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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, 2003 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 -----
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act).
Yes ----- No --X--
As of October 28, 2003, the Registrant had issued 4,403,803 shares of the
Registrant's Common Stock. In addition, it had also repurchased 955,478
shares, which were being held as treasury stock and 66,307 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 16
Item 3. Quantitative and Qualitative
Disclosure About Market Risk 28
Item 4. Controls and Procedures 31
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 32
Item 2. Changes in Securities 32
Item 3. Defaults upon Senior Securities 32
Item 4. Submission of Matters to a Vote of
Security Holders 32
Item 5. Other Information 32
Item 6. Exhibits and Reports 33
Form 10-Q Signatures 34
Certification by Executive Officers 35
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, 2003 DEC 31, 2002
ASSETS ------------- ------------
- ------------
CASH ON HAND AND IN BANKS $ 11,557 $ 7,562
INTEREST BEARING DEPOSITS 51 17
-------- --------
CASH AND CASH EQUIVALENTS 11,608 7,579
SECURITIES:
Securities Available-for-Sale 32,419 41,489
Federal Home Loan Bank and
Federal Reserve Bank Stock 8,120 7,681
-------- --------
TOTAL SECURITIES 40,539 49,170
LOANS RECEIVABLE:
Commercial Loans 53,750 56,799
Multi-Family Loans 283,900 252,766
Commercial Real Estate Loans 72,843 84,607
Construction Loans 55,045 54,404
Commercial Leases 173 522
Mortgage Loans 49,676 54,037
Consumer Loans 31,243 37,902
Mortgage Loans Held for Sale 712 1,026
-------- --------
TOTAL LOANS RECEIVABLE 547,342 542,063
Allowance for Loan Losses ( 7,118) ( 7,039)
-------- --------
LOANS RECEIVABLE, NET 540,224 535,024
ACCRUED INTEREST RECEIVABLE 2,239 2,639
PREMISES AND EQUIPMENT 8,224 8,824
OTHER REAL ESTATE OWNED 2,200 661
GOODWILL 958 1,084
MORTGAGE SERVICING RIGHTS 66 128
OTHER ASSETS 3,079 3,812
-------- --------
TOTAL ASSETS $609,137 $608,921
======== ========
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, 2003 DEC 31, 2002
------------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
LIABILITIES:
Deposits:
Non-Interest Bearing $ 36,609 $ 33,700
Interest Bearing Checking 41,254 34,836
Savings Accounts 121,864 94,885
Money Market Accounts 67,376 85,372
Certificates of Deposit 131,846 155,988
Jumbo CDs 1,530 1,880
Purchased CDs 70,030 66,946
------- -------
470,509 473,607
Short-Term Borrowings and Securities
Sold U/A to Repurchase 46,087 47,370
Long-Term Advances from Federal
Home Loan Bank 33,000 27,000
Advances from Borrowers for Taxes and
Insurance 3,232 5,587
Accrued Expenses and Other Liabilities 4,810 6,771
------- -------
TOTAL LIABILITIES 557,638 560,335
STOCKHOLDERS' EQUITY:
Common Stock, par value $.01 per share;
7,500,000 authorized shares; 4,403,803
shares issued at 9/30/03 and 12/31/02
respectively 44 44
Additional Paid-in Capital 19,174 18,831
Retained Earnings 50,913 46,838
Treasury Stock, 955,478 shares and
923,422 shares, held at cost at 9/30/03
and 12/31/02, respectively (18,061) (16,603)
Unearned ESOP shares (944) (1,202)
Accumulated Other Comprehensive Income 373 678
-------- --------
TOTAL STOCKHOLDERS' EQUITY 51,499 48,586
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $609,137 $608,921
======== ========
See accompanying notes to unaudited consolidated financial statements
COVEST BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(Unaudited)
(Dollars in thousands, except per share data)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPT 30, SEPT 30, SEPT 30, SEPT 30,
2003 2002 2003 2002
INTEREST INCOME ------- ------- ------- -------
Loans and Leases Receivable $ 7,557 $ 8,114 $23,283 $25,396
Mortgage-Backed and Related Securities - 43 - 157
Taxable Securities 230 535 791 1,442
Tax Exempt Securities 36 55 125 181
Other Interest and Dividend Income 173 155 497 467
------- ------- ------- -------
Total Interest Income 7,996 8,902 24,696 27,643
INTEREST EXPENSE
Deposits 2,171 3,066 7,108 9,499
Advances from Federal Home Loan Bank 551 697 1,663 2,112
Other Borrowed Funds 43 52 137 202
------- ------- ------- -------
Total Interest Expense 2,765 3,815 8,908 11,813
------- ------- ------- -------
NET INTEREST INCOME 5,231 5,087 15,788 15,830
Provision for Loan Losses 161 217 676 853
------- ------- ------- -------
NET INTEREST INCOME AFTER PROVISION FOR
LOAN LOSSES 5,070 4,870 15,112 14,977
NON-INTEREST INCOME
Loan Charges and Servicing Fees 236 248 630 689
Loan Prepayment Fees 234 258 817 1,213
Mortgage Banking Fees 318 205 778 473
Deposit Related Charges and Fees 332 308 975 915
Gain on Sale of Securities/Loans - 39 50 113
Insurance and Annuity Commissions 14 24 62 47
Other 91 64 119 185
------- ------- ------- -------
Total Non-Interest Income 1,225 1,146 3,431 3,635
NON-INTEREST EXPENSE
Compensation and Benefits 1,751 1,570 5,533 5,306
Commissions and Incentives 213 204 502 542
Occupancy and Equipment 435 501 1,358 1,458
Federal Deposit Insurance Premium 20 19 58 60
Data Processing 290 282 863 808
Advertising 215 212 576 622
Other Real Estate Owned - 5 24 278
Amortization of Goodwill 41 51 125 154
Amortization of Mortgage Servicing Rights 19 20 62 65
Other 522 462 1,604 1,425
------- ------- ------- -------
Total Non-Interest Expense 3,506 3,326 10,705 10,718
------- ------- ------- -------
INCOME BEFORE INCOME TAXES 2,789 2,690 7,838 7,894
Income Tax Provision (1,019) (982) (2,931) (2,893)
------- ------- ------- -------
NET INCOME $ 1,770 $ 1,708 $ 4,907 $ 5,001
======= ======= ======= =======
Basic Earnings per Share $0.52 $0.50 $1.45 $1.46
Diluted Earnings per Share $0.50 $0.48 $1.37 $1.39
Total Comprehensive Income $ 1,482 $ 1,567 $ 4,602 $ 5,014
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,
2003 2002
OPERATING ACTVITIES -------- ---------
Net Income $ 4,907 $ 5,001
Adjustments to Reconcile Net Income to
Net Cash from Operating Activities
Depreciation and Amortization of
Premises and Equipment 637 681
Amortization of Intangibles 188 -
ESOP Compensation Expense 328 50
Provision for Loan Losses 676 853
Net Gain on Sales of
Securities/Loans (50) (113)
Net Loss on Sales of Other Real Estate Owned 27 -
Federal Home Loan Bank Stock Dividend (351) (272)
Change In:
Prepaid Expenses and Other Assets 733 (717)
Accrued Interest Receivable 400 242
Accrued Expenses and Other Liabilities (1,475) 1,748
--------- ---------
NET CASH FROM OPERATING ACTIVITIES 6,020 7,473
CASH FLOWS FROM INVESTING ACTIVITIES
Loan Originations, Net of Principal
Payments (8,076) (22,173)
Proceeds from Sale of Loans - 20,083
Principal Payments on Mortgage-Backed
