<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 September 30, 1998.
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 small business issuer 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)
Issuer's telephone number, including area code (314) 965-7090
--------------
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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
----- -----
State the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Shares Outstanding at November 10, 1998
- ----------------------------- ---------------------------------------
Common Stock, Par Value $0.01 2,519,793
Traditional Small Business Disclosure Format (Check one): Yes No X
----- -----
<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
- Consolidated Statements of Comprehensive Income 5
- Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis or Plan of 8
Operation
PART II OTHER INFORMATION
Item 1. Legal Proceedings 22
Item 2. Changes in Securities and Use of Proceeds 22
Item 3. Defaults Upon Senior Securities 22
Item 4. Submission of Matters to a Vote of Security Holders 22
Item 5. Other Information 22
Item 6. Exhibits and Reports on Form 8-K 22
SIGNATURES 23
</TABLE>
<PAGE> 3
EQUALITY BANCORP, INC. AND SUBSIDIARY
<TABLE>
Consolidated Balance Sheets
September 30, 1998 and March 31, 1998
(Unaudited)
<CAPTION>
September 30, March 31,
Assets 1998 1998
------ ------------- -----------
<S> <C> <C>
Cash, primarily interest-bearing demand accounts $ 10,981,529 1,070,538
Interest-bearing deposits 1,184,000 1,378,000
Investment securities:
Available for sale, at market value 53,505,530 68,897,156
Held to maturity, at cost 600,000 2,600,000
Mortgage-backed securities available
for sale, at market value 101,800,515 58,512,089
Loans receivable, net 97,629,474 108,415,421
Investment in real estate 667,315 734,317
Stock in Federal Home Loan Bank 6,521,600 5,200,000
Mortgage servicing rights 1,121,879 837,597
Office properties and equipment, net 6,262,615 5,574,287
Accrued interest receivable and other assets 2,302,444 2,330,908
------------ -----------
282,576,901 255,550,313
============ ===========
Liabilities and Stockholders' Equity
------------------------------------
Savings deposits 120,215,489 119,301,376
Accrued interest payable on savings deposits 161,251 134,203
Advances from the Federal Home Loan Bank 130,396,326 104,000,000
Other borrowed money 3,629,533 1,678,694
Advance payments by borrowers for taxes and insurance 169,605 105,950
Income tax payable 146,325 696,192
Deferred income taxes 925,616 871,839
Accrued expenses and other liabilities 721,711 2,924,244
------------ -----------
Total liabilities 256,365,856 229,712,498
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value per share;
200,000 shares authorized; none issued -- --
Common stock, $.01 par value per share; 4,000,000
shares authorized; 2,519,793 and 2,505,855
shares issued and outstanding at September 30,
1998 and March 31, 1998, respectively 25,198 25,059
Additional paid-in capital 16,089,825 15,997,241
Retained earnings - substantially restricted 10,958,008 10,694,400
Accumulated other comprehensive income - unrealized
gain on investment and mortgage-backed
securities available for sale, net of tax 482,332 398,219
Unamortized restricted stock awards (138,133) --
Unearned ESOP shares (1,206,185) (1,277,104)
------------ -----------
Total stockholders' equity 26,211,045 25,837,815
------------ -----------
$282,576,901 255,550,313
============ ===========
See accompanying notes to consolidated financial statements.
</TABLE>
1
<PAGE> 4
EQUALITY BANCORP, INC. AND SUBSIDIARY
<TABLE>
Consolidated Statements of Income
Three and Six months ended September 30, 1998 and 1997
(Unaudited)
<CAPTION>
Three months Six months
ended September 30 ended September 30
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest income:
Loans receivable $1,891,722 1,997,895 3,963,982 3,952,769
Investment securities 963,806 1,166,543 2,064,080 2,286,974
Mortgage-backed securities 1,293,120 172,061 2,260,446 389,530
Interest-bearing deposits 86,792 132,729 212,109 187,684
Other 106,616 60,612 202,909 119,844
---------- --------- --------- ---------
Total interest income 4,342,056 3,529,840 8,703,526 6,936,801
---------- --------- --------- ---------
Interest expense:
Savings deposits 1,344,625 1,431,212 2,667,375 2,832,764
Advances from the Federal Home Loan Bank 1,725,317 890,689 3,270,704 1,781,930
Other borrowed money 16,717 16,083 29,895 27,271
---------- --------- --------- ---------
Total interest expense 3,086,659 2,337,984 5,967,974 4,641,965
---------- --------- --------- ---------
Net interest income 1,255,397 1,191,856 2,735,552 2,294,836
Provision for losses on loans -- 24,313 -- 24,313
---------- --------- --------- ---------
Net interest income after pro-
vision for losses on loans 1,255,397 1,167,543 2,735,552 2,270,523
Noninterest income:
Gain on sale of mortgage loans 644,819 428,731 1,196,460 619,561
Loan servicing fees and late charges 294,115 235,954 586,692 472,745
Equity in loss of joint ventures (17,194) -- (54,430) (16,491)
Rental income 43,626 51,114 69,287 57,378
Gain on sale of investment and
mortgage backed securities
available for sale 30,539 1,388 36,936 48,905
Other 119,801 108,132 230,372 198,203
---------- --------- --------- ---------
Total noninterest income 1,115,706 825,319 2,065,317 1,380,301
Noninterest expense:
Salaries and employee benefits 1,130,064 818,955 2,167,783 1,605,412
Occupancy 143,138 143,896 258,157 250,511
Data processing 79,156 60,869 152,337 114,645
Advertising 110,954 21,965 195,058 49,466
Deposit insurance premiums 18,343 19,218 36,603 38,910
Other 572,697 376,671 1,094,346 732,202
---------- --------- --------- ---------
Total noninterest expense 2,054,352 1,441,574 3,904,284 2,791,146
---------- --------- --------- ---------
Income before income tax expense 316,751 551,288 896,585 859,678
Income tax expense 120,311 214,977 349,200 335,249
---------- --------- --------- ---------
Net income $ 196,440 336,311 547,385 524,429
========== ========= ========= =========
Basic earnings per share $ .08 .14 .23 .21
========== ========= ========= =========
Diluted earnings per share $ .08 .14 .23 .21
========== ========= ========= =========
See accompanying notes to consolidated financial statements.
