U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to _____________
Commission File No. 333-30469
EQUALITY BANCORP, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 43-1785126
---------------------------- ---------------------------
(State or other jurisdiction (I.R.S. Employer ID Number)
of incorporation or organization)
9920 Watson Road, St. Louis, Missouri 63126
--------------------------------------------------------------
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code (314) 965-7090
--------------
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 ____ No __X_
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
Class Shares Outstanding at September 25, 1997
- ----------------------------- ------------------------------------------
Common Stock, Par Value $0.01 100
Transitional Small Business Disclosure Format: Yes ___ No __X_
<PAGE> 2
On August 12, 1997, the Registrant's Registration Statement on Form S-1
was declared effective by the Securities and Exchange Commission. The
Registration Statement and the Prospectus forming a part thereof related to
the offering of the Registrant's common stock in connection with the mutual
holding company reorganization (the "Reorganization") of Equality Savings
and Loan Association, F.A., St. Louis, Missouri, a publicly traded federally-
chartered-stock-based-savings association (the "Association"). The
Association currently owns 100% of the issued and outstanding capital
stock of the Registrant. Upon consummation of, and pursuant to, the
Reorganization, the Association will become a wholly-owned subsidiary
of the Registrant, and the Registrant will close the public offering
of its common stock. The Registrant has not engaged in any business
to date and is not expected to engage in any business until the
consummation of the Reorganization. The Registrant will have no
material assets or liabilities prior to the consummation of the
Reorganization. The information presented in this Form 10-QSB
is therefore identical to the information contined in the Association's
Form 10-QSB previously filed with the Office of Thrift Supervision and
relates solely to the business conducted by the Association.
INDEX TO FORM 10-QSB
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
- Consolidated Balance Sheets
- Consolidated Statements of Income
- Consolidated Statement of Stockholders' Equity
- Consolidated Statements of Cash Flows
- Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
PART II OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
<PAGE> 3
EQUALITY SAVINGS AND LOAN ASSOCIATION, F.A.
AND SUBSIDIARIES
Consolidated Balance Sheets
June 30, 1997 and March 31, 1997
(Unaudited)
<TABLE>
<CAPTION>
June 30, March 31,
Assets 1997 1997
------- ---------- -----------
<S> <C> <C>
Cash, primarily interest-bearing demand accounts $ 25,866,773 1,037,199
Interest-bearing deposits 2,662,374 3,819,744
Investment securities:
Available for sale, at market value 40,224,405 70,122,807
Held to maturity, at cost 4,849,435 4,848,587
Mortgage-backed securities, available
for sale, at market value 11,028,018 14,954,025
Loans receivable, net 93,793,652 91,530,369
Loans held for sale 12,663,063 4,397,614
----------- -----------
Total loans receivable, net 106,456,715 95,927,983
Investment in real estate 864,926 869,898
Stock in Federal Home Loan Bank 3,400,000 3,350,000
Mortgage servicing rights 514,298 513,275
Office properties and equipment, net 3,633,317 2,933,591
Accrued interest receivable and other assets 2,330,660 2,386,533
----------- -----------
$ 201,830,921 200,763,642
=========== ===========
Liabilities and Stockholders' Equity
- ------------------------------------
Savings deposits $ 122,025,915 122,982,954
Accrued interest payable on savings deposits 133,459 134,599
Borrowed money 65,162,132 64,248,804
Advance payments by borrowers for taxes and insurance 131,391 86,776
Income tax payable 144,177 99,863
Deferred income taxes 530,612 196,427
Accrued expenses and other liabilities 397,713 379,958
----------- -----------
Total liabilities 188,525,399 188,129,381
Commitments and contingencies
Stockholders' equity:
Preferred stock, $1 par value per share;
1,000,000 shares authorized; none issued -- --
Common stock, $1 par value per share;
4,000,000 shares authorized; 836,400
shares issued and outstanding 836,400 836,400
Additional paid-in capital 2,771,873 2,768,548
Retained earnings 9,798,633 9,674,676
Unrealized gain (loss) on investment and mortgage-
backed securities available for sale, net 13,176 (509,523)
Unearned ESOP shares (114,560) (135,840)
----------- -----------
Total stockholders' equity 13,305,522 12,634,261
----------- -----------
$ 201,830,921 200,763,642
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 4
EQUALITY SAVINGS AND LOAN ASSOCIATION, F.A.
