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, 2000 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 July 26, 2000, the Registrant had issued and outstanding 4,403,803
shares of the Registrant's Common Stock. In addition, it had also
repurchased 441,399 shares which were being held as treasury stock.
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 24
Item 2. Changes in Securities 24
Item 3. Defaults upon Senior Securities 24
Item 4. Submission of Matters to a Vote
of Security Holders 24
Item 5. Other Information 24
Item 6. Exhibits and Reports 24
Form 10-Q Signatures 25
PART 1. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
(unaudited)
COVEST BANCSHARES INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
JUNE 30, DEC. 31,
(Dollars in thousands, except 2000 1999
per share data) --------- ---------
ASSETS
------
CASH ON HAND AND IN BANKS $ 8,944 $ 9,027
INTEREST BEARING DEPOSITS 3,452 1,590
--------- ---------
Cash and Cash Equivalents 12,396 10,617
SECURITIES:
Securities Available-for-Sale 39,630 51,702
Mortgage-Backed and Related
Securities Available-for-Sale 15,499 18,759
Federal Home Loan Bank and
Federal Reserve Bank Stock 6,635 6,529
-------- --------
TOTAL SECURITIES 61,764 76,990
LOANS RECEIVABLE:
Commercial Loans 24,387 17,426
Multi-Family Loans 140,826 126,109
Commercial Real Estate Loans 71,548 74,284
Construction Loans 39,724 46,177
Commercial/Municipal Leases 12,874 22,029
Mortgage Loans 125,659 130,160
Consumer Loans 52,182 51,239
Mortgage Loans held for Sale 46 106
-------- --------
TOTAL LOANS RECEIVABLE 467,246 467,530
Allowance for Possible Loan Loss ( 5,240) ( 4,833)
-------- --------
LOANS RECEIVABLE, NET 462,006 462,697
ACCRUED INTEREST RECEIVABLE 3,370 3,437
PREMISES AND EQUIPMENT 10,292 10,669
OTHER REAL ESTATE OWNED 75 0
GOODWILL 1,646 1,749
MORTGAGE SERVICING RIGHTS 137 148
OTHER ASSETS 1,814 2,189
-------- --------
TOTAL ASSETS $553,500 $568,496
======== ========
See accompanying notes to consolidated financial statements
COVEST BANCSHARES INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (Continued)
(Unaudited)
(Dollars in thousands, except
per share data)
JUNE 30, DEC. 31,
2000 1999
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
LIABILITIES:
Deposits:
Non-Interest Bearing $ 23,959 $ 19,691
Interest Bearing Checking 22,321 21,930
Savings Accounts 47,295 49,700
Money Market Accounts 103,130 88,779
Certificates of Deposit 159,433 165,578
Jumbo CDs 11,229 8,204
Purchased CDs 56,831 44,173
-------- --------
424,198 398,055
Short-Term Borrowings and Securities
Sold U/A to Repurchase 52,565 85,004
Long-Term Advances from Federal
Home Loan Bank 19,000 29,000
Advances from Borrowers for
Taxes and Insurance 4,864 4,640
Accrued Expenses and Other Liabilities 6,362 5,523
--------- ---------
TOTAL LIABILITIES 506,989 522,222
STOCKHOLDERS' EQUITY:
Common Stock, par value $.01 per share;
7,500,000 authorized shares; 4,403,803
shares issued at 6/30/00 and 12/31/99
respectively 44 44
Additional Paid-in Capital 17,824 17,919
Retained Earnings 35,084 33,514
Treasury Stock, 388,258 shares and
299,796 shares, held at cost 6/30/00
and 12/31/99 respectively (5,194) (4,312)
Unearned Stock Award 0 (14)
Accumulated Other Comprehensive
Loss (1,247) (877)
--------- --------
TOTAL STOCKHOLDERS' EQUITY 46,511 46,274
--------- --------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $553,500 $568,496
========= ========
See accompanying notes to consolidated financial statements
<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 2000 1999 2000 1999
per share data) --------- --------- --------- ---------
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans and Leases Receivable $ 9,574 $ 7,672 $18,821 $15,263
Interest Bearing Deposits at Banks 161 185 278 572
Mortgage-Backed and Related Securities 289 385 607 894
Taxable Securities 524 808 1,062 1,285
Tax Exempt Securities 92 178 193 334
Other Interest and Dividend Income 120 115 237 244
--------- --------- --------- ---------
Total Interest Income 10,760 9,343 21,198 18,592
INTEREST EXPENSE
Deposits 4,996 3,660 9,822 7,337
Advances from Federal Home Loan Bank 1,195 1,621 2,536 3,224
Other Borrowed Money 236 72 355 126
--------- --------- --------- ---------
Total Interest Expense 6,427 5,353 12,713 10,687
NET INTEREST INCOME 4,333 3,990 8,485 7,905
Provision for Possible Loan Losses 250 288 510 387
NET INTEREST INCOME AFTER PROVISION --------- --------- -------- ---------
FOR POSSIBLE LOAN LOSSES 4,083 3,702 7,975 7,518
NON-INTEREST INCOME
Loan Servicing Fees 269 275 593 477
Mortgage Center Income 122 495 208 1,031
Deposit Related Charges and Fees 264 252 489 488
Gain/(Loss) on Sale of Securities (8) -0- (96) 2
Insurance and Annuity Commissions 31 59 91 98
Other 79 129 145 160
--------- --------- --------- ---------
TOTAL Non-Interest Income 757 1,210 1,430 2,256
NON-INTEREST EXPENSE
Compensation and Benefits 1,618 1,516 3,110 3,483
Commissions and Incentives 158 230 257 415
Occupancy and Equipment 518 522 1,012 1,049
Federal Insurance Premium 21 54 40 107
Data Processing 219 244 437 488
Advertising 111 103 202 195
Other Real Estate Owned (6) -0- (6) 2
Amortization of Goodwill 51 51 102 103
Amortization of Mortgage Servicing Rights 6 14 11 35
Other 404 610 803 1,140
--------- --------- --------- ----------