</TABLE>
2
<PAGE> 5
<TABLE>
Consolidated Statement of Stockholders' Equity
Six months ended September 30, 1998
(Unaudited)
<CAPTION>
Accumulated Unamortized Total
Common Stock Additional other com- restricted stock-
------------ paid-in Retained prehensive stock Unearned holders'
Shares Amount capital earnings income awards ESOP shares equity
------ ------ ---------- ---------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, March 31,
1998 2,505,855 $25,059 15,997,241 10,694,400 398,219 -- (1,277,104) $25,837,815
Net income 547,385 547,385
Exercise of stock
options 13,938 139 50,266 50,405
Management Recognition
Plan (MRP) stock
awards (165,762) (165,762)
Amortization of re-
stricted stock awards 27,629 27,629
Amortization of
ESOP awards 42,318 70,919 113,237
Dividend declared
on common stock
at $.12 per share (283,777) (283,777)
Change in other
comprehensive
income 84,113 84,113
--------- ------- ---------- ---------- ------- --------- ---------- -----------
Balance, Sept. 30,
1998 2,519,793 $25,198 16,089,825 10,958,008 482,332 (138,133) (1,206,185) $26,211,045
========= ======= ========== ========== ======= ========= ========== ===========
See accompanying notes to consolidated financial statements.
</TABLE>
3
<PAGE> 6
EQUALITY BANCORP, INC. AND SUBSIDIARY
<TABLE>
Consolidated Statements of Cash Flows
Six months ended September 30, 1998 and 1997
(Unaudited)
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 547,385 524,429
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization:
Office properties and equipment 83,494 138,852
Real estate investments 5,631 5,631
Premiums and discounts, net (168,504) 18,112
Mortgage servicing rights 258,818 117,429
Restricted stock awards 27,629 --
Increase in accrued interest receivable (83,052) (293,242)
Gain on sale of investment and mortgage-backed
securities available for sale (36,936) (48,905)
Increase in accrued interest payable on savings deposits 27,048 27,927
Change in income tax payable (549,867) 259,290
Equity in loss of joint ventures 54,430 16,491
Other, net (1,886,848) (78,008)
Origination and purchase of loans held for sale (75,675,433) (46,004,893)
Proceeds from sales of loans held for sale 78,196,657 38,491,508
------------ -----------
Net cash provided by (used in) operating activities 800,452 (6,825,379)
------------ -----------
Cash flow from investing activities:
Net change in loans receivable 8,163,054 (4,370,070)
Decrease in interest-bearing deposits 194,000 1,708,870
Principal repayments on investment securities, AFS 25,313 85,904
Principal repayments on mortgage-backed securities, AFS 11,020,111 1,025,331
Proceeds from the sale of investment securities, AFS 9,305,049 46,124,512
Proceeds from the maturity of investment securities, AFS 37,850,000 14,135,000
Proceeds from the sale of mortgage-backed securities, AFS 6,244,094 4,408,193
Proceeds from the maturity of mortgage-backed securities, AFS -- 229,697
Proceeds from the maturity of investment securities, HTM 2,000,000 1,250,000
Purchase of investment securities, AFS (31,332,122) (71,014,309)
Purchase of mortgage-backed securities, AFS (60,655,178) --
Decrease in joint venture borrowings 6,941 6,652
Purchase of stock in FHLB (1,321,600) (175,000)
Increase in cost of mortgage servicing rights (543,100) (207,936)
Purchase of office properties and equipment, net (771,822) (868,599)
------------ -----------
Net cash used in investing activities (19,815,260) (7,661,755)
------------ -----------
Cash flow from financing activities:
Net decrease in savings deposits 914,113 26,151,012
Proceeds from Federal Home Loan Bank advances 36,500,000 12,500,000
Repayment of Federal Home Loan Bank advances (10,103,674) (5,000,000)
Proceeds from other borrowed money 1,950,839 1,888,982
Cash dividends paid (283,777) (64,161)
Proceeds from exercise of stock options 50,405 --
Stock purchased for restricted stock awards (165,762) --
Increase in advance payments by borrowers
for taxes and insurance 63,655 44,576
------------ -----------
Net cash provided by financing activities 28,925,799 35,520,409
------------ -----------
Net increase in cash and cash equivalents 9,910,991 21,033,275
Cash and cash equivalents, beginning of period 1,070,538 1,037,199
------------ -----------
Cash and cash equivalents, end of period $ 10,981,529 22,070,474
============ ===========
Supplemental disclosure of cash flow information:
Interest paid $ 5,940,926 4,581,694
Income taxes paid, net 960,012 75,958
See accompanying notes to consolidated financial statements.