AND SUBSIDIARIES
Consolidated Statements of Income
Three months ended June 30, 1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Interest income:
Loans receivable $ 1,954,874 1,836,577
Investment securities 1,120,431 782,502
Mortgage-backed securities 217,469 429,481
Interest-bearing deposits 54,955 161,660
Other 59,232 54,824
--------- ---------
Total interest income 3,406,961 3,265,044
--------- ---------
Interest expense:
Savings deposits 1,401,552 1,435,167
Advances from Federal Home Loan Bank 891,241 782,909
Other borrowed money 11,188 11,412
--------- ---------
Total interest expense 2,303,981 2,229,488
--------- ---------
Net interest income 1,102,980 1,035,556
Provision for losses on loans -- --
--------- ---------
Net interest income after
provision for losses on loans 1,102,980 1,035,556
--------- ---------
Noninterest income:
Gain on sale of mortgage loans 190,830 210,464
Loan servicing fees and late charges 236,791 213,881
Gain on sale of investment and mortgage-
backed securities available for sale, net 47,517 29,660
Equity in earnings (loss) of joint venture (16,491) 2,906
Rental income 6,264 56,630
Gain on sale of real estate -- 105,875
Other 90,071 104,226
--------- ---------
Total noninterest income 554,982 723,642
--------- ---------
Noninterest expense:
Salaries and employee benefits 786,457 747,409
Occupancy 106,615 114,483
Data processing 53,776 45,584
Advertising 27,501 20,080
Federal insurance premiums 19,692 71,658
Other 355,531 326,586
--------- ---------
Total noninterest expense 1,349,572 1,325,800
--------- ---------
Income before income tax expense 308,390 433,398
Income tax expense 120,272 168,997
--------- ---------
Net income $ 188,118 264,401
========= =========
Earnings per share $ .23 .32
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 5
EQUALITY SAVINGS AND LOAN ASSOCIATION, F.A.
AND SUBSIDIARIES
Consolidated Statement of Stockholders' Equity
Three months ended June 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
Unrealized
loss on
investment and
mortgage-backed Total
Additional securities stock
Common Stock paid-in Retained available for Unearned holders'
Shares Amount Capital Earnings Sale, Net ESOP Shares Equity
------ ------ ---------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, March 31, 1997 836,400 $836,400 2,768,548 9,674,676 (509,523) (135,840) 12,634,261
Net income -- -- -- 188,118 -- -- 188,118
Amortization of
ESOP awards -- -- 3,325 -- -- 21,280 24,605
Dividend declared
on nonmutual
holding company
owned common
stock at $.17
per share -- -- -- (64,161) -- -- (64,161)
Change in unre-
alized gain (loss)
on investment
and mortgage-
backed securities
available for
sale, net -- -- -- -- 522,699 -- 522,699
------- -------- --------- --------- -------- --------- ----------
Balance, June 30, 1997 836,400 $836,400 2,771,873 9,798,633 13,176 (114,560) 13,305,522
======= ======== ========= ========== ======== ========= ==========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 6
EQUALITY SAVINGS AND LOAN ASSOCIATION, F.A.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Three months ended June 30, 1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 188,118 264,401
Adjustments to reconcile net income to net cash pro-
vided by (used in) operating activities:
Depreciation and amortization:
Office properties and equipment 71,428 45,588
Real estate investments 2,815 2,815
Premiums and discounts, net 47,229 192,764
Mortgage servicing rights 47,691 25,631
Increase (decrease) in accrued interest receivable 71,687 (255,346)
Decrease in valuation reserve on loans held for sale -- (50,967)
Gain on sale of office property and equipment -- (7,000)
Gain on sale of investment in real estate -- (105,875)
Gain on sale of investment and mortgage-backed securities
available for sale, net (47,517) (29,660)
Increase (decrease) in accrued interest
payable on savings deposits (1,140) 24,676
Change in income tax payable 44,314 186,497
Equity in (earnings) loss of joint ventures 16,491 (2,906)
Other, net 26,545 407,881
Increase in loans held for sale (8,265,449) ( 279,129)
---------- ---------
Net cash provided by (used in) operating activities (7,797,788) 419,370
---------- ---------
Cash flow from investing activities:
Net change in loans receivable (2,320,333) (3,065,759)
Decrease in interest-bearing deposits 1,157,370 1,446,982
Principal repayments on investment securities, AFS 66,830 181,294
Principal repayments on mortgage-backed securities, AFS 572,684 1,467,982
Proceeds from the sale of investment securities, AFS 43,936,191 3,017,970
Proceeds from the maturity of investment securities, AFS 6,000,000 --
Proceeds from the sale of mortgage-backed securities, AFS 3,519,453 4,274,966