TOTAL NON-INTEREST EXPENSE 3,100 3,344 5,968 7,017
--------- --------- --------- ----------
INCOME BEFORE INCOME TAXES 1,740 1,568 3,437 2,757
Income Tax Provision (615) (529) (1,215) (932)
--------- --------- --------- ----------
NET INCOME $ 1,125 $ 1,039 $ 2,222 $ 1,825
========= ========= ========= ==========
Basic Earnings Per Share $0.28 $0.25 $0.54 $0.44
Diluted Earnings Per Share $0.27 $0.24 $0.54 $0.42
Comprehensive Income/(Loss) $ 1,160 $ 371 $ 1,852 $ 856
</TABLE>
See accompanying notes to consolidated financial statements
COVEST BANCSHARES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS SIX MONTHS ENDED
(Unaudited) JUNE 30, JUNE 30,
(Dollars in thousands) 2000 1999
--------- ---------
OPERATING ACTIVITIES
Net Income $ 2,222 $ 1,825
Adjustments to Reconcile Net Income to
Net Cash from Operating Activities
Depreciation and Amortization of
Premises and Equipment 513 519
Provision for Possible Loan Losses 510 387
Net (Gain)/Loss on Sale of Securities 96 (2)
Stock Award Earned 14 -0-
Change In:
Prepaid Expenses and Other Assets 489 1,031
Accrued Interest Receivable 67 197
Accrued Expenses and Other Liabilities 857 (1,309)
--------- ---------
NET CASH FROM OPERATING ACTIVITIES 4,768 2,648
CASH FLOWS FROM INVESTING ACTIVITIES
Loan Originations, Net of Principal
Payments 106 9,081
Principal Payments on Mortgage-Backed
and Related Securities 1,694 6,006
Purchases of Securities (120) (42,399)
Proceeds from Sales and Maturities
of Securities 13,040 12,218
(Purchase)/Sale of Federal Home Loan Bank
and Federal Reserve Bank Stock (106) 1,910
Purchase of Office Properties and
Equipment 136 (86)
--------- ---------
NET CASH FROM INVESTING ACTIVITIES 14,750 (13,270)
CASH FLOWS FROM FINANCING ACTIVITIES
Net Increase/(Decrease) in Deposits 26,143 (9,011)
Repayment of Long Term Federal Home
Loan Bank Advances (10,000) -0-
Proceeds/Repayments of Other Borrowings (32,439) 3,596
Net Increase in Mortgage Escrow Funds 224 302
Purchase of Common Stock Net of
Proceeds from Exercise of Stock Options (1,015) (1,273)
Payment Received on Loan to ESOP -0- 161
Dividend Paid (652) (669)
--------- ---------
NET CASH FROM FINANCING ACTIVITIES (17,739) (6,894)
--------- ---------
NET INCREASE/(DECREASE) IN CASH AND
CASH EQUIVALENTS 1,779 (17,516)
CASH AND CASH EQUIVALENTS, BEGINNING 10,617 39,677
--------- ---------
CASH AND CASH EQUIVALENTS, ENDING $12,396 $22,161
========= =========
See accompanying notes to consolidated financial statements
<TABLE>
<CAPTION>
COVEST BANCSHARES INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited)
(Dollars in thousands)
ACCUMULATED
ADDITIONAL UNEARNED OTHER
COMMON PAID-IN RETAINED TREASURY ESOP STOCK COMPREHENSIVE
STOCK CAPITAL EARNINGS STOCK LOAN AWARD INCOME/(LOSS) TOTAL
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1998 $ 44 $18,967 $30,905 ($3,017) ($161) ($73) $286 $46,951
Net Income 1,825 1,825
Change in Unrealized Gain on Securities
Available-for-Sale, Net of Taxes (969) (969)
--------
Comprehensive Income 856
--------
Cash Dividends ($.16 per share) (669) (669)
Purchase of Treasury Stock (2,855) (2,855)
Stock Award Expense 3 19 22
Principal payment on ESOP Loan 161 161
Treasury Stock Reissued in Conjunction
with Stock Option Exercises (1,303) 2,885 1,582
Tax Benefits related to
Employee Stock Option Plans 269 269
------------------------------------------------------------------------------------------------------------------------
Balance at June 30, 1999 $44 $17,936 $32,061 ($2,987) $-0- ($54) ($683) $46,317
========================================================================================================================
Balance at December 31, 1999 $44 $17,919 $33,514 ($4,312) $-0- ($14) ($877) $46,274
Net Income 2,222 2,222
Change in Unrealized Gain on Securities
Available-for-Sale, Net of Taxes (370) (370)
------
Comprehensive Income 1,852
------
Cash Dividends ($.16 per share) (652) (652)
Purchase of Treasury Stock (1,082) (1,082)
Stock Award Earned 14 14
Treasury Stock Reissued in Conjunction
with Stock Option Exercises (133) 200 67
Tax Benefits related to
Employee Stock Option Plans 38 38
------------------------------------------------------------------------------------------------------------------------
Balance at June 30, 2000 $44 $17,824 $35,084 ($5,194) $-0- $-0- ($1,247) $46,511
========================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements
COVEST BANCSHARES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
<TABLE>
<CAPTION>
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, 2000 JUNE 30, 1999
----------------------------------------- ---------------------------------
AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE INTEREST YIELD/COST BALANCE INTEREST YIELD/COST
INTEREST-EARNING ASSETS: ----------------------------------------- ---------------------------------
<S> <C> <C> <C> <C> <C> <C>
Commercial Loans (A)(B) $23,170 $ 466 8.04% $ 10,488 $ 171 6.51%
Multi-Family Loans (B) 136,157 2,681 7.88 71,799 1,405 7.83
Commercial Real Estate (B) 71,696 1,498 8.36 68,721 1,473 8.57
Construction Loans (B) 41,144 1,131 11.00 40,722 901 8.85
Commercial/Muni Leases 14,760 234 6.34 31,999 501 6.27
Mortgage Loans (A)(B) 127,848 2,394 7.49 128,777 2,313 7.18
Consumer Loans 52,207 1,170 8.96 42,680 908 8.51