</TABLE>
4
<PAGE> 7
EQUALITY BANCORP, INC. AND SUBSIDIARY
<TABLE>
Consolidated Statements of Comprehensive Income
Six months ended September 30, 1998 and 1997
(Unaudited)
<CAPTION>
1998 1997
-------- ---------
<S> <C> <C>
Net Income $547,385 524,429
Other comprehensive income:
Net unrealized gain on investment and mortgage-backed
securities available for sale, net of tax 106,644 799,171
Less adjustment for gain on sale of investment and
mortgage-backed securities available for sale,
net realized in net income, net of tax of $14,405
and $19,073 for the six months ended September 30,
1998 and 1997, respectively (22,531) (29,832)
-------- ---------
Total other comprehensive income 84,113 769,339
-------- ---------
Comprehensive income $631,498 1,293,768
======== =========
See accompanying notes to consolidated financial statements.
</TABLE>
5
<PAGE> 8
EQUALITY BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
September 30, 1998
(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 six months ended September 30, 1998
and 1997.
Operating results for the six months ended September 30, 1998 are not
necessarily indicative of the results that may be expected for the
year ending March 31, 1999.
(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 (the 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 considers the effects of options and
convertible securities. All prior period earnings per share data
have been restated to conform with the requirements of SFAS 128.
Earnings per share information 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 which
occurred on December 1, 1997.
Basic earnings per share for the six month periods ended September 30,
1998 and 1997 was computed based upon net income for the period
using weighted average common shares outstanding of 2,365,349 and
2,451,224, respectively. For the three month periods ended
September 30, 1998 and 1997, basic earnings per share were
computed
6
<PAGE> 9
EQUALITY BANCORP, INC. AND SUBSIDIARY
upon net income for the period using weighted average common shares
outstanding of 2,372,657 and 2,452,064, respectively.
Diluted earnings per share for the six month periods ended September
30, 1998 and 1997 was computed based upon net income for the
period using weighted average common shares and dilutive potential
common shares outstanding of 2,400,480 and 2,469,184, respectively.
Stock options are the only dilutive potential common shares. For
the three month periods ended September 30, 1998 and 1997, basic
earnings per share average common shares outstanding of 2,406,085
shares and 2,470,024 shares, respectively.
7
<PAGE> 10
EQUALITY BANCORP, INC. AND SUBSIDIARY
Management's Discussion and Analysis or
Plan of Operation
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 September 30, 1998 and for the
three and six months then ended.
The Company does not undertake, and specifically disclaims any obligation, to
update any forward-looking statements to reflect the occurrence of
anticipated or unanticipated events or circumstances after the date of
such statements.
CHANGES IN FINANCIAL CONDITION
The total assets of the Company increased $27.0 million, or 10.6%, to $282.6
million at September 30, 1998 from $255.6 million at March 31, 1998.
This increase in asset size primarily relates to increased investment in
mortgage-backed securities and cash reserves which were funded through
Federal Home Loan Bank of Des Moines (FHLB) advances and the proceeds
from maturities of investment securities.
Cash, primarily interest bearing deposits, increased $9.9 million, or 925.8%,
to $11.0 million at September 30, 1998 from $1.1 million at March 31,
1998. This increase is primarily the result of increased FHLB advances,
decreased investment securities, and accelerated mortgage loan
prepayments offset by increased mortgage-backed securities.
Interest bearing deposits decreased $194,000, or 14.1%, to $1.2 million at
September 30, 1998 from $1.4 million at March 31, 1998. The decrease is
due to the maturity of two 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 decreased $15.4 million, or 22.3%,
to $53.5 million at September 30, 1998 from $68.9 million at March 31,
1998. The decrease is due primarily to $31.2 million of purchases of
securities offset by $37.9 million of maturities and sales proceeds of
$9.3 million.
Investment securities held to maturity decreased $2.0 million, or 76.9%, to
$600,000 at September 30, 1998 from $2.6 million at March 31, 1998. The
decrease is the result of the maturity of such securities.
Mortgage-backed securities available for sale increased $43.3 million, or
74.0%, to $101.8 million at September 30, 1998 from $58.5 million at
March 31, 1998. This increase is the result of purchases of securities
totaling $60.7 million, offset by normal principal repayments of $11.0
million and sales proceeds of $6.2 million.
Loans receivable, net, decreased $10.8 million, or 9.9%, from $108.4 million
at March 31, 1998, to $97.6 million at September 30, 1998. Loans held
for investment decreased $8.3
8
<PAGE> 11
EQUALITY BANCORP, INC. AND SUBSIDIARY
million, or 8.8%, to $85.6 million at September 30, 1998 from $93.9
million at March 31, 1998. This decrease reflects accelerated principal
repayments due to refinancing, the result of low mortgage interest rates.
