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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------------
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For the Quarterly Period Ended Commission File Number
September 30, 2002 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 October 29, 2002, the Registrant had issued and outstanding 4,403,803
shares of the Registrant's Common Stock. In addition, it had also
repurchased 922,369 shares which were being held as treasury stock and 81,477
shares which were being held as unallocated ESOP shares.
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
Item 3. Quantitative and Qualitative
Disclosure About Market Risk 27
Item 4. Controls and Procedures 30
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 31
Item 2. Changes in Securities 31
Item 3. Defaults upon Senior Securities 31
Item 4. Submission of Matters to a Vote of
Security Holders 31
Item 5. Other Information 31
Item 6. Exhibits and Reports 31
Form 10-Q Signatures 32
Certification by Executive Officers 33
PART 1. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
(Unaudited)
COVEST BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
(Dollars in thousands, except
per share data)
SEPT 30, 2002 DEC 31, 2001
ASSETS ------------- ------------
- ------------
CASH ON HAND AND IN BANKS $ 10,202 $ 6,552
INTEREST BEARING DEPOSITS 1,102 21
-------- --------
Cash and Cash Equivalents 11,304 6,573
SECURITIES:
Securities Available-for-Sale 51,024 40,897
Mortgage-Backed and Related
Securities Available-for-Sale 2,278 3,948
Federal Home Loan Bank and
Federal Reserve Bank Stock 7,591 7,319
-------- --------
TOTAL SECURITIES 60,893 52,164
LOANS RECEIVABLE:
Commercial Loans 53,473 47,024
Multi-Family Loans 233,130 223,613
Commercial Real Estate Loans 85,564 79,443
Construction Loans 47,538 58,796
Commercial/Municipal Leases 819 1,778
Mortgage Loans 54,772 58,175
Consumer Loans 41,159 46,273
Mortgage Loans Held for Sale 1,183 1,065
-------- --------
TOTAL LOANS RECEIVABLE 517,638 516,167
Allowance for Loan Losses ( 6,851) ( 6,547)
-------- --------
LOANS RECEIVABLE, NET 510,787 509,620
ACCRUED INTEREST RECEIVABLE 3,039 3,281
PREMISES AND EQUIPMENT 9,035 9,466
OTHER REAL ESTATE OWNED 731 661
GOODWILL 1,184 1,338
MORTGAGE SERVICING RIGHTS 157 222
OTHER ASSETS 3,340 2,404
-------- --------
TOTAL ASSETS $600,470 $585,729
======== ========
See accompanying notes to unaudited consolidated financial statements
COVEST BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (Continued)
(Unaudited)
(Dollars in thousands, except per share data)
SEPT 30, 2002 DEC 31, 2001
------------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
LIABILITIES:
Deposits:
Non-Interest Bearing $ 33,098 $ 30,993
Interest Bearing Checking 31,872 29,339
Savings Accounts 85,050 52,141
Money Market Accounts 91,517 113,864
Certificates of Deposit 165,960 172,055
Jumbo CDs 2,085 11,834
Purchased CDs 53,360 45,776
------- -------
462,942 456,002
Short-Term Borrowings and Securities
Sold U/A to Repurchase 30,888 29,425
Long-Term Advances from Federal
Home Loan Bank 44,000 44,000
Advances from Borrowers for Taxes and
Insurance 7,915 4,865
Accrued Expenses and Other Liabilities 7,238 6,286
------- -------
TOTAL LIABILITIES 552,983 540,578
STOCKHOLDERS' EQUITY:
Common Stock, par value $.01 per share;
7,500,000 authorized shares; 4,403,803
shares issued at 9/30/02 and 12/31/01
respectively 44 44
Additional Paid-in Capital 18,326 17,268
Retained Earnings 45,520 41,360
Treasury Stock, 922,369 shares and
965,580 shares, held at cost 9/30/02
and 12/31/01, respectively (15,735) (14,290)
Unearned ESOP shares (1,450) -
Accumulated Other Comprehensive Income 782 769
-------- --------
TOTAL STOCKHOLDERS' EQUITY 47,487 45,151
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $600,470 $585,729
======== ========
See accompanying notes to unaudited consolidated financial statements
COVEST BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(Unaudited)
(Dollars in thousands, except per THREE MONTHS ENDED NINE MONTHS ENDED
share data) SEPT 30, SEPT 30, SEPT 30, SEPT 30,
2002 2001 2002 2001
INTEREST INCOME ------- ------- ------- -------
Loans and Leases Receivable $ 8,114 $ 9,615 $25,396 $29,795
Mortgage-Backed and Related Securities 43 84 157 310
Taxable Securities 535 587 1,442 1,477
Tax Exempt Securities 55 71 181 256
Other Interest and Dividend Income 155 184 467 775
------- ------- ------- -------
Total Interest Income 8,902 10,541 27,643 32,613
INTEREST EXPENSE
Deposits 3,066 4,727 9,499 15,423
Advances from Federal Home Loan Bank 697 752 2,112 2,328
Other Borrowed Funds 52 94 202 399
------- ------- ------- -------
Total Interest Expense 3,815 5,573 11,813 18,150
------- ------- ------- -------
NET INTEREST INCOME 5,087 4,968 15,830 14,463
Provision for Loan Losses 217 300 853 800
------- ------- ------- -------
NET INTEREST INCOME AFTER PROVISION FOR
LOAN LOSSES 4,870 4,668 14,977 13,663
NON-INTEREST INCOME
Loan Charges and Servicing Fees 248 198 689 671
Loan Prepayment Fees 258 224 1,213 562
Mortgage Banking Fees 205 127 473 487
Deposit Related Charges and Fees 308 329 915 881
Gain/(Loss) on Sale of Securities/Loans 39 (3) 113 371
Insurance and Annuity Commissions 24 22 47 68
Other 64 59 185 181
------- ------- ------- -------
Total Non-Interest Income 1,146 956 3,635 3,221
NON-INTEREST EXPENSE
Compensation and Benefits 1,570 1,622 5,306 4,827
Commissions and Incentives 204 216 542 838
Occupancy and Equipment 501 487 1,458 1,446
Federal Deposit Insurance Premium 19 22 60 66
Data Processing 282 251 808 749
Advertising 212 169 622 570
Other Real Estate Owned 5 (19) 278 62
Amortization of Goodwill 51 51 154 154
Amortization of Mortgage Servicing Rights 20 32 65 67
Other 462 487 1,425 1,491
------- ------- ------- -------
Total Non-Interest Expense 3,326 3,318 10,718 10,270
------- ------- ------- -------
INCOME BEFORE INCOME TAXES 2,690 2,306 7,894 6,614
Income Tax Provision (982) (832) (2,893) (2,393)
------- ------- ------- -------
NET INCOME $ 1,708 $ 1,474 $ 5,001 $ 4,221
======= ======= ======= =======
Basic Earnings per Share $0.50 $0.39 $1.46 $1.10
Diluted Earnings per Share $0.48 $0.37 $1.39 $1.07
Comprehensive Income $ 1,567 $ 1,785 $ 5,014 $ 5,102
See accompanying notes to unaudited consolidated financial statements