and Related Securities - 1,306
Purchases of Securities (29,241) (35,842)
Proceeds from Sales and Maturities
of Securities 37,665 26,112
Proceeds from the Sale of Other Real
Estate Owned 634 -
Purchase of Office Properties and
Equipment (37) (250)
--------- ---------
NET CASH FROM INVESTING ACTIVITIES 945 (10,764)
CASH FLOWS FROM FINANCING ACTIVITIES
Net Increase/(Decrease) in Deposits (3,098) 6,940
Borrowings 6,000 1,463
Repayment of Borrowings (1,283) -
Net Increase/(Decrease) in Mortgage
Escrow Funds (2,355) 3,050
Purchase of Common Stock Net of Proceeds
from Exercise of Stock Options (1,368) (2,590)
Dividend Paid (832) (841)
--------- ---------
NET CASH FROM FINANCING ACTIVITIES (2,936) 8,022
--------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS 4,029 4,731
CASH AND CASH EQUIVALENTS, BEGINNING 7,579 6,573
--------- ---------
CASH AND CASH EQUIVALENTS, ENDING $11,608 $11,304
========= =========
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, 2003 and 2002
COMMON
STOCK AND ACCUMULATED
ADDITIONAL UNEARNED OTHER
PAID-IN RETAINED TREASURY ESOP COMPREHENSIVE
CAPITAL EARNINGS STOCK SHARES INCOME/(LOSS) TOTAL
- ----------------------------------------------------------------------------------------------------------
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
===========================================================================================================
Balance at December 31, 2002 $18,875 $46,838 ($16,603) ($1,202) $678 $48,586
Net Income 4,907 4,907
Change in Unrealized Gain on
Securities Available-for-Sale,
Net of Taxes (305) (305)
-----
Comprehensive Income 4,602
Cash Dividends ($.24 per share) (832) (832)
Purchase of Treasury Stock (1,921) (1,921)
Treasury Stock Reissued in
Conjunction with Stock Option
Exercises 90 463 553
Release of ESOP Shares 70 258 328
Tax Benefits related to Employee
Stock Option Plans 183 183
- ----------------------------------------------------------------------------------------------------------
Balance at September 30, 2003 $19,218 $50,913 ($18,061) ($944) $373 $51,499
==========================================================================================================
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, 2003 SEPT 30, 2002
--------------------------------- ---------------------------------
AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE INTEREST YIELD/COST BALANCE INTEREST YIELD/COST
-------- -------- ---------- ------- -------- ----------
INTEREST EARNING ASSETS:
Commercial Loans(A)(B) $ 54,516 $ 650 4.77% $ 52,789 $ 784 5.94%
Multi-Family Loans(A)(B) 274,334 3,674 5.36 223,746 3,500 6.26
Commercial Real Estate Loans(A)(B) 75,878 1,048 5.52 77,859 1,220 6.27
Construction Loans(A)(B) 56,503 827 5.85 50,908 891 7.00
Commercial Leases(B) 207 4 7.73 966 13 5.38
Mortgage Loans(A)(B) 51,955 891 6.86 55,483 1,017 7.33
Consumer Loans (A) 32,599 462 5.67 41,701 689 6.61
Securities 27,173 284 4.18 50,230 618 4.92
Mortgage-Backed and Related
Securities - - - 2,355 43 7.30
Equity Investments 10,231 168 6.57 9,533 128 5.37
Other Investments 2,243 5 0.89 6,802 27 1.59
-------- ------- ---- -------- ------- ----
Total Interest-Earning Assets $585,639 $ 8,013 5.47% $572,372 $ 8,930 6.24%
Non-Interest Earning Assets 19,945 20,659
-------- --------
TOTAL ASSETS $605,584 $593,031
======== ========
INTEREST-BEARING LIABILITIES:
Interest-Bearing Checking $ 40,450 $ 131 1.30% $ 32,031 $ 107 1.32%
Savings 121,401 433 1.43 80,274 505 2.52
Money Market 71,920 191 1.06 95,950 402 1.68
Certificates of Deposits 134,669 933 2.77 168,651 1,560 3.70
Jumbo CDs 1,529 5 1.31 2,197 12 2.18
Purchased CDs 76,356 478 2.50 49,687 481 3.87
FHLB Advances 46,630 551 4.73 61,065 697 4.57
Other Borrowed Funds 12,679 43 1.33 9,079 52 2.29
--------- ------- ---- -------- ------- ----
Total Interest-Bearing Liabilities $505,634 $ 2,765 2.19% $498,934 $ 3,815 3.06%
Non-Interest Bearing Deposits 37,468 33,282
Other Liabilities 11,705 13,960
--------- --------
TOTAL LIABILITIES $554,807 $546,176
Stockholders' Equity 50,777 46,855
-------- --------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $605,584 $593,031
======== ========
NET INTEREST INCOME (Tax Equivalent) $ 5,248 $ 5,115
======= =======
NET INTEREST RATE SPREAD (C) 3.28% 3.18%
==== ====
NET INTEREST MARGIN (D) 3.59% 3.58%
==== ====
(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, 2003 SEPT 30, 2002
--------------------------------- ---------------------------------
AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE INTEREST YIELD/COST BALANCE INTEREST YIELD/COST
-------- -------- ---------- ------- -------- ----------
INTEREST EARNING ASSETS:
Commercial Loans(A)(B) $ 54,227 $ 2,051 5.04% $ 52,179 $ 2,321 5.93%
Multi-Family Loans(A)(B) 264,493 10,932 5.51 226,853 10,785 6.34
Commercial Real Estate Loans(A)(B) 80,739 3,528 5.83 79,323 4,128 6.94
Construction Loans(A)(B) 55,093 2,423 5.86 51,352 2,785 7.23
Commercial Leases(B) 317 14 5.89 1,286 57 5.91
Mortgage Loans(A)(B) 53,303 2,810 7.03 56,152 3,147 7.47
Consumer Loans (A) 34,663 1,525 5.87 43,305 2,174 6.69
Securities 31,558 979 4.14 45,671 1,716 5.01
Mortgage-Backed and Related
Securities - - - 2,857 157 7.33
Equity Investments 10,013 471 6.27 9,357 366 5.22
Other Investments 3,373 26 1.03 8,519 101 1.60
-------- ------- ---- -------- ------- ----
Total Interest-Earning Assets $587,779 $24,759 5.62% $576,854 $27,737 6.41%
Non-Interest Earning Assets 19,469 19,628
-------- --------
TOTAL ASSETS $607,248 $596,482
======== ========
INTEREST-BEARING LIABILITIES:
Interest-Bearing Checking $ 37,268 $ 358 1.28% $ 30,591 $ 304 1.33%
Savings 115,256 1,399 1.62 69,474 1,299 2.49
Money Market 75,887 647 1.14 102,023 1,307 1.71
Certificates of Deposits 141,170 3,251 3.07 169,728 4,975 3.91
Jumbo CDs 1,743 21 1.61 4,961 96 2.58
Purchased CDs 72,558 1,433 2.63 53,658 1,518 3.77
FHLB Advances 52,777 1,662 4.20 64,396 2,112 4.37
Other Borrowed Funds 13,050 137 1.40 11,684 202 2.31
--------- ------- ---- -------- ------- ----
Total Interest-Bearing Liabilities $509,709 $ 8,908 2.33% $506,515 $11,813 3.11%
Non-Interest Bearing Deposits 36,107 32,135
Other Liabilities 11,712 11,671
--------- --------
TOTAL LIABILITIES $557,529 $550,321
Stockholders' Equity 49,719 46,161
-------- --------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $607,248 $596,482
======== ========
NET INTEREST INCOME (Tax Equivalent) $15,851 $15,924
======= =======
NET INTEREST RATE SPREAD (C) 3.29% 3.30%
==== ====
NET INTEREST MARGIN (D) 3.60% 3.68%
==== ====
(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, 2003 are not necessarily indicative of results
that may be expected for the entire year ending December 31, 2003.
