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
June 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 August 14, 1997, there were 3,406,616 outstanding shares of the
registrant's Common Stock, par value $.01 per share. In addition,
447,895 shares were being held as treasury stock.
<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..................14
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......................27
Item 6. Exhibits and Reports of Form 8-K.......27
Form 10-Q Signatures.............................29
<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) JUNE 30, DEC. 31,
(Dollars in thousands except 1997 1996
per share amounts) --------- ---------
ASSETS
- ------
CASH AND CASH EQUIVALENTS
Cash and Amounts Due from
Depository Institutions $ 19,970 $ 12,837
------- -------
TOTAL CASH AND CASH EQUIVALENTS 19,970 12,837
INVESTMENTS:
Securities Available-for-Sale 52,326 53,751
Mortgage-Backed Securities and
Related Securities Available-
for-Sale 82,881 111,935
Federal Home Loan Bank Stock 3,620 7,190
--------- ---------
TOTAL INVESTMENTS 138,827 172,876
LOANS RECEIVABLE:
Mortgage Loans 258,722 253,473
Commercial Loans, Leases & Real Estate 44,033 29,596
Consumer Loans 59,663 56,900
--------- ---------
TOTAL LOANS RECEIVABLE 362,418 339,969
Less Allowance for Possible Loan Loss ( 1,489) ( 1,424)
--------- ---------
LOANS RECEIVABLE, NET 360,929 338,545
ACCRUED INTEREST RECEIVABLE 4,127 3,608
PREMISES AND EQUIPMENT 9,827 9,859
OTHER ASSETS 2,738 3,444
--------- ---------
TOTAL ASSETS $536,418 $541,169
========= =========
<PAGE>4
JUNE 30, DEC. 31,
1997 1996
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
LIABILITIES:
Deposits $404,578 $402,090
Short-Term Borrowings and Securities
Sold U/A to Repurchase 47,114 53,690
Long-Term Advances from Federal
Home Loan Bank 25,000 25,000
Advances from Borrowers for
Taxes and Insurance 3,007 3,724
Accrued Expenses and Other Liabilities 6,820 6,721
--------- ---------
TOTAL LIABILITIES 486,519 491,225
STOCKHOLDERS' EQUITY:
Common Stock, par value $.01 per share;
7,500,000 authorized shares; 3,406,616
and 3,406,616 shares issued at
6/30/97 and 12/31/96 respectively 34 34
Additional Paid-in Capital 22,099 22,155
Retained Earnings 35,255 33,990
Treasury Stock, at cost, 421,595
and 343,300 shares held at
6/30/97 and 12/31/96 respectively ( 7,265) ( 5,838)
ESOP Loan ( 685) ( 858)
Unearned Stock Award ( 73) ( 73)
Unrealized Gain on Assets
Available-for-Sale 534 534
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 49,899 49,944
--------- ---------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $536,418 $541,169
========= =========
BOOK VALUE PER COMMON SHARE $ 16.72 $ 16.30
========= ========
See notes to condensed consolidated financial statements (unaudited)
<PAGE>5
<TABLE>
<CAPTION>
COVEST BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME THREE MONTHS ENDED SIX MONTHS ENDED
(Unaudited) JUNE 30, JUNE 30, JUNE 30, JUNE 30,
(Dollars in thousands except 1997 1996 1997 1996
per share amounts) --------- --------- ---------------------
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans Receivable $ 7,001 $ 6,470 $13,639 $12,918
Mortgage-Backed and Related Securities 1,695 2,868 3,631 5,965
Securities 920 1,011 1,884 1,803
Other Interest and Dividend Income 306 153 446 499
--------- --------- --------- ---------
9,922 10,502 19,600 21,185
INTEREST EXPENSE
Deposits 4,860 6,033 9,600 12,152
Advances from Federal Home Loan Bank 954 1,156 1,862 2,516
Other Borrowed Money 253 311 461 416
--------- --------- --------- ---------
6,067 7,500 11,923 15,084
NET INTEREST INCOME 3,855 3,002 7,677 6,101
Provision for Possible Loan Losses 402 342 753 532
NET INTEREST INCOME AFTER PROVISION --------- --------- --------- ---------
FOR POSSIBLE LOAN LOSSES 3,453 2,660 6,924 5,569
NON-INTEREST INCOME
Loan Charges and Servicing Fees 259 180 526 385
Deposit Related Charges and Fees 214 141 392 259
Gain on Sale of Securities 311 -0- 874 2,507
Other 48 58 111 114
--------- --------- --------- ---------
TOTAL NON-INTEREST INCOME 832 379 1,903 3,265
NON-INTEREST EXPENSE
Compensation and Benefits 1,281 1,251 2,499 2,369
Occupancy and Equipment 348 357 743 727
Federal Deposit Insurance Premium 66 264 73 530
Data Processing 215 192 421 405
Advertising and Name Change Expenses 248 77 342 125
Other 638 550 1,231 1,251
--------- --------- --------- ---------
TOTAL NON-INTEREST EXPENSE 2,796 2,691 5,309 5,407
INCOME BEFORE TAXES 1,489 348 3,518 3,427
Income Tax Provision 502 65 1,214 1,186
--------- --------- --------- ---------
NET INCOME $ 987 $ 283 $ 2,304 $ 2,241
========= ========= ========= =========
EARNINGS PER COMMON SHARE
Primary $ .31 $ .08 $ .71 $ .63
Fully diluted .31 .08 .71 .62
See notes to condensed consolidated financial statements (unaudited)
</TABLE>
<PAGE> 6