Securities 52,072 784 6.02 84,652 1,190 5.63
Mortgage-Backed and
Related Securities 16,684 289 6.93 22,355 385 6.89
Other Investments 10,550 161 6.10 15,849 185 4.67
----------------------------------------- ----------------------------------
Total Interest-Earning Assets $546,288 $10,808 7.91% $518,042 $ 9,432 7.28%
Non-Interest Earning Assets 17,728 21,777
----------------------------------------- ----------------------------------
TOTAL ASSETS $564,016 $539,819
========================================= =======================================
INTEREST-BEARING LIABILITIES:
Interest-Bearing Checking $ 22,711 $ 63 1.11% $ 22,628 $ 59 1.05%
Savings 48,409 301 2.49 52,152 324 2.49
Money Market 98,651 1,407 5.71 82,375 898 4.36
Certificates of Deposits 161,674 2,307 5.71 173,168 2,261 5.22
Jumbo CDs 9,637 142 5.89 9,273 118 5.10
Purchased CDs 48,330 776 6.42 0 0 0.00
FHLB Advances 78,231 1,195 6.11 120,000 1,621 5.40
Other Borrowed Funds 15,754 236 5.99 6,318 72 4.55
----------------------------------------- ------------------------------------
Total Interest-Bearing
Liabilities $483,397 $ 6,427 5.32% $465,914 $ 5,353 4.60%
Non-Interest Bearing Deposits 23,066 16,646
Other Liabilities 10,936 10,863
----------------------------------------- ----------------------------------
TOTAL LIABILITIES $517,399 $493,423
----------------------------------------- ----------------------------------
Stockholders' Equity 46,617 46,396
----------------------------------------- ----------------------------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $564,016 $539,819
========================================= ==================================
NET INTEREST INCOME $ 4,381 $ 4,079
----------------------------------------- ----------------------------------
NET INTEREST RATE SPREAD (C) 2.59% 2.68%
----------------------------------------- ----------------------------------
NET INTEREST MARGIN (D) 3.21% 3.08%
----------------------------------------- ----------------------------------
(A) Includes cash basis loans.
(B) Includes deferred fees/costs.
(C) Interest Rate Spread is calculated by subtracting the average cost of
interest-bearing liabilities from the average rate on interest-earning
assets.
(D) Net Interest Margin is calculated by dividing net interest income by average
interest-earning assets.
</TABLE>
<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.
SIX MONTHS ENDED
-----------------------------------------------------------------------------------
JUNE 30, 2000 JUNE 30, 1999
----------------------------------------- ---------------------------------
AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE INTEREST YIELD/COST BALANCE INTEREST YIELD/COST
INTEREST-EARNING ASSETS: ----------------------------------------- ---------------------------------
<S> <C> <C> <C> <C> <C> <C>
Commercial Loans (A)(B) $20,688 $ 800 7.73% $ 9,914 $ 307 6.19%
Multi-Family Loans (B) 130,241 5,076 7.79 68,501 2,677 7.82
Commercial Real Estate (B) 72,796 3,034 8.34 65,339 2,795 8.56
Construction Loans (B) 43,173 2,297 10.64 38,271 1,697 8.87
Commercial/Muni Leases 17,247 544 6.31 32,445 1,020 6.29
Mortgage Loans (A)(B) 128,928 4,788 7.43 136,538 4,922 7.21
Consumer Loans 51,735 2,282 8.82 43,810 1,845 8.42
Securities 52,929 1,592 6.02 71,008 2,036 5.74
Mortgage-Backed and
Related Securities 17,500 607 6.94 26,397 894 6.77
Other Investments 9,508 278 5.85 24,653 572 4.64
----------------------------------------- ----------------------------------
Total Interest-Earning Assets $544,745 $21,299 7.82% $516,876 $ 18,765 7.26%
Non-Interest Earning Assets 17,674 21,855
----------------------------------------- ----------------------------------
TOTAL ASSETS $562,419 $538,731
========================================= =======================================
INTEREST-BEARING LIABILITIES:
Interest-Bearing Checking $ 22,564 $ 124 1.10% $ 22,617 $ 118 1.05%
Savings 48,969 610 2.49 52,297 647 2.47
Money Market 94,068 2,613 5.56 81,581 1,762 4.32
Certificates of Deposits 163,772 4,628 5.65 173,808 4,553 5.24
Jumbo CDs 9,014 260 5.77 9,968 257 5.16
Purchased CDs 49,321 1,587 6.44 0 0 0.00
FHLB Advances 84,027 2,536 6.04 120,000 3,224 5.37
Other Borrowed Funds 12,256 355 5.79 5,661 126 4.46
----------------------------------------- ------------------------------------
Total Interest-Bearing
Liabilities $483,991 $12,713 5.25% $465,932 $ 10,687 4.59%
Non-Interest Bearing Deposits 21,432 15,380
Other Liabilities 10,603 10,703
----------------------------------------- ----------------------------------
TOTAL LIABILITIES $516,026 $492,015
----------------------------------------- ----------------------------------
Stockholders' Equity 46,393 46,716
----------------------------------------- ----------------------------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $562,419 $538,731
========================================= ==================================
NET INTEREST INCOME $ 8,586 $ 8,078
----------------------------------------- ----------------------------------
NET INTEREST RATE SPREAD (C) 2.57% 2.67%
----------------------------------------- ----------------------------------
NET INTEREST MARGIN (D) 3.15% 3.06%
----------------------------------------- ----------------------------------
(A) Includes cash basis loans.