Loans held for sale decreased $2.5 million, or 17.4%, to $12.0 million at
September 30, 1998 from $14.5 million at March 31, 1998. This decrease is
the result of EMC mortgage loan originations totaling $74.6 million and
mortgage loan purchases of $1.1 million, offset by mortgage loan sales of
$78.2 million for the six months ended September 30, 1998
The following table sets forth composition of the Company's loan portfolio in
dollars and in percentages of total loans at the dates indicated:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998 MARCH 31, 1998
------------------ --------------
AMOUNT PERCENT AMOUNT PERCENT
------ ------- ------ -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Loans secured by real estate:
Residential:
One to four family:
Conventional $58,884 60.0% $ 67,543 62.0%
FHA/VA 10,031 10.2 11,718 10.8
Loans held for sale 12,002 12.2 14,523. 13.3
Multifamily 1,303 1.3 1,382. 1.3
Commercial 3,526 3.6 2,684. 2.5
Total Real Estate Loans 85,746 87.3 97,850 89.9
------- ----- -------- -----
Commercial Business Loans 9,407 9.6 8,153 7.4
------- ----- -------- -----
Consumer Loans:
Loans secured by savings deposits 270 .3 391 .4
Property improvement loans 1,652 1.7 1,728 1.6
Automobile loans 840 .9 617 .6
Other consumer loans 197 .2 157 .1
------- ----- -------- -----
Total Consumer Loans 2,959 3.1 2,893 2.7
------- ----- -------- -----
Total Loans 98,112 100.0% 108,896 100.0%
===== =====
LESS:
Loans in process -- 3
Deferred loan fees 26 37
Unearned discounts 30 8
Allowance for loan losses 366 374
Valuation reserve on loans held
for sale 61 59
------- --------
Total loans receivable, net $97,629 $108,415
======= ========
</TABLE>
9
<PAGE> 12
EQUALITY BANCORP, INC. AND SUBSIDIARY
Office properties and equipment increased $688,000, or 12.3%, to $6.3 million
at September 30, 1998 from $5.6 million at March 31, 1998. The increase
resulted from additional improvements to the Bank's branch network
during the six months ended September 30, 1998 including the relocation
of a limited use branch into a full service location and the opening of
a new branch in Washington, Missouri.
Savings deposits increased $914,000, or .8%, to $120.2 million at September
30, 1998 from $119.3 million at March 31, 1998. The increase is due
primarily to deposits taken at the Bank's newly opened branch location
in Washington, Missouri during August and September, 1998. Interest
credited during the six months ended September 30, 1998 was
approximately $2.1 million.
FHLB advances increased $26.4 million, or 25.4%, to $130.4 million at
September 30, 1998 from $104.0 million at March 31, 1998. Proceeds from
these advances were used to fund purchases of mortgage-backed securities.
Other borrowed money increased $2.0 million, or 116.2%, to $3.6 million at
September 30, 1998 from $1.7 million at March 31, 1998. 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 $373,000, or 1.4%, to $26.2 million at
September 30, 1998 from $25.8 million at March 31, 1998. The increase
was primarily attributable to the Company's net income of $547,000 for
the six months ended September 30, 1998 offset by the Company's funding
of a portion of its Management Recognition Plan (MRP) totaling $166,000
during the period ended September 30, 1998.
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 SEPTEMBER 30,
- ---------------------------------------------------------------------------------------------------------------------
1998 1997
- ---------------------------------------------------------------------------------------------------------------------
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> $ 97,730 $1,892 7.74% $106,477 $1,998 7.51%
Investment securities 58,812 964 6.56 75,261 1,167 6.20
Interest-bearing deposits 9,863 87 3.52 11,996 133 4.42
Investment in FHLB 6,307 106 6.72 3,700 61 6.55
-------- ------ -------- ------
Total interest-earning
assets 265,159 4,342 6.55 207,092 3,530 6.82
------ ------
Other assets 12,183 9,126
-------- --------
Total assets 277,342 216,218
======== ========
Interest bearing liabilities:
Regular savings 20,212 30,863
NOW accounts 15,272 13,849
Money market accounts 6,220 5,505
Certificates of deposit 78,136 81,285
-------- --------
Total savings deposits 119,840 1,345 4.49 131,502 1,431 4.35
FHLB advances 126,098 1,725 5.47 65,500 891 5.44
Other interest-bearing
liabilities 3,300 17 2.02 2,819 16 2.27
-------- ------ -------- ------
Total interest bearing
liabilities 249,238 3,087 4.95 199,821 2,338 4.68
------ ------
Other liabilities 1,861 3,140
-------- --------
Total liabilities 251,099 202,961
Stockholders' equity 26,243 13,257
-------- --------
Total liabilities and
stockholders' equity $277,342 $216,218
======== ========
Net interest income $1,255 $1,192
====== ======
Interest rate spread 1.60% 2.14%
==== ====
Net interest margin<F4> 1.89% 2.30%
==== ====
Ratio of average interest-
earning assets to
average interest-bearing
liabilities 1.06X 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
THREE MONTH PERIODS ENDED SEPTEMBER 30, 1998 AND 1997
NET INCOME
Net income decreased $140,000, or 41.6%, to $196,000 for the three months
ended September 30, 1998 from $336,000 for the three months ended
September 30, 1997. The decrease was primarily the result of increased
noninterest expense of $613,000, or 42.5%, offset by increased net
interest income of $64,000, or 5.3%, increased noninterest income of
$290,000, or 35.2%, and decreased income taxes of $95,000, or 44.0%, for
the three months ended September 30, 1998.
INTEREST INCOME
Interest income increased $812,000, or 23.0%, to $4.3 million for the three
months ended September 30, 1998 from $3.5 million for the three months
ended September 30, 1997. The increase is primarily due to increased
average mortgage-backed securities of $82.8 million to $92.4 million for
the three months ended September 30, 1998 from $9.7 million for the
three months September 30, 1997 offset by decreased average investment
securities of $16.4 million to $58.8 million for the three months ended
September 30, 1998 from $75.3 million for the three months ended
September 30, 1997 and decreased average loans receivable of $8.7
million to $97.7 million for the three months ended September 30, 1998
from $106.5 million for the three months ended September 30, 1997. The
weighted average yield on total interest-earning assets decreased to
6.55% for the three months ended September 30, 1998 from 6.82% for the
three months ended September 30, 1997.