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, 2003 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 for the three month periods ended September 30, 2003 and 2002 are
presented below: (dollars and shares in thousands)
Three Months Ended September 30,
-------------------------------
2003 2002
---- ----
Earnings per share:
Net Income $1,770 $1,708
====== ======
Weighted average common shares
outstanding 3,384 3,407
===== =====
Basic earnings per share $0.52 $0.50
===== =====
Earnings per share assuming dilution:
Net Income $1,770 $1,708
====== ======
Weighted average common shares
outstanding 3,384 3,407
Add: dilutive effect of assumed
exercise of stock options 182 154
----- -----
Weighted average common and dilutive
potential common shares outstanding 3,566 3,561
===== =====
Diluted earnings per share $0.50 $0.48
===== =====
A reconciliation of the numerators and denominators for earnings per common
share for the nine month periods ended September 30, 2003 and 2002 are
presented below: (dollars and shares in thousands)
Nine Months Ended September 30,
------------------------------
2003 2002
---- ----
Earnings per share:
Net Income $4,907 $5,001
====== ======
Weighted average common shares
outstanding 3,389 3,429
===== =====
Basic earnings per share $1.45 $1.46
===== =====
Earnings per share assuming dilution:
Net Income $4,907 $5,001
====== ======
Weighted average common shares
outstanding 3,389 3,429
Add: dilutive effect of assumed
exercise of stock options 190 161
----- -----
Weighted average common and dilutive
potential common shares outstanding 3,579 3,590
===== =====
Diluted earnings per share $1.37 $1.39
===== =====
For the three months and nine months ended September 30, 2003 and 2002
respectively, no options to purchase shares were excluded in the computation
of diluted earnings per share because all of the options' exercise prices were
lower than the average market price of the common stock.
(3) Stock Compensation
Employee compensation expense under stock options is reported using the
intrinsic value method. No stock-based compensation cost is reflected in net
income, as all options granted had an exercise price equal to or greater than
the market price of the underlying common stock at date of grant. The
following table illustrates the effect on net income and earnings per share if
expense was measured using the fair value recognition provisions of FASB
Statement No. 123, Accounting for Stock-Based Compensation.
Three Months Ended Nine Months Ended
2003 2002 2003 2002
---- ---- ---- ----
Net income as reported $1,770 $1,708 $4,907 $5,001
Deduct: Stock-based compensation expense
determined under fair value based method 18 23 66 175
------ ------ ------ ------
Pro forma net income $1,752 $1,685 $4,841 $4,826
====== ====== ====== ======
Basic earnings per share as reported $ 0.52 $ 0.50 $ 1.45 $ 1.46
Pro forma basic earnings per share 0.52 0.49 1.43 1.41
Diluted earnings per share as reported $ 0.50 $ 0.48 $ 1.37 $ 1.39
Pro forma diluted earnings per share 0.49 0.47 1.35 1.34
(4) 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
-------- --------- --------- ----------- ---------
26th 3/7/03 - 43,946 $26.74
The Company announced its 26th stock repurchase program on March 7, 2003,
enabling the Company to repurchase 100,000 shares of its outstanding common
stock. In the ordinary course of business, the Company repurchased 30,421
shares in the third quarter of 2003 at an average price of $26.18 related to
employee benefit plans.
(5) Cash Dividend
The regular quarterly dividend for the third quarter of 2003 was paid at $.08
per share. The same quarterly dividend was paid for the third quarter of
2002.
(6) 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, 2003, the Company's and Bank's capital requirements under FIRREA
and their actual capital ratios. As of September 30, 2003, the Company and
the Bank exceeded all current minimum and well capitalized regulatory capital
requirements.
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purpose Action Provisions
SEPT 30, 2003 Amount Ratio Amount Ratio Amount Ratio
============== ------ ------ ------ ------ ------ -----
(Dollars in Thousands)
Total Capital
(to Risk Weighted Assets)
Company $55.5 13.3% $33.4 8.0% $41.7 10.0%
Bank 52.5 12.6 33.3 8.0 41.6 10.0
Tier I Capital
(to Risk Weighted Assets)
Company $50.1 12.0% $16.7 4.0% $25.0 6.0%
Bank 47.3 11.3 16.7 4.0 25.0 6.0
Tier I Capital
(to Average Assets)
Company $50.1 8.3% $24.2 4.0% $30.3 5.0%
Bank 47.3 7.8 24.1 4.0 30.1 5.0
Risk Weighted Assets (Company) $416,960
Average Assets (Company) 605,584
Risk Weighted Assets (Bank) 416,487
Average Assets (Bank) 602,121
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
(7) Proposed Merger
First Midwest Bancorp, Inc. and the Company jointly announced on September 11,
2003 the execution of a definitive agreement for First Midwest to acquire the
Company. The merger is expected to be completed in the fourth quarter of
2003, subject to customary closing conditions, including regulatory approvals
and approval by the Company's stockholders.
(8) New Accounting Pronouncement
The Financial Accounting Standards Board (FASB) recently issued two new
accounting standards, Statement 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities, and Statement 150,
Accounting for Certain Financial Instruments with Characteristics of both
Liabilities and Equities, both of which generally become effective in the
quarter beginning July 1, 2003.
