<PAGE> 1
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 December 31, 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, MO 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 X No
----- -----
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 February 13, 1998
- ----------------------------- ---------------------------------------
Common Stock, Par Value $0.01 2,485,902
<PAGE> 2
<TABLE>
INDEX TO FORM 10-QSB
<CAPTION>
PAGE NO.
<S> <C>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
- Consolidated Balance Sheets 1
- Consolidated Statements of Income 2
- Consolidated Statement of Stockholders' Equity 3
- Consolidated Statements of Cash Flows 4
- Notes to Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial 7
Condition and Results of Operations
PART II OTHER INFORMATION
Item 1. Legal Proceedings 23
Item 2. Changes in Securities 23
Item 3. Defaults Upon Senior Securities 23
Item 4. Submission of Matters to a Vote of Security Holders 23
Item 5. Other Information 23
Item 6. Exhibits and Reports on Form 8-K 23
SIGNATURES 24
</TABLE>
<PAGE> 3
EQUALITY BANCORP, INC. AND SUBSIDIARY
<TABLE>
Consolidated Balance Sheets
December 31, 1997 and March 31, 1997
(Unaudited)
<CAPTION>
December 31, March 31,
Assets 1997 1997
------ ------------ ---------
<S> <C> <C>
Cash, primarily interest-bearing demand accounts $ 1,422,628 1,037,199
Interest-bearing deposits 1,721,874 3,819,744
Investment securities:
Available for sale, at market value 90,105,800 70,122,807
Held to maturity, at cost 3,600,000 4,848,587
Mortgage-backed securities, available
for sale, at market value 7,383,242 14,954,025
Loans receivable, net 97,636,300 91,530,369
Loans held for sale 13,226,368 4,397,614
------------ -----------
Total loans receivable, net 110,862,668 95,927,983
Investment in real estate 753,914 869,898
Stock in Federal Home Loan Bank 4,050,000 3,350,000
Mortgage servicing rights 678,709 513,275
Office properties and equipment, net 5,249,492 2,933,591
Accrued interest receivable and other assets 3,451,514 2,386,533
------------ -----------
$229,279,841 200,763,642
============ ===========
Liabilities and Stockholders' Equity
------------------------------------
Savings deposits $116,646,307 122,982,954
Accrued interest payable on savings deposits 131,216 134,599
Borrowed money 85,000,000 64,248,804
Advance payments by borrowers for taxes and insurance 75,523 86,776
Income tax payable 595,958 99,863
Deferred income taxes 699,878 196,427
Accrued expenses and other liabilities 491,488 379,958
------------ -----------
Total liabilities 203,640,370 188,129,381
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 and $1 par value per share;
at December 31, 1997 and March 31, 1997
respectively; 200,000 and 1,000,000 shares
authorized at December 31, 1997 and
March 31, 1997, respectively; none issued -- --
Common stock, $.01 and $1 par value per share
at December 31,1997 and March 31, 1997,
respectively; 4,000,000 and 4,000,000
shares authorized; 2,485,902 shares and
836,400 shares issued and outstanding
at December 31, 1997 and March 31, 1997,
respectively 24,859 836,400
Additional paid-in capital 16,164,329 2,768,548
Retained earnings - substantially restricted 10,484,977 9,674,676
Unrealized gain (loss) on investment and mortgage-
backed securities available for sale, net 277,926 (509,523)
Unearned ESOP shares (1,312,620) (135,840)
------------ -----------
Total stockholders' equity 25,639,471 12,634,261
------------ -----------
$229,279,841 200,763,642
============ ===========
See accompanying notes to consolidated financial statements.
</TABLE>
1
<PAGE> 4
EQUALITY BANCORP, INC. AND SUBSIDIARY
<TABLE>
Consolidated Statements of Income
Three and Nine months ended December 31, 1997 and 1996
(Unaudited)
<CAPTION>
Three months Nine months
ended December 31 ended December 31
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest income:
Loans receivable $2,121,504 1,834,073 6,074,273 5,520,912
Investment securities 1,398,182 1,043,966 3,685,156 2,817,987
Mortgage-backed securities 150,251 330,123 539,781 1,197,522
Interest bearing deposits 129,579 120,686 317,263 434,131
Other 63,014 58,945 182,858 174,146
---------- --------- ---------- ----------
Total interest income 3,862,530 3,387,793 10,799,331 10,144,698
---------- --------- ---------- ----------
Interest expense:
Savings deposits 1,481,588 1,421,288 4,314,352 4,299,393
Advances from the Federal Home Loan Bank 968,533 862,159 2,750,463 2,542,399
Other borrowed money 17,852 20,179 45,123 43,548
---------- --------- ---------- ----------
Total interest expense 2,467,973 2,303,626 7,109,938 6,885,340
---------- --------- ---------- ----------
Net interest income 1,394,557 1,084,167 3,689,393 3,259,358
Provision for losses on loans -- -- (24,313) --
---------- --------- ---------- ----------
Net interest income after pro-
vision for losses on loans 1,394,557 1,084,167 3,665,080 3,259,358
---------- --------- ---------- ----------
Noninterest income:
Gain on sale of mortgage loans 365,291 302,468 984,852 737,282
Loan servicing fees and late charges 233,032 223,506 705,777 668,870
Equity in earnings (loss) of joint ventures (27,618) 5,594 (44,109) (2,433)
Rental income 24,488 16,648 81,866 102,207
Gain on sale of real estate -- -- -- 105,875
Gain (loss) on sale of investment and
mortgage backed securities
available for sale (954) 99,866 47,951 40,129
Other 141,140 103,756 339,343 352,260
---------- --------- ---------- ----------
Total noninterest income 735,379 751,838 2,115,680 2,004,190
---------- --------- ---------- ----------
Noninterest expense:
Salaries and employee benefits 830,955 737,771 2,436,367 2,251,282
Occupancy 152,652 117,066 403,163 364,164
Data processing 62,471 45,739 177,116 137,351
Advertising 32,182 26,320 81,648 70,945
Federal insurance premiums 19,208 59,813 58,118 212,220
SAIF special assessment -- -- -- 788,770
Other 431,470 357,549 1,163,672 1,045,658
---------- --------- ---------- ----------
Total noninterest expense 1,528,938 1,344,258 4,320,084 4,870,390
---------- --------- ---------- ----------
Income before income
tax expense 600,998 491,747 1,460,676 393,158
Income tax expense 236,804 191,644 572,053 153,223
---------- --------- ---------- ----------
Net income $ 364,194 300,103 888,623 239,935
========== ========= ========== ==========
Basic earnings per share $ .15 .12 .36 .10
========== ========= ========== ==========
Diluted earnings per share $ .15 .12 .36 .10
========== ========= ========== ==========
See accompanying notes to consolidated financial statements.