COVEST BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands) NINE MONTHS ENDED
SEPT 30, SEPT 30,
2002 2001
OPERATING ACTVITIES -------- ---------
Net Income $ 5,001 $ 4,221
Adjustments to Reconcile Net Income to
Net Cash from Operating Activities
Depreciation and Amortization of
Premises and Equipment 681 642
ESOP Compensation Expense 50 -
Provision for Loan Losses 853 800
Net Gain on Sales of
Securities/Loans (113) (371)
Federal Home Loan Bank Stock Dividend (272) (349)
Change In:
Prepaid Expenses and Other Assets (717) (152)
Accrued Interest Receivable 242 554
Accrued Expenses and Other Liabilities 1,748 3,156
--------- ---------
NET CASH FROM OPERATING ACTIVITIES 7,473 8,501
CASH FLOWS FROM INVESTING ACTIVITIES
Loan Originations, Net of Principal
Payments (22,173) (47,577)
Proceeds from Sale of Loans 20,083 54,547
Principal Payments on Mortgage-Backed
and Related Securities 1,306 1,553
Purchases of Securities (35,842) (41,222)
Proceeds from Sales and Maturities
of Securities 26,112 42,455
Purchase of Office Properties and
Equipment (250) (232)
--------- ---------
NET CASH FROM INVESTING ACTIVITIES (10,764) 9,524
CASH FLOWS FROM FINANCING ACTIVITIES
Net Increase/(Decrease) in Deposits 6,940 (2,187)
Borrowings 1,463 4,260
Repayment of Borrowings - (9,719)
Net Increase in Mortgage
Escrow Funds 3,050 1,485
Purchase of Common Stock Net of Proceeds
from Exercise of Stock Options (2,590) (7,619)
Dividend Paid (841) (917)
--------- ---------
NET CASH FROM FINANCING ACTIVITIES 8,022 (14,697)
--------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS 4,731 3,328
CASH AND CASH EQUIVALENTS, BEGINNING 6,573 10,522
--------- ---------
CASH AND CASH EQUIVALENTS, ENDING $11,304 $13,850
========= =========
See accompanying notes to unaudited consolidated financial statements
COVEST BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited)
(Dollars in thousands)
Nine months ended SEPTEMBER 30, 2002 and 2001
COMMON
STOCK AND ACCUMULATED
ADDITIONAL UNEARNED OTHER
PAID-IN RETAINED TREASURY ESOP COMPREHENSIVE
CAPITAL EARNINGS STOCK SHARES INCOME/(LOSS) TOTAL
- ----------------------------------------------------------------------------------------------------------
Balance at December 31, 2000 $17,545 $36,783 ($6,244) - ($50) $48,034
Net Income 4,221 4,221
Change in Unrealized Gain on
Securities Available-for-Sale,
Net of Taxes 881 881
-------
Comprehensive Income 5,102
Cash Dividends ($.24 per share) (917) (917)
Purchase of Treasury Stock (8,530) (8,530)
Treasury Stock Reissued in
Conjunction with Stock Option
Exercises (546) 1,457 911
Tax Benefits Related to Employee
Stock Option Plans 250 250
- -----------------------------------------------------------------------------------------------------------
Balance at September 30, 2001 $17,249 $40,087 ($13,317) - $831 $44,850
===========================================================================================================
Balance at December 31, 2001 $17,312 $41,360 ($14,290) - $769 $45,151
Net Income 5,001 5,001
Change in Unrealized Gain on
Securities Available-for-Sale,
Net of Taxes 13 13
-----
Comprehensive Income 5,014
Cash Dividends ($.24 per share) (841) (841)
Purchase of Treasury Stock (5,381) (5,381)
Treasury Stock Reissued in
Conjunction with Stock Option
Exercises and ESOP Plan 355 3,936 (1,500) 2,791
Release of ESOP Shares 50 50
Tax Benefits related to Employee
Stock Option Plans 703 703
- ----------------------------------------------------------------------------------------------------------
Balance at September 30, 2002 $18,370 $45,520 ($15,735) ($1,450) $782 $47,487
==========================================================================================================
See accompanying notes to unaudited consolidated financial statements
COVEST BANCSHARES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
AVERAGE BALANCE SHEET
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, on a
fully tax equivalent basis, as derived by dividing income or expense by the average daily balance of
assets or liabilities, respectively, for the periods indicated. (Dollars in Thousands)
THREE MONTHS ENDED
-------------------------------------------------------------------
SEPT 30, 2002 SEPT 30, 2001
--------------------------------- ---------------------------------
AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE INTEREST YIELD/COST BALANCE INTEREST YIELD/COST
-------- -------- ---------- ------- -------- ----------
INTEREST EARNING ASSETS:
Commercial Loans(A)(B) $ 52,789 $ 784 5.94% $ 40,183 $ 731 7.28%
Multi-Family Loans(A)(B) 223,746 3,500 6.26 191,840 3,610 7.53
Commercial Real Estate Loans(A)(B) 77,859 1,220 6.27 87,127 1,771 8.13
Construction Loans(A)(B) 50,908 891 7.00 55,373 1,271 9.18
Commercial/Muni Leases(B) 966 13 5.38 2,612 39 5.97
Mortgage Loans(A)(B) 55,483 1,017 7.33 62,827 1,208 7.69
Consumer Loans (A) 41,701 689 6.61 48,458 985 8.11
Securities 50,230 618 4.92 49,543 694 5.61
Mortgage-Backed and Related
Securities 2,355 43 7.30 4,650 84 7.23
Equity Investments 9,533 128 5.37 8,628 136 6.35
Other Investments 6,802 27 1.59 5,679 48 3.38
-------- ------- ---- -------- ------- ----
Total Interest-Earning Assets $572,372 $ 8,930 6.24% $556,920 $10,577 7.60%
Non-Interest Earning Assets 20,659 19,183
-------- --------
TOTAL ASSETS $593,031 $576,103
======== ========
INTEREST-BEARING LIABILITIES:
Interest-Bearing Checking $ 32,031 $ 107 1.32% $ 25,703 $ 88 1.37%
Savings 80,274 505 2.52 44,504 281 2.53
Money Market 95,950 402 1.68 120,401 993 3.30
Certificates of Deposits 168,651 1,560 3.70 180,979 2,594 5.73
Jumbo CDs 2,197 12 2.18 6,317 82 5.19
Purchased CDs 49,687 481 3.87 46,657 689 5.90
FHLB Advances 61,065 697 4.57 48,750 752 6.17
Other Borrowed Funds 9,079 52 2.29 10,540 94 3.61
--------- ------- ---- -------- ------- ----
Total Interest-Bearing Liabilities $498,934 $ 3,815 3.06% $483,851 $ 5,573 4.61%
Non-Interest Bearing Deposits 33,282 28,740
Other Liabilities 13,960 14,046
--------- --------
TOTAL LIABILITIES $546,176 $526,637
Stockholders' Equity 46,855 49,466
-------- --------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $593,031 $576,103
======== ========
NET INTEREST INCOME $ 5,115 $ 5,004
======= =======
NET INTEREST RATE SPREAD (C) 3.18% 2.99%
==== ====
NET INTEREST MARGIN (D) 3.58% 3.59%
==== ====
(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.