Purchase of investment securities, AFS (19,375,000) (12,205,000)
Purchase of mortgage-backed securities, AFS -- (6,236,596)
Proceeds from the sale of investment in real estate -- 1,085,474
Decrease in joint venture borrowings 3,292 3,033
Purchase of stock in FHLB (50,000) --
Increase in cost of mortgage servicing rights (48,714) (135,950)
Purchase of office properties and equipment, net (771,154) (13,497)
---------- ---------
Net cash provided by (used in) investing activities 32,690,619 (10,179,101)
<PAGE> 7
1997 1996
---- ----
Cash flows from financing activities:
Net increase (decrease) in savings deposits (957,039) 289,113
Proceeds from Federal Home Loan Bank advances 5,000,000 31,000,000
Repayment of Federal Home Loan Bank advances (5,000,000) (27,000,000)
Proceeds from other borrowed money 913,328 643,592
Cash dividends paid (64,161) (56,274)
Increase in advance payments by borrowers
for taxes and insurance 44,615 39,097
---------- ---------
Net cash provided by (used in) financing activities (63,257) 4,915,528
---------- ---------
Net increase (decrease) in cash and cash equivalents 24,829,574 ( 4,844,203)
Cash and cash equivalents, beginning of period 1,037,199 5,550,292
---------- ---------
Cash and cash equivalents, end of period $ 25,866,773 706,089
========== ==========
Supplemental disclosure of cash flow information:
Interest paid $ 2,305,122 2,169,077
Income taxes paid, net 75,958 --
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 8
EQUALITY SAVINGS AND LOAN ASSOCIATION, F.A.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 1997
(Unaudited)
(1) MUTUAL HOLDING COMPANY FORMATION
On October 22, 1993, Equality Savings and Loan Association, F.A.
(Equality) reorganized from a Missouri-chartered mutual savings and
loan association into a mutual holding company. The mutual holding
company is a federal corporation, chartered and regulated by the
Office of Thrift Supervision (OTS), and is named First Missouri
Financial, M.H.C. (the MHC). As part of the reorganization, Equality
transferred substantially all of its assets and all of its liabilities
to a new Missouri-chartered savings and loan association and retained
its same name. The reorganization was accounted for as a change in
corporate form with the historic basis of Equality's assets,
liabilities, and retained earnings unchanged as a result.
Concurrent with the reorganization, Equality offered a minority
interest in its common stock to its depositors and to its Employee
Stock Ownership Plan (ESOP). A total of 380,000 shares of newly
issued common stock was sold at $10.00 per share. An additional
11,400 authorized shares of common stock were sold to Equality's
Management Recognition Plan (MRP) at $10.00 per share. The cost
of issuing the 391,400 shares totaled $333,000 and was deducted from
the sale proceeds.
Equality will be a majority-owned subsidiary of the MHC at all
times as long as the MHC remains in existence. The existing rights of
Equality's depositors upon liquidation were transferred to the MHC and
records will be maintained to ensure such rights receive statutory
priority in the event of a future mutual-to-stock conversion, or in the
more unlikely event of the MHC's liquidation.
On May 16, 1997, First Missouri Financial, M.H.C. and Equality
Savings and Loan Association, F.A. adopted a Plan of Conversion and
Reorganization pursuant to which First Missouri Financial, M.H.C. will
convert from the mutual to stock form of organization. Shares of
common stock of a new holding company, Equality Bancorp, Inc., will be
offered in a subscription offering in descending order of priority to
eligible account holders; employee stock benefit plans; supplemental
eligible account holders; other members; directors, officers, and
employees; and public stockholders. Any shares remaining unsold in the
subscription offering will be sold through a community offering.
<PAGE> 9
EQUALITY SAVINGS AND LOAN ASSOCIATION, F.A.
AND SUBSIDIARIES
(2) BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have
been prepared in accordance with instructions for Form 10-QSB and,
therefore, do not include information for footnotes necessary for a
complete presentation of financial position, results of operations, and
cash flows in conformity with generally accepted accounting principles.
However, all adjustments (consisting only of normal recurring accruals)
which, in the opinion of management, are necessary for a fair
presentation of the consolidated financial statements have been
included in the results of operations for the three months ended
June 30, 1997 and 1996.
Operating results for the three months ended June 30, 1997 are not
necessarily indicative of the result that may be expected for the year
ending March 31, 1998.
