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, 1998 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 10, 1998, the Registrant had issued and outstanding 4,403,803
shares of the Registrant's Common Stock. In addition, it had also
repurchased 132,600 shares which were being held as treasury stock.
The aggregate market value of the voting stock held by non-affiliates
of the Registrant as of August 10, 1998, was $67,000,000.
<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......................30
Item 2. Changes in Securities..................30
Item 3. Defaults upon Senior Securities........30
Item 4. Submission of Matters to a Vote
of Security Holders...................30
Item 5. Other Information......................31
Item 6. Exhibits and Reports of Form 8-K.......31
Form 10-Q Signatures.............................32
<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 1998 1997
per share amounts) --------- ---------
ASSETS
- ------
CASH AND CASH EQUIVALENTS $ 7,405 $ 5,670
INTEREST BEARING DEPOSITS AT BANKS 13,718 17,800
INVESTMENTS:
Securities Available-for-Sale 16,386 31,412
Mortgage-Backed Securities and
Related Securities Available-
for-Sale 103,109 120,753
Tax Exempt Municipal Securities
Available-for-Sale 10,124 4,428
Federal Home Loan Bank Stock and
FRB Stock 9,329 7,579
--------- ---------
TOTAL INVESTMENTS 138,948 164,172
LOANS RECEIVABLE:
Commercial Real Estate Loans 72,489 55,843
Multi-Family Loans 25,148 4,604
Construction Loans 15,060 8,939
Commercial Loans 7,967 5,504
Commercial Leases 38,546 11,274
Mortgage Loans 193,647 236,077
Consumer Loans 57,943 59,245
Mortgage Loans held for Sale 4,416 -0-
--------- ---------
TOTAL LOANS RECEIVABLE 415,216 381,486
Allowance for Possible Loan Loss ( 4,632) ( 3,977)
--------- ---------
LOANS RECEIVABLE, NET 410,584 377,509
ACCRUED INTEREST RECEIVABLE 3,040 3,487
PREMISES AND EQUIPMENT 11,248 10,767
OTHER REAL ESTATE OWNED 72 -0-
OTHER ASSETS 3,335 3,317
--------- ---------
TOTAL ASSETS $588,350 $582,722
========= ========
<PAGE>4
JUNE 30, DEC. 31,
1998 1997
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
LIABILITIES:
Deposits:
Non-Interest Bearing $ 13,043 $ 14,112
Interest Bearing Checking
Money Market Accounts 99,510 78,311
Savings Accounts 55,423 59,562
Certificates of Deposit 180,104 219,767
-------- --------
348,080 371,752
Short-Term Borrowings and Securities
Sold U/A to Repurchase 62,728 76,956
Long-Term Advances from Federal
Home Loan Bank 120,000 75,000
Advances from Borrowers for
Taxes and Insurance 3,077 2,914
Accrued Expenses and Other Liabilities 6,886 7,806
--------- ---------
TOTAL LIABILITIES 540,771 534,428
STOCKHOLDERS' EQUITY:
Common Stock, par value $.01 per share;
7,500,000 authorized shares; 4,403,803
and 4,365,761 shares issued at
6/30/98 and 12/31/97 respectively 44 44
Additional Paid-in Capital 19,323 19,365
Retained Earnings 29,696 28,410
Treasury Stock, 77,000 shares; and 0
shares, held at cost
6/30/98 and 12/31/97 respectively (1,403) -0-
ESOP Loan ( 368) ( 511)
Unearned Stock Award ( 73) ( 73)
Accumulated Other Comprehensive
Income 360 1,059
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 47,579 48,294
--------- ---------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 588,350 $ 582,722
========= =========
<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) 1998 1997 1998 1997
--------- --------- --------- ---------
<C> <C> <C> <C>
INTEREST INCOME
Loans Receivable $ 7,879 $ 7,001 $15,445 $13,639
Mortgage-Backed and Related Securities 1,475 1,695 3,400 3,631
Securities and Dividend Income 426 920 1,092 1,884
Other Interest Income 371 306 662 446
--------- --------- --------- ---------
Total Interest Income 10,151 9,922 20,599 19,600
INTEREST EXPENSE
Deposits 3,887 4,860 8,031 9,600
Advances from Federal Home Loan Bank 2,179 954 4,345 1,862
Other Borrowed Money 113 253 207 461
--------- --------- --------- ---------
Total Interest Expense 6,179 6,067 12,583 11,923
NET INTEREST INCOME 3,972 3,855 8,016 7,677
Provision for Possible Loan Losses 769 402 1,168 753
NET INTEREST INCOME AFTER PROVISION --------- --------- -------- ---------
FOR POSSIBLE LOAN LOSSES 3,203 3,453 6,848 6,924
NON-INTEREST INCOME
Loan Charges and Servicing Fees 747 259 1,279 526
Deposit Related Charges and Fees 247 214 466 392
Gain on Sale of Securities 463 311 719 874
Insurance and Annuity Commissions 69 15 210 30
Other 52 33 91 81
--------- --------- --------- ---------
TOTAL NON-INTEREST INCOME 1,578 832 2,766 1,903
NON-INTEREST EXPENSE
Compensation and Benefits 1,852 1,281 3,601 2,499
Occupancy and Equipment 496 348 997 743
Federal Insurance Premium 57 66 118 73
Data Processing 268 215 575 421