COVEST BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS SIX MONTHS ENDED
(Unaudited) JUNE 30, JUNE 30,
(Dollars in thousands) 1997 1996
--------- ---------
OPERATING ACTIVITIES
Net Income $ 2,304 $ 2,241
Adjustments to Reconcile Net Income to
Cash Provided by Operating Activities
Depreciation and Amortization of
Premises and Equipment 375 285
Provision for Possible Loan Losses 753 532
Net Gain on Sale of Securities ( 874) ( 2,507)
Stock Award Earned 0 2
Change In:
Prepaid Expenses and Other Assets 706 ( 464)
Accrued Interest Receivable ( 519) ( 1,132)
Accrued Expenses and Other Liabilities 99 ( 642)
--------- ---------
NET CASH FROM OPERATING ACTIVITIES 2,844 ( 1,685)
CASH FLOWS FROM INVESTING ACTIVITIES
Loan Originations, Net of Principal
Payments ( 23,137) ( 8,862)
Principal Payments on Mortgage-Backed
and Related Securities 29,928 27,846
Purchases of Mortgage-Backed and
Related Securities 0 (107,893)
Purchases of Securities ( 9,995) ( 47,161)
Proceeds from Sales and Maturities
of Securities 11,420 114,329
Change in Federal Home Loan Bank Stock 3,570 191
Purchase of Office Properties and
Equipment ( 343) ( 71)
--------- ---------
NET CASH FROM INVESTING ACTIVITIES 11,443 ( 21,621)
<PAGE>7
SIX MONTHS ENDED
JUNE 30, JUNE 30,
1997 1996
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Net Increase in Deposits 2,488 4,747
Repayments of Federal Home Loan Bank
Advances ( 12,500) ( 31,900)
Proceeds from Federal Home Loan Bank
Advances 10,000 24,500
Repayments/Proceeds from Other Borrowings( 4,076) 20,297
Net Change in Mortgage Escrow Funds ( 717) ( 1,539)
Purchase of Common Stock for Treasury ( 2,409) ( 2,307)
Proceeds from Exercise of Stock Options,
Net of Treasury Shares issued 488 475
Payment Received on Loan to ESOP 173 165
Dividend Paid, Net of Dividend
Reinvestment Program ( 601) ( 567)
--------- ---------
NET CASH FROM FINANCING ACTIVITIES ( 7,154) 13,871
--------- ---------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 7,133 ( 9,435)
CASH AND CASH EQUIVALENTS, BEGINNING 12,837 19,198
--------- ---------
CASH AND CASH EQUIVALENTS, ENDING $19,970 $ 9,763
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest Paid $11,698 $12,287
Income Taxes Paid 1,325 600
See notes to condensed consolidated financial statements (unaudited)
<PAGE>8
COVEST BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited)
(Dollars in thousands)
Six months ended June 30, 1997 and 1996
<TABLE>
UNREALIZED
<CAPTION> 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 $57,677
Net Income 2,241 2,241
Cash Dividends ($.167 per share) ( 567) ( 567)
Purchase of Treasury Stock ( 2,307) ( 2,307)
Principal Payment on ESOP Loan 165 165
Shares issued in conjunction with
three-for-two stock split, and
cash paid on fractional shares 11 ( 5,379) ( 12) ( 5,380)
Treasury Stock reissued in conjunction
with stock option exercises ( 521) 996 475
Retirement of 538,503 shares
of common stock ( 5) ( 5,197) 10,582 5,380
Amortization of Stock Award 2 2
Change in Unrealized Gain/Loss on Securities
Available-for-Sale ( 2,876) ( 2,876)
- -----------------------------------------------------------------------------------------------------------------------
Balance at June 30, 1996 $34 $21,850 $35,317 ($ 126) ($1,033) ($ 95) ($ 1,137) $54,810
=======================================================================================================================
Balance at December 31, 1996 $34 $22,155 $33,990 ($5,838) ($ 858) ($ 73) $ 534 $49,944
Net Income 2,304 2,304
Cash Dividends ($.20 per share) ( 601) ( 601)
Purchase of Treasury Stock ( 2,409) ( 2,409)
Principal Payment on ESOP Loan 173 173
Proceeds from Stock Option Exercises 515 515
Treasury Stock reissued in conjunction
with stock option exercises ( 571) ( 438) 982 (27)
Change in Unrealized Gain/Loss on Securities
Available-for-Sale 0 0
- ----------------------------------------------------------------------------------------------------------------------
Balance at June 30, 1997 $34 $22,099 $35,255 ($7,265) ($ 685) ($ 73) $ 534 $49,899
======================================================================================================================
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
----------------------------------------------------------------------------------------
JUNE 30, 1997 JUNE 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 $257,537 $ 4,783 7.43% $277,997 $ 5,135 7.39%
Commercial Loans, Leases
and Real Estate 40,315 814 8.08 3,739 85 9.09
Consumer Loans 59,016 1,404 9.52 52,700 1,250 9.49
Mortgage-Backed and
Related Securities 96,000 1,695 7.06 193,697 2,868 5.92
Investment Securities 56,988 920 6.46 64,279 1,036 6.45
Other Investments 21,077 306 5.61 8,186 128 6.25
----------------------------------------- ---------------------------------------
Total Interest-Earning Assets $530,933 $ 9,922 7.48% $600,598 $10,502 6.99%