Because the Company does not have these instruments or is only nominally
involved in these instruments, Management determined that, upon adopting the
new standards the new accounting standards will not materially affect the
Company's operating results or financial condition.
In January 2003, the Financial Accounting Standards Board issued
Interpretation No. 46, "Consolidation of Variable Interest Entities, an
Interpretation of ARB No. 51". This Interpretation provides new guidance for
the consolidation of variable interest entities (VIEs) and requires such
entities to be consolidated by their primary beneficiaries if the entities do
not effectively disperse risk among parties involved. The Interpretation also
adds disclosure requirements for investors that are involved with
unconsolidated VIEs. The consolidation requirements apply immediately to VIEs
created after January 31, 2003 and are effective for the first fiscal year or
interim period beginning after September 15, 2003 for VIEs acquired before
February 1, 2003. The adoption of this interpretation is not expected have a
significant impact on the Company's financial condition of results of
operations.
(9) Special Note Concerning Forward-Looking Statements
This document (including information incorporated by reference) contains, and
future oral and written statements of 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 past and any future terrorist attacks, acts of war or
threats thereof 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 loans, 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 were $609.1 million as of September 30, 2003, compared to $608.9
million at December 31, 2002. Total liabilities remained relatively constant
at $557.6 million as of September 30, 2003, compared to $560.3 million at
December 31, 2002. Stockholders' equity increased 6% to $51.5 million as of
September 30, 2003, compared to $48.6 million at December 31, 2002.
Cash and cash equivalents increased 53% to $11.6 million at September 30, 2003
from $7.6 million at December 31, 2002. The increase resulted from an
increase in cash in banks to cover higher reserves and compensating balances.
Securities decreased 18% to $40.5 million as of September 30, 2003 from $49.2
million at December 31, 2002. In this low rate environment, the Company has
tried to limit its investment security purchases to cover collateral
requirements for its borrowings and repurchase agreements.
Net loans receivable increased 1% to $540.2 million as of September 30, 2003,
compared to $535.0 million at December 31, 2002. The multi-family loan
portfolio increased 12% to $283.9 million as of September 30, 2003, compared
to $252.7 million at December 31, 2002. The Company repurchased $16.5 million
of previously participated multi-family loans in April 2003. The multi-family
loan portfolio is comprised of adjustable rate loans indexed to prime, the 91-
day Treasury bill rate, and 1 year, 3 year and 5 year Treasury notes. The
loans have floors and prepayment penalties established upon origination. The
loan principal prepayments in the multi-family loan portfolio amounted to
$48.2 million for the first nine months of 2003. Construction loans increased
1% to $55.0 million as of September 30, 2003, compared to $54.4 million at
December 31, 2002. The increase in construction loans represented draws on
previously approved commitments. The increases in multi-family loans and
construction loans were offset by decreases in commercial loans by 5%,
commercial real estate loans by 14%, mortgage loans by 8% and consumer loans
by 18%. In the consumer loan portfolio, auto loans decreased 40% to $4.4
million as of September 30, 2003, compared to $7.3 million at December 31,
2002. Automobile manufacturers' low percentage rate loans continue to impact
the new loan fundings.
Total deposits decreased 1% to $470.5 million as of September 30, 2003,
compared to $473.6 million at December 31, 2002. Non-interest bearing
checking accounts increased 9% to $36.6 million as of September 30, 2003,
compared to $33.7 million as of December 31, 2002. Interest-bearing checking
accounts increased 18% to $41.2 million as of September 30, 2003, compared to
$34.8 million at December 31, 2002. Savings accounts increased 28% to $121.9
million as of September 30, 2003, compared to $94.9 million at December 31,
2002. In April 2003, the Company reduced its regular savings (with no related
checking account) account rate from 1.75% to 1.00% and its relationship
savings (with related checking account) account rate from 2.25% to 1.50%. The
relationship savings accounts totaled $95.5 million at September 30, 2003,
compared to $97.7 million at March 31, 2003. The Company believes that the
savings account pricing is still very competitive in its market area. Money
market accounts decreased 21% to $67.3 million as of September 30, 2003,
compared to $85.4 million at December 31, 2002. The Company believes that the
decrease in the average weekly money market account index rate to 1.06% caused
the decrease in the accounts. The floor rate for money market accounts has
been 1.00% since January 30, 2003. Certificates of deposit decreased 15% to
$131.8 million as of September 30, 2003, compared to $156.0 million at
December 31, 2002. Purchased certificates of deposit increased 5% to $70.0
million as of September 30, 2003, compared to $66.9 million at December 31,
2002. The Company uses brokered certificates primarily to extend the length
of deposit maturities. A total of $11.1 million in brokered certificates of
deposit with an average rate of 1.71% was purchased in the second quarter of
2003. There were no purchases of brokered deposits in the third quarter of
2003.
Total borrowings increased 6% to $79.1 million as of September 30, 2003,
compared to $74.3 million at December 31, 2002. Short-term borrowings
decreased 3% to $46.1 million as of September 30, 2003, compared to $47.4
million at December 31, 2002. At September 30, 2003, the Company had
purchased $26.0 million of overnight borrowings. Long-term borrowings
increased 22% to $33.0 million as of September 30, 2003, compared to $27.0
million at December 31, 2002. The Company entered into two FHLB fixed term
advances for $3.0 million each, at a cost of 2.06% with a 3-year term, and
2.77% with a 5-year term during the second quarter of 2003.
Stockholders' equity totaled $51.5 million at September 30, 2003, compared to
$48.6 million at December 31, 2002. The number of shares outstanding
excluding unallocated Employee Stock Ownership Plan shares was 3,382,018 and
the book value per common share outstanding was $15.23, a 12% increase over
$13.62 book value at December 31, 2002.
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. $555,586 of principal plus
interest has been repaid since the inception of the loan.
The Company announced its 26th stock repurchase program in March 7, 2003,
enabling the Company to repurchase 100,000 shares of its outstanding stock. A
total of 43,946 shares were repurchased at an average price of $26.74 through
October 28, 2003.
At September 30, 2003, the allowance for loan losses was $7.1 million,
compared to $7.0 million at December 31, 2002. The Company recognized net
charge-offs of $596,000 for the nine months ended September 30, 2003. During
this period, the Company recorded a $159,000 recovery on a multi-family loan
which is currently in non accrual status. In June 2002, $159,000 was charged
off on this loan. The loan will remain in non-accrual status pending a
continuing overall improvement in the outstanding credit. The Company
provided $676,000 to the allowance for loan losses for the nine months ended
September 30, 2003. The ratio of the allowance for loan losses to outstanding
loans at September 30, 2003 was 1.30%, the same level as at December 31, 2002.