INTEREST EXPENSE
Interest expense increased $749,000, or 32.0%, to $3.1 million for the three
months ended September 30, 1998 from $2.3 million for the three months
ended September 30, 1997. The increase is primarily due to increased
average FHLB advances of $60.6 million to $126.1 million for the three
months ended September 30, 1998 from $65.5 million for the three months
ended September 30, 1997 offset by decreased average savings deposits of
$11.7 million to $119.8 million for the three months ended September 30,
1998 from $131.5 million for the three months ended September 30, 1997.
Weighted average cost of funds increased to 4.95% for the three months
ended September 30, 1998 from 4.68% for the three months ended September
30, 1997.
PROVISION FOR LOSSES ON LOANS
Provision for losses on loans decreased $24,000, for the three months ended
September 30, 1998 from $24,000 for the three months ended September 30,
1997. 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 $366,000 at September 30, 1998 and
$374,000 at March 31, 1998, 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 $290,000, or 35.2%, to $1.1 million for the
three months ended September 30, 1998 from $825,000 for the three months
ended September 30, 1997. This increase was due primarily to increased
gain on sale of loans of $216,000, or 50.4%,
12
<PAGE> 15
EQUALITY BANCORP, INC. AND SUBSIDIARY
to $645,000 for the three months ended September 30, 1998 from $429,000
for the three months ended September 30, 1997, increased loan servicing
fees and late charges of $58,000, or 24.6%, to $294,000 for the three
months ended September 30, 1998 from $236,000 for the three months ended
September 30, 1997 and increased gain on sale of investment and
mortgage-backed securities of $29,000, or 2100.2%, to $31,000 for the
three months ended September 30, 1998 from $1,000 for the three months
ended September 30, 1997. For the three months ended September 30, 1998,
the Company, through EMC, sold $38.0 million of mortgage loans as compared
to sales of $26.4 million for the three months ended September 30, 1997.
The increased volume of sales resulted in increased gain on sale for the
comparable periods. As a result of increased volume due to the declining
interest rate environment which has significantly increased refinancings
and the Company's efforts at retaining servicing on loans sold, the
average loan servicing portfolio increased $24.1 million, or 7.3%, to
$353.1 million for the three months ended September 30, 1998 from $329.0
million for the three months ended September 30, 1997.
NONINTEREST EXPENSE
Noninterest expense increased $613,000, or 42.5%, to $2.1 million for the
three months ended September 30, 1998 from $1.4 million for the three
months ended September 30, 1997. The increase was due primarily to
increased salary and employee benefits of $311,000, or 38.0%, to $1.1
million for the three months ended September 30, 1998 from $819,000 for
the three months ended September 30, 1997, increased advertising expense
of $89,000, or 405.1%, to $111,000 for the three months ended September
30, 1998 from $22,000 for the three months ended September 30, 1997 and
increased other expenses of $196,000, or 52.0%, to $573,000 for the
three months ended September 30, 1998 from $377,000 for the three months
ended September 30, 1997. Salary and employee benefits increased
primarily due to increased commissions paid to loan officers of $49,000
on increased mortgage loan originations and an increase of five Bank
personnel to staff both the new Washington, Missouri branch facility as
well as additional employment needs and six EMC personnel, including two
commissioned loan officers. In addition, ESOP and MRP compensation
expenses increased $74,000 to $74,000 for the three months ended
September 30, 1998 reflecting contributions by the Company with no
comparable items in 1997. Advertising expense increased as a result of
marketing promotions during the three months ended September 30, 1998
for the Bank's relocated office and new Washington, Missouri branch
which opened in August, 1998. General operating expenses increased due
to increased amortization of originated mortgage servicing rights (OMSR)
of $76,000 to $145,000 for the three months ended September 30, 1998
from $69,000 for the three months ended September 30, 1997 and as a
result of removing certain fixed assets from service totaling $20,000
and expenses totaling $54,000 in connection with professional services
and taxes for the holding company with no comparable item in 1997.
INCOME TAXES
Income tax expense decreased $95,000, or 44.0%, to $120,000 for the three
months ended September 30, 1998 from $215,000 for the three months ended
September 30, 1997. This decrease was primarily due to a decrease in
income before income tax of $235,000, or 42.5%. The effective tax rate
was approximately 38.0% and 39.0% for the three month periods ended
September 30, 1998 and 1997, respectively.