</TABLE>
2
<PAGE> 5
EQUALITY BANCORP, INC.
<TABLE>
Consolidated Statement of Stockholders' Equity
Nine months ended December 31, 1997
(Unaudited)
<CAPTION>
Unrealized
gain (loss) on
investment and
mortgage-backed Total
Common Stock Additional securities 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 888,623 888,623
Dividend declared
on nonmutual
holding company
owned common
stock at $.34
per share (128,322) (128,322)
Amortization of
ESOP awards 3,325 21,280 24,605
Common stock elimi-
nated in conversion (836,400) (836,400) (836,400)
Common stock ex-
changed in
conversion 1,163,402 11,634 2,124,161 2,135,795
Common stock issued
in conversion 1,322,500 13,225 11,268,295 11,281,520
Return of capital
contribution from
mutual holding company 50,000 50,000
Common stock acquired
by ESOP (1,198,060) (1,198,060)
Change in unre-
alized gain (loss)
on investment
and mortgage-
backed securities
available for
sale, net 787,449 787,449
Balance, Dec. 31,
1997
--------- --------- ---------- ---------- -------- --------- -----------
2,485,902 $ 24,859 16,164,329 10,484,977 277,926 (1,312,620) $25,639,471
========= ========= ========== ========== ======== ========= ===========
See accompanying notes to consolidated financial statements.
</TABLE>
3
<PAGE> 6
EQUALITY BANCORP, INC. AND SUBSIDIARY
<TABLE>
Consolidated Statements of Cash Flows
Nine months ended December 31, 1997 and 1996
(Unaudited)
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 888,623 239,935
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization:
Office properties and equipment 183,872 174,361
Real estate investments 8,446 8,447
Premiums and discounts, net 103,676 504,779
Mortgage servicing rights 202,006 129,432
Increase in accrued interest receivable (252,643) (281,261)
Decrease in valuation reserve on loans held for sale -- (85,094)
Gain on sale of office property and equipment -- (7,000)
Gain on sale of real estate -- (105,875)
Gain on sale of investment and mortgage-backed
securities available for sale (47,951) (40,129)
Increase (decrease)in accrued interest
payable on savings deposits (3,383) 24,669
Change in income tax payable 496,095 169,734
Equity in loss of joint ventures 44,109 2,433
Other, net (574,867) 142,407
Decrease (increase) in loans held for sale (8,828,754) 2,753,299
------------ -----------
Net cash provided by (used in) operating activities (7,780,771) 3,630,137
------------ -----------
Cash flow from investing activities:
Net change in loans receivable (6,085,310) (4,636,637)
Decrease in interest-bearing deposits 2,097,870 3,982,728
Principal repayments on investment securities, AFS 97,074 308,357
Principal repayments on mortgage-backed securities, AFS 1,849,654 4,848,620
Proceeds from the sale of investment securities, AFS 48,059,502 19,444,756
Proceeds from the sale of mortgage-backed securities, AFS 5,887,892 17,995,523
Proceeds from the maturity of investment securities, AFS 30,830,000 4,550,000
Proceeds from the maturity of investment securities, HTM 1,250,000 1,000,000
Purchase of investment securities, AFS (97,869,845) (49,255,000)
Purchase of mortgage-backed securities, AFS -- (14,211,212)
Proceeds from the sale of investment in real estate -- 1,040,296
Decrease in joint venture borrowings 10,082 9,288
Purchase of stock in FHLB (700,000) (200,000)
Increase in cost of mortgage servicing rights (367,440) (377,437)
Purchase of office properties and equipment, net (2,499,773) (22,924)
------------ -----------
Net cash used in investing activities (17,440,294) (15,523,644)
------------ -----------
Cash flow from financing activities:
Net decrease in savings deposits (6,336,647) (2,857,288)
Proceeds from Federal Home Loan Bank advances 83,500,000 101,000,000
Repayment of Federal Home Loan Bank advances (65,500,000) (94,000,000)
Proceeds from other borrowed money 2,751,196 2,845,064
Cash dividends paid (128,322) (168,821)
Proceeds from Stock Offering 11,281,520 --
Return of Capital from Mutual Holding Company 50,000 --
Decrease in advance payments by borrowers
for taxes and insurance (11,253) (65,776)
------------ -----------
Net cash provided by financing activities 25,606,494 6,753,179
------------ -----------
Net increase (decrease) in cash and cash equivalents 385,429 (5,140,328)
Cash and cash equivalents, beginning of period 1,037,199 5,550,292
------------ -----------
Cash and cash equivalents, end of period $ 1,422,628 409,966
============ ===========
Supplemental disclosure of cash flow information:
Interest paid $ 7,113,321 6,860,348
Income taxes paid, net (75,958) (111,920)
See accompanying notes to consolidated financial statements.
</TABLE>
4
<PAGE> 7
EQUALITY BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
(Unaudited)
(1) 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 and nine months ended December 31, 1997 and 1996.
Operating results for the nine months ended December 31, 1997 are not
necessarily indicative of the result that may be expected for the
year ending March 31, 1998.
(2) Principles of Consolidation
---------------------------
The accompanying unaudited consolidated financial statements include
the accounts of Equality Bancorp, Inc. and its wholly owned
subsidiary, Equality Savings Bank as well as Equality Savings
Bank's wholly owned subsidiaries, Equality Commodity Corporation
(ECC) and Equality Mortgage Corporation (EMC). All significant
intercompany accounts and transactions have been eliminated in
consolidation.
(3) Earnings Per Share
------------------
Equality Bancorp, Inc. (the "Company") adopted the provisions of
Statement of Accounting Standards No. 128, Earnings Per Share
------------------
(SFAS 128) on December 31, 1997. This statement replaced the
previously reported earnings per share with basic and diluted
earnings per share. Basic earnings per share excludes any
dilutive effect of options and convertible securities. Diluted
earnings per share does consider the effects of options and
convertible securities. All prior period earnings have been
restated to conform with the requirements of SFAS 128. Earnings
per share information for the three and nine month periods ended
December 31, 1996 has also been adjusted to reflect the
second-step conversion of Equality Savings and Loan Association,
F.A. and the exchange of each share of its common stock for 2.9724
shares of the Company's common stock.