Non-Interest Earning Assets 19,075 27,446
----------------------------------------- ---------------------------------------
TOTAL ASSETS $550,008 $628,044
======== ========
INTEREST-BEARING LIABILITIES:
Interest-Bearing Checking $ 21,672 $ 97 1.79% $ 22,044 $ 98 1.78%
Money Market Accounts 51,026 619 4.85 11,236 92 3.28
Savings 64,351 401 2.49 70,171 436 2.49
Certificates of Deposit 259,475 3,743 5.77 342,139 5,407 6.32
FHLB Advances 63,367 954 6.02 77,320 1,156 5.98
Other Borrowed Funds 19,206 253 5.27 23,714 311 5.25
----------------------------------------- ---------------------------------------
Total Interest-Bearing
Liabilities $479,097 $ 6,067 5.07% $546,624 $ 7,500 5.49%
Non-Interest Bearing
Deposits 10,777 9,430
Other Liabilities 10,251 16,445
----------------------------------------- ---------------------------------------
TOTAL LIABILITIES $500,125 $572,499
----------------------------------------- ---------------------------------------
Stockholders' Equity 49,883 55,545
----------------------------------------- ---------------------------------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $550,008 $628,044
======== ========
NET INTEREST INCOME $ 3,855 $ 3,002
----------------------------------------- ---------------------------------------
NET INTEREST RATE SPREAD (1) 2.41% 1.50%
----------------------------------------- ---------------------------------------
NET INTEREST MARGIN (2) 2.90% 2.00%
----------------------------------------- ---------------------------------------
(1) Interest Rate Spread is calculated by subtracting the average cost of
interest-bearing liabilities from the average 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>
SIX MONTHS ENDED
----------------------------------------------------------------------------------------
JUNE 30, 1997 JUNE 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 $255,227 $ 9,489 7.44% $277,041 $10,259 7.41%
Commercial Loans, Leases,
and Real Estate 35,982 1,437 7.99 3,035 134 8.83
Consumer Loans 58,313 2,713 9.30 52,963 2,525 9.53
Mortgage-Backed and
Related Securities 103,194 3,631 7.04 197,017 5,965 6.05
Investment Securities 57,182 1,884 6.59 63,230 2,036 6.44
Other Investments 17,292 446 5.16 8,567 266 6.21
----------------------------------------- ---------------------------------------
Total Interest-Earning Assets $527,190 $19,600 7.44% $601,853 $21,185 7.04%
Non-Interest Earning Assets 18,965 25,343
----------------------------------------- ---------------------------------------
TOTAL ASSETS $546,155 $627,196
======== ========
INTEREST-BEARING LIABILITIES:
Interest-Bearing Checking $ 21,611 $ 191 1.77% $ 22,219 $ 198 1.78%
Money Market Accounts 47,986 1,147 4.78 11,209 179 3.19
Savings 64,821 804 2.48 69,495 864 2.49
Certificates of Deposit 261,118 7,458 5.71 344,182 10,911 6.34
FHLB Advances 62,383 1,862 5.97 83,856 2,516 6.00
Other Borrowed Funds 17,584 461 5.24 15,915 416 5.23
----------------------------------------- ---------------------------------------
Total Interest-Bearing
Liabilities $475,503 $11,923 5.02% $546,876 $15,084 5.52%
Non-Interest Bearing
Deposits 10,403 8,633
Other Liabilities 10,299 15,432
----------------------------------------- ---------------------------------------
TOTAL LIABILITIES $496,205 $570,941
----------------------------------------- ---------------------------------------
Stockholders' Equity 49,950 56,255
----------------------------------------- ---------------------------------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $546,155 $627,196
======== ========
NET INTEREST INCOME $ 7,677 $ 6,101
----------------------------------------- ---------------------------------------
NET INTEREST RATE SPREAD (1) 2.42% 1.52%
----------------------------------------- ---------------------------------------
NET INTEREST MARGIN (2) 2.91% 2.03%
----------------------------------------- ---------------------------------------
(1) Interest Rate Spread is calculated by subtracting the average cost of
interest-bearing liabilities from the average 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 six months
ended June 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 June 30, 1997 and December 31, 1996; the
results of the Company's operations for the three months ended June 30,
1997 and 1996 and the six months ended June 30, 1997 and 1996; its cash
flows for the six months ended June 30, 1997 and 1996; its changes in
stockholders' equity for the six months ended June 30, 1997 and 1996;
and its average balance sheet for the three months ended June 30, 1997
and 1996, and the six months ended June 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 second quarter of 1996, have been
restated as if the three-for-two stock split which occurred on May 15,
1996 had actually occurred on January 1, 1996.