Management believes that the allowance for loan losses at September 30, 2003
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, 2003, total non-performing loans amounted to $2,591,000, or
0.48% of net loans, compared to $5,967,000, or 1.12% of net loans at December
31, 2002. The ratio of non-performing loans to total assets was 0.79% at
September 30, 2003, compared to 0.98% at December 31, 2002. The $3,016,000
commercial real estate loans in non-accrual status at December 31, 2002 were
to related borrowers. $617,000 of this amount was charged-off in 2003, with
the remaining amount on this credit relationship being transferred to other
real estate owned and other assets when title was obtained. The $1,503,000 of
non-performing multi-family loans consists of $276,000 of loans to related
borrowers and loans of $191,000 and $1,036,000, respectively. The $1,036,000
loan was originally for $1,426,000 and $159,000 of this loan was charged off
prior to its move to non-accrual status in June 2002. In June 2003, this loan
was upgraded and the $159,000 that had been charged off was reversed and
booked as recovery, with an increase in the balance of the loan to $1,036,000.
The Company considered these loans in the September 30, 2003 analysis for
allowance for loan losses. As of September 30, 2003, loans delinquent 90 days
or more and still accruing amounted to $297,000. The $1,416,000 of commercial
loans and $38,000 of consumer loans delinquent 90 days or more and still
accruing at December 31, 2002 have been made current. The $14,000 that was
commercial lease loan delinquent 90 days or more and still accruing at
December 31, 2002 was charged-off in the first quarter.
The $661,000 other real estate owned at December 31, 2002 was sold in February
2003. The Company incurred $57,000 of expenses and a loss on the sale was
$27,000, which was included as a reduction to other income. As indicated
above, the Company transferred two non-accrual commercial real estate loans to
related borrowers totaling $2,200,000 to other real estate owned in September
when title was obtained.
Along with other financial institutions, management shares a concern for the
outlook of the economy for the remainder of 2003 and beyond. A slowdown in
economic activity has 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 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, 2003 DEC 31, 2002
------------- ------------
(Dollars in Thousands)
Non-accruing Loans:
Commercial Loans $ 262 $ -
Multi-family Loans - 918
Commercial Real Estate Loans 1,503 3,016
Construction Loans - -
Commercial Leases - -
Mortgage Loans 410 530
Consumer 119 35
------ ------
Total 2,294 4,499
Accruing Loans Delinquent 90 days or More:
Commercial Loans $ 286 $ 1,416
Multi-family Loans - -
Commercial Real Estate Loans - -
Construction Loans - -
Commercial Leases 8 14
Mortgage Loans 3 -
Consumer - 38
------ ------
Total 297 1,468
------ ------
Total Non-performing Loans $2,591 $5,967
Other Real Estate Owned 2,200 661
Other Repossessed Assets - -
------ ------
Total Non-performing Assets $4,791 $6,628
====== ======
Total Non-performing Loans as
a Percentage of Net Loans 0.48% 1.12%
==== ====
Total Non-performing Assets as
a Percentage of Total Assets 0.79% 1.09%
==== ====
LIQUIDITY
- ---------
The Company's primary sources of funds are deposits, principal and interest
payments on loans, and funds provided by other operations. While scheduled
loan 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 $6.0 million for the nine months ended September
30, 2003. Net cash provided by investing activities was $0.9 million for the
nine months ended September 30, 2003. Net cash provided by financing
activities was $2.9 million for the nine months ended September 30, 2003.
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, 2003, the Company has commitments to originate loans totaling
$30.1 million and its customers had approved but unused lines of credit
totaling $48.1 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,
2003 2002 2003 2002
------- ------- ------- -------
Annualized Return on Avg. Equity 13.94% 14.58% 13.16% 14.45%
Annualized Return on Avg. Assets 1.17 1.15 1.08 1.12
Book Value per Share $15.23 $13.97 $15.23 $13.97
Closing Market Price per Share $27.41 $21.00 $27.41 $21.00
Earnings per Primary Share:
Basic $0.52 $0.50 $1.45 $1.46
Diluted $0.50 $0.48 $1.37 $1.39
Net Interest Margin 3.59% 3.58% 3.60% 3.68%
Ratio of Operating Expense to
Average Total Assets, Annualized 2.32% 2.24% 2.35% 2.40%
Ratio of Net Interest Income to
Non-Interest Expense 1.49x 1.53x 1.47x 1.48x
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002
- -----------------------------------------------------------------------------
Net income for the third quarter of 2003 was $1,770,000, up 4% over $1,708,000
for the same period in 2002, and up 4% over $1,707,000 for the second quarter
of 2003. Basic earnings per share were $0.52, a 4% increase, compared to
$0.50 for the same period in 2002. Diluted earnings per share were $0.50, a
4% increase, compared to $0.48 for the same period in 2002.
Return on average equity and return on average assets for the third quarter of
2003 were 13.94% and 1.17%, respectively, compared to 14.58% and 1.15% for the
same quarter in 2002. Return on average equity and return on average assets
for the second quarter of 2003 were 13.80% and 1.11%, respectively.
The Company's efficiency ratio (defined as total non-interest expense divided
by the sum of net interest income and total non-interest income) for the third
quarter of 2003 was 54.31%, compared to 53.86% for the same period in 2002.
The Company's efficiency ratio for the second quarter of 2003 was 55.89%.
The goal for calendar year 2003 is to maintain an efficiency ratio at lower
than 56%.
Net interest income for the third quarter of 2003 increased $144,000, or a 3%
increase, compared to the same period in 2002, or a 3% decrease, compared to
the second quarter of 2003. Net interest margin for the third quarter of 2003
was 3.59%, compared to 3.58% for the same period in 2002 versus 3.64% for the
second quarter of 2003. The net interest spread for the third quarter of 2003
was 3.28%, a 3% increase, compared to 3.18% for the third quarter of 2002, or
a 2% decrease, compared to 3.35% for the second quarter of 2003. The average
yield on interest earning assets for the third quarter of 2003 was 5.47%, a 77
basis point decrease, compared to 6.24% for the same period in 2002. The
average cost of interest bearing liabilities for the third quarter of 2003 was
2.19%, an 87 basis point decrease, compared to 3.06% for the same period in
2002. The decrease in the cost of average interest bearing liabilities
exceeded the decrease in the yield on average interest earning assets. The
increase in average non-interest bearing deposits by $4.2 million, or 13%,
contributed to the improved interest margin.