(3) PRINCIPLES OF CONSOLIDATION
The accompanying unaudited consolidated financial statements include
the accounts of Equality Savings and Loan Association, F.A. and its
wholly owned subsidiaries, Equality Commodity Corporation (ECC) and
Equality Mortgage Corporation (EMC). All significant intercompany
accounts and transactions have been eliminated in consolidation.
(4) EARNINGS PER SHARE
Earnings per share are based upon the weighted average number of
common shares and common stock equivalents outstanding during the
period. The weighted average number of common stock equivalents is
calculated using the treasury stock method.
Equality adopted the provisions of Statement of Position 93-6,
EMPLOYERS' ACCOUNTING FOR EMPLOYEE STOCK OWNERSHIP PLANS (SOP 93-6) on
April 1, 1994. Under the provisions of SOP 93-6, only ESOP shares that
have been committed to be released are considered outstanding shares.
Accordingly, earnings per share for 1997 have been computed based upon
net income for the period from April 1st to June 30th, using 824,771
weighted average common shares outstanding while 1996 earnings per
share were computed using 820,156 weighted average common shares
outstanding.
<PAGE> 10
EQUALITY SAVINGS AND LOAN ASSOCIATION, F.A.
AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations
The following discussion reviews the financial condition and results
of operations of Equality Savings and Loan Association, F.A. and
subsidiaries (Equality) as of June 30, 1997 and for the three months then
ended.
FINANCIAL CONDITION
The total assets of Equality increased approximately $1.1 million, or
0.5%, to $201.8 million at June 30, 1997 from $200.8 million at March 31,
1997. This increase in asset size primarily relates to the origination
of mortgage loans which were funded through cash reserves and the
proceeds from sales of investment securities and mortgage-backed
securities.
Cash, primarily interest-bearing demand accounts, increased to $25.9
million at June 30, 1997 from $1.0 million at March 31, 1997 and
investment securities available for sale decreased to $40.2 million at
June 30, 1997 from $70.1 million at March 31, 1997 as a result of
management's decision to move from securities with longer term maturities
into securities with shorter term maturities in an effort to reduce
Equality's exposure to interest rate risk. While the proceeds from sales
of investment securities have been temporarily invested in interest-
bearing deposits, management expects to reinvest these balances during
the next quarter.
Mortgage-backed securities available for sale decreased by approximately
$3.9 million, or 26.3%, to $11.0 million at June 30, 1997 from $15.0
million at March 31, 1997. This decease resulted from sales generated to
fund mortgage loan originations.
Loans held for investment totaled $93.8 million at June 30, 1997, an
increase of approximately $2.3 million, or 2.5%, from the March 31, 1997
balance of $91.5 million. This increase is primarily the result of
continued portfolio mortgage lending on one to four family residences
offset by principal repayments.
Loans held for sale increased by approximately $8.3 million, or 188.0%,
to $12.7 million at June 30, 1997 from $4.4 million at March 31, 1997.
This increase is the result of increased one to four family mortgage loan
originations due to improved residential lending interest rates.
Office properties and equipment increased $730,000, or 23.9%, to $3.6
million at June 30, 1997 from $2.9 million at March 31, 1997. The
increase resulted from the purchase of two properties designed to become
branch facilities, one to replace a currently leased, limited-use
facility in the fourth quarter of 1997 and the other to expand Equality's
branch network during the spring of 1998. Appropriate regulatory
notification has been made to the OTS.
<PAGE> 11
EQUALITY SAVINGS AND LOAN ASSOCIATION, F.A.
AND SUBSIDIARIES
Savings deposits totaled $122.0 million at June 30, 1997, a decrease of
approximately $957,000 from the March 31, 1997 balance of $123.0 million.
Interest credited during the three months ended June 30, 1997 was
approximately $1.1 million.
FHLB advances remained constant at $63.0 million at June 30, 1997 as
compared to March 31, 1997. During the three months ended June 30, 1997,
Equality opened a $5.0 million line of credit which remained unused.
Other borrowed money increased by $913,000. These short-term borrowings
relate to Equality Mortgage Corporation (EMC), a wholly owned subsidiary
engaged in the mortgage banking business, the proceeds of which were
invested solely in residential mortgage loans.
<PAGE> 12
EQUALITY SAVINGS AND LOAN ASSOCIATION, F.A.
AND SUBSIDIARIES
RESULTS OF OPERATIONS
NET INCOME
Net income decreased $76,000, or 28.9%, from $264,000 for the three
months ended June 30, 1996 to $188,000 for the three months ended
June 30, 1997. The decrease was primarily the result of the sale of
residential investment property by ECC in June, 1996 at a gain of
$106,000 with no comparable item in 1997 in addition to reduced rental
income in investment property of $51,000 offset by a $67,000, or 6.5%,
increase in net interest income.