AVERAGE BALANCE SHEET
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, on a
fully tax equivalent basis, as derived by dividing income or expense by the average daily balance of
assets or liabilities, respectively, for the periods indicated. (Dollars in thousands)
NINE MONTHS ENDED
-------------------------------------------------------------------
SEPT 30, 2002 SEPT 30, 2001
--------------------------------- ---------------------------------
AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE INTEREST YIELD/COST BALANCE INTEREST YIELD/COST
-------- -------- ---------- ------- -------- ----------
INTEREST EARNING ASSETS:
Commercial Loans(A)(B) $ 52,179 $ 2,321 5.93% $ 38,505 $ 2,206 7.64%
Multi-Family Loans(A)(B) 226,853 10,785 6.34 183,879 10,678 7.74
Commercial Real Estate Loans(A)(B) 79,323 4,128 6.94 83,406 5,121 8.19
Construction Loans(A)(B) 51,352 2,785 7.23 51,908 3,789 9.73
Commercial/Muni Leases(B) 1,286 57 5.91 3,663 165 6.01
Mortgage Loans(A)(B) 56,152 3,147 7.47 79,988 4,644 7.74
Consumer Loans (A) 43,305 2,174 6.69 49,735 3,192 8.56
Securities 45,671 1,716 5.01 42,964 1,864 5.78
Mortgage-Backed and Related
Securities 2,857 157 7.33 5,864 310 7.05
Equity Investments 9,357 366 5.22 8,367 382 6.09
Other Investments 8,519 101 1.60 12,491 393 4.20
-------- ------- ---- -------- ------- ----
Total Interest-Earning Assets $576,854 $27,737 6.41% $560,770 $32,744 7.79%
Non-Interest Earning Assets 19,628 17,612
-------- --------
TOTAL ASSETS $596,482 $578,382
======== ========
INTEREST-BEARING LIABILITIES:
Interest-Bearing Checking $ 30,591 $ 304 1.33% $ 24,182 $ 234 1.29%
Savings 69,474 1,299 2.49 43,345 810 2.49
Money Market 102,023 1,307 1.71 120,645 3,544 3.92
Certificates of Deposits 169,728 4,975 3.91 172,939 7,711 5.95
Jumbo CDs 4,961 96 2.58 8,382 368 5.85
Purchased CDs 53,658 1,518 3.77 58,166 2,756 6.32
FHLB Advances 64,396 2,112 4.37 49,817 2,328 6.23
Other Borrowed Funds 11,684 202 2.31 12,037 399 4.42
--------- ------- ---- -------- ------- ----
Total Interest-Bearing Liabilities $506,515 $11,813 3.11% $489,513 $18,150 4.94%
Non-Interest Bearing Deposits 32,135 26,864
Other Liabilities 11,671 13,118
--------- --------
TOTAL LIABILITIES $550,321 $529,495
Stockholders' Equity 46,161 48,887
-------- --------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $596,482 $578,382
======== ========
NET INTEREST INCOME $15,924 $14,594
======= =======
NET INTEREST RATE SPREAD (C) 3.30% 2.85%
==== ====
NET INTEREST MARGIN (D) 3.68% 3.47%
==== ====
(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 accounting principles generally accepted in the
United States of America 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 accounting principles
generally accepted in the United States of America for complete financial
statements.
The results of operations and other data for the three-month and nine-month
periods ended September 30, 2002 are not necessarily indicative of results
that may be expected for the entire year ending December 31, 2002.
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 September 30, 2002 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
six counties in northeast Illinois from its three branch locations.
A reconciliation of the numerators and denominators for earnings per common
share dilution computations for the three month periods ended September 30,
2002 and 2001 are presented below: (dollars and shares in thousands)
Three Months Ended September 30,
--------------------------------
2002 2001
---- ----
Earnings per share:
Net Income $1,708 $1,474
====== ======
Weighted average common shares
outstanding 3,407 3,789
===== =====
Basic earnings per share $0.50 $0.39
===== =====
Earnings per share assuming dilution:
Net Income $1,708 $1,474
====== ======
Weighted average common shares
outstanding 3,407 3,789
Add: dilutive effect of assumed
exercises of stock options 154 143
----- -----
Weighted average common and dilutive
potential common shares outstanding 3,561 3,932
===== =====
Diluted earnings per share $0.48 $0.37
===== =====
A reconciliation of the numerators and denominators for earnings per common
share dilution computations for the nine month periods ended September 30,
2002 and 2001 are presented below: (dollars and shares in thousands)
Nine Months Ended September 30,
--------------------------------
2002 2001
---- ----
Earnings per share:
Net Income $5,001 $4,221
====== ======
Weighted average common shares
outstanding 3,429 3,830
===== =====
Basic earnings per share $1.46 $1.10
===== =====
Earnings per share assuming dilution:
Net Income $5,001 $4,221
====== ======
Weighted average common shares
outstanding 3,429 3,830
Add: dilutive effect of assumed
exercises of stock options 161 98
----- -----
Weighted average common and dilutive
potential common shares outstanding 3,590 3,928
===== =====
Diluted earnings per share $1.39 $1.07
===== =====
At September 30, 2002, no options to purchase shares were excluded in the
computation of diluted earnings per share for the three and nine month periods
ended because all of the options' exercise prices were lower than the average
market price of the common stock. At September 30, 2001, options to purchase
162,000 shares were not included in the computation of diluted earnings per
share for the three and nine month periods ended because the options' exercise
prices were greater than the average market price of the common stock and were
therefore, antidilutive.
(3) Stock Repurchase Program
The following table summarizes the Company's stock repurchase programs.
Average
Date Date # of Shares Price per
Program# Announced Completed Repurchased Share
======== ========= ========= =========== =========
25th 6/18/02 - 21,241 $21.33
The Company announced its 25th stock repurchase program on June 18, 2002,
enabling the Company to repurchase 100,000 shares of its outstanding common
stock. The Company repurchased 15,765 shares in the third quarter of 2002.
(4) Cash Dividend
The regular quarterly dividend for the third quarter of 2002 was paid at $.08
per share. The same quarterly dividend was paid for the third quarter of
2001.
(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
September 30, 2002, the Company's and Bank's capital requirements under FIRREA
and their actual capital ratios. As of September 30, 2002, the Company and
the Bank exceeded all current minimum regulatory capital requirements.
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purpose Action Provisions
SEPT 30, 2002 Amount Ratio Amount Ratio Amount Ratio
============== ------ ------ ------ ------ ------ -----
(Dollars in Thousands)
Total Capital
(to Risk Weighted Assets)
Company $50.8 12.2% $33.4 8.0% $41.8 10.0%
Bank 49.8 11.9 33.4 8.0 41.7 10.0
Tier I Capital
(to Risk Weighted Assets)
Company $45.5 10.9% $16.7 4.0% $25.1 6.0%
Bank 44.5 10.7 16.7 4.0 25.0 6.0
Tier I Capital
(to Average Assets)
Company $45.5 7.7% $23.7 4.0% $29.7 5.0%
Bank 44.5 7.5 23.6 4.0 29.5 5.0
Risk Weighted Assets (Company) $417,586
Average Assets (Company) 593,031
Risk Weighted Assets (Bank) 417,041
Average Assets (Bank) 589,554
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purpose Action Provisions
SEPT 30, 2001 Amount Ratio Amount Ratio Amount Ratio
============== ------ ------ ------ ------ ------ -----
(Dollars in Thousands)
Total Capital
(to Risk Weighted Assets)
Company $47.9 11.6% $33.1 8.0% $41.3 10.0%
Bank 49.6 12.0 33.1 8.0 41.4 10.0
Tier I Capital
(to Risk Weighted Assets)
Company $42.6 10.3% $16.5 4.0% $24.8 6.0%
Bank 44.3 10.7 16.6 4.0 24.8 6.0
Tier I Capital
(to Average Assets)
Company $42.6 7.4% $23.0 4.0% $28.8 5.0%
Bank 44.3 7.7 22.9 4.0 28.6 5.0
Risk Weighted Assets (Company) $413,362
Average Assets (Company) 576,103
Risk Weighted Assets (Bank) 413,933
Average Assets (Bank) 572,963
(6) New Accounting Pronouncement
In 2001, the Financial Accounting Standard Board issued SFAS No. 142,
"Goodwill and Other Intangible Assets," which requires that goodwill no longer
be amortized to earnings, but instead be reviewed for impairment. The
amortization of goodwill ceases upon adoption of SFAS No. 142, which for most
companies, will be January 1, 2002. The goodwill recorded by the Company is
related to a branch acquisition. In October of 2002, the Financial Accounting
Standards Board ("FASB") released a new statement, SFAS No. 147 entitled
"Acquisitions of Certain Financial Institutions," allowing financial
institutions meeting certain criteria to reclassify unidentifiable intangible
asset balances to goodwill and cease amortization beginning as of January 1,
2002. SFAS No. 147 did not have an impact on the Company, as the Company
determined that their acquisition of a failed thrift branch was not a business
combination and the Company will continue to amortize goodwill to expense.