Certain amounts in prior condensed consolidated financial statements
have been reclassified to conform with the June, 1997 presentation.
(2) Regulatory Capital Requirements
Pursuant to the Financial Institutions Reform, Recovery and
Enforcement Act of 1989 ("FIRREA"), as implemented by regulations
promulgated by the Office of Thrift Supervision (the "OTS"), savings
institutions must meet three separate minimum capital requirements.
The following table summarizes, as of June 30, 1997, the Bank's
capital requirements under FIRREA and its actual capital ratios. As
of June 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 $45,841 16.78% $21,859 8.00% $23,982 8.78%
Core Capital 44,352 8.32 16,001 3.00 28,351 5.32
Tang. Capital 44,352 8.32 8,000 1.50 36,352 6.82
(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 4,830,000 shares (post-split)of Common Stock at $6.67 per
share (post-split), all pursuant to a plan of conversion.
Primary and fully diluted earnings per share for the quarter were
computed by dividing net income by 3,233,282 and 3,244,604, and for the
six months ended June 30, 1997 by 3,280,928 and 3,298,323 respectively,
the weighted average number of shares of common stock and common stock
equivalents outstanding during the quarter. Stock options are regarded
as common stock equivalents and are computed using the treasury stock
method.
(4) Stock Repurchase Program
On January 28, 1997, the Company announced its intention to repurchase
100,000 shares of its outstanding Common Stock in the open market. This
repurchase program was completed on June 24, 1997, with the shares being
repurchased at an average price of $17.80.
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. The purchases will be made in the open
market and/or through privately negotiated transactions. As of August 14,
1997, 22,700 shares had been repurchased at an average price of $21.11.
(5) Stock Dividend and Cash Dividend
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 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 second quarter of
1997 was $.10 per common share.
<PAGE>13
(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 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>14
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 is
restructured to become more like that of a community bank. 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, mortgage-backed securities and investment 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.
At the annual meeting of stockholders held on April 22, 1997, the stockholders
approved an amendment to Article I of the Company's Certificate of
Incorporation to change the name of the Company to CoVest Bancshares, Inc.
which became effective on June 2, 1997. The Company's common stock,
formerly listed on the Nasdaq Stock market under the training 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 and received approval
from the Office of the Comptroller of the Currency and converted the charter
of the Bank to that of a national bank effective August 1, 1997.
FINANCIAL CONDITION
- -------------------
Total consolidated assets of the Company decreased by $4.8 million
from $541.2 million at December 31, 1996, to $536.4 million at
June 30, 1997. Although total assets remained relatively stable, the
redeployment of securities proceeds from maturities, paydowns, and sales
continues to fund additional loans.
Total loans receivable increased $22.4 million, or 6.59% from $340
<PAGE>15
million at December 31, 1996, to $362.4 million at June 30, 1997. Loans
originated during the six months ended June 30, 1997 were $51.2 million, of
which 35% were commercial loans, leases and commercial real estate, 45%
were mortgages and 20% were consumer loans. Loans originated during the
six month period ended June 30, 1996 were $51.9 million, of which 6%
were commercial real estate loans, 57% were mortgages and 37% were
consumer loans.
Mortgage-backed and other mortgage-related securities decreased $29.1
million or 26% from December 31, 1996. During this six 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
short-term borrowings. At June 30, 1997, mortgage-backed and non
mortgage-backed securities comprised 26% of total assets.
Deposits increased to $404.6 million at June 30, 1997, from $402.1
million at December 31, 1996. Most of this growth was in the
Bank's Preferred Money Market account which was introduced in July,
1996. 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.
Short-term borrowings (due within one year) and securities sold under
agreement to repurchase decreased $6.6 million from the December 31,
1996 balance of $53.7 million to $47.1 million at June 30, 1997. This
reduction came from the proceeds of mortgage-backed securities. Long-term
borrowings, all of which are Federal Home Loan Bank advances, have not
changed since December 31, 1996.