(B) Includes deferred fees/costs.
(C) Interest Rate Spread is calculated by subtracting the average cost of
interest-bearing liabilities from the average rate on interest-earning
assets.
(D) Net Interest Margin is calculated by dividing net interest income by average
interest-earning assets.
(1) Basis of Presentation
The accompanying unaudited 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 periods ended June 30, 2000
are not necessarily indicative of results that may be expected for the entire
year ended December 31, 2000.
In the opinion of management, the unaudited consolidated financial statements
contain all adjustments (consisting only of normal recurring adjustments)
necessary to present fairly the financial information of CoVest Bancshares,
Inc. (the "Company"), including its wholly owned subsidiary, CoVest Banc (the
"Bank").
Certain amounts in prior consolidated financial statements have been
reclassified to conform to the June, 2000 presentation.
(2) Nature of Operations
The Company is a bank holding company organized under the laws of the state
of Delaware. It provides a full line of financial services to customers
within nine counties in northeast Illinois from its three branch locations.
The banking operations and mortgage center operations are considered to be
reportable segments during 2000 and 1999. Loans, investments, and deposits
provide the revenues in the banking operation, and servicing release fees and
loan sales provide the revenues in mortgage banking. All operations are
domestic.
The accounting policies used for mortgage banking operations are the same as
those for banking operations except that income taxes are not allocated to
the mortgage banking operations. Information reported internally for
performance assessment as of June 30, 2000 and 1999 are as follows.
Six Months Ended
June 30, 2000
Mortgage Consolidated
Banking Banking Total
--------- ---------- -------------
Net Interest Income $8,455 $ 30 $8,485
Other Revenue 1,222 208 1,430
Other Expense 5,121 334 5,455
Noncash Items:
Depreciation 439 74 513
Provision for Possible Loan Loss 510 -0- 510
Segment Profit, Before Income Taxes 3,607 (170) 3,437
Segment Assets 553,283 217 553,500
Six Months Ended
June 30, 1999
Mortgage Consolidated
Banking Banking Total
--------- ---------- -------------
Net Interest Income $7,758 $ 147 $7,905
Other Revenue 1,222 1,034 2,256
Other Expense 5,407 1,091 6,498
Noncash Items:
Depreciation 504 15 519
Provision for Possible Loan Loss 387 -0- 387
Segment Profit, Before Income Taxes 2,682 75 2,757
Segment Assets 541,288 1,144 542,432
A reconciliation of the numerators and denominators for earnings per common
share dilution computations for the three month periods ended June 30, 2000
and 1999 are presented below: (dollars and shares in thousands)
Three Months Ended June 30
--------------------------
2000 1999
---- ----
Earnings per share:
Net Income $1,125 $1,039
Weighted average common
shares outstanding 4,073 4,130
----- -----
Basic earnings per share $0.28 $0.25
===== =====
Earnings per share assuming dilution:
Net Income $1,125 $1,039
====== ======
Weighted average common
shares outstanding 4,073 4,130
Add: dilutive effect of assumed
exercises, incentive stock
options and management
retention plan 33 116
----- -----
Weighted average common and
dilutive potential common
shares outstanding 4,106 4,246
===== =====
Diluted earnings per share $0.27 $0.24
===== =====
A reconciliation of the numerators and denominators for earnings per common
share dilution computations for the six month periods ended June 30, 2000 and
1999 are presented below: (dollars and shares in thousands)
Six Months Ended June 30
-------------------------
2000 1999
---- ----
Earnings per share:
Net Income $2,222 $1,825
Weighted average common
shares outstanding 4,082 4,144
----- -----
Basic earnings per share $0.54 $0.44
===== =====
Earnings per share assuming dilution:
Net Income $2,222 $1,825
====== ======
Weighted average common
shares outstanding 4,082 4,144
Add: dilutive effect of assumed
exercises, incentive stock
options and management
retention plan 35 155
----- -----
Weighted average common and
dilutive potential common
shares outstanding 4,117 4,299
===== =====
Dilutive earnings per share $0.54 $0.42
===== =====
At June 30, 2000, options to purchase 674,297 shares were outstanding. These
options were not included in the computation of diluted earnings per share
because the options' exercise price was greater than the average market price
of the common stock and were therefore, antidilutive.
(3) Stock Repurchase Program
The Company completed its 17th stock repurchase program on February 3, 2000.
A total of 100,000 shares were repurchased at an average price of $14.84.
The Company announced its 18th stock repurchase program on February 3, 2000,
enabling the Company to repurchase 100,000 shares of its outstanding stock.
A total of 100,000 shares were repurchased at an average price of $10.45.
The Company announced its 19th stock repurchase program on July 3, 2000,
enabling the Company to repurchase 100,000 shares of its outstanding stock.
As of July 25, 2000, 53,141 shares had been repurchased at an average price
of $10.50.
(4) Cash Dividend
The regular quarterly dividend for the second quarter of 2000 was paid at
$.08 per share. The same quarterly dividend was paid for the second quarter
of 1999.
(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 the Comptroller of the Currency (the "OCC"), national banks must meet
three separate minimum capital requirements. The following table summarizes,
as of June 30, 2000, the Company's and Bank's capital requirements under
FIRREA and its actual capital ratios. As of June 30, 2000, the Bank exceeded
all current minimum regulatory capital requirements.