(7) Special Note Concerning Forward-Looking Statements
This document (including information incorporated by reference) contains, and
future oral and written statements of CoVest Bancshares, Inc., a Delaware
corporation (the "Company") and its management may contain, forward-looking
statements, within the meaning of such term in the Private Securities
Litigation Reform Act of 1995, with respect to the financial condition,
results of operations, plans, objectives, future performance and business of
the Company. Forward-looking statements, which may be based upon beliefs,
expectations and assumptions of the Company's management and on information
currently available to management, are generally identifiable by the use of
words such as "believe," "expect," "anticipate," "plan," "intend," "estimate,"
"may," "will," "would," "could," "should" or other similar expressions.
Additionally, all statements in this document, including forward-looking
statements, speak only as of the date they are made, and the Company
undertakes no obligation to update any statement in light of new information
or future events.
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 effect on the operations and future prospects of the Company and its
subsidiaries include, but are not limited to, the following:
* The strength of the United States economy in general and the strength of
the local economies in which the Company conducts its operations which may
be less favorable than expected and may result in, among other things, a
deterioration in the credit quality and value of the Company's assets.
* The economic impact of the terrorist attacks that occurred on September
11, 2001, as well as any future threats and attacks, and the response of
the United States to any such threats and attacks.
* The effects of, and changes in, federal, state and local laws, regulations
and policies affecting banking, securities, insurance and monetary and
financial matters.
* The effects of changes in interest rates (including the effects of changes
in the rate of prepayments of the Company's assets) and the policies of
the Board of Governors of the Federal Reserve System.
* The ability of the Company to compete with other financial institutions as
effectively as the Company currently intends due to increases in
competitive pressures in the financial services sector.
* The inability of the Company to obtain new customers and to retain
existing customers.
* The timely development and acceptance of products and services, including
products and services offered through alternative delivery channels such
as the Internet.
* Technological changes implemented by the Company and by other parties,
including third party vendors, which may be more difficult or more
expensive than anticipated or which may have unforeseen consequences to
the Company and its customers.
* The ability of the Company to develop and maintain secure and reliable
electronic systems.
* The ability of the Company to retain key executives and employees and the
difficulty that the Company may experience in replacing key executives and
employees in an effective manner.
* Consumer spending and saving habits which may change in a manner that
affects the Company's business adversely.
* Business combinations and the integration of acquired businesses which may
be more difficult or expensive than expected.
* The costs, effects and outcomes of existing or future litigation.
* Changes in accounting policies and practices, as may be adopted by state
and federal regulatory agencies and the Financial Accounting Standards
Board.
* The ability of the Company to manage the risks associated with the
foregoing as well as anticipated.
These risks and uncertainties should be considered in evaluating forward-
looking statements and undue reliance should not be placed on such statements.
Additional information concerning the Company and its business, including
other 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,
multi-family, commercial real estate loans, and consumer loans. 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, 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 assets increased by 3% to $600.5 million as of September 30, 2002, as
compared to $585.7 million at December 31, 2001. Total liabilities increased
by 2% to $553.0 million, as compared to $540.6 million as of December 31,
2001. Stockholder's equity increased by 5% to $47.5 million, as compared to
$45.2 million as of September 30, 2001.
Cash and cash equivalents increased to $11.3 million at September 30, 2002
from $6.6 million at December 31, 2001. The increase resulted from an
increase in deposits at other banks.
Securities increased by 17% to $60.9 million from $52.2 as of December 31,
2001. The increase consisted of Federal Home Loan Bank Multi-Step Bonds with
maturities out to 5 years, callable semi-annually with coupons that reset
annually.
Net loans receivable at September 30, 2002 were $510.8 million, or relatively
the same level as at December 31, 2001 of $509.6 million. As interest rates
currently are at 40 year lows, it has been the Company's strategy to
concentrate on funding short-term adjustable rate loans to minimize its
exposure to rising interest rates. Commercial loans increased 14% to $53.5
million, as compared to $47.0 million as of December 31, 2001. Multi-family
loans increased 4% to $233.1 million, as compared to $223.6 million as of
December 31, 2001. The multi-family loan portfolio is mostly comprised of
adjustable rate loans with floors established upon origination. In April 2002,
the Company sold $20.1 million of its multi-family loan portfolio to better
position itself in an increasing rate environment. The sale consisted of 5-
year adjustable rate loans where the rate is fixed for the first 5-year term
and then reprice off the 5-year Treasury index for the next five years. There
was no gain or loss on the transaction and the loans were sold at 7% pass-
through until the next rate adjustment date. The overall average gross rate
was 8.00%. The Company retains the servicing of the loans for a .25% servicing
fee and a 50/50 split of the prepayment fee was negotiated for the life of the
contract. Funds have been redeployed to shorter-term adjustable rate loans
with floors set upon origination. Commercial real estate loans increased 8%
to $85.6 million, as compared to $79.4 million as of December 31, 2001.
Construction loans decreased 19% to $47.5 million, as compared to $58.8
million as of December 31, 2001. The Company has limited its new construction
lending and is still funding prior commitments. Mortgage loans decreased 6%
to $54.8 million, as compared to $58.2 million as of December 31, 2001.
Although the Company generally retains only adjustable-rate mortgage loans in
its portfolio, it continues to originate fixed-rate mortgage loans in order to
provide a full range of products to its customers. Such loans are originated
only under terms, conditions, and documentation standards that make the loans
eligible for sale to the Federal Home Loan Mortgage Corporation ("FHLMC"), the
Federal National Mortgage Association ("FNMA") and other institutional
investors. Prepayments exceeded loan originations. Consumer loans decreased
11% to $41.2 million, as compared to $46.3 million as of December 31, 2001, as
automobile companies continue to offer zero percent financing.
Total deposits increased 2% to $462.9 million, as compared to $456.0 million
as of December 31, 2001. Savings deposits increased 63% to $85.1 million, as
compared to $52.1 million as of December 31, 2001. The High Yield Money
Account decreased 20% to $91.5 million, as compared to $113.9 million as of
December 31, 2001. The Company believes that the decrease in the High Yield
Money Market account is caused by the decline in the 91-day Treasury Bill rate
to which the account is indexed. The Company also believes that the decrease
in the average High Yield Money Market account index rate to 1.71% caused the
savings deposits to increase as the savings account rate remained at a fixed
2.50%. Certificates of deposit decreased 4% to $166.0 million, as compared to
$172.1 million as of December 31, 2001. Jumbo certificates of deposit
decreased 82% to $2.1 million, as compared to $11.8 million as of December 31,
2001. The Company believes that a portion of these decreases shifted to
savings accounts as the 2.50% fixed savings account rate was higher than the
short-term certificates of deposit rates. Effective October 1, 2002, the
Company implemented relationship pricing on its savings accounts. The savings
account rate was reduced to 1.50% with an additional .75% premium rate on
savings accounts that also have a checking account relationship. As of
September 30, 2002, $61.2 million of the Company's savings accounts had
checking account relationships and $23.8 million were regular savings accounts
with no checking account relationships. Purchased certificates of deposits
increased 17% to $53.4 million, as compared to $45.8 million as of December
31, 2001. Non-interest bearing checking accounts increased 7% to $33.1
million, as compared to $31.0 million as of December 31, 2001. Included in
non-interest bearing accounts are the Company's official checks that decreased
by $2.1 million. Corporate checking accounts increased $4.0 million as the
Company continues its effort to increase its commercial banking business.