Basic earnings per share for the nine month periods ended December 31,
1997 and 1996 was computed based upon net income for the period
April 1st to December 31st using weighted average common shares
outstanding of 2,437,549 and 2,438,869, respectively. For the
three month periods ended December 31, 1997 and 1996, basic
earnings per share was computed based upon net income for the
period October 1st to December 31st using weighted average common
shares outstanding of 2,412,057 and 2,440,798, respectively.
5
<PAGE> 8
EQUALITY BANCORP, INC. AND SUBSIDIARY
Diluted earnings per share for the nine month periods ended
December 31, 1997 and 1996 was computed based upon net income for
the period April 1st to December 31st using weighted average common
shares and dilutive potential common shares outstanding of
2,443,301 and 2,452,198, respectively. For the three month periods
ended December 31, 1997 and 1996, diluted earnings per share was
computed based upon net income for the period October 1st to
December 31st using weighted average common shares and dilutive
potential common shares outstanding of 2,417,906 and 2,456,543,
respectively.
6
<PAGE> 9
EQUALITY BANCORP, INC. AND SUBSIDIARY
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 Bancorp, Inc., and its subsidiary, Equality
Savings Bank, with subsidiaries, as of December 31, 1997 and for the
three and nine months then ended.
Equality does not undertake, and specifically disclaims any obligation, to
update any forward-looking statements to reflect occurrence of
anticipated or unanticipated events or circumstances after the date
of such statements.
GENERAL
On December 1, 1997, the Company issued 2,485,902 shares of common stock as a
result of the conversion (the "Conversion") of First Missouri
Financial, M.H.C. ("FMF") and its subsidiary, Equality Savings and
Loan Association, F.A. (the "Association") from mutual holding
company to stock form and reorganization into a holding company
format with the Association changing its name to Equality Savings
Bank (the "Bank"). The Company issued 1,322,500 shares in addition
to exchanging 1,163,402 shares for existing outstanding stock of the
Association. Net proceeds of $11.3 million were credited to
stockholders' equity. The Company's ESOP, effective upon completion
of the conversion, purchased 119,806 shares for $1.2 million,
financed by a loan from the Company. In addition, the Company
refinanced the remaining initial mutual holding company ESOP debt
totaling $114,560 from a third party bank.
CHANGES IN FINANCIAL CONDITION
The total assets of the Company increased by approximately $28.5 million, or
14.2%, to $229.3 million at December 31, 1997 from $200.8 million at
March 31, 1997. This increase in asset size primarily relates to
increased investment securities and origination of one to four
family mortgage loans and commercial business loans which were
funded through cash reserves, Federal Home Loan Bank of Des Moines
("FHLB") advances and the proceeds from sales of mortgage-backed
securities. Cash reserves were generated mainly from the proceeds
of the Company's common stock offering, totaling $11.3 million.
Cash, primarily interest bearing deposits, increased $386,000, or 37.2%, to
$1.4 million at December 31, 1997 from $1.0 million at March 31,
1997. This increase is primarily the result of the net proceeds of
the Company's common stock offering of $11.3 million, increased FHLB
advances and reduced mortgage-backed securities offset by increased
investment securities and increased mortgage loan originations.
7
<PAGE> 10
EQUALITY BANCORP, INC. AND SUBSIDIARY
Interest bearing deposits decreased $2.1 million, or 54.9%, to $1.7 million
at December 31, 1997 from $3.8 million at March 31, 1997. The
decrease is due to maturities of certificates of deposit at other
financial institutions. The Company is consciously reducing its
investment in this area as certificates of deposit mature.
Investment securities available for sale increased approximately $20.0
million, or 28.5%, to $90.1 million at December 31, 1997 from $70.1
million at March 31, 1997. The increase is due primarily to $97.9
million of purchases of securities offset by $48.1 million of sales,
$30.8 million of maturities and an increase in the fair market value
of such securities totaling $1.0 million.
Investment securities held to maturity decreased $1.2 million, or 25.8%, to
$3.6 million at December 31, 1997 from $4.8 million at March 31,
1997. The decrease is the result of the maturity of such
securities.
Mortgage-backed securities available for sale decreased approximately $7.6
million, or 50.6%, to $7.4 million at December 31, 1997 from $15.0
million at March 31, 1997. This decrease is the result of normal
principal repayments of $1.8 million and sales proceeds of $5.9
million.
Loans held for investment increased approximately $6.1 million, or 6.7%, to
$97.6 million at December 31, 1997 from $91.5 million at March 31,
1997. This increase reflects continued portfolio lending primarily
in one to four family mortgages and commercial business loans.
Loans held for sale increased approximately $8.8 million, or 200.8%, to $13.2
million at December 31, 1997 from $4.4 million at March 31, 1997.
This increase is the result of increased one to four family
mortgage loans originations by EMC. For the nine months ended
December 31, 1997 mortgage loans originations increased $12.7
million, or 23.0%, to $67.9 million from $55.3 million for the
nine months ended December 31, 1996.
8
<PAGE> 11
EQUALITY BANCORP, INC. AND SUBSIDIARY
The following table sets forth composition of the Bank's loan portfolio in
dollars and in percentages of total loans at the dates indicated:
<TABLE>
<CAPTION>
DECEMBER 31, 1997 MARCH 31, 1997
----------------- --------------
AMOUNT PERCENT AMOUNT PERCENT
------ ------- ------ -------
<S> <C> <C> <C> <C>
Loans secured by real estate:
Residential:
One to four family:
Conventional $ 71,235 64.0% $69,810 72.5%
FHA/VA 12,694 11.4% 14,233 14.8%
Loans held for sale 13,226 11.9% 4,398 4.6%
Multifamily 1,394 1.3% 1,637 1.7%
Commercial 2,557 2.3% 2,662 2.8%
-------- ----- ------- -----
Total Real Estate Loans 101,106 90.9% 92,740 96.4%
Commercial Business Loans 7,431 6.7% 1,280 1.3%
-------- ----- ------- -----
Consumer Loans:
Loans secured by savings deposits 357 .3% 366 .4%
Property improvement loans 1,751 1.5% 1,596 1.7%
Automobile loans 401 .4% 122 .1%
Other consumer loans 189 .2% 162 .1%
-------- ----- ------- -----
Total Consumer Loans 2,698 2.4% 2,246 2.3%
-------- ----- ------- -----
Total Loans 111,235 100.0% 96,266 100.0%
======== ===== ======= =====
LESS:
Deferred loan fees: 40 46
Unearned discounts 44 4
Allowance for loan losses 283 283
Valuation reserve on loans held
for sale 5 5
-------- -------
Total loans receivable, net $110,863 $95,928
======== =======
</TABLE>
9
<PAGE> 12
EQUALITY BANCORP, INC. AND SUBSIDIARY
Office properties and equipment increased $2.3 million, or 78.9%, to $5.2
million at December 31, 1997 from $2.9 million at March 31, 1997.