Advertising 110 248 197 342
Other Real estate Owned (42) -0- (36) -0-
Other 563 638 1,145 1,231
--------- --------- --------- ----------
TOTAL NON-INTEREST EXPENSE 3,304 2,796 6,597 5,309
--------- --------- --------- ----------
INCOME BEFORE TAXES 1,477 1,489 3,017 3,518
Income Tax Provision (505) (502) (1,035) (1,214)
--------- --------- --------- ----------
NET INCOME $ 972 $ 987 $ 1,982 $ 2,304
========= ========= ========= ==========
</TABLE>
<PAGE>6
COVEST BANCSHARES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS SIX MONTHS ENDED
(Unaudited) JUNE 30, JUNE 30,
(Dollars in thousands) 1998 1997
--------- ---------
OPERATING ACTIVITIES
Net Income $ 1,982 $ 2,304
Adjustments to Reconcile Net Income to
Cash Provided by Operating Activities
Depreciation and Amortization of
Premises and Equipment 482 375
Provision for Possible Loan Losses (1,168) 753
Net Gain on Sale of Securities ( 719) ( 874)
Change In:
Prepaid Expenses and Other Assets ( 18) 706
Accrued Interest Receivable 447 ( 519)
Accrued Expenses and Other Liabilities ( 123) 99
--------- ---------
NET CASH FROM OPERATING ACTIVITIES 3,219 2,844
CASH FLOWS FROM INVESTING ACTIVITIES
Loan Originations, Net of Principal
Payments ( 34,243) (23,137)
Principal Payments on Mortgage-Backed
and Related Securities 26,945 29,928
Purchases of Mortgage-Backed and
Related Securities ( 40,363) -0-
Purchases of Securities ( 31,693) ( 9,995)
Proceeds from Sales and Maturities
of Securities 71,700 11,420
Purchase of Federal Home Loan Bank
and Federal Reserve Bank Stock ( 1,750) 3,570
Purchase of Office Properties and
Equipment ( 963) ( 343)
--------- ---------
NET CASH FROM INVESTING ACTIVITIES ( 10,367) 11,443
<PAGE>7
SIX MONTHS ENDED
JUNE 30, JUNE 30,
1998 1997
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Net Increase (Decrease) in NOW Accounts,
Money Markets, Savings and
Certificates of Deposit (23,672) 2,488
Net Borrowings of Federal
Home Loan Bank Advances 45,000 ( 2,500)
Proceeds (Repayments) from Other
Borrowings (64,228) ( 4,076)
Net Change in Mortgage Escrow Funds 163 ( 717)
Purchase of Common Stock Net of
Proceeds from Exercise of Stock Options ( 1,909) ( 1,921)
Payment Received on Loan to ESOP 143 173
Dividend Paid, Net of Dividend
Reinvestment Program ( 696) ( 601)
--------- ---------
NET CASH FROM FINANCING ACTIVITIES 4,801 ( 7,154)
--------- ---------
NET DECREASE IN CASH AND
CASH EQUIVALENTS ( 2,347) ( 7,133)
CASH AND CASH EQUIVALENTS, BEGINNING 23,470 12,837
--------- ---------
CASH AND CASH EQUIVALENTS, ENDING $ 21,123 $ 19,970
========= =========
<PAGE>8
<TABLE>
<CAPTION>
COVEST BANCSHARES INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited)
(Dollars in thousands)
Six months ended June 30, 1997 and 1998
ACCUMULATED
ADDITIONAL UNEARNED OTHER
COMMON PAID-IN RETAINED TREASURY ESOP STOCK COMPREHENSIVE
STOCK CAPITAL EARNINGS STOCK LOAN AWARD INCOME TOTAL
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 $ 34 $22,155 $33,990 ($5,838) ($ 858) ($ 73) $ 534 $49,944
Net Income 2,304 2,304
Change in Unrealized Gain on Securities
Available-for-sale (626) (626)
--------
Comprehensive Income 691
--------
Cash Dividends ($.13 per share) ( 601) ( 601)
Purchase of Treasury Stock (2,409) (2,409)
Principal payment on ESOP Loan 173 173
Treasury Stock Reissued in Conjunction
with Stock Option Exercises ( 56) (438) 982 488
- -----------------------------------------------------------------------------------------------------------------------
Balance at June 30, 1997 $34 $22,099 $35,255 ($ 7,265) ($ 685) ($ 73) ($ 92) $49,899
========================================================================================================================
Balance at December 31, 1997 $44 $19,365 $28,410 $ - ($ 511) ($ 73) $ 1,059 $48,294
Net Income 1,982 1,982
Change in Unrealized Gain on Securities
Available-for-Sale ( 699) ( 699)
--------
Comprehensive Income 1,283
--------
Cash Dividends ($.16 per share) ( 696) ( 696)
Purchase of Treasury Stock (2,821) (2,821)
Principal Payment on ESOP Loan 143 143
Treasury Stock Reissued in Conjunction
with Stock Option Exercises ( 506) 1,418 912
Tax Benefits related to
Employee Stock Option Plans 464 464
- ------------------------------------------------------------------------------------------------------------------------
Balance at June 30, 1998 $ 44 $19,323 $29,696 ($ 1,403) ($ 368) ($ 73) $ 360 $47,579
=======================================================================================================================
</TABLE>
<PAGE>9
<TABLE>
<CAPTION>
COVEST BANCSHARES INC.
AVERAGE BALANCE SHEET
(Unaudited)
(Dollars in thousands)
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.