Interest bearing checking accounts increased 9% to $31.9 million, as compared
to $29.3 million as of December 31, 2001.
Total borrowings remained at relatively the same level at September 30, 2002
as at December 31, 2001. Total borrowings amounted to $74.9 million as of
September 30, 2002, while at December 31, 2001, total borrowings were at $73.4
million. Included in short-term borrowings was a $1.0 million note incurred
in connection with the Company's stock repurchase program. This borrowing will
be repaid from the dividends from the Bank over the next several quarters.
Long-term borrowings remained at $44.0 million as of September 30, 2002. Long-
term borrowings consisted of Federal Home Loan Bank Term Advances and are a
primary source of funding subject to collateral availability.
Stockholders' equity totaled $47.5 million at September 30, 2002. The number
of shares outstanding excluding unallocated Employee Stock Ownership Plan
shares was 3,399,957 and the book value per common share outstanding was
$13.97, a 6.40% increase over $13.13 per common share outstanding at December
31, 2001.
On February 22, 2002, the Employee Stock Ownership Plan purchased 81,477
shares of CoVest Bancshares, Inc. common stock, held in the Company's
treasury, for an aggregate purchase price of $1,500,000, or $18.41 per share.
Shares issued to the ESOP are allocated to ESOP participants based on
principal repayments made by the ESOP on the loan from the Company. The loan
is secured by shares purchased with the loan proceeds and will be repaid by
the ESOP with contributions from the Company. Principal payments are
scheduled to occur over a fifteen-year period. $50,000 of principal plus
interest, has been repaid during the first nine months of 2002.
The Company announced its 25th stock repurchase program on June 18, 2002,
enabling the Company to repurchase 100,000 shares of its outstanding stock. A
total of 21,241 shares were repurchased at an average price of $21.33 through
October 29, 2002.
At September 30, 2002, the allowance for loan losses was $6.9 million as
compared to $6.5 million as of December 31, 2001. The Company recognized net
charge-offs of $550,000 and provided an additional $853,000 during the first
nine months of 2002. Management believes that the allowance for loan losses at
September 30, 2002 was at a level adequate to absorb probable incurred losses
on existing loans. However, there can be no assurance that such losses will
not exceed estimated amounts.
At September 30, 2002, total non-performing loans amounted to $4,360,000, or
0.73% of total assets compared to $2,285,000, or 0.38% of total assets at June
30, 2002 and to $2,538,000, or 0.43% of total assets at December 31, 2001. A
$1,540,000 motel property in Wisconsin that had been categorized as a non-
accrual loan as of December 31, 2001, was foreclosed on and sold in April,
2002. An additional $240,000 of this loan was charged-off prior to its move to
Other Real Estate Owned. A $1,426,000 multi-family loan was classified as non-
accrual in June 2002. The Company charged-off $159,000 of this loan during the
second quarter of 2002. A $500,000 payment was received on this loan in
September 2002 and now has a balance of $926,000. In the third quarter, three
commercial real estate loans to related borrowers were put on non-accrual
totaling $3,017,000. The Company has included these loans in the September
30, 2002 analysis of allowance for loan and lease losses; however, it is
currently too early to ascertain what losses, if any, will be realized.
Other Real Estate Owned increased to $731,000 at September 30, 2002 compared
to $661,000 as of December 31, 2001. Other Real Estate Owned consisted of two
properties. One of the properties represents an undeveloped commercial real
estate property in Chicago for $661,000. The Company is currently marketing
the property and expects no losses. The other represents a residential
property for $70,000 and was acquired by the Company in August 2002 and no
loss is anticipated.
Along with other financial institutions, management shares a concern for the
outlook of the economy during the remainder of 2002. A slowdown in economic
activity beginning in 2001 severely impacted several major industries as well
as the economy as a whole. Even though there are numerous indications of
emerging strength, it is not certain that this strength is sustainable. In
addition, consumer confidence may be negatively impacted by the recent
substantial decline in equity prices. These events could still adversely
affect cash flows for both commercial and individual borrowers, as a result of
which, the Company could experience increases in problem assets, delinquencies
and losses on loans.
The following table sets forth the amounts and categories of non-performing
loans and assets.
SEPT 30, 2002 DEC 31, 2001
------------- ------------
(Dollars in Thousands)
Non-accruing Loans:
Commercial Loans $ - $ -
Multi-family Loans 926 -
Commercial Real Estate Loans 3,017 1,540
Construction Loans - 48
Commercial/Municipal Leases - -
Mortgage Loans 401 668
Consumer 16 43
------ ------
Total 4,360 2,299
Accruing Loans Delinquent 90 days or More:
Commercial Loans $ - $ -
Multi-family Loans - -
Commercial Real Estate Loans - 100
Construction Loans - -
Commercial/Municipal Leases - 20
Mortgage Loans - 119
Consumer - -
------ ------
Total - 239
------ ------
Total Non-performing Loans $4,360 $2,538
Other Real Estate Owned 731 662
Other Repossessed Assets - -
------ ------
Total Non-performing Assets $5,091 $3,200
====== ======
Total Non-performing Loans as
a Percentage of Net Loans 0.85% 0.50%
==== ====
Total Non-performing Assets as
a Percentage of Total Assets 0.85% 0.55%
==== ====
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 $7.5 million, for the nine months ended September
30, 2002. Net cash used by investing activities was $10.8 million for the
nine months ended September 30, 2002. Net cash provided by financing
activities was $8.0 million for the nine months ended September 30, 2002.
The Company uses its liquidity to meet its ongoing commitments to fund
maturing certificates of deposit and deposit withdrawals, repay borrowings,
fund existing and continuing loan commitments, and pay operating expenses. At
September 30, 2002, the Company has commitments to originate loans totaling
$42.9 million and its customers had approved but unused lines of credit
totaling $37.9 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
- ---------------
THREE MONTHS ENDED NINE MONTHS ENDED
SEPT 30, SEPT 30, SEPT 30, SEPT 30,
2002 2001 2002 2001
------ ----- ------ ------
Annualized Return on Avg. Equity 14.58% 11.92% 14.45% 11.51%
Annualized Return on Avg. Equity (Core)* 14.58 11.92 14.45 10.83
Annualized Return on Avg. Assets 1.15 1.02 1.12 0.97
Annualized Return on Avg. Assets (Core)* 1.15 1.02 1.12 0.91
Book Value per Share $13.97 $12.84 $13.97 $12.84
Closing Market Price per Share $21.00 $18.05 $21.00 $18.05
Earnings per Primary Share:
Basic $0.50 $0.39 $1.46 $1.10
Basic (Core)* $0.50 $0.37 $1.46 $1.04
Diluted $0.48 $0.39 $1.39 $1.07
Diluted (Core)* $0.48 $0.37 $1.39 $1.01
Net Interest Margin 3.58% 3.59% 3.68% 3.47%
Ratio of Operating Expense to
Average Total Assets, Annualized 2.24% 2.30% 2.40% 2.36%
Ratio of Net Interest Income to
Non-Interest Expense 1.53x 1.50x 1.48x 1.41x
* Core net income: Net income, adjusted for the after tax effect of the gain of
sale of loans, that occurred in the first quarter of 2001.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
- -----------------------------------------------------------------------------
Net income was $1,708,000 for the third quarter of 2002, up 16% over
$1,474,000 for the same period in 2001. Basic earnings per share were $0.50, a
28% increase compared to $0.39 for the third quarter of 2001. Diluted earnings
per share were $0.48, a 30% increase compared to $0.37 for the third quarter
of 2001.
Return on average equity and return on average assets during the third quarter
of 2002 were 14.58% and 1.15% respectively, compared to 11.92% and 1.02% for
the third quarter in 2001.