The increase resulted from the purchase of four properties designed
to augment the Bank's branch network. One property is designed to
replace a currently leased, limited-use facility in the first
quarter of 1998, two others to expand the Bank's branch facilities
during fiscal year 1999, and the third to expand the branch network
during fiscal year 2000 due to use restriction. This facility will
be leased or used for Bank training purposes until expiration of
the restriction.
Savings deposits decreased $6.3 million, or 5.2%, to $116.6 million at
December 31, 1997 from $123.0 million at March 31, 1997. The
decrease is due primarily to withdrawals totaling $3.4 million used
to purchase the Company's common stock. The remainder of the
decrease represents deposit outflows. Interest credited during the
nine months ended December 31, 1997 was approximately $3.4 million.
Borrowed money increased $20.8 million, or 32.3%, to $85.0 million at
December 31, 1997 from $64.2 million at March 31, 1997. FHLB
advances increased $18.0 million, or 28.6%, to $81.0 million at
December 31, 1997 from $63.0 million at March 31, 1997. Proceeds
from these advances were used to fund loan originations and
increased investment in securities. Other borrowed money increased
$2.8 million, or 220.3%, to $4.0 million at December 31, 1997 from
$1.2 million at March 31, 1997. These short term borrowings relate
to a warehouse line of credit established with an independent bank
and maintained by EMC, the proceeds of which were invested solely in
residential mortgage loans.
Total stockholders' equity increased $13.0 million, or 102.9%, to $25.6
million at December 31, 1997 from $12.6 million at March 31, 1997.
The increase was primarily attributable to the Company's sale of
common stock which totaled $11.3 million in net proceeds
accompanied by net income of $889,000 for the nine months ended
December 31, 1997 and improvement in the fair market value of
investment and mortgage-backed securities available for sale of
$787,000 at December 31, 1997 when compared to March 31, 1997.
10
<PAGE> 13
EQUALITY BANCORP, INC. AND SUBSIDIARY
<TABLE>
UNAUDITED CONSOLIDATED AVERAGE BALANCE SHEET,
INTEREST AND DIVIDENDS EARNED OR PAID,
AND RELATED INTEREST YIELDS AND RATES
<CAPTION>
THREE MONTHS ENDED DECEMBER 31,
- -----------------------------------------------------------------------------------------------------------------------
1997 1996
- -----------------------------------------------------------------------------------------------------------------------
INTEREST INTEREST
AVERAGE AND YIELD/ AVERAGE AND YIELD/
BALANCE<F1> DIVIDENDS COST<F2> BALANCE<F1> DIVIDENDS COST<F2>
- -----------------------------------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans Receivable<F3> $108,568 $2,122 7.82% $ 96,979 $1,834 7.56%
Investment in FHLB 3,700 63 6.81% 3,350 59 7.04%
Mortgage-backed securities 8,080 150 7.44% 20,425 330 6.46%
Investment securities 91,648 1,398 6.10% 66,897 1,044 6.24%
Interest-bearing deposits 8,897 130 5.82% 8,577 121 5.63%
-------- ------ -------- ------
Total interest-earning
assets 220,893 3,863 7.00% 196,228 3,388 6.91%
------ ------
Other assets 10,279 6,312
-------- --------
Total assets 231,172 202,540
======== ========
Interest bearing liabilities:
Regular savings 36,689 21,495
NOW accounts 13,590 11,438
Money market accounts 5,565 5,363
Certificates of deposit 79,595 83,470
-------- --------
Total savings deposits 135,439 1,482 4.38% 121,766 1,421 4.67%
FHLB advances 74,000 968 5.23% 63,000 862 5.47%
Other interest-bearing
liabilities 3,399 18 2.09% 3,499 21 2.29%
-------- ------ -------- ------
Total interest bearing
liabilities 212,838 2,468 4.64% 188,265 2,304 4.89%
------ ------
Other liabilities 452 1,618
-------- --------
Total liabilities 213,290 189,883
Stockholders' equity 17,882 12,657
-------- --------
Total liabilities and
stockholders' equity $231,172 $202,540
======== ========
Net interest income $1,395 $1,084
====== ======
Interest rate spread 2.36% 2.02%
==== ====
Net interest margin<F4> 2.53% 2.21%
==== ====
Ratio of average interest-
earning assets to
average interest-bearing
liabilities 1.04X 1.04X
==== ====
<FN>
<F1> Average balances are computed on a monthly basis (month-end balances).
<F2> Annualized.
<F3> Does not include interest on loans 90 days or more past due.
<F4> Net interest income divided by average interest-earning assets.
</TABLE>
11
<PAGE> 14
EQUALITY BANCORP, INC. AND SUBSIDIARY
NET INCOME
Net income increased $64,000, or 21.4%, to $364,000 for the three months
ended December 31, 1997 from $300,000 for the three months ended
December 31, 1996. The increase was primarily the result of increased
net interest income of $310,000, or 28.6% offset by increased
non-interest expense of $185,000, or 13.7%, and increased income taxes
of $45,000, or 23.6%, for the three months ended December 31, 1997.
INTEREST INCOME
Interest income increased $475,000, or 14.0%, to $3.9 million for the three
months ended December 31, 1997 from $3.4 million for the three months
ended December 31, 1996. The increase is primarily due to increased
average loans receivable of $11.6 million to $108.6 million for the
three months ended December 31, 1997 from $97.0 million for the three
months December 31, 1996 and increased average investment securities of
$24.8 million to $91.6 million for the three months ended December 31,
1997 from $66.9 million for the three months ended December 31, 1996
offset by decreased average mortgage-backed securities of $12.3 million
to $8.1 million for the three months ended December 31, 1997 from $20.4
million for the three months ended December 31, 1996. The weighted
average yield on total interest-earning assets increased to 7.00% for
the three months ended December 31, 1997 from 6.91% for the three
months ended December 31, 1996.