Book value per common share increased to $16.72 at June 30, 1997 from
$16.30 at December 31, 1996.
Total non-performing assets as of June 30, 1997 stood at $1,132,000 or
0.21% of total assets. At December 31, 1996, non-performing assets
were $856,000 or 0.16% of total assets. However, the June 30th balance
represents a decrease from March 31, 1997 when non-performing assets were
$1,281,000, or 0.23% 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, 72.5% 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.
The other real estate owned asset is a single family residence upon which
the Bank has private mortgage insurance and will not incur a loss on the
disposal of the property.
<PAGE>16
The following table sets forth the amounts and categories of non-
performing loans and assets.
June 30, 1997 Dec. 31, 1996
------------- -------------
(Dollars in Thousands)
Non-performing loans:
Commercial loans, leases and
commercial real estate $ -0- $ -0-
One-to-four family 712 599
Consumer 270 257
------------- -------------
Total non-performing loans $ 982 $ 856
Other real estate owned $ 145 $ -0-
Other repossessed assets 5 -0-
------------- -------------
Total non-performing assets $ 1,132 $ 856
Total non-performing loans as
a percentage of net loans .27% .22%
Total non-performing loans as
a percentage of total assets .18% .16%
Total non-performing assets as
a percentage of total assets .21% .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.
Current OTS regulations require the Bank to maintain cash and eligible
investments in an amount equal to at least 5% of customers' accounts
and short term borrowings to assure its ability to meet demands for
withdrawals and repayments of short term borrowings. As of June 30,
1997 and December 31, 1996, the Bank's liquidity ratio was in excess of
the required five percent ratio at each date.
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
$2.8 million for the six months ended June 30, 1997. Net cash used in
investing activities was $11.4 million for the six months ended June 30,
1997. Purchases of investment securities amounted to $10 million, and
proceeds from paydowns, sales and maturities of securities and
<PAGE>17
mortgage-backed investments and Federal Home Loan Bank stock
totaled $44.9 million. Loan originations, net of principal
payments, were $23.1 million for the six month period. Net cash
used in financing activities amounted to $7.2 million for the
six months ended June 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 June 30, 1997, the Company had commitments to
originate loans and undisbursed loan balances totaling $36.0 million,
and its customers had approved but unused lines of credit totaling
$68.2 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.
At June 30, 1997, the Bank had core and tangible capital of $44.4
million or 8.3% of adjusted total assets, which was approximately $28.4
million and $36.4 million above the minimum capital requirements in effect
on that date of 3.0% and 1.5%, respectively, of adjusted total assets.
On June 30, 1997, the Bank had total risk-based capital of $45.8 million
(including $44.4 million in core capital), or 16.8% of risk-weighted assets
of $273.2 million. This amount was approximately $24 million above the
8.0% total risk-based capital requirement in effect on that date.
SELECTED RATIOS
- ---------------
(unaudited) THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1997 1996 1997 1996
--------------------------------------
Annualized Return on Avg. Equity 7.91% 2.04% 9.22% 7.97%
Annualized Return on Avg. Assets 0.72% 0.18% 0.84% 0.72%
Book Value per Share $16.72 $16.12 $16.72 $16.12
Tangible Book Value per Share $15.96 $15.73 $15.96 $15.73
Closing Market Price per Share $18.38 $17.63 $18.38 $17.63
Earnings per Primary Share $ .31 $ .08 $ .71 $ .63
Net Interest Margin 2.90% 2.00% 2.91% 2.03%
Ratio of Operating Expense to
Average Total Assets,
Annualized 2.03% 1.71% 1.94% 1.72%
Ratio of Net Interest Income to
Non-Interest Expense,
Annualized 1.38x 1.12x 1.45x 1.13x
<PAGE>18
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 1997 AND 1996
- ------------------------------------------------------------------------
GENERAL. Net income for the three months ended June 30, 1997 was
$987,000, or $.31 per share, compared to $283,000, or $.08 per share
for the three months ended June 30, 1996. This represents an increase of
$704,000 or 249%. It resulted from an increase in net interest income of
$853,000 or 28%, an increase in non-interest income of $453,000
or 120%, and only a $105,000 or 4% increase in operating expenses. During the
second quarter of 1996, a non-recurring expense was recorded for $148,331,
less related taxes. This amount represented the final unfunded liability
as a result of the termination of the Defined Benefit Plan. Without the
effect of this non-recurring item, net income for the three months ended
June 30, 1996 would have been $375,000. Earnings for the second quarter of
1996, were 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 June 30, 1997 was 2.41% compared to 1.50% for the same period
in 1996.