THREE MONTHS ENDED
----------------------------------------------------------------------------------------
JUNE 30, 1998 JUNE 30, 1997
----------------------------------------- ---------------------------------------
AVERAGE AVERAGE
AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST COST BALANCE INTEREST COST
INTEREST-EARNING ASSETS: ----------------------------------------- ---------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Commercial Real Estate $76,953 $1,663 8.64% $32,187 $679 8.44%
Multi-Family Loans 17,149 344 8.02 -0- -0- 0
Commercial Loans 7,112 168 9.45 202 5 9.90
Commercial Leases 33,922 557 6.57 7,926 130 6.56
Mortgage Loans 208,625 3,784 7.26 257,537 4,783 7.43
Consumer Loans 58,228 1,363 9.36 59,016 1,404 9.52
Investment Securities 30,788 479 6.22 56,988 920 6.46
Mortgage-Backed and
Related Securities 91,425 1,475 6.45 96,000 1,695 7.06
Other Investments 25,755 371 5.75 21,077 306 5.81
----------------------------------------- ---------------------------------------
Total Interest-Earning Assets $549,957 $10,204 7.42% $530,933 $ 9,922 7.48%
Non-Interest Earning Assets 22,633 19,075
----------------------------------------- ---------------------------------------
TOTAL ASSETS $572,590 $550,008
========================================= =======================================
INTEREST-BEARING LIABILITIES:
Interest-Bearing Checking $ 22,431 $ 72 1.28% $ 21,672 $ 97 1.79%
Savings 56,468 352 2.49 64,351 401 2.49
Money Market 74,146 903 4.87 51,026 619 4.85
Certificates of Deposit 175,120 2,423 5.53 259,475 3,612 5.57
Jumbo CD's 9,781 137 5.64 9,447 131 5.55
FHLB Advances 156,484 2,179 5.57 63,367 954 6.02
Other Borrowed Funds 7,799 113 5.75 19,206 253 5.27
----------------------------------------- ---------------------------------------
Total Interest-Bearing
Liabilities $502,229 $6,179 4.92% $479,097 $ 6,067 5.07%
Non-Interest Bearing
Deposits 11,391 10,777
Other Liabilities 11,064 10,251
----------------------------------------- ---------------------------------------
TOTAL LIABILITIES $524,684 $500,125
----------------------------------------- ---------------------------------------
Stockholders' Equity 47,906 49,883
----------------------------------------- ---------------------------------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $572,590 $550,008
========================================= =======================================
NET INTEREST INCOME $ 4,025 $ 3,855
----------------------------------------- ---------------------------------------
NET INTEREST RATE SPREAD (1) 2.50% 2.41%
----------------------------------------- ---------------------------------------
NET INTEREST MARGIN (2) 2.93% 2.90%
----------------------------------------- ---------------------------------------
(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
(Unaudited)
(Dollars in thousands)
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, 1998 JUNE 30, 1997
----------------------------------------- ---------------------------------------
AVERAGE AVERAGE
AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST COST BALANCE INTEREST COST
INTEREST-EARNING ASSETS: ----------------------------------------- ---------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Mortgage Loans $218,908 $7,952 7.27% $255,227 $ 9,489 7.44%
Commercial Loans 6,493 304 9.36 149 7 9.40
Commercial Leases 24,904 831 6.67 8,079 271 6.71
Commercial Real Estate 73,002 3,132 8.58 27,754 1,159 8.35
Multi-Family Loans 12,920 516 7.99 -0- -0- 0
Consumer Loans 58,348 2,710 9.29 58,313 2,713 9.30
Investment Securities 38,362 1,168 6.09 57,182 1,884 6.59
Mortgage-Backed and
Related Securities 102,060 3,400 6.66 103,194 3,631 7.04
Other Investments 22,515 662 5.88 17,292 446 5.16
----------------------------------------- ---------------------------------------
Total Interest-Earning Assets $557,512 $20,675 7.42% $527,190 $19,600 7.44%
Non-Interest Earning Assets 23,288 18,965
----------------------------------------- ---------------------------------------
TOTAL ASSETS $580,800 $546,155
========================================= =======================================
INTEREST-BEARING LIABILITIES:
Interest-Bearing Checking $ 22,252 $ 147 1.32% $ 21,611 $ 191 1.77%
Savings 57,405 712 2.48 64,821 804 2.48
Money Market 68,307 1,660 4.86 47,986 1,147 4.78
Certificates of Deposit 187,734 5,243 5.59 251,082 7,176 5.76
Jumbo CD's 9,559 269 5.65 10,036 281 5.65
FHLB Advances 156,298 4,345 5.56 62,383 1,862 5.97
Other Borrowed Funds 7,947 207 5.18 17,584 461 5.24
----------------------------------------- ---------------------------------------
Total Interest-Bearing
Liabilities $509,502 $12,583 4.94% $475,503 $11,923 5.02%
Non-Interest Bearing
Deposits 11,594 10,403
Other Liabilities 11,604 10,299
----------------------------------------- ---------------------------------------
TOTAL LIABILITIES $532,700 $496,205
----------------------------------------- ---------------------------------------
Stockholders' Equity 48,100 49,950
----------------------------------------- ---------------------------------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $580,800 $546,155
========================================= =======================================
NET INTEREST INCOME $8,092 $ 7,677
----------------------------------------- ---------------------------------------
NET INTEREST RATE SPREAD (1) 2.48% 2.42%
----------------------------------------- ---------------------------------------
NET INTEREST MARGIN (2) 2.90% 2.91%
----------------------------------------- ---------------------------------------
(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, 1998 are not necessarily indicative of results that
may be expected for the entire year ended December 31, 1998.
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"),
including its wholly owned subsidiary, CoVest Banc (the "Bank"),
as of June 30, 1998 and December 31, 1997, the results of
the Company's operations for the three and six months ended June 30,
1998 and 1997, its cash flows for the six months ended June 30, 1998
and 1997, its changes in stockholders' equity for the six months
ended June 30, 1998 and 1997, and its average balance sheet for the
three and six months ended June 30, 1998 and 1997.