INTEREST EXPENSE
Interest expense increased $164,000, or 7.1%, to $2.5 million for the three
months ended December 31, 1997 from $2.3 million for the three months
ended December 31, 1996. The increase is primarily due to increased
average savings deposits of $13.7 million to $135.4 million for the
three months ended December 31, 1997 from $121.8 million for the three
months ended December 31, 1996 and increased average FHLB advances of
$11.0 million to $74.0 million for the three months ended December 31,
1997 from $63.0 million for the three months ended December 31, 1996
offset by decreased weighted average cost of funds to 4.64% for the
three months ended December 31, 1997 from 4.89% for the three months
ended December 31, 1996. Increased average savings deposits and as a
result, decreased cost of funds are the result of the Company's receipt
of subscription funds related to its common stock offering. These
funds were temporarily placed into passbook savings accounts.
PROVISION FOR LOSSES ON LOANS
The Company had no provision for losses on loans for the three month periods
ended December 31, 1997 or December 31, 1996.
NONINTEREST INCOME
Noninterest income decreased by $16,000, or 2.2%, to $735,000 for the three
months ended December 31, 1997 from $752,000 for the three months ended
December 31, 1996. This decrease was due primarily to reduced gain on
sale of investment and mortgage backed securities of $101,000, or
101.0%, to a loss of $1,000 for the three months ended December 31,
1997 from $100,000 for the three months ended December 31, 1996 offset by
gain on sale of mortgage loans of $63,000, or 20.8%, to $365,000 for
the three months ended December 31, 1997 from $302,000 for the three
months ended December 31, 1996 and increased loan servicing fees and late
charges of $10,000, or 4.3%, to $233,000 for the three months ended
December 31, 1997 from $224,000 for the three months ended December 31,
1996. For the three months ended December 31, 1997, the Company,
through EMC, sold $24.9 million of mortgage loans as compared to sales
of $15.4 million for the three months ended December 31, 1996. The
increased volume of sales resulted in increased gain on sale for the
comparable periods. As a result of increased volume and
12
<PAGE> 15
EQUALITY BANCORP, INC. AND SUBSIDIARY
the Bank's efforts at retaining servicing on loans sold the average loan
servicing portfolio increased $14.7 million, or 4.6%, to $333.0 million
for the three months ended December 31, 1997 from $318.4 million for the
three months ended December 31, 1996.
NONINTEREST EXPENSE
Noninterest expense increased $185,000, or 13.7%, to $1.5 million for the
three months ended December 31, 1997 from $1.3 million for the three
months ended December 31, 1996. The increase was due primarily to
increased salary and employee benefits expense of $93,000, or 12.6%, to
$831,000 for the three months ended December 31, 1997 from $738,000 for
the three months ended December 31, 1996, increased office occupancy
expense of $36,000, or 30.4%, to $153,000 for the three months ended
December 31, 1997 from $117,000 for the three months ended December 31,
1996 and increased other expenses of $74,000, or 20.7%, to $431,000
for the three months ended December 31, 1997 from $358,000 for the three
months ended December 31, 1996 offset by reduced FDIC insurance
premiums of $41,000, or 67.9%, to $19,000 for the three months ended
December 31, 1997 from $60,000 for the three months ended December 31,
1996. Salary and employee benefits increased primarily due to increased
commissions paid to loan officers of $32,000 on increased mortgage loan
originations and an increase of five commercial lending personnel during
1997 as well as general wage increases in effect for 1997. There was no
commercial lending function at December 31, 1996. Office occupancy
expense increased as a result of an increase in the number of office
properties and roofing repairs made to office properties during the three
months ended December 31, 1997. General operating expenses increased due
to increased amortization of originated mortgage servicing rights (OMSR)
of $22,000 to $84,000 for the three months ended December 31, 1997 from
$62,000 for the three months ended December 31, 1996 and as a result of
the replenishment of various supplies in addition to the replacement of
supplies due to the conversion and renaming of the Bank.
INCOME TAXES
Income tax expense increased $45,000, or 23.6%, to $237,000 for the three
months ended December 31, 1997 from $192,000 for the three months ended
December 31, 1996. This increase was primarily due to an increase in
income before income tax of $109,000, or 22.2%. The effective tax rate
was approximately 39.0% for the three month periods ended December 31,
1997 and 1996.
13
<PAGE> 16
EQUALITY BANCORP, INC. AND SUBSIDIARY
<TABLE>
COMPARISON OF THE NINE MONTHS ENDED DECEMBER 31, 1997 AND 1996
UNAUDITED CONSOLIDATED AVERAGE BALANCE SHEET,
INTEREST AND DIVIDENDS EARNED OR PAID,
AND RELATED INTEREST YIELDS AND RATES
<CAPTION>
NINE MONTHS ENDED DECEMBER 31,
- ------------------------------------------------------------------------------------------------------------------------
1997 1996
- ------------------------------------------------------------------------------------------------------------------------
INTEREST INTEREST
AVERAGE AND YIELD/ AVERAGE AND YIELD/
BALANCE<F1> DIVIDENDS COST<F2> BALANCE<F1> DIVIDENDS COST<F2>
- ------------------------------------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans Receivable<F3> $106,287 $ 6,074 7.62% $ 99,079 $ 5,521 7.43%
Investment in FHLB 3,514 183 6.94% 3,283 174 7.07%
Mortgage-backed securities 10,035 540 7.17% 21,796 1,198 7.33%
Investment securities 77,172 3,685 6.37% 61,119 2,818 6.15%
Interest-bearing deposits 10,855 317 3.90% 8,186 434 7.09%
-------- ------- -------- -------
Total interest-earning
assets 207,863 10,799 6.93% 193,463 10,145 6.99%
------- -------
Other assets 8,893 8,407
-------- --------
Total assets 216,756 201,870
======== ========
Interest bearing liabilities:
Regular savings 29,716 22,037
NOW accounts 13,288 11,240
Money market accounts 5,516 5,432
Certificates of deposit 81,088 84,530
-------- --------
Total savings deposits 129,608 4,314 4.44% 123,239 4,299 4.65%
FHLB advances 68,056 2,751 5.39% 61,556 2,542 5.51%
Other interest-bearing
liabilities 2,650 45 2.26% 2,589 44 2.27%
-------- ------- -------- -------
Total interest bearing
liabilities 200,314 7,110 4.73% 187,384 6,885 4.90%
------- -------
Other liabilities 1,643 1,850
-------- --------
Total liabilities 201,957 189,234
Stockholders' equity 14,799 12,636
-------- --------
Total liabilities and
stockholders' equity $216,756 $201,870
======== ========
Net interest income $ 3,689 $ 3,260
======= =======
Interest rate spread 2.20% 2.09%
==== ====
Net interest margin<F4> 2.37% 2.25%
==== ====
Ratio of average interest-
earning assets to
average interest-bearing
liabilities 1.04x 1.03x
==== ====
<FN>
<F1> Average balances are computed on a monthly basis (month-end balances).