INTEREST INCOME. Interest income decreased by $.6 million or 5.5% to
$9,922,000 for the three month period ended June 30, 1997 as compared
to $10,502,000 for the same period in 1996, even though the yield on
average earning assets increased 47 basis points to 7.48% for the
quarter ended June 30, 1997 as compared to a 6.99% 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 $70 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 $1.4 million or 19.1% to
$6,067,000 for the three month period ended June 30, 1997 as compared to
$7,500,000 for the same period in 1996. This was primarily the result of a
decrease in funding liabilities which declined by $67.5 million, or 12.3%,
most notably in certificates of deposit as discussed before. The growth in
deposits came in Money Market Accounts with the introduction of the Bank's
Preferred Money Market account last July, 1996. The cost of
total interest-bearing liabilities for the three months ended June 30, 1997
was 5.07% compared to 5.49% for the three months ended June 30, 1996, a
decrease of 42 basis points.
NET INTEREST INCOME. Net interest income increased by $853,000 or 28.4% over
the second quarter of 1996. The net interest margin increased to 2.90% for
the three months ended June 30, 1997 from 2.00% for the same quarter of 1996.
<PAGE>19
PROVISION FOR POSSIBLE LOAN LOSSES. The provision for possible loan
losses totaled $402,000 for the three months ended June 30, 1997,
compared to $342,000 for the three months ended June 30, 1996. This
$60,000 increase was 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 June 30,
1997, 56% 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
June 30, June 30,
1997 1996
--------- ---------
(Dollars in Thousands)
Balance at beginning of period $ 1,513 $ 1,252
Charge-offs:
Commercial loans, leases, and
commercial real estate -0- -0-
One-to-four family -0- -0-
Consumer 441 364
--------- ---------
Total 441 364
--------- ---------
Recoveries:
Commercial loans, leases and
commercial real estate -0- -0-
One-to-four family -0- -0-
Consumer 16 24
--------- ---------
Total 16 24
--------- ---------
Net charge-offs 425 340
Additions charged to
operations 402 342
--------- ---------
Balance at end of period $ 1,489 $ 1,254
Ratio of net charge-offs during
the period to average loans
outstanding during the period 0.12% 0.10%
Ratio of allowance to non-
performing loans 1.52x 1.63x
<PAGE>20
NET INTEREST INCOME AFTER PROVISION FOR POSSIBLE LOAN LOSSES. Net
interest income after provision for possible loan losses increased
by $793,000 or 29.8% to $3,453,000 for the three month period ended
June 30, 1997 as compared to $2,660,000 for the three month period
ended June 30, 1996.
NON-INTEREST INCOME. Non-interest income increased by $453,000 or 119.5% to
$832,000 for the three month period ended June 30, 1997 as compared to
$379,000 for the same period in 1996. $311,000 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 $79,000 or 43.9%,
from $180,000 for the three months ended June 30, 1996, to $259,000 for
the three month period ended June 30, 1997.
Deposit related fees and charges increased, from $141,000 for the second
quarter of 1996 to $214,000 for the second quarter of 1997, an increase
of $73,000 or 51.8%, due to a general increase in fees charged or generated by
transaction accounts and other Bank services.
NON-INTEREST EXPENSE. Non-interest expense was $2,796,000 for the
quarter ended June 30, 1997, compared to $2,691,000 for the same period
in 1996, an increase of $105,000 or 4%. During the second quarter of 1996,
a non-recurring expense was recorded for $148,331, representing the final
unfunded liability as a result of the termination of the Defined Benefit
Plan. The final determination was significantly higher than anticipated
due to a decrease in interest rates between the termination announcement
date of January 5, 1995, and the date the final distribution was made on
May 29, 1996.
Without giving consideration to the expense incurred on final distribution,
the increase in non-interest expense was mostly to advertising and name change
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 one-time special assessment that took place on September 30,
1996, to recapitalize the Savings Association Insurance Fund.
INCOME TAX EXPENSE. Income tax expense increased $437,000 or 672%, to
$502,000 for the quarter ended June 30, 1997, compared to $65,000 for
the same period in 1996, due to the increase in income.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
- ------------------------------------------------------------------------
GENERAL. Net income for the six months ended June 30, 1997 was
$2,304,000 compared to $2,241,000 for the six months ended June 30,
1996, an increase of $63,000 or 3%. Earnings per share for the six months
of 1997 was $.71 per share versus $.63 per share for the like period in 1996.
The composition of the earnings, however, has changed dramatically between
<PAGE>21
these two six month periods. Gains from the sale of securities decreased by
$1,633,000. The balance sheet restructuring which began in 1996 generated
$2,507,000 from the sale of long-term fixed-rate assets versus $874,000
security gains in 1997 from the sale of thrift and commercial bank stocks
at the holding company level.
Earnings for the six months ended June 30, 1996 were 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
products. Management intends to move into higher yielding loan products over
time, thereby increasing net interest margin.