Certain amounts in prior condensed consolidated financial statements
have been reclassified to conform with the June, 1998 presentation.
(2) Nature of Operations
CoVest Bancshares, Inc. formerly known as FirstFed Bancshares, Inc.
(the "Company") is a bank holding company organized under the laws of
the state of Delaware. During 1997, the Company converted its bank
subsidiary, First Federal Bank, to a national bank charter and
concurrently changed the name to CoVest Banc, National Association
(the "Bank"). The Company provides a full line of financial services
to customers within nine counties in northeast Illinois from its four
locations. The Bank opened a mortgage loan center in McHenry,
Illinois in mid-February, 1998.
<PAGE>12
A reconciliation of the numerators and denominators for earnings per
common share dilution computations for the three months ended June 30,
1998 and 1997 were presented below: (in thousands except per share
data)
Three Months ended June 30,
---------------------------
1998 1997
---- ----
Earnings per share:
Net Income $ 972 $ 987
Weighted average common
shares outstanding 4,230 4,315
------ -----
Earnings per share $ .23 $ .23
====== ======
Earnings per share assuming dilution:
Net Income $ 972 $ 987
====== ======
Weighted average common
shares outstanding 4,230 4,315
Add: dilutive effect of assumed
exercises, incentive stock
options and management
retention plan 322 215
----- -----
Weighted average common and
dilutive potential common
shares outstanding 4,552 4,530
===== =====
Diluted earnings per share $ .21 $ .22
====== ======
<PAGE>13
A reconciliation of the numerators and denominators for earnings per
common share dilution computations for the six months ended June 30,
1998 and 1997 were presented below: (in thousands except per share
data)
Six Months Ended June 30,
--------------------------
1998 1997
---- ----
Earnings per share:
Net Income $1,982 $2,304
Weighted average common
shares outstanding 4,234 4,341
----- -----
Earnings per share $ .47 $ .53
====== ======
Earnings per share assuming dilution:
Net Income $1,982 $2,304
====== ======
Weighted average comon
shares outstanding 4,234 4,341
Add: dilutive effect of assumed
exercises, incentive stock
options and management
retention plan 303 202
----- -----
Weighted average common and
dilutive potential common
shares outstanding 4,537 4,563
====== =====
Diluted earnings per share $ .44 $ .51
====== ======
(3) Stock Repurchase Program
On October 27, 1997, the Company's Board of Directors approved a Stock
Repurchase Program, the Company's twelfth, which enabled the Company
to repurchase up to 150,000 (post-splits) shares of its outstanding
stock. On May 12, 1998, the buyback was completed at an average price
of $16.74.
<PAGE>14
On May 12, 1998 the Company's Board of Directors announced a new Stock
Repurchase Program, the Company's thirteenth, enabling the Company to
repurchase up to 100,000 shares of its outstanding stock. These
purchases were 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 August 7, 1998, the Company completed the Repurchase Plan.
(4) Stock Dividend and Cash Dividend
On December 1, 1997, the second three-for-two stock split, payable in
the form of a one-for-two stock dividend occurred. All amounts have
been restated to show the effect of this stock dividend. The regular
quarterly dividend for the fourth quarter of 1997 and the first and
second quarters of 1998 were paid at $.08 per share post-split.
(5) 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 Comptroller of Currency (the "OCC"),
National banks must meet three separate minimum capital requirements.
The following table summarizes, as of June 30, 1998, the Bank's
capital requirements under FIRREA and its actual capital ratios. As
of June 30, 1998, the Bank exceeded all current minimum regulatory
capital requirements.
BANK ONLY
----------------------------------------------------
Actual Regulatory Excess Above
Capital Capital Req. Capital Req.
Amount % Amount % Amount %
------- ------ ------- ----- ------- -----
(Dollars in Thousands)
Total Capital to
Risk Weighted
Assets $47,213 12.62% $29,954 8.00% $17,259 4.62%
Tier I Capital to
Risk Weighted
Assets 42,581 11.37 14,977 4.00 27,604 7.37
Tier I Capital to
Average Assets 42,581 7.47 22,793 4.00 19,788 3.47
<PAGE>15
(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.
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, commercial real estate,
multi-family, construction loans, leases and consumer loans. It is
<PAGE>16
management's intention that commercial lending 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 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 income produced by the mortgage
center, 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.
FINANCIAL CONDITION
- -------------------
Total consolidated assets of the Company increased by $5.6 million
from $582.7 million at December 31, 1997, to $588.3 million at June
30, 1998.
During the first quarter the Company funded over $31 million
commercial loans, commercial real estate loans, construction loans,
and leases, and during the second quarter, the fundings grew to over
$42 million. On a year-to-date basis the Company has funded over $73
million in new commercial related loans. The composition of the loan
portfolio continues to change as commercial loans represented 2%,
commercial real estate loans represented 17%, multi-family loans
represented 6%, construction loans represented 4%, and leases
represented 9% at June 30, 1998. These loans now represent 38% of
total loans receivable, up from 23% at year-end 1997, and up from less
than 12% at June 30, 1997. With $35 million of approved and accepted
commitments outstanding as of June 30, 1998, which should be funded in
the next 90 days, management expects the composition of commercial
loans, commercial real estate, construction, and multi-family loans to
continue to grow and become a larger percentage of the overall loan
portfolio and assets mix.
<PAGE>17
During the first six months of 1998, residential mortgage loans
decreased by $42 million as borrowers took advantage of lower rates
and refinanced their mortgages. The CoVest Banc mortgage center in
McHenry, Illinois processed many of the refinanced mortgages which
are then sold on a service released basis to the investor market. The
mortgage center has over $4 million of loans held for sale at June 30,
1998. The net overall result was that gross loans increased by $34
million.