The Company's total interest income (tax equivalent) on earning assets
decreased 10% to $8,013,000 for the third quarter of 2003, compared to
$8,930,000 for the same period in 2002. It was the Company's strategy since
2002 to concentrate in funding adjustable rate loans to minimize exposure to
rising interest rates. The Company has been asset sensitive since February
2002. The Company's loan portfolio was comprised of 83% in
adjustable/floating rate loans at September 30, 2003. The average balance of
loans for the third quarter of 2003 increased 9% to $546.0 million, compared
to $503.0 million for the same period in 2002. The biggest increase was in
multi-family loans, which is mostly comprised of adjustable rate term loans
with floors and prepayment penalties established upon origination. The
Company repurchased $16.5 million of medium-term multi-family loan
participations that have an average yield of 7.00%, in April 2003. Loan
principal prepayments in the multi-family loan portfolio for the third quarter
of 2003 totaled $13.3 million. Loan costs associated with loan prepayments,
which are accounted for as reduction to interest income, amounted to $46,000
for the third quarter of 2003. The average yield on loans for the third
quarter of 2003 decreased to 5.54%, a 115 basis point decrease, compared to
6.69% for the same period in 2002. The increased volume of loans partially
offset the effect of income reduction from falling rates. In February 2002,
the Company set a 5.00% floor on its home equity loan portfolio. The average
balance of home equity and home improvement loans decreased 18% to $25.7
million for the third quarter of 2003, compared to $31.3 million for the same
period in 2002. The Company's ALCO Committee at its May 2003 meeting approved
the removal of the 5.00% floor, effective August 2003. The Company hopes that
this change in pricing strategy will help to increase loan volume. The
average balance of securities for the third quarter of 2003 decreased 43% to
$39.5 million, compared to $68.9 million for the same period in 2002. The
Company tries to limit its security purchases to cover collateral requirements
for its borrowings and repurchase agreements. The average yield on securities
for the third quarter of 2003 was 4.60%, a 14 basis point decrease, compared
to 4.74% for the same period in 2002. Overnight investments averaged $2.2
million in the third quarter of 2003, a 68% decrease, compared to $6.8 million
for the same period in 2002. The redeployment of funds to higher yielding
loans contributed to a higher interest margin for the third quarter of 2003,
compared to the same period in 2002 and the second quarter of 2003. Included
in equity investments at the holding company are $1.9 million of trust
preferred issues with fixed rates ranging from 6.75% to 10.00%.
Total interest expense for the third quarter of 2003 decreased 28% to
$2,765,000, compared to $3,815,000 for the third quarter of 2002. The average
balance of interest-bearing deposits was $446.3 million for the third quarter
of 2003, an 18% increase, compared to $379.1 million for the same period in
2002. Money market accounts decreased 25% to $71.9 million and certificates
of deposit decreased 20% to $134.7 million, while savings accounts increased
51% to $121.4 million. Until April 1, 2003, the relationship savings (with
related checking accounts) rate was 2.25% while the regular savings (with no
related checking accounts) rate was 1.75%. The decline in the average weekly
money market account index to 1.05% for the second quarter and the reduced
rates on short-term certificates of deposit caused customers to shift their
deposits to savings accounts. In April 2003, the Company reduced the
relationship savings rate to 1.50% and the regular savings rate to 1.00%. The
relationship savings accounts totaled $95.5 million at September 30, 2003,
compared to $97.7 million at March 31, 2003. The Company believes the new
savings account pricing is still competitive in its market area. Purchased
certificates of deposit increased 54% to $76.4 million for the third quarter
of 2003, compared to $49.7 million for the same period in 2002. The cost of
purchased funds for the third quarter of 2003 was 137 basis points less than
that of the same period in 2002. The total cost of deposits for the third
quarter of 2003 was 2.19%, 87 basis points less than the 3.06% for the same
period in 2002. The average balance of borrowings for the third quarter of
2003 decreased 15% to $59.3 million, compared to $70.1 million for the same
period in 2002. The average cost of borrowings for the third quarter of 2003
was 4.00%, 27 basis points less than 4.27% for the same period in 2002.
The provision for loan losses was $161,000 for the third quarter of 2003
versus $217,000 for the same period in 2002. The net charge-offs for the
third quarter of 2003 were $160,000, compared to $16,000 for the same period
in 2002. The ratio of net charge-offs to average loans for the third quarter
of 2003 was 0.03%, compared to 0.00% for the same period in 2002. The ratio
of allowance for loan losses to total outstanding loans at September 30, 2003
was 1.30%, compared to 1.32% at September 30, 2002.
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 the 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, 2003 was at a level adequate to absorb probable incurred
losses on existing loans, although there can be 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,
2003 2002
------- -------
(Dollars in Thousands)
Balance at Beginning of Period $7,117 $6,650
Charge-offs:
Commercial Loans - -
Multi-family Loans 88 -
Commercial Real Estate Loans 17 -
Construction Loans - -
Commercial/Municipal Leases 50 -
Mortgage Loans 3 -
Consumer 10 40
------ ------
Charge-offs Total 168 40
Recoveries:
Commercial Loans - -
Multi-family Loans - -
Commercial Real Estate Loans - -
Construction Loans - -
Commercial/Municipal Leases - -
Mortgage Loans - -
Consumer 8 24
------ ------
Recoveries Total 8 24
------ ------
Net Charge-offs 160 16
Additions Charged to Operations 161 217
------ ------
Balance at End of Period $7,118 $6,851
====== ======
Ratio of Net Charge-offs During
the Period to Average Loans
Outstanding During the Period 0.03% 0.00%
Ratio of Allowance for Loan
Losses to Non-performing Loans 2.75x 1.57x
Ratio of Allowance for Loan
Losses to Total Outstanding Loans 1.30% 1.32%
Non-interest income for the third quarter of 2003 increased $79,000, or a 7%
increase, compared to the third quarter of 2002. Loan charges and servicing
fees decreased $12,000. An average of 489 loans was serviced in the third
quarter of 2003, compared to 872 loans in the third quarter of 2002.
Prepayment fees decreased 9% to $234,000 for the third quarter of 2003,
compared to $258,000 for the same period in 2002. Loan prepayments for the
third quarter of 2003 totaled 22 loans for $13.3 million, compared to 25 loans
for $15.8 million for the same period in 2002. Mortgage banking fees for the
third quarter of 2003 increased 56% to $318,000, compared to $205,000 for the
same period in 2002. Other income for the third quarter of 2003 increased 42%
to $91,000, compared to $64,000 for the same period in 2002.
Non-interest expense for the third quarter of 2003 increased $180,000, or a 5%
increase, compared to the third quarter of 2002. Compensation and benefits
increased $181,000 to $1,751,000, compared to $1,570,000. Incentive
compensation on retail banking increased $6,000. Commissions increased
$90,000 due to greater mortgage loan originations in the third quarter of
2003, compared to the same period in 2002. Bonus expense decreased $86,000.
Payroll taxes increased $40,000. Group medical self-insurance increased
$145,000, compared to 2002 due to medical insurance being accrued based on
average insurance claims, compared to 2002 where accrual was based on maximum
insurance claims. Post retirement expenses decreased $14,000 as the plan was
frozen in 2002 and benefits will only be provided to current retirees.
Education and training expenses increased $18,000. Occupancy and equipment
expenses decreased $66,000 due to planned computer upgrades and the purchase
of a replacement van being put on hold due to the pending merger. Data
processing expenses increased $8,000. Other expenses increased $60,000.