13
<PAGE> 16
EQUALITY BANCORP, INC. AND SUBSIDIARY
<TABLE>
UNAUDITED CONSOLIDATED AVERAGE BALANCE SHEET,
INTEREST AND DIVIDENDS EARNED OR PAID,
AND RELATED INTEREST YIELDS AND RATES
<CAPTION>
SIX MONTHS ENDED SEPTEMBER 30,
- ---------------------------------------------------------------------------------------------------------------------
1998 1997
- ---------------------------------------------------------------------------------------------------------------------
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> $100,331 $3,964 7.90% $105,267 $3,953 7.51%
Investment securities 64,789 2,064 6.37 69,934 2,287 6.54
Mortgage-backed securities 77,348 2,261 5.85 11,012 390 7.07
Interest-bearing deposits 11,699 212 3.62 11,834 188 3.17
Investment in FHLB 6,087 203 6.67 3,421 120 7.00
-------- ------ -------- ------
Total interest-earning
assets 260,254 8,704 6.69 201,468 6,937 6.89
------ ------
Other assets 11,685 8,080
-------- --------
Total assets 271,939 209,548
======== ========
Interest bearing liabilities:
Regular savings 20,261 26,230
NOW accounts 14,652 13,137
Money market accounts 6,377 5,492
Certificates of deposit 77,965 81,835
-------- --------
Total savings deposits 119,255 2,667 4.47 126,694 2,833 4.47
FHLB advances 121,715 3,271 5.37 65,083 1,782 5.48
Other interest-bearing
liabilities 2,944 30 2.50 2,397 27 2.27
-------- ------ -------- ------
Total interest bearing
liabilities 243,914 5,968 4.89 194,174 4,642 4.78
------ ------
Other liabilities 1,865 2,117
-------- --------
Total liabilities 245,779 196,291
Stockholders equity 26,160 13,257
-------- --------
Total liabilities and
stockholders' equity $271,939 $209,548
======== ========
Net interest income $2,736 $2,295
====== ======
Interest rate spread 1.80% 2.11%
==== ====
Net interest margin<F4> 2.10% 2.28%
==== ====
Ratio of average interest-
earning assets to
average interest-bearing
liabilities 1.07x 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>
14
<PAGE> 17
EQUALITY BANCORP, INC. AND SUBSIDIARY
SIX MONTH PERIODS ENDED SEPTEMBER 30, 1998 AND 1997
NET INCOME
Net income increased $23,000, or 4.4%, to $547,000 for the six months ended
September 30, 1998 from $524,000 for the six months ended September 30,
1997. The increase was primarily the result of increased net interest
income of $441,000, or 16.1%, and increased noninterest income of
$685,000, or 49.6%, offset by increased noninterest expense of $1.1
million, or 39.9%, and increased income taxes of $14,000, or 4.2%.
INTEREST INCOME
Interest income increased $1.8 million, or 25.5%, to $8.7 million for the six
months ended September 30, 1998 from $6.9 million for the six months
ended September 30, 1997. Interest on loans receivable increased by
$11,000, or .3%, to $4.0 million for the six months ended September 30,
1998. This increase was the result of a decrease in the average
balance of loans outstanding of $5.0 million from $105.3 million for the
six months ended September 30, 1997 to $100.3 million for the six months
ended September 30, 1998, offset by an increase in the yield on loans
from 7.51% for the six months ended September 30, 1997 to 7.90% for the
six months ended September 30, 1998. The lower average balance of
loans outstanding for the six months ended September 30, 1998 reflects a
decrease in mortgage loan portfolio lending and increased repayments
due to declining interest rates offset by increased secured commercial
lending. Interest on investment securities decreased $223,000, or
9.7%, from $2.3 million for the six months ended September 30, 1997 to
$2.1 million for the six months ended September 30, 1998, due to a
decrease in the average balance of investment securities of $5.1 million
from $69.9 million for the six months ended September 30, 1997 to $64.8
million for the six months ended September 30, 1998. During the same
period the yield on investment securities decreased from 6.54% for the
six months ended September 30, 1997 to 6.37% for the six months ended
September 30, 1998. Interest income on mortgage-backed securities
increased $1.9 million, or 480.3%, from $390,000 for the six months
ended September 30, 1997 to $2.3 million for the six months ended
September 30, 1998 due to an increase in the average balances of $67.3
million from $11.0 million for the six months ended September 30, 1997
to $77.3 million for the six months ended September 30, 1998, offset by
a decrease in the yield on mortgage-backed securities from 7.07% for
the six months ended September 30, 1997 to 5.85% for the six months ended
September 30, 1998.
INTEREST EXPENSE
Interest expense increased $1.3 million, or 28.6%, to $6.0 million for the
six months ended September 30, 1998 from $4.6 million for the six
months ended September 30, 1997. The increase resulted primarily from
increased average FHLB advances. Average deposit balances decreased
$7.4 million from $126.7 million for the six months ended September 30,
1997 to $119.3 million for the six months ended September 30, 1998.
During the same three month periods, the weighted average cost of
deposits remained unchanged at 4.47%. The decrease in average savings
deposits is primarily due to decreased average passbook balances.
Average advances from the FHLB increased $56.6 million from $65.1 million for
the six months ended September 30, 1997 to $121.7 million for the six
months ended September 30, 1998. The increase was primarily the result
of borrowings used to fund increased investments in mortgage-backed
securities. The weighted average cost of advances decreased from 5.48%
for the six months ended September 30, 1997 to 5.37% for the six months
ended September 30, 1998 due to effective borrowing programs offered by
the FHLB.
15
<PAGE> 18
EQUALITY BANCORP, INC. AND SUBSIDIARY
PROVISION FOR LOSSES ON LOANS
Provision for losses on loans decreased $24,000 for the six months ended
September 30, 1998 from $24,000 for the six months ended September 30,
1997. 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 $366,000 at September 30, 1998
and $374,000 at March 31, 1998, 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 $685,000, or 49.6%, to $2.1 million for the six
months ended September 30, 1998 from $1.4 million for the six months
ended September 30, 1997. The increase is due primarily to gain on
sale of mortgage loans which increased from $620,000 for the six months
ended September 30, 1997 to $1.2 million for the six months ended
September 30, 1998, and increased loan servicing fees and late charges
which increased from $473,000 for the six months ended September 30, 1997
to $587,000 for the six months ended September 30, 1998 offset by the
equity in loss of joint ventures which increased $38,000 as a result of
decreased rental income for the six months ended September 30, 1998.