INTEREST INCOME. Interest income decreased by $1.6 million or 7.5% to
$19,600,000 for the six month period ended June 30, 1997 as compared to
$21,185,000 for the same period in 1996, even though the yield on
average earning assets increased 40 basis points to 7.44% for the first
six months of 1997, as compared to a 7.04% 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
were gradually being 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 $3.2 million or 21%
to $11,923,000 for the six month period ended June 30, 1997 as compared
to $15,084,000 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 six months by $36.8 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
six months ended June 30, 1997 was 5.02% compared to 5.52% for the six months
ended June 30, 1996, a decrease of 50 basis points.
NET INTEREST INCOME. Net interest income increased by $1,576,000 or 25.8%
over the first six months of 1996. The net interest margin increased to
2.91% for the six months ended June 30, 1997, from 2.03% for the first six
months of 1996.
PROVISION FOR POSSIBLE LOAN LOSSES. The provision for possible loan
losses totaled $753,000 for the six months ended June 30, 1997 compared
to $532,000 for the six months ended June 30, 1996. Of this $221,000,
or 41.5% increase, $99,000 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
six months ended June 30, 1997, 58% of all of the charge-offs experienced
by the Company were for personal bankruptcy reasons.
<PAGE>22
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.
Six Months Ended
June 30, June 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 717 720
--------- ---------
Total 717 720
--------- ---------
Recoveries:
Commercial loans, leases, and
commercial real estate -0- -0-
One-to-four family -0- -0-
Consumer 29 63
--------- ---------
Total 29 63
--------- ---------
Net charge-offs 688 657
Additions charged to
operations 753 532
--------- ---------
Balance at end of period $ 1,489 $ 1,254
Ratio of net charge-offs during
the period to average loans
outstanding during the period 0.19% 0.20%
Ratio of allowance to non-
performing loans 1.52x 1.63x
NET INTEREST INCOME AFTER PROVISION FOR POSSIBLE LOAN LOSSES. Net
interest income after provision for possible loan losses increased by
$1,355,000 or 24.3% to $6,924,000 for the six month period ended June
30, 1997 as compared to $5,569,000 for the six month period ended June
30, 1996. The average net interest rate spread for the six months ended
<PAGE>23
June 30, 1997 was 2.42% compared to 1.52% for the same period in 1996.
NON-INTEREST INCOME. Non-interest income decreased by $1,362,000 or 41.7%
to $1,903,000 for the six month period ended June 30, 1997 from $3,265,000
for the same period in 1996. Without consideration of the securities gains of
$874,000 for 1997 from the sale of thrift and commercial bank stocks in the
holding company and the $2,507,000 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 $271,000. This increase in non-interest
income can be attributed to recognition of loan related charges and servicing
fees, which increased $141,000 or 36.6%, from $385,000 for the six months
ended June 30, 1996, to $526,000 for the six month period ended June 30, 1997.
Deposit related fees and charges increased $133,000 or 51.4%, from
$259,000 for the first six months of 1996 to $392,000 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 $5,309,000 for the six
months ended June 30, 1997, compared to $5,407,000 for the same period
in 1996, a decrease of $98,000 or 1.8%. During the second quarter of 1996,
a non-recurring expense was recorded for $148,000, representing the final
unfunded liability as a result of the termination of the Defined Benefit
Plan. Without giving consideration to this item, non-interest expense
increased $50,000 or less than one 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 remained relatively unchanged between
the two periods.
<PAGE>24
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 effective December 31, 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.
REGULATORY ISSUES
Legislation has been approved by the Committee on Banking and Financial
Services of the U.S. House of Representatives that would eliminate the
federal thrift charter by requiring each federal thrift to convert to a
national or state bank within two years following enactment of the
legislation. Any federal thrift that failed to convert to a bank within
such two year period would, by operation of law, become a national bank
as of the second anniversary of the enactment of the legislation. Because
the Bank completed its conversion to a national bank on August 1, 1997, this
aspect of the pending legislation will have no impact on the operations of
the Company or its subsidiaries.
The pending legislation would also allow bank holding companies to engage in a
wider range of nonbanking activities, including greater authority to engage in
securities and insurance activities. The expanded powers generally would be
available to a bank holding company only if the bank holding company and its
bank subsidiaries remain well-capitalized and well-managed, and if each of the
depository institution subsidiaries of the bank holding company had received
at least a "satisfactory" rating under the Community Reinvestment Act. The
proposed legislation would also impose various restrictions on transactions
between the depository institution subsidiaries of the bank holding companies
and their nonbank affiliates. These restrictions are intended to protect the
depository institutions from the risks of the new nonbanking activities
permitted to such affiliates.
<PAGE>25
At this time the Company is unable to predict whether the pending legislation
will be enacted and, therefore, is unable to predict the impact the
legislation will have on the Company and its subsidiaries.