At June 30, 1998, the allowance for possible loan losses amounted to
over $4.6 million. This represented coverage of 1.12% of total loans
as of June 30, 1998, and is greater than the 1.04% coverage which
existed at year-end 1997.
Securities available-for-sale decreased by $15 million. Some were
replaced by municipal bonds and FHLB stock. All new security
purchases mature within five years.
Mortgage-backed and other mortgage-related securities decreased $17.6
million or 14.6% from December 31, 1997. The proceeds from the sales
of and paydowns on mortgage-backed securities were used to fund
additional commercial related loans.
Deposits decreased to $348.1 million at June 30, 1998, from $371.8
million at December 31, 1997. Most of this decrease centers on the
Bank's prior reliance on certificates of deposit which, as a
percentage of deposits, have decreased to 52% as of June 30, 1998,
from 59% as of December 31, 1997. The only deposit type to show
growth was the Bank's Preferred Money Market account. This account
has grown by over $21 million, or 27%, and is indexed to the 91 day
U.S. Treasury Bill rate and reflects the weekly change that occurs as
a result of the auction in the bond market.
Borrowed funds have increased by $31 million from year-end 1997.
These funds, for the most part, have been centered in borrowings from
the Federal Home Loan Bank ("FHLB"). The Bank has taken advantage of
offerings by the FHLB when funds were available at rates under the
levels being offered for retail deposits.
Stockholders' equity in CoVest Bancshares, Inc. totaled $47.6 million
at June 30, 1998. At the end of the second quarter, the number of
common shares outstanding was 4,326,803 and the book value per common
share outstanding was $11.00. The Company repurchased over 69,000
shares during the second quarter at an average price of $18.33. This
<PAGE>18
compares to December 31, 1997, when the number of common shares
outstanding was 4,365,761 and the book value per common share
outstanding was $11.06. The Company announced its most recent stock
repurchase plan on May 12, 1998. On August 7, 1998, the Company completed
the Repurchase Plan.
At June 30, 1998, total non-performing assets amounted to $872,000, or
0.15% of total assets compared to $1.3 million, or 0.22% of total
assets at December 31, 1997. Management believes the reserves for
possible loan losses to be adequate. There were no commercial real
estate, multi-family, construction, or commercial loans and leases
non-performing as of June 30, 1998. Furthermore, 72% of non-
performing loans were single family mortgages.
The following table sets forth the amounts and categories of non-
performing loans and assets.
June 30, 1998 Dec. 31, 1997
------------- -------------
(Dollars in Thousands)
Non-performing loans:
Mortgage Loans $ 578 $ 1,137
Commercial Real Estate Loans -0- -0-
Multi-family Loans -0- -0-
Construction Loans -0- -0-
Commercial Loans & Leases -0- -0-
Consumer 222 167
------------- -------------
Total non-performing loans $ 800 $ 1,304
Other real estate owned $ 72 $ -0-
Other repossessed assets $ -0- $ -0-
------------- -------------
Total non-performing assets $ 872 $ 1,304
Total non-performing loans as
a percentage of net loans .19% .35%
Total non-performing assets as
a percentage of total assets .15% .22%
<PAGE>19
LIQUIDITY
- ---------
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
$3.2 million for the six months ended June 30, 1998. Net cash used in
investing activities was $10.4 million for the six months ended June
30, 1998. Net cash provided in financing activities amounted to $4.8
million for the six months ended June 30, 1998.
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, 1998, the Company had commitments to
originate loans and undisbursed loan balances totaling $52 million,
and its customers had approved but unused lines of credit totaling $65
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.
SELECTED RATIOS
- ---------------
(unaudited)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1998 1997 1998 1997
-------------------- -------------------
Annualized Return on Avg. Equity 8.12% 7.91% 8.24% 9.22%
Annualized Return on Avg. Assets 0.68% 0.72% 0.68% 0.84%
Book Value per Share $11.00 $11.15 $11.00 $11.15
Closing Market Price per Share $18.125 $12.25 $18.125 $12.25
Earnings per Primary Share:
Basic $ .23 $ .23 $ .47 $ .53
Diluted $ .21 $ .22 $ .44 $ .51
<PAGE>20
Net Interest Margin 2.93% 2.90% 2.90% 2.91%
Ratio of Operating Expense to
Average Total Assets,
Annualized 2.31% 2.03% 2.27% 1.94%
Ratio of Net Interest Income to
Non-Interest Expense,
Annualized 1.20x 1.38X 1.22x 1.45x
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30,1998 AND 1997
- ----------------------------------------------------------------------
GENERAL. Net income for the three months ended June 30, 1998 totaled
$972,000, or $0.23 (basic) and $0.21 (diluted) earnings per share,
versus $987,000, or $0.23 (basic) and $0.22 (diluted) earnings per
share for the like quarter in 1997.
NET INTEREST INCOME. The Company's net interest income totaled
$3,972,000 for the three months ended June 30, 1998, compared to
$3,855,000 for the second quarter of 1997. The Company's net interest
margin increased 3 basis points, to 2.93% for the second quarter of
1998 from 2.90% for the second quarter of 1997. The interest rate
spread averaged 2.50% for 1998 and 2.41% during the second quarter of
1997. The volume of earning assets increased by $19 million between
the two periods while the average yield increased by 6 basis points
from 7.48% to 7.42%.
The cost of interest bearing liabilities decreased by 15 basis points
from 5.07% to the current 4.92%. The composition of the liabilities
changed as money market accounts continue to be a larger percentage of
the Bank's deposit funding source replacing the shrinking pool of
certificates of deposit.