<F2> Annualized.
<F3> Does not include interest on loans 90 days or more past due.
<F4> Net interest income divided by average interest-earning assets.
</TABLE>
14
<PAGE> 17
EQUALITY BANCORP, INC. AND SUBSIDIARY
NET INCOME
Net income increased $649,000, or 270.4%, to $889,000 for the nine months
ended December 31, 1997 from $240,000 for the nine months ended
December 31, 1996. The increase was primarily the result of increased net
interest income of $430,000, or 13.2%, increased noninterest income of
$111,000, or 5.6%, and reduced noninterest expense of $550,000, or
11.3%, offset by increased income taxes of $419,000, or 273.4%. The
noninterest expense and income tax expense fluctuations are the result
of legislation passed by Congress in September, 1996 to recapitalize
the Savings Association Insurance Fund (SAIF) in which Equality was
assessed a one-time FDIC insurance premium of $789,000 on September 30,
1996. There was no comparable item at December 31, 1997.
INTEREST INCOME
Interest income increased $655,000 to $10.8 million for the nine months ended
December 31, 1997 from $10.1 million for the nine months ended December
31, 1996. Interest on loans receivable increased by $553,000, or
10.0%, to $6.1 million for the nine months ended December 31, 1997 from
$5.5 million for the nine months ended December 31, 1996. This increase
was primarily due to an increase in the average balance of loans
outstanding of $7.2 million from $99.1 million for the nine months ended
December 31, 1996 to $106.3 million for the nine months ended December 31,
1997, accompanied by an increase in the yield on loans from 7.43% for the
nine months ended December 31, 1996 to 7.62% for the nine months ended
December 31, 1997. The higher average balance of loans outstanding for
the nine months ended December 31, 1997 reflects an increase in
mortgage loan portfolio and secured commercial lending. Interest on
investment securities increased $867,000, or 30.8%, from $2.8 million for
the nine months ended December 31, 1996 to $3.7 million for the nine
months ended December 31, 1997, due to an increase in the average balance
of investment securities of $16.1 million from $61.1 million for the nine
months ended December 31, 1996 to $77.2 million for the nine months
ended December 31, 1997. During the same period the yield on
investment securities increased from 6.15% for the nine months ended
December 31, 1996 to 6.37% for the nine months ended December 31, 1997.
Interest income on mortgage-backed securities decreased $658,000, or
54.9%, from $1.2 million for the nine months ended December 31, 1996 to
$540,000 for the nine months ended December 31, 1997 due to a decrease in
the average balances of $11.8 million from $21.8 million for the nine
months ended December 31, 1996 to $10.0 million for the nine months ended
December 31, 1997, accompanied by a decrease in the yield on
mortgage-backed securities from 7.33% for the nine months ended December
31, 1996 to 7.17% for the nine months ended December 31, 1997.
INTEREST EXPENSE
Interest expense increased $225,000, or 3.3%, to $7.1 million for the nine
months ended December 31, 1997 from $6.9 million for the nine months
ended December 31, 1996. The increase resulted primarily from
increased average savings deposit balances and average increased FHLB
advances. Average deposit balances increased $6.4 million from $123.2
million for the nine months December 31, 1996 to $129.6 million for the
nine months ended December 31, 1997 accompanied by a decrease in the
weighted average cost of deposits from 4.65% for the nine months ended
December 31, 1996 to 4.44% for the nine months ended December 31, 1997,
due to the effects of increased average passbook balances.
15
<PAGE> 18
EQUALITY BANCORP, INC. AND SUBSIDIARY
Average advances from the FHLB increased $6.5 million from $61.6 million for
the nine months ended December 31, 1996 to $68.1 million for the nine
months ended December 31, 1997. The increase was primarily the result
of borrowings used to fund increased investments in securities and
mortgage loan originations. The weighted average cost of advances
decreased from 5.51% for the nine months ended December 31, 1996 to
5.39% for the nine months ended December 31, 1997 due to effective
borrowing programs offered by the FHLB.
PROVISION FOR LOSSES ON LOANS
Provision for losses on loans increased $24,000 to $24,000 for the nine
months ended December 31, 1997 compared to no provision for the nine
months ended December 31, 1996. The provision for loan losses is
determined by management as the amount to be added to the allowance for
loan losses after net chargeoffs have been deducted to bring the
allowance to a level which is considered adequate to absorb losses
inherent in the loan portfolio. The Bank's allowance for loan losses
totaled $283,000 at December 31, 1997 and March 31, 1997, respectively.
The allowance for loan losses is established through a provision for
loan losses charged to expense. While the Bank maintains its allowance
for losses at a level which it considered to be adequate, there can be
no assurances that further additions will not be made to the allowance
or that such losses will not exceed the estimated amounts.
NONINTEREST INCOME
Noninterest income increased $111,000, or 5.6%, to $2.1 million for the nine
months ended December 31, 1997 from $2.0 million for the nine months
ended December 31, 1996. The increase is due primarily to gain on sale
of mortgage loans which increased from $737,000 for the nine months
ended December 31, 1996 to $985,000 for the nine months ended December
31, 1997, and increased loan servicing fees and late charges which
increased from $669,000 for the nine months ended December 31, 1996 to
$706,000 for the nine months ended December 31, 1997 offset by the
results of the sale of a 26 unit residential property by ECC in June,
1996 at a gain of $106,000 with no comparable gain for the nine months
ended December 31, 1997 and the resulting reduction in rental income of
$20,000 for the same period and equity in earnings (loss) of joint
ventures decreased $46,000 as a result of decreased rental income of
$42,000 from $181,000 for the nine months ended December 31, 1996 to
$138,000 for the nine months ended December 31, 1997. The increase of
$248,000, or 33.6%, on gain on sale of mortgage loans was due to a
continued improvement in market rates during the nine months ended
December 31, 1997. For the nine months ended December 31, 1997, the
Bank, through EMC, sold $62.8 million of mortgage loans as compared to
$63.0 million in the comparable period in 1996. However, the decreased
sales volume of $194,000 resulted in increased gain on sale of mortgage
loans due to the condition of the secondary mortgage market. Loan
servicing fees and late charges increased $37,000, or 5.5%, due
primarily to an increase in the average servicing portfolio of EMC.