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purpose Action Provisions
June 30, 2000 Amount Ratio Amount Ratio Amount Ratio
============= ------ ----- ------ ----- ------ -----
Total Capital (Dollars in thousands)
(to Risk Weighted Assets)
Company $50.9 13.4% $30.5 8.0% $38.1 10.0%
Bank 49.0 12.3 32.0 8.0 40.0 10.0
Tier I Capital
(to Risk Weighted Assets)
Company 46.1 12.1 15.2 4.0 22.8 6.0
Bank 44.0 11.0 16.0 4.0 24.0 6.0
Tier I Capital
(to Average Assets)
Company 46.1 8.2 22.6 4.0 28.2 5.0
Bank 44.0 7.9 22.4 4.0 28.0 5.0
Risk Weighted Assets (Company) $380,834
Average Assets (Company) $564,016
Risk Weighted Assets (Bank) $399,410
Average Assets (Bank) $560,510
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purpose Action Provisions
June 30, 1999 Amount Ratio Amount Ratio Amount Ratio
============= ------ ----- ------ ----- ------ -----
Total Capital (Dollars in thousands)
(to Risk Weighted Assets)
Company $49.6 14.0% $28.3 8.0% $35.4 10.0%
Bank 47.0 13.3 28.2 8.0 35.3 10.0
Tier I Capital
(to Risk Weighted Assets)
Company 45.1 12.7 14.2 4.0 21.3 6.0
Bank 42.6 12.1 14.1 4.0 21.2 6.0
Tier I Capital
(to Average Assets)
Company 45.1 8.4 21.6 4.0 27.0 5.0
Bank 42.6 7.9 21.4 4.0 26.8 5.0
Risk Weighted Assets (Company) $354,229
Average Assets (Company) $539,819
Risk Weighted Assets (Bank) $352,746
Average Assets (Bank) $536,111
(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 including this statement for purposes of these safe harbor
provisions. Forward-looking statements, which are based on certain
assumptions and describe future plans, 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 the
subsidiary 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 or composition of the
loan or securities portfolios, demand for loan products, deposit flows,
competition, demand for financial services in the Company's market area, our
implementation of new technologies, our ability to develop and maintain
secure and reliable electronic systems 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,
leases, commercial real estate loans, and consumer loans. The Bank's
mortgage center concentrates on mortgage loan origination and sales. 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 by loan commitment and
servicing fees, loan service release fees from its mortgage center
operations, 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
-------------------
The Company's assets decreased to $554 million as of June 30, 2000, as
compared to $568 million at December 31, 1999. Net loans receivable decreased
$1 million to $462 million as of June 30, 2000 versus $463 million
outstanding as of December 31, 1999. Multi-family loans increased by $14.7
million and commercial loans increased by $7.0 million. This increase was
offset by a decrease in leases and construction loans of approximately $9.2
million and $6.5 million, respectively. Limited growth in the loan portfolio
is expected during the remainder of 2000. Total securities have decreased by
$15.0 million as a result of the sales and security paydowns. These funds
were used to repay FHLB advances. Deposits increased 7% to $424 million as of
June 30, 2000 compared to $398 million as of December 31, 1999. In March
2000, the Bank introduced a High Yield Account. This account has a market
sensitive rate of interest that is indexed to the 91-day Treasury Bill weekly
auction rate. All balances over $2,500 are tiered to this market interest
rate. The Company is focused on growing High Yield Account balances and
attracting new commercial deposit accounts. At June 30, 2000, the account
had a $103 million balance, a 16% increase from year-end 1999. Additional
deposit growth has been centered in non-interest bearing deposits that grew
by approximately 22% or $4.3 million and purchased certificates of deposit,
which increased by approximately 29% or $12.7 million. The increase in
deposits has been used to pay down FHLB borrowings.
Stockholders' equity totaled $47 million at June 30, 2000. The number of
common shares outstanding was 4,015,545 and the book value per common share
outstanding was $11.58.
At June 30, 2000, the Allowance for Possible Loan Losses was $5.2 million as
compared to $4.8 million at December 31, 1999. In addition, at June 30, 2000
the Company had $75,000 of other real estate owned, which consisted of one
parcel of residential real estate.
At June 30, 2000, total non-performing assets amounted to $560,000, or 0.10%
of total assets compared to $766,000, or 0.13% of total assets at December
31, 1999. These are multi-family and mortgage loans in various stages of
foreclosure and one parcel of residential Other Real Estate Owned.
The following table sets forth the amounts and categories of non-performing
loans and assets.
June 30, 2000 Dec. 31, 1999
------------- -------------
(Dollars in Thousands)
Non-performing loans:
Commercial Loans -0- -0-
Multi-family Loans $216 -0-
Commercial Real Estate Loans -0- -0-
Construction Loans -0- -0-
Commercial/Municipal Leases -0- -0-
Mortgage Loans 269 $766
Consumer -0- -0-
------------- -------------
Total non-performing loans 485 766
Other real estate owned 75 -0-
Other repossessed assets -0- -0-
------------- ------------
Total non-performing assets $560 $766
==== ====
Total non-performing loans as
a percentage of net loans .10% .17%
Total non-performing assets as
a percentage of total assets .10 .13
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 was $4.8 million for the six months ended June 30,
2000. Net cash provided by investing activities was $14.8 million for the
six months ended June 30, 2000. Net cash used in financing activities
amounted to $17.7 million for the six months ended June 30, 2000.