PROVISION FOR POSSIBLE LOAN LOSSES. The provision for possible loan
losses was $769,000 for the second quarter of 1998 versus $402,000 for
the like period in 1997. This increases the reserve for possible loan
losses to 1.12% of total loans as of June 30, 1998. The Company, and
the banking industry as a whole, experienced significant credit card
charge-offs and losses are expected to continue at this level in 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.
<PAGE>21
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,
1998 1997
--------- ---------
(Dollars in Thousands)
Balance at beginning of period $ 4,161 $ 1,513
Charge-offs:
Mortgage Loans $ -0- $ -0-
Commercial Real Estate Loans -0- -0-
Multi-family Loans -0- -0-
Construction Loans -0- -0-
Commercial Loans & Leases -0- -0-
Consumer 326 441
-------- --------
Total 326 441
-------- --------
Recoveries:
Mortgage Loans $ -0- $ -0-
Commercial Real Estate Loans -0- -0-
Multi-family Loans -0- -0-
Construction Loans -0- -0-
Commercial Loans & Leases -0- -0-
Consumer 28 16
-------- --------
Total 28 16
-------- --------
Net charge-offs 298 425
Additions charged to
operations 769 402
-------- ---------
Balance at end of period $ 4,632 $1,489
======== =========
Ratio of net charge-offs during
the period to average loans
outstanding during the period 0.07% 0.12%
Ratio of allowance for possible
loan losses to non- performing loans 5.79x 1.52x
<PAGE>22
NET INTEREST INCOME AFTER PROVISION FOR POSSIBLE LOAN LOSSES. Net
interest income after provision for possible loan losses increased by
$107,000 or 3% to $3,972,000 for the three month period ended June
30, 1998, as compared to $3,855,000 for the three month period ended
June 30, 1997.
NON-INTEREST INCOME. Non-interest income excluding security gains
increased $594,000, or 114%, from the comparable quarter last year.
Loan charges, sales and servicing fees increased by 188%, or $488,000
to $747,000, primarily from the activity being generated by the
mortgage center. Deposit related fees increased by $33,000 to
$247,000, and income from sales of annuities and securities by CoVest
Investments increased by $54,000 to $69,000. Realized gains of
$463,000 on sales of securities were also recorded. This is an
increase of $152,000 in net gains on security sales from the
comparable quarter in 1997.
NON-INTEREST EXPENSE. Non-interest expense increased $508,000, or
18%, for the second quarter of 1998 from the comparable quarter in
1997. Over $370,000, of this increase relates to commissions and
employee benefits attributed to the mortgage center. Other operating
expense increases include $148,000 due in part to occupancy costs at
the mortgage center and a $53,000 increase in data processing
expenses. These increases were offset by a $138,000 decrease in
advertising in 1998 from 1997 advertising expenses related to the
Bank's name change.
INCOME TAX EXPENSE. Income tax expense increased $3,000 to $505,000
for the quarter ended June 30, 1998, compared to $502,000 for the same
period in 1997.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30,1998 AND 1997
- ----------------------------------------------------------------------
GENERAL. For the first six months of 1998, the Company earned
$1,982,000 versus $2,304,000 for the like period in 1997, a decrease
of 14%. This represents $0.47 (basic) and $0.43 (diluted) versus $0.53
(basic) and $0.51 (diluted) for the first six months of 1997.
<PAGE>23
NET INTEREST INCOME. The Company's net interest income totaled
$8,016,000 for the six months ended June 30, 1998, compared to
$7,677,000 for the first six months of 1997. The Company's net
interest margin decreased 1 basis point, to 2.90% for the six month
period of 1998 from 2.91% for the like period of 1997. The interest
rate spread averaged 2.48% for 1998 and 2.42% during the first six
months of 1997. The volume of earning assets increased by $30 million
between the two periods while the average yield decreased by 2 basis
points from 7.44% to 7.42%.
The cost of interest bearing liabilities decreased by 8 basis points
from 5.02% to the current 4.94%. The composition of the liabilities
changed as money market accounts continue to be a larger percentage of
the Bank's deposit funding source replacing the shrinking pool of
certificates of deposit.
PROVISION FOR POSSIBLE LOAN LOSSES. The provision for possible loan
losses was $1,168,000 for the six month period of 1998 versus $753,000
for the like period in 1997. This increases our reserve for possible
loan losses to 1.12% of total loans as of June 30, 1998. The Company,
and the banking industry as a whole, has experienced significant
credit card charge-offs and losses are expected to continue at this
level in 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.
<PAGE>24
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,
1998 1997
--------- ---------
(Dollars in Thousands)
Balance at beginning of period $ 3,977 $ 1,424
Charge-offs:
Mortgage Loans $ 38 $ -0-
Commercial Real Estate Loans -0- -0-
Multi-family Loans -0- -0-
Construction Loans -0- -0-
Commercial Loans & Lease -0- -0-
Consumer 559 717
-------- --------
Total 597 717
-------- --------
Recoveries:
Mortgage Loans $ -0- $ -0-
Commercial Real Estate Loans -0- -0-
Multi-family Loans -0- -0-
Construction Loans -0- -0-
Commercial Loans & Leases -0- -0-
Consumer 84 29
-------- --------
Total 84 29
-------- --------
Net charge-offs 513 688
Additions charged to
operations 1,168 753
-------- ---------
Balance at end of period $ 4,632 $1,489
======== =========
Ratio of net charge-offs during
the period to average loans
outstanding during the period 0.13% 0.19%
Ratio of allowance for possible
loan losses to non- performing loans 5.79x 1.52x
<PAGE>25
NET INTEREST INCOME AFTER PROVISION FOR POSSIBLE LOAN LOSSES. Net
interest income after provision for possible loan losses decreased by
$76,000 or 1% to $6,848,000 for the six month period ended June 30,
1998, as compared to $6,924,000 for the six month period ended June
30, 1997.