INTEREST INCOME
Interest income increased from $3.3 million for the three months ended
June 30, 1996 to $3.4 million for the three months ended June 30, 1997.
The increase of $142,000, or 4.3%, resulted primarily from an increase in
the interest on loans receivable and interest on investment securities
offset by decreases in interest on interest bearing deposits and
mortgage-backed securities. Interest on loans receivable increased by
$118,000, or 6.4%, to $2.0 million for the three months ended June 30,
1997 as compared to $1.8 million for the three months ended June 30,
1996. This increase was primarily due to an increase in the average
balance of loans outstanding from $98.1 million for the three months
ended June 30, 1996 to $98.4 million for the three months ended
June 30, 1997 accompanied by an increase in the yield on loans from 7.48%
for the three months ended June 30, 1996 to 7.94% for the three months
ended June 30, 1997. The higher average balance of loans outstanding for
the three months ended June 30, 1997 reflects an increase in residential
mortgage loan and commercial loan portfolio lending. Interest on
investment securities increased $338,000, or 43.2%, from $783,000 for the
three months ended June 30, 1996 to $1.1 million for the three months
ended June 30, 1997 due to an increase in the average balance of
investment securities from $52.1 million for the three months ended
June 30, 1996 to $64.6 million for the three months ended June 30, 1997.
During the same period the yield on investment securities increased from
6.01% for the three months ended June 30, 1996 to 6.94% for the three
months ended June 30, 1997. Interest income on mortgage-backed
securities decreased $212,000, or 49.4%, from $429,000 for the three
months ended June 30, 1996 to $217,000 for the three months ended June
30, 1997 due to a decrease in the average balances from $27.5 million for
the three months ended June 30, 1996 to $12.4 million for the three
months ended June 30, 1997, offset by an increase in the yield on
mortgage-backed securities from 6.25% for the three months ended June 30,
1996 to 7.03% for the three months ended June 30, 1997. Interest on
interest bearing deposits decreased $107,000, or 66.0%, from $162,000 for
the three months ended June 30, 1996 to $55,000 for the three months
ended June 30, 1997. This decrease is the result of reduced average
balances of interest-bearing deposits from $8.6 million for the three
months ended June 30, 1996 to $3.2 million for the three months ended
June 30, 1997.
<PAGE> 13
EQUALITY SAVINGS AND LOAN ASSOCIATION, F.A.
AND SUBSIDIARIES
INTEREST EXPENSE
Interest expense increased from $2.2 million for the three months ended
June 30, 1996 to $2.3 million for the three months ended June 30, 1997.
The increase of $74,000, or 3.3%, resulted primarily from increased
average FHLB advances offset by decreased average deposit balances and
decreased average cost of deposits. The weighted average cost of
deposits decreased 2 basis points from 4.62% for the three months ended
June 30, 1996 to 4.60% for the three months ended June 30, 1997, due to
the effects of increased low cost checking account balances and reduced
certificate balances. Average deposit balances decreased $2.3 million,
or 1.9%, from $124.2 million at June 30, 1996 to $121.9 million at
June 30, 1997.
Average FHLB advances increased $8.4 million, or 14.9%, to $64.7 million,
for the three months ended June 30, 1997 compared to $56.3 million for
the three months ended June 30, 1996. The weighted average cost of
advances decreased 5 basis points from 5.56% for the three months ended
June 30, 1996 to 5.51% for the three months ended June 30, 1997.
PROVISION FOR LOSSES ON LOANS
There was no provision for losses on loans for the three month periods
ended June 30, 1997 or June 30, 1996. The provision for losses on loans
is based on management's evaluation of the credit risk inherent in the
loan portfolio and the amount required to be maintained in the allowance
for loan losses. The Association's allowance for loan losses totaled
$283,000 at June 30, 1997 and March 31, 1997, respectively. Management
believes the allowance for loan losses is adequate.
