------------------------
SFAS NO. 125
Financial Accounting Standard No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of Liabilities,"
was issued by the Financial Accounting Standards Board ("FASB") in
1996. It revises the accounting for transfers of financial assets,
such as loans and securities, and for distinguishing between sales
and secured borrowings. It is effective for some transactions in
1997 and others in 1998. The effect on the financial statements is
not material.
SFAS NO. 128
On March 3, 1997, the FASB issued Statement No. 128, "Earnings Per
Share," which is effective for financial statements beginning with
year end 1997. Basic earnings per share for 1997 and later will be
calculated solely on average common shares outstanding. Diluted
earnings per share will reflect the potential dilution of stock
options and other common stock equivalents. All prior calculations
will be restated to be comparable to the new methods. As the
Company has not had significant dilution from stock options, the new
calculation methods will not significantly effect its future basic
earnings per share and diluted earnings per share.
SFAS NO. 129
Financial Accounting Standard No. 129, "Disclosure of Information
about Capital Structure", issued by the FASB requires disclosing
information about an entity's capital structure and applies to all
entities. It consolidates all related disclosure requirements into
one standard for ease of retrieval, making little change from
existing disclosures. In general, companies are required to
disclose the pertinent rights and privileges of various securities
outstanding. Examples include dividend and liquidation preferences,
participation rights, call prices and dates, conversation or
exercise prices or rates and pertinent dates, sinking-fund
requirements, and unusual voting rights.
This Statement is effective for fiscal years ending after December
15, 1997.
<PAGE>26
PART II - OTHER INFORMATION
COVEST BANCSHARES, INC.
ITEM 1. LEGAL PROCEEDINGS
There are no material pending legal proceedings to which
the Company or any of its subsidiaries is a party other
than ordinary routine litigation incidental to their
respective businesses.
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
On August 1, 1997 the Bank was converted to a
national banking association.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
EXHIBITS
None
REPORTS ON FORM 8-K
A report on Form 8-K was filed on Thursday, July 17, 1997
which included under Item 5 information and a press
release pertaining to net income for the quarter ended
June 30, 1997.
A report on Form 8-K was filed on Wednesday, July 30, 1997
which included under Item 5 information and a press
release pertaining to the adoption of a Shareholders'
Rights Plan.
A report on Form 8-K was filed on Monday, August 4, 1997
which included under Item 5 information and a press
release announcing that CoVest Banc had successfully
completed the conversion process from a federally insured
thrift organization to that of a national bank.
A report on Form 8-K was filed on Tuesday, August 26, 1997
which included under Item 5 information and a press
release pertaining to a regular quarterly dividend.
<PAGE>27
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.
COVEST BANCSHARES, INC.
Date: November 13, 1997 By: /s/Larry G. Gillie
----------------- ---------------------------
Larry G. Gillie
President and
Chief Executive Officer
Date: November 13, 1997 By: /s/Paul A. Larsen
----------------- ---------------------------
Paul A. Larsen
Senior Vice President,
Treasurer and
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Financial Statements at September 30, 1997, and is qualified
in its entirety by reference to the December 31, 1996 Consolidated
Financial Statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 1,804
<INT-BEARING-DEPOSITS> 11,891
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 136,662
<INVESTMENTS-CARRYING> 135,465
<INVESTMENTS-MARKET> 136,662
<LOANS> 360,803
<ALLOWANCE> 1,532
<TOTAL-ASSETS> 527,468
<DEPOSITS> 386,468
<SHORT-TERM> 57,441
<LIABILITIES-OTHER> 8,830
<LONG-TERM> 25,000
0
0
<COMMON> 44
<OTHER-SE> 49,685
<TOTAL-LIABILITIES-AND-EQUITY> 49,729
<INTEREST-LOAN> 20,772
<INTEREST-INVEST> 7,827
<INTEREST-OTHER> 606
<INTEREST-TOTAL> 29,205
<INTEREST-DEPOSIT> 14,315
<INTEREST-EXPENSE> 17,655
<INTEREST-INCOME-NET> 11,550
<LOAN-LOSSES> 1,183
<SECURITIES-GAINS> 1,190
<EXPENSE-OTHER> 8,058
<INCOME-PRETAX> 5,121
<INCOME-PRE-EXTRAORDINARY> 5,121
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,345
<EPS-PRIMARY> .68
<EPS-DILUTED> .66
<YIELD-ACTUAL> 7.51
<LOANS-NON> 83
<LOANS-PAST> 1,150
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,424
<CHARGE-OFFS> 1,147
<RECOVERIES> 72
<ALLOWANCE-CLOSE> 1,532
<ALLOWANCE-DOMESTIC> 1,183
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