Additionally, legislation has been enacted in Illinois that would generally
allow banks, effective October 1, 1997, to engage in insurance activities,
subject to various conditions including requirements for the manner in which
insurance products are marketed to bank customers and requirements that banks
selling insurance provide certain disclosures to customers. Legislation has
also been enacted in Illinois that would prohibit out-of-state banks from
acquiring a bank located in Illinois unless the Illinois-based bank has been
in existence and continuously operated for a period of at least five years.
<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
On April 22, 1997, the annual meeting of stockholders was held.
At the meeting, an amendment to the Certificate of
Incorporation to change the name of the Company to CoVest
Bancshares, Inc. was approved. In addition, John A. Flink,
Larry G. Gillie and Frank A. Svoboda, Jr. were elected to serve
as Class II directors with terms expiring in 2000. Continuing
as Class I directors, with terms expiring in 1999, are George
T. Drost, David E. Spiegler and David M. Miller. Continuing as
Class III directors, with terms expiring in 1998, are Donald J.
Cameron, Gerald T. Niedert, David B. Speer and Thomas TenHoeve.
The stockholders also ratified the appointment of Crowe Chizek
& Company, L.L.P. as the Company's independent public
accountants for the year ending December 31, 1997. Further,
the stockholders approved an amendment to the Certificate of
Incorporation of the Company to increase the number of
authorized shares of Common Stock, $.01 par value per share,
from 5,000,000 to 7,500,000.
There were 3,406,616 issued and outstanding shares of
Common Stock at the time of the annual meeting. 2,120,314
shares were voted at the meeting. The voting on each item
presented at the annual meeting was as follows:
ELECTION OF DIRECTORS FOR WITHHELD
--------------------- --------- --------
John A. Flink 2,109,089 11,225
Larry G. Gillie 2,096,023 24,291
Frank A. Svoboda, Jr. 2,109,089 11,225
<PAGE>27
RATIFICATION OF ACCOUNTANTS
---------------------------
BROKER
FOR AGAINST ABSTAIN NON-VOTES
--------- ------- ------- ---------
1,868,803 2,364 7,173 -0-
AMENDMENT TO CERTIFICATE OF INCORPORATION TO CHANGE NAME
--------------------------------------------------------
BROKER
FOR AGAINST ABSTAIN NON-VOTES
--------- ------- ------- ---------
1,882,353 215,577 22,384 -0-
AMENDMENT TO CERTIFICATE OF INCORPORATION TO INCREASE SHARES
------------------------------------------------------------
BROKER
FOR AGAINST ABSTAIN NON-VOTES
--------- ------- ------- ---------
1,887,101 233,288 9,925 -0-
ITEM 5. OTHER INFORMATION
On June 2, 1997, the Company's name changed from FirstFed
Bancshares, Inc. to CoVest Bancshares, Inc. and the symbol on
the NASDAQ changed from "FFDP" to "COVB" in accordance with
approval by the stockholders at the annual meeting held on
April 22, 1997. The stockholders further approved an increase
in the number of authorized shares of Common Stock from
5,000,000 to 7,500,000.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
EXHIBITS
None
REPORTS ON FORM 8-K
(a) A report on Form 8-K was filed on April 22, 1997 to
report the change of the name of the Company to CoVest
Bancshares, Inc., effective June 2, 1997. The Form 8-K also
reported stockholder approval of an increase in the number of
authorized shares of common stock, $.01 par value per share,
from 5,000,000 to 7,500,000.
<PAGE>28
b) A report on Form 8-K was filed on May 28, 1997, to report
under Item 5 that the Company announced a regular quarterly
dividend to the stockholders of FirstFed Bancshares, Inc.
Common Stock.
c) A report on Form 8-K was filed on June 23, 1997, to report
under Item 5 that the Company had completed the Stock Repurchase
Program dated January 18, 1997, and to announce a new Stock Repurchase
Program.
<PAGE>29
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: August 14, 1997 By: /s/ Larry G. Gillie
----------------- ---------------------------
Larry G. Gillie
President and
Chief Executive Officer
Date: August 14, 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 June 30, 1997, and is qualified
in its entirety by reference to the December 31, 1996 Consolidated
Financial Statements.
</LEGEND>
<CIK> 0000885694
<NAME> COVEST BANCSHARES, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 19,970
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 138,827
<INVESTMENTS-CARRYING> 138,827
<INVESTMENTS-MARKET> 138,827
<LOANS> 362,418
<ALLOWANCE> 1,489
<TOTAL-ASSETS> 536,418
<DEPOSITS> 404,578
<SHORT-TERM> 47,114
<LIABILITIES-OTHER> 9,827
<LONG-TERM> 25,000
0
0
<COMMON> 34
<OTHER-SE> 49,865
<TOTAL-LIABILITIES-AND-EQUITY> 49,899
<INTEREST-LOAN> 13,639
<INTEREST-INVEST> 5,515
<INTEREST-OTHER> 446
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<EPS-PRIMARY> .71
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<YIELD-ACTUAL> 7.44
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</TABLE>