NONINTEREST INCOME
Noninterest income decreased $169,000, or 23.3%, from $724,000 for the
three months ended June 30, 1996 to $555,000 for the three months ended
June 30, 1997. The decrease is due primarily to the results of the sale
of a 26 unit residential property by ECC during the three months ended
June 30, 1996 at a gain of $106,000. There was no comparable gain for
the three months ended June 30, 1997. Additionally, rental income
decreased from $57,000 for the three months ended June 30, 1996 to $6,000
for the three months ended June 30, 1997 as a result of the disposition
of this rental property. Also contributing to the decrease in
noninterest income was a decrease in gain on sale of mortgage loans of
$20,000, or 9.3%, from $210,000 for the three months ended June 30, 1996
to $191,000 for the three months ended June 30, 1997 and increased loss
in earnings of joint venture of $19,000 from earnings of $3,000 for the
three months ended June 30, 1996 to losses of $16,000 for the three
months ended June 30, 1997 offset by increased loan servicing fees and
late charges of $23,000, or 10.7%, which improved from $214,000 for the
three months ended June 30, 1996 to $237,000 for the three months ended
June 30, 1997 due to an increase in the servicing portfolio of EMC. For
the three months ended June 30, 1996, Equality, through EMC, sold $19.7
million of mortgage loans as compared to $11.5 million in the comparable
<PAGE> 14
EQUALITY SAVINGS AND LOAN ASSOCIATION, F.A.
AND SUBSIDIARIES
million in the comparable period in 1997. The decreased sales volume of
$8.2 million resulted in the decreased gain on sale of mortgage loans.
Loans serviced by EMC increased $16.8 million, or 5.5%, from
$304.7 million at June 30, 1996 to $321.5 million at June 30, 1997.
NONINTEREST EXPENSE
Noninterest expense increased $24,000, or 1.8%, for the three months
ended June 30, 1997 compared to the three months ended June 30, 1996, due
primarily to an increase of $39,000, or 5.2%, in salaries and employee
benefits from $747,000 for the three months ended June 30, 1996 to
$786,000 for the three months ended June 30, 1997, the result of general
wage increases, as well as general increases in data processing,
advertising and other general operating expenses offset by reduced
federal deposit insurance premiums of $52,000, or 72.5%, from $72,000 for
the three months ended June 30, 1996 to $20,000 for the three months
ended June 30, 1997, the result of legislation passed by Congress to
capitalize the Savings Association Insurance Fund where following a one-
time assessment in September, 1996 ongoing insurance would be
significantly reduced from approximately 23 basis points to approximately
6 basis points.
INCOME TAXES
Income tax expense decreased from $169,000 for the three months ended
June 30, 1996 to $120,000 for the three months ended June 30, 1997. The
decrease of $49,000, or 28.8%, was the result of a decrease in income
before income tax expense of $125,000. The effective tax rate was
approximately 39.0% for the three month periods ended June 30, 1997 and
1996.
NONPERFORMING ASSETS
At June 30, 1997, nonperforming assets were approximately $586,000, which
represents a decrease of $123,000, or 17.4%, as compared to March 31,
1997. A summary of nonperforming assets by category is summarized as
follows:
June 30, March 31,
1997 1997
-------- ---------
(in thousands)
Nonaccruing loans:
One to four family $ 502 643
Consumer and other - -
----- -----
Total nonaccruing loans 502 643
Foreclosed assets - one to four family 84 66
----- -----
Total nonperforming assets $ 586 709
===== =====
Nonaccruing loans as a percent of net loans .47% .67%
===== =====
Nonperforming assets as a percent of
total assets .29% .35%
===== =====
<PAGE> 15
EQUALITY SAVINGS AND LOAN ASSOCIATION, F.A.
AND SUBSIDIARIES
Loans are placed on nonaccrual status when either principal or interest
is more than 90 days past due or at such time when contractual amounts
due are deemed uncollectible, whichever is sooner. Interest accrued and
unpaid at the time a loan is placed on nonaccrual status is charged
against interest income. Subsequent payments are either applied to the
outstanding principal balance or recorded as interest income, depending
on the assessment of the ultimate collectibility of the loan.
LIQUIDITY AND CAPITAL RESOURCES
The Office of Thrift Supervision (OTS) requires minimum levels of liquid
assets. OTS regulations presently require Equality to maintain an
average daily balance of liquid assets (United States Treasury, federal
agency, and other investments having maturities of five years of less)
equal to at least 5% of the sum of its average daily balance of net
withdrawable deposit accounts and borrowings payable in one year or less.
Such requirements may be changed from time to time by the OTS to reflect
changing economic conditions. Such investments are intended to provide a
source of relatively liquid funds upon which Equality may rely, if
necessary, to fund deposit withdrawals and other short-term funding
needs. Equality's regulatory liquidity at June 30, 1997 was 20.0%. In
addition to the regulatory liquidity requirement, Equality is required to
maintain short-term liquid assets, as defined, equal to 1.0% of the
average sum of net withdrawable deposits and other liabilities, as
defined. Equality's short-term liquidity ratio at June 30, 1997 was
15.6%.