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, 2000, the Company had commitments to originate loans and undisbursed
loan balances totaling $60 million, and its customers had approved but unused
lines of credit totaling $32 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,
2000 1999 2000 1999
-------------------- -------------------
Annualized Return on Avg. Equity 9.65% 8.96% 9.58% 7.81%
Annualized Return on Avg. Assets 0.80% 0.77% 0.79% 0.68%
Book Value per Share $11.58 $11.05 $11.58 $11.05
Closing Market Price per Share $10.50 $14.875 $10.50 $14.875
Earnings per Primary Share:
Basic $0.28 $0.25 $0.54 $0.44
Diluted $0.27 $0.24 $0.54 $0.42
Net Interest Margin 3.21% 3.08% 3.15% 3.06%
Ratio of Operating Expense to
Average Total Assets,
Annualized 2.20% 2.48% 2.12% 2.61%
Ratio of Net Interest Income to
Non-Interest Expense,
Annualized 1.40x 1.19X 1.42x 1.13x
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2000 AND 1999
-----------------------------------------------------------------------
Net income was $1,125,000 for the second quarter of 2000, up 8% over
$1,039,000 for the same period last year. Basic earnings per share were $0.28
compared to $0.25 per share for the second quarter of 1999. Diluted earnings
per share were $0.27, a 13% increase compared to $0.24 per share for the
second quarter 1999.
Return on average equity and return on average assets during the second
quarter were 9.65% and 0.80% respectively during 2000 compared to 8.96% and
0.77% in 1999.
The Company's efficiency ratio was 60.90% compared to 64.31% in the second
quarter of 1999. The Company's goal is to maintain an efficiency ratio in the
60% range.
Cash earnings (net earnings adjusted for the after tax impact of amortization
of goodwill) for the second quarter of 2000 were approximately $1,156,000, or
$0.28 (basic) and $0.28 (diluted) earnings per share, compared to $1,071,000
or $0.26 (basic) and $0.25 (diluted) earnings per share for the same period in
1999.
Net interest income increased by $343,000, or 9%, for the second quarter of
2000 compared to the second quarter of 1999. A $28 million increase in
average earning assets for the second quarter of 2000 versus the second
quarter of 1999 accounted for part of this increase. The Company's net
interest margin averaged 3.21% for the second quarter of 2000, a 13 basis
point increase from 3.08% in 1999. The net spread averaged 2.59% for the
second quarter of 2000, a 9 basis point decrease from 2.68% during the second
quarter of 1999. The yield on average earning assets increased by 63 basis
points while the cost of interest-bearing liabilities increased by 72 basis
points. The Company expects the net interest margin to remain relatively
stable during the next several quarters.
The provision for possible loan losses decreased by $38,000 from $288,000 to
$250,000 in the second quarter of 2000. The provision was based in part on
the change in loan mix, as commercial and multi-family loans have increased,
and was also affected by a decrease in non-performing assets and loan charge-
offs.
On a quarterly basis, management of the Bank meets to review the adequacy of
the allowance for possible loan losses. Each loan officer grades his or her
individual commercial credits and the Company's outsourced loan review
function validates the officers' grades. In the event that loan review
results in a downgrade of the loan, it is included in the allowance analysis
at the lower grade. The grading system is in compliance with the regulatory
classifications and the allowance is allocated to the loans based on the
regulatory grading, except in instances where there are known differences
(i.e. collateral value is nominal, etc.) Once the specific portion of the
allowance is calculated, management then calculates a historical portion for
each loan category based on loan loss history, current economic conditions and
trends in the portfolio, including delinquencies and impairments, as well as
changes in the composition of the portfolio. Management believes the
allowance for possible loan losses as of June 30, 2000 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,
2000 1999
--------- ---------
(Dollars in Thousands)
Balance at beginning of period $5,091 $4,409
Charge-offs:
Commercial Loans -0- -0-
Multi-Family Loans -0- -0-
Commercial Real Estate Loans -0- -0-
Construction Loans -0- -0-
Commercial/Municipal Leases -0- -0-
Mortgage Loans 26 99
Consumer 82 78
-------- --------
Total 108 177
-------- --------
Recoveries:
Commercial Loans -0- -0-
Multi-Family Loans -0- -0-
Commercial Real Estate Loans -0- -0-
Construction Loans -0- -0-
Commercial/Municipal Leases -0- -0-
Mortgage Loans -0- -0-
Consumer 7 25
-------- --------
Total 7 25
-------- --------
Net charge-offs 101 152
Additions charged to
operations 250 288
-------- --------
Balance at end of period $5,240 $4,545
======== ========
Ratio of net charge-offs during
the period to average loans
outstanding during the period 0.02% 0.04%
Ratio of allowance for possible
loan losses to non-performing loans 10.80x 2.64x
Net interest income after provision for possible loan losses increased by
$381,000, or 10% to $4,083,000 for the three month period ended June 30,
2000, as compared to $3,702,000 for the three month period ended June 30,
1999.
Non-interest income decreased $453,000, or 37%, to $757,000 from the
comparable quarter last year. Loan charges and servicing fees decreased by
$6,000 as the volume of loans remained the same. Mortgage Center income was
down 75%, to $122,000 in the second quarter of 2000 compared to $495,000 in
the similar quarter in 1999. The volume of new loans generated dropped due
to higher interest rates, which had a major impact on mortgage loan
refinancings and new loan generation. Deposit related charges and fees
increased by $12,000 during the second quarter of 2000 as compared to the
second quarter of 1999. During the second quarter of 2000, insurance and
annuity commissions decreased by $28,000 and other income decreased by
$50,000.
Non-interest expense decreased $244,000, or 7% for the second quarter of 2000
from the comparable quarter in 1999. Total compensation and benefit costs
increased $102,000 for the quarter ended June 30, 2000 versus June 30, 1999.