The Company incurred $61,000 of merger related expenses in the third quarter
of 2003, compared to $103,000 in the second quarter of 2003. No merger
related costs were incurred in the third quarter of 2002. The second quarter
expenditures were related to the terminated merger proposal, while the third
quarter expenditures were evenly split between the terminated merger proposal
and the proposed merger with First Midwest Bancorp, Inc.
Income tax expense increased $37,000 to $1,019,000 for the third quarter of
2003, compared to $982,000 for the same period in 2002. The effective tax
rate was 37% for the third quarter of 2003, compared to 38% for the same
period in 2002.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002
- ---------------------------------------------------------------------------
Net income for the first nine months of 2003 decreased 2% to $4,907,000,
compared to $5,001,000 for the same period in 2002. Basic earnings per share
were $1.45, a 1% decrease, compared to $1.46 for the same period in 2002.
Diluted earnings per share were $1.37, a 1% decrease, compared to $1.39 for
the same period in 2002.
Return on average equity and return on average assets for the first nine
months of 2003 were 13.16% and 1.08%, respectively, compared to 14.45% and
1.12% for the same period in 2002.
The Company's efficiency ratio for the first nine months of 2003 was 55.70%,
compared to 55.06% for the same period in 2002. The Company's goal for 2003
is to maintain an efficiency ratio at lower than 56%.
Net interest income for the first nine months of 2003 decreased $42,000 to
$15,788,000, compared to $15,830,000 for the same period in 2002. Interest
income for the first nine months of 2003 decreased 11% while interest expense
decreased 25%, compared to the same period in 2002. The average yield on
interest earning assets for the first nine months of 2003 was 5.62%, a 79
basis point decrease, compared to 6.41% for the same period in 2002. The
average cost of interest bearing liabilities was 2.33%, a 78 basis point
decrease, compared to 3.11% for the same period in 2002. The net interest
spread for the first nine months of 2003 was 3.29%, compared to 3.30% for the
same period in 2002. The net interest margin for the first nine months of
2003 was 3.60%, compared to 3.68% for the same period in 2002. The increase
in the average balance of non-interest bearing deposits by $4.0 million
partially offset the effect of the contraction in the net interest rate
spread.
The Company's total interest income (tax equivalent) on earnings assets was
$15,851,000 for the first nine months of 2003, compared to $15,924,000 for the
same period in 2002. The average balance of interest earning assets increased
2% for the first nine months of 2003. The average balance of loans for the
first nine months of 2003 increased 6% to $542.8 million, compared to $510.4
million for the same period in 2002. The average yield on loans was 5.72%, a
91 basis point decrease, compared to 6.63% for the same period in 2002.
Multi-family loans make up 49% of the Company's loan portfolio and increased
17% to $264.5 million, compared to $226.9 million for the same period in 2002.
The multi-family loan portfolio is comprised of adjustable rate loans with
floors and prepayment penalties established upon origination. In April 2003,
the Company repurchased $16.5 million of medium-term multi-family loan
participations that have an average yield of 7.00%. Loan principal
prepayments in the multi-family loan portfolio for the first nine months of
2003 totaled 76 loans for a total loan balance of $48.2 million. Loan costs
associated with loan prepayments that are accounted for as reduction to
interest income amounted to $151,000 for the first nine months of 2003. The
increased volume of loans partially offset the effect of interest income
reduction from falling rates. The average balance of securities decreased
$21.5 million to $45.0 million for the first nine months of 2003. The Company
tries to limit its security purchases to cover collateral requirements for its
borrowings and repurchase agreements. The average balance of overnight
investments for the first nine months of 2003 decreased $5.1 million, compared
to the same period in 2002 and the first quarter of 2003. The Company
redeployed these funds to higher yielding loans. Included in equity
investments at the holding company are $1.9 million of trust preferred issues
with fixed rates ranging from 6.75% to 10.00%.
Total interest expense for the first nine months of 2003 decreased 25% to
$8,908,000, compared to $11,813,000. The average balance of interest bearing
liabilities for the first nine months of 2003 was $511.9 million, compared to
$510.4 million for the same period in 2002. The average balance of interest
bearing liabilities increased 1% to $509.7 million, compared to $506.5 million
for the same period in 2002. Money market accounts decreased 26% and
certificates of deposit decreased 17%. Savings accounts increased 66% and
purchased certificates of deposit increased 35%. Until April 2003, the
relationship savings (with related checking accounts) rate was 2.25% while
regular savings (with no related checking accounts) rate was 1.75%. The money
market index rate declined to an average of 1.11% for the first nine months in
2003. The Company believes that a number of money market customers and short-
term certificate of deposit account holders shifted their deposits to savings
accounts during the period. In April 2003, the Company reduced the
relationship savings rate to 1.50% and the regular savings rate to 1.00%. The
Company believes that this savings account pricing is still competitive in its
market area. The average cost of interest bearing deposits decreased 27% to
2.14%, an 80 basis point decrease, compared to 2.94% for the same period in
2002. The average cost of purchased certificates of deposit decreased to
2.63%, a 114 basis point decrease, compared to 3.77% for the same period in
2002. The average balance of borrowings for the first nine months of 2003
decreased 14% to $65.8 million, compared to $76.1 million for the same period
in 2002. The average cost of borrowings decreased 12% to 3.64%, a 42 basis
point decrease, compared to 4.06% for the same period in 2002.
The provision for loan losses was $676,000 for the first nine months of 2003,
compared to $853,000 for the same period in 2002. The net charge-offs for the
first nine months of 2003 were $597,000, compared to $549,000 for the same
period in 2002. Management believes that the allowance for loan losses at
September 30, 2003, 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
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 estimated losses
on loans at September 30, 2003 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,
2003 2002
------- -------
(Dollars in Thousands)
Balance at Beginning of Period $7,039 $6,547
Charge-offs:
Commercial Loans - -
Multi-family Loans 88 159
Commercial Real Estate Loans 617 240
Construction Loans - -
Commercial/Municipal Leases 64 20
Mortgage Loans 3 49
Consumer 21 126
------ ------
Charge-offs Total 793 594
Recoveries:
Commercial Loans - -
Multi-family Loans 159 -
Commercial Real Estate Loans - -
Construction Loans - -
Commercial/Municipal Leases - 10
Mortgage Loans - -
Consumer 37 35
------ ------
Recoveries Total 196 45
------ ------
Net Charge-offs 597 549
Additions Charged to Operations 676 853
------ ------
Balance at End of Period $7,118 $6,851
====== ======
Ratio of Net Charge-offs During
the Period to Average Loans
Outstanding During the Period 0.11% 0.11%
Ratio of Allowance for Possible
Loan Losses to Non-performing Loans 2.75x 1.57x
Non-interest income decreased $204,000, or 6%, for the first nine months of
2003, compared to the same period in 2002. Loan prepayment fees decreased
$396,000. Loan prepayments for the first nine months of 2003 totaled 76 loans
amounting to $48.2 million, compared to 96 loans amounting to $77.5 million
for the same period in 2002. Loan charges and servicing fees decreased
$59,000. An average of 585 loans was serviced during the first nine month of
2003, compared to 948 for the same period in 2002. Mortgage banking fees
increased $305,000. Other income decreased $66,000. Included in other income
for 2002 were $65,000 representing interest on 1992 and 1993 State of Illinois
income tax refunds and a $2,000 loss on sale of OREO. Included in other
income for 2003 were $3,000 representing interest on 1999 and 2000 State of
Illinois income tax refunds and a $21,000 loss on sale of OREO.