The increase of $577,000, or 93.1%, on gain on sale of mortgage loans
was due to a continued improvement in market interest rates during the
six months ended September 30, 1998. For the six months ended
September 30, 1998, the Bank, through EMC, sold $78.2 million of mortgage
loans as compared to $38.5 million in the comparable period in 1997. The
increased sales volume of $39.7 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 $114,000, or 24.1%, due
primarily to an increase in the average servicing portfolio of EMC.
Average loan servicing by EMC increased $22.4 million, or 6.9%, from
$325.4 million for the six months ended September 30, 1997 to $347.8
million for the six months ended September 30, 1998.
NONINTEREST EXPENSE
Noninterest expense increased $1.1 million, or 40.0%, to $3.9 million for the
six months ended September 30, 1998 from $2.8 million for the six
months ended September 30, 1997 due primarily to increased salaries and
employee benefits of $562,000, or 35.0%, from $1.6 million for the six
months ended September 30, 1997 to $2.2 million for the six months
ended September 30, 1998, increased advertising expenses of $146,000, or
294.3%, from $49,000 for the six months ended September 30, 1997 to
$195,000 for the six months ended September 30, 1998 and increased
other expenses of $362,000 or 49.5%, from $732,000 for the six months
ended September 30, 1997 to $1.1 million for the six months ended
September 30, 1998. Increased salary and employee benefits are the direct
result of increased commissions paid to mortgage loan origination
personnel, general wage increases and an increase of five Bank personnel
to staff both the new Washington branch facility as well as additional
employment needs and six EMC personnel as a result of increased mortgage
lending activity in 1998. Data processing expense increased $38,000 as a
result of expenses related to an increase in the number of office
properties and Year 2000 compliance expenses. Advertising expenses
increased as a result of marketing promotions during the six months ended
September 30, 1998 for the Bank's relocated bank office, newly opened
Washington facility and overall promotion of the Bank. Other expenses
increased due primarily to an increase in the amortization of originated
mortgage servicing rights (OMSR) which increased $141,000 from $117,000
for the six months ended September 30, 1997 to $258,000 for the six
16
<PAGE> 19
EQUALITY BANCORP, INC. AND SUBSIDIARY
months ended September 30, 1998 caused by refinancing or repayment of
mortgage loans which had OMSR and as a result of removing certain fixed
assets from service totaling $20,000 and expenses totaling $98,000 in
connection with professional services and taxes for the Company with no
comparable items in 1997 as well as increases in supplies and services
associated with increased mortgage loan activity and an increased number
of Bank branch facilities.
INCOME TAXES
Income tax expense increased $14,000, or 4.2%, to $349,000 for the six months
ended September 30, 1998 from $335,000 for the six months ended
September 30, 1997. The increase was the result of the increase in
income before income tax expense of $37,000. The effective tax rate
was approximately 39.0% for the six month periods ended September 30,
1998 and 1997.
NONPERFORMING ASSETS
At September 30, 1998, nonperforming assets were approximately $733,000,
which represents a decrease of $128,000, or 14.9%, as compared to March
31, 1998. A summary of nonperforming assets by category is summarized
as follows:
<TABLE>
<CAPTION>
September 30, March 31,
1998 1998
------------- ---------
(in thousands)
<S> <C> <C>
Nonaccruing loans:
One to four family <F1> $730 853
Consumer and other 3 8
---- ---
Total nonaccruing loans 733 861
Repossessed assets - automobile -- --
---- ---
Total nonperforming assets $733 861
==== ===
Nonaccruing loans as a percent of net loans .75% .79%
==== ===
Nonaccruing loans as a percent of
total assets .26% .34%
==== ===
Nonperforming assets as a percent of
total assets .26% .34%
==== ===
<FN>
<F1> Includes $648,000 and $833,000 of FHA/VA loans, the principal and
interest payments of which are either issued by FHA or guaranteed by
the VA at September 30, 1998 and March 31, 1998, 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.
17
<PAGE> 20
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 to maintain an
average daily balance of liquid assets equal to a monthly average of
not less than 4.0% of net withdrawable accounts plus short-term
borrowings. 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 September 30, 1998 was
40.8%.
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 September 30,
1998, the Bank had such outstanding FHLB borrowings of $130.4 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 September 30, 1998, the Bank had
approximately $42.0 million in outstanding commitments to originate loans,
approximately $3.0 million of which were adjustable rate loans. The
interest rate on fixed rate commitments ranged from 6.00% to 8.00% at
September 30, 1998. 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.
18
<PAGE> 21
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 $25,076 25,076 25,076
Accumulated other comprehensive
income - unrealized gain on
investment and mortgage-backed
securitiesavailable for sale (482) (482) (482)
------- ------ ------
Adjusted stockholders' equity 24,594 24,594 24,594
Investments in and advances to
nonincludable subsidiaries (792) (792) (792)
Additional capital item - general
loan loss reserves -- -- 366
------- ------ ------
Regulatory capital, as computed 23,802 23,802 24,168
Minimum capital requirement 4,222 8,444 6,767
------- ------ ------
Regulatory capital in excess of
minimum capital requirement $19,580 15,358 17,401
======= ====== ======
Regulatory capital ratio 8.46% 8.46% 28.57%
======= ====== ======
</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 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.