There were decreases in commission expenses of $72,000 due to a lower volume
ofloan originations; the cost of Federal Deposit Insurance premiums
decreased by $33,000 because of a lower assessment level; data processing
expenses decreased by $25,000 as Y2K expenses were not present during 2000;
and miscellaneous expenses decreased by $206,000. The Company's goal is to
maintain an efficiency ratio in the 60% range.
Income tax expense increased $86,000 to $615,000 for the quarter ended June
30, 2000, compared to $529,000 for the same period in 1999.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30,2000 AND 1999
----------------------------------------------------------------------
For the first six months of 2000, the Company earned $2,222,000 versus
$1,825,000 for the like period in 1999, an increase of 22%. This represents
$0.54 (basic) and $0.54 (diluted) earnings per share versus $0.44 (basic) and
$0.42 (diluted) earnings per share for the first six months of 1999. Return
on average equity and average assets for the first six months of 2000 was
9.58% and 0.79% respectively compared to 7.81% and 0.68% in 1999.
Cash earnings for the first six months of 2000 were $2,284,000, or $0.56
(basic) and $0.55 (diluted) earnings per share, compared to $1,888,000, or
$0.46 (basic) and $0.44 (diluted) earnings per share for the same period in
1999.
The efficiency ratio was 60.18%, a 13% decrease compared to 69.06% for the
first six months of 1999. During the first quarter of 1999, the Company
incurred $182,000 in non-recurring employee termination expenses, as certain
positions were eliminated to bring operating costs more in line with
revenues.
The Company's net interest income totaled $8,485,000 for the six months ended
June 30, 2000, compared to $7,905,000 for the first six months of 1999. The
Company's net interest margin increased 9 basis points, to 3.15% for the six
months ended June 30, 2000 from 3.06% for the like period of 1999. The
interest rate spread averaged 2.57% for 1999, a 10 basis point decrease from
2.67% for the first six months of 2000. This represents an increase of 3% in
net interest margin and a decrease of 4% in interest rate spread.
The volume of earning assets increased by $27.9 million between the two
periods, but this was offset by an $18.1 million increase in interest-bearing
liabilities and an increase in average cost of funds of 66 basis points.
The provision for possible loan losses was $510,000 for the first six months
of 2000 versus $387,000 for the like period in 1999. The provision was based
on the change in loan mix, as commercial and multi-family loans have
increased, and was also affected by a decrease in non-performing assets and
charge-offs.
On a quarterly basis, management of the Bank meets to review the adequacy of
the allowance for possible loan losses. Each loan officer grades his or her
individual commercial credits and the Company's outsourced loan review
function validates the officers' grades. In the event that loan review
results in a downgrade of the loan, it is included in the allowance analysis
at the lower grade. The grading system is in compliance with the regulatory
classifications and the allowance is allocated to the loans based on the
regulatory grading, except in instances where there are known differences
(i.e. collateral value is nominal, etc.) Once the specific portion of the
allowance is calculated, management then calculates a historical portion for
each loan category based on loan loss history, current economic conditions
and trends in the portfolio, including delinquencies and impairments, as well
as changes in the composition of the portfolio. Management believes the
allowance for possible loan losses as of June 30, 2000 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,
2000 1999
--------- ---------
(Dollars in Thousands)
Balance at beginning of period $4,833 $4,312
Charge-offs:
Commercial Loans -0- -0-
Multi-Family Loans -0- -0-
Commercial Real Estate Loans -0- -0-
Construction Loans -0- -0-
Commercial/Municipal Leases -0- -0-
Mortgage Loans 26 99
Consumer 92 100
-------- --------
Total 118 199
-------- --------
Recoveries:
Commercial Loans -0- -0-
Multi-Family Loans -0- -0-
Commercial Real Estate Loans -0- -0-
Construction Loans -0- -0-
Commercial/Municipal Leases -0- -0-
Mortgage Loans -0- -0-
Consumer 15 45
-------- --------
Total 15 45
-------- --------
Net charge-offs 103 154
Additions charged to
operations 510 387
-------- -------
Balance at end of period $5,240 $4,545
======== =======
Ratio of net charge-offs during
the period to average loans
outstanding during the period 0.02% 0.04%
Ratio of allowance for possible
loan losses to non-performing loans 10.80x 2.64x
Net interest income after provision for possible loan losses increased by
$457,000, or 6% to $7,975,000 for the six month period ended June 30, 2000,
as compared to $7,518,000 for the six month period ended June 30, 1999.
Non-interest income decreased $826,000, or 37%, from the comparable period
last year. Loan servicing fees were up $116,000, or 24% to $593,000 in 2000,
compared to $477,000 in 1999. Mortgage center income decreased by $823,000
or 80% to $208,000 in 2000 compared to $1,031,000 for the same period last
year. This was due to an increase in interest rates, which caused the volume
of loan refinancing and new loan generation to decline. Realized losses of
$96,000 on sales of securities were also recorded from the sale of securities
that was scheduled to mature in the next two years. Insurance and annuity
commissions decreased $7,000 or 7% to $91,000 for the six month period ending
June 30, 2000 versus the same period in 1999. Other income decreased
$15,000, or 9% to $145,000 in 2000, compared to $160,000 in 1999.
Non-interest expense decreased $1,049,000, or 15%, for 2000 from $7,017,000
in the comparable period in 1999. Compensation and benefits decreased
$373,000 or 11% to $3,110,000 for the six months ending June 30, 2000 versus
$3,483,000 for 1999. This was a direct result of the Company's 1999 plan to
bring operating costs more in line with the rest of the Bank. Commissions
and employee sales incentives, mostly attributed to the Mortgage Center,
decreased $158,000 or 38% to $257,000 in 2000 versus 1999. There were
decreases in building occupancy expenses of $37,000, federal insurance
premium of $67,000 and miscellaneous expenses of $337,000.