The Company's efficiency ratio improved to 53.36% compared to 56.01% in the
third quarter of 2001. The Company's goal is to maintain an efficiency ratio
at lower than 56% for 2002.
Cash earnings (net income adjusted for the after tax impact of amortization of
goodwill) for the third quarter of 2002 were $1,739,000, or $0.51 (basic) and
$0.49 (diluted) earnings per share, compared to $1,505,000, or $0.40 (basic)
and $0.38 (diluted) earnings per share for the same period in 2001.
Net interest income for the third quarter of 2002 increased $119,000, or 2%
compared to the same period in 2001. The increase in net interest income can
be attributed to a decrease in interest expense, offset by a decrease in
interest income. The Company was in a liability sensitive position, where
liabilities repriced faster than assets in 2001 when rates were declining. In
addition to this, the Company sold $54.0 million of its mortgage loan
portfolio in 2001 which provided the Company liquidity and afforded the
Company the opportunity to price its deposits moderately. The deposit base
coming into 2002 was then at lower cost levels. The net interest spread for
the third quarter of 2002 was 3.18% compared to 2.99% for the same period in
2001. The weighted average yield on interest earning assets was 6.24% for the
third quarter of 2002, a decrease of 136 basis points compared to 7.60% in
2001. The weighted average cost of interest bearing liabilities was 3.06% for
the third quarter of 2002, a decrease of 155 basis points compared to 4.61% in
2001. The increase in non-interest bearing deposits by $4.5 million, or 16%,
also contributed to the increase in net interest margin. Net interest margin
was 3.58% for the third quarter of 2002, slightly down compared to 3.59% for
the same period in 2001.
The Company's total interest income (tax equivalent) on earning assets
decreased 16% to $8,930,000 for the third quarter in 2002 compared to
$10,577,000 for the same period in 2001. The average balance of interest
earning assets increased 3% to $572.4 million compared to $556.9 million for
the same period in 2001. The Federal Reserve's rate reductions in 2001 caused
a decrease in the Company's loan index rates and prompted prepayments in the
loan portfolio, particularly in the multi-family loan portfolio, which is
mostly comprised of adjustable rate loans with floors established upon
origination. As of September 30, 2002, $88.8 million of the adjustable multi-
family loan portfolio had reached their floors. The average yield on loans for
the third quarter of 2002 was 6.45%, down by 142 basis points compared to
7.87% for the same period in 2001. Loan costs associated with loan
prepayments in the multi-family loan portfolio totaled $93,000. The average
yield earned on investments was 4.74%, an 88 basis point decrease compared to
5.62% for the same period in 2001. The average yield on overnight investments
for the third quarter of 2002 was 1.59%, a 179 basis point decrease compared
to 3.38% for the same period in 2001. The increased volume of loans partially
offset the effect of the income reduction from falling rates.
Total interest expense decreased 32% to $3,815,000 for the third quarter of
2002 compared to $5,573,000 for the same period in 2001. The average cost of
deposits for the third quarter of 2002 was 2.86%, a 159 basis point decrease
compared to 4.45% for the same period in 2001. The average balance of the High
Yield Money Market account decreased 20% to $96.0 million compared to $120.4
million for the same period in 2001. The average balance of savings accounts
increased 80% to $80.3 million compared to $44.5 million for the same period
in 2001. The Company believes that the decline of the 91-day Treasury bill
rate to which the High Yield Money Market account is indexed, caused the
decline in this type of deposit. The Company also believes that the rate of
savings accounts that remained fixed at 2.50%, prompted depositors to shift
their funds from the High Yield Money Market account to savings accounts.
Effective October 1, 2002, the Company implemented relationship pricing on its
savings accounts. The savings account rate was reduced to 1.50% with an
additional .75% premium rate on savings accounts that also have a checking
account relationship. The average cost of borrowings decreased to 4.27%. a
143 basis point decrease compared to 5.70% for the same period in 2001.
The provision for loan losses was $217,000 for the third quarter of 2002, a
28% decrease for the same period in 2001. The net charge-offs for the quarter
were $16,000.
On a quarterly basis, management of the Company meets to review the adequacy
of the Allowance for 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 a result
of this analysis, management believes that the allowance for losses on loans
at September 30, 2002 was at a level adequate to absorb probable incurred
losses on existing loans, although there can be no assurance that such losses
will not exceed the estimated amounts.
LOAN LOSS ALLOWANCE ANALYSIS. The following table sets forth an analysis of
the Company's allowance for loan losses for the periods indicated.
THREE MONTHS ENDED
SEPT 30, SEPT 30,
2002 2001
---------- ----------
(Dollars in Thousands)
Balance at Beginning of Period $6,650 $5,752
Charge-offs:
Commercial Loans - -
Multi-family Loans - -
Commercial Real Estate Loans - -
Construction Loans - -
Commercial/Municipal Leases - -
Mortgage Loans - -
Consumer 40 29
------ ------
Charge-offs Total 40 29
Recoveries:
Commercial Loans - -
Multi-family Loans - -
Commercial Real Estate Loans - -
Construction Loans - -
Commercial/Municipal Leases - -
Mortgage Loans - -
Consumer 24 7
------ ------
Recoveries Total 24 7
------ ------
Net Charge-offs 16 22
Additions Charged to Operations 217 300
------ ------
Balance at End of Period $6,851 $6,030
====== ======
Ratio of Net Charge-offs During
the Period to Average Loans
Outstanding During the Period 0.00% 0.00%
Ratio of Allowance for Loan
Losses to Non-performing Loans 1.57x 1.84x
Ratio of Allowance for Loan
Losses to Total Outstanding Loans 1.32% 1.21%
Non-interest income increased $190,000, a 20% increase to $1,146,000 for the
third quarter of 2002 compared to $956,000 for the same period in 2001. Loan
charges and servicing fees increased $50,000. Lien release fees increased
$54,000, loan modification fees increased $21,000, and document preparation
fees increased $12,000. These increases were offset by a $22,000 decrease in
investor service fees and a $16,000 decrease in letter of credit fees. Loan
prepayment fees increased $34,000, mostly from prepayments in the multi-family
loan portfolio. Mortgage banking fees increased $78,000, mainly from increase
in conventional loan fees in the amount of $68,000 and mortgage loan
application fees in the amount of $12,000. Deposit related charges decreased
$21,000, mostly due to the decrease in service fees from retail checking
accounts. The Company believes that the increase in retail checking deposits
is from increased balances on which service fees are not charged. Gain on
sale of investment securities totaled $39,000 for the third quarter of 2002
compared to a loss of $3,000 for the same period in 2001. Other income
increased by $5,000 to $64,000 as compared to $59,000 for the same period in
2001. Included in other income for the third quarter of 2001 was $40,000 of
credit card servicing income. There was no credit card servicing income in the
third quarter of 2002 because the servicing contract was terminated in
February 2002.
Non-interest expense for the third quarter of 2002 totaled $3,326,000, which
is relatively at the same level compared to $3,318,000 for the same period in
2001. Compensation and benefits decreased $52,000. Medical insurance decreased
$37,000, directors' retirement expenses decreased $23,000 and employee
relations expenses decreased $10,000. Recent medical claims through August
indicate smaller medical expenses prompting the Company to accrue based on
budgeted medical expenses starting the third quarter of 2002 and reversed
$140,000 that represented the difference between the maximum claims amount and
the budgeted claims amount during the first six months of 2002. These were
partially offset by an increase in base compensation of $24,000 as there were
more open positions in the third quarter of 2001 as compared to the third
quarter in 2002. Commissions and incentives decreased $12,000, mainly due to a
reduced bonus expense in the third quarter of 2002. Data processing expenses
increased $31,000. Advertising expenses increased $43,000 as efforts continue
to attract deposits. Amortization of mortgage servicing rights decreased
$12,000 due to smaller prepayments in the third quarter of 2002. The
Company's efficiency ratio for the third quarter of 2002 improved to 53.36%
compared to 56.01% for the same period in 2001. The Company's goal is maintain
an efficiency ratio at lower than 56% for 2002.
Income tax expense increased $150,000 to $982,000 for the quarter ended
September 30, 2002, compared to $832,000 for the same period in 2001. The
effective tax rate approximated 36% for each period.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
- ------------------------------------------------------------------------------
Net income increased $780,000, or 18%, to $5,001,000 for the first nine months
of 2002 compared to $4,221,000 for the same period in 2001. Basic earnings per
share were $1.46, a 33% increase compared to $1.10 per share for the same
period in 2001. Diluted earnings per share were $1.39, a 30% increase compared
to $1.07 per share for the same period in 2001. Included in net income for
2001 was a $407,000 pretax gain on sale of single family mortgages. Core net
earnings (net income adjusted for the after tax effect of the gain on sale of
loans) was $3,972,000 for the first nine months in 2001, or $1.04 (basic) and
$1.01 (diluted) per share. Basic earnings and diluted earnings per share for
the first nine months of 2002 increased 40% and 38% respectively, as compared
to the same period in 2001 on core earnings.
Return on average equity and return on average assets for the first nine
months of 2002, were 14.45% and 1.12% respectively, compared to 11.51% and
0.97% for the same period in 2001. Return on average equity and return on
average assets for the first nine months of 2001, without the gain on sale of
mortgage loans, were 10.83% and 0.91% respectively.
The Company's efficiency ratio improved to 55.06% compared to 58.08% for the
first nine months of 2001. The Company's goal is to maintain an efficiency
ratio of below 56% for 2002.
Cash earnings (net income adjusted for the after tax impact of amortization of
goodwill) for the first nine months of 2002 were $5,063,000, or $1.48 (basic)
and $1.41 (diluted) earnings per share, compared to $4,315,000, or $1.13
(basic) and $1.10 (diluted) earnings per share for 2001. Core cash earnings
(net income, exclusive of the gain on sale of loans, adjusted for the after
tax impact of amortization of goodwill) for the first nine months of 2001 were
approximately $4,066,000, or $1.06 (basic) and $1.04 (diluted) earnings per
share.
Net interest income for the first nine months of 2002 increased $1,367,000, or
9%, to $15,830,000, compared to $14,463,000 for the same period in 2001.
Interest income decreased 15% while interest expense decreased 35% for the
first nine months of 2002 as compared to the same period in 2001. The average
yield on interest earning assets was 6.41%, a 138 basis point decrease from
7.79% for 2001. The average cost of interest bearing liabilities was 3.11%, a
183 basis point decrease from 4.94% for 2001. Net interest spread for the
first nine months of 2002 was 3.30% compared to 2.85% for the same period in
2001. Net interest margin was 3.68% for the first nine months in 2002 compared
to 3.47% in 2001. The increase in non-interest bearing deposits by $5.3
million, or 20%, contributed to the increase in interest margin.
The Company's total interest income (tax equivalent) on earning assets
decreased 15% to $27,738,000 for the first nine months of 2002 compared to
$32,744,000 for the same period in 2001. The average balance of interest
earning assets increased 3% for the first nine months of 2002. The Federal
Reserve's rate reductions in 2001 caused a decrease in the Company's loan
index rates. The average yield on loans decreased to 6.63%, a 146 basis point
decrease compared to 2001. Loan costs associated with loan prepayments in the
multi-family loan portfolio totaled $408,000, which included $139,000 of loan
costs associated with the sold loans in April 2002. The average yield on
investments decreased to 4.70%, a 94 basis points decrease compared to 2001.
The increase in volume of loans outstanding partially offset the effect of the
income reduction from falling rates.
It has been the Company's strategy for the last year to concentrate on funding
short-term adjustable rate loans to minimize its exposure to rising interest
rates. The Company sold $20.1 million of its multi-family loan portfolio in
April 2002 to better position itself in an increasing rate environment. The
sale consisted of 5-year adjustable rate loans where the rates are fixed for
the first 5-year term and then reprice off the 5-year Treasury index for the
next five years. The loans were sold at 7% pass through until the next
adjustment date, where the service fee will be set at .25% and the pass
through rate will be adjusted accordingly. The gross coupon rates range from
7.25% to 9.625%. Funds have been redeployed to shorter term adjustable rate
loans with floors set upon origination.
Total interest expense decreased 35% to $11,813,000 for the first nine months
of 2002 compared to $18,150,000 for the same period in 2001. The average cost
of deposits for the first nine months of 2002 was 2.94%, a 187 basis point
decrease compared to 4.81% for the same period in 2001. The average balance on
the High Yield Money Market account decreased while the average balance on
savings accounts increased. The Company believes that the decline in the 91-
day Treasury Bill rate to which the account is indexed caused the decline in
the High Yield Money Market account. The Company also believes that consumers
shifted their balances from the High Yield Money Market account that averaged
1.71% to savings accounts that remained fixed at 2.50%. Effective October 1,
2002, the Company implemented relationship pricing on its savings accounts.
The savings accounts rate was reduced to 1.50% with an additional .75% premium
rate on savings accounts that also have a checking account relationship. As
of September 30, 2002, $61.2 million of the Company's savings accounts have
checking account relationships and $23.8 million are regular savings accounts
with no checking account relationships. The average balance of borrowing
increased by $14.2 million while the average cost decreased to 4.06%, a 182
basis points decrease compared to 5.88% for the same period in 2001. The
average balance of non-interest earning deposits increased by $5.3 million,
which contributed in the increase of net interest margin for the first nine
months of 2002.
The provision for loan losses was $853,000 for the first nine months in 2002
compared to $800,000 for the same period in 2001. Management believes that the
allowance for loan losses as of September 30, 2002, was at a level adequate to
absorb probable incurred losses on existing loans. However, there can be no
assurance that such losses will not exceed estimated amounts.
On a quarterly basis, management of the Company meets to review the adequacy
of the Allowance for 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 a result
of this analysis, management believes that the allowance for losses on loans
at September 30, 2002 was at a level adequate to absorb probable incurred
losses on existing loans, although there can be no assurance that such losses
will not exceed the estimated amounts.
LOAN LOSS ALLOWANCE ANALYSIS. The following table sets forth an analysis of
the Company's allowance for possible loan losses for the periods indicated.
NINE MONTHS ENDED
SEPT 30, SEPT 30,
2002 2001
---------- ----------
(Dollars in Thousands)
Balance at Beginning of Period $6,547 $5,655
Charge-offs:
Commercial Loans - -
Multi-family Loans 159 45
Commercial Real Estate Loans 240 226
Construction Loans - -
Commercial/Municipal Leases 20 -
Mortgage Loans 49 -
Consumer 126 190
------ ------
Charge-offs Total 594 461
Recoveries:
Commercial Loans - -
Multi-family Loans - -
Commercial Real Estate Loans - -
Construction Loans - -
Commercial/Municipal Leases 10 -
Mortgage Loans - -
Consumer 35 36
------ ------
Recoveries Total 45 36
------ ------
Net Charge-offs 549 425
Additions Charged to Operations 853 800
------ ------
Balance at End of Period $6,851 $6,030
====== ======
Ratio of Net Charge-offs During
the Period to Average Loans
Outstanding During the Period 0.11% 0.09%
Ratio of Allowance for Possible
Loan Losses to Non-performing Loans 1.57x 1.84x
Non-interest income increased $414,000, or 13% for the first nine months of
2002 compared to the same period in 2001. Core non-interest income, excluding
the $407,000 gain on sale of loans in 2001 was $2,814,000. Non-interest income
for the first nine months of 2002 increased $821,000 compared to core non-
interest income for the same period in 2001. Loan prepayment fees increased
$651,000. Deposit related charges and fees increased $34,000. Service fees on
account analysis from commercial accounts increased $46,000, Internet banking
fees increased $9,000 and ATM/Debit card income increased $4,000. These were
offset by a decrease in checking account fees and service charges by $24,000.
The Company believes that the increase in retail checking deposits was from
increased balances on which service fees were not charged. Net gain on sale
of securities and loans decreased $258,000. In 2001, the Company had a $35,000
loss on sale of securities and a $407,000 gain on sale of loans. For 2002, the
$113,000 represented gain on sale of investments. CoVest insurance and annuity
commissions decreased $21,000. Other income remained at the same level for the
first nine months of 2002 and 2001. Included in other income for the first
nine months of 2002 was $65,000 representing partial interest on a 1992 and
1993 State of Illinois income tax refund. Other income for the first nine
months in 2001 included credit card servicing income of $105,000 compared to
$5,000 for 2002. The credit card servicing relationship was terminated in
February 2002.
Non-interest expense increased $448,000, or 4%, for the first nine months of
2002 compared to the comparable period in 2001. Compensation and benefits
increased $479,000. Base compensation increased $154,000. Medical insurance
increased $236,000 due to higher medical costs in 2002 compared to that in
2001. Employee benefits increased $75,000 due to ESOP expense instituted in
February 2002. Directors' retirement expenses decreased by $32,000.
Commissions and incentives decreased $296,000 mostly due to reduced bonus
expenses during the first nine months of 2002 compared to the same period in
2001. Data processing expenses increased $59,000. Core processing expenses
increased $19,000, ATM expense increased $21,000, Internet maintenance
increased $9,000 and other processing expenses increased $10,000. Advertising
expenses increased $52,000 as efforts continue to increase core deposits.
Expenses on other real estate owned assets increased $216,000, which was
comprised of back taxes, foreclosure expenses and expenses in selling the
properties. Other expenses decreased $66,000. Professional services decreased
$47,000. Loan related expenses decreased $32,000.
Income tax expense increased $500,000 to $2,893,000 for the nine-month period
ending September 30, 2002, compared to $2,393,000 for the same period in 2001.
The effective tax rate was 37% for the nine months ended September 30, 2002 as
compared to 36% for the nine months ended September 30, 2001.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
In an attempt to manage the Company's exposure to changes in interest rates,
management closely monitors the Company'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.
The Company has been setting floors on its non-retail adjustable rate loans
as a protection in a falling rate environment since the introduction of that
type of product to its loan mix. On October 9, 2001, the Company entered
into an Interest Rate Cap Agreement with Morgan Keegan for a notional amount
of $10 million for three years, against the 91 day Treasury Bill rate, at the
strike rate of 4.50%. The Company paid a fixed amount of $113,000 covering
the entire 3-year agreement. A weekly weighted average calculation will be
used to determine Morgan Keegan's position and will be liable for the
difference when the 91 day Treasury Bill rate exceeds 4.50%. The Company
believes that the move will help cushion the impact of rising rates,
particularly on the High Yield Money Market account that is indexed to the
weekly 91 day Treasury Bill auction. The derivative instrument is recorded
at its fair value and any changes in fair value are recorded in interest
expense.
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 Company's exposure for the next twelve
months, to hypothetical changes in interest rates at the dates indicated.
SEPTEMBER 30, 2002
Change in Percent Change in
Interest Rates Percent Change in MV of Portfolio
(basis points) Net Interest Income Equity
- ---------------- --------------------- -------------------
+200 +9% -4%
+100 +4 -2
0 0 0
-100 -3 +2
-200 -6 +8
SEPTEMBER 30, 2001
Change in Percent Change in
Interest Rates Percent Change in MV of Portfolio
(basis points) Net Interest Income Equity
- ---------------- --------------------- -------------------
+200 -7% -6%
+100 -4 -3
0 0 0
-100 +3 +1
-200 +8 +3
The following table presents the Company's cumulative gap position as of the
dates indicated:
SEPT 30, 2002 SEPT 30, 2001
--------------- --------------
(Dollars in Thousands)
92 days $69,023 ($56,299)
182 days $62,589 ($73,552)
365 days $32,320 ($84,548)
Gap represents the difference of repricing opportunities between the Company's
assets and liabilities for the next twelve months.
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.
ITEM 4. CONTROLS AND PROCEDURES
Based upon an evaluation within the 90 days prior to the filing date of this
report, the Company's Chief Executive Officer and Chief Financial Officer
concluded that the Company's disclosure controls and procedures are effective.
There have been no significant changes in the Company's internal controls or
in other factors that could significantly affect the Company's internal
controls subsequent to the date of the evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
PART II - OTHER INFORMATION
COVEST BANCSHARES, INC.
ITEM 1. LEGAL PROCEEDINGS
There are no material pending legal proceedings to which the Company
or any of its subsidiaries is a party other than ordinary routine
litigation incidental to their respective businesses.
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS
(a) Exhibits
99.1 - Certificate of Chief Executive Officer
99.2 - Certificate of Chief Financial Officer
(b) Reports on Form 8-K
A report on Form 8-K was filed on July 23, 2002 to report under Item
5 the Company's earnings for the second quarter of 2002.
A report on Form 8-K was filed on August 29, 2002 to report under
Item 5 the declaration of a regular quarterly dividend.
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: OCTOBER 29, 2002
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
I, James L. Robert, Chief Executive Officer of the Company, certify that:
1. I have reviewed this quarterly report on Form 10-Q of CoVest Bancshares,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in the Report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this quarterly
report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to date of their evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
DATE: OCTOBER 29, 2002
/S/ JAMES L. ROBERTS
JAMES L. ROBERTS
CHIEF EXECUTIVE OFFICER
I, Paul A. Larsen, Chief Financial Officer of the Company, certify that:
1. I have reviewed this quarterly report on Form 10-Q of CoVest Bancshares,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in the Report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this quarterly
report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to date of their evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
DATE: OCTOBER 29, 2002
/S/ PAUL A. LARSEN
PAUL A. LARSEN
CHIEF FINANCIAL OFFICER
Exhibit 99.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of CoVest Bancshares, Inc. (the
"Company") on Form 10-Q for the period ending September 30, 2002 as filed with
the Securities and Exchange Commission on the date hereof (the "Report"), I,
James L. Roberts, Chief Executive Officer of the Company, certify, pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002, that:
1) The Report fully complies with the requirements of section 13(a) or 15(d) of
the Securities Exchange Act of 1934; and
2) The information contained in the Report fairly presents, in all material
respects, the financial condition and result of operations of the Company.
DATE: OCTOBER 29, 2002
/S/ JAMES L. ROBERTS
JAMES L. ROBERTS
CHIEF EXECUTIVE OFFICER
Exhibit 99.2
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of CoVest Bancshares, Inc. (the
"Company") on Form 10-Q for the period ending September 30, 2002 as filed with
the Securities and Exchange Commission on the date hereof (the "Report"), I,
Paul A. Larsen, Chief Financial Officer of the Company, certify, pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, that:
1) The Report fully complies with the requirements of section 13(a) or 15(d) of
the Securities Exchange Act of 1934; and
2) The information contained in the Report fairly presents, in all material
respects, the financial condition and result of operations of the Company.
DATE: OCTOBER 29, 2002
/S/ PAUL A. LARSEN
PAUL A. LARSEN
CHIEF FINANCIAL OFFICER