19
<PAGE> 22
EQUALITY BANCORP, INC. AND SUBSIDIARY
IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS
DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION
In September, 1997, the Financial Accounting Standards Board (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. SFAS 131 is effective for financial statements for
periods beginning after December 15, 1997. SFAS 131 is a disclosure
requirement. The adoption of SFAS 131 will not have an impact on the
Company's financial position or results of operation.
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
In September, 1998, the FASB issued SFAS No. 133, Accounting for Derivative
-------------------------
Instruments and Hedging Activities, (SFAS 133). SFAS 133 establishes
----------------------------------
standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities.
It requires an entity to recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those
instruments at fair value. SFAS 133 is effective for all fiscal years
beginning after September 15, 1999. Earlier application of SFAS 133 is
encouraged but should not be applied retroactively to financial
statements of prior periods. The Company is currently evaluating the
requirements and impact of SFAS 133.
In October, 1998, the FASB issued Statement of Financial Accounting Standards
No. 134, Accounting for Mortgage-Backed Securities Retained after the
------------------------------------------------------------
Securitization of Mortgage Loans Held for Sale by a Mortgage Banking
--------------------------------------------------------------------
Enterprise (SFAS 134) which conforms the subsequent accounting for
----------
securities retained after the securitization of mortgage loans by a
mortgage banking enterprise with the subsequent accounting for
securities retained after the securitization of other types of assets
by a nonmortgage banking enterprise. SFAS 134 is effective for the first
fiscal quarter beginning after December 15, 1998. Since the Company
does not securitize and retain mortgage loans, SFAS 134 will have no
impact on the Company's consolidated financial position and results of
operations.
YEAR 2000 COMPLIANCE
The Company's Year 2000 committee constantly monitors the readiness of the
Year 200 project using guidance from its regulatory agencies. The
Company's action plan contains five phases: awareness, assessment,
renovation, validation and implementation.
The awareness phase and the assessment phase of the action plan have been
completed and as a result, remedial actions necessary for Year 2000
compliance have been initiated where necessary.
The core applications of the Company are performed by service bureau
providers. However, given the risks associated with noncompliance the
Company will not rely on assurances from these providers. As a result,
the renovation phase of the action plan is considered 70 percent
complete, awaiting additional testing and the validation phase, which
is primarily testing, is expected to be completed before April, 1999. The
implementation phase will be initiated once testing results are received
and analyzed
20
<PAGE> 23
EQUALITY BANCORP, INC. AND SUBSIDIARY
by the committee. Contingency plans have been developed by the committee
and can be implemented in the unlikely event that the core application
providers are not compliant with Year 2000 issues.
The Company is primarily a retail banking and mortgage banking provider
specializing in single family residential mortgages and family related
retail deposit relationships. Year 2000 risk associated with this type
of business are considered to have a minimal impact on the Company.
The Board of Directors has initially budgeted $148,000 for year 2000 issues
in addition to in-house compensation expenditures of committee members.
To date, $14,000 has been expended. The Year 2000 committee reports to
the Board of Directors on a monthly basis and management does not
expect the cost of Year 2000 compliance to be material to the business,
financial condition or results of operation of the Company.
21
<PAGE> 24
EQUALITY BANCORP, INC. AND SUBSIDIARY
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
None.
Item 2. Changes in Securities and Use of Proceeds
-----------------------------------------
None.
Item 3. Defaults Upon Senior Securities
-------------------------------
None.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
On August 14, 1998, Equality Bancorp, Inc. Held its Annual
Shareholder's Meeting for the purpose of (1) the election of
directors, (2) approval of Equality Bancorp, Inc.'s 1997 Stock
Option and Incentive Plan and (3) approval of Equality Bancorp,
Inc.'s Management Development and Recognition Plan.
For election of directors:
<TABLE>
<CAPTION>
FOR WITHHELD
--------- --------
<S> <C> <C>
LeRoy C. Crook 2,183,905 35,041
Kenneth J. Hrdlicka 2,205,968 12,978
Michael J. Walsh 2,207,408 11,538
For approval of the 1997 Stock Option and Incentive Plan:
<CAPTION>
<S> <C> <C> <C> <C> <C>
For 1,811,850 Against 88,054 Abstain 25,651
For approval of the Management Development and Recognition Plan:
<CAPTION>
<S> <C> <C> <C> <C> <C>
For 1,813,800 Against 88,169 Abstain 25,579
</TABLE>
Item 5. Other information
-----------------
None.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
Exhibits: None.
Reports on Form 8-K: None.
22
<PAGE> 25
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: November 10, 1998 /s/ RICHARD C. FELLHAUER
----------------------------- ----------------------------------
Richard C. Fellhauer, President,
Chief Executive Officer and
Chairman of the Board
Date: November 10, 1998 /s/ MICHAEL A. DEELO
----------------------------- ----------------------------------
Michael A. Deelo,
Chief Financial Officer
23
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 10,982
<INT-BEARING-DEPOSITS> 1,184
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 155,306
<INVESTMENTS-CARRYING> 600
<INVESTMENTS-MARKET> 543
<LOANS> 97,629
<ALLOWANCE> 366
<TOTAL-ASSETS> 282,577
<DEPOSITS> 120,215
<SHORT-TERM> 3,630
<LIABILITIES-OTHER> 2,125
<LONG-TERM> 130,396
0
0
<COMMON> 25
<OTHER-SE> 26,186
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<INTEREST-DEPOSIT> 2,667
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<EPS-PRIMARY> .23
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</TABLE>