Equality's primary sources of funds consist of deposits bearing market
rates of interest and loan repayments. Other potential sources of funds
available to Equality include borrowings from the Federal Home Loan Bank
of Des Moines. Equality uses its liquidity resources principally to meet
ongoing commitments, to fund maturing certificates of deposit and deposit
withdrawals, to invest, to fund existing and future loan commitments, to
maintain liquidity, and to meet operating expenses. Management believes
that loan repayments and other sources of funds will be adequate to meet
and exceed Equality's liquidity needs, including meeting its commitments
to buy or fund loans. At June 30, 1997, Equality had approximately $2.2
million in outstanding commitments to originate loans, approximately
$451,000 of which were adjustable rate loans. The interest rate on fixed
rate commitments ranged from 6.875% to 8.48% at June 30, 1997. The
majority of the loans will be sold into the secondary market upon
origination.
REGULATORY CAPITAL
Federally insured savings associations such as Equality are required to
maintain a minimum level of regulatory capital. The capital regulations
require institutions to have tangible capital equal to 1.5% of total
adjusted assets (as defined by regulation), a minimum core capital ratio
of 3% of adjusted total assets, and a risk-based capital ratio of 8% of
risk-based assets (as defined by regulation). The risk-based capital
requirement is calculated based on the credit risk presented by both on-
balance-sheet assets and off-balance-sheet commitments and obligations.
<PAGE> 16
EQUALITY SAVINGS AND LOAN ASSOCIATION, F.A.
AND SUBSIDIARIES
Assets are assigned a credit-risk weighting based upon their relative risk
ranging from 0% for assets backed by the full faith and credit of the
United States or that pose no credit risk to the institution to 100% for
assets such as delinquent or repossessed assets.
<PAGE> 17
EQUALITY SAVINGS AND LOAN ASSOCIATION, F.A.
AND SUBSIDIARIES
A reconciliation of stockholders' equity, as reported in the consolidated
financial statements of Equality, to the three capital standards, as
required under the Financial Institutions Reform, Recovery and
Enforcement Act of 1989 (FIRREA), is as follows:
<TABLE>
<CAPTION>
Regulatory Capital
-------------------------------------------------------
Tangible Core Risk-based
Capital Capital Capital
-------------------------------------------------------
(dollars in thousands)
<S> <C> <C> <C>
Stockholders' equity -
financial statements $ 13,306 $ 13,306 $ 13,306
Unrealized gain on investment and
mortgage-backed securities
available for sale (13) (13) (13)
Adjusted stockholders' equity 13,293 13,293 13,293
Investments in and advances to
nonincludable subsidiaries (835) (835) (835)
Additional capital item - general
loan loss reserves -- -- 283
Regulatory capital, as computed 12,458 12,458 12,741
Minimum capital requirement* 3,024 6,047 6,069
Regulatory capital in excess of
minimum capital requirement 9,434 6,411 6,672
====== ======= ======
Regulatory capital ratio 6.18% 6.18% 16.79%
====== ======= ======
</TABLE>
*As reflected in the quarterly report to the OTS.
IMPACT OF INFLATION AND CHANGING PRICES
The unaudited consolidated financial statements and related data
presented herein have been prepared in accordance with generally accepted
accounting principles, which require the measurement of financial
position and results of operations in the measurements of historical
dollars without considering changes in the relative purchasing power of
money over time because of inflation.
Unlike most industrial companies, virtually all of the assets and
liabilities of Equality are monetary in nature. As a result, interest
rates have a more significant impact on Equality's performance than the
effects of general levels of inflation. Interest rates do not
necessarily move in the same direction or in the same magnitude as the
prices of goods and services. In the present interest rate environment,
the liquidity, maturity structure, and quality of Equality's assets and
liabilities are important factors in the maintenance of acceptable
performance levels.
<PAGE> 18
EQUALITY SAVINGS AND LOAN ASSOCIATION, F.A.