Average loan servicing by EMC increased $17.2 million, or 5.5%, from
$310.7 million for the nine months ended December 31, 1996 to $328.0
million for the nine months ended December 31, 1997.
16
<PAGE> 19
EQUALITY BANCORP, INC. AND SUBSIDIARY
NONINTEREST EXPENSE
Noninterest expense decreased $550,000, or 11.3%, to $4.3 million for the
nine months ended December 31, 1997 from $4.9 million for the nine
months ended December 31, 1996 due primarily to legislation passed by
Congress to capitalize the SAIF in which Equality was assessed a
one-time FDIC premium of $789,000. In addition, ongoing federal
deposit insurance premiums decreased $154,000, or 72.6%, from $212,000 for
the nine months ended December 31, 1996 to $58,000 for the nine months
ended December 31, 1997 as a result of reduced premiums from approximately
23 basis points to six basis points in connection with the SAIF
recapitalization, offset by increased salaries and employee benefits of
$185,000, or 8.2%, from $2.3 million for the nine months ended December
31, 1996 to $2.4 million for the nine months ended December 31, 1997
and general increases in data processing, occupancy and other expenses.
Increased salary and employee benefits are the direct result of
increased commissions paid to mortgage loan origination personnel,
general wage increases and an increase in commercial loan production
personnel. The Bank began a commercial lending function in early 1997
and increased the number of personnel to five at December 31, 1997.
Occupancy expense increased $40,000 as a result of expenses related to
an increased in the number of office properties and roofing repairs
made to office properties. Other expenses increased $118,000 due
primarily to an increase in the amortization of originated mortgage
servicing rights (OMSR) which increased $73,000 from $128,000 for the nine
months ended December 31, 1996 to $201,000 for the nine months ended
December 31, 1997 caused by refinancing or repayment of mortgage loans
which had OMSR and due to increases in supplies and items replaced due to
the conversion and renaming of the Bank.
INCOME TAXES
Income tax expense increased $419,000, or 273.4%, to $572,000 for the nine
months ended December 31, 1997 from $153,000 for the nine months ended
December 31, 1996. The increase was the result of the increase in
income before income tax expense of $1.1 million due to the previously
mentioned Congress approved SAIF recapitalization assessment as well as
previously mentioned improvements in net interest income and
noninterest income offset by increased noninterest expenses. The effective
tax rate was approximately 39.0% for the nine month periods ended December
31, 1997 and 1996.
17
<PAGE> 20
EQUALITY BANCORP, INC. AND SUBSIDIARY
NONPERFORMING ASSETS
At December 31, 1997, nonperforming assets were approximately $893,000, which
represents an increase of $184,000, or 26.0%, as compared to March 31,
1997. A summary of nonperforming assets by category is summarized as
follows:
<TABLE>
<CAPTION>
Dec. 31, March 31,
1997 1997
-------- ---------
(in thousands)
<S> <C> <C>
Nonaccruing loans:
One to four family<F1> $872 643
Consumer and other 8 --
---- ---
Total nonaccruing loans 880 643
Foreclosed assets - one to four family 13 66
---- ---
Total nonperforming assets $893 709
==== ===
Nonaccruing loans as a percent of net loans .79% .67%
==== ===
Nonaccruing loans as a percent of
total assets .38% .32%
==== ===
Nonperforming assets as a percent of
total assets .39% .35%
==== ===
<FN>
<F1> Includes $872,000 and $571,000 of FHA/VA loans, the principal and
interest payments of which are either issued by FHA or guaranteed by
the VA at December 31, 1997 and March 31, 1997, respectively.
</TABLE>
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.
18
<PAGE> 21
EQUALITY BANCORP, INC. AND SUBSIDIARY
LIQUIDITY AND CAPITAL RESOURCES
The Office of Thrift Supervision (OTS) requires minimum levels of liquid
assets. OTS regulations presently require the Bank maintain an average
daily balance of liquid assets equal to at least 4% 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 the Bank may rely, if necessary, to
fund deposit withdrawals and other short-term funding needs. The
Bank's regulatory liquidity at December 31, 1997 was 31.0%.
The Bank's primary sources of funds consist of deposits bearing market rates
of interest and loan repayments. Other potential sources of funds
available to the Bank include borrowings from FHLB. At December 31,
1997, the Bank had such outstanding FHLB borrowings of $81.0 million.
The Bank 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 the Bank's liquidity needs, including meeting its
commitments to buy or fund loans. At December 31, 1997, the Bank had
approximately $2.7 million in outstanding commitments to originate loans,
approximately $521,000 of which were adjustable rate loans. The
interest rate on fixed rate commitments ranged from 7.125% to 8.48% at
December 31, 1997. The majority of the loans will be sold into the
secondary market upon origination.
REGULATORY CAPITAL
Federally insured savings associations such as the Bank 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. 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.
19
<PAGE> 22
EQUALITY BANCORP, INC. AND SUBSIDIARY
A reconciliation of stockholders' equity, as reported in the consolidated
financial statements of the Bank, 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 $23,058 $23,058 $23,058
Unrealized gain on investment and
mortgage-backed securities
available for sale (278) (278) (278)
------- ------- -------
Adjusted stockholders' equity 22,780 22,780 22,780
Investments in and advances to
nonincludable subsidiaries (833) (833) (833)
Additional capital item - general
loan loss reserves -- -- 283
------- ------- -------
Regulatory capital, as computed 21,947 21,947 22,230
Minimum capital requirement<F*> 3,429 6,858 6,867
------- ------- -------
Regulatory capital in excess of
minimum capital requirement 18,518 15,089 15,363
======= ======= =======
Regulatory capital ratio 9.60% 9.60% 25.90%
======= ======= =======
<FN>
<F*> As reflected in the quarterly report to the OTS.