NON-INTEREST INCOME. Non-interest income excluding security gains
increased $1,018,000, or 99%, from the comparable period last year.
Loan charges, sales and servicing fees increased by 143%, or $753,000
to $1,269,000, primarily from the activity being generated by the
mortgage center. Deposit related fees increased by $74,000 to
$466,000, and income from sales of annuities and securities by CoVest
Investments increased by 600%, from $30,000 to $210,000. Realized
gains of $719,000 on sales of securities were also recorded. This was
a decrease of $155,000 in net gains on security sales from the
comparable period in 1997.
NON-INTEREST EXPENSE. Non-interest expense increased $1,288,000, or
24%, for 1998 from the comparable period in 1997. Over $370,000 of
this increase related to commissions and employee benefits attributed
to the mortgage center. Other operating expense increases included
$254,000 due in part to occupancy costs at the mortgage center and a
$154,000 increase in data processing expenses. The data processing
expense included $75,000 related to testing computer hardware and
software to be Year 2000 compliant. These increases were offset by a
$145,000 decrease in advertising in 1998 from 1997 advertising
expenses related to the Bank's name change.
INCOME TAX EXPENSE. Income tax expense decreased $179,000 to
$1,035,000 for the six month period ended June 30, 1998, compared
to $1,214,000 for the same period in 1997.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
- ---------------------------------------------------------
In an attempt to manage the Bank's exposure to changes in interest
rates, management closely monitors the Bank's interest rate risk.
Interest rate risk results when the maturity or repricing intervals
and interest rate indices of the interest-earning assets, interest-
bearing liabilities, and off-balance sheet financial instruments are
different, creating a risk that changes in the level of market
interest rates will result in disproportionate changes in the value
of, and the net earnings generated from, the Company's interest-
<PAGE>26
earning assets, interest-bearing liabilities, and off-balance sheet
financial instruments. The Company's exposure to interest rate risk is
managed primarily through the Company's strategy of selecting the
types and terms of interest-earning assets and interest-bearing
liabilities which generate favorable earnings, while limiting the
potential negative effects of changes in market interest rates. Since
the Company's primary source of interest-bearing liabilities is
customer deposits, the Company's ability to manage the types and terms
of such deposits may be somewhat limited by customer preferences in
the market areas in which the Company operates. Borrowings, which
include FHLB Advances, short-term borrowings, and long-term
borrowings, are generally structured with specific terms which in
management's judgment, when aggregated with the terms for outstanding
deposits and matched with interest-earning assets, mitigate the
Company's exposure to interest rate risk. The rates, terms and
interest rate indices of the Company's interest-earning assets result
primarily from the Company's strategy of investing in loans and
securities (a substantial portion of which have adjustable-rate terms)
which permit the Company to limit its exposure to interest rate risk,
together with credit risk, while at the same time achieving a positive
interest rate spread from the difference between the income earned on
interest-earning assets and the cost of interest-bearing liabilities.
In addition to periodic gap reports comparing the sensitivity of
interest-earning assets and interest-bearing liabilities to changes in
interest rates, management utilizes a monthly report ("model")
prepared by the Bank which measures the Bank's exposure to interest
rate risk. The model calculates the present value of assets,
liabilities, off-balance sheet financial instruments, and equity at
current interest rates, and at hypothetical higher and lower interest
rates at one percent intervals. The present value of each major
category of financial instrument is calculated by the model using
estimated cash flows based on weighted average contractual rates and
terms at discount rates representing the estimated current market
interest rate for similar financial instruments. The resulting
present value of longer term fixed-rate financial instruments are more
sensitive to change in a higher or lower market interest rate
scenario, while adjustable-rate financial instruments largely reflect
only a change in present value representing the difference between the
contractual and discounted rates until the next interest rate
repricing date.
<PAGE>27
The following table presents the Bank's current exposure to
hypothetical changes in interest rates as of June 30, 1998:
Percent Change in
Change in Interest Rates Percent Change in MV of Portfolio
(basis points) Net Interest Income Equity
------------------------ ------------------- -----------------
+200 (9%) (28%)
100 (6) (14)
0 0 0
-100 6 15
-200 13 31
Certain shortcomings are inherent in the method of analysis presented
in the foregoing table. For example, although certain assets and
liabilities may have similar maturities or periods to repricing, they
may react in different degrees to changes in market interest rates.
Also, the interest rates on certain types of assets and liabilities
may fluctuate in advance of changes in market interest rates, while
interest rates on other types may lag behind changes in market rates.
Additionally, certain assets, such as adjustable-rate mortgage loans,
have features that restrict changes in interest rates on a short-term
basis and over the life of the loan. Further, in the event of a
change in interest rates, prepayment and early withdrawal levels could
deviate significantly from those assumed in calculating the tables.
Finally, the ability of many borrowers to service their debt may
decrease in the event of a significant interest rate increase.
In addition, the previous table does not necessarily indicate the
impact of general interest rate movements on the Company's net
interest income because the repricing of certain categories of assets
and liabilities are subject to competitive and other pressures beyond
the Company's control. As a result, certain assets and liabilities
indicated as maturing or otherwise repricing within a stated period
may in fact mature or reprice at different times and at different
volumes.