Income tax expense increased $283,000 to $1,215,000 for the six month period
ended June 30, 2000, compared to $932,000 for the same period in 1999.
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-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.
The following table presents the Bank's current exposure to hypothetical
changes in interest rates.
JUNE 30, 2000
Change in Percent Change Percent Change
Interest Rates in Net Interest in MV of
(basis points) Income Portfolio Equity
-------------- --------------- ----------------
+200 -6% -11%
+100 -3 -5
0 0 0
-100 +3 +6
-200 +6 +12
JUNE 30, 1999
Change in Percent Change Percent Change
Interest Rates in Net Interest in MV of
(basis points) Income Portfolio Equity
-------------- --------------- ----------------
+200 -9% -14%
+100 -4 -7
0 0 0
-100 +3 +3
-200 +7 +9
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.
RECENT REGULATORY DEVELOPMENTS
The Gramm-Leach-Bliley Act (the "Act"), which was enacted in November, 1999,
allows eligible bank holding companies to engage in a wider range of
nonbanking activities, including greater authority to engage in securities and
insurance activities. Under the Act, an eligible bank holding company that
elects to become a financial holding company may engage in any activity that
the Board of Governors of the Federal Reserve System (the "Federal Reserve"),
in consultation with the Secretary of the Treasury, determines by regulation
or order is financial in nature, incidental to any such financial activity, or
complementary to any such financial activity and does not pose a substantial
risk to the safety or soundness of depository institutions or the financial
system generally. National banks are also authorized by the Act to engage,
through "financial subsidiaries," in certain activity that is permissible for
financial holding companies (as described above) and certain activity that the
Secretary of the Treasury, in consultation with the Federal Reserve,
determines is financial in nature or incidental to any such financial
activity.
Various bank regulatory agencies have begun issuing regulations as mandated
by the Act. During June, 2000, all of the federal bank regulatory agencies
jointly issued regulations implementing the privacy provisions of the Act.
In addition, the Federal Reserve issued interim regulations establishing
procedures for bank holding companies to elect to become financial holding
companies and listing the financial activities permissible for financial
holding companies, as well as describing the extent to which financial
holding companies may engage in securities and merchant banking activities.
The Office of the Comptroller of the Currency issued a regulation regarding
the parameters under which national banks may establish and maintain
financial subsidiaries. At this time, it is not possible to predict the
impact the Act and its implementing regulations may have on the Company or
the Bank. As of the date of this filing, the Company has not applied for or
received approval to operate as a financial holding company. In addition,
the Bank has not applied for or received approval to establish any financial
subsidiaries.
NEW ACCOUNTING STANDARDS
Beginning January 1, 2001, Statement of Financial Accounting Standards
(Statement) No. 133 on derivatives will require all derivatives to be recorded
at fair value in the balance sheet, with changes in fair value charged or
credited to income. If derivatives are documented and effective as hedges,
the change in the derivative fair value will be offset by an equal change in
the fair value of the hedged item. Under the new standard, securities held-
to-maturity can no longer be hedged, except for changes in the issuer's
creditworthiness. Therefore, upon adoption of Statement No. 133, companies
will have another one-time window of opportunity to reclassify held-to-
maturity securities to either trading or available-for-sale, provided certain
criteria are met. This Statement may be adopted early at the start of a
calendar quarter. Since the Company has no significant derivative instruments
or hedging activities, adoption of Statement No. 133 is not expected to have a
material impact on the Company's financial statements. Management has not
decided whether to adopt Statement No. 133 early.
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 25, 2000, the annual meeting of stockholders was held.
James L. Roberts and Frank A. Svoboda, Jr. were elected to serve as
Class II directors with terms expiring in 2003. Continuing to serve
as Class III directors with terms expiring in 2001 are Gerald T.
Niedert and David B. Speer. Continuing to serve as Class I directors
with terms expiring in 2002 are George T. Drost and David M. Miller.
The stockholders also ratified the appointment of Crowe, Chizek and
Company L.L.P., as the Company's independent public accountants for
the year ending December 31, 2000.
There were 4,075,723 issued and outstanding shares (4,403,803 issued,
less 328,080 shares of treasury stock) of Common Stock at the time of
the annual meeting. 3,688,892 shares were voted at the meeting. The
voting on each item presented at the annual meeting was as follows:
Election of Directors FOR WITHHELD
---------------------- --- --------
James L. Roberts 3,520,246 168,646
Frank A. Svoboda, Jr. 3,395,985 292,907
Ratification of Accountants
------------------------------------
BROKER
FOR AGAINST ABSTAIN NON VOTES
---- ------- ------- ---------
3,661,608 19,543 7,742 -0-
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS
(a) Exhibits
27. Financial Data Schedule
(b) Reports on Form 8-K
A report on Form 8-K was filed on April 20, 2000 to
report under Item 5 the Company's earnings for the
first quarter of 2000.
A report on Form 8-K was filed on May 23, 2000 to report
under Item 5 declaration of a regular quarterly dividend.
A report on Form 8-K was filed on June 16, 2000 to report
under Item 5 that the Bank signed an agreement to begin
offering internet banking services.
(c) Reports on Form 11-K
A report on Form 11-K was filed on June 28, 2000 to report
the financial statements of CoVest Banc, N.A. Profit
Sharing Plan for the fiscal year ended December 31, 1999.
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.
Dated: July 26, 2000
By: /s/ JAMES L. ROBERTS
---------------------------
James L. Roberts
President and
Chief Executive Officer
By: /s/ PAUL A. LARSEN
---------------------------
Paul A. Larsen
Executive Vice President,
Treasurer and
Chief Financial Officer
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