</TABLE>
Management believes that under current regulations, the Bank will continue to
meet its minimum capital requirements in the foreseeable future.
Events beyond the control of the Bank could adversely affect future
earnings and as a result, the ability of the Bank to meet its future
minimum capital requirements.
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 the Company's are monetary in nature. As a result, interest rates
have a more significant impact on the Company'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 the
Company's assets and liabilities are important factors in the maintenance
of acceptable performance levels.
20
<PAGE> 23
EQUALITY BANCORP, INC. AND SUBSIDIARY
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. The Bank
continues to measure compensation cost using APB 25. No stock options
were granted during the year ended March 31, 1997 or during the nine
months ended December 31, 1997. SFAS 123 is not expected to have a
material impact on the Bank's consolidated financial statements.
DISCLOSURE OF INFORMATION ABOUT CAPITAL STRUCTURE
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.
REPORTING COMPREHENSIVE INCOME
In June, 1997, the FASB issued Statement of Financial Accounting Standards
No. 130, Reporting Comprehensive Income (SFAS 130). SFAS 130
------------------------------
establishes standards for reporting and display of comprehensive income
and its components in a full set of general purpose financial
statements. SFAS 130 requires all items that are required to be
recognized under accounting standards as components of comprehensive
income be reported in a financial statement that is displayed in equal
prominence with the other financial statements. SFAS 130 is applicable
to all entities that provide a full set of financial statements
consisting of a statement of financial position, results of operations
and cash flows. SFAS 130 is effective for both interim and annual
periods beginning after December 15, 1997. Comparative financial
statements provided for earlier periods are required to be reclassified
to reflect the provisions of SFAS 130. Publicly traded enterprises
that issue condensed financial statements for interim periods are required
to report a total for comprehensive income in those financial statements.
SFAS 130 is not expected to have a material impact on the Company's
consolidated financial statements.
21
<PAGE> 24
EQUALITY BANCORP, INC. AND SUBSIDIARY
DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION
Also in June, 1997, the FASB issued Statement of Financial Accounting
Standards No. 131, Disclosures about Segments of an Enterprise and
-----------------------------------------------
Related Information (SFAS 131). SFAS 131 establishes standards for
-------------------
the way public business enterprises are to report information about
operating segments in annual financial statements and requires those
enterprises to report selected information about operating segments in
interim financial reports issued to shareholders. It also establishes
standards for related disclosures about products and services,
geographic areas, and major customers. SFAS 131 is effective for
financial statements for periods beginning after December 15, 1997. In
the initial year of application, comparative information for earlier
years is to be restated, unless it is impracticable to do so. SFAS 131
need not be applied to interim financial statements in the initial year
of its application, but comparative information for interim periods in
the initial year of application shall be reported in financial
statements for interim periods in the second year of application. The
adoption of SFAS 131 is not expected to have a material impact on the
Company's consolidated financial statements.
22
<PAGE> 25
EQUALITY BANCORP, INC. AND SUBSIDIARY
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
None.
Item 2. Changes in Securities
---------------------
The effective date of this registration statement is October 27,
1997 and the Commission file number assigned is 333-38287.
The offering commenced on August 12, 1997 and was closed on
September 16, 1997. A resolicitation period was required by
Office of Thrift Supervision order which commenced on October 27,
1997 and was closed on November 19, 1997.
The Company issued 2,485,902, $.01 par value per share common
stock; 1,322,500 $.01 par value shares of common stock were sold
at a price of $10.00 per share to aggregate $13,225,000 and
1,163,402 shares were exchanged for existing outstanding $1 par
value commons stock of the Association. All registered shares
were sold or exchanged.
Through December 31, 1997 the expenses incurred in connection
with the issuance and distribution of the registered securities
totaled $884,085 which includes an estimated $240,000 which remained
outstanding. All amounts were direct payments to third party
(other) firms.
The net offering proceeds totaled $11,281,520.
Net offering proceeds to the issuer have been used as follows:
<TABLE>
<S> <C>
Working capital<F1> $ 1,281,520
Investment in subsidiary bank<F2> 10,000,000
<FN>
<F1> Held in an interest bearing money market account
at the Bank.
<F2> The Bank, in turn, used the proceeds to purchase
short-term U.S. Government and Agency investment
securities. Such securities were placed in the
Bank's available for sale portfolio.
</TABLE>
The Company maintains its working capital account with the Bank.
All other uses were purchased through and paid to third party
(other) firms.
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: None.
Reports on Form 8-K: None.
23
<PAGE> 26
EQUALITY BANCORP, INC. AND SUBSIDIARY
SIGNATURES
Pursuant to the requirement 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: February 13, 1998 /s/ RICHARD C. FELLHAUER
--------------------------------- -----------------------------
Richard C. Fellhauer, President,
Chief Executive Officer and
Chairman of the Board
Date: February 13, 1998 /s/ MICHAEL A. DEELO
--------------------------------- -----------------------------
Michael A. Deelo,
Chief Financial Officer
24
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 1,423
<INT-BEARING-DEPOSITS> 1,722
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 97,488
<INVESTMENTS-CARRYING> 3,600
<INVESTMENTS-MARKET> 3,492
<LOANS> 110,863
<ALLOWANCE> 283
<TOTAL-ASSETS> 229,280
<DEPOSITS> 116,646
<SHORT-TERM> 4,000
<LIABILITIES-OTHER> 1,994
<LONG-TERM> 81,000
0
0
<COMMON> 25
<OTHER-SE> 25,614
<TOTAL-LIABILITIES-AND-EQUITY> 229,280
<INTEREST-LOAN> 6,074
<INTEREST-INVEST> 4,542
<INTEREST-OTHER> 183
<INTEREST-TOTAL> 10,799
<INTEREST-DEPOSIT> 4,314
<INTEREST-EXPENSE> 7,110
<INTEREST-INCOME-NET> 3,689
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 48
<EXPENSE-OTHER> 4,320
<INCOME-PRETAX> 1,461
<INCOME-PRE-EXTRAORDINARY> 1,461
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 889
<EPS-PRIMARY> .36
<EPS-DILUTED> .36
<YIELD-ACTUAL> 6.93
<LOANS-NON> 880
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 283
<CHARGE-OFFS> 24
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 283
<ALLOWANCE-DOMESTIC> 283
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