<PAGE>28
RECENT REGULATORY DEVELOPMENTS
- -----------------------------------------------------------
Year 2000
The federal banking regulators have issued several statements
providing guidance to financial institutions on the steps the
regulators expect financial institutions to take to become Year 2000
compliant. Each of the federal banking regulators is also examining
the financial institutions under its jurisdiction to assess each
institution's compliance with the outstanding guidance. If an
institution's progress in addressing the Year 2000 problem is deemed
by its primary federal regulator to be less than satisfactory, the
institution will be required to enter into a memorandum of
understanding with the regulator which will, among other things,
require the institution to promptly develop and submit an acceptable
plan for becoming Year 2000 compliant and to provide periodic reports
describing the institution's progress in implementing the plan.
Failure to satisfactorily address the Year 2000 problem may also
expose a financial institution to other forms of enforcement action
that its primary federal regulator deems appropriate to address the
deficiencies in the institution's Year 2000 remediation program.
Management has considered this issue internally and receives periodic
correspondence from its data processor regarding their plans to be
Year 2000 compliant. Management does not anticipate that the Company
will incur material operating expenses to be required to invest
heavily in computer system improvements to be Year 2000 compliant, but
did provide $75,000 during the first quarter of 1998 to test computer
hardware and software. This number could vary based upon the results
of testing and other factors. An unknown element at this time is the
impact of the Year 2000 on the Company's borrowing customers and their
ability to repay. The Company has initiated a program to communicate
with key bank customers to ensure they are properly prepared for the
Year 2000 and will not suffer serious adverse consequences. This same
analysis has been performed for large depositors and funds providers.
Nevertheless, if not properly addressed, these issue could result in
interruptions in the Company's business and have a material adverse
effect on the Company's results of operations.
<PAGE>29
NEW ACCOUNTING STANDARDS
Effective for fiscal years beginning after December 15, 1997, under a
new accounting standard (SFAS 130), comprehensive income is now
reported for all periods. Comprehensive income includes both net
income and other comprehensive income. Other comprehensive income
includes the change in unrealized gains and losses on securities
available-for-sale. Comprehensive income has been disclosed in the
consolidated statements of changes in stockholders' equity.
Effective for fiscal years beginning after December 15, 1997, a new
accounting standard (SFAS 131), establishes standards for the way that
public enterprises report information about operating segments in
annual financial statements and requires that those enterprises report
selected information about operating segments in interim financial
reports issued to shareholders. This standard will have no impact on
the Corporation.
<PAGE>30
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 28, 1998, the annual meeting of stockholders was held.
Gerald T. Niedert, Thomas TenHoeve and David B. Speer were
elected to serve as Class III directors with terms expiring
in 2001. Continuing to serve as Class II directors with
terms expiring in 2000 are John A. Flink, Larry G. Gillie and
Frank A. Svoboda, Jr. Continuing to serve as Class I
directors with terms expiring in 1999 are George T. Drost and
David M. Miller. 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, 1998.
There were 4,362,038 issued and outstanding shares of Common
Stock at the time of the annual meeting. 3,794,727 shares
were voted at the meeting. The voting on each item presented
at the annual meeting was as follows:
Election of Directors For Withheld
---------------------- --- ---------
Gerald T. Niedert 3,773,741 20,986
Thomas TenHoeve 3,773,404 21,323
David B. Speer 3,773,741 20,986
Ratification of Accountants
-------------------------------------
BROKER
FOR AGAINST ABSTAIN NON VOTES
--- ------- -------- ---------
3,763,130 20,190 11,407 0
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27. Financial Data Schedule
(b) Reports on Form 8-K
A report on Form 8-K was filed on April 17, 1998 to
report under Item 5 net income for the period ended
March 31, 1998.
A report on Form 8-K was filed on May 12, 1998 to
report under Item 5 the completion of the Company's 12th
Stock Repurchase Plan and announcing the 13th Stock
Repurchase Plan.
A report on Form 8-K was filed on May 27, 1998 to
report under Item 5 that the Company announced
the issuance of a regular quarterly dividend.
<PAGE>31
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 13, 1998 By:/s/ Larry G. Gillie
---------------------------
Larry G. Gillie
President and
Chief Executive Officer
Date: August 13, 1998 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, 1998, and is qualified
in its entirety by reference to the December 31, 1997 Consolidated Financial
Statements.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 7,405
<INT-BEARING-DEPOSITS> 13,718
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 138,948
<INVESTMENTS-CARRYING> 138,360
<INVESTMENTS-MARKET> 138,948
<LOANS> 415,216
<ALLOWANCE> 4,632
<TOTAL-ASSETS> 588,350
<DEPOSITS> 348,080
<SHORT-TERM> 62,728
<LIABILITIES-OTHER> 9,963
<LONG-TERM> 120,000
0
0
<COMMON> 44
<OTHER-SE> 47,535
<TOTAL-LIABILITIES-AND-EQUITY> 588,350
<INTEREST-LOAN> 15,445
<INTEREST-INVEST> 5,492
<INTEREST-OTHER> 662
<INTEREST-TOTAL> 20,599
<INTEREST-DEPOSIT> 8,031
<INTEREST-EXPENSE> 12,583
<INTEREST-INCOME-NET> 8,016
<LOAN-LOSSES> 1,168
<SECURITIES-GAINS> 719
<EXPENSE-OTHER> 6,597
<INCOME-PRETAX> 3,017
<INCOME-PRE-EXTRAORDINARY> 3,017
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,982
<EPS-PRIMARY> .47
<EPS-DILUTED> .44
<YIELD-ACTUAL> 7.42
<LOANS-NON> 0
<LOANS-PAST> 800
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 3,977
<CHARGE-OFFS> 597
<RECOVERIES> 84
<ALLOWANCE-CLOSE> 4,632
<ALLOWANCE-DOMESTIC> 4,632
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