Non-interest expense decreased $13,000 for the first nine months of 2003,
compared to the same period in 2002. Compensation and benefits increased
$227,000. Salary, overtime and temporary help expenses increased $63,000.
Group medical self-insurance decreased $35,000 because the accrual for 2003 is
based on estimated average claims, while the accrual for 2002 was based on
estimated maximum claims. Taxes and benefits increased $129,000. ESOP
expense increased $258,000. An additional payment was made to the ESOP plan
when it was thought that the proposed acquisition of the Company by Midwest
Banc Holdings (which was terminated on June 30, 2003) would be consummated.
Included in ESOP expense was $70,000 of stock price appreciation on the
released ESOP shares. Post retirement expenses decreased $38,000, as the plan
was frozen in 2002 and benefits will only be provided to current retirees.
Education and training expenses decreased $34,000. Occupancy and equipment
expenses decreased $100,000 due to planned computer upgrades being placed on
hold due to the pending merger agreement. Legal expenses decreased $13,000
and consulting fees decreased $6,000. Loan related expenses decreased
$455,000 while deposit related expenses increased $60,000. General and
administrative expenses decreased $42,000. REO expenses decreased $254,000.
Other expenses decreased $66,000.
The Company incurred $266,000 of merger related expenses in the first nine
months of 2003 relating to the terminated merger proposal, as with as to the
proposed merger with First Midwest Bancorp, Inc. There were no merger related
expenses in the same period in 2002. The agreement with Midwest Banc Holdings
was terminated on June 30, 2003.
Income tax expense for the first nine months of 2003 was $2,931,000 relatively
the same level, compared to the same period in 2002. The effective tax rate
was 38% for the first nine months of 2003, compared to 37% for the same period
in 2002.
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 is used
to determine Morgan Keegan's position and Morgan Keegan 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.
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.
SEPT 30, 2003
Change in Percent Change in
Interest Rates Percent Change in MV of Portfolio
(basis points) Net Interest Income Equity
- ---------------- --------------------- -------------------
+200 +4% -12%
+100 +2 -6
0 0 0
-100 -1 +3
SEPT 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
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
An evaluation was performed under the supervision and with the participation
of the Company's management, including the Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the design and operation of the
Company's disclosure controls and procedures (as defined in Rule 13a-15(e)
promulgated under the Securities and Exchange Act of 1934, as amended) as of
September 30, 2003. Based on that evaluation, the Company's management,
including the Chief Executive Officer and Chief Financial Officer, concluded
that the Company's disclosure controls and procedures were effective. There
have been no significant changes in the Company's internal controls or in
other factors that could significantly affect internal controls.
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
10.27 Amendment to CoVest Bancshares, Inc. Employment Agreement between
CoVest Bancshares, Inc., CoVest Banc, National Association and James
L. Roberts, dated July 28, 2003.
10.28 Amendment to CoVest Bancshares, Inc. Employment Agreement between
CoVest Bancshares, Inc., CoVest Banc, National Association and Paul A.
Larsen, dated July 28, 2003.
10.29 Amendment to CoVest Bancshares, Inc. Employment Agreement between
CoVest Bancshares, Inc., CoVest Banc, National Association and J.
Stuart Boldry, Jr., dated July 28, 2003.
10.30 Change of Control and Non-Compete Agreement between CoVest Bancshares,
Inc., and Michael A. Sykes, dated July 28, 2003.
31.1 Certification of Chief Executive Officer Pursuant to Rule 13a-14(a)/
15d-14(a)
31.2 Certification of Chief Financial Officer Pursuant to Rule 13a-14(a)/
15d-14(a)
32.1 Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section
1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
32.2 Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section
1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
(b) Reports on Form 8-K
A report on Form 8-K was filed on July 1, 2003 to report under Item 5 the
termination of the merger agreement between the Company and Midwest Banc
Holdings, Inc.
A report on Form 8-K was filed on July 29, 2003 to report under Item 5 the
Company's earnings for the third quarter of 2003.
A report on Form 8-K was filed on September 2, 2003 to report under Item 5 the
declaration of a regular quarterly dividend.
A report on Form 8-K was filed on September 11, 2003 to report under Item 5
the execution of a definitive agreement for First Midwest Bancorp, Inc. to
acquire the Company.
A report on Form 8-K/A was filed on September 17, 2003, amending the Form 8-K
filed on September 11, 2003, to file a copy of the definitive agreement for
First Midwest Bancorp, Inc. to acquire the Company.
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 28, 2003
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
Exhibit 31.1
I, James L. Roberts, certify that:
1. I have reviewed this quarterly report on Form 10-Q of CoVest Bancshares,
Inc.;
2. Based on my knowledge, this 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 report;
3. Based on my knowledge, the financial statements, and other financial
information included in this 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 report;
4. The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, 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 report is being prepared;
b) [intentionally omitted]
c) evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
d) disclosed in this report any change in the registrant's internal control
over financial reporting that occurred during the registrant's most recent
fiscal quarter (the registrant's fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reporting;
and
5. The registrant's other certifying officer(s) and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control
over financial reporting.
Date: October 28, 2003
/S/ JAMES L. ROBERTS
JAMES L. ROBERTS
CHIEF EXECUTIVE OFFICER
Exhibit 31.2
I, Paul A. Larsen, certify that:
1. I have reviewed this quarterly report on Form 10-Q of CoVest Bancshares,
Inc.;
2. Based on my knowledge, this 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 report;
3. Based on my knowledge, the financial statements, and other financial
information included in this 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 report;
4. The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, 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 report is being prepared;
b) [intentionally omitted]
c) evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
d) disclosed in this report any change in the registrant's internal control
over financial reporting that occurred during the registrant's most recent
fiscal quarter (the registrant's fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reporting;
and
5. The registrant's other certifying officer(s) and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control
over financial reporting.
Date: October 28, 2003
/S/ PAUL A. LARSEN
PAUL A. LARSEN
CHIEF FINANCIAL OFFICER
Exhibit 32.1
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, 2003 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. 1350, as adopted pursuant to 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 28, 2003
/S/ JAMES L. ROBERTS
JAMES L. ROBERTS
CHIEF EXECUTIVE OFFICER
Exhibit 32.2
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, 2003 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. 1350, as adopted pursuant to 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 28, 2003
/S/ PAUL A. LARSEN
PAUL A. LARSEN
CHIEF FINANCIAL OFFICER