AND SUBSIDIARIES
IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS
ACCOUNTING FOR STOCK-BASED COMPENSATION
In October, 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 123, ACCOUNTING FOR
STOCK-BASED COMPENSATION (SFAS 123). SFAS 123 establishes financial
accounting and reporting standards for stock-based employee compensation
plans and also applies to transactions in which an entity issues its
equity instruments to acquire goods or services from nonemployees. SFAS
123 defines a fair valued-based method of accounting for an employee
stock option or similar equity instruments and encourages all entities to
adopt that method of accounting. SFAS 123 also allows an entity to
continue to measure compensation cost for those plans using the intrinsic
value based method accounting prescribed by Accounting Principles Board
Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES (APB 25). SFAS
123 was effective for transactions entered into in fiscal years beginning
after December 15, 1995. Pro forma disclosures required for entities
that elect to continue to measure compensation cost using APB 25 must
include the effect of all awards granted in fiscal years beginning after
December 15, 1995. Equality continues to measure compensation cost using
APB 25. No stock options were granted during the year ended March 31,
1997 or during the three months ended June 30, 1997. SFAS 123 is not
expected to have a material impact on Equality's consolidated financial
statements.
EARNINGS PER SHARE
In February, 1997, the FASB issued Statement of Financial Accounting
Standards No. 128, EARNINGS PER SHARE (SFAS 128). SFAS 128 establishes
standards for computing and presenting earnings per share and applies to
entities with publicly held common stock or potential common stock. SFAS
128 simplifies the current standards for computing earnings per share and
makes them comparable to international earnings per share standards.
Under SFAS 128 the presentation of primary earnings per share is replaced
with a presentation of basic earnings per share. SFAS 128 also requires
dual presentation of basic and diluted earnings per share on the face of
the income statement for all entities with complex capital structures and
requires the reconciliation of the numerator and denominator of the basic
earnings per share computation to the numerator and denominator of the
diluted earnings per share computation. SFAS 128 is effective for
financial statements issued for periods ending after December 31, 1997,
including interim periods; early application is not permitted. SFAS 128
will require the restatement of all prior-period earnings per share data
presented. The adoption of SFAS 128 is not expected to have a material
impact on Equality's consolidated financial statements.
DISCLOSURE OF INFORMATION ABOUT CAPITAL STRUCTURE
Also in February, 1997, the FASB issued Statement of Financial Accounting
Standards No. 129, DISCLOSURE OF INFORMATION ABOUT CAPITAL STRUCTURE
(SFAS 129). SFAS 129 applies to all entities and establishes standards
for disclosing information about an entity's capital structure. SFAS 129
is effective for financial statements for periods ending after
December 15, 1997. The adoption of SFAS 129 is not expected to have a
material impact on Equality's consolidated financial statements.
<PAGE> 19
EQUALITY SAVINGS AND LOAN ASSOCIATION, F.A.
AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
None.
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 ON FORM 8-K
Exhibits:
27 Financial Data Schedule
Reports on Form 8-K: None.
<PAGE> 20
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.
EQUALITY BANCORP, INC.
Registrant
Date: September 24, 1997 /s/Richard C. Fellhauer
------------------ -------------------------------
Richard C. Fellhauer, President,
Chief Executive Officer and
Chairman of the Board
Date: September 24, 1997 /s/ Michael A. Deelo
------------------ -------------------------------
Michael A. Deelo,
Treasurer and Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from
the Consolidated Financial Statements of Equality Savings and Loan
Association, F.A. and is qualified in its entirety by reference to
such financial statements.
For the three month period ending June 30, 1997:
----------------------------------------------------------------------
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-mos
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 25,867
<INT-BEARING-DEPOSITS> 2,662
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 51,252
<INVESTMENTS-CARRYING> 4,849
<INVESTMENTS-MARKET> 4,731
<LOANS> 106,457
<ALLOWANCE> 283
<TOTAL-ASSETS> 201,831
<DEPOSITS> 122,026
<SHORT-TERM> 2,041
<LIABILITIES-OTHER> 1,337
<LONG-TERM> 63,121
0
0
<COMMON> 836
<OTHER-SE> 12,470
<TOTAL-LIABILITIES-AND-EQUITY> 201,831
<INTEREST-LOAN> 1,955
<INTEREST-INVEST> 1,393
<INTEREST-OTHER> 59
<INTEREST-TOTAL> 3,407
<INTEREST-DEPOSIT> 1,402
<INTEREST-EXPENSE> 2,304
<INTEREST-INCOME-NET> 1,103
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 48
<EXPENSE-OTHER> 1,350
<INCOME-PRETAX> 308
<INCOME-PRE-EXTRAORDINARY> 308
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 188
<EPS-PRIMARY> 23
<EPS-DILUTED> 23
<YIELD-ACTUAL> 6.95
<LOANS-NON> 502
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 283
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 283
<ALLOWANCE-DOMESTIC> 283